SUGGESTED ANSWER – NOV 2020 WITH LATEST AMENDMENTS

PAPER – 4 : TAXATION

SECTION B: INDIRECT TAXES

1. Question No. 5 is compulsory.

2. Candidates are also required to answer any two questions from the remaining three questions.

3. All questions should be answered on the basis of position of GST law as amended by significant notifications/circulars issued upto 30th April, 2020.

4. Working notes should form part of the answer.

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

Question-5 [M-8]

KNK Ltd., a registered supplier of Mumbai is a manufacturer of heavy machines. Its outward supplies (exclusive of GST) for the month of January, 2020 are as follows:

Applicable rate of CGST, SGST and IGST on outward supply are 9%, 9% and 18% respectively. Details of GST paid on inward supplies during the month of January, 2020 are as follows:

Additional Information:

(i) There is no opening balance of any input tax credit and all the conditions necessary for availing the input tax credit (ITC) have been fulfilled.

(ii) Details of GST paid on inward supplies are available in GSTR-2A except for item (i) i.e. Raw Material A, for which supplier has not filed its GSTR-1 for the month of January 2020, hence corresponding input tax credit (ITC) is not reflecting in GSTR-2A of KNK Ltd. in January, 2020.

Compute the following:

(i) Amount of eligible input tax credit (ITC) available for the month of January, 2020.

(ii) Minimum net GST payable in cash, for the month of January, 2020 after using available input tax credit.

Working notes should form part of your answer.

Answer

WN-1 Calculation of Eligible Input Tax for the month of Jan, 20

Note

1. 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

2. 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.

Plant & machinery does not includes pipelines laid outside the factory premises.

3. Section 17(5)(ab) - ITC is not available on services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles for transportation of persons of seating capacity =< 13 persons.

Hence in the given case, ITC on trucks is available.

4. Rule 36(4) - Where invoice has not been uploaded by the supplier in its GSTR-1, 10% of the eligible ITC available in respect of the uploaded invoices can be claimed by the recipient, i.e. 10% of Rs.1,00,000.

WN-2 Calculation of Output tax and Net Tax payable

Question-6a [M-6]

Following are the particulars, relating to one of the machine sold by SQM Ltd. to ACD Ltd. in the month of February 2020 at list price of Rs.9,50,000. (exclusive of taxes and discount) Further, following additional amounts have been charged from ACD Ltd :

Additional information :

(i) SQM Ltd. normally gives an interest-free credit period of 30 days for payment, after that it charges interest @ 1% p.m. or part thereof on list price. ACD Ltd. paid for the supply after 45 days, but SQM Ltd. waived the interest payable.

(ii) SQM Ltd. received Rs.50,000 as subsidy, from one non-government organization (NGO) on sale of such machine. This subsidy was not linked to the price of machine and also not considered in list price of Rs.9,50,000.

(iii) ACD Ltd. deducted discount of Rs.15,000 at the time of final payment, which was not as per agreement.

(iv) SQM Ltd. collected Rs.9,500 as TCS (tax collected at source) under the provisions of the Income Tax Act, 1961.

Compute the value of taxable supply as per the provision of GST laws, considering that the price is the sole consideration for the supply and both parties are unrelated to each other.

Note: Correct legal provision should form part of your answer.

Answer

(1) Statutory Provision

Section 15(1) - The value of a supply shall be the transaction value, which is actually paid or payable for the said supply where the supplier and the recipient are not related and the price is the sole consideration for the supply.

Section 15(2)(a) - Value includes 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.

Section 15(2)(c) – Value includes amount charged for anything done by the supplier in respect of the supply at the time of or before delivery of goods or supply of services.

Section 15(2)(e) - Value includes subsidies directly linked to the price excluding subsidies provided by the Central and State Governments.

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.

Section 15(3)(b) The value of the supply shall not include any discount which is given after the supply, if

(i) such discount is established in terms of an agreement entered into at or before the time of such supply and specifically linked to relevant invoices; and

(ii) ITC attributable to the discount has been reversed by the recipient of the supply.

Calculation of taxable value

Question-6(b) [M-4]

In the following independent cases, decide, who is liable to pay GST, if any. You may assume that recipient is located in the taxable territory. Ignore the aggregate turnover and exemption available.

(i) 'Veer Transport', a registered Goods Transport Agency (GTA) paying IGST @ 12%, transported goods by road of Dilip & Company, a sole proprietary firm (other than specified person) which is not registered under GST or any other Law. (2 Marks)

(ii) Mr. Kamal Jain, an unregistered famous author, received Rs.20 lakh of consideration from PQR Publications Ltd. for supply of services by way of temporary transfer of a copyright covered under section 13(1)(a) of the Copyright Act, 1957 relating to original literary works of his new book.

Answer

(i) Entry 1 of N N-13/2017 – CT(R) :

In case of a GTA service, where GST is payable @ 5% and recipient is one of the specified recipients, tax is payable by the recipient of service under reverse charge.

However, where GST is payable @ 12%, tax is payable under forward charge by the supplier of service. Therefore, in the given case, tax is payable under forward charge by "Veer Transport", a registered GTA.

