Refund & Refund Audit

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DEPARTMENT OF SALES TAX

MANUALOF

PROCEDURE

REFUND & REFUND AUDIT


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REFUND & REFUND AUDIT MANUAL

INDEX

Sr. No. Subject Page No.

From - To1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

12.

13.

14.

15.

Objectives of the branch.

Organisational Structure.

Relevant provisions of Act and Rules.

Relevant Internal and Trade Circulars.

Competent Authorities and Targets.

The process in brief.

Procedure of Branch.

Refund Audit Procedure.

Duties & Responsibilities.

Inspection procedure & frequency.

Responsibility & date for updating the manual.

Record filing system.

Reporting Formats of the Branch.

Various control Registers.

Annexures.

3

4 to 5

6 to 15

16 to 32

33

34

35 to 41

42 to 62

63 to 70

71

71

71

72 to 74

75 to 76

77 to 84

10109

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2. OBJECTIVES OF THE BRANCH:-

Processing refund claims within the prescribed time limits.

To ensure that, the refund claim made in the return is valid

and accurate by audit.

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3. ORGANISATIONAL STRUCTURE:-

A) MUMBAI :-

Design.J.C. D.C. A.C. STO STI Clerk

Other

Total

Sanctionedstrength

1 8 26 21 70 70 67 263

B) MOFFUSIL :-Sanctioned strength as per re-organisation:-

Designation D.C. A.C. STO STI Clerk Total

Thane Division

Thane 2 2 4 7 11 26

Kalyan 1 3 3 7

Thane Rural Division

Thane Rural 1 3 7 16 17 44

Nalasopara 1 2 3 6

Raigad Division

Raigad 2 2 1 8 8 21

Pune Division

Pune 4 6 14 36 32 92

Solapur 2 1 3 9 10 25Osmanabad 1 1 1 3

Barshi 1 1 1 3

KolhapurDivision

Kolhapur 2 2 5 12 12 33

Satara 1 1 2 2 6

Sangli 1 1 2 2 6

Ratnagiri 1 2 3 6

Oras 1 1 2 4

NasikDivision

Nasik 2 2 3 8 10 25

Malegaon 1 1 2 4

Ahemadnagar 1 3 2 6

Dhule Division

Dhule 2 2 3 10 8 25

Jalgaon 1 2 2 5

Nandurbar 1 2 3

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Designation D.C. A.C. STO STI Clerk Total

NagpurDivision

Nagpur 2 2 5 12 12 33

Chandrapur 1 1 1 3

Gondia 1 1 2

Gadchiroli 1 1

Vardha 1 1 2 4

Bhandara 1 2 3

AmravatiDivision

Amravati 2 2 3 9 7 23

Yeotmal 1 1 2 4

Khamgaon 1 1 2 4Akola 1 2 5 8

Vashim 1 1 2

AurangabadDivision

Aurangabad 2 2 3 12 8 27

Beed 1 1 2 4

Jalna 1 1 2 4

Nanded 2 2 3 10 12 29

Parbhani 1 1 2 4

Latur 1 2 3 6Hingoli 1 2 3

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RELEVANT PROVISIONS OF ACT AND RULE:-

3.1 RELEVANT PROVISIONS OF ACT:-

3.1.1 Section-22. Audit

(1) With a view of promoting compliance with the provisions of this Act, the

Commissioner may arrange for audit of the business of any registered dealer.

For the purpose of this section, the selection of dealers for audit shall be made

from amongst the dealers,

(a) who have not filed returns by the prescribed dates; or

(b) who have claimed refund of tax; or

(c) where the Commissioner is not, prima-facie, satisfied with the

correctness of any return filed by a dealer or is not satisfied with any claim

made, deduction claimed or turnover disclosed in any return filed by the

dealer; or

(d) who are selected by the Commissioner on the basis of the application

of any criteria or on a random selection basis; or

(e) where the Commissioner has reason to believe that detailed scrutiny of

the case is necessary.

(2)..

(3) On the appointed day or, as the case may be, at anytime within the aforesaid

period, any officer to whom the powers and duties under this section have been

delegated, by the Commissioner, in writing, may conduct audit of the business.

(The above sub-section (3) is deleted by the Maharashtra Act No. XXV of 2007

Dt. 06.08.2007).

(4) ..

(5) (a) During the course of the audit, the officer may require the dealer,

(i) to afford him the necessary facility to inspect such books of accounts or

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other documents as he may require and which may be available at such place,

(ii) to afford him the necessary facility to check or verify the cash or stock

which may be found therein. And

(iii)to furnish such information as he may require as to any matter which may

be useful for or relevant to any proceedings under this Act.

(b) The officer conducting the audit shall on no account remove or cause to he

removed any books of accounts, other documents or any cash or stock.

(6) ...

(7)..

(8) ...

3.1.2 Section-50. Refund of excess payment

(1) Subject to the other provisions of this Act and the rules made there under,

the Commissioner shall, by order refund to a person amount of tax, penalty,

interest, deposit and fee except when the fee is paid by way of court fee

stamp , if any, paid by such person in excess of the amount due from him. Therefund may be either by deduction of such excess from the amount of tax,

penalty, amount forfeited and interest due, if any, in respect of any other

period or in any other case, by cash payment:

(In the above para for the words the commissioner shall refund the words

the Commissioner shall, by order refund are substituted by the

Maharashtra Act No. XXXII of 2006 Dt. 05.08.2006)

Provided that, the Commissioner shall first apply such excess towards the

recovery of any amount due in respect of which a notice under subsection (4)

of section 32 has been issued, or, as the case may be. any amount which is due

as per any return or revised return but not paid and shall then refund the

balance, if any.

(2) Where any refund is due to any dealer according to the return or revised

return furnished by him for any period, then subject to the other provisions of

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this Act including the provisions regarding provisional refunds such refund

may provisionally be adjusted by him against the tax due and payable as per

the returns or revised return furnished under section 20 for any subsequent

period: the word, subsequent shall be deleted with effect from 20th June

2006.

Provided that, the amount of tax or penalty, interest or sum forfeited or all of

them due from, and payable by, the dealer on the date of such adjustment

shall first be deducted from such refund before making the adjustment.

(For the above subsection (2) the following subsection (2) is substituted by the

Maharashtra Act No. XXXII of 2006 Dt. 05.08.2006)

(2) If a registered dealer has filed any returns, fresh returns or revised

returns in respect of any period contained in any year and any amount is

refundable to the said dealer according to the return, fresh return or revised

return, then subject to rules, the dealer may adjust such refund against the

amount due as per any return, fresh return or revised return for any

subsequent period contained in the said year, filed under this Act or the

Central Sales Tax Act, 1956 or the Maharashtra Tax on the Entry of Goods into

Local Areas Act, 2002.

3.1.3 Section-51. Grant of Refunds

(1) Where a registered dealer has in any return, fresh return or revised return

shown any amount to be refundable and has not undertaken to adjust such

amount against the amount due as per any subsequent return in accordance

with section 50, the Commissioner shall, on an application made by the dealer

and subject to rules, and the other provisions of this Act, grant refund of such

amount to the said dealer.

(2) (a) The registered dealer, may after the end of the year to which the

return, fresh return or revised return relates, make an application in the

prescribed form after filing the said return for grant of refund of the amount

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then he may apply in the prescribed form to the Commissioner after filing the

return for grant of refund relating to the period covered by a return, fresh

return or revised return; or

(b) The Commissioner, within one month of the receipt of the said

application,

(i)may require the dealer to furnish such bank guarantees for such amounts

from such banks, for such periods and to such authorities as may be

prescribed; and

(ii) may call for such additional information as he may think necessary.

(4) The Commissioner shall grant the refund under this section within three

months of the receipt of application or receipt of additional information

whichever is later. If the additional information is not furnished, then the

refund shall be granted within six months of the receipt of the application.

(5) Notwithstanding anything contained in paragraph (a), the dealer may at

his option furnish a bank guarantee for such amount, from such bank, for

such periods and to such authorities as may be prescribed and on the dealer

furnishing such bank guarantee, the Commissioner shall grant the refund due

under sub-section (2) or (3) within one month of the furnishing of the bank

guarantee irrespective of whether the additional information has been

furnished.

(6) (a) If before the grant of refund under this section, a notice for assessment

covering the period to which the return relates is issued or if any proceedings

under sub-section (3) or sub-section (4) of section 64 are initiated in respect of

the period to which the return relates, then,

(i) if the dealer has not furnished a bank guarantee then no refund under this

section shall be granted ; and

(ii) if the dealer has furnished a bank guarantee then an amount equal to the

guaranteed amount shall be refunded.

