1

INDEX

Area Covered Page No.

1. Purchase Vouching 3

2. Purchase order/Works order 5

3. Goods Received Note (GRN) 5

4. Sales Vouching 7

5. Cash Vouching 10

6. Bank payment Vouching 12

7. Expense Vouching 13

8. Debit note & Credit note register 14

9. Journal Vouching 15

10. Inventory 16

11. TDS 17

12. Fringe Benefit Tax 22

13. VAT setoff/Retention/VAT TDS 26

14. Service Tax 28

15. Debtors Ledger Scrutiny 29

16. Creditors Ledger Scrutiny 30

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A.M. JAIN & CO. 103, Malhotra Chambers,
CHARTERED ACCOUNTANTS 31/33, Police Court Lane,
Fort, Mumbai-400 001.
Tel: 22622503/56355022
Fax: 2265 4662
Email: arunkjain1@vsnl.com

CHECKLIST FOR AUDIT

CHECKLIST FOR AUDIT OF PURCHASE DEPARTMENT:

A. Broadly following areas to be covered during audit of Purchase department:

a) Copy of indents from respective manufacturing/stores department.

b) Purchase Order for terms & conditions & for passing bills for payments.

c) Goods Receipt Note/ Material Receipt note (GRN/MRN). (Check whether separate series
is maintained for Raw materials & other purchases-If yes check that all GRN/MRN must
be serially numbered & in continuous order.

d) Delivery Challan of Party.

e) Lorry Receipt (L.R) & freight bill of transporter. (Also check whether declaration received
from transporter for abatement in service tax payments)

f) Octroi receipt-Wherever applicable.

g) Weightment slip/Packing slip.

h) Quality/Test/Inspection Report.

i) Original Invoice (Performa invoice must be followed by original commercial invoice).

j) Tax invoice where VAT is applicable. (Also check whether VAT & CST registration number
mentioned on the invoice or not)

k) Excise gate pass where the cenvat claim applicable with details of entries in RG-23
records for inventory recd & cenvat availed.(Also check whether Excise registration no. of
party printed on gate pass or not).

l) Checklist for account head-whether capital/revenue/stores/trading items/store items etc.

(If system introduced)

m) If purchase is against any specific form-Check whether form is issued/collected as the

case may be. (VAT/CST/Octroi & other applicable forms to be checked)

n) Custom duty payment challan in case of Import.

o) Clearing & Forwarding bill in case of imports.

p) Bill of Entry/Shipment bill/Bill of lading in case of Imports.

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q) For combine contract for purchase & works contract- Check applicability of Service tax &
TDS.

r) Debit note issued by us & credit note issued by party for purchase returns/Rate
difference/shortages/Trade & other discount/commission etc.

s) Debit note for purchase returns must be supported by our rejection invoice, delivery &
packing challan etc.

t) Rate difference invoice. (If supplementary invoice is raised subsequently for disputed
items with retrospective effect).

u) In addition to supporting following must be checked thoroughly:

 Date of invoice,

 Basic Rate,

 Rate of Excise duty, Edu cess, VAT, CST, TCS charged in bill,

 Inventory accounting.

 VAT bill must have printed remark or stamp of Tax Invoice & VAT/CST registration
numbers & applicable forms.

 Registration numbers on Excise gate pass.

 Freight, Transport & Octroi, packing & other charges levied in bill.

 Discounts/commission.

 Service tax in case of combined contract for purchase & labour charges-If applicable.

 VAT TDS-Wherever applicable.

 Account code/head debited/Credited in financial books.

 Product code/head debited for items purchase.

 VAT classification and assessable value selected for VAT & excise reporting.

 Entries in excise records (inventory & cenvat wherever applicable)

 Compliance of accounting policy & applicable accounting standards.

 Transactions with related party-Reasonableness of terms & conditions

 Data required for tax audit must be noted separately e.g. CIF value of
imports, payment to relatives etc.

 VAT setoff to verify considering VAT negative list & retention rule
applicable to that product. Also verify reconciliation with VAT/CST returns.

 Transfer pricing if transaction with associated foreign concern.

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  Board resolutions for transactions with related parties & for capital
expenditure.

B. ACCOUNTS HEAD:

Following parameters to be kept in mind while deciding/verifying account head:

a) Whether capital or revenue expenditure? Considering the description of material, use of

material, and remark on supporting bill or checklist.
b) Imported or indigenous?
c) VAT classification to be checked & decide whether Tax free, Local rate, URD, CST, or
against any other forms (As required by sales tax law applicable during the period.)
d) Specific head i.e. Raw material, Stores & spares, Consumables, Loose tools, Repairs &
Maintenance-Plant & Machinery, building or other assets, printing & stationery, fixed
assets etc.

C. AUTHORISATION:

Verify authorization of all the documents. Take the list of authorized person for each type of
documents and than check whether all documents are duly authorized or not?

D. PURCHASE ORDER/WORKS ORDER:

Following points to be kept in mind while verifying Purchase order/Works order:

a) It must be in continuous series.

b) Purchase order date must be prior to material receipt date.
c) Amendment in order must have remark as amendment order and also reference of
original order.
d) Reference of amendment order must be given on original order also.
e) Order must show following details clearly:
i) Quantity, items description, description of work to be done.
ii) Basic Rate
iii) Excise duty Rate & Cess.
iv) Separate Excise gate pass (Wherever cenvat benefit available).
v) Discount if any (Cash discount, trade discount or commission)
vi) Freight to be paid by whom?
vii) Packing, forwarding charges & Octroi terms.
viii) Sales Tax & VAT TDS terms as applicable.
ix) Tax Invoice for VAT Credit & Forms applicable for concessional tax rates.
x) Payment terms.
xi) Delivery terms.
xii) Item is of capital or revenue nature.
xiii) Any other requirement if any.

E. GOODS RECEIVED NOTE/ MATERIAL RECEIPT NOTE (GRN/MRN) :

Following points to be kept in mind while verifying GRN/MRN:

a) GRN must be in continuous series.

b) Delivery challan to be compared with GRN for quantity, item etc.
c) Weightment slips to be compared with GRN for quantity.
d) Values & quantity in GRN to be compared with purchase order and also with bill of party.
Details of debit note to be raised must be clearly mentioned on voucher/GRN/Bill. Also
confirm entry of debit note & adjustment of Debit-note at the time of payment.

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 e) GRN must be prepared immediately on receipt of material at factory gate. (i.e. GRN date
must match with date stamp marked by security at the time of receipt of material)

F. ON ACCOUNT PAYMENTS:

Following points to be kept in mind while verifying on account payments to supplier:

a) Payment should not exceed total bill value and must be debited to party account
wherever expense liable for TDS.

b) If payment is made against Performa invoice or against purchase order, calculation must
be done as per terms & condition of purchase order before releasing payment. (e.g.
Basic rate, Excise duty, Cess, Sales Tax, Freight, transport, packing & forwarding cost,
Discount etc,)

c) Applicability of TDS (contractors) to be checked if bill includes labour charges.

d) VAT TDS to be checked if main contract is for works contract.

