IPC NOV,2016 TAXATION
Suggested Answers in Indirect Taxation
S.P. RAO, Visiting Faculty of ICAI; New Delhi.
Q.1.(b): ET Bank Ltd. Furnishes the following information relating to the services provided and the gross amount received. Compute the value of taxable services and service tax liability.
(Rs. In Lakh)
- Sale and purchase of forward contract 25
- Commission charged on debt collection services 18
- Margin earned on reverse repo transactions 5
- Administrative charges collected for extending home loans 12
- ET Bank Ltd is not eligible for small service provider exemption.
- Service tax is not included in the above amounts and is to be charged separately @ 14.5%.
Answer: 1. (b):
Computation of Service Tax liability of E.T. Bank Ltd.,
Description Value TaxableValue Rs. In Lakhs
- i) Sale and purchase of forward contract 25 –
- ii) Communion on debt collection 18 18
iii) Margin on reverse repos 5 –
- iv) Administrative charges for home loans 12 12
- Total 30
ST@14.5% of Rs. 30,00,000= Rs. 435,000/-
- Sale and purchase of forward contract is a trading activity, covered by negative list.
- Reverse repo charges are transactions in money or transactions involving interest which is in the negative list.
- 1(c) Nagarjuna Ltd. Of Tamil Nadu provides the following information for the month of December 2015:
Particulars Amount (Rs)
Purchase of raw materials from the local market 45,00,000
(excludingVAT @ 4%)
Half of the goods manufactured from the above raw materials were exported at a sale price of Rs. 25,00,000. Remaining goods were given on lease to Mr. X of Karnataka at a deemed sale price of Rs. 35,00,000 (excluding VAT @12.50%).
You may assume that exports are subject to Zero rate of tax and input tax credit of tax paid on raw material used in the manufacture of leased goods is available immediately. Compute the amount of net VAT payable/refund and input credit for the month of December 2015.
Computation of VAT Liability of Nagarjuna Ltd.,
VAT payable on lease 3500,email@example.com% 437,500
ITC on purchases 4500,000@ 4% (-)180,000
Net Tax Payable (VAT) Rs. 257,500
Note: Full credit (ITC) is available on Zero rated sale.
- 2(b):Purve Sainik Security Service Ltd providing the security services entered into a contract with Women Welfare Mandal, for exhibition of jewellary held between 22nd August 2015 to 26th August, 2015. Contract signed on 5th August 2015 and the company received and advance of Rs. 5,00,000 by an account payee cheque on signing date. On 22nd Aug 2015, the company received Rs. 6,00,000 by credit card and on 26th August 2015 Rs. 4,00,000 by pay order.
Determine the value of taxable service and the service tax liability payable by Purve Sainik Security Service Ltd. Assuming the above company is not eligible for SSP exemption and service tax has been charged separately @ 14.5%.
Service Tax Liability of purve Sainik Security.
Date of Receipt Mode of Payment Received.
5TH August Cheque 500,000
22nd August Credit Card 600,000
26th Aug Pay order 400,000
Total Rs. 1500,000
Service Tax @ 14.5% 217,500
Value of money includes amounts received in Cheque Credit Card and Pay Order.
Tax liability arises on the date of advance payment also.
- 2(c) : Compute the taxable turnover and the tax liability of M.R Saket under CST Act, assuming that the VAT rate within the state is 4%.
Total interstate sales during the financial year 2015-16 were Rs. 25,00,000 inclusive of CST. The sales do not include the following:
- Goods worth Rs. 50,000 provided as free samples to Mr. C. of Ludhiana.
- Sale of goods amounting to Rs. 1,50,000 to Mr. Sam, a foreign tourist.
- Despatch of goods worth Rs. 2,00,000 to Mr. Saket’s branch located in another state.
- Hypothecation of the goods wirth Rs. 12,00,000 for a working capital loan from SBI amounting to Rs. 10,00,000.
Computation of Taxable Turnover and the Tax of M.R. Saket.
Sales inclusive of CST 2500,000
Rate of C.S.T 4%
Taxable Turnover before CST 24,03,846
C.S.T payable 96,154
- i) Free samples, stock transfer and hypothecation are non taxable as there was no sale.
- ii) Sale to a foreign tourist is a local sale so,VAT is payable.
- 3(b) Mr. Dhingra rendered the following services by renting his properties
located in Gujarat for various uses:
- i) Land let out to Jumbo Circus 1,50,000
- ii) A building let out to Singhania classes for
providing coaching to CA students Rs. 5,00,000
iii) A vacant land used for horticulture Rs. 3,00,000
- iv) A building let out to EXIM Ltd. For use
as a corporate office Rs. 8,00,000
Determine the value of taxable services and service tax liability thereon @ 14.5%. Assume. Mr. Dhingra is not eligible for small service provider exemption and the above mentioned amounts are exclusive of service tax.