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(b) If it is found as a result of any order passed under this Act that the refund

granted under this section is in excess of the refund, if any, determined as per

the said order, then the excess amount shall be recovered as if it is an amount

of tax due from the dealer and the dealer shall be liable to pay simple interest

at the prescribed rate per month or part thereof from the date of the grant of

refund.

(7) No refund under this section shall be granted unless an application as

provided is made and no application under this section shall be entertained

unless it is made within three years from the end of the year containing the

period to which the return relates.

3.1.4 Section- 52. Interest on amount of refund

Where refund of any tax becomes due to a registered dealer, he shall, subject

to rules, if any, be entitled to receive, in addition to the refund, simple interest

at the prescribed rate on the amount of refund for the period commencing on

the date next following the last date of the period to which the refund relates

and ending on the date of the order sanctioning the refund or for a period of

twenty four months, whichever is less. The interest shall be calculated on the

amount of refund due to the registered dealer in respect of the said period

after deducting therefrom the amount of penalty, sum forfeited and interest, if

any, charged in respect of the said period and also the amount of refund, if

any, adjusted towards any recovery under this Act or any earlier law or as the

case may be, under the Central Sales Tax Act, 1956. If, as a result of any orderpassed under this Act, the amount of such refund is enhanced or reduced, as

the case may be, such interest shall be enhanced or reduced accordingly. If the

interest is reduced, then the amount granted in excess shall be recovered as if

it is an amount payable under this Act.

Provided that, interest under this section shall not be granted towards any

refund granted under section 51.

Explanation. For the purposes of this section, where the refund of tax,

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whether in full or in part, includes any amount of refund on any payment of

tax made after the date prescribed for making the last payment in respect of

the said period, then the interest, in so far as it relates to the refund arising

from such payment, shall be calculated from the date of such payment to the

date of such order.

3.1.5 Section-53. Interest on delayed refund -

(1) Where an amount required to be refunded by the Commissioner to any

person, by virtue of the provisions contained in section 51 or by virtue of an

order passed under any other provision of this Act, is not so refunded to him

within ninety days of the end of the respective period provided in section 51

or, as the case may be, of the date of the said order, the Commissioner shall

pay such person simple interest at the prescribed rate on the said amount

from the date immediately following the expiry of the period of ninety days

to the date of the refund.

Provided that, where the amount becomes refundable by virtue of an order of

the Tribunal or the High Court or the Supreme Court, the interest under the

provisions of this section shall be payable from the date immediately

following the expiry of period of ninety days from the date of receipt of the

order of the Tribunal, the High Court or the Supreme Court, by the officer

whose order forms the subject of the proceedings before the Tribunal, the

High Court or the Supreme Court, to the date of refund. The applicant dealer

or person may supply to the said officer a certified copy of such order and ifthe copy is so furnished, interest shall become payable after the expiry of

period of ninety days from the date of such supply.

Explanation. If the delay in granting the refund within the period of ninety

days aforesaid is attributable to the said person, whether wholly or in part,

the period of the delay attributable to him shall be excluded from the period

for which interest is payable.

(2) Where any question arises as to the period to be excluded for the purposes

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of calculation of interest under the provisions of this section, such question

shall be determined by the Commissioner, whose decision shall be final.

1.1.5 Other Relevant provisions of the Maharashtra Value Added Tax Act,2002

Section 20 Returns and Self-assessment.

Section 21 No notice for Assessment in certain cases.

Section 23 Assessment.

Section 48 Set-off, refund, etc.

Section - 49Refund of tax on declared goods sold in the course of interstatetrade or commerce.

Section 65 Cross-checking of transactions.

Section 96 Savings

3.2 RELEVANT PROVISIONS OF RULE:-

3.2.1 Rule-60. Grant of Refund.-

(1)Application for refund under section 51 shall be made in form 501.

(2)When the Commissioner is satisfied that a refund is due, he shall pass

an order in Form 502, showing the amount of refund due and shall

communicate the same to the dealer.

(3)When an order for refund has been made under any rule, theCommissioner shall, if Applicant desires payment in cash, issue to him a

refund payment order either in form 503 or in form 504. If the dealer

desires adjustment of refund, against tax payable in respect of any

subsequent period contained in the year to which the refund relates under

this Act, the Central Sales Tax Act,1956, or the Maharashtra Tax on Entry

of Goods into Local Areas Act, 2003, the Commissioner shall issue a

Refund Adjustment Order in form 506.

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3.2.2 Rule-61. Bank Guarantee.-

The Bank Guarantee shall be obtained from any branch of a bank notified as a

Government Treasury. The maximum period for a Bank Guarantee shall beof 36 months. It shall be furnished to respective Joint Commissioner in charge

of grant of refunds. The Bank Guarantee shall be for such amounts and such

periods as the Commissioner may by public notice notify from time to time.

3.2.3 Rule-62. Order sanctioning interest on delayed

refunds:-

(1) Where upon an application by any person claiming interest on any

delayed refund or otherwise the Commissioner is satisfied that such

interest is due and payable to the applicant or any person under section

53, the Commissioner shall record an order specifying therein the amount

of refund, the payment of which was delayed, the period of delay for

which interest is payable and the amount of interest payable by the

Commissioner therefore, and shall communicate the same to the applicant

or person concerned.

(2) When an order for payment of interest on any delayed refund has been

made under this rule, the Commissioner shall issue to the applicant or

person concerned an interest payment order in Form 505.

3.3 Other Relevant provisions of the Maharashtra Value Added Tax

Rule, 2005

Rule 17 Submissions of returns.

Rule 18Special provision for first and last return in certain cases and fordealers under the package scheme of incentives

Rule 19 Separate return.

Rule 20 Complete and self-consistent return.

Rule 21 Form of Notice for assessment.

Rule 23 Form of order of assessment.

Rule 24 Application for cancellation of assessment order.Rule 25 Order imposing penalty or interest.

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Rule 51Claim and grant of set-off in respect of purchases held in stockon the appointed day.

Rule 52Claim and grant of set-off in respect of purchases made in theperiods commencing on or after the appointed day.

Rule 53 Reduction in set-off.

Rule 54 Non-admissibility of set-off.

Rule 55Condition for grant of set-off or refund and adjustment ofdrawback, set-off in certain circumstances.

Rule 68 Preservation of books of accounts, registers, etc.

Rule 77Particulars to be specified in a tax invoice, bill or cashmemorandum.

Rule 79 Refund of tax to eligible units.

Rule 88 Rates of interest.

4. Relevant Internal and Trade Circulars:-

4.1 Guidelines issued vide Internal Circular no.

No.:- VAT-2008/JC./ Refund and Refund Audit / B- 4579 Mumbai, Dt :

13.03.2008, Internal Circular No. 6A of 2008.

Sub : Refunds under MVAT Act.

Modifications in Internal Circular 5A of 2008

Ref:- Internal Circular No. 37A of 2007 Dt. 28.12.2007 .

Internal Circular No. 5 A of 2007 Dt. 05.03.2008.

1) INTRODUCTORY :-

This office had earlier issued Internal Circulars No. 37 A of 2007 Dt.

28th December, 2007 and 5A of 2008 Dt. 05.03.2008. These circulars were

issued to provide the guidelines for facilitating early processing of refunds

and to remove the difficulties faced in processing the refund claims.

The pendancy of the refund has been reviewed and in addition to

earlier instructions, fresh guidelines are given hereunder, to expedite the

process of granting of refund and completion of refund audits.

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2) GRANT OF REFUND :-

. All the cases, where the dealer has filed returns for the relevant

period on or before 25th February 2008 would be eligible for grant

of refund without prior Refund Audit and application in Form 501

is filed on or before 19th March 2008, The refund without pre audit,

as per earlier circulars was not allowed in respect of the claimant

dealers (both manufacturers and traders) of Iron and Steel and

Dyes & Chemicals. However, certain relaxations are hereby given

to process the refund claims in respect of such dealers, if they fulfill

any of the following conditions. This relaxation is made only for the

refund processed up to 31.03.2008.

) If the Refund Audit is completed by the Refund Audit Branch

of such dealers for any previous period and no substantial

reduction in refund amount is noticed after the Refund Audit

or

) If such dealers have submitted the Statutory Audit Report in

Form 704 for previous year.

) If the dealer is a manufacturer.

The departmental authorities are instructed to start the Refund Audit

immediately after 1st April, 2008 of the dealers to whom pre audit

refund is granted. The above mentioned categories will be audited on

priority.

. The copy of Return claiming the refund should be obtained from

the Return Branch. The dealer may be called to produce the copies

of the challans, if necessary. The instructions contained in Circular

5 T of 2008 should be scrupulously followed. However, the

claimant dealer if encloses certified copies of the returns along

with the application in Form 501, then such certified copies may

be considered.

