ICAI INTERMEDIATE EXAMINATION - NOVEMBER, 2022

PAPER – 4 : TAXATION

SECTION B: INDIRECT TAXES

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 the Finance Act, 2021 as well as significant notifications/ circulars issued upto 30th April, 2022.

Quesiton-5 [M-8]

Ajay Limited, a registered dealer in Patna (Bihar), is engaged in various types of supplies. The company provided the following details for the month of January 2022:

Additional Information:

(a) All the amounts given above are exclusive of taxes.

(b) During the course of arranging and filing documents, the accountant of Ajay Limited observed that an invoice for Rs.30,000 (excluding tax) dated 02.12.2021 was omitted to be recorded in the books of accounts and no payment was made against the same till the end of January 2022. This invoice was issued by Mr. Mukesh of Patna, from whom Ajay Limited had taken cars on rental basis. Invoice included cost of fuel also. (Intra-State transaction).

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

(d) No opening balance of input tax credit exists in the beginning of the month.

(e) Out of the 30 invoices of inward supply received, 6 invoices with taxable value amounting to Rs.1,50,000 were e-invoices in which Invoice Reference Number (IRN) was not mentioned. However, all the invoices were duly reflected in GSTR 2B for the month of January 2022, since the suppliers had filed their GSTR-1.

(f) Subject to the information given above, conditions necessary for claiming ITC were complied with.

You are required to calculate the amount of net GST liability payable in cash by Ajay Limited for the month of January 2022. Brief notes for treatment given for each item should form part of your answer.

Answer

1. Computation of Output Tax for the month of Jan-22

WN-2 Calculation of ITC available for the month of Jan-22

WN-3 Net Payment of Tax

Note:

1. Value of supply = transaction value between unrelated person [Section-15(1)]

2. Not exempt since the State Government has borne less than 75% of total expenditure of the training programme. [Entry 72 of N-12/2017-CT]. [Amended wef 01-10-2021]

[Before amendments, 100% of expenditure was to be borne by govt.]

3. Supply made in the course of business between related or distinct persons in course of business qualifies is deemed supply even if made without consideration. [Para 2 of Sch-I] [TV = MV R-28(1)]

4. ITC cannot be claimed on the e-invoices without IRN since an e-invoice without IRN is not treated as valid document for claiming ITC. [R-48(5)]

5. RCM is applicable on cab services [Entry 15 of N-13/2017-CT]

(a) If services is provided by non body corporate to a body corporate and

(b) where the cost of fuel is included in the consideration.

(c) Service provder issue invoices @ 5%.

Hence in this case , RCM is applicable.

5A. Provision upto 30/11/2024

Time of supply on inward service taxable under RCM shall be earlier of

 (a) date of payment in the books of account or the date when payment is debited in his bank account, whichever is earlier; or

(b) the date immediately following 60 days from the date of issue of invoice or any other document

Hence in given case, time of supply is earlier of

(i) Payment date = NA

(b) 60 from date of invoice = 02-12-2021+60 = 01-02-2022

Since the time of supply of renting of motor car services in the given case does not fall in January, tax liability on the same does not arise in said month.

Further, ITC on renting of motor car services received is blocked since the recipient - Ajay Ltd.is not in the same line of business1.]

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

Question-6a [M-6]

Charm Limited, registered under GST in the State of Jharkhand, manufactures cosmetic products and appointed Mr. Handsome of Mumbai, who is registered under GST in the State of Maharashtra, as their Del-credere agent (DCA) to sell their products. Being a DCA, he agrees to raise invoices in his own name and also guarantees for the realization of payments from customers to Charm Limited.

In order to realize the payments from customers on time, he extends short term transaction based loans to them and charges interest for the same.

Mr. Handsome provides you the following details of transactions carried out during the month of March 2022

Applicable rate of tax on both inward and outward supplies is 9% each for CGST and SGST and 18% for IGST. Amounts given above are exclusive of taxes wherever applicable.

Subject to the information given above, necessary conditions are complied with for availment of input tax credit.

You are required to calculate the gross GST liability and eligible input tax credit for the month of March 2022 of Mr. Handsome. Brief notes should form part of your answer for treatment of items in Sl. No. (i) to (v).

Answer

WN-1 Computation of Output Tax for the month of Jan-22

WN-2 ITC available

Note:

1. Para 3 of Sch-I :  

Supply of goods by a principal to his agent where agent undertakes to supply such goods on behalf of the principal and vice versa shall be treated as deemed supply even without consideration if invoice for further supply is being issued by the agent in his name.

