ICAI INTERMEDIATE EXAMINATION - MAY, 2023

PAPER – 4 : TAXATION

SECTION B: INDIRECT TAXES

1. Section B comprises of questions from 5-8. In Section B, answer question no. 5 which is compulsory and any two questions from question nos 6-8.

2. Working notes should form part of the answer.

3. All questions in Section B should be answered on the basis of position of GST law as amended by Finance Act, 2022 and the significant notifications/ circulars issued upto 31st October, 2022.

Quesiton-5 [M-8]

Jino Enterprises, a partnership firm is a regular taxable person registered in Guwahati, Assam and is engaged in supply of Air conditioners and its accessories as well as air conditioned repairing services. Details of their various activities for the month of October 2022 are as follows:

(i) Intra State supply of Air conditioner to customers in Assam. Freight is separately charged in invoices for delivery of goods at customer's doorstep.

(ii) Intra State supply of repairing services wherein apart from charging service charges, cost of parts/ spares provided to customers is also charged and consideration for the same is separately mentioned in the invoices.

(iii) In order to enhance their sales and to clear the stock of old models of air- conditioner, Jino

Enterprises made combo offers to customers wherein, if a customer purchases an Air-conditioner along with a stabilizer, the same is offered at a combo price of Rs.20,000 as against the original price of Rs.30,000 (Air-conditioner Rs.22,000 & stabilizer Rs.8,000) if these are purchased separately. During October, 2022, Jino Enterprises had made inter-State supply of 10 numbers of such combo products.

(iv) Purchased business class air tickets for intra State travel from Guwahati Airport, Assam to Dibrugarh Airport, Assam for its executive employees relating to business of the concern. Basic air fare was Rs.40,000 and airlines charges GST @ 2.5% CGST, SGST each on basic freight, in case the same is applicable.

Additional Information:

(a) All the figures mentioned above are exclusive of taxes.

(b) In respect of few of the invoices relating to F.Y. 2021-2022, involving ITC of CGST Rs.20,000, SGST of Rs.20,000, IGST Rs.80,000 was not taken earlier. Jino Enterprises now want to avail credit in respect of such invoices in the current month.

(c) The rates of GST applicable on various supplies are as follows:

Calculate the amount of minimum CGST, SGST & IGST tax payable in cash by Jino Enterprises

for the month of October, 2022.

Note: Working Notes (legal provisions) should form part of your answer.

Answer

WN-1 Computation of output tax for the month of Oct-22

Note

1. Section 8(a) [Composite Supply] - The tax liability on a composite supply comprising two or more supplies, one of which is a principal supply shall be determined on the basis of principal supply.

Since goods are agreed to be delivered at customer’s doorsteps, supply of air-conditioners along with transportation thereof is a composite supply which is treated as the supply of the principal supply (viz. air-conditioners). Accordingly, rate of principal supply, i.e. air-conditioners will be charged.

2. Since parts/ spares and repair services are not naturally bundled, they are taxable separately at the applicable rates.

3. Section 8(b) [Mixed Supply] - 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.

Since supplies are not naturally bundled and a single price is being charged, it is a mixed supply.

WN-1 Computation of Input tax for the month of Oct-22

Note

4. Section 16(4) - ITC in respect of any invoice can be taken

upto 30th Nov following the end of FY to which such invoice relates or

furnishing of the relevant annual return,

whichever is earlier

Hence ITC of FY2021-22 may be availed upto 30-11-2022.

WN-3 Payment of Net GST

Note-5. Order of Utilisation of ITC [S-49B rw R-88A]

Question-6(a) [M-6]

Mr. Jayesh, a registered supplier of Mumbai, received the following amounts in respect of the various activities undertaken by him during the month of October, 2022.

Details of Input services:

Notes:

(i) All the amount stated above in both the tables are exclusive of GST, wherever applicable.

(ii) Aggregate turnover of Mr. Jayesh in previous year was Rs.42,00,000.