G. FINAL PAYMENT:

a) All supporting must be attached with voucher as per list given above.

b) Due date must be confirmed from Purchase order.

c) Discount terms must be confirmed as per Purchase order.

d) On account payments to be adjusted.

e) Debit note must be adjusted.

f) Cash payment should not exceed Rs. 20,000/- at a time.

g) Only account payee cheque if amount exceeds Rs. 20000/-.

h) Paid stamp showing Cheque no., date and amount must be affixed on purchase bill.

i) TDS deducted wherever applicable (if bill includes labour charges/ works contract).

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CHECKLIST FOR AUDIT OF SALES DEPARTMENT:

A. SUPPORTINGS:

Following supporting to be verified during sales vouching:

a) Purchase Order of party (P.O)/ Sales order (if prepared).

b) Agreement copy of each broker to know rates of commission and discount.

c) Packing Slip/Weightment slip.

d) In case of Export sales-Bill of lading, shipment bill, packing list, bank realization certificate &
other related export documents like freight, insurance or clearing bills.

e) Verify export incentives-wherever applicable against each export transactions.

f) Verify transactions for sale of DEPB licenses-Rates, Taxes collected, Profit/(loss) entry &
licenses on hand.

g) In case of Deemed Export- Declaration from party and also check whether all benefits like
Excise duty, DEPB benefit, Sales Tax benefit etc. passed on as per purchase/sales order.

h) Quality/Test/ Inspection Report.

i) Delivery Challan duly acknowledged by party.

j) Original Invoice (Commercial tax invoice or excise invoice copy in case of manufacturing
concern.

k) Rejection invoice (excise copy) of customer & credit note of party for availing cenvat credit in
case of sales return.

l) Verify reversal of all taxes in case of Sales return, Rate difference credit notes.

m) Whether taxes collected (Excise duty and sales tax if applicable) on sale of fixed assets.

n) TCS collected to be reconciled with TCS returns.

o) Entries in excise records-Dispatch, duty payment & sales rejection u/r 16(2).

p) Cross tally the accounts with ER-1 returns submitted to Excise departments.

B. ACCOUNTS HEAD & OTHER RELATED ISSUES:

Following parameters to be kept in mind while verifying account head:

Account head:

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a) Customer account.

b) Verify address of customer to check local or interstate sales.

c) Whether export sales, deemed export sales or sales with in India?

d) If sales with in India – Whether Local sales or Interstate sales?

e) If it is export sales whether it is a trading sales or manufacturing sales?

f) If it is deemed export sales- which benefits accrued to us? E.g. Excise, DEPB, Sales Tax etc.

g) If Export sales –Verify compliance of accounting standard (AS-11) for Export to be decided in
advance. Rate & time of booking sales invoice & entries for fluctuation gain/(loss) at time of
realizations.

Sales Tax & Forms:

h) If Local sales – Whether Taxable sales, Sales against specific forms, Tax free sales? Confirm
the sales tax rates, tax invoice raised & whether forms received or not?

i) If Interstate Sales - Whether against C form or against full tax? Confirm the sales tax
charged and whether forms received or not?

j) Product wise sales tax rate list to be taken before vouching sales.

Discount & Commission to Brokers:

k) Sales through Broker or Direct Sales?

l) If it is through broker - commission entry to be verified & check whether TDS deducted at
applicable rates. Further check commission bill of party & service tax credit entry if
applicable.

m) Commission working is to be verified from rates agreed with each brokers.

n) Whether discount is applicable? Cash discount or trade discount?

o) Discount working is to be verified with reference to rates, quantity, collection period and
terms with each broker.

Other Issues:

p) Whether Sales Invoices are in continuous series?

q) If any invoice is cancelled – whether original cancelled invoice copy available. Further
whether the same is informed to excise department? Related correspondence with excise
department to be verified.

r) Quantity in invoice to be verified from Packing Slip, delivery challan and also purchase order
of party if received.

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s) Rate, Excise duty, Sales Tax, packing & forwarding charges, freight, and discount in invoice is
to be verified from purchase order of party or our sales order (if prepared) or any other
procedure adopted to know these criteria.

t) Break-up of Sales between Basic amount, Excise duty, Cess, Sales Tax, Turnover tax,
Surcharge, Education Cess, Packing & forwarding charges, freight, TCS etc to be verified
from sales register.

u) Acknowledgment on all delivery challans for confirming receipt of material by party.

v) Authorization of Delivery challan & invoice.

w) Whether entries done in Excise records for quantity dispatched and excise duty debited in RG
records? Confirm the amount & quantity.

x) Monthly reconciliation of RG records with financial books. (For quantity & excise duty.)

y) Whether Packing, Forwarding and freight amount charged in invoice wherever applicable? Or
charged separately through debit note to party.

z) Bill wise outstanding debtors list must be generated periodically for review and deciding
doubtful debts, follow-up as per due dates, any credit note if required due to quality
problem, rate difference, shortages etc.

aa) All credit notes/debit notes must be supported by debit notes/credit notes of other party.

bb) Check applicability of TCS. If TCS applicable –Verify rate at which collected or verify
exemption certificate/declaration received for non collection of tax?

cc) Transactions with related party-Reasonableness of terms & conditions

dd)Data required for tax audit must be noted separately e.g. FOB value of Export,
earning in foreign currency etc.

ee) Sales figures to be reconciled with VAT & CST returns.

ff) Transfer pricing if transaction with associated foreign concern.

gg)Board resolutions for transactions with related parties.

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CHECKLIST FOR AUDIT OF CASH DEPARTMENT:

Following points to be kept in mind while verifying Cash vouchers:

a) Cash vouchers must be in a continuous series.

b) If expenses booked directly – Supporting bills/Tickets/or details of journey for local

conveyance to be verified.

c) Each cash voucher must be authorized by cashier & authorized signatory.

d) All cash vouchers must have receiver’s sign and rubber-stamp wherever possible.

e) All cash vouchers exceeding Rs.5,000/- must have revenue stamp if supporting bill not
available.

f) If loan given to staff/worker- Letter requesting loan required, repayments schedule and
sanction from management to be verified.

g) Receipt from party if payment is made against any bill. Receipt must have revenue stamp if
amount exceeds Rs. 5,000/-.

h) All cash payment to creditors for which separate ledger code is available or to which TDS is
applicable must be debited to party account instead of directly debiting to expense account.
E.g. Freight, Transportation, Courier charges, AMC for maintenance, Printing & stationery
payments, insurance etc. Chances of double booking & double payment and non-deduction
of TDS can be avoided if we follow this procedure consistently & strictly.

i) Payment is to be made net of TDS if TDS is applicable. Entry for TDS to be passed
immediately.

j) Cash payment at a time should not exceed Rs.20,000/- for any expenses.(Except payment to
Governments or purchase of plant & machinery.

q) Each loan transactions i.e. receipt of loan or repayment of loan amount should be through an
account payee cheque or account payee draft only if loan account exceeds Rs.20000/- at any
time during the year.

r) Negative cash at any time to be noted.

s) Cash deposit & Cash withdrawal date must match with bank statement.

t) Expenses of personal nature? Reasonableness of expenses? To check.

