Question Paper and Analysis of CA IPCC NOVEMBER 2016 EXAM – Indirect Tax laws

IDT TAX
IPC  NOV,2016     TAXATION
Suggested Answers in Indirect Taxation
By
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

Assume:

  • 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

  1. i) Sale and purchase of forward contract       25                                      –
  2. ii) Communion on debt collection                   18                                         18

iii) Margin on reverse repos                                    5                                             –

  1. iv) Administrative charges for home loans   12                                          12
  2.         Total                                                                                                                 30

ST@14.5%  of Rs. 30,00,000= Rs. 435,000/-                                                                                                                                                      

 

Notes:

  1. Sale and purchase of forward contract is a trading activity, covered by negative list.
  2. Reverse repo charges are transactions in money or transactions involving interest which is in the negative list.

 

  1. 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.

 

Answer: 1(c):

 

Computation of VAT Liability of Nagarjuna Ltd.,

 

VAT payable on lease         3500,000@12.5%                                        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.

 

  1. 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%.

 

Answer: 2(b)

 

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

Notes:

Value of money includes amounts received in Cheque Credit Card and Pay Order.

Tax liability arises on the date of advance payment also.

 

  1. 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:

  1. Goods worth Rs. 50,000 provided as free samples to Mr. C. of Ludhiana.
  2. 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.
  1. Hypothecation of the goods wirth Rs. 12,00,000 for a working capital loan from SBI amounting to Rs. 10,00,000.

Answer:

Computation of Taxable Turnover and the Tax  of M.R. Saket.

Rs.

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

 

Notes:

  1. i) Free samples, stock transfer and hypothecation are non taxable as there was no sale.
  2. ii) Sale to a foreign tourist is a local sale so,VAT is payable.

 

  1. 3(b) Mr. Dhingra rendered the following services by renting his properties

            located in Gujarat for various uses:

 

  1. i) Land let out to Jumbo Circus 1,50,000
  2. 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

  1. 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.

 

 

Answer: 3(b)

Tax Liability of Mr. Dhingra

 

  1. Renting of land to Circus                                                  150,000
  2. Let out to Singhania Classes                                            500,000
  • Land for horticulture (-ve list)      —
  1. Let out for a corporate office                                               800,000

Total                                                                       Rs. 1450,000

 

S.T @ 14.5% = Rs. 210,250

 

  1. 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:

 

  1. i) Excise duty Rs. 6,00,000
  2. 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.

 

 

Answer: 3(c):

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


                                                                                           50,00,000

 

Rs.

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.

 

  1. 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

  1. Market research services                                   2,00,000
  2. Service of General Insurance taken for

motor vehicles which are not capital goods        52,000

  1. Credit rating services                                           1,09,000
  2. Health & fitness centre service for the

Personal use of the managing director

Of the company                                                        72,000

  1. Repairs & Renovation services for office

Premises                                                                    1,40,000

 

Answer: 4 (b) Shine Enterprises Ltd.

Computation of Cenvat Credit.

 

Particulars                                                              Cenvat Credit Available

 

  1. a) Market Research                                              200,000
  2. c) Credit rating services                                     109,000
  3. e) Repairs & renovation services                     140,000

           Total Credit                                                        449,000         

 

Note: items (b) and (d) are not input services as per the definition

  1. 4(c): Examine the validity of the following statements under Central Excise Act, 1944 and under Central Excise Rules, 2002:

 

  1. i) Goods subjected on NIL rate duty are not excisable goods.
  2. ii) XYZ Ltd., manufacturer of Khandasari Molasses, claims that it is not liable to pay excise duty on the molasses produced.

 

Answer: 4(c):

  1. 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.

 

  1. XYZ’s contention is correct. Rule 4 of Central Excise Rules, 2002 places responsibility on buyer of Khandsari Molasses, not on manufacturer.

 

  1. 5(b): Shanti Ltd., imported an equipment in the month of May 2015 whose assessable value was US $ 18,000.

 

  1. i) From the following additional information compute the duty payable.
  2. 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.
  3. 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.
  4. c) Additional duty payable under section 3(1) of the Customs Tariff Act, 1975 was 12.5%
  5. d) Additional duty payable under section 3(5) of the Customs Tariff Act, 1975 was 4%
  6. e) Education Cess was 2% and Secondary & Higher Education Cess was 1%.

 

  1. ii) How much CENVAT credit can Shanti Ltd avail?

 

Answer: 5(b):

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.

                                                                                  Value                         Duty

Assemble Value $                                                    18000

Add BCD @ 10%                                                        1800                           1800


                                                                                     19800

 

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

 

                                                                                     15,14,459                 344,459

 

                                                                 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

 

 

  1. 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:

 

  1. i) Assembly of music system 15,000
  2. ii) Design and Engineering charges 25,000

iii)          Outward Freight and handling charges

from factory to depot.                                             2,500

  1. 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)

 

Comments:

  1. The paper setter is harsh on IPC students. Rate of duty is absent which is unusual in excise problems.

 

  1. 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.

 

  1. i) Is he liable for any late fee for the delayed filing of half yearly return? If yes. How much?
  2. ii) Can he revise such belatedly filed return? If yes, what will be the last date of filing the same?

 

Answer 6(c):

  1. 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.

 

  1. 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]

 

 

  1. 6 (d) Examine the validity of the following statements under the provisions of Customs Act, 1962:

 

  1. 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.

 

  1. 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.

 

  1. 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 spraoidt@yahoo.com, whats app No. 9811737205.

 

DISCLAIMER: The author does not hold himself responsible for the accuracy of the answers though every effort has been made to make the answers as per the existing legal position.