non compliance with st rules

Queries 858 views 2 replies

GAURAV BEHL

CA-FINAL

228 Points Posted on 02 November 2009

DURING MY COURSE OF INTERNAL AUDIT I FOUND THAT A COMPANY HAS NOT RECOCILED ITS SERVICE TAX LEDGER.I.E. THE MONTHLY BREAKUP OF SERVICE TAX COLLECTION AND LIABILTY TO PAY SERVICE TAX THEREON AFTER CENVAT CREDIT ISNOT RECONCILED WITH THE SERVICE TAX RETURN.. ON DETAILED ENQUIREY I FOUND THAT THEY DIDNT MAKE PROPER ENTRIES FOR SERVICE TAX DUE. THEY MADE SERVICE TAX DUE ON THE DATE OF PAYMENT TO THE CENTRAL GOVT. A/C INSTEAD OF ON THE DATE OF RECEIPT FROM CLIENTS..BUT THEY HAVE PAID SERVICE TAX TOGETHER WITH INTREST THEREON IF ANY REGULARLY.. THE REASON AS THEY STATED FOR IT WAS THAT THE BILLING WAS CENTRALISED FROM CANADA WHICH IS ACTUALLY ITS HOLDING COMPANY AND THE RECEIPTS WERE FROM LOCAL BANKS FROM WHICH THEY TFD. IT

IS THAT A MATTER OF NON COMPLIANCE WITH ANY OF THE ACCOUNTING STANDARDS/ SERVICE TAX RULES.WHAT SOULD WE DO AS INTERNAL AUDITORS???

Replies (2)

Gautam Joshi

Partner

361 Points Posted on 02 November 2009

Hi Gaurav,

Nice question. Your company must be submitting monthly or quarterly profit and loss statements to higher management. What you need to ensure as an internal auditor is whether they have booked ST liability in the month of receipt from debtors and not in the month of payment of ST dues to government.

If they have paid with interest (as said by you) than they need to provide ST liability in the month of receipt from debtors and cristilise the same in the month in which actual payment of dues is made with interest.

If the above policy is not followed than company though seriously not violating any AS but surely not complying internal controls and policy of preparation of periodical financial statements, if any. In clear ways, its showing higher profit (though periodical) by not making provision of ST dues in the month of receipt from debtors.

Gautam Joshi

Partner

361 Points Posted on 02 November 2009

Further, if we discuss about ST rules non-compliance, I believe if you have paid your dues with interest, it would not be a serious violation of ST Rules if we specifically talk about booking of ST liability and making provision.

Moreover, rather than giving your vaulable time in matching CENVAT closing balance of books with last return you submitted, give time to correct it in your next retun. Make sure as per new Excise rules, interest is to be paid on wrongly availed CENVAT Credit as well.

Regards.