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 u) Confirm whether account head is proper or not considering narration and supporting
attached with vouchers & keeping in mind VAT/Excise/Service Tax credits, TDS & FBT
provisions.

v) Reconciliation of factory & head-office cash transfers.

w) IOU’s to be cleared immediately through accounting expenses or passing entries in the

books.

x) Correction on vouchers not to be allowed. A fresh voucher is to be prepared if any mistake is

noticed with the approval of appropriate authority.

y) Compliance of accounting policy & accounting standard. (Deviation to be noted separately).

z) If any direct expense liable for FBT, it must be debited to respective ledger created for FBT
calculations.

aa) To sum–up special care is to be taken for following points while verifying cash vouchers:

i) Capital or revenue expenditure?

ii) Prior Period expenses?
iii) Unreasonable higher expense claimed?
iv) Period of expense? Entry for prepaid expenses if required.
v) Payment against outstanding liabilities?
vi) Payment of personal nature not allowed to be noted separately for tax audit report.
vii) Cash payment exceeding Rs. 20,000 not allowed.
viii) Loan payment/receipt in cash not allowed if loan account reaches Rs. 20,000/-or
more.
ix) TDS required to be deducted?
x) VAT/Excise/Service tax credit applicable/availed.
xi) Authorization of vouchers?
xii) Receiver’s signature on all the vouchers?
xiii) Revenue stamps on all vouchers exceeding Rs.5,000/-?
xiv) Negative cash to be checked?
xv) Proper account heads? (Compliance of Vat, Excise,Service-Tax,Tds & Fbt requirement
to be checked)
xvi) All payments must be routed through party account wherever TDS applicable.
xvii) Serially numbered vouchers as per date?
xviii) Proper supporting & complete narration?
xix) Physical & books balance must reconcile at any point of time-Surprise check.
xx) IOU’s to be cleared immediately through accounting expenses or passing entries in
the books.

Note: Tax audit reporting data to be noted separately at the time of vouching itself showing
complete voucher details for following items.

a) Payment to relatives.

b) Cash payment in excess of Rs.20000/-

c) Payments to clubs.

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 d) Foreign currency earning & outgo.

e) Payment of any penalty with nature of penalty.

f) Capital expenses debited to Profit & loss account.

g) Personal expenses debited to profit & loss account.

h) Prior period expenses debited to Profit & Loss account.

CHECKLIST FOR AUDIT OF BANK DEPARTMENT:

Following points to be kept in mind while verifying bank vouchers:

a) Bank vouchers must be in a continuous series.

b) If expenses booked directly – Supporting bills/Receipts to be verified.

c) Person making the vouchers & authorized signatory must authorize each bank voucher.

d) If loan given to staff/worker- Letter requesting loan required, repayments schedule and sanction
from management to be verified.

e) Receipt from party if payment is made against any bill.

f) All payments to supplier for which separate ledger code is available or to which TDS is applicable
must be debited to party account instead of directly debiting to expense account. E.g. Freight,
Transportation, Courier charges, AMC for maintenance, Printing & stationery payments,
insurance etc. Chances of double booking & double payment and non-deduction of TDS can be
avoided if we follow this procedure consistently & strictly.

g) Payment is to be made net if TDS is applicable. Entry for TDS to be passed immediately.

h) All pending debit notes must be adjusted before releasing any payments. (Exceptions to be
authorized by management)

i) All payments exceeding Rs.20,000/- must be through Account Payee Cheque.

j) Loan transactions i.e. receipt of loan or repayment of loan if loan account exceeds Rs.20,000/-
must be through Account Payee Cheque.

k) Monthly Bank reconciliation to be checked. Balance confirmation to be obtained at year-end. Date

of subsequent realization/clearance to be marked against all the reconciliation items.

l) Stale Cheque entries to be reviewed and to be transferred to Stale Cheque a/c or liability to be
accounted by passing reversal entries.

m) Bank charges & Bank interest and penalty charged by bank must have proper advice and
working.

n) Confirm whether account head is proper or not considering narration and supporting attached.

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 o) Tax audit data to be noted separately as mentioned in Cash vouching checklist.

p) Compliance of accounting policy & accounting standard. (Deviation to be noted separately)

CHECKLIST FOR AUDIT OF EXPENSE REGISTER OR EXPENSES BOOKED THROUGH CASH/BANK

VOUCHERS:

Confirm whether account head is proper or not considering narration and supporting attached with
vouchers and following parameters:

i) Confirm the period for which an expense is incurred. If payment is made against last year’s
provision, book the payment in outstanding liability account or particular expenses payable
account as the case may be. If expense of earlier year paid for which no provision is done in
books, book the expense in prior period expense account. If payment covers the period of
next financial year transfer the proportionate expenses to prepaid expenses account.

ii) Confirm whether an expense is of capital nature or revenue nature?

iii) Confirm whether personal expenses are accounted as business expenditure?

iv) Payment made to related party to be noted separately, and to verify reasonableness of
expenditure.

v) Confirm whether payments made to relatives as per Board resolution and whether entries are
done properly in statutory records.

vi) Confirm whether TDS is applicable-if yes confirm the deduction entry done or not?

vii) Confirm taxes levied like service tax, octroi, sales-tax etc. are proper or not & whether credit
availed wherever applicable.

viii) Confirm whether expenses incurred are with in limit sanctioned to each department or
person?

ix) Confirm whether purchase order is raised for particular capital or revenue expenditure or any
works contract is issued for any particular expenses? If yes –whether expenses are
accounted on the basis of said order or works contract? All terms & conditions of P.O &
works contract must be verified thoroughly i.e. material ordered, quantity, rate, taxes,
discount etc.

x) Whether expenses are accounted for full 12 months? If not-Reason?

xi) Whether provision is made for all accrued expenses?

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 xii) Confirm whether all supporting are duly attached with expense voucher like Bill/Excise
Invoice, GRN copy, purchase order, LR copy of transporter,
delivery challan etc.

xiii) All expense vouchers must be authorized.

xiv) Whether expense exceeding Rs.20,000/- is incurred in cash? If yes split the same in two
different dates/vouchers.

xv) Confirm expense bill is in the name of company?

xvi) Confirm whether all statutory deductions are made as per applicable law i.e. TDS, TCS, PF,
Profession Tax, MLW etc.

xvii) Verify accounting code, ledgers & entries considering FBT, VAT, TDS & Excise provisions.

