ICAI INTERMEDIATE EXAMINATION - MAY, 2018- OLD SYLLABUS

PAPER – 4 : TAXATION

SECTION B: INDIRECT TAXES

1. Question No. 7 is compulsory.

2. Attempt any four questions from the rest.

3. “Working notes should form part of the respective answers.”

4. “Wherever necessary, suitable assumptions may be made by the candidates, and disclosed by way of note.”

5. “All questions should be answered on the basis of the position of GST law as amended by the significant notifications/circulars issued till 31 st October,2017

Question 7(a) [M-6]

Mr. Nimit, a supplier of goods, pays GST under regular scheme. He is not eligible for any threshold exemption. He has made the following outward taxable supplies in the month of August, 2017:

Intra state supplies of goods             Rs.6,00,000

Inter state supplies of goods             Rs.2,00,000

He has also furnished following information in respect of purchases made by him from registered dealers during August, 2017:

Intra state purchase of goods         Rs.4,00,000

Inter state purchase of goods         Rs.50,000

Balance of ITC available at the beginning of the August 2017:

CGST               15,000

SGST               35,000

IGST                20,000

Note:

(i) Rate of CGST, SGST and IGST to be 9%, 9% and 18% respectively, on both inward and outward supplies.

(ii) Both inward and outward supplies given above are exclusive of taxes, wherever applicable.

(iii) All the conditions necessary for availing the ITC have been fulfilled. Compute the net GST payable by Mr. Nimit for the month of August, 2017.

Answer

WN-1 Calculation of Output tax

WN-2 Calculation of Input Tax                

WN-3 Payment of Net GST

Note: ITC of SGST has been used to pay SGST and IGST in that order.

Question 7(b) [M-4]

Shri Krishna Pvt. Ltd., a registered dealer, furnishes the following information relating to goods sold by it to Shri Balram Pvt. Ltd. in the course of Intra State.

According to GST Law, determine the value of taxable supply made by Shri Krishna Pvt. Ltd. Items given in Point (ii) to (vi) are not considered while arriving at the price of the goods given in point no. (i)

Answer

(b) Computation of value of taxable supply made by Shri Krishna Pvt. Ltd.

Note:

Section 15(2)

The value of supply shall include

(a) any taxes, duties, cesses, fees and charges levied under any law for the time being in force other than GST charges under GST laws, if charged separately by the supplier;

(b) any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price;

(c) incidental expenses, commission, packing and any amount charged by the supplier to the recipient of a supply in respect of the supply at the time of, or before delivery of goods or supply of services;

(d) interest or late fee or penalty for delayed payment of any consideration for any supply; and

(e) subsidies directly linked to the price excluding subsidies provided by the Central and State Governments.

Explanation – For this sub-section, the amount of subsidy shall be included in the value of supply of the supplier who receives the subsidy.

Question 8(a) [M-5]

M/s. Pradyumn Corporation Pvt. Ltd., a registered dealer of Mumbai furnishes you following information for the month of October, 2017.

Compute GST liability (CGST, SGST or IGST, as the case may be) of M/s Pradyumn Corporation Pvt. Ltd. for the month of October, 2017.

Assume the rates of GST as under:

CGST     9%

SGST   9%

lGST    18%

Note: Turnover of M/s. Pradyumn Corporation Pvt. Ltd. was Rs.2 crore in the previous financial year.

Answer

Computation of GST liability of M/s. Pradyumn Corporation Pvt. Ltd. for the month of October, 2017

Notes:

1. Since the turnover of M/s. Pradyumn Corporation Pvt. Ltd. is more than Rs.1.5 crore in the preceding financial year, it will be liable to pay GST on the receipt of advance. Thus, since GST liability would have arisen on advance of Rs.50,000 received in September, 2017 in that month itself, the same has not been included in the GST liability of the company for the month of October, 2017 (2,00,000-50,000).

Amendments

However, N N-66/2017-CT issued on 15-11-2017, which exempts the payment of GST on advance received on supply of goods. Hence after amendments, no gst shall be paid on advance of Rs.50,000 in the month of sep, but the same shall be paid in the month of oct on issue of invoice.

2. All intra-State and inter-State procurements made by a registered person from unregistered person have been exempted from reverse charge liability, without any upper limit for daily procuremen      ts. Before 13-10-2017, RCM was applicable on supplies received from unregistered person.

3. Services by way of pure labour contracts of construction, erection, commissioning, or installation of original works pertaining to a single residential unit otherwise than as a part of a residential complex are exempt. Labour contracts for repairing are thus, taxable.