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. A certificate should be obtained from the dealer, certifying that,

no dues are outstanding against him and he has not carried

forward this refund in any of the earlier or subsequent returns.

. The dealer should be asked to submit the necessary information

required to process the refund claim. This communication should

invariably be made in writing and the dealer should be made

aware that his claim of refund shall not be processed unless the

requisite information is submitted by him.

. In case, the refund granting authority decides to assess the dealer,

then the notice for assessment should be issued within a period of3 months from the date of submitting Form 501.

. The refund should be granted only in respect of the refund which

is due. e.g. in case of a P.S.I. dealer who holds the entitlement

certificate for part of an industrial undertaking through

investment in a expansion unit and whose production from the all

JC old and expansion investments is identifiable, (i.e. production

facilities are separate), then in such cases, the refund will be

granted only in respect of purchases corresponding to the

production of the expansion unit in the total production. Cases in

which the investment in expansion unit does not result in

identifiable (separate) production capacity but

strengthens/upgrades the existing technology, product quality or

quantity, purchases entitled for refund shall be worked out inproportion to the new (PSI) investment in the total investment.

. Where the dealer has submitted application in Form 501 and

subsequently revised the corresponding return claiming refund

for any reasons, then the corresponding application in Form 501

would become redundant and such dealer should be asked to

submit fresh application in Form 501 to that effect. In cases where,

after submitting the applications in Form 501 and if it is noticed

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that the returns are not filed as per the periodicity, in such case

the dealer should be asked to submit the revised returns as per

the correct periodicity and also the new application in Form 501 .

Only those cases wherein the claim of refund remains unaltered

shall be eligible for pre audit refund as per this circular. No fresh

annexure will be required if the contents of the earlier annexure

remains unaltered. This action on the part of the dealer should

have been completed on or before 19th March 2008.

. The completed Form 502 should be submitted to R.P.O. section for

issue of Refund Payment Orders. All the actions of granting

refund in the above mentioned cases should be completed on or

before 25th March, 2008.

3). POST GRANT OF REFUND ACTIONS / REFUND AUDIT

After grant of refund all the cases be audited as per

principles laid down hereunder.

I.

Desk Audit :- If the refund claim is less than Rs. 5 lakh per Form 501 ,then only desk audit is to be done (No field visits.). The desk audit is

to be conducted immediately after the grant of refund. The desk

audit is to be completed in the following manner.

a) The copies of Form 704 to be obtained from Business Audit

Branch .( If available)

b) The refund granting officer should first ascertain from

MAHAVIKAS the position regarding the filing of returns by all

the suppliers of the refund claiming dealer.

c) While checking, the audit officer must check that the turnover of

sales and the taxes paid by the supplier are enough to cover the

claim of ITC of the refund claimant in respect of that supplier.

d) In cases, where the dealer has effected Interstate Sales, the details

of availability of declarations under CST Act should be checked

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by calling the dealer with details and pass the appropriate order

accordingly (wherever necessary).

e) Visit is not necessary in these cases unless there are special

circumstances due to which visit is found necessary. For this

approval of JC concerned should be taken.

II. Field Audit :- The Field Audit is to be conducted in all the cases

wherein the refund claim is Rs. 5 lakh or more.

4 ) CROSS CHECKING OF THE TRANSACTIONS :-

While conducting the Desk Audit or the Field Audit, the cross

checks to be done in the following manner-

. The officer should confirm filing of returns by all the suppliers of the

refund claiming dealer from the MAHAVIKAS and from Return

Branch.

. For the purpose of cross checking, where total ITC claim in respect

of a supplier is of Rs. 50,000/- and above and where return has been

filed, 10 % of suppliers will be selected by way of Random Sampling

Method (duly approved by the concerned JC) and to be sent for cross

checking to the cross check section .

. Where ITC claims in respect of any supplier is less than Rs. 50,000/-

per supplier and where return has been filed , 5 % of suppliers will

be selected by way of Random Sampling Method (duly approved by

the concerned JC) and be sent for cross checking to the cross check

section. During the cross check, if it is found that any transaction is not

accounted for by a particular supplier in his books of accounts , then

a comprehensive Business Audit of that supplier is to be taken

immediately by the Refund Audit Branch. The Cross Check Cell

should immediately inform this fact to the Refund Audit Branch.

Also, instead of the sample cross check, 100% of the cross checks of

the claimant dealer is to be issued immediately. The claimant dealer

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should be informed about such result and reasons for issuances of

100% cross checks in his case. The claimant dealer should also be

informed if any of his suppliers is not available on the given address.

. It is pertinent to note here that, the information about such suppliers

should be shared with all officers through E-mail. The list of such

dealers should be prepared and monthly updating should be done by

the Cross Check Section. The information about such suppliers may

also be published on the official Web Site of the department after

canceling the R.C. of the concerned dealer to make aware the dealers

at large. If it is found during the process of cross check that the

supplier is not found at the address given, then list of such dealers

should be shared with all the officers through Email. The action to

cancel the TIN Certificate or Registration Certificate should be

initiated in respect of such suppliers, in due course. The details of

such suppliers should be reported to the Registration Branch to

initiate the actions of cancellation of R.C.

. No cross checks to be issued for a single bill containing tax upto

Rs.5,000/-, Rs.4,000/- and Rs.3,000/- for the cases audited by Deputy

Commissioner, Assistant Commissioner and Sales Tax Officer

respectively .

. It is needless to add that in case, any of the supplier has not filed the

relevant return, then refund to the extent of ITC claim of that supplier

should be reduced by passing appropriate order. In any case, the ITC

claim in respect of any supplier should not be granted, unless it is

verified that the supplier has filed the return for the corresponding

return period. If it is found after cross checking, that a particular

supplier is not traceable, then the refund to the extent of purchases of

such dealer should be withdrawn by passing an appropriate order.

All the departmental officers are directed to follow above instructions

scrupulously.

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4.2 Guidelines issued vide Internal Circular bearing no. 37A, dt:

28.12.2007, are reproduced herewith,

Sub: Refunds under MVAT Act.

A) Background: The issue of pending refund claims is reviewed on 17th of

December 2007 to expedite early finalisation of refund claims. Considering the

huge pendancy, delay in completing audit, some major decisions are taken in

the public interest in the meeting related to grant of refund and audit of such

cases.

The decisions taken in the meeting should be followed by all the Joint

Commissioners (Refund and VAT-Adm) with immediate effect.B) GRANT OF REFUND: All the cases except those are mentioned in para

(D), where the dealer has filed form 501 on or before 31st DECEMBER 2007 are

eligible for grant of balance or full refund prior to audit subject to the

following conditions:-

1. Form 501 must have been received on or before 31st DECEMBER 2007

2. Only cases in which refund is due as per provisions of the Maharashtra

Value Added Tax Act (MVAT Act) will be eligible for refund.

3. All Form-501 must be accompanied with annexure in proper format. If

data is huge, the department may accept this annexure in Excel format. If

Form-501 is already received and annexure is not appended, then obtain

annexure from claimant dealer within 10 days.

4. The certified copy of return in which net refund is claimed be obtained

from Returns Branch or claimant dealer. The certified copies of returns in

which refund is carried forward may also be obtained from the dealer.

5. The dealer should also certify that no sales tax dues are outstanding

against him & also that he has not carried forward the said refund in any

other subsequent return/s or previous return/s nor has adjusted it against

any of his liability.

6. It goes without saying that all the above mentioned certification must be

done by duly authorized person of the firm and should carry the stamp ofthe firm & name of the authorized person

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7. DISPOSAL: All the actions in the above mentioned cases must be

completed on or before 31st January 2008.

8. As per procedures, all cases in which Form-502 is completed, must be

submitted to RPO section for issue of RPOs.

9. All these cases will be taken up for post refund audit as per following

procedure :-

C) POST GRANT OF REFUND ACTIONS : After grant of refund all the

cases will be audited as per principles laid down hereunder:

1. Audit : The term audit refers to two stage process i.e. i) visit & detailed

scrutiny at the place of business of the claimant dealer and ii) summary audit

& cross-checking through MAHAVIKAS and/or visiting place of business of

the supplier dealers.