You are required to compute Gross value of supplies, on which GST to be paid by Mr. Jayesh for the month of October, 2022

Answer

WN-1 Gross Value of supplies on which GST is to be paid

Note:

1. Tax is payable by NBFC under reverse charge. [Entry 11 of NN 13/2017-CT rate]

2. Supply of Actionable claim is not a supply [Para 6 of Sch-III]

3. Transfer of business assets without consideration on which ITC has not been availed is not supply. [Para 1 of Sch-1]

4. Renting of residential dwelling to registered person is taxable under RCM [Entry 5AA of N-13/2017-CT rate]

5. GTA services to registered person is taxable under RCM [Entry 1 of NN 13/2017-CT rate]

Question-6(b) [M-4]

Mr. Shyam Das was admitted to Suraksha Hospital in Mumbai for 2 days in relation to diagnosis of removal of stones from his kidney. For the said services, Surkasha hospital charged following from Mr. Das:

(i) Room rent Rs.7,000 per day for 2 days.

(ii) Operation theatre charges Rs.5,000

(iii) Doctors Consultation Charges Rs.8,000

(iv) Other services Rs.4,000

In each of the above scenario explain whether Suraksha Hospital should levy GST or not in line with the relevant provisions of the GST laws.

Answer

Entry 74 of N-12/2017-CT Rate

Health care services by a clinical establishment are exempt from GST.

However, services provided by a clinical establishment by way of providing room having room charges exceeding Rs.5,000 per day to a person receiving health care services are not exempt.

In view of the same, only the room rent of Rs.14,000 (Rs.7,000 per day × 2 days) is liable to GST.

Other than room rent, all other nature of services provided by Suraksha Hospital are exempt from GST.

Quesiton-7(a) [M-5]

Mr. Manik provides the following information regarding his tax & other liabilities under GST law as per Electronic Liability Register:

Mr. Manik wants to clear his liability of demand notice u/s 73 first.

Discuss the provision of order of discharge of GST liability u/s 49(8) of the CGST Act & advice to Mr. Manik.

Answer

1. Statutory provision of section 49(8) of CGST Act

Taxable person shall discharge his tax and other dues under gst laws in the following order, namely:

(a) self-assessed tax, and other dues related to returns of previous tax periods;

(b) self-assessed tax, and other dues related to the return of the current tax period;

(c) any other amount payable under this Act or rules including the demand determined u/s 73 or 74.

Advice

In view of the above provisions, Mr. Manik cannot clear his liability of demand notice u/s 73 first.

The order of discharge of liability of Mr. Manik will be as under:

1. Tax, interest and penalty for the month of May, Rs.30,000

2. Tax due for the month of June, Rs.35,000

3. Liability arising out of demand notice u/s 73, Rs.48,000

Question-7(b) [M-3]

Mr. Sumit is a registered dealer in the state of Punjab. In the month of May, he decides to apply for QRMP scheme. As he wants to switch to QRMP scheme, he had not filed his returns for the months of May and June.

Please guide to Mr. Sumit regarding the following:

(A) Conditions and restrictions of QRMP scheme.

(B) Manner of exercising option of QRMP scheme.

Answer

1. Conditions & restrictions of QRMP scheme as per 1^st proviso to section 39(1) read with N-84/2020-CT

Quarterly Return may be opted subject to following conditions

(a) He is RP, other than a person referred to in section 14 of the IGST Act, 2017

(b) his aggregate turnover is up to Rs.5 cr in the preceding FY;

(c) he has opted to furnish quarterly GSTR-3B u/r 61A(1)

(d) he pays the tax due every month in accordance with the proviso to section 39(7);

(e) he furnishes return for the preceding month, as due on the date of exercising such option, has been furnished

2. Manner of exercising option for QRMP

Rule 61A(1)

Registered person shall indicate his preference for furnishing quarterly return from 1st day of 2nd month of the preceding quarter till the last day of 1st month of the quarter for which the option is being exercised

RP shall not be eligible to opt for quarterly return in case the last return due on the date of exercising such option has not been furnished.