In the given case, invoice is being issued by agent in his own name, hence it will be treated as supply under para 3 of Sch-1.

2. Section 15(2)(d) – Value of supply includes interest or late fee or penalty for delayed payment of any consideration for any supply;

3. Para 3 of sch-1 applies only on supply of goods, hence training received by agent of value of Rs.75,000 is not taxable as there is no consideration.

Question-6b(i) [M-2]

Raju is engaged in the manufacture of 'Fly ash Bricks' in the State of Kerala. He started his activity in the month of April 2022 and deals only in intra-State. His tax consultant advised him to register under composition levy under GST as Raju's turnover is expected to be below Rs.1 cr for the said financial year.

(i) Briefly discuss the relevant provision

(ii) determine the validity of the given advice (Correct/Incorrect)

Answer

1. Statutory Provision

a) Section 10(1) provides that RP, whose AT in preceding FY did not exceed Rs.1.5 Cr, may opt for composition levy.

b) Rule 7 read with Section 10(2)(e) provides that Composition Levy is not available for notified manufacturer of goods “i.e fly ash bricks”

2. Facts

a) AT of Raju for preceding FY is nil

b) Raju is manufacturer of notified goods i.e fly ash bricks.

3. Conclusion

In the given case, since Raju is engaged in manufacture of fly ash bricks, he cannot opt for composition levy.

Question-6b(ii) [M-2]

Answer the following, after reading the below given two paragraphs:

(i) Briefly discuss the relevant provision.

(ii) Decide the correct conclusion and

(iii) Determine the validity of the given advice (Correct /Incorrect)

Dharun provides services as a business facilitator to Zio Bank Ltd by facilitating in opening of bank accounts to villagers in its rural branches in Punjab and earned a commission of Rs.22 lakh in the month of April 2022. So far he is not registered under GST. Dharun’s consultant advised him that he is liable for registration under GST as his gross receipts exceeded Rs.20 lacs. Dharun has no other receipts/ business activity other than the above.

Answer

1) Statutory Provision

a) Section 22 read with Notification No. 10/2019 CT dated 07.03.2019 - A supplier is liable to be registered in the State/UT from where he makes a taxable supply of goods and/or services, if his aggregate turnover in a financial year exceeds the threshold limit.

Threshold limit for supplier engaged in “supply of services” or both “goods and services”

b) Exempt Supply - Services by a business facilitator to a banking company with respect to accounts in its rural area branch is exempt from GST. [E-39 of NN 12/2027-CT rate]

Advice

Since in the given case, Dharun is engaged exclusively in providing the exempt services, it is not liable to obtain registration even though his aggregate turnover exceeds Rs.20 lakh.

Thus, the advice given by his tax consultant is not correct.

Question-7a [M-5]

Nesamani started his business activities in the month of Feb 2022 in the State of Orissa. He provided the following details

From the information given above, compute the aggregate turnover of Nesamani and also
decide whether he is required to get registration under GST. Assume that the amounts
given above are exclusive of taxes.

Answer

1) Statutory Provision

a) Section 22 read with Notification No. 10/2019 CT dated 07.03.2019 - A supplier is liable to be registered in the State/UT from where he makes a taxable supply of goods and/or services, if his aggregate turnover in a financial year exceeds the threshold limit.

Threshold limit for supplier engaged exclusively in “supply of goods”

b) As per section 2(6) AT Includes

• Taxable and exempt and non gst supplies to outside person
• Exports of goods or services or both
• Inter-state supplies of all branches having same PAN

AT does not includes inward supplies taxable under RCM

c) Section 24(iii) requires compulsory registration of person who is required to pay tax under RCM on inward supplies, even if his aggregate turnover does not exceed threshold limit.

WN-1 Calculation of AT

Advice

Nesamani has principal place of business in Orisa, Rajasthan and UP. Threshold limit of all these states are Rs.40,00,000. AT of Nesamani is Rs.17,00,000, hence he is not liable for registration.

However, he is required to pay GST on RCM basis on inward supply, hence he compulsorily required to get GST registration without threshold limit.

Question-7(b)(i) [M-3]

Pranesh has deposited a sum of Rs.5,000 under the head of ‘Fee’ column of Cess and Rs.4,000 was lying unutilized under the head of ‘Penalty’ column of IGST. Both the deposits were made wrongly instead of depositing under the head of Fee column under SGST.

In the light of the provisions of section 49(10) & 49(11) of the CGST Act, 2017, briefly explain the relevant provisions as how can Pranesh rectify these errors?