All the refund claims (per Form-501) above Rs 5 Lac shall be

fully audited i.e. visit, scrutiny as well as summary audit & cross checking. All

refund claims (per Form-501) of Rs 5 Lac or below shall be done through

summary audit and cross-checking only (i.e. a visit is not necessary in these

cases unless there are special circumstances due to which visit is found

necessary)

2. Procedure of Summary Audit & Cross Checking :

i) All the ITC claim will be checked for whether return has been filed

by the supplier whose invoice the ITC claim is being asked for.

ii) While checking, audit officer must check that the turnover of sales

and taxes paid by the supplier is enough to cover the claim of ITC.

iii) In all cases where return has been filed, all ITC claims of Rs 25000/-

& above per supplier will be sent for cross checking to the cross check

section.

iv) In ITC claims which are below Rs 25000/- per supplier for which

return have been filed, cross checking may be carried out for 5% of the

suppliers by random selection

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v) In cases where supplier is detected as non-filer, ITC claim to that

extent be disallowed and such list be sent to Returns Branch for

appropriate action.

3. If as a result of audit it comes to notice that excess refund has been granted

to any claimant dealer, then the audit officer should immediately initiate and

pass an assessment order as per section 23 of the MVAT Act and demand so

raised shall be deducted from subsequent refund payable to the claimant

dealer. If no refund is payable subsequently, then dues shall be recovered as

per the provisions of MVAT Act.

4. In cases where declarations under CST Act are missing, assessment order

under CST Act shall be passed and necessary recovery actions shall be taken

accordingly.

D) In cases where claimant dealer is dealing in Iron & Steel and Dyes &

Chemicals, refund prior to the audit shall not be granted. In those cases,

refund shall be granted after the completion of detailed audit.

E) All the departmental officers are directed to follow above instructions

scrupulously.

4.3 Gist of other relevant Internal Circulars :-

1.InternalCircular No. 2A of2006, dt: 24.01.2006.

Instructions for issuing refundunder VAT System.

2.InternalCircular No. 3A of2006, dt: 27.01.2006.

Provisional refunds to the dealerscovered under the PackageScheme of Incentives Timelypayment of due refunds before

31.03.006.

3.InternalCircular No. 6A of2006, dt: 3.03.2006

Early grant of provisional refund.

4.Internal Circular No. 5 A of2007 Dt. 05.03.2008

Refunds under MVAT Act.Modifications in Internal Circular37A of 2007.

4.4 Guidelines issued vide Trade Circular bearing no.VAT/MIA10-

07/ADM-5/3 Mumbai, dt.23.08.2007, Trade Circular No.- 56 T of

2007, are reproduced herewith,

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Sub: Refund under MVAT.

1. Introductory:-

Section 51 of the Maharashtra Value Added Tax Act, 2002 deals with

refund as per return. The corresponding Rules are, Rules 60 and 61 of the

Maharashtra Value Added Tax Rules, 2005. Till date, the refund U/s. 51 were

granted on ad-hoc basis by issuing various Trade Circulars from time to time.

This was done keeping in view that the automation and reorganization of the

department were not completed. The automation of the department is still

few months away. However, it is now decided to lay down a stable procedure

for the grant of refund.

Applicability of this Circular

(i). The instructions contained in this circular will apply to all returns filed

before the date of this circular, (subject to making an application in Form-

501,) and will also be applicable for all the subsequent refund claims filed

after the date of this circular.

(ii). It is to be noted that for further grant of refund, unless a specific circular

is issued, the instructions contained in this circular would continue to apply.

The dealers should therefore follow the instructions in this circular for

claiming the refund for the subsequent periods also.

Refund and Due Returns:

i)It may be noted that refunds as per returns would be payable only in respectof the returns which the dealer is due to file as per the rules. For example, if

a dealer is due to file a quarterly return but instead files monthly returns,

then the refund would not be granted in respect of the monthly return.

Accordingly, no refund under this circular will be allowed for a returns filed

for an incorrect period.

ii)The return should be correct, complete and self consistent. The application

in Form 501 should be consistent with the return.

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(i) The refund for the financial year 2005-06 in case of dealers who have

filed the return alongwith form 501 before the issue of this circular shall be

granted on or before 31st October, 2007, if the applicant fulfills the other

conditions of this circular.

(ii) There could be cases for the year 2005-06 wherein only part of the

refund is granted till date and the balance refund is pending due to various

reasons. In all such cases also the balance refund shall be granted on or before

31stOctober, 2007, if the applicant fulfills the other conditions of this circular.

Grant of Refund:-

(i). The refund of dealers U/s. 8(3) of MVAT Act shall be granted within 30

days from the date of making the application or from the date of filing the

necessary details as may be required by the refund authority, whichever is

later, provided the claim of refund is made alongwith the application in

Form 501 filed with the respective refund branch.

(ii). The dealers holding a certificate of entitlement under the package

scheme of incentive shall be granted a refund within a period of three

months from the date of application in Form 501 or from the date of

submitting the necessary details to refund authority, whichever is later.

(iii). In case of a P.S.I. dealer who holds the entitlement certificate for part of

an industrial undertaking through investment in a expansion unit and

whose production from the old and expansion investments is identifiable,

(i.e. production facilities are separate), then in such cases, the refund will be

granted only in respect of purchases corresponding to the production of the

expansion unit in the total production. Cases in which the investment in

expansion unit does not result in identifiable (separate) production capacity

but strengthens/upgrades the existing technology, product quality or

quantity, purchases entitled for refund shall be worked out in proportion to

the new (PSI) investment in the total investment.

(iv). In all cases other than the above mentioned cases the refund will be

granted within 3 months from the date of making the application in Form

501/or from the date of submitting the details, whichever is later.

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(v). There could be some pending cases of refund for the year 2006-07,

wherein the entire refund claim of the dealer is pending or part of the

refund, i.e. 10% or 40% is pending, as the refund audit/cross checking of the

transactions are not completed. In all such cases, the refund will be granted

on or before 30th November, 2007.

Non availability of CST declarations:-

(i) There could be cases wherein a refund cannot be granted only because

all or some of the declaration under Central Sales Tax Act for any period

either [2005-06 or 2006-07] are not received by the dealer. In all such cases,

after deciding the CST payable as per Section 8 of the CST Act in respect of

unreceived declarations the balance refund will be granted as per the above

guidelines. Needless to say that the dealer will have to submit the list of

declarations received and not received alongwith the Form 501.

(ii)If after the grant of refund, the dealer receives the declarations under

the CST Act then the dealer can make a fresh application before the refund

granting authority alongwith an application in Form 501. However, no such

application will be entertained within a period of six months from the date of

order granting the refund and not more than one such application shall be

entertained by the Refund granting authority.

Bank Guarantee:-

(i) Following parameters will be applied to the dealers willing to

submit the B G for early refund.

SrNo

Category of the DealerResult of previous

auditsExtent of Bank

Guarantee

Extent of Pre-audit refundto be issued

1All Dealers No Discrepancy in

previous FOUR audits10 per cent 100 per cent


previous three audits15 per cent 100 per cent


previous two audits20per cent 100 per cent

4 Newly Registered Dealers Not Applicable 100 per cent 100 per cent

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SrNo

Category of the DealerResult of previous

auditsExtent of Bank

Guarantee

Extent of Pre-audit refundto be issued

5

Dealers who have effectedinterstate sales

i) No Discrepancy inprevious two audits

i) 50 per cent

ii) First claim ii) 100 per cent

100 per cent

6

Govt Organization andPSU

No discrepancies Zero BG100 per cent

Discrepancies Zero BG 90 per cent

7Diplomatic authorities No B G 100 % on

same day

8 All dealer First time claim 100% BG 100percent

Note:-

1. If dealer falls under more than one category, he should be treated in

the category with higher amount of BG.

2. Discrepancy means the disallowance exceeding 5 per cent in the

refund audit period or Rupees one lakh whichever is less.

(ii) It may be noted that the refund against the Bank Guarantee can be given

only in those cases wherein the refund is due. The cases wherein the refund is

not due, such as, the cases covered by Para 7 (iii) of this circular or the return

not filed as per the periodicity would not be covered by this clause. And in

such cases the dealer can not claim the refund by furnishing the Bank

Guarantee. Once the Bank Guarantee is accepted, then the refund must be

granted within 3 days.

(iii) If after the Refund Audit no discrepancies are found, then the BG

submitted by the dealer could be released or roll-over for the further period,at the option of the dealer.

Assessment of Refund:-

(i). Section 51(6)(a) of the MVAT Act 2002 provides that the dealer can not

make a claim of refund as per Section 51 of the Act, if the notice U/s. 23 is

issued. Before granting the refund, the refund granting authority may like to

obtain certain details and / or may like to conduct a refund audit. If the

dealer has not submitted the details as required by the authority or has not

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cooperated with the officer during the course of audit or if the auditor is of

the view that the assessment of the dealer is necessary then the officer shall

issue a notice U/s. 23 of the Act and assess the dealer accordingly.

