ICAI INTERMEDIATE EXAMINATION - MAY, 2019- OLD SYLLABUS

PAPER – 4 : TAXATION

SECTION B: INDIRECT TAXES

1. Question No. 6 is compulsory.

2. Attempt any three 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 Oct, 2018.

Question 6 [M-8]

Mr. Uttam Kumar a registered supplier of service in Kolkata, has provided following information for the month of October, 2018:

Compute the net GST liability (CGST, SGST or IGST) of Mr. Uttam Kumar for the month of October, 2018.

Rate of CGST, SGST and IGST are 9%, 9% and 18% respectively.

All the amounts given are exclusive of CGST, SGST and IGST, wherever applicable.

Answer

Computation of net GST liability of Mr. Uttam Kumar October, 2018

Notes:

1. Services supplied by a director of a company to the said company are taxable under reverse charge and thus, the tax leviable thereon will be paid by the company.

2. Services provided by a senior advocate by way of legal services are taxable under reverse charge and thus, the tax leviable thereon will be paid by Mr. Uttam Kumar.

3. Services provided to a recognized sports body by an individual as a player, referee, umpire, coach or team manager for participation in a sporting event organized by a recognized sports body is exempt from GST vide exemption notification. However, services provided as a commentator to a local recognized sports body is taxable.

4. Services by way of coaching in recreational activities relating to sports by charitable entities registered under section 12AA of the Income-tax Act are exempt from GST vide exemption notification.

5. The amount available in the electronic credit ledger may be used for making payment towards output tax. However, tax payable under reverse charge is not an output tax.

Therefore, tax payable under reverse charge cannot be set off against the input tax credit and thus, will have to be paid in cash.

Question-7(a) [M-5]

Koli Ltd. supplies machinery to Ghisa Ltd. (Dealer in same State), provides following particulars regarding the same. Determine the value of taxable supply of machinery.

Answer

Computation of taxable value of supply of machinery

Notes:

As per section 15 of CGST Act, 2017

1. Any amount that the supplier is liable to pay in relation to a supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods shall be included in the value of supply.

2. Any amount charged for anything done by the supplier in respect of the supply of goods at the time of, or before delivery of goods shall be included in the value of supply.

3. Since discount is given at the time of supply of machinery and recorded in the invoice, the value of the supply shall not include such discount.

4. Though the additional discount is established before or at the time of supply, it shall not be excluded from the value of supply on the assumption that the same is not linked to the relevant invoice and proportionate ITC has not been reversed by Ghisa Ltd.

Question-7(b) [M-4]

Jamku Ltd. a registered person is engaged in the business of spices. It provides following details for GST paid during October, 2018.

Determine the amount of ITC available to Jamku Ltd. for the month October, 2018 with all related workings and explanations.

All the conditions necessary for availing the ITC have been fulfilled.

Answer

Computation of ITC available with Jamku Ltd. for the month of October 2018

Notes

(a) Section 16(1) provides that RP shall take credit of input tax charged on inward supplies which are used in the course or furtherance of his business. Hence ITC is not available for other and personal purpose.

(b) Section 17(5)(a) denies ITC on motor vehicles for transportation of persons of seating capacity =< 13 persons (including driver)

However, ITC on motor vehicles shall be allowed when they are used for following taxable supplies:

(A) further supply of such motor vehicles; or

(B) transportation of passengers; or

(C) imparting training on driving such motor vehicles;

In the given case, since the supplier is in the business of spices, it cannot avail credit on motor vehicle used for transportation of the employee. Thus, ITC on motor vehicle used for transportation of the employee is blocked credit.

Section 17(5)(d) denies ITC 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 Payment made for material and to contractor for construction of staff quarter shall not be allowed.

Question-8(a)

Examine the liability of compulsory registration under section 24 of the CGST Act, 2017, in each independent cases mentioned below:

(1) Meenu, a supplier in Maharashtra, is engaged in supply of potatoes within Maharashtra and also outside Maharashtra, whose turnover exceeds threshold limit under GST Law. [M-2]

(2) Jinu Oils, Gujarat, is engaged in supplying machine oil as well as petrol. Total turnover of machine oil is Rs.20 lakh and of petrol is Rs.15 lakh. [M-2]

3) Tilu is working as an agent, he is supplying goods as an agent of Tiku (who is registered taxable person) and its aggregate turnover does not exceed Rs.20 lakh during the financial year. [M-1]

Answer

(1) Section 24 of the CGST Act provides that persons making any inter-State taxable supply of goods are required to obtain registration compulsorily under GST laws irrespective of the quantum of aggregate turnover.

However, an agriculturist, to the extent of supply of produce out of cultivation of land, is not liable to registration.

Assuming that Meenu is engaged in cultivation and supply of potatoes, she is not liable to registration irrespective of the fact that she is engaged in making inter-State supply and her turnover exceeds the threshold limit.