Answer

1. Statutory Provision

Section 49(10) - A Registered person may, on the common portal, transfer any amount of tax, interest, penalty, fee or any other amount available in the ECaL under this Act, to the ECaL for  integrated tax, central tax, State tax, Union territory tax or cess in GST PMT-09 and

It can transfer any amount of tax, interest, penalty, fee or others, under one (major or minor) head to another (major or minor) head, as available in the electronic cash ledger.

Therefore, in the given case, amount of Rs.5,000 available under minor head ‘fee’ of major head ‘cess’ and Rs.4,000 available under minor head ‘penalty’ of major head ‘IGST’ can be transferred to minor head ‘fee’ of major head ‘SGST’ using PMT-09.

Question-7(b)(ii) [M-2]

M/s Sakura Enterprises made an inter-State supply of taxable goods valued at Rs.47,500 and exempt goods valued at Rs.2,000. Rate of IGST for taxable supply was 6%. Determine, with brief reasons, whether e-way bill generation is mandatory for the above supply made by M/s Sakura Enterprises.

Answer

(a) Statutory Provision: Explanation 2 to Rule 138(1)

Consignment value of goods = value determined u/s 15, declared in an invoice, a bill of supply or a delivery challan,

Includes central tax, State or Union territory tax, integrated tax and cess charged

Excludes value of exempt supply of goods where the invoice is issued for both exempt and taxable supply.

Determination of the value of consignment for E-way Bill

Since there is a movement of goods of consignment value exceeding Rs.50,000, M/s Sakura Enterprises is mandatorily required to issue e-way bill.

Question-8a [5]

Rule 86B restricts the use of Input Tax Credit (ITC) available in the Electronic Credit Ledger
for discharging output tax liability. List down the exceptions to the rule 86B

Answer

Rule 86B of the CGST Rules, 2017 restricts the use of ITC available in the Electronic Credit Ledger for discharging output tax liability by a registered person. Exceptions to rule 86B are as follows:

(1) Where the said person/proprietor/karta/managing director/any of its two partners, whole-time directors, members of Managing Committee of Associations or Board of Trustees, as the case may be, have paid more than Rs.1 lakh as income tax in each of the last 2 financial years.

(2) Where the registered person has received a refund of more than Rs.1 lakh in the preceding FY on account of unutilised ITC in case of

(i) zero rated supplies made without payment of tax or

(ii) inverted duty structure.

(3) Where the registered person has discharged his liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, upto the said month in the current FY.

(4) Where the registered person is Government Department, Public Sector Undertaking, Local authority or Statutory body. Said restriction may be removed by Commissioner/authorised officer after required verifications and safeguards.

Question-8b [M-5] [Amended wef 01-10-2022]

List any three situations that warrant issue of credit note. Briefly explain the time line to declare such credit note in the GST return.

Answer

(i) Situations that warrants issue of credit note

Section 34(1)

Where one or more tax invoices have been issued for supply of any goods and/or services and

(a) the taxable value/tax charged in that tax invoice is found to exceed the taxable value/tax payable in respect of such supply, or

(b) where the goods supplied are returned by the recipient, or

(c) where goods and/or services supplied are found to be deficient,

supplier may issue to the recipient one or more credit notes for supplies made in a financial year containing prescribed particulars.

(ii) Time limit for declaration of CN in Return [Amended wef 01-10-2022]

Section 34(2) - RP shall declare the details of CN in the return for the month during which such CN has been issued but not later than

[1][30th Nov] following the end of the FY in which such supply was made, or

date of furnishing of the relevant annual return,

whichever is earlier, and

Situation upto 30-09-2022

Earlier time limit was sep in place of 30^th Nov.

OR

Question-8b [M-5]

(i) List the details of outward supplies which can be furnished using Invoice Furnishing Facility (IFF).

Also briefly list the cases where a registered person is debarred from furnishing details of outward supplies in GSTR-1/IFF.

Answer

(i) Details of outward supplies which can be furnished using IFF are as follows:

(a) invoice wise details of inter-State and intra-State supplies made to the registered persons;

(b) debit and credit notes, if any, issued during the month for such invoices issued previously.

(ii) Cases where a registered person is debarred from furnishing details of outward supplies in GSTR-1/using IFF:

(i) A registered person is not allowed to furnish Form GSTR-1, if he has not furnished the return in Form GSTR-3B for the preceding 2 months2/ for the preceding 1 month3.

(ii) A registered person, opting for QRMP (Quarterly Return Monthly Payment) scheme is not allowed to furnish Form GSTR-1/using IFF, if he has not furnished the return in Form GSTR-3B for preceding tax period.