ICAI INTERMEDIATE EXAMINATION - JULY, 2021

PAPER – 4 : TAXATION

SECTION B: INDIRECT TAXES

(i) Question No. 5 is compulsory.

(ii) Candidates are also required to answer any two questions from the remaining three questions.

(iii) All questions should be answered on the basis of position of position of GST law as amended by significant notifications/circulars issued upto 31st October,2020.

(iv) Working notes should form part of the answer.

(v) Wherever necessary, suitable assumptions may be made by the candidates and disclosed by way of note.

Quesiton-5

X Electronics is a registered manufacturer of electrical appliances.

It made contract with dealers, that purchase of air conditioners of capacity 1.5 ton in the month of October, 2020 of quantity of more than 50 units will entitle them for 10% discount.

Inter-State supply made during the month of October 2020 is Rs.50,00,000

Details of Intra-State supply:

Intra-State inward supplies are :

X Electronics made supply of Air Conditioners (capacity 1.5 ton) to only one dealer named Mr. L.

Gym membership for employees is not obligatory for X Electronics under any law.

Opening Balance of ITC is as under

Note:

(i) Rate of CGST, SGST and IGST are 9%, 9% and 18% respectively for both inward and outward supplies except where specifically provided.

(ii) Both inward and outward supplies are exclusive of taxes.

(iii) All the conditions for availing the ITC have been fulfilled.

Compute the Net GST payable in cash by X Electronics for the month of October, 2020.

Answer

WN-1 Calculation of Total output Tax

Note:

1. Section 8(b) - Tax liability on mixed supply comprising two or more supplies shall be determined on the basis of supply which attracts the highest rate of tax.

2. Section 15(3)(a) - The value of the supply shall not include any discount which is given before or at the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply. Assuming conditions of discounts has been fulfilled by customer.

WN-1 Calculation of Input Tax

Notes:

1. Section – 17(5)(a) - ITC on motor vehicles for transportation of persons of seating capacity =< 13 persons (including driver) shall not be available. In given case, truck is for transportation of goods, hence ITC shall be available.

3. Net payment of Tax

WN-3 Payment of Net GST

WN-4. Order of Utilisation of ITC [S-49B rw R-88A]

Question-6a [M-6]

A Ltd. procured the following goods in the month of December, 2020.

Compute the amount of ITC available with A Ltd. for the month of December 2020 by giving necessary explanations. Assume that all the other conditions necessary for availing ITC have been fulfilled.

Answer

Note

(1) Section 17(5)(d) - ITC is not available on goods or services used for construction of an immovable property (other than P&M) on his own account including when such goods or services are used in the course or furtherance of business. Hence ITC is not available on constructing an additional floor. However ITC is available on making foundation and structural support to plant and machinery.

(2) Section 17(5)(h) - ITC is not available on goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples. Hence ITC is not available on free sample.

(3) Section 17(5)(a) - ITC on motor vehicles for transportation of persons of seating capacity =< 13 persons (including driver) shall not be available. In given case, truck is used for transportation of goods, hence ITC shall be available.

(4) Section 16(1) - RP shall be entitled to take credit of input tax charged on inward supplies of goods or/and services which are used in the course or furtherance of his business. Inputs used on trial run shall be deemed to be used for business purpose, hence ITC shall be available.

(5) Section 17(5)(b)(i)  - ITC is not available on food and beverages, outdoor catering. Hence ITC is not available on confectionery items for consumption of employees.

Question-6b [M-4]

Explain the composite supply and mixed supply. If a trader launches a package sales for
marriage containing double bed, refrigerator, washing machine, wooden wardrobe at a
single rate. He is issuing invoice showing value of each goods separately. Whether this is
case of mixed supply or composite supply. Explain.

Answer

(i) Meaning of Composite supply [Section 2(30) of CGST Act]

“composite supply” means a supply consisting of two or more taxable supplies of goods or/and services, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply. E.g. Supply of TV is the principal supply, warranty and maintenance services are ancillary.

(ii) Meaning of Mixed Supply [Section 2(84) of CGST Act]

Two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.

Advice

In the given case, bed, refrigerator, washing machine etc are not naturally bundled and supplied in conjunction with each other in ordinary course of business. All goods must be supplied in a single price.

But in given case, the invoice for the supply shows separate values for each item i.e., the package is not supplied for a single price.

Therefore, supply of such items as a package will neither constitute a composite supply nor a mixed supply. Thus, the various items of the package will be treated as being supplied individually.

Note: The question specifies that the various items are supplied at a ‘single rate’. The “single rate” expression is construed as single rate of tax in the above answer. Further, the “single rate” may also be construed as single price as given in the below mentioned answer.

Items such as double bed, refrigerator, washing machine and wooden wardrobe are not naturally bundled. Therefore, supply of such items as a package will not constitute composite supply. Further, a single price has been charged for the package.

Consequently, supply of such items as a package will be treated as mixed supply.

Question-7a [M-5]

P Ltd, a registered person provided following information for the month of October, 2020

GST is payable on Reverse Charge for GTA services.

Explain the meaning of aggregate turnover u/s 2(6) of the CGST Act and compute the aggregate turnover of P Ltd. for the month of October, 2020. All amounts are exclusive of GST.

