Maharashtra Sales Tax Department is making substantial changes in its automation processes relating to taxpayer interface, w.e.f F.Y 2016-17. This is expected to result into significantly more efficiency in the working of the Department, less errors due to minimum human intervention and maximum benefits in relation to time management.
The application is being developed on the SAP platform using the Tax and Revenue Management (TRM) and the- Customer Relationship Management (CRM) functionalities.
Though automation exercise planned thus covers different aspects of taxpayer interface such as registrations, appeals, returns, CST Declaration forms etc, in this note we have dealt with more frequent of those interfaces namely filing of returns and CST Declaration form applications.
Under the present process, the dealers have to upload TIN wise Sales and Purchase annexures (J1 & J 2) along with the return. However this system suffers from various shortcomings which are discussed below.
- Unattended Mismatches – Huge mismatches are found by Department website with respect to the Annexures filed along with the Returns. Such mismatches many a times remain not acted upon unless purchaser vigorously follows up with defaulting suppliers for filing of corrected Annexures showing sales made to purchaser. Even if there are mismatches in set off claim according to matching done by Department with respect to Annexures. there is no denial of set off to purchaser during the FY or thereafter, till any of the Departmental audits or assessments are taken up
- No Real Time Analysis: Under the present process, Departmental action based on cross verification of sales and purchase annexures is taken after filing of Form 704 audit reports for the relevant year. Hence, there is time lag of more than a year resulting in selection of cases for Computerised Desk Audit (CDA), Issue Based Audits and assessments. Due to this, dealer receives IBA notices even after 6-8 years. Besides old records are not available after such a long time period resulting in extra payment / penalty on the part of the dealer for non-providing of documents / information.
- Refunds under Bank Guarantee affected: Mismatches mostly affect the dealers who claim quarterly refunds against Bank Guarantee, as major portion of ITC gets disallowed if the supplier of the dealer claiming refund is filing quarterly or half yearly returns. This finally results in receiving less refund than actually claimed in Form 501.
- Need to obtain revised Mismatch Report after Revised Returns: Under current system, even if a defaulting supplier admits and corrects his Annexure, additional set off credit is not made available to the purchaser automatically. Purchaser has to establish that credit by running another Match Report.
- Issue of Declaration Forms: Department had launched an on-line application for CST Forms. As per this process, the Statement of Request (SOR) had to be uploaded on department’s website. In case of any non-compliance by the applicant such as return default, outstanding recovery, incorrect/non-disclosure of turnover of interstate purchases etc., department communicates to the dealer through e-mail (SOR hold mails). Online corrections are sometimes not successful and applicant has to respond by visiting and submitting details to the concerned officer such as reconciliation of OMS purchases for previous periods on booking basis as there is always a time lag between the invoice date & actual booking date. The turnaround time/service delivery time in this system has been reasonably high.
All this resulted in long delays in receipt of declaration forms due to which the supplier of the dealer issued debit notes on the dealer in some cases, resulting in differential outflow due to non receipt of declaration forms in time. Also, annual revised returns were not considered while issue of declaration forms by the department leading to unnecessary submissions of reconciliations.
- New Process:
Invoice wise uploading of Sales and Purchase annexures and auto-population of returns:
The dealer is required to give invoice wise details for Sales & Purchases only in the form of Sales and Purchase Annexures (In plain terms Registers) and that will be the total compliance under Returns from taxpayer’s part, because Returns will be then auto populated by Departmental System based on Sales & Purchase Registers uploaded. These Sales and Purchase annexures will be linked to respective MVAT Return Forms like Form 231, 232, 233, 234, 235 & Form III E under the CST Act.