CHECKLIST FOR AUDIT OF DEBIT NOTES & CREDIT NOTES REGISTER:

A) Reasons for raising credit notes:

1. Sales Return.

2. Due to shortages in material dispatched to customer as compared to bill quantity.

3. Quality problem-Rejection of material or quality discount.

4. Due to Rate difference.

5. Inter-party account adjustments.

6. Reimbursement of freight, transportation, insurance, bank charges/interest or

packing charges etc to the customer.

7. Quantity/Trade & Cash discount.

8. Commission Payable-if any.?

9. Interest payable to supplier for delayed payments.

10. Any other recoveries by supplier like freight, transportation, bank charges or for taxes.

B) Following points to kept in mind while verifying credit notes:

a) All Credit notes must be in continuous series as per date.

b) Verify whether Sales tax, Excise duty or any other taxes levied in invoice is reversed? And
also verify whether proper account is debited/credited or not?

c) Narration of Credit notes must be clear & in detail.

d) Check the credit notes adjusted by customer while making payments to us.

e) Cenvat credit & inventory accounting for sales return u/r16(2) in excise records

f) All Credit notes must be supported by necessary document, e.g.

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 i) Delivery challan of party/Sales Rejection Invoice for claiming cenvat.

ii) Purchase/sales order & working of rate difference, discount, commission,

freight/transportation or packing charges etc.

iii) Bank advice for reimbursement of bank charges/int./LC charges etc.

iv) Inspection report/MRN of party & GRN copy for quality problem and quantity
received back.

v) Interest working for interest to be payable to supplier.

vi) Debit notes of party.

CHECKLIST FOR JOURNAL VOUCHING:

1. Voucher must be in a continuous series.

2. Voucher must have complete narration.

3. Narration must be clear in language. (Check whether rectification entry passed or tax/expenses
provision, or book closure entries done?).

4. In case of rectification journal, narration must show reason for rectification, earlier wrong account
debited or credited and what correction done.

5. Check whether proper supporting attached with voucher if any expense booked through journal.

6. Each journal must be duly authorized by authorized person.

7. Check whether excise duty , sales tax, Service tax, TDS, Fringe Benefit Tax, Inventory
account & any other statutory accounts & reports are linked to journal voucher or not?
If not linked check how effect is given separately.

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CHECKLIST FOR AUDIT OF INVENTORY:

QUANTITATIVE DETAILS:

a) Item wise inventory ledger to be checked.

b) Negative inventory if any to be noted.

c) System of ascertaining dead and slow moving and damaged stock to be checked.

d) System of monitoring stock level to be checked (Especially for stores).

e) Periodic physical verification of inventory & reconciliation with book stock.

f) Reason for major discrepancies to be ascertained- whether theft or any other reason?

g) Check whether necessary effect is given in the books for variation in physical & book stock.

h) Ratio analysis of material consumed with production achieved.

i) Cross verify quantity with Excise record & Vat returns filed.( (check RG Part-I, E.R-1 monthly returns
& monthly VAT Returns)

j) Cut-off date transactions to be scrutinized and verify that:

i) All sales made/invoices raised but stock lying in factory is to be excluded from our
inventories.
ii) All purchases for which ownership is passed to us though lying in transit is to be included in
our inventories as stock in transit.
iii) All inventories lying with other party on our behalf is to be included in our inventories.
iv) All inventories lying in our factory on behalf of other party is to be excluded from our
inventories.
v) In case of Export sales ownership is passed on to customer only when stock crosses the
Indian water territories. (Refer Red Book to know the exact date.)
vi) In case of Import purchase ownership is passed to us on material reaching Indian water
territories.

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VALUATION OF INVETORIES;

a) Method of stock valuation adopted and accounting policy for valuation of stock is to be
checked. (e.g. FIFO, At cost or market value whichever is lower)
b) Whether any change in method of valuation of inventories from method adopted in
immediately preceding financial year.
c) Whether method of valuation is adopted consistently.
d) Compliance of accounting standard-2 of Companies Act, 1956 for valuation of inventories to
be checked.
e) Damaged stock is to be separated & to be values at realizable market value.
f) Valuation of WIP is to be checked considering the stage of completion or as per accounting
policy adopted by the company.
g) Check whether taxes, excise duty, freight etc. is included/excluded as per accounting policy
of the company.
h) Check whether deviation in method of valuation as given in section 145A of Income tax Act.

CHECKLIST FOR DEDUCTION OF TDS:

1. Check whether TDS is deducted from all the payments/credits wherever TDS is applicable at proper
rates and also at proper time? (Refer Checklist for rate & criteria for deduction of TDS).

2. Check whether TDS deducted on advances wherever payments made in advance for items liable for
TDS.

3. Check party wise TDS liability & entries for deduction and payment of TDS in books to be verified.
Verify TDS Challans for payments of TDS shown in books.

4. Check whether TDS deducted is paid to the credit of central govt. with in due date? Delays to be
noted separately for reporting.

5. Copy of certificate to be obtained for wherever TDS is not deducted or deducted at lower
concessional rates. (Applicability of certificate & period for which certificate issued is to be verified.)

6. Check TDS certificate issued considering following criteria:

a) Amount credited/paid,
b) Rate of TDS, Surcharge, and Cess,
c) Date of issue of certificate,
d) PAN & Address of deductee & deductor,
e) Period of certificate,
f) Original or duplicate,
g) Signature on certificate by authorized signatory etc.

7. Check whether quarterly returns filed with appropriate authorities?

8. Whether interest is paid for delayed payments? Check interest working.

9. Cross tally data filed in quarterly returns with data reflecting in financial books.

10. To check expenses disallowed due to non-deduction of TDS or due to payments of TDS in next
financial year after due date.

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 11. Collect & verify the data required for Tax audit reporting in respect of following clauses:

a) TDS applicable but not deducted at all.

b) TDS short deducted

c) TDS deducted late.

d) TDS deducted but not paid to the credit of central government.

e) Disallowance u/s 40(a)(ia)

f) Undisputed TDS & interest on TDS outstanding for a period of more than 6 months from the date
it was due.

g) Disputed TDS & interest on TDS outstanding for a period of more than 6 months from the date it
was due.

h) Contingent liability if any.

TDS rules & rates applicable for the financial year 2006-2007 (A.Y2007-2008):

A. No tax is to be deducted from any sums payable to

1] The Government
2] Reserve Bank of India
3] The Corporation established by or under a Central Act which is exempt from Income Tax by virtue of any law.
4] A mutual fund specified under section 10(23D)

B. Tax is to be deducted in following cases at the time of payment

Sect. Nature of Payment Payer Payee Rates of Deduction
192 Salary Deduct if tax is Any person Any person 1/12th of tax payable calculated in the manner
payable on Salary income after specified in column 3 and following the rates

a) Specified Where the total income Rate

Exemption
u/ s.10.
b) Loss under < Rs. 1,00,00 NIL
“Income from
house property”

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 c) Deduction u/ss  Rs. 1,00,000 < 10% of the amount
. 80C, 80CCD  Rs.1,50,000  Rs. 1,00,000
80CCC, 80D,
80DD, 80DDB 80E, 80G
‘.(specified),
80GG, 80U
And’
[As per section
192 (1A), the employer has
an option not to
deduct tax at source on non-
monetary
perquisites
provided to
employees
and pay the
said tax

>Rs. 1,50,000 < Rs. Rs. 5,000 + 20% of

2,50,000 The amount > Rs.