(ii). Unless, such notice U/s. 23 is issued, the refund claim of the dealer can

not be withheld and the same shall be granted as per the instructions of this

circular.

Refund Audit and cross checking:-

(i). In cases wherein the refund is granted prior to refund audit or after

incomplete refund audit, the audit will be completed expeditiously.

(ii). It will be the endeavor of the department to complete the refund audit

and also the cross checking of the transactions as early as possible and in

any case within the time limit prescribed above.

(iii). To facilitate the cross checking of transactions, the dealers are requested

to submit the details of sales and purchases in a electronically prescribed

format to the department as and when asked for. This will facilitate cross

checking of the transactions and will also avoid the multiple visits for cross

checking to the dealers place of business. This should ensure the

expeditious grant of refund.

(iv). If a particular dealer claims a refund in any return /s in a Financial

Year, he would be audited by the Refund Audit Branch only. In such case

no separate Business Audit would be conducted by the Business Audit

Branch. However, in all such cases the Refund Audit Branch would

conduct a Desk Audit at the end of the year on the basis of Audit Report in

Form 704 and may conduct the Business Audit of the same dealer with prior

approval of concern Joint Commissioner of Sales Tax.

Adjustment of refund in the subsequent period:

Although, the law provides for compulsory claiming of the refund at

the end of the Financial Year, a facility was provided by way of Trade

Circular to adjust the refund for the years 2005-06, 2006-07 in the subsequent

years return. It is hereby clarified that, henceforth such facility for the

adjustment of refund in the subsequent financial year will not be given and

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Act,2002.

8.Trade Circular No. 3T of2007 , Dt: 10.01.2007.

Refund Audit under MVAT Act.

9.

Trade Circular No. 4T

of 2007, Dt. 12.01.2007.

Refund for the period from 01/04/2005

onwards.

10.Trade Circular No. 14 Tof 2007, Dt. 08.02.2007.

Grant of Provisional Refund.

11.Trade Circular No.22T of2007, Dt. 01.03.2007.

Grant of Refund.

12.Trade Circular No.41T of2007, Dt. 21.05.2007.

Adjustment of refund of the FinancialYear 2006-07 to the Financial Year 2007-08.

13.Trade Circular No. 1T of2008, Dt: 25.01.2008

Procedure for Issuance of Statutory Formsunder Central Sales Tax Act, 1956.

14.Trade Circular No. 3T of2008, Dt. 06/02/2008.

Filing of correct and complete returns andfurnishing copies of the returns to theSales tax authorities.


Furnishing of copies of challans / returnsto the Sales Tax Authorities.


Grant of Refunds : Bank Guarantee

5. COMPETENT AUTHORITIES & TARGETS:-

5.1 The competent authorities to process / audit and authorize the cases

are as follows:-

Processing / auditingOfficer

Authorising Officer Amount of refund claim

Sales Tax Officer Dy. Commissioner Below Rs. 3.5 lakh

Assistant Commissioner Dy. Commissioner Above Rs. 3.5 lakh uptoRs. 10 lakh

Dy. Commissioner Joint Commissioner Above Rs. 10 lakh

5.2 The competent authority to issue RPO & Advice Notes:-

Amount of refund Competent authority to issue RPOs /Advice Notes

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Equal to or less than Rs. 5 lakh Asstt. Commissioner

Above Rs. 5 lakh to Rs. 25 lakh Dy. Commissioner

Above Rs. 25 lakh Joint Commissioner

5.3 TARGETS:-

6. THE PROCESS IN BRIEF:-

3

Sr.No.

DesignationUnitsSanctionedstrength

Target permonth

Target perannum

Individual Unit Individual Unit

1 D.C. 8 8 64 80 640

2 A.C. 26(24+2) 11 264 110 26403 STO 16 (8+8) 15 120 150 1200

Total 256 448 4480


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7. PROCEDURE OF BRANCH:-

Refund claim in form 501 received in the office of JCST of R&RA.

Acceptance on MAHAVIKAS & entry in Centralised Register.

Refund claim in form 501without Bank Guarantee.

Refund claim in form 501against Bank Guarantee.

Allotment to concernedDC Unit

Sub-Allotment to DC/AC/STO

Visit to dealer & verificationof books of accounts.

Issue Cross-checks toCross-check cell.

Custody of BG and BGAcceptance Order to bepassed by DesignatedOfficer in the office ofC R&RA

As per Audit findings,confirmation of Refundclaim.

Amend the claim byRevised Return /AcceptanceLetter.

If dealer disagree-then notice inForm 301 to be

Assessment order in

Orderresulting inRefund

Authorisation of claim byRefund AuthorisingOfficer.

Issue Audit Form 6

Issue RSO Form 502.

RPO issued by RPO Signing

Authority

Allotment to concernedDC Unit.

Sub-Allotment to DC / AC /STO

Orderresulting inDues

Update CentralisedMaster File.

Claims processed withBank Guarantee.* * (Follow theprocedure except issueof Form 502).

Reconciliation ofpaid Advice Notesreceived from RBI byDesignated Officer inthe office of JCR&RA.

Send recovery toRecovery Branch.

As per Audit findings,variation in RefundClaim.

Authorisation of claim byRefund AuthorisingOfficer.

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7.1 Fast Track Window

for acceptance of return wherein refund is claimed :-

7.1.1 The returns of claimant dealers shall be accepted atFast Track

Window specially created for this purpose.

7.1.2 After acceptance, such returns will be photo copied by the

Refund & Refund Audit Branch and such photo copies are to be

retained with the Branch.

7.1.3 The photocopy of the return is to be certified by the AC / STO

(in-charge for return acceptance) & such certified copies ofreturn will be forwarded to the concerned unit dealing the case.

7.1.4 Thereafter, original return will be sent back to the concern

authority of the Return Branch, within 7 days and receipt for the

same, to be obtained.

7.1.5 Returns filed up to 20.06.2006:- In some cases, it has been

observed that, dealers who have filed returns up to 20.06.06

have not applied for refund in Form-501. To claim the refund, it

has been made mandatory to file application in form 501, w. e. f.

20.06.2006. Hence, in such cases, the courtesy letter is to be

issued and if dealer failed to apply in Form 501, then assessment

should be initiated and necessary actions to be taken.

7.2 Single Window System

for acceptance of Application for Refund in Form 501 :-

7.2.1 The application for refund in Form 501 is to be accepted, in the

office of the Joint Commissioner of Sales Tax, Refund & Refund

Audit Branch, where the Single Window System for acceptance

is introduced.

7.2.1 The Officer in-charge for acceptance of Application for Refund

in Form 501, shall keep ready the checklist for documents

required to be submitted along with application for refund in

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Form 501 and such checklist is required to be displayed near

Single Window System.

7.2.2 The Sales Tax Inspector shall face-check the application for

refund in Form 501 along with return and documents,

submitted by the dealer. And only correct & complete

applications will be accepted.

7.2.3 In case of incorrect and / or incomplete and / or defective

application for refund in Form 501, the Officer in-charge shall

issue duly signed letter, narrating the reason / reasons for non-

acceptance of such application.

7.2.4 The receipt for an application for refund in Form 501 is to be

generated through the MAHAVIKAS System. In exceptional

cases, the concerned staff person at the Single Window System

shall record the reason / reasons on the application itself, for

non generation of receipt through MAHAVIKAS System.

7.2.5 The applications for refund in Form 501 received from dealers of

the category of Large Taxpayers Unit (LTU) are to be forwarded

to Large Taxpayers Unit, for further actions. For this purpose,

the Officer in-charge should keep the list of dealers of such

category.

7.2.6 The entry of applications for refund in Form 501 is to be taken in

Centralised Register No. R&RA-1 (format enclosed), in the

office of the Joint Commissioner.

7.3 Acceptance and custody of Bank Guarantee :-

7.3.1 If correct & complete application is received from the dealer

claiming refund against Bank Guarantee and the Bank

Guarantee furnished is in the prescribed format as notified by

the Commissioner for the prescribed amount and period, then,

7.3.2 The details of such Bank guarantee furnished by the dealer

should be entered in the Bank Guarantee Register (Reg. No.

R&RA-5)

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7.3.3 The register of Bank Guarantee (Reg. No. R&RA-5) is to be

maintained in the Office of the Joint Commissioner.

7.3.4 An Officer has to be designated and the custody of such bank

guarantees should be assigned to him.

7.3.5 The Bank Guarantees for higher amounts have to be

authenticated from the concerned Banks.

7.3.6 For this purpose, the Designated Officer shall issue letter to the

Manager or Officer In-charge of the Branch / Bank, requesting

him to affirm the facts related to said Bank Guarantee such as

amount and period, as enumerated in the said Bank Guarantee.