Tax Liability of Mr. Dhingra
- Renting of land to Circus 150,000
- Let out to Singhania Classes 500,000
- Land for horticulture (-ve list) —
- Let out for a corporate office 800,000
Total Rs. 1450,000
S.T @ 14.5% = Rs. 210,250
- 3(c) : The Inter State Sales of Mr. Raghav are Rs. 60,00,000 (inclusive of CST)
for the F.Y.2015-16 and the Inter State Sales include:
- i) Excise duty Rs. 6,00,000
- ii) Deposits for returnable containers & packages Rs. 10,00,000
iii) Freight (not shown separately in invoice) Rs. 2,00,000.
Compute the taxable turnover and CST payable.
Assuming Rate of Central sales tax is 2% and all the transactions sales were covered by valid C form.
Computation of Taxable Turnover and the Tax of Mr. Raghav.
Total Sales of Mr. Raghav : 60,00,000
Less Deposit of returnable containers 10,00,000
Taxable Turnover 50,00,000×100/102 = 49,01, 960.78
= 49,01,961 (rounded off)
C.S.T = 5,000,000X2/102 = 98,039
Note: Excise duty is taxable, hence not deducted. Freight is taxable as not shown separately.
- 4 (b) Compute the CENVAT credit available to M/s. Shine Enterprises Ltd., in respect of the following services availed by it in the month of October 2015 duly mentioning why CENVAT Credit is available.
Nature of Service availed Service Tax Paid
- Market research services 2,00,000
- Service of General Insurance taken for
motor vehicles which are not capital goods 52,000
- Credit rating services 1,09,000
- Health & fitness centre service for the
Personal use of the managing director
Of the company 72,000
- Repairs & Renovation services for office
Answer: 4 (b) Shine Enterprises Ltd.
Computation of Cenvat Credit.
Particulars Cenvat Credit Available
- a) Market Research 200,000
- c) Credit rating services 109,000
- e) Repairs & renovation services 140,000
Total Credit 449,000
Note: items (b) and (d) are not input services as per the definition
- 4(c): Examine the validity of the following statements under Central Excise Act, 1944 and under Central Excise Rules, 2002:
- i) Goods subjected on NIL rate duty are not excisable goods.
- ii) XYZ Ltd., manufacturer of Khandasari Molasses, claims that it is not liable to pay excise duty on the molasses produced.
- Nil rated goods are excisable subject to chargeable to nil rate of duty. By definition excisable goods are those which are specified in the tariff act, 1085. Hence the given statement that nil rated goods are non excisable is not valid.
- XYZ’s contention is correct. Rule 4 of Central Excise Rules, 2002 places responsibility on buyer of Khandsari Molasses, not on manufacturer.
- 5(b): Shanti Ltd., imported an equipment in the month of May 2015 whose assessable value was US $ 18,000.
- i) From the following additional information compute the duty payable.
- a) Date of Entry inward was 09-05-2015. Basic custom duty on that date was 20% and exchange rate notified by central board of excise & customs was US$ 1=Rs.60.
- b) Date of Bill of Entry was 13-05-2015. Basic custom duty on that date was 10% and exchange rate notified by central board of excise & customs was US$ 1=Rs.65.
- c) Additional duty payable under section 3(1) of the Customs Tariff Act, 1975 was 12.5%
- d) Additional duty payable under section 3(5) of the Customs Tariff Act, 1975 was 4%
- e) Education Cess was 2% and Secondary & Higher Education Cess was 1%.
- ii) How much CENVAT credit can Shanti Ltd avail?
Applicable rate of duty as per section 15 is 10%
Applicable rate of exchange as per section 14 is Rs. 65/-
Computation of Customs Duty for Shanti Ltd.
Assemble Value $ 18000
Add BCD @ 10% 1800 1800
Add CVD @ 12.5% 2,475 2,475
22275 x 65 4,275×65
Converted to INR @ 65/- 14,4 7,875 277,875
Add Cess @ 3% on 277,875 8336 8336
Total before Spl. CVD 14,56,211 286,211
Add Spl. CVD @ 4% on (1456,211) 58,248 58,248
Or Rs. 15,14,460 344,460
- Availability of cenvat credit for Shanti Ltd.
If Shanti Ltd is a manufacturer/service provider, Cenrat credit is available as given below.