Rs. 2,50,000 Rs.

25,000+30% of the
amount >
Rs.
2,50,000
If the total
income
exceeds Rs
10,00,000,
10%
surcharge
is’ leviable
on the tax as
‘calculated
above.
Additional
2%
educational
cess is
leviable on
the tax plus
surcharge

193 Interest on Securities Deduct in Any person Any Resident Company 22.44%
cases other than where amount
of interest is payable
a) by widely held company Individuals/HUF/BOI 11.22%
on with Income above
b) debentures to individual Rs.10,00,000 Other
does not exceed individuals/HUF/Co-op.
Rs.2500/-.,
c) to LIC/GIC and other Soc./Local authority /BOI 10.20%
insurance companies.
d) Interest on Central/State Firms 11.22%
Government security.
d) on specified securities.
194A Interest (other than interest on Any person Any Resident Company 22.44%

19
 Deduct in cases other than where other than
amount of interest payable does not individuals and
exceed Rs. 5,000/ HUF who are
not subject
to audit in
the preceding
financial year.
Individual/HUF/BOI 11.22%
with income above
Rs.10,00,000
Other
individuals/HUF/BOI 10.20%

Firms/Co-op. Soc/Local
11.22%

194B Winnings from lottery and Any person Any person Individual/HUF/BOI 33.66%
crossword puzzles including with income above
card game or other game or other game of any Rs.10,00,000
sort Deduct if amount exceeds
Rs. 5,000/- (For winnings
in kind see proviso)
Other individuals/ 30.60%
Co-op. Soc. Local
authority/HUF/BOI
Company/Firms 33.66%
Non domestic Co./Firms 31.365%
194BB Winnings from horse races Any person Any person Individuals/HUF/BOI 33.66%
Deduct if amount with income above
exceeds Rs. 2,500/- Rs.10,00,000
Other 30.60%
individuals/HUF/
Co-op. Soc./Local
Authority/BOI
Company/Firm 33.66%
Non domestic Co./Firms 31.365%
194C(1) Payment to Resident Central or State Any Resident 1. Advertsing 1.12%
Contractors Deduct ifGovt.
sum or Local Authority
Person or
who is a contractor of Contracts:-
exceeds Rs. 20,000/- Corporation
or or Company or Individuals/HUF/BOI
aggregate amt. for theCo-op. Society Any Authority with income
financial year exceeds for housing above Rs.10,00,000
Rs.50,000/- accommodation
etc. Any
Society or Trust
or University
firm
Other 1.02%
individuals/HUF/BOI
/Co-op. Society
Company/Firms 1.12%
2. Other Contracts :
Individuals/HUF/BOI
2.24%
with income above
Rs. 10,00,000
Other individuals/ 2.04%
Co-op. Soc. HUF/BOI

20
 Company/Firms 2.24%
194C(2) Payment to resident Contractors Any Resident Individual/HUF/BOI 1.12%
subcontractor Deduct if sum exceeds Rs. referred above with income above
20,000/- or total amount for the and Individual Rs.10,00,000/-
financial year exceeds Rs. and HUF
50,000/- (ref. Note 3) subject to Tax
Audit in the
preceding
financial year
Other 1.02%
individuals/HUF/BOI/
Co-op. Society
Company/Firms/Soc. 1.12%
etc.
Insurance Commission to Any Person Any Resident Company 22.44%
194D Resident Deduct if amount
exceeds Rs. 5000
Individuals/HUF/BOI with 11.22%
income above Rs.10,00,000
Other 10.20%
individuals/HUF/BOI
Firms/Co-op. Soc etc. 11.22%
194E Payments to Non-resident Any Person Non Resident Individual with income 11.22%
sportsmen/sports association No above Rs. 10,00,000

Other individual/AOP/BOI 10.20%

194EE Payments of deposits under NSS Any person Any person Individuals/HUF with 22.44%
covered u/s.80CCA(2)(a) Deduct income above Rs. 10,00,000
if amount exceeds Rs. 2,500/-
Other individual/HUF etc. 20.40%
194G Commission / Remuneration on Any person Any person Individuals/HUF/BOI with 11.22%
sale of lottery tickets to any person Deduct if income above Rs.10,00,000
amount exceeds Rs. 1,000
Other 10.20%
Individuals/HUF/BOI Co-op. Soc.
Company /Firms /Soc.etc. 11.22%
194H Commission or Brokerage Same as in Any Person Individuals/HUF/BOI with 5.61%
Deduct if amount exceeds Rs. Sec. 194A income above Rs.10,00,000
2500 p.a.
Other
5.10%
individuals/HUF/BOI Co-op. Soc.
Company/Firms etc., 5.61%
194I Rent paid to any person resident Same as in Any Person Individual/HUF with 16.83%
or land, building or building alongwith Sec. 194A income above Rs.10,00,000
furniture and fittings Deduct if
amount exceeds Rs. 120000 p.a.
Other individuals/HUF 15.30%
AOP/BOI with income 22.44%
above Rs.10,00,000
Other AOP/BOI 20.40%

21
 Company / Firms / Co- 22.44%
op. Soc. Etc

194J Fees for professional services Same as in Any Person Individuals/HUF/BOI 5.61%
or technical services Deduct if Sec. 194A with income above
amount exceeds Rs.20000 p.a. Rs.10,00,000
For Individuals and HUF on fees
paid exclusively for personal
purpose are exempt
Other 5.10%
individuals/HUF/BOI
Company/Firms/Co-op. 5.61%

194LA Payments of Compensation on Any person Any resident Individuals/HUF/BOI 11.22%

acquisition of certain with income above
immovable property Deduct if Rs.10,00,000
amount exceeds Rs.1,00,000 p.a.
Other individuals/HUF 10.20%
195 Interest or other sums not being Any Person Non Resident As per applicable
income chargeable under the not being a Company or to a DTAA or as per Part - II of Sch. I of
head “Salaries” Deduct in cases foreign Company the Finance Act, whichever is
other than Dividend u/s.115O beneficial to the assessee

FRINGE BENEFIT TAX

VALUE OF FRINGE BENEFITS S. 115WC :

For the purpose of this Chapter, the value of fringe benefits shall be the aggregate of the following :