Dealers will be able to download “Return Form Bundle Template”. This template will comprise of the annexures of sales and purchases and all the VAT return forms viz. 231,232,233,234,235 and Form III E under the CST Act. The dealers will be required to fill invoice-wise details in the Sales and Purchase Annexures which have been integrated with the returns. A provision has been made to mention the transaction type of each invoice. Each local taxable, tax free, exempt, inter-state transactions etc. have been allocated specific transaction codes. It has also been provided to mention the type of return form to which a particular invoice belongs to. On the basis of the transaction codes and the return form mentioned by the dealers in the annexures, the relevant fields of relevant return form will get auto-populated. The dealers will be able to see the auto-populated excel template of the return. Once this filled in template is validated this file i. e .txt file ready for upload will get created.
Uploading of “Return Form Bundle Template” and facility to view draft return in PDF format: The dealers will be required to upload the .txt extension file of the “Return Form Bundle Template”. Once this is done, a programme will run for the calculation of ITC and carry out other necessary validations. Subsequently, the dealers will be able to see the Draft Return in PDF format. The dealers may be able to take a print of this draft PDF return. They will be able to either file this draft return or they may go back to modify the contents of the return through the modification in the sales and purchases annexures.
Sales & Purchase Annexure:
Sales & Purchase Annexures will include the following information that will be required to be incorporated by the dealers:
- Sales / Purchase Invoice No.
- Sales / Purchase Invoice date (dd/mm/yy)
- 11 digit TIN of the Purchaser/Seller (if TIN is available). – This 11 digit TIN No. is important so that the credit of tax paid will be available to the purchaser.
- Taxable Value or Value of Composition in case of Works Contract.
- Tax amount (if separately mentioned in the invoice)
- Value (if) inclusive of Tax.
- Value of sales under Composition Scheme other than Works Contract.
- Tax Free Sales.
- Exempted sales u/s41 & 8.
- Labour charges.
- Other charges.
- Gross Total.
- Action (No clarity available till now as to what kind of information is to a to be entered for this column)
- Return Form No. (231/232/233/234/235/CST)
- Transaction Code. (Transaction codes will be different for Sales & Purchase transactions depending upon the type of transaction effected by the dealer– given below)
Transaction Codes for Sales Annexures-
|Description of Transaction Type
|100||Sales to TIN Holder (Local or OMS excluding against C-Form)|
|200||Sales to Non-TIN Holder (Local or OMS). Apart from sales of goods to non TIN holder i.e. to unregistered dealers, pure Labour or Service Sales may also have to be reported under this code unless such sales under different invoice series are altogether dropped from Sales Register.|
|300||Branch Transfer / Consignment (Local or OMS). This may be further broken up into Local and OMS because for local branch transfer there is no impact on declaration or set off retention|
|430||Second Hand Motor Composition|
|460||On Going Works Contract (Contracts existing when VAT was introduced in 2005)|
|470||On Going Lease Contract (Contracts existing when VAT was introduced in 2005)|
|480||Tax Paid by Sub-Contractor|
|490||Tax Paid by Principal Contractor|
|500||PSI Exempted Sales|
|600||Sales Goods Return (Except under 610 to 690 listed below). Further it appears that Credit Notes for Goods Return will have to covered under separate Codes for Goods Return and not under codes 700 to 790 listed below.|
|610||Sales Goods Return ( Outside State)|
|620||Sales Goods Return ( Sale in transit)|
|630||Sales Goods Return ( Consulate)|
|640||Sales Goods Return ( Export against Form-H )|
|650||Sales Goods Return ( Direct Export )|
|660||Sales Goods Return ( Sale in the course of Import )|
|670||Sales Goods Return ( Sales against 8(6) ) CST Act such as CST sale against Form-I|
|680||Sales Goods Return ( Branch Transfer) Pl. refer remark against code 300 above)|
|690||Sales Goods Return ( Sales WCT Composition )|