If Manufacturer If Service Provider
CVD: 2475X65 160,875 160,875
Spl. CVD 58,248
Total Credit 219, 123 160, 875
- 5 (c ) Maruti Ltd., a manufacturer of Cars sold a car to S.K. Enterprise Ltd., at a price of Rs. 4,50,000 excluding taxes and duties. It also charged the following additional amounts for providing extra benefits:
- i) Assembly of music system 15,000
- ii) Design and Engineering charges 25,000
iii) Outward Freight and handling charges
from factory to depot. 2,500
- iv) Special Accessories to beautify the car 18,000
Determine the total amount of Central Excise duty payable as per Central Excise Act, 1944, with explanations and reason.
Answer: 5(c )
Computation of Excise Duty:
Price before taxes 450,000
Add: Assembly of music system 15,000
Design & Engineering 25,000
Freight from factory to depot 2,500
Spl. Accessories 18,000
Total Assessable Value Rs. 510,500
Duty @ 12.5% on 510,500 = Rs. 63,813/-
(assumed) (rounded off)
- The paper setter is harsh on IPC students. Rate of duty is absent which is unusual in excise problems.
- Freight from factory to depot have been included assuming that the sale is from depot.
This is a good question for final students.
Q.6(c) Mr. Abhishek, a taxable service provider, filed his service tax return for the
half year ended 30th September 2015 on 25-11-2015. He seeks your advice on
the following issues.
- i) Is he liable for any late fee for the delayed filing of half yearly return? If yes. How much?
- ii) Can he revise such belatedly filed return? If yes, what will be the last date of filing the same?
- As per Rule 7(c) of Service Tax Rules, 1994, late fee is payable on delayed filing of return ST-3. It is Rs. 1,000 upto first 30 days and further Rs. 100 per day subject to the maximum of Rs. 20,000.
In the instant case, Mr. Abhishek is liable to pay Rs. 1000+ 700. (for a delay of 37 days)
Late fee may be waived partly or fully in case of nil return if the delay is due to sufficient cause shown to the satisfaction of the proper officer.
- He can revise the belated return but within 90 days of submission of return, that is 90 days from 01-12- 2015. [Rule 7(b) of Service Tax Rules, 1994]
- 6 (d) Examine the validity of the following statements under the provisions of Customs Act, 1962:
- Customs duty is not attracted on goods jettisoned from the vessel to save the vessel from sinking.
Answer : It is not correct to say that customs duty is not payable on jettisoned goods. If the jettisoned goods happen to float to the customs area they are liable to duty as if they have been imported. (Vide Section 21 of the Customs Act, 1962)
Jettison means throwing goods into the save to save the ship from sinking.
- ii) Customs duty is not attracted for any imported goods pilfered before
Answer : Pilferage of goods after unloading but before clearance from port area are protected. Here importer is not liable but custodian is liable to pay duty as per section 45 of the Customs Act, 1962. It is governed by Section 13 of the Act.
But if the goods are pilfered before unloading, duty is payable.
- 6 (b): Explain the manner in which service tax is payable by an aggregator.
Aggregator” has been defined under Rule 2 of Service Tax Rules, 1994 as “a person, who owns and manages a web-based software application, and by means of the application and a communication device, enables a potential customer to connect with persons providing service of a particular kind under the brand name or trade name.
“in relation to the service provided or agreed to be provided by a person involving an aggregator in any manner, the aggregator of the service is liable to pay service tax
Provided that if the aggregator does not have a physical presence in the taxable territory, any person representing the aggregator for any purpose in the taxable territory shall be liable for paying service tax;
Provided further that if the aggregator does not have a physical presence or does not have a representative for any purpose in the taxable territory, the aggregator shall appoint a person in the taxable territory for the purpose of paying service tax and such person shall be liable for paying service tax.”
6 (c): Decide with reasons whether the following places can be treated as “Place of Removal” in terms of Rule 2(qa) of CENVAT Credit Rules, 2004.
- Warehouse of XYZ Ltd. Wherein the excisable goods have been permitted to be deposited without payment of duty.
Answer: Warehouse is a place of removal as the definition clearly states this. As the goods are delivered for sale from the warehouse
- Customs port from where goods are directly exported by the manufacturer exporter to his foreign buyer.
- Where goods are directly exported from customs port by the manufacturer exporter to his foreign buyer , the customs port is a place of removal. This has been decided by the courts and the tribunals consistently in many a case.
Author: S.P. Rao, Faculty of Indirect Taxes, New Delhi. He can be reached at firstname.lastname@example.org, whats app No. 9811737205.