22
 Items/Expenses Value of Fringe benefit tax
fringe % Effective Rate
benefit
A. (a) Any Privilege, service, facility or amenity directly or indirectly NIL 30%
. provided to employee by his employer by reason of their
employment (including former employee)
Any reimbursement, directly or indirectly, by the employer to his
employee for any purpose.
Exempt: If any facility has been considered as taxable perquisite in
the hands of employee the same should be excluded. 100% 30%
(b) Any free or concessional ticket provided by the employer to his
employee or his family member for his private journey.
100% 30%
(c ) Any contribution made by employer to the Super Annuation fund
B. Following expenses incurred by employer in course of the business
shall be treated as deemed fringe benefit
(a) Entertainment Expenditure 20% 6%
(b) Expenditure on provision of hospitality of every kind by the 20% 6%
employer to any person except
expenditure on food/beverages provided by the employer to his
employees in office or factory
expenditure through non transferable paid vouchers usable only
at eating joints or outlets
(c) Conference Expenditure including exp. on conveyance, tour and 20% 6%
travel hotel, or boarding and lodging except fee for participation by
the employees in any conference
(d) Sales Promotion Expenditure incl. Publicity except expenditure on: 20% 6%
Advertisement in any print /electronic media or transport system
Press conference or business convention
Sponsorship of any sports event or any event organised by
Govt. agency/trade association
Publication of any notice required by any law
Advertisement by way of signs , art work, painting, etc.
Payment to Advertising agency for purposes specified above.
5% 1.50%
(e) Employees' Welfare Expenditure except expenditure incurred to
fulfil any statutory obligation
mitigate occupational hazards
provide first aid facilities in the hospital
dispensary run by the employer 20% 6%
(f) Expenditure on conveyance, tour and travel (including foreign 20% 6%
travel)
20% 6%
(g) Expenditure on use of hotel, boarding and lodging facilities
(h) Expenditure on repair, running (incl. Fuel) maintenance of 20% 6%
motorcars and the amount of depreciation thereon;
(i) Expenditure on repair, running (incl. Fuel), maintenance of aircrafts 20% 6%
and the amount of depreciation thereon;
50% 15%
(j) Expenditure on use of telephone (including mobile phone)
50% 15%
(k) Expenditure on maintenance of any accommodation
50% 15%
(l) Expenditure on festival celebrations
50% 15%
(m) Expenditure on use of health club and similar facilities
50% 15%
(n) Expenditure on use of any other club facilities
(o) Expenditure on Gifts
(p) Expenditure on scholarships

23
(a) Hotel Hospitality 5% 1.50%
(b) Construction Conveyance, tour and travels 5% 1.50%
(c) Pharmaceutical Conveyance, tour and travels 5% 1.50%
Hotel, lodging and boarding
(d) Software Conveyance, tour and travels 5% 1.50%
Hotel, lodging and Boarding
(e) Business of running & maintaining Any free or concessional ticket provided by the 5% 1.50%
motor cars employer for private journeys of the employees and
their family members.
(f) Business of running & maintaining Any free or concessional ticket provided by the 5% 1.50%
aircrafts employer for private journeys of the employees and
their family members.

CHARGE OF FRINGE BENEFIT TAX S. 115WA :

(1) Fringe Benefit Tax is payable in addition to the Income-tax payable under this Act. It is payable at the rate of
thirty per cent on the value of Fringe Benefits or deemed Fringe Benefits provided by employer to employees.
(2) Even if no income-tax is payable by the employer on his total income-tax on Fringe Benefits shall be payable
by such employer.

FRINGE BENEFITS S. 115WB :

(1) For the purposes of this Chapter, “fringe benefits” means any consideration for employment provided by way
of –
(a) any privileges, service, facility or amenity, directly or indirectly, provided by an employer, whether by way
of reimbursement or otherwise, to his employees (including former employee or employees);
(b) any free or concessional ticket provided by the employer for private journeys of his employees or their
family members, and
(c) any contribution by the employer to an approved superannuation fund for employees.

REIMBURSEMENTS ARE COVERED :

Reimbursements are covered only if they fall within the purview of a ‘privilege, service, facility or amenity’. In other
words, if a reimbursement does not result in a privilege, amenity, etc., to an employee, it will not be regarded as a
‘fringe benefit’.

VALUE OF PRIVILEGE, ETC. FOR FB PURPOSE :

The definition of VFB (which forms the basis for levy of FBT) does not contain any computation formulae for
privilege, service, etc. Thus, even if a privilege, service, etc., is provided there is no computation provision to
determine the quantum of charge of FBT for such privilege.

PROVISION OF FREE OR CONCESSIONAL TICKETS [SECTION 115WB (1)(B) ] : [Section 115WB (1)(b) ] :

Any free or concessional ticket provided by the employer for private journeys of the employees and their family
members is regarded as fringe benefit.
The valuation of the benefit under this clause is given in section 115WC(1)(a) which reads as follows :
"The value of fringe benefits shall be the aggregate of the following; namely –
(a) cost at which the benefits referred to in clause (b) of subsection (1) of section 115WB, is provided by the
employer to the general public as reduced by the amount, if any, paid or recovered from his employee or
employees".

CONTRIBUTION TO SUPERANNUATION FUNDS [SECTION 115WB (1)(C)] :

Any contribution by the employer to an approved superannuation fund is regarded as FB [Section 115WB(1)(c)].
Contributions to unapproved superannuation fund are not covered in this clause.

24
FRINGE BENEFITS PROVIDED TO PERSONS OTHER THAN EMPLOYEES :

Fringe Benefit Tax is payable in respect of Fringe Benefit provided to employees. ‘Employee’ shall have the same
meaning as in S. 15. Therefore, Fringe Benefit Tax shall not be payable in respect of Fringe Benefits provided to
directors who are not employees of the company, advisors retained as professionals or partners of a firm.

FRINGE BENEFITS PROVIDED TO FAMILY MEMBERS OF EMPLOYEES :

Fringe Benefit Tax is payable in respect of Fringe Benefits provided to employees except in the case of free or
concessional tickets for private journey to employees and their family members (u/s. 115WB(1)(b)). It is arguable
that incase of other Fringe Benefits, Fringe Benefit Tax is not payable where Fringe Benefits are provided to the
family members of employees.
One may argue that the words ‘directly or indirectly in S. 115WA(1)(a) would cover Fringe Benefits provided to
family members of employee as it would amount to Fringe Benefit provided indirectly to the employee.

FRINGE BENEFITS TO FORMER EMPLOYEES :

Only S. 115WA(1)(a) covers Fringe Benefits provided to former employees.