|700||Sales Credit Note (Except under 710 to 790 listed below). No separate code is assigned for Debit Notes hence both types of Notes will have to be covered under this Code or Debit Notes will have to be treated as Invoices.|
|710||Sales Credit Note ( Outside State)|
|720||Sales Credit Note ( Sale in transit)|
|730||Sales Credit Note ( Consulate)|
|740||Sales Credit Note ( Export against Form-H )|
|750||Sales Credit Note ( Direct Export )|
|760||Sales Credit Note ( Sales in the course of Import )|
|770||Sales Credit Note ( Sales under section 8(6) ) such as CST sale against Form-I|
|780||Sales Credit Note ( Branch Transfer ). Pl. refer remark against code 300 above)|
|790||Sales Credit Note ( Sales WCT Composition )|
|800||Deduction u/s 3(2) in respect of Turnover before the date of registration|
|900||Sales against C Form|
|910||Sales outside the State|
|920||Sales in Transit (against EI/EII Form)|
|930||Sales to Consulate|
|940||Export on H Form (Local or OMS)|
|950||Direct / Physical Export (u/s 5(1) of CST Act)|
|960||Import Sales (High Seas) (u/s 5(2) of CST Act)|
|970||Interstate Sales (u/s 8(6) of CST Act against Form-I|
Transaction Codes for Purchase Annexures-
|Description of Transaction Type
|10||Within the State Purchases from RD|
|15||Within the State Purchases from RD (Capital Asset )|
|20||Local URD Purchases|
|30||Inter-State Branch Transfer (against Form F)|
|31||Purchase Good Return ( Inter-state Branch transfer)|
|32||Purchase Debit Note ( Inter-state Branch transfer)|
|35||Local Branch Transfer|
|36||Purchase Good Return ( Within State Branch transfer)|
|37||Purchase Debit Note ( Within State Branch transfer)|
|40||Inter-State Purchases against Form-C|
|41||Purchase Good Return (Inter-state Purchases against Form-C )|
|42||Purchase Debit Note (Inter-state Purchases against Form-C )|
|45||Local Purchases against Form-C. It is not clear what kind of sales transactions will get covered under this code because there cannot exist a local sale against C Form|
|46||Purchase Good Return (Within State purchases against Form-C )|
|47||Purchase Debit Note ( Within State Purchases against Form-C )|
|50||Inter-State Purchases against Form-H|
|51||Purchase Good Return ( Inter State Purchases against Form-H )|
|52||Purchase Debit Note ( Inter State Purchases against Form-H )|
|55||Local Purchases against H Form|
|56||Purchase Good Return ( Within State Purchases against Form-H )|
|57||Purchase Debit Note ( With State Purchases against Form-H )|
|61||Purchase Good Return ( Direct Import )|
|62||Purchase Debit Note ( Direct Import )|
|65||Imports (High Seas)|
|66||Purchase Good Return ( High Seas )|
|67||Purchase Debit Note ( High Seas )|
|70||Inter-State Purchases without Form|
|71||Purchase Good Return (Inter-State Purchases without Form )|
|72||Purchase Debit Note ( Inter-State Purchases without Form )|
|75||Inter-State Purchases against Form-I|
|76||Purchase Good Return (Inter-State Purchases against Form-I )|
|77||Purchase Debit Note ( Inter-State Purchases against Form-I )|
|80||Deduction u/s 3(2) It appears that purchases made before seller has obtained registration will get covered under this code|
|90||Purchase Good Return|
|91||Purchase Good Return (Capital Assets)|
|91||Purchase Debit Note|
|96||Purchase Debit Note (Capital Assets)|
Viewing of ITC Register: The dealer will be able to view the ITC Registers, Annexures filed by Suppliers/Customers and month wise credits of TDS amounts on periodical basis. ITC Register display is likely to be on the lines of display currently done under Form 26AS mechanism of I Tax. It appears that such display therefore will be in Batch mode (periodical) and not on real-time basis. In this connection it is possible to provide real time information of purchases and sales effected by dealers if all dealers use Billing Software provided by the Department and such billing data is linked to Display of ITC functionality. The contractors will be able to pass on the TDS credits to the sub contractors.
Claims of Goods Returned: The seller will be able to claim deduction on account of goods returned etc. in the Returns, however if buyer does not confirm this transaction through debit note to be shown in the purchase annexure, the tax Liability to the extent of tax Element involved in the claim of goods return will be added by Departmental Website, as liability in the next return of the seller.
