GUEST COLUMN

 

MVAT Automation Process

 

By Suketu Sheth - Assistant Manager, Ravi Soni - Executive and Ravi Joshi - Assistant of SKP Group

 

Introduction

With a view of increasing the ‘ease of doing business’ in its State, the Maharashtra Sales tax department has announced a revamp of their VAT compliance process by introducing a new, integrated and technologically upgraded VAT automation system (via Trade Circular 7T dated 25th February 2016, Notification No. VAT/ADM-2016/1B/Adm-8 dated 24th February 2016 and Notification No CST. 1516/C.R.-45/Taxation-1 dated 22nd April 2016) which is primarily based on a SAP platform.

 

Using high end integration technology, this automation system shall integrate all the processes prevalent under the purview of Maharashtra sales tax department i.e. online registration / amendment under the various acts, to filing of return, assessments, appeals along with the fulfilment of several ancillary and support process to ensure compliance of law. In line with the idea of complete automation this ‘Single Window Platform’ shall ensure that the compliances are controlled with minimal human interaction between the sales tax authorities and the dealers. Further to facilitate the dealers, a SAP based portal has also been introduced by the department for online registration of various statutes (i.e. MVAT Act, CST Act, Luxury Tax Act, Entry Tax Act, SCPT Act, PTRC Act and PTEC Act) applicable from 25th May 2016 in the MVAT portal.

 

Maharashtra VAT compliance processes have always been fairly advanced as compared to their peer States, but some scope of improvement is always there in the pursuit of excellence. Thus, the new VAT compliance process has attempted to address and correct many shortcomings of the current system to streamline its processes and ensure minimization of tax leakages from the system.

 

Thus, over the course of this article we have highlighted various aspects of the new automation system and its accrued benefits/challenges for dealers over and above the current compliance processes.

 

Shortcomings of the Existing Return Process

·       Mismatches/ Unmatch of Input Tax Credit (ITC): As per the present VAT procedures, dealers upload TIN wise Sales (Annexure J-1) and Purchase details (Annexure J-2) along with the MVAT/ CST return on the MVAT portal. The cross verification of sales and purchase annexure is done after filing audit reports for the relevant year. The cases of mismatch of input tax credit (ITC) are identified after a time lag of more than a year, which results in selection of cases for Computerised desk audit (CDA), Issue based business audits (IBBA) or comprehensive / business assessment audit.

·       Ineligibility to Claim refund due to Mismatches of ITC: The dealers claim VAT refund in ‘Form 501’ u/s 51 of MVAT Act, 2002 on basis of return filed during the financial year. However, the dealers need to provide transaction wise VAT Purchases made during the period covered in the refund application. On account of mismatches/ unmatch of Input tax credit, a major portion of refund claimed used to get reversed on account of reconciliation made between ITC claimed in application ‘Form 501’ and the information available with the department by issuing ‘Cross Matching Report’ at the time of refund assessment audit.

·       Separate Application for issuance of statutory forms (Viz C, F, E-I, E-II, H): Presently, the dealers have to file a separate application in Statement of Requirement (SOR) for the issuance of statutory forms (Viz C, F, E-I, E-II, H). These forms are issued by the authorities (as per the application) if there are no defects. In case of any mismatch, sales tax authorities reject the online statutory application forms which are filed by the dealer. At some instances, dealers have to visit sales tax authorities to clear the defects raised by the department.

New Return Process

The new VAT Automation system is in its development stages and is being introduced in a phased manner in Maharashtra. To begin with, the department has introduced a ‘New Return Form’ which shall be used for filing returns under the MVAT/CST laws from the from April 2016 return period. Some prominent features of the new return forms are:

 

·       Periodicity of filing return: New Rule 17 (4A) of the MVAT Rules, 2005 has been introduced which provides that the periodicity of filing return shall be monthly or quarterly from April 2016 return period onwards. Thus, the option of half yearly return has been removed.

·       Transaction wise sale & purchase details and Periodical Input Tax Credit (ITC) report: Transaction (invoice) wise details are required to be provided in the ‘New Return Form’ by the dealer. Thus, with this new automation process, the existing TIN wise annexure J1 & J2 will be replaced by transaction wise sales & purchase annexure. The New Return Form will provide TIN wise ITC reports to the dealers on periodical basis, which shall help the claimant dealers in ensuring that their suppliers are depositing taxes with the government regularly. Thus, this process will help the dealers become more cautious against suspicious dealers, non-filers, etc.

In the new system, dealers will be able to view the amount of input tax credit/VAT TDS deposited by their suppliers/employers through a Periodical Report. Accordingly, the dealers will be able to verify the amount of input tax credit available to them (based on the transaction wise sale and purchase details). This report will be on the similar lines of 26AS mechanism under the Income tax Act, 1961.

 

·       Transaction codes for various transactions: There are special transactions codes assigned for separate nature of transactions of sales & purchases which are required to be reported in the sales & purchase annexure. Each type of transaction taxable, tax free, exempt, inter-state transactions, etc. has been allocated a specific transaction code, which shall be useful for auto generation of the draft return and the same shall be uploaded in the MVAT Portal.