7.3.7 The Designated Officer shall carry out the work related to

release or roll over of such bank guarantees after results of

refund audit relevant to said refund claims, as per the dealers

desire.

7.3.8 The Designated Officer shall keep the status and follow up of

cases wherein Bank Guarantee has been accepted.

7.3.9 JCST, R&RA should keep follow up and ensure that, refund

audit to be expedited in such cases, where period of the said

Bank Guarantee is likely to be expired.

7.4 Allotment of cases within the Division:-

7.4.1 The correct & complete applications shall be allotted to the

respective unit by the Joint Commissioner.

7.4.2 Certain cases are to be retained with the Designated Officer in

the office of JCST, R&RA for such processing of refund claims

such as,

(i) claims of miscellaneous refund,

(ii) refund claims pertaining to dealers of Non Resident Circle

category,

(iii) refund claims pertaining to un-registered dealers i.e. in case of

TDS etc.

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(iv) and refund claims pertaining to last return in respect of

cancellation of Certificate of Registration etc.

7.4.3 Through the MAHAVIKAS system, applications pertaining to

the category of SEZ dealers covered under section 8(3) of the

Maharashtra Value Added Tax Act, 2002, will be forwarded to

the unit designated for such category of the dealers, for

processing of refund claims.

7.4.4 In case of other category dealers, applications will be distributed

to different units through the MAHAVIKAS system,

7.4.5 The allotment of cases is to be done on the basis of TIN.

7.4.6 The JCST R&RA may reallocate or transfer the cases within the

units, depending on the work load with each unit.

7.5 Allotment of cases within the Unit :-

7.5.1 On receipt of cases from the office of JCST, R&RA, all such cases

have to be entered in Unit wise Register for Acceptance of Form

-501 (Register No. R&RA-2), for this purpose, each unit should

maintain the said Register.

7.5.2 Intra unit allotment of cases is to be done by the DCST, R&RA,

as per following slabs:-

Amount of refund claimed

per form 501

Designation of

Refund Processing

Authority

Above Rs. 10 lakhs Dy. Commissioner

Rs. 3.51 to 10 lakhs Asstt. Commissioner

Below Rs. 3.5 lakhs Sales Tax Officer

7.5.3 In exceptional cases, the changes in aforesaid slab will be done

by DCST, R&RA with prior approval of JCST, R&RA.

7.5.4 Cases shall be distributed to different authorities within the unit

through the MAHAVIKAS system,

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7.5.5 As far as possible, DCST, R&RA should ensure that, various

refund claims made by the dealer within one financial year are

to be allotted to same authority.

7.5.6 Processing of refund claims should be done as per the

procedure laid down hereinafter.

7.5 Processing of Refund Claims made against Bank Guarantee :-

7.5.1 Procedure for grant of refund, is to be followed as per the

guidelines issued vide Trade Circular No. VAT/MIA10-

07/ADM-5/3 Trade Circular No. 56T of 2007 dt. 23.08.2007.

(Refer page No. 25)

7.5.2 Such refund claims are to be processed on priority basis and

refund has to be granted within three days, as per the guidelines

issued vide para 9(iii) of the Trade Circular 56T of 2007 dated

23/08/2007.

7.5.3 The Refund Processing Authority shall submit refund

processing report to the Refund Authorising Authority, for

authorisation of such claim.

7.5.4 After authorisation, the concerned Refund Processing Authority

shall pass Refund Sanctioning Order in Form 502.

7.5.5 Entry of Refund Sanctioning Order in Form 502 shall be taken in

a Refund Sanction Order Register (Reg. No. R&RA-4).

7.5.6 Thereafter, proposal for issue of Refund Payment Order

(Annexure - B) should be forwarded / submitted to the

concerned RPO signing authority (ACST R&RA /DCST R&RA

/JCST R&RA as per the prescribed limit).

7.5.7 After grant of refund, the claim is to be audited by the

concerned officer, as per the procedure laid down in chapter 8 of

the Manual,

7.5.8 The concerned authority should ensure that, the refund audit

procedure should be completed within the prescribed period of

the said Bank Guarantee,

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7.5.9 The proposal for adjustment of Bank Guarantee towards dues

raised on account of excess grant of refund if any, is to be

submitted to the office of JCST, R&RA,

7.5.10 After completion of Refund Audit procedure, the proposal for

release or roll over of the Bank Guarantee as per the dealers

desire, is to be submitted to the office of JCST, R&RA.

7.6 Processing of refund claims made without Bank Guarantee :-

7.6.1 The Refund Processing Authorities should ensure that, the

actions regarding the processing of refund claims should be

initiated on FIFO basis, i.e. in order of the date of receipt of

application for refund in form 501,

7.6.2 Immediate face-checking of the return including revised return,

if any and application in Form 501 should be done by the

Refund Processing Authority with respect to the periodicity of

return, eligibility of refund as per the return in relation to

provisions of the Act / Rule i.e. whether the dealer is entitled for

refund as per the periodic return or at the end of year.

7.6.3 On face checking of return if it is found that, there is defect in

the return; take necessary steps to intimate the same to the

dealer and request him to correct the same and to file fresh

application for refund in form 501 accordingly. The copy of such

intimation should be forwarded to the concerned authority of

Return Branch, for necessary actions.

7.6.4 In case of refund claims made without bank guarantee,

procedure for grant of refund is to be followed as per the

guidelines issued vide Internal Circular No. VAT-2007/Adm-

7/Refund & Refund Audit/B- 503 Mumbai, dt: 28.12.2007

Internal Circular No. 37 A of 2007.

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8. REFUND AUDIT PROCEDURE :-

Vide Internal Circular No. 37 A of 2007, it is stated that,

The term audit refers to two stage process i.e.

i) visit & detailed scrutiny at the place of business of theclaimant dealer and

ii) summary audit & cross-checking through MAHAVIKAS

and/or visiting place of business of the supplier dealers.

Vide Internal Circular No. 5 A of 2008, it is stated that,

After grant of refund all the cases be audited as per principles laid

down hereunder.

. Desk Audit :- If the refund claim is less than Rs. 5 lakh per Form

501 , then only desk audit is to be done (No field visits.). The desk

audit is to be conducted immediately after the grant of refund. The

desk audit is to be completed in the following manner.

a) The copies of Form 704 to be obtained from Business Audit

Branch .( If available)

b) The refund granting officer should first ascertain fromMAHAVIKAS the position regarding the filing of returns

by all the suppliers of the refund claiming dealer.

c) While checking, the audit officer must check that the

turnover of sales and the taxes paid by the supplier are

enough to cover the claim of ITC of the refund claimant in

respect of that supplier.

d) In cases, where the dealer has effected Interstate Sales, the

details of availability of declarations under CST Act should

be checked by calling the dealer with details and pass the

appropriate order accordingly (wherever necessary).

e) visit is not necessary in these cases unless there are special

circumstances due to which visit is found necessary. For this

approval of JC concerned should be taken.

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periods. Then in such cases, the refund audit should be carried

out from the period, from where the refund has been brought

forwarded.

8.2.5 The Refund Processing Authority shall prepare summary, short

notes regarding sales transactions eligible and ineligible to tax

and claims on purchase side at different tax slabs,

8.3 C. During the visit scrutiny & checks :-

8.3.1 Record the particulars of visit i.e. date of visit, time of entry and

place of visit etc.,

8.3.2 While initiating the audit, carry out brief interview with the

authorised person regarding nature of business, business

process, commodity dealt, inputs, intermediates and outputs

and their ratio,

8.3.3 If there are any changes in the registration details, are to be

communicated to the Registration Branch accordingly,

8.3.4 Record particulars regarding the books of accounts / documents

produced by the dealer and verified,

8.3.5 Inspect the business premises / factory / warehouse, etc. to

ascertain the equipment / capital goods in use, inputs and the

outputs of the dealer.

8.3.6 Details regarding inputs, to be verified :-

i. Reconciliation of turnover of purchase as per ledger,

register and return,

ii. Verify purchases effected by the dealer from Registered

Dealers, Un-registered Dealers, interstate, imports & high

seas etc and

iii. Verify all tax invoices against which the dealer have

claimed Input Tax Credit (ITC),

iv. Record particulars regarding the commodities purchased

i.e. inputs against each tax rate,

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xvi. In case of purchase of Capital Goods, verify the tax invoice,

physical examination of goods whether such goods exist or

disposed off.

xvii. In case of a P.S.I. dealer who holds the entitlement

certificate for part of an industrial undertaking through

investment in a expansion unit and whose production from

the old and expansion investments is identifiable, (i.e.

production facilities are separate), then in such cases, the

refund will be granted only in respect of purchases

corresponding to the production of the expansion unit in

the total production. Cases in which the investment in

expansion unit does not result in identifiable (separate)

production capacity but strengthens / upgrades the

existing technology, product quality or quantity,

purchases entitled for refund shall be worked out in

proportion to the new (PSI) investment in the total

investment.