Filing of Revised Returns: Provision for filing of revised annexures will be compulsory before revising the periodical returns. As announced in the Budget presented on 18.3.16, there will not be any ceiling on the number of times returns can be revised by the dealer till the date of submission of VAT audit report. Thus any corrections in the Annexures as pointed out by opposite parties (customers/suppliers) can be made and returns can be revised automatically by the system any number of times. Since this revision is allowed till date of submission of VAT audit report (i.e. before 15th January of next year), all year end bookings and adjustments made at the time of finalization of accounts and filing of IT Returns can be correspondingly incorporated under VAT returns so that reconciliation with FA sales as per P & L A/C will be much more easier.
Filing of monthly return in Form 424 by the employers (TDS): The employers shall be required to file return in form 424. They will be required to show TIN and the names of contractors and also show the amount of TDS effected from each of the contractors.
Filing of the annexure of the latest bank accounts and also the closed bank accounts: All the dealers will be required to file the annexure of the latest bank accounts and also the closed bank accounts with the last return of the financial year.
Billing software: Demand from trade and industry for GST seems to have been incorporated by Maharashtra Sales Tax Department in their Interface, whereby Billing Software facility is being provided for free download which can be used by dealers for generating invoices. If such Billing software use is made then it appears that for a seller there will not remain any need to feed Sales Annexure and all return related compliance will be taken care at the stage of transaction processing itself. This facility seems to be the best feature of the proposed system. Thus in order to provide facility and ease of preparing annexures and thereby the returns, a downloadable free Billing Software will be available to the taxpayers.
Disclosure of reduction in ITC u/r 53 and disclosure of not admissible ITC u/r 54: Though ITC will be calculated on Gross Level by Departmental Interface, net ITC after consideration of Retentions and Negative List items will be calculated by the Interface only on the basis of relevant information to be entered by the Dealer separately. Thus there is a compliance burden on a dealer to calculate correctly items on which either full set off is not available u/r 53 or there is denial of set off u/r 54. A dealer will thus be required to disclose figures of reduction of ITC u/r.53 and not admissible ITC u/r 54 of the MVAT Rules 2005.
- Merits and Demerits of New System:
Merits Sales Transactions:
|Nature||To the Department||To the Dealer|
|Maintenance of Books of Accounts||Easy completion of assessments as reconciliations will be readily available.||As the dealer will be required to fill invoice wise details, monthly reconciliation of sales with books will be possible which will be a good practice of maintaining proper books of accounts , thereby increasing the efficiency and accuracy level of small dealers also, who generally avoid maintaining books of accounts due to time and cost factors.|
|Correct Coding of Transactions||Correct coding of transactions will in turn result in proper / correct bifurcation of sales thereby resulting in timely completions of audits and assessments, as extensive time will be saved in linking the codes with the financials.||Same benefits accrue to the dealers also as correct coding will lead to disclosure of correct transactions.|
|Transactions related with Works Contract:||Department will be able to easily chase the dealers who come under the purview of WCT but fail to disclose such transactions or are defaulters w.r.t WCT TDS.||Works Contract transactions will be easily identifiable due to the coding system, which will lead to disclosure of such transactions by the dealers, paying WCT in time thereby minimizing the risk of huge disallowances during the time of assessments. Also, there will be less confusion with respect to Tax Paid by Sub-Contractors or Tax paid by Principal Contractors in a Works Contract transaction and issues over Issue of Forms 407 & Form 406 respectively.|
|Error Free data||IBA / BA may get reduced due to such exercise.||No separate returns will be required to be filed as Sales and Purchase annexures will be auto populated in the relevant return forms, which will ensure accuracy and error free information.|
C. Merits and Demerits of New System:
Merits Sales Transactions:
|Nature||To the Department||To the Dealer|