Note: Any person engaged exclusively in the business of supplying exempted goods is not liable to registration. Since potatoes are exempted goods, Meenu is not liable to obtain registration irrespective of the fact that she is engaged in making inter-State supply and her turnover exceeds the threshold limit.

(2) Section 24 of the CGST Act specifies the categories of persons who are required to be mandatorily registered under GST irrespective of the quantum of their aggregate turnover.

In the given case, Jinu Oils does not fall in any of the specified categories. Therefore, it is not required to obtain registration compulsorily under GST.

However, as per section 22 of the CGST Act, 2017, if the aggregate turnover of the person exceeds Rs 20 lakhs in a financial year or exceeds Rs 10 lakhs for persons in a specified state, is liable for registration.

Aggregate turnover includes exempted turnover of goods or services;

Accordingly, Jinu Oils is liable obtain registration on the basis of the turnover since its aggregate turnover [Rs.35 lakh - including turnover of exempt supply of petrol] exceeds the threshold limit of Rs.20 lakhs.

(3) Section 24 of the CGST Act provides that persons who make taxable supply of goods and/or services on behalf of other taxable persons whether as an agent or otherwise are required to obtain registration compulsorily under GST laws irrespective of the quantum of aggregate turnover. Therefore, Tilu will be mandatorily required to obtain registration.

Question-8(b) [M-4]

Jolla provides continuous supply of services regarding Annual Maintenance Contract (AMC) of Air conditioner and all electronic items of Khotu Ltd. He provides following details regarding same:

They made contract for the AMC. As mentioned in contract, AMC will start from 01-10-2017 and will be valid for a year. AMC ends on 30-09-2018. Jolla receives payment for the AMC on 31-10-2018.

Explain the time of issue of invoice in case of Continuous supply of Service (CSS) as per provisions of CGST Act, 2017 and accordingly determine time of issue of invoice in following different circumstances:

(1) As mentioned in contract, Khotu Ltd. have to make payment on 05-11-2018.

(2) If terms of contract, payment is not mentioned in AMC and also not agreed by both the parties.

Answer

In case of continuous supply of services

(i) Where due date of payment is ascertainable from the contract, the invoice shall be issued on or before the due date of payment.

(ii) Where due date of payment is not ascertainable from the contract, the invoice shall be issued before or at the time when the supplier of service receives the payment

(iii) Where payment is linked to the completion of an event, the invoice shall be issued on or before the date of completion of that event.

In view of the aforesaid provisions, time of issue of invoice will be as follows in the given different circumstances:

(1) If it is mentioned in contract that Khotu Ltd. has to make payment on 05.11.2018, the invoice shall be issued on or before 05.11.2018.

(2) If terms of payment are not mentioned in AMC and are also not agreed by both the parties, the invoice shall be issued on or before 31.10.2018.

Note: The question has been answered by considering the annual maintenance contract as continuous supply of service. However, as per section 2(33) of the CGST Act, 2017 “continuous supply of services” inter alia means a supply of services with periodic payment obligations.

Question-9(a)

Examine in relation to composition levy scheme under the CGST Act,2017 and the rules made thereunder in the following individual cases:

(1) Ketu is a manufacturer of ice-cream and pan masala in State of Maharashtra. His turnover for the year does not exceed Rs.1 Crore. He wants to register for composition levy scheme. ls he eligible for it? [M-1]

(2) Jadhu of Gujarat opts for composition scheme during a financial year 2017-18. But on 10-02-2018 his turnover crosses Rs.1 Crore, can he continue under composition levy scheme. [M-2]

(3) X Ltd. has 2 branches K & L in Delhi, having same PAN. Branch K opts for normal scheme. X Ltd. want to continue composition levy in case of its branch L. Can X Ltd. continue composition levy only for branch L? [M-2]

Answer

(1) A registered person who is engaged in manufacture of, inter alia, ice cream and pan masala, is not eligible to opt for composition levy even if his aggregate turnover does not exceed Rs.1 crore. Therefore, in the given case, Ketu is not eligible to opt for composition levy.

(2) The option to pay tax under composition levy availed of by a registered person lapses with effect from the day on which his aggregate turnover during a financial year exceeds the threshold limit of Rs.1 crore. He needs to pay tax under normal scheme from that day.

Since in the given case, the turnover of Jadhu crosses Rs.1 crore on 10.02.2018, he cannot continue under composition scheme from that day.

(3) Where person having the same Permanent Account Number, has more than one registration, the registered person shall not be eligible to opt for composition scheme unless all such registered persons opt to pay tax under composition scheme. In other words, all the registrations under the same PAN have to opt for composition scheme.

In view of the same, in the given case, X Ltd. cannot continue with composition scheme only for branch L.