8.3.7 Details regarding outputs, to be verified:-

i. Reconciliation of turnover of sales as per ledger, register and

return,

ii. Record particulars regarding the commodities sold i.e.

outputs against each tax rate,

iii. As far as possible, record the Central Excise Tariff Heads of

outputs, especially in case of Excisable Units.

iv. Sales shown at different tax rates is to be verified and total

VAT payable as per tax slab wise is to be compiled and same

to be reconciled with figures shown in the return.

v. In certain cases like Pharmaceutical Dealers, DPCO and non-

DPCO medicines are to be segregated and summary to be

prepared,

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vi. Identify and ascertain amount of VAT payable on account of

sale of fixed asset or capital goods,

xviii. Verify claims regarding goods return, discounts and

Dr./Cr. Notes.

vii. Verify the Branch Transfers / Consignment transfers, if any

viii. Verify and record details regarding tax free sales and job

work charges received.

ix. Verify interstate sales shown against declarations and list

out declaration received and not received, if any.

x. In case of Exporter, verify the documents viz.

i. commercial evidence of export,

ii. copy of custom clearance certificate,

iii. contract with foreign buyer,

iv. evidence of export (bill of lading / airway bill), etc.

v. evidence of payment for the goods or a letter of credit.

(Note that, all above details are illustrative in nature and are not exhaustive,

depending upon the fact and necessity of the case the Auditing Officer should apply

his mind).

8.4 D. Concluding the visit:-

8.4.1 Prepare the summary of transactions relevant to the period.

8.4.2 Prepare summary / verification report in the view of Audit

Form 5.

8.4.3 The documents & statements to be taken at the time of visit and

to be kept on record are given in Annexure-C8. Before concluding the visit, the Refund Audit Officer should

obtain signature of the dealer on the proceedings, narrating

the facts of visits and additional requirement to be furnished

and intimating the date on or before which he has to comply

the same etc.

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8.5 Submission of preliminary visit report:-

8.5.1 Refund Processing / Auditing Officer should immediately

prepare a preliminary visit report envisaging the details of visit

and the same should be submitted for perusal, to the RefundAuthorising Officer, as per the slabs set right vide para 5.1 of the

manual.

8.5.2 Along with preliminary submission, a visit report in Form No.

R&RA-5 is to be prepared by the Refund Processing / Auditing

Authority and the same should be submitted for perusal, to the

Refund Authorising Officer.

8.6 CROSS CHECKS:-

8.6.1 In order to verify genuineness of the ITC claimed by the dealer,

it is required to check the tax liability and payment of tax of the

vendors.

8.6.2 For this purpose cross checks are to be issued to Cross check

Unit.

8.6.3 The details regarding the cross checks issued, are to be entered

in the Cross Check Register (Reg.No.R&RA-3).

8.6.4 The procedure for cross checking is to be followed as per

guidelines issued vide Internal Circular 6A of 2008 dated

12/03/2008, which reproduced herewith,

While conducting the Desk Audit or the Field Audit, the cross

checks to be done in the following manner-

. The officer should confirm filing of returns by all the suppliers

of the refund claiming dealer from the MAHAVIKAS and

from Return Branch.

. For the purpose of cross checking, where total ITC claim in

respect of a supplier is of Rs. 50,000/- and above and where

return has been filed, 10 % of suppliers will be selected by

way of Random Sampling Method (duly approved by the

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concerned JC) and to be sent for cross checking to the cross

check section .

. Where ITC claims in respect of any supplier is less than Rs.

50,000/- per supplier and where return has been filed , 5 % of

suppliers will be selected by way of Random Sampling

Method (duly approved by the concerned JC) and be sent for

cross checking to the cross check section

. During the cross check, if it is found that any transaction is

not accounted for by a particular supplier in his books of

accounts , then a comprehensive Business Audit of that

supplier is to be taken immediately by the Refund Audit

Branch. The Cross Check Cell should immediately inform this

fact to the Refund Audit Branch. Also, instead of the sample

cross check, 100% of the cross checks of the claimant dealer is

to be issued immediately. The claimant dealer should be

informed about such result and reasons for issuances of 100%

cross checks in his case. The claimant dealer should also be

informed if any of his suppliers is not available on the given

address.

. It is pertinent to note here that, the information about such

suppliers should be shared with all officers through E-mail.

The list of such dealers should be prepared and monthly

updating should be done by the Cross Check Section. The

information about such suppliers may also be published on

the official Web Site of the department after canceling the R.C.

of the concerned dealer to make aware the dealers at large. If it

is found during the process of cross check that the supplier is

not found at the address given , then list of such dealers

should be shared with all the officers through Email . The

action to cancel the TIN Certificate or Registration Certificate

should be initiated in respect of such suppliers, in due course.

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The details of such suppliers should be reported to the

Registration Branch to initiate the actions of cancellation of

R.C.

. No cross checks to be issued for a single bill containing tax up

o Rs.5,000/-, Rs.4,000/- and Rs.3,000/- for the cases audited

by Deputy Commissioner, Assistant Commissioner and Sales

Tax Officer respectively .

. It is needless to add that in case, any of the supplier has not

filed the relevant return, then refund to the extent of ITC claim

of that supplier should be reduced by passing appropriate

order. In any case, the ITC claim in respect of any supplier

should not be granted, unless it is verified that the supplier

has filed the return for the corresponding return period. If it is

found after cross checking, that a particular supplier is not

traceable, then the refund to the extent of purchases of such

dealer should be withdrawn by passing an appropriate order.

8.6.5 On receiving the results of Crosschecks, the corresponding

entry in the Register No. R&RA-3 is to be rounded and follow

up should be made for the un-received cross checks.

8.6.6 In case, where the cross checks of supplier resulted in non-

confirmation of ITC claim, then show cause notice for citing the

provisions of sub-section 48(5) should be served on the dealer

and after affording reasonable opportunity of hearing, such ITC

reductions are to be made from the refund claim.

8.7 CONCLUDING THE AUDIT :-

8.7.1 Auditing Officer shall keep on record documents & statements

as enlisted in Annexure-C, which are submitted by the dealer at

the time of visit and during the Refund Audit proceedings.

8.7.2 On receipt of total results of cross checks, it is required to

summarise the same and such summary should be kept onrecord.

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8.7.3 The summary of sales and purchases relevant to the said period

is to be prepared i.e. VAT payable, ITC eligible, Tax liability

under the CST Act etc. and its reconciliation with the details

disclosed as per the return / returns, is to be made.

8.7.4 A proposal highlighting the effect in totality should be prepared

by the Auditing Officer.

8.7.5 The Refund Audit may result in two types of contingencies :-

(I) Refund Audit resulted in confirmation of the

refund claim,

(II) Refund Audit resulted in variation of the refund

claim.

8.8 Refund Audit resulted in confirmation of the refund claim :-

8.8.1 Submit the case for authorisation of the claim along with Audit

Form No.R&RA-6 duly signed by the Refund Processing

Authority.

8.8.2 Refund Authorising Authority should scrutinise the proposal

submitted and should note his remarks if any and if the

proposal is found to be correct and in order, then authorise the

proposal and should sign on Audit Form No.R&RA-6.

8.8.3 After the claim has been authorised, the concerned Refund

Processing Authority should pass the Refund Sanctioning Order

in Form 502.

8.8.4 Entry of Refund Sanctioning Order in Form 502 shall be taken in

a Refund Sanction Order Register (Reg. No. R&RA-4).

8.8.5 Thereafter, the proposal for issue of Refund Payment Order

(Annexure - B) should be forwarded / submitted to the

concerned RPO signing authority (ACST R&RA /DCST R&RA

/JCST R&RA as per the prescribed limit).

Refund Audit resulted in variation of the refund claim :

1.9. Appropriate corrective actions will be initiated by the

auditor. If the dealer accepts the auditors findings, then he

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6.10. The return branch officer will make the necessary

endorsement on the original return on the basis of the list

received by him and update records.

7.10. The Return Branch officer will acknowledge the list received

by him.

8.10. The authority issuing the R.P.O. should maintain a register,

viz., Refund Payment Register (R&RA-7). He should make a

note of R.P.O. number and advice note number in the refund

file, should keep a record of the dealers to whom the R.P.Os.

have been issued by them along with their registration

number and address.

