ICAI INTERMEDIATE EXAMINATION - NOV, 2018

PAPER – 4 : TAXATION

SECTION B: INDIRECT TAXES

1. Question No. 8 is compulsory.

2. Attempt any three questions from the rest.

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

Question-8(a) [M-6]

Mr. Thiraj, a registered supplier of service in Bangalore (Karnataka State) has provided the following information for the month of February 2018:

Compute the net GST liability (CGST, SGST or IGST) of Mr. Thiraj for the month of February, 2018.

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

All the amounts given above are exclusive of taxes.

Answer

(a) Computation of net GST liability by Mr. Thiraj for the month of February, 2018

Notes:

1. Since Loveall University provides education recognized by law, it is an educational institution and services provided to an educational institution, by way of conduct of examination by such institution are exempt from GST.

2. In case of legal services provided by an advocate to any business entity GST is payable under reverse charge by the recipient of service2.

3. In case of services supplied by, inter alia, State Government by way of renting of immovable property to a person registered under the CGST Act, GST is payable under reverse charge by the recipient of service

4. 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-8(b) [M-4]

CANWIN Ltd., a registered supplier, is engaged in the manufacture of Tanks. The company provides the following information pertaining to GST paid on the purchases made/input services availed by it during the month of January 2018:

Determine the amount of ITC available to M/s. CANWIN Ltd. for the month of Jan 2018 by giving brief explanations for treatment of various items. Subject to the information given above, all the conditions necessary for availing the ITC have been fulfilled.

Answer

Computation of input tax credit (ITC) available with CANWIN Ltd. for the month of January 2018

Notes:

(a) Section 16(2) provides that RP shall take ITC  on any inward supplies if he is in possession of a tax invoice or DN. Hence ITC may be availed on the basis of DN

(b) Section 16(2)(b) provides that RP has received the goods or services or both.

Explanation to section 16(2)(b) provides that it shall be deemed that RP has received the goods or services where goods are delivered by the supplier to a recipient or any other person on the direction of such RP.

Hence inputs directly delivered to job worker with valid documents is eligible for ITC

(c) Section 16(3) provides that If RP has claimed depreciation on the tax component of cost of capital goods and plant and machinery under Income-tax Act, ITC on said tax component shall not be allowed.

(d) Section 17(5)(c) denies ITC on works contract services supplied for construction of an immovable property (other than plant and machinery). ITC is allowed where it is an input service for further supply of works contract service.

Hence ITC on Works contract services availed for construction of staff quarters within the company premises is not allowed

Question-9(a) [M-5]

Ms. Achintya, a registered supplier in Kochi (Kerala State) has provided the following details in respect of her supplies made Intra-State for the month of March 2018:

Compute the value of taxable supply and the gross GST liability of Ms. Achintya for the month of March 2018 assuming rate of CGST to be 9% and SGST to be 9%. All the amounts given above are exclusive of GST.

Answer

Computation of value of taxable supply and gross GST liability of Ms. Achintya for the month of March, 2018

Notes:

As per section 15 of CGST Act, 2017

1. Any taxes, duties and cesses levied under any law other than CGST, SGST is includible in the value.

2. Packing expenses being incidental expenses, are includible in the value.

3. Since subsidy is received from State Government, the same is not includible in the value. It has been assumed that such subsidies are directly linked to the price of the goods. Further, since the same has not been adjusted in the list price, the same is to be excluded from the list price.

4.Since discount is known at the time of supply, it is deductible from the value.

Note: (i). In the above answer, the term “exclusive” mentioned in the question has been taken to be as “not adjusted in the list price”, i.e. the list price given in the question is before adjusting the amount of discount and subsidy. However, it is also possible to take a view that the list price “excludes” amount of discount and subsidy. Therefore, the same need not be deducted again from the list price to arrive at the taxable value.

(ii) Read SBC as other taxes.

Question-9(b) [M-5]

Explain the meaning of supply as per provisions of Section 7(1) of Central Goods and Service Tax Act, 2017.

Answer

As per section 7(1) of CGST Act, 2017, the term supply includes

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person, in the course or furtherance of business;

(b) import of services for a consideration whether or not in the course or furtherance of business;

(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and

(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.