Answer

As person section 2(6) AT Includes

• Taxable and Exempt Supplies to outside person
• Exports of goods or services or both
• Inter-state supplies of all branches having same PAN

AT does not include Inward supplies on which tax is payable under RCM

Calculation of AT

Question-7(b) [M-5]

XYZ Pvt. Ltd. manufactures beauty soap with the brand name 'Forever beauty'. XYZ Pvt. Ltd. has organized a concert to promote its brand. Ms. Mahima, its brand ambassador, who is a leading film actress, has given a classical dance performance in the said concert.

The proceeds of the concert is Rs.1,25,000.

(i) Explain with relevant provisions of GST, whether Ms. Mahima will be required to pay any GST.

(ii) What will be the answer if the proceeds of the concert is donated to a charitable organization?

Answer

Entry 78 of N N-12/2017 CT (Rate)

Services by an artist by way of a performance in folk or classical art forms of-

(a) music, or

(b) dance, or

(c) theatre,

if the consideration charged for such performance is not more than Rs.1,50,000:

Provided that the exemption shall not apply to service provided by such artist as a brand ambassador.

Advice

Since Ms. Mahima is the brand ambassador of ‘Forever Beauty’ soap manufactured by XYZ Pvt. Ltd., the services rendered by her by way of a classical dance performance in the concert organized by XYZ Pvt. Ltd. to promote its brand will not be eligible for the above-mentioned exemption and thus, be liable to GST.

(ii) Even if the proceeds of the concert will be donated to a charitable organization, she will be liable to GST.

Question-8(a) [M-5]

Explain who is required to furnish final return, time limit for filing of final return and late fee for delay in filing final return.

Answer

Section 45 of CGST Act

(i) Every registered person who is required to furnish a return and whose registration has been surrendered or cancelled is required to file a final return.

(ii) The final return has to be filed within 3 months of the:

(i) date of cancellation or

(ii) date of order of cancellation

whichever is later.

(iii) Quantum of late fee for not filing the final return is as follows:

(i) Rs.100 for every day during which such failure continues or

(ii) Rs.5,000

whichever is lower. An equal amount of late fee is payable under the respective SGST/UTGST Act as well.

Question-8(b) [M-5]

Examine the following cases and explain with reasons whether the supplier of goods is liable to get registered in GST:

(i) Krishna of Himachal Pradesh is exclusively engaged in intra-State taxable supply of readymade suits. His turnover in the current financial year from Himachal Pradesh showroom is Rs.25 lakh. He has two more showrooms one in Manipur & another in Sikkim with a turnover of Rs.15 lakh and Rs.18 lakh respectively in the current financial year.

(ii) Ankit of Telangana is exclusively engaged in intra-State taxable supply of footwears. His aggregate turnover in the current financial year is Rs.25 lakh:

(iii) Aakash of Uttar Pradesh is exclusively engaged in intra-State supply of pan masala. His aggregate turnover in the current financial year is Rs.30 lakh.

Answer

1) Statutory Provision

Section 22 read with Notification No. 10/2019 CT dated 07.03.2019 - A supplier is liable to be registered in the State/UT from where he makes a taxable supply of goods and/or services, if his aggregate turnover in a financial year exceeds the threshold limit.

Threshold limit for supplier engaged exclusively in “supply of goods”

2) Advice

(i) Krishna is eligible for higher threshold limit of turnover for registration, i.e. Rs.40 lakh as he is exclusively engaged in intra-State supply of goods in other states.

However, since Krishna is engaged in supplying readymade garments from a Special Category State i.e. Manipur, the threshold limit gets reduced to Rs.10 lakh.

Thus, Krishna is liable to get registered under GST as his turnover exceeds Rs.10 lakh. Further, he is required to obtain registration in all states HP, Manipur and Sikkim as he is making taxable supplies from all States.

(ii) The applicable threshold limit for registration for Ankit in the given case is Rs.20 lakh as he is exclusively engaged in intra-State taxable supply of goods in Telangana. Thus, he is liable to get registered under GST as his turnover is more than the threshold limit.

(iii) Akash being exclusively engaged in supply of pan masala is not eligible for higher threshold limit of Rs.40 lakh. The applicable threshold limit for registration in this case is Rs.20 lakh. Thus, Akash is liable to get registered under GST.

Question-8(c) [M-5]

Who can be registered as Goods and Service Tax Practitioners under Section 48 of the CGST Act?

Answer

Rule 83(1)

An application in GST PCT-01 may be made electronically for enrolment as GST practitioner by any person who,

(i) is a citizen of India;

(ii) is a person of sound mind;

(iii) is not adjudicated as insolvent;

(iv) has not been convicted by a competent court;

He should also satisfy any of the following conditions

(a) he is a retired officer of the Commercial Tax Department of any SG or of the CBIT and Customs, Department of Revenue, Government of India, who, during his service under the Government, had worked in a post not lower than the rank of a Group-B gazetted officer for a period of not less than 2 years; or

(b) he has enrolled as a sales tax practitioner or tax return preparer under the existing law for a period of not less than 5 years;

(c) he has passed,

(i) a graduate or postgraduate degree or its equivalent examination having a degree in Commerce, Law, Banking including Higher Auditing, or Business Administration or Business Management from any Indian University established by any law for the time being in force; or

(ii) a degree examination of any Foreign University recognised by any Indian University as equivalent to the degree examination mentioned in sub-clause (i); or

(iii) any other examination notified by the Government, for this purpose; or

(iv) has passed any of the following examinations, namely:-

(a) final examination of the ICAI; or

(b) final examination of the ICMAI; or

(c) final examination of the ICSI.