ICAI INTERMEDIATE EXAMINATION - NOVEMBER, 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 the Finance Act, 2022 as well as