Note In the given case, since the recipient of service is other than specified recipient, i.e., unregistered sole proprietorship firm, GTA service is exempt from GST. However, in the above answer, the said exemption has been ignored since the question specifically requires the students to ignore the exemptions, if any, available.

(ii) Supply of services by an author by way of transfer of a copyright covered under section 13(1)(a) of the Copyright Act, 1957 relating to original literary works to a publisher located in the taxable territory is taxable under reverse charge mechanism.

Thus, in the given case, the recipient of service, i.e. PQR Publications Ltd. is liable to pay GST. The tax can be paid by the author under forward charge if the author is a registered person. Since in the given case, the author is an unregistered person, the said option is not available to him.

Question-7a [M-4]

BBD Pvt. Ltd. Of Gujarat exclusively manufactures and sells product 'Z' which is exempt from GST vide notifications issued under relevant GST legislations. The company sells 'Z' only within Gujarat and is not registered under GST laws. The turnover of the company in the previous year 2018-19 was Rs.50 lakh. The company expects the sales to grow by 10% in the current year 2019-20.

However, effective 01.01.2020, exemption available on 'Z' was withdrawn by the Central Government and GST @ 5% was imposed thereon. The turnover of the company for the nine months ended on 31.12.2019 was Rs.42 lakh.

BBD Pvt. Ltd. is of the opinion that it is not required to get registered under GST for current financial year 2019-20.

Examine the above scenario and advise BBD Pvt. Ltd. whether it needs to get registered under GST or not.

Answer

For a supplier exclusively engaged in intra-State supply of goods, the threshold limit of turnover to obtain registration in the State of Gujarat is Rs.40 lakh. However, a person exclusively engaged in the business of supplying goods and/or services that are not liable to tax or are wholly exempt from tax is not liable to registration.

Therefore, since BBD Pvt. Ltd. was engaged exclusively in supplying exempted goods till 31.12.2019, it was not required to be registered till that day; though voluntary registration was allowed.

The position, however, will change from 01.01.2020 as the supply of goods become taxable from that day and the turnover of BBD Pvt. Ltd. is more than Rs.40 lakh.

Since the aggregate turnover limit of Rs.40 lakh includes exempt turnover also, turnover of ‘Z’ till 31.12.2019 will be considered for determining the threshold limit even though the same was exempt from GST. Therefore, BBD Pvt. Ltd. needs to register within 30 days from 01.01.2020.

Question-7(b) [M-3]

"It is mandatory to furnish the details of conveyance in Part-B of E-way Bill."

Comment on the validity of the above statement with reference to provisions of E-Way Bill under CGST Rules, 2017.

Answer

Rule 138(3) of CGST Rules

The given statement is partially valid.

An e-way bill is valid for movement of goods by road only when the information in Part-B – which includes details of conveyance - is furnished.

However, the details of conveyance may not be furnished in Part-B of the e-way bill where the goods are transported for a distance of upto 50 km within the State/Union territory:

(a) from the place of business of the consignor to the place of business of the transporter for further transportation or

(b) from the place of business of the transporter finally to the place of business of the consignee.

Question-7(c) [M-3]

"In Form GSTR-1, submission of invoice-wise details of outward supplies is mandatory for all kind of invoices issued during the tax period."

Comment on the validity of the above statement with reference to GST laws.

Answer

Rule 59(4) of CGST Rules

The said statement is not valid. In respect of following outward supplies, consolidated details and not invoice-wise details are required to be uploaded in the GSTR-1:

(a) Intra-State supplies made to unregistered persons for each rate of tax

(b) Inter-State supplies made to unregistered persons with invoice value upto Rs.2,50,000 for each rate of tax separately for each State.

Question-8(a) [M-5]

Who can impose restrictions on utilization of input tax credit (ITC) available in the electronic credit ledger and under what circumstances can restrictions be imposed under the CGST Rules 2017?

Answer

Rule 86A(1) of CGST Rules

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.

Question-8(b) [M-5]

Explain the order of discharge of tax and other dues as per the provisions of section 49(8) of the CGST Act, 2017.

Answer

The order of discharge of tax and other dues as per provisions of section 49(8) of the CGST Act, 2017 is as under:-

(a) self-assessed tax and other dues related to returns for the previous tax periods should be discharged first.

(b) the self-assessed tax and other dues for the current period should be discharged next

(c) Lastly, any other amount payable including demand determined under section 73 or section 74 should be discharged.

Question-8c [M-5]

With reference to provisions of the CGST Act, 2017 discuss in brief, when ''Importation of
services" is to be considered as supply and when it is not to be considered as supply.

Answer

(i) Section 7(1)(b) - Importation of services for a consideration whether or not in the course or furtherance of business is to be considered as supply.  

(ii) Importation of services by a person without consideration is deemed as supply provided the following two conditions are satisfied:-

(a) such import is from related person or from his establishments located outside India, and

(b) such import is in the course or furtherance of business. In case any or both of the above two conditions is/are not satisfied, the import of services without consideration shall not be deemed as supply.