|ITC Report||The probability of Negative ITC will be reduced to a great extent, as negative ITC will be automatically disallowed in the event the selling dealer shows less ITC to the purchasing dealer, resulting in increase of revenue without taking extra efforts.||As the dealer will be able to view the ITC Report, the purchasing dealer will be able to see the transactions of sales showed to them by their vendors who have uploaded their sales annexures and vice versa i.e selling dealer will also be able to view the transactions of purchases showed from them in their Purchase annexure. This will result in regular co-ordination between the two dealers reducing the probability of Hawala Dealers.|
|Elimination of Vicious Circle of Short / Non filers||In present situation, in the event the selling dealer fails to pay Taxes to the government, the government recovers the same from the purchasing dealer during Part refunds or at the time of assessments or BA. As dealer will be now more cautious while purchasing goods from local vendors, the probability of Non/Short filers will get reduced to a optimum level.||Short Filers and Non Filers can be easily searched from month to month or as per their return periodicity, which will help the dealer from ensuring that their vendors are paying their Tax Dues in time.|
|Tracking of Local URD / Hawala dealers||Now, the department will be easily able to identify the URD dealers on the basis of the “Transaction Code” given in the returns. This will enable the department to chase the URD or Hawala dealers.||Dealer will be more cautious while choosing his vendors, to avoid the future disallowances of MVAT claim & further unwanted notices from the department.|
|Fixed Asset Details||Fair calculation with respect to Fixed Assets will now be available in monthly returns only due to which, the dealer will now be time bound to disclose his assets in his monthly returns only instead of showing them directly in MVAT Audit. Dealers not eligible for MVAT Audit will now be under the scanner of the department for disclosure of such transactions.||As FA details will be required to be disclosed in the returns only, the dealer will have to maintain proper records w.r.t Fixed assets and disclose it accordingly. This will result in correct description in the assets and accurate calculation with respect to its “Eligibility or Retention” in set-off.|
|Disclosure of transactions against declaration forms:||Department can now keep a check point on such transaction where C Form is issued by the dealer for any reasons in case of his ineligibility for issuing the same.||Correct codification will be required to be made in case of purchases against declaration forms as incorrect disclosure may attract Penalty as applicable.|
|Nature||To the Department||To the Dealer|
|Shifting of Burden on Dealers||NA||Department will be more relaxed , as the dealers themselves will make sure that the taxes are paid by their vendors regularly, thereby shifting the burden of recovery from department to Dealers.|
|Harassment of Dealers||NA||The system is more beneficial to the Sales Tax department than the dealers, as extensive exercises and cross checks will be required to be performed by the dealers to avail their own benefits like availing of set-off on the basis of Tax Invoice. This will lead to harassment on the part of the dealers as all the burden will be shifted to the dealers in the event they have to avail the benefits.|
D. Gearing up for changed system (by dealers) & Support from us :
As the new process is a transaction based process, dealers will have to take wide efforts on accuracy in data entry procedures. Extensive measures to improvise data flow and proper training to data entry operators / staff will be required to be given on top priority, to ensure that transactions are correctly recorded at the point of inception only in order to avoid future implications.
Some suggestive steps can be followed while programming the software for adapting the new process.
a. Training to data entry staff for proper entry of tax codes and transaction codes for each and every sales / purchase transaction.
b. Addition of all the Tax Codes as per the transaction codes given in the returns in the Accounting Software maintained by the dealer. This will minimize the time for mapping of sales or purchase registers at the time of returns.
c. Creating new report / query as per the desired format of returns in order to synchronize the reports with the returns.
d. Dealers will now have to compulsorily maintain a synchronized database in their accounting software for all their customers and suppliers with 11 digit TIN nos. so that this information is correctly captured in the sales and purchase registers to be to be used for filing of returns. This will enable to reduce the errors and mismatches in set-off which will be auto-generated from the sales tax department website and directly available in the returns to be filed by the dealers.
We shall be glad to provide any assistance with respect to preparations to be made at the dealers’ end through e mails addressed to our mail id email@example.com