4. In case of service supplied by a person located in a non-taxable territory to a person other than non-taxable online recipient, GST is payable under reverse charge by such recipient.

Question-8(b) [M-5]

List the activities to be treated as supply under CGST Act, 2017 even if made without consideration.

Answer

Activities to be treated as supply even if made without consideration in terms of section 7 of CGST Act, 2017 read with Schedule I:

1. Permanent transfer or disposal of business assets where input tax credit has been availed on such assets.

2. Supply of goods or services or both between related persons or between distinct persons as specified in section 25 of the CGST Act, 2017, when made in the course or furtherance of business.

However, gifts not exceeding Rs.50,000 in value in a financial year by an employer to an employee shall not be treated as supply of goods or services or both.

3. Supply of goods —

(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or

(b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

4. Import of services by a taxable person from a related person or from any of his other establishments outside India, in the course or furtherance of business.

Question 9(a) [M-3]

On 4th September, 2017, V.R. Mehman a famous music composer, received Rs.3 crore of consideration from Zilmil Music Co. Ltd. for sale of copyright of his original music album. He finished his work & made available the CD to the music company on 20th July, 2017 & raised the invoice on 24th July, 2017. What will be the time of supply as per CGST Act, 2017?

Note: Above service is taxable under reverse charge basis.

Answer

As per section 13 of CGST Act, 2017, the time of supply of service on which GST is payable on reverse charge basis is earlier of the following:

• Date of payment (04.09.2017), or

• Date immediately following 60 days since issue of invoice by the supplier (23.09.2017)

Thus, time of supply of services is 04.09.2017

Question 9(b) [M-3]

State, with reason, person liable to pay GST in each of following independent cases. Assume recipient is located in taxable territory.

(i) Rental income received by Tamil Nadu State Government from renting an immovable property to Mannappa Pvt. Ltd. (Turnover of the company was Rs.22 lakhs in the preceding F. Y.)

(ii) Legal Fees received by Mr. Sushrut, a senior advocate, from M/s. Tatva Trading Company having turnover of Rs.50 lakhs in preceding F.Y.

Answer

(i) GST is payable on reverse charge basis on services supplied by the State Government to a business entity located in taxable territory. However, reverse charge is not applicable on supply of renting of immovable property service by the State Government. Therefore, in the given case, person liable to pay GST is the supplier of services, i.e., Tamil Nadu State Government. [Entry 5 of N-13/2017-CT]

(ii) GST on legal services supplied by a senior advocate [Mr. Sushrut] to any business entity [M/s. Tatva Trading Company] located in the taxable territory is payable on reverse charge basis.

Therefore, in the given case, person liable to pay GST is the recipient of services, i.e., M/s. Tatva Trading Company. [Entry 2 of N-13/2017-CT]

Question 9(c) [M-4]

Bharat Associates Pvt. Ltd. purchased machinery worth Rs.9,00,000 (excluding GST) on 20-07-2017 on which it paid GST @ 18% and availed the ITC. On 05-03-2018, it sold the machinery for Rs.7,00,000 (excluding GST) to Hindustan Associates Pvt. Ltd. The GST rate on sale is 18%. What will be the course of action for Bharat Associates Pvt. Ltd. to follow under CGST Act, 2017?

Answer

If capital goods or plant and machinery on which input tax credit (ITC) has been taken are supplied outward by a registered person, he must pay an amount that is higher of the following:

(a) ITC taken on such goods reduced by 5% per quarter of a year or part thereof from the date of issue of invoice for such goods or

(b) tax on transaction value.

Accordingly, the amount payable on supply of machinery by Bharat Associates Pvt. Ltd. shall be computed as follows:

**Note: In the above solution, amount of ITC to be paid (amount of reduced ITC based on percentage points) has been computed on the basis of provisions of rule 40(2) of the CGST Rules, 2017 [ITC reduced by 5% for every quarter or part thereof from the date of the issue of invoice].However, the said amount can also be computed on the basis of provisions of rule 44(6) of the CGST Rules, 2017 [ITC of remaining useful life in months computed on pro rata basis, taking the useful life as 5 years].

Question 10(a) [M-5]

Under what circumstances does the need of issuance of debit note and credit note arise under section 34 of CGST Act, 2017?

Answer

(a) Section 34(3) debit note is required to be issued

(i) if taxable value charged in the tax invoice is found to be less than the taxable value in respect of supply of goods and/or services or

(ii) if tax charged in the tax invoice is found to be less than the tax payable in respect of supply of goods and/or services

(b) Section-34(1) Credit note is required to be issued:

(i) If taxable value charged in the tax invoice is found to exceed the taxable value in respect of supply of goods and/or services, or

(ii) If tax charged in the tax invoice is found to exceed the tax payable in respect of supply of goods and/or services, or

(iii) if goods supplied are returned by the recipient, or

(iv) if goods and/or services supplied are found to be deficient.