S. 115WA(1)(b) & (c) and S. 115WA(2) do not cover Fringe Benefits provided to former employees.

FRINGE BENEFITS PROVIDED OR DEEMED TO BE PROVIDED :

The words ‘provided’ and ‘deemed to be provided’ mean that the Fringe Benefits would be taxable only if they are
actually made available to the employee. Fringe Benefits cannot be taxed on the basis that the employee is entitled
to the Fringe Benefit.
(2) The fringe benefits shall be deemed to have been provided by the employer to his employees, if the employer
has, in the course of his business or profession (including any activity whether or not such activity is carried on
with the object of deriving income, profits or gains) incurred any expense on, or made any payment for, the
following purposes, namely –
(A) entertainment;
(B) provision of hospitality of every kind by the employer to any person whether by way of provision of food or
beverages or in any other manner whatsoever and whether or not such provision is made by reason of any
express or implied contract or custom or usage of trade but does not include –
any expenditure on, or payment for, food or beverages provided by the employer to his employees in
(i)
office or factory;
any expenditure on or payment through paid vouchers which are not transferable and usable only at
(ii)
eating joints or outlets;
(D) sales promotion including publicity :
Provided that any expenditure on advertisement -
(i) being the expenditure (including rental) on advertisement of any form in any print (including journals,
catalogues or price lists) or electronic media or transport system;
(ii) being the expenditure on the holding of, or the participation in, any press conference or business
convention, fair or exhibition;
(iii) being the expenditure on sponsorship of any sports event or any other event organized by any
Government agency or trade association or body;
(iv) being the expenditure on the publication in any print or electronic media of any notice required to be
published by or under any law or by an order of a court or tribunal;
(v) being the expenditure on advertisement by way of signs, art work painting, banners, awnings, direct mail,
electric spectaculars, kiosks, hoardings, bill boards or by way of such other medium of advertisement;
and
(vi) being the expenditure by way of payment to any advertising agency for the purposes of clauses (i) to
above, shall not be considered as expenditure on sales promotion including publicity;

(E) employees’ welfare.

Explanation – For the purposes of this clause, any expenditure incurred or payment made to fulfill any
statutory obligation or mitigate occupational hazards or provide first aid facilities in the hospital or dispensary
run by the employer shall not be considered as expenditure for employees’ welfare.

25
(F) conveyance, tour and travel (including foreign travel);
(G) use of hotel, boarding and lodging facilities;
(H) repair, running (including fuel), maintenance of motor cars and the amount of depreciation thereon;
(I) repair, running (including fuel) and maintenance of aircrafts and the amount of depreciation thereon;
(J) use of telephone (including mobile phone) other than expenditure on leased telephone lines;
maintenance of any accommodation in the nature of guest house other than accommodation used for training
(K)
purposes;
(L) festival celebrations;
(M) use of health club and similar facilities;
(N) use of any other club facilities;
(O) gifts; and
(P) scholarships.
(3) For the purposes of sub-section (1), the privilege, service, facility or amenity does not include perquisites in
respect of which tax is paid or payable by the employee.

IN THE COURSE OF :

In case of an assessee carrying on a business the DFBE shall be taxable only if the expenditure is incurred in the
course of the business.

BEFORE COMMENCEMENT OF BUSINESS :

The expenditure should be incurred in the course of business, suggests that the business should be carried on
when the expenditure is incurred. The expenditure before commencement of business is not subjected to FBT.

RELEVANCE OF METHOD OF ACCOUNTING U/S 145 :

On the basis of the language of the provision, the deeming fringe benefit event is taxable when the expense is
incurred or payment is made whichever is earlier on the other hand, it could be argued that the words ‘incurred’ and
‘payment’ have been used in section 115WB to cover the situation where the assessee is maintaining accounts on
Mercantile system and cash system respectively.

SCOPE OF THE PROVISIONS :

There could be different views on the scope of the provision relating to Deemed Fringe Benefits (DFB). The entire
expenditure has to be classified into three categories:
(a) expenditure which is solely attributable to non-employees;
(b) expenditure which is solely attributable to employees;
(c) expenditure which is attributable partly to employees and partly to non-employees.
The VFB should be restricted to ( b) and that portion of ( c) which is attributable to employees.
The Finance Minister has stated that :
"The provisions are introduced to tax benefits which are usually enjoyed collectively by the employees and cannot
be attributed to individual employees."

VAT SET OFF, RETENTION & VAT TDS RULES APPLICABLE TO MAHARASHTRA (2006-07)

Retention in set off (RULE 53) :

In certain circumstances set off granted will be reduced. Following are such circumstances:

Circumstance Reduction From Set Off Amount

1) Purchase of fuel. @ 4% of purchase price (PP) of taxable
goods used as fuel.

26
 2) Manufacture of tax free goods. @ 4% of PP of taxable goods (other than
capital assets and fuel).
3) Resale of tax free goods. @ 4% of PP of corresponding packing
material used to pack tax free goods.
4) Transfer of taxable goods to @ 4% of corresponding PP (other than
branch in other State or to agent capital assets and fuel).
in other State.
5) If opted for composition scheme 9/25 of tax amount (thus only 16/25=64%
on works contract. of tax is eligible as set off).
6) Business discontinued or not No set off on closing stock (other than
continued by successor. capital assets) on the date of such event.
7) If the receipts from sale of goods Set off is available only on those goods
is less than 50% of the gross which are sold or consigned or used in
receipts of the business. manufacturing or packing of the goods sold
or consigned.
8) If retailer of liquor holding specific Set off available = set off allowable on
liquor license, effect sale of liquor purchase x selling price + MRP value of the
at the price lower than MRP. liquor sold.

The Claimant dealer shall deduct the amount required to be reduced under this rule from the amount of set-off
available in respect of the period in which the contingency specified in this rule occurs and claim only the
balance amount as set-off and when the amount so required to be deducted exceeds the said amount of set off
available in respect of that period, he shall pay an amount equal to the excess at the time when he is required
to pay the tax in respect of the said period. [Rule 53(8)].
Non Admissibility of Set off – Negative List (Rule 54)
Following purchases of goods are not eligible for set off :
1) Motor vehicles, (except goods vehicle), if treated as capital assets and their parts
components and accessories. However, a dealer dealing in sale of motor vehicles or leasing
of motor vehicles is entitled to set off.
2) Motor spirits, as notified u/s 41(4) unless it is resold or transferred to branch or agent
outside the State.
3) Crude oil described in Section 14 of the C.S.T Act, if it is used by refinery for refining.
4) If a dealer is engaged in pure job work or labour work and where only waste/scrap is sold
then no set off will be granted on consumables and capital assets.
5) Unit covered by package scheme of Incentive under exemption scheme or deferment
scheme is not entitled for set off of tax paid on "raw materials" as defined in Rule 80.
However, it can claim refund of tax paid on such purchases, which will be equal to set off.
6) Incorporeal or intangible goods like trademark, patents, copyrights and sim cards are not
eligible for set off. Import licenses, exim scrips, export permits license/ Quota and DEPB are
eligible for set off. Software packages are eligible for set off only if resold (traded).
7) Purchases effected by way of works contract where the contract results in immovable
property.
8) Purchase of building materials, if the same are not resold but are used in construction
activity.
9) Purchase of office equipments, furniture, fixture and electrical installations if such goods
purchased are treated as capital assets

(IX) T.D.S PROVISIONS FOR WORKS CONTRACT TRANSACTIONS (SECTION 31 AND RULE 40)
The TDS provisions were there under the earlier Maharashtra Works Contract Act, 1989. Under VAT
Act also the provisions are continued but with certain changes. The important ingredients of the
provisions can be noted as under.
1. Section 31 of the MVAT Act authorizes the Commissioner of Sales Tax to bring suitable TDS
scheme in respect of sales. The TDS provisions can be for any normal sale or for Works Contract

27
 etc.
2. At present the TDS is made applicable to Works Contract transactions.
3. By Notification dated 28.8.2005, the State Government has specified the list of employers liable
to TDS and the rates of TDS.
4. The list of employers liable for deduction of TDS and rate of TDS are as under:

SCHEDULE

Sr.No Classes of Employers Amount to be deducted.