Question-10(a) [M-4]

From the following information, compute the Net GST payable for the month of March, 2018:

(Amount in Rs.)

Answer

Computation of net GST payable for the month of March, 2018

Note: Input tax credit of IGST has been used to pay IGST, CGST and SGST in that order.

Question-10(b) [M-3]

Decide with reason whether the following independent services are exempt under CGST Act, 2017:

(i) M/s Fast Trans, a goods transport agency, transported relief materials meant for victims of Kerala floods being a natural disaster, by road from Delhi to Ernakulam, fora Limited Co.

(ii) Keyan Enterprises, an event organizer, provided services to Breathing Wall Ltd. by way of organizing business exhibition at Pragati Maidan in New Delhi as part of Make in India initiative.

Answer

(i) Services provided by a goods transport agency, by way of transport in a goods carriage of, inter alia, relief materials meant for victims of inter alia natural or man-made disasters are exempt from GST. Therefore, services provided by M/s Fast Trans will be exempt from GST.

(ii) Services provided by an organiser to any person in respect of a business exhibition held outside India is exempt from GST. Since in the given case, the exhibition is organized in India, the services of organization of event by Keyan Enterprises will not be exempt from GST.

Question-10(c) [M-3]

Decide which person is liable to pay GST in the following independent cases, where the recipient is located in the taxable territory. Ignore the Aggregate Turnover and Exemption available.

(i) Mr. Raghu provided sponsorship services to WE-WIN Cricket Academy, an LLP.

(ii) 'Safe Trans', a Goods Transport Agency, transported goods of Kapil & Co., a partnership fi rm which is not registered under GST.

Answer

(i) In case of services provided by any person by way of sponsorship to anybody corporate or partnership firm / LLP, GST is liable to be paid under reverse charge by such body corporate or partnership firm / LLP located in the taxable territory. Therefore, in the given case, WE-WIN Cricket Academy is liable to pay GST under reverse charge.

(ii) In case of services provided by Goods Transport Agency (GT A) in respect of transportation of goods by road to, inter alia, any partnership firm whether registered or not under any law; GST is liable to be paid by such partnership firm. Therefore, in the given case, Kapil & Co. is liable to pay GST under reverse charge.

Question-11(a) [M-3]

(a) Determine with brief reasons, whether the following statements are True or False:

(i) Registration under the CGST Act, 2017 can be cancelled by the proper officer, if the voluntarily registered person has not commenced the business within three months from the date of registration.

(ii) Electronic cash ledger balance of Rs.5,000 under the major head of IGST can be utilized for discharging the liability of major head of CGST.

Answer

(i) The said statement is False.

Registration under the CGST Act, 2017 can be cancelled by the proper officer, if the voluntarily registered person has not commenced the business within six months from the date of registration.

(ii) The said statement is False.

Amount available under one major head cannot be utilised for discharging the liability under any other major head.

Question-11(b) [M-5]

Mr. Lakhan provides Continuous Supply of Services (CSS) to M/s. TNB Limited. He furnishes the following further information:

(i) Date of commencement of providing CSS - 01-10-2017

(ii) Date of completion of providing CSS - 31-01-2018

(iii) Date of receipt of payment by Mr. Lakhan - 30-03-2018

Determine the time of issue of invoice as per provisions of CGST Act, 2017, in the following circumstances:

(i) If no due date for payment is agreed upon by both under the contract of CSS.

(ii) If payment is linked to the completion of service.

(iii) If M/s. TNB Limited has to make payment on25-03-2018 as per the contract between them

Answer

(i) Where the 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.

Thus, in the given case, the invoice should be issued on or before 30.03.2018 (date of receipt of payment by Mr. Lakhan).

(ii) If payment is linked to the completion of an event, the invoice should be issued on or before the date of completion of that event.

Since in the given case payment is linked to the completion of service, invoice should be issued on or before 31.01.2018 (date of completion of service).

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

If M/s. TNB Limited has to make payment on 25.03.2018 as per the contract between them, the invoice should be issued on or before 25.03.2018.

Question-11(c) [M-2]

A tax payer can file GSTR-1 under CGST Act, 2017, only after the end of the current tax period. State exceptions to this.