3. Conclusion

In the given case, Mr sumit can not opt for QRMP scheme for 1^st quarter as time limit for exercising the option was 30^th Apr.

Question-7(c) [M-2]

When goods are transferred by principal to job worker, there is no need to issue e-way bill. Comment on the validity of the above statement with reference to GST Laws.

Answer

The said statement is not valid.

When goods are transferred by principal to job worker, e-way bill is required to be mandatorily issued:

• in case of intra-State transfer, if consignment value exceeds Rs.50,000, and

• in case of inter-State transfer, irrespective of the value of the consignment [3^rd Proviso to Rule 138(1)]

Quesiton-8(a)(i) [M-5]

Who are not eligible to opt for composition scheme for goods under GST Laws?

Answer

(1) Section 10(2) - Eligible person for composition scheme on supply of goods

RP shall be eligible to opt for composition levy, if he is not

(a) engaged in supply of services, other than restaurant and marginal supply of services

(b) engaged in any supply of goods  [or services] which are not leviable to tax under this Act.

(c) engaged in inter-State outward supplies of goods or services;

(d) engaged in supply of goods or services through an ECO who is to collect TCS u/s 52;

(e) a manufacturer of notified goods; and

(f) a casual taxable person or a non-resident taxable person:

(2) Marginal Supply of services for Composition Levy

2^nd Proviso to Section 10(1)

A person who opts to pay tax u/s 10(1) may supply services (other than Restaurant service), of value not exceeding 10% of turnover in a State/UT in the preceding FY or Rs.5 lacs, whichever is higher.

Quesiton-8(a)(ii) [M-5]

GTA services provided to an unregistered person (including unregistered casual taxable person) are exempt from GST by virtue of Entry 21 A of GST Laws. Discuss the validity of above statement.

Answer

The said statement is invalid.

Services provided by a GTA to an unregistered person, including an unregistered casual taxable person are exempt except when provided to a:

(a) factory; (b) society; (c) co-operative society; (d) body corporate; (e) partnership firm; (f) registered casual taxable person

Quesiton-8(a)(ii) [M-5]

List any 5 (Five) activities/transactions specified under Schedule III of the CGST Act, 2017 which shall be neither treated as supply of goods nor as supply of services. Detailed explanations is not required.

Answer

Activities or transactions which shall be treated neither as a supply of goods nor a supply of services are as under:-

Para-1 Services by an employee to the employer in the course of or in relation to his employment.

Para-2 Services by any court or Tribunal established under any law for the time being in force.

Para-4 Services of funeral, burial, crematorium or mortuary including transportation of the deceased.

Para-5 Sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

Para-6 Actionable claims, other than specified actionable claims.

Quesiton-8(b) [M-5]

Rule 86A of the CGST Rules, 2017 provides that in certain specified circumstances, Commissioner on the basis of reasonable belief may not allow debit of an amount equivalent to such credit in electronic credit ledger.

State the grounds (as guided by CBIC) on which the reasons for such belief must be based on.

Answer

Rule 86A(1)

The Commissioner or an officer (not below the rank of an Assistant Commissioner) authorised by him has been empowered to impose restrictions on utilization of ITC available in the electronic credit ledger. The restrictions can be imposed under the CGST Rules, 2017 in the following circumstances:

(i) ITC has been availed on the basis of tax invoices/valid documents –

• issued by a non-existent supplier or by a person not conducting any business from the registered place of business; or

• without receipt of goods and/or services; or

• the tax in relation to which has not been paid to the Government.

(ii) Registered person availing ITC has been found non-existent or not to be conducting any business from the registered place of business; or

(iii) Registered person availing ITC is not in possession of tax invoice/valid document