Question-9(b)

Please answer following individual independent cases with reference to section 37 of the CGST Act, 2017 and rule 59 of CGST Rules, 2017:

(1) Mr. Kolly is registered supplier in the State of Gujarat. He is filing GSTR 1 every month. During the month of February,2018 he was out of India and so did not do any transaction during the month. He believes that as there is no transaction there is no need to file GSTR 1 for the month of February,2018. Is he correct? [M-1]

(2) Mr. Kaji is a registered dealer in Kerala. He was registered as a normal tax payer for FY 2017-18. But on 15-01-2018, he converted from normal tax payer to composition tax payer. Is he liable to file GSTR-1 for the month of February,2018?                         [M-2]

(3) Mrs. Zeel a registered dealer in Rajasthan did not file GSTR 1 for the month of June, 2018 but she wants to file GSTR1 for the month of July, 2018. Is it possible?        [M-1]

Answer

(1) No, Mr. Kolly is not correct.

GSTR-1 needs to be filed even if there is no business activity (Nil Return) in the tax period. Therefore, in the given case, even though Mr. Kolly was out of India and thus had not done any transaction during February 2018, he is still required to file GSTR-1 for the said month.

(2) A person paying tax under composition scheme is not liable to furnish the details of outward supplies in GSTR-1.

Further, in cases where a taxpayer has been converted from a normal taxpayer to composition taxpayer, GSTR-1 is to be filed only for the period during which the taxpayer was registered as normal taxpayer.

Therefore, in the given case, Mr. Kaji is not liable to file GSTR-1 for February, 2018 since he had already shifted to composition scheme on 15.01.2018.

(3) There is no specific bar under the law on filing of GSTR-1 for current month when GSTR-1 for the previous month has not been filed.

Therefore, in the given case, Mrs Zeel can file GSTR-1 for July, 2018 even though she has not filed GSTR-1 for the preceding month, i.e., June, 2018.

Note: Question specifies that Mr. Kaji has converted from normal taxpayer to composition tax payer on 15.01.2018. However, as per rule 4(1) of the CGST Rules, 2017, the option to pay tax under composition scheme shall be effective from the beginning of the financial year, where the intimation is filed by any registered person who opts to pay tax under section10. Further, as per rule 3(3A) of the CGST Rules, 2017, a person who has been granted certificate of registration under sub-rule (1) of rule 10 may opt to pay tax under composition scheme with effect from the first day of the month immediately succeeding the month in which he files an intimation on the common portal on or before the 31st day of March, 2018.

Question-10(a) [M-4]

Explain the meaning of consignment note in relation to Goods Transport Agency and state its contents as per provisions of the CGST Act, 2017.

Answer

Consignment note means a document, issued by a Goods Transport Agency (GTA) against the receipt of goods for the purpose of transport of goods by road in a goods carriage, which is serially numbered.

The contents of consignment note are as follows:

(i) gross weight of the consignment

(ii) the name of the consignor and consignee (any one),

(iii) registration number of the goods carriage in which the goods are transported,

(iv) details of the goods transported,

(v) details of the place of origin and destination,

(vi) GST IN of the person liable for paying tax

(vii) other information as prescribed for a tax invoice, under rule 46 of CGST Rules, 2017.

Question-10(a) [M-4]

Explain the services provided by way of tolerating non-performance of a contract and its chargeability under the provisions of the CGST Act, 2017.

Answer

Alternative Non-performance of a contract is the failure to fulfill the obligations under a contract. It is generally one of the conditions stipulated in any contract for supply of goods/services.

The agreement entered into between the parties stipulates that both the service provider and service recipient abide by the terms and conditions of the contract. In case any of the parties breach the contract for any reason including non-performance of the contract, then such person is liable to pay damages in the form of fines or penalty to the other party.

Tolerating non-performance of a contract in lieu of damages or fines is a supply in terms of section 7 of the CGST Act, 2017 as it is made for a consideration by a person in the course or furtherance of business.

Further, tolerating non-performance of a contract is treated as a supply of service in terms of section 7 read with Schedule II of CGST Act, 2017.

However, in case of supplies to Government, non-performance of contract by the supplier of service for which consideration in the form of fines or liquidated damages is payable is exempt from GST.

Question-10(b) [M-5]

What are the E-ledgers? State the entries to be debited to electronic liability register under the CGST Act, 2017 and the CGST Rules, 2017.

Answer

Electronic Ledgers or E-Ledgers, i.e., Electronic Cash Ledger and Electronic Credit Ledger, are statements of cash and input tax credit in respect of each registered taxpayer. In addition, each taxpayer shall also have an electronic tax liability register.

The entries to be debited to electronic liability register under the CGST Act, 2017 and the CGST Rules, 2017 are as follows:

(i) all amounts payable towards tax, interest, late fee and any other amount as per return filed;

(ii) all amounts payable towards tax, interest, penalty and any other amount determined in a proceeding by an Assessing authority or as ascertained by the taxable person;

(iii) the amount of tax and interest payable due to mismatch;

(iv) any amount of interest that may accrue from time to time.