1 The Central Government and any 2% of the amount payable as above in
State Government. the case of a contractor who is a
registered dealer and 4% in any other
case.
2 All Industrial, Commercial or Trading -do-
undertakings, Companies or
Corporation of the Central
Government or of any State
Government, whether set up under
any special law or not , and a Port
Trust set up under the Major Ports
Act, 1963.
3 A company registered under the -do-
Companies Act, 1956.
4 A local authority, including a Municipal -do-
Corporation, Municipal Council, Zilla
Parishad, and Contonment Board.
5 A Co-operative Society excluding a -do-
Co-operative Housing Society
registered under the Maharashtra Co-
operative Societies Act, 1960.
6 A registered dealer under the -do-
Maharashtra Value Added Tax Act,
2002.
7 An Insurance or Finance Corporation -do-
or Company; and any Bank included
in the Second Schedule to the
Reserve Bank of India Act, 1934, and
any scheduled Bank recognized by
the Reserve Bank of India.
8 Trusts, whether public or private. -do-
9 A Co-operative Housing Society -do-
registered under the Maharashtra Co-
operative Societies Act, 1960 which
has awarded contracts of value
aggregating to Rupees 10 lakh or
more in the previous year or as the
case may be, in the current year.
CHECKLIST FOR SERVICE TAX

1. Verify whether service tax applicable on any service rendered by the client.

2. If service tax applicable, check whether service tax charged in all bills pertaining to that services.

3. Verify the rate of service tax charged in the bill.

28
 4. Check whether service tax collected is paid with in due dates.

5. Cross tally the service tax collected & paid with half yearly service tax returns.

6. Cross tally service tax payable with creditors outstanding against those services.

7. Check whether service tax credit taken on input services as per cenvat credit rules? (For availing
service tax input credit either of following two conditions must be fulfilled:

a) Output service liable for service tax or

b) Client is a manufacturer

8. Check whether service tax credit availed on freight inward only? (Credit not available for freight
outward paid for dispatches)

9. Check utilization of service tax credits on input.

10. Reconcile service tax credit availed, utilized and outstanding in books with excise cenvat register and
E.R-1 monthly returns.

11. In case of transport/freight bills check whether service tax is payable by consignor or consignee?

12. If service tax paid by consignor, no need to pay service tax again by the consignee. In such cases
check whether cenvat credit availed on such freight bills?

13. If consignee is liable for service tax, check whether service tax was paid or not if either single L.R
exceeds Rs.750/- or if freight for consignment (having more than one L.R) exceeds Rs.1500/-?

14. Check whether abatement is applicable?

15. If abatement is claimed verify whether declaration is received from transporter stating non availment
of cenvat credit on input, spares & capital goods purchased by him for transport business.

In addition to above, check whether following conditions fulfilled before availing cenvat credit:

1. Registered excise address for claiming cenvat credit.

2. Bill must be raised at the registered excise address.

3. Bill must have service tax registration number of creditors.

4. Service tax must be charged separately in the bill or it must be separately paid by client in case
of transport inward service.

5. Debit note or credit note having service tax effect must contain the word Invoice and also
service tax registration numbers.

CHECKLIST FOR LEDGER SCRUTINY:

CUSTOMER/DEBTORS LEDGER:

a) Check opening balances.

29
 b) Check double bill booking if any.

c) Check bill wise payment received and credit notes adjusted against the bill.

d) Check inter party adjustment entries through JV’s if any.

e) Bill wise/Age wise outstanding details to be verified. (Outstanding more than & less than 6
months to be noted.)

f) Related Parties transactions and outstanding balances to be verified from Board resolution &
register maintained under section 301 of the Companies Act, 1956.

g) List of doubtful debts to be confirmed from management.

h) List of Bad debts to be confirmed & necessary provision to be done in books as per section 36 of
the Income Tax Act.

i) Payment due from directors or from firms, companies or from bodies under the same
management, or from relatives of directors is to be noted. Comparison of transactions and terms
& conditions, prices etc. to be done with market prices.

j) Pending cases & their status to be checked for making provision in the books.

k) Check whether foreign debtors are restated at rate prevailing on Balance-sheet date as per
Accounting standard issued by ICAI and necessary entries done for foreign exchange fluctuation
gain/ (loss) as the case may be.

l) Check whether RBI permission is taken for Writing off foreign debtors.

m) Credit balances in debtors account is to be scrutinized to know excess payments received or

advance received or any debit note entries pending.

n) Balance confirmation of party to be checked.

o) Reconciliation to be taken wherever balance confirmation amount & our account statement
showing different balances.

CHECKLIST FOR LEDGER SCRUTINY:

CREDITORS LEDGER SCRUTINY:

a) Check opening balances.

30
b) Check double bill booking if any.

c) Check bill wise payment made and debit notes adjusted against the bill.

d) Check inter party adjustment entries through JV’s if any.

e) Bill wise outstanding details to be verified.

f) Related Parties transactions and outstanding balances to be verified from Board resolution & register
maintained under section 301 of the Companies Act, 1956.

g) List of doubtful debts to be confirmed from management.

h) List of Bad debts to be confirmed & necessary provision to be done in books as per section 36 of the
Income Tax Act.

i) Payment due from directors or from firms companies or from bodies under the same management, or
from relatives of directors is to be noted. Comparison of transactions and terms & conditions, prices
etc. to be done with market prices.

j) Pending cases & their status to be checked for making provision in the books.

k) Check whether foreign debtors are restated at rate prevailing on Balance-sheet date as per
Accounting standard issued by ICAI and necessary entries done for foreign exchange fluctuation
gain/ (loss) as the case may be.

l) Check whether RBI permission is taken for Writing off foreign debtors.

m) Credit balances in debtors account is to be scrutinized to know excess payments received or advance
received or any debit note entries pending.

n) Balance confirmation of party to be checked.

o) Reconciliation to be taken wherever balance confirmation amount & our account statement showing
different balances.

31
32