Question 10(b) [M-5]

Answer the following with reference to GST Laws:

(i) What is CIN?

(ii) When is interest payable?

(iii) How does the new payment system benefit the taxpayer & the Commercial Tax Department?

Answer

(i) CIN is Challan Identification Number. It is generated by the banks indicating that the payment has been realized and credited to the appropriate government account against a generated challan.

(ii) Interest is payable in the following cases in terms of section 50 of CGST Act, 2017:

• Delay / failure to pay tax, in full or in part within the prescribed period

• undue or excess claim of input tax credit

• undue or excess reduction in output tax liability.

(iii) The new payment system benefits the taxpayer and the commercial tax department in the following ways:

Benefits to Taxpayer:

• No more queues and waiting for making payments as payments can be made online 24 X 7.

• Electronically generated challan from GSTN common portal in all modes of payment and no use of manually prepared challan. Paperless transactions.

• Instant online receipts for payments made online.

• Tax consultants can make payments on behalf of the clients.

• Single challan form to be created online, replacing the three or four copy Challan.

•Greater transparency.

• Online payments made after 8 pm will be credited to the taxpayer’s account on the same day.

Benefits to the Commercial Tax Department:

• Revenue will come earlier into the Government Treasury as compared to the old system.

• Logical tax collection data in electronic format.

• Speedy accounting and reporting.

• Electronic reconciliation of all receipts.

• Warehousing of digital challan.

Note – Any two points may be mentioned for Tax payer and Commercial Tax Department

Question 11(a) [M-4]

Determine the effective date of registration under CGST Act, 2017 in respect of the following cases with explanation:

(i) The aggregate turnover of Varun Industries of Mumbai has exceeded Rs.20 lakhs on 1st August, 2017. It submits the application for registration on 20th August, 2017. Registration certificate granted on 25th August, 2017.

(ii) Sweta InfoTech Services are the provider of internet services in Pune. The aggregate turnover of them exceeds Rs.20 lakhs on 25th September, 2017. It submits the application for registration on 27th October, 2017. Registration certificate is granted on 5th November, 2017.

Answer

A supplier whose aggregate turnover in a financial year exceeds Rs.20 lakh in a State/UT [Rs.10 lakh in Special Category States except Jammu and Kashmir] is liable to apply for registration within 30 days from the date of becoming liable to registration (i.e., the date of crossing the threshold limit of Rs.20 lakh/Rs.10 lakh) vide section 22 of CGST Act, 2017.

Rule 10(2) & (3) - Where the application is submitted within said period, the effective date of registration is the date on which the person becomes liable to registration; otherwise it is the date of grant of registration.

In the given cases, the applicable turnover limit for registration will be Rs.20 lakh as Maharashtra (Mumbai and Pune) is not a Special Category State.

(i) Since Varun Industries applied for registration within 30 days of becoming liable to registration, the effective date of registration is 1st August, 2017.

(ii) Since Sweta InfoTech Services applied for registration after the expiry of 30 days from the date of becoming liable to registration, the effective date of registration is 5thNovember, 2017.

Question 11(b) [M-4]

Chidanand Products Pvt. Ltd. started its business of supply of goods on 1st August, 2017. It's turnover exceeds Rs.20,00,000 on 5th September, 2017. It applied for registration on 28th September, 2017 & granted registration certificate on 6th October, 2017. Guide the company regarding invoices to be issued between 5th September, 2017 to 6th October, 2017 to registered dealers. Further it had also made supplies to unregistered dealers in that period. How it can raise invoices?

Answer

(a) Section-22 : A supplier whose aggregate turnover in a financial year exceeds Rs.20 lakh in a State/UT is liable to apply for registration within 30 days from the date of becoming liable to registration (i.e, the date of crossing the threshold limit of Rs.20 lakh).

(b) Rule 10(2)& (3) : Where the application is submitted within the said period, the effective date of registration is the date on which the person becomes liable to registration; otherwise it is the date of grant of registration.

(c) Section 31(3)(a) read with rule 53(2) - Every registered person who has been granted registration with effect from a date earlier than the date of issuance of registration certificate to him, may issue revised tax invoices in respect of taxable supplies effected during this period within 1 month from the date of issuance of registration certificate.