·       Reversal of ITC available to the claimant dealer: Input tax credit (ITC) availed by the claimant dealer will be reversed in the subsquent return period, if seller dealer fails to disclose his sales either on account of non-disclosure in the sales annexure or non-filing of MVAT returns. This is a welcome step as the dealers will be aware of the ITC unavailable to them from their respective suppliers and in case of a mismatch in input tax credit, claimant dealer shall ask the suppliers to rectify the defects by filing revised return. 

·       Changes in MVAT TDS provisions: The department has amended Rule 40(1)(d) of the MVAT Rules, 2005 which provides that the MVAT TDS return in ‘Form 424’ which shall be filed on or before 21st of the succeeding month in which the MVAT TDS is deducted and paid into the government treasury (which was otherwise annual VAT TDS return to be filed by 30th June of the succeeding year). Further, a concept of transfer of MVAT TDS credit by contractor to sub-contractor has been introduced through a  New rule 40(1)(e) of the MVAT Rules, 2005, which provides for transfer of MVAT TDS by filing return in ‘Form 424A’ as and when he wishes to transfer MVAT TDS credit to the sub-contractor.

·       Revised Return and Free Billing Software: Keeping in view the extent and degree of disclosure required in the New Return Form, the sales tax department has withdrawn the restriction of filing only one revised return (per return period) and has allowed to file multiple revised return upto the due date of furnishing of the VAT Audit Report.  Also, the department provided a free billing software for small dealers which provides basic facilities like issuing Invoices, debit/ credit notes, purchase entries, monitor CST declarations receivable/ issued, etc. and also provides the facility to generate sales and purchase annexure , to be used for filing returns under the New Return Form.

Challenges/ Issues which may be faced by the dealers

Although the New Return Form is aimed at increasing the ease of doing business, there are certain challenges which dealers may have to ascertain to align their internal processes with the new compliance processes. Certain issues that the dealers may have to face during the initiation period are:

 

·       Difficulty in preparation of Transaction wise report as it would be very tedious to prepare records of each and every sale & purchase transactions, especially for large dealers.

·       In cases where the time lag between date of receipt of goods and purchase invoice date is within the range of 1-3 months, accordingly clarity is still awaited whether the department will allow the input tax credit of the prior period purchases on which set-off is claimed, or the ambiguity will continue in the New Return Form as well.

·       Managing large no. of transactions codes (39 No of sales transaction codes & 38 No of purchase transaction codes) is in itself a big challenge. Further, it is also essential to ensure that correct transaction codes are used as these codes will form the basis of auto generated Draft Return Form, which shall be uploaded in the portal.

·       The due date of filing New MVAT/CST return shall be 21st of the succeeding month/quarter along with the payment of taxes. Hence, the additional 10 days of grace period (which was allowed under the exisiting procedure) will not be available from April 2016 return period onwards.

·       Statutory forms shall be generated automatically on basis of new returns filed by the dealer. However, there is no provision for inculcating details like the quantitative details, description of goods, etc., in the New Return Form. Thus, there is still some clarity awaited from the department as to how the forms shall be generated under the new process. 

Way forward

The New Return Form has already been notified by the department and the same shall be used for filing MVAT/CST return from April 2016 onwards. It is very important for the dealers to improve their processes/ accounting software to accommodate the New Return Form. Considering this fact, the dealers shall focus to improve in the following areas:

 

·         Adequate training of staff/personnel to ensure better understanding of the New Return Form filing process and nature of transactions codes.

·         To accommodate the accounting softwares in lines of the New Return Form like additional fields of transaction codes to be generated for ease of compliances.

·         Maintenance of TIN (11 digit) wise details of the dealers in the system so that the transactions are correctly captured against each TIN in the sales and purchases annexures.

Author’s Comment

A through look at the new return filing process implemented by the department, showcases an obvious intent of the department to technologically upgrade its process by prioritizing the idea of least human interference and increasing its ability to curtail tax leakages. This step is certainly a gigantic leap forward towards the upcoming Goods and Services Tax.

However, on the flip side it is observed that increased regulatory benefits have come at the cost of increased challenges for the dealers. The New automation system will not only increase the compliance burden with the newly introduced monthly /quarterly returns but will also increase compliance hassles through Transaction wise input of data in the New Return Form. The dealers will now have to provide transaction wise details, ensure verification of ITC available to them and follow up with their respective suppliers in case of mismatch. Thus, it can be said that the department shall be merely a spectator in the whole return filing procedure. Although there are many other technical / procedural aspects which have gone unaddressed till date but a benefit that the process is still in its nascent phase shall be given to the department to grow with time.

 

Briefly put, even though this change might look difficult for the dealers at first, but what hides beneath is the very intent of change in the part of the government towards a more transparent, efficient and effective regulatory system right now, which shall reap long term benefits in the future.

 

Disclaimer: Views expressed are strictly personal. The content of this document are solely for informational purpose, it doesn’t constitute professional advice or recommendation.