AP VAT Act: Conducting VAT audit - Issuance of certain instructions

APVAT Act, 2005 – Conducting VAT audit – Issuance of certain instructions – Regarding.
(1)  CCT’s Ref No.BII(3)/42/2015, dated 9.3.2015 and 10.3.2015

(2)  CCT’s Ref No.BII(3)/Enft/E3/117/2015, dated 16.5.2015

1. The attention of the Deputy Commissioners (CT) of all Divisions in the State, is invited to the subject and references cited.  The progress made with regard to conducting audits by the Audit Officers in all the Divisions in the State, has since been reviewed.  The review indicates that many Audit Officers are lagging behind in timely completion of audits, in addition to showing poor results in the matter of detections.  While the things stood thus, the Accountant General, A.P., Hyderabad, by whose Office, some Circles and LTUs in the State, were audited, presented a Draft Audit Performance Report, indicating serious lapses by the Audit Officers in the matter of conducting VAT Audits.  In the light of these observations coupled with the results of reviews conducted by this Office, the following instructions are issued to the Deputy Commissioners (CT) and also the Audit Officers, for strict compliance.

Poor progress of VAT audits:
2. The targets fixed, should be met by all the Audit Officers.  This is possible only if the audits authorised, are completed in time.  Inordinate delays on the part of Audit Officers in timely completion of audits, should be avoided. Deputy Commissioners (CT) should periodically review the audits pending with their  Audit Officers. Poor performance on the part of the Officers, in meeting with the targets fixed, should be specifically brought to the notice of this Office every month, to fix up responsibility.  The observation of AGAP, is that inordinate delays  on the part of Officers, result in the assessments getting time barred and consequent loss of revenue.  In the light of the above observations, all the Audit Officers are instructed to complete audits in time.  Instances of assessments for certain periods getting barred by limitation leading to loss of revenue,  on account of delays on the part of Officers, shall be viewed seriously, warranting disciplinary action against the Officers concerned.

3. Selection of audits should be such that they are result oriented.  Completion of audits for the sake of numbers, without results, will be viewed seriously.  While best performance of the Officers in this Department,  is going to be rewarded, poor performance of the Officers in the matter of  conducting audits, shall attract disciplinary action such as issuing Charge Memos  to them and transferring them from the existing Circles/LTUs.

Conducting audits without following Check Lists under VAT Audit Manual
4. Many of the audit files scrutinized by the Audit Officers, by the Office of the Accountant General, do not contain the check lists as prescribed under the VAT Audit Manual.  This indicates that Audit Officers do not follow the basic checks under 5.12 of VAT Audit Manual such as verification of audited financial statements, verification of purchase particulars and output tax details etc.  Deputy Commissioners (CT) of the Divisions concerned, shall ensure that the files containing the audit records of the audits conducted by CTOs and DCTOs,  are verified by the Assistant Commissioners (CT) (LTU) and (Audit) and in respect of the audits conducted by Assistant Commissioners, the same shall be verified by Deputy Commissioners (CT) of the Divisions concerned.  Deficiencies on the part of the Officers in not complying with these basic checks and also the provisions of APVAT Act,  while conducting audits,  shall be viewed seriously.

Passing speaking orders in assessments
5. The quality of assessment orders being passed by some of the Officers, as a result of audits, is not good.  It is also observed that some Audit Officers are uploading only gist of orders.  The assessment orders to be passed, should be self-explanatory, covering all the points.  Audit Officers are therefore, advised to use assessment templates for different types of orders under VAT and CST Acts, to be drafted by this Office, shortly,  so that quality of assessments by all the Audit Officers,  can be maintained.

Entering details of audits conducted into VATIS portal
6. All the details of audits conducted, upon their completion, should be immediately entered into VATIS portal.  The observation made by AGAP, is that since the details of audits completed, were not fed into VATIS, the status of audits completed, could not be verified. 

Audits should cover all the periods which are not barred by limitations for assessment
7. All the Audit Officers are instructed that audits authorised to them, should cover all the periods which are not barred by limitations for assessment.  Audited financial statements for the completed years, except for the running year, should be obtained from the dealers and the turnovers declared in the audited financial statements, should be verified with that of the turnovers declared through monthly VAT/CST returns. 

Audits to be selected by CTOs themselves
8. Selection of potential dealers for audits, plays a vital role in generating additional revenue to the Department.  The data and information collected by them, from various sources, should be made use of for selection of audits.  Therefore, CTOs  should themselves, select audits for themselves and also for DCTOs, as per the guidelines issued earlier, apart from the audits authorised by the Deputy Commissioners (CT) of the Divisions concerned.  As already reiterated in the earlier paras,  selection of audits should be result oriented.

Non-insistence on filing of financial statements
9. As per  Rule 25(10) of APVAT Rules, 2005, it is mandatory that all VAT dealers file their certified financial statements on or before the 31st day of December subsequent to the financial year to which the statements relate. Many of VAT dealers in the Circles, do not file these statements before the stipulated date.  There is slackness on the part of Officers in ensuring that financial statements are obtained from the defaulters, as a result of which the intended purpose of comparison with the figures reported in their audited financial statements, in respect of all VAT dealers in the Circles concerned, is not achieved.  The Assistant Commissioners (CT) (LTU)/ Commercial Tax Officers of all Circles in the State, are therefore, directed to ensure that all VAT dealers in their respective Circles/LTUs, file their audited financial statements before the date stipulated.  This exercise should not be confined only to obtaining financial statements for the current year.  Audited financial statements for the earlier periods from 2011-12 onwards from all the defaulting dealers whose transactions were not audited,  should be obtained  and compared with the turnovers declared through VAT/CST returns for those periods, to detect whether there is any evasion of taxes legally due to the Government.  The progress made in this regard, shall be reviewed periodically and any slackness on the part of Officers, shall be viewed seriously.

10. The Deputy Commissioners (CT) of all Divisions and all the Audit Officers in the State, are directed to strictly comply with the above instructions and any deviation from the above instructions, shall be viewed seriously.