Answer

A taxpayer can file GSTR-1 under CGST Act, 2017, only after the end of the current tax period. However, following are the exceptions to this rule:

(i) Casual taxpayers, after the closure of their business

(ii) Cancellation of GSTIN of a normal taxpayer.

Question-12(a) [M-5]

State the persons who are not liable for registration as per provisions of Section 23 of Central Goods and Service Tax Act, 2017.

(a) As per provisions of Section 23 of CGST Act, 2017, the persons who are not liable for registration are as under–

(a) Person engaged exclusively in supplying goods/services/both that are wholly exempt from tax.

(b) Person engaged exclusively in supplying goods/services/both that are not liable to tax.

(c) Agriculturist to the extent of supply of produce out of cultivation of land.

(d) Persons only engaged in making supplies of taxable goods or services or both liable to reverse charge.

e) Persons making inter-State supplies of taxable services up to an aggregate turnover of Rs.20 lakh (Rs.10 lakh in case of special category States except Jammu and Kashmir).

(f) Casual Taxable Persons making taxable supplies of specified handicraft goods up to an aggregate turnover of Rs.20 lakh (Rs.10 lakh in case of special category States except Jammu and Kashmir) subject to specified conditions.

(g) Persons making inter-State supplies of specified handicraft goods up to an aggregate turnover of Rs.20 lakh (Rs.10 lakh in case of special category States except Jammu and Kashmir) subject to specified conditions.

(h) Job workers making inter-State supply of services to a registered person up to an aggregate turnover of Rs.20 lakh (Rs.10 lakh in case of special category States except Jammu and Kashmir) subject to specified conditions.

(i) Persons making supplies of services through an electronic commerce operator (other than supplies specified under section 9(5) of the CGST Act) up to an aggregate turnover of Rs.20 lakh (Rs.10 lakh in case of special category States except Jammu and Kashmir).

[Note Any 5 points may be mentioned]

Question-12(b) [M-5]

Mr. Allan, being a non-resident person, should apply for registration, irrespective of the threshold limit, at least 5 days prior to the commencement of business. He seeks your advise on the following

aspects, relating to CGST Act, 2017:

(i) When shall he apply for registration?

(ii) Is PAN mandatory for his registration?

(iii) What is the period of validity of RC granted to him?

(iv) Will he be able to extend the validity of his registration? If yes, what will be the period of extension?

Answer

(i) Mr. Allan, being a non-resident person, should apply for registration, irrespective of the threshold limit, at least 5 days prior to the commencement of business.

(ii) No, PAN is not mandatory for his registration.

He has to submit a self-attested copy of his valid passport along with the application signed by his authorized signatory who is an Indian Resident having valid PAN.

However, in case of a business entity incorporated or established outside India, the application for registration shall be submitted along with its tax identification number or unique number on the basis of which the entity is identified by the Government of that country or its PAN, if available.

(iii) Registration Certificate granted to Mr. Allan will be valid for:

(a) Period specified in the registration application, or

(b) 90 days from the effective date of registration whichever is earlier.

(iv) Yes, Mr. Allan can get the validity of his registration extended. Registration can be extended further by a period not exceeding 90 days.

Question-12(c)(i) [M-2]

(c) (i) List any four Central levies, which are subsumed in GST.

Answer

The Central levies which are subsumed in GST are as under:

(a) Central Excise Duty & Additional Excise Duties

(b) Service tax

(c) Excise duty under Medicinal & Toilet Preparation Act

(d) CVD

(e) Special CVD

(f) Central Sales Tax

(g) Central surcharges and cesses in so far as they relate to supply of goods & services

Note: Any of the four points may be mentioned

Question-12(c)(ii) [M-3]

Ms. Jimmy wants to adjust input tax credit for payment of interest, penalty and payment of tax under reverse charge. Explain whether she can do so.

Answer

The input tax credit as self-assessed in the return of a registered person shall be credited to his electronic credit ledger which may be used for making any payment towards output tax.

“Output tax” inter alia excludes tax payable on reverse charge basis.

Thus, Ms. Jimmy cannot adjust input tax credit for payment of interest, penalty as also for payment of tax under reverse charge.