Advice

(a) In view of the aforesaid provisions, Chidanand Products Pvt. Ltd may issue revised tax invoices against the invoices already issued during the period between effective date of registration (5th September, 2017) and the date of issuance of registration certificate (6^th October, 2017), within 1 month from 6th October, 2017.

(b) 1^st Proviso to Rule 53(2) - Further, Chidanand Products Pvt. Ltd may issue a consolidated revised tax invoice in respect of all taxable supplies made to unregistered dealers during such period. However, in case of inter-State supplies made to unregistered dealers, a consolidated revised tax invoice cannot be issued if the value of a supply exceeds Rs.2,50,000.

Question 11(c) [M-2]

State with reason whether following statement is true or false: "When the change in constitution of business results in change in PAN, the business entity can apply for amendment of registration in prescribed manner within 15 days”.

Answer

The said statement is FALSE.

When a change in constitution of a business results in change of PAN of the registered person, the said person shall apply for fresh registration. The reason for the same is that GSTIN is PAN based. Any change in PAN would warrant a new registration.

Question 12(a) [M-5]

Attempt any two parts out of (a), (b) and (c).

M/s. Ginny and John Company is a partnership firm of interior decorators and also running a readymade garment showroom. Turnover of the showroom was Rs.80 lakh and receipts of the interior decorators service was Rs.22 Lakh in the preceding financial year.

With reference to the provisions of the CGST Act, 2017, examine whether the firm can opt for the composition scheme?

Will your answer change, if the turnover of the showroom was Rs.70 lakh and receipts of the interior decorators service was Rs.22 Lakh in the preceding financial year?

Also discuss whether it is possible for M/s. Ginny and John Company to opt for composition scheme only for showroom?                                 [M-5]

Answer

A registered person, whose aggregate turnover in the preceding financial year did not exceed Rs.1 crore [Rs.75 lakh in case of special category States except Jammu and Kashmir and Uttarakhand], may opt for composition scheme vide section 10 of CGST Act, 2017.

However, he shall not be eligible to opt for composition scheme if, inter alia, he is engaged in the supply of services other than restaurant services.

In the given case, since M/s Ginny and John Company is engaged in supply of interior decorator’s service, it is not eligible to opt for composition scheme irrespective of its turnover in the preceding financial year.

Therefore, the answer will remain the same i.e., the company will not be eligible to opt for composition scheme even with the change in the turnovers as given in the second case.

Further, where more than one registered persons are having the same Permanent Account Number, the registered person shall not be eligible to opt for composition scheme unless all such registered persons opt to pay tax under composition scheme.

Therefore, the answer will not change in the third case also as all the registrations under the same PAN are required to opt for composition scheme and since the supply of interior decorator service is ineligible for composition scheme, supply of readymade garments too becomes ineligible for composition scheme.

Question-12(b) [M-5]

Mrs. Pragati received legal advice for her personal problems & paid 1,000 pound as a legal fees to Miss Unnati of U.K. (London).

Explain whether the above activity of import of service would amount to supply u/s 7 of the CGST Act, 2017?

If in above case both of them are real sisters & no consideration is paid then will it change your answer?

Further in the above case if both of them are real sisters & Mrs. Pragati receives legal advice for her business & she doesn't pay any consideration then what will be your answer?

Answer

Meaning of Supply [Section 7 of CGST Act] Supply includes

import of services for a consideration even if it is not in the course or furtherance of business.

(a) Thus, although the import of service for consideration by Mrs. Pragati is not in course or furtherance of business, it would amount to supply.

(b) Further, import of services by a taxable person from a related person located outside India, without consideration is treated as supply if it is provided in the course or furtherance of business.

In the given case, import of service without consideration by Mrs. Pragati from her real sister - Miss Unnati [real sister, being member of the same family, is a related person] will not be treated as supply as it is not in course or furtherance of business.

(c) However, import of service without consideration by Mrs. Pragati from her sister - Miss Unnati (related person) will be treated as supply if she receives legal advice for her business, i.e. in course or furtherance of business.

Question-12(c) [M-5]

Explain the provision relating to filing of Annual Return under section 44 of CGST Act, 2017 and Rules there under.

Answer

Every registered person, other than

• an Input Service Distributor,

• a person deducting/collecting tax at source,

• a casual taxable person and

• a non-resident taxable person,

shall furnish an annual return for every financial year electronically in prescribed form on or before 31st December following the end of such financial year.

Every registered person who is required to get his accounts audited under section 35(5) of the CGST Act, 2017 shall furnish the annual return electronically along with a copy of the audited annual accounts and a reconciliation statement, reconciling the value of supplies declared in the return furnished for the financial year with the audited annual financial statement, and other prescribed particulars.