9.10. The authority issuing R.P.O. will also issue advice notes to

the banks simultaneously. Caution should, however, be

taken to ensure that the advice note should reach the banks

before the R.P.O is presented by the dealers bank to the

Reserve Bank of India or State Bank of India for payment.

10.10. Custody and account of RPO and advice notes. The books

of the refund payment orders and the advice notes should

remain in the personal custody of the officers who are to

issue the refund payment orders.

11.10. Accounts of stationery of RPO books and advice note

books. -- The R.P.O. books and advice note books will

hereafter be issued by the stationery cell to the respective

Joint Commissioners. On receipt thereof, an entry of the

book numbers along with voucher numbers therein should

be kept in a register to be maintained for this purpose by the

concerned Joint Commissioner.

12.10. This register and the RPO books / advice note books should

invariably figure in the charge report whenever there is a

change of officer holding the job. It would be in the interest

of the officers themselves to take a receipt from their

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successor of having handed over the RPO books (both used

and unused), advice note books and register of accounts.

13.10. Inspection of register of R.P. Os and advice notes. -- During

office inspection of any of the officers issuing RPOs and

advice notes, the inspection should invariably cover

verification of the register of RPOs and advice notes to make

sure that it has been correctly and kept up to date and that

the physical stock of RPO books and advice note books tally

with the register.

14.10. Apart from the above, the officers should carry out frequent

check of the RPOs issued, physical stock of unused forms

and uptodateness of the stock register.

15.10. Specimen signatures of refund signing officers.-- The officers

who would hereafter be issuing the refund payment orders

and advice notes should send their specimen signatures to

the Reserve Bank of India, Mumbai, (for officers situated in

Greater Mumbai ) and to the State Bank of India/State Bank

of Hyderabad at the district headquarters/places where the

refund payment orders will ultimately come for

clearance/payment (for officers situated outside Greater

Mumbai ). Whenever there is a change in the incumbency of

any of these posts, the specimen signatures of the newly

appointed officer should immediately be sent to the

concerned banks as mentioned above. For Greater Mumbai,

the work of sending the specimen signatures of refund

signing authority should be centralised in the office of the

Joint Commissioner (Head Quarters-1) and in mofussil the

respective Joint Commissioner.

16.10. Entry of R.P.0. number, date and amount.-- After an R.P.O.

has been issued by the R.P.O. Issuing Authority, entry of the

R.P.O. number, its date and the amount should invariably be

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made in different places, namely, proceeding sheet of the file

for the relevant period; the Refund Proposal Register and

Refund Payment Register maintained by the Refund

Processing and Issuing Authority, respectively ; order in

Form 502; and the copy of the return or order kept in the

return file of the dealer.

17.10. Scroll to be obtained from Treasury / Banks. It is hereby

clarified that the scrolls including e-scrolls regarding the

paid R.P.O.s should be obtained from the Treasury /Banks

only, which in most of the district places would be the State

Bank of India..

18.10. Separate R.P.O. books for each RPO issuing authority.

For this purpose, it is suggested that the number of R.P.O.

books being used by the Joint Commissioner of Sales Tax

and the Assistant Commissioner of Sales Tax may be

communicated to the Treasury / Bank under a common

letter so that the work of Treasury / Bank for checking also

become simplified. This work should be coordinated by the

concerned Joint Commissioner.

19.10. It is clarified that all RPOs should invariably be sent to the

dealers by the R.P.O. Issuing Authority itself under RPAD

letters.

20.10. Toprevent any misuse of these RPOs, all the RPOs should be

crossed and made A/c payee only by putting an

endorsement A/c payee only on the left hand top corner of

the R.P.O. issued. Further, the amounts should be written,

both in figures and words, in the counterfoils or office copies

apart from Refund Payment Order to be issued to the

dealers.

21.10. The name of bank, branch and account number of dealer is to

be incorporated on the RPO to prevent misuse of RPO.

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the R.P.O. may be referred to the Joint Commissioner of

Sales Tax (H.Q.-1), Maharashtra State, Mumbai.

25.10. No re-validation of R.P.O.s The R.P.O. should not be

revalidated and no corrections should be carried out in the

same R.P.O. Most of the R.P.O.s would not be encashed only

if they are not presented within three months from the

month of issue of R.P.O. The returned back R.P.O. should be

cancelled by making proper endorsement of cancellation on

the same. After canceling such R.P.O., it should be kept in

the record of the dealer and a note regarding cancellation

should be taken in the remarks column of Refund Proposal

Register and Refund Payment Register. A new Refund

Payment Order should beissued in lieu of the duly cancelled

R.P.O and a fresh entry should be taken in the Refund

Proposal Register and Refund Payment Register. Cross

reference of old entry as well as new entry should be taken

in the remarks column. In the remarks column of oldentry

the endorsement should be cancelled on . . . . . . . . . . . Fresh

R.P.O. issued at Sr.No . . . . .. Similarly, in the remarks

column ofthenew entry, the endorsement should be Issued

in lieu of R.P.O. at Sr. No.

26.10. Necessary endorsement to that effect should also be made in

the following:

(i) proceeding sheet of the file for the relevant period;

(ii) the Movement-cum-Accounts Register maintained by the

Refund Processing and Issuing Authority respectively in the

format given in

(iii) order in Form 502; and the copy of the return or order

kept in the return file of the dealer.

27.10. Partly used R.P.O. Books. Partly used R.P.O. books

containing some blank R.P.O. vouchers should not be used

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for issue of R.P.O. to the dealers. Unused R.P.O. vouchers in

such books should be cancelled and such books along with

the used R.P.O. books should be returned to the respective

Joint Commissioner. While doing so, a list of R.P.O. books

showing the Sr. No. of vouchers therein should be prepared.

The respective Jt. Commissioner should, in turn, prepare a

list for his division and send these R.P.O. books (both fully

used and also partly used) to the Jt. Commissioner (H.Q.-1) ,

Mumbai along with the list for safe custody.

28.10. Reconciliation of RPOs with banks. -- It is necessary to

carry out periodic reconciliation of the Advice Notes issued

by the various officers and payments as recorded in the bank

(paid Advice Notes). For this purpose, the periodicity of

reconciliation should be a three calendar months i.e. all the

scrolls received for a particular three calendar months

should be examined together. Cases of over payment, if any,

should be immediately investigated.

29.10. The dedicated officer of Pay & Accounts cadre may be

assigned these works. It shall be ensured that the officer

issuing cheque and officer carrying reconciliation shall be

different one.

30.10. To reconcile the paid Advice notes received from Reserve

Bank of India / Treasury, is to be carried out by the

Designated Officer in the office of JCST R&RA.

31.10. Reconciliation of paid advice notes and relevant record

pertaining to the refund claim, is to be verified and

reconciled from following authorities.

Amountas perpaidAdvice

Notes

Refund ProcessingAuthority

Refund SigningAuthority

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1.13. Form 704 in refundable cases should be collected from the

Business Audit Branch, where the dealer is required to file

the same.

2.13. Desk audit of all Form 704 in refundable cases is to be done.

3.13. Desk audit of cases in which Form 704 is subsequently filed

by the dealer.

4.13. Verify the correctness of the refund claim made with returns

during the period, books of accounts and Form 501.

5.13. If any discrepancy is found, take necessary actions including

business audit of the case with prior approval of Joint

Commissioner.

6.13. Business Audit in refund cases:- If the dealer has filed

application in Form 501 in any period of financial year, then

Refund Audit should be taken for complete financial year.

Form 704 submitted by the dealer to Business Audit Branch

is to be obtained. Desk Audit of all Form 704 is to be

undertaken in comparison with the refunds granted.

7.13. Chapter 6 of Business Audit Manual, is reproduced here for

reference,

6.1 Note: A separate manual has been prescribed for

Refund Audits. The case wherein the dealer has already

filed application in form 501, the audit is to be conducted by

the refund audit branch for whole of the year. The cases

which are selected for business audit and as a result of audit

it is found that the dealer stands to get a refund, that is the

case results in over declaration, in such cases the auditor

while carrying out the business audit shall also apply the

procedure prescribed for the refund audit in refund audit

manual for carrying out the refund audit and thereafter

completing the procedure and coming to the conclusion in

the matter should give such findings in audit form 7. The

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dealer may be advised to file the revised return and on such

filing the dealer may file the prescribed form 501 with the

refund audit authorities. The refund audit branch , however

may give the refund on basis of the findings of the Auditor

issued to dealer in form Audit form 7. The refund audit

branch need not again carry out the Audit as prescribed in

their manual. The auditor of business audit branches at end

of each mont

Documents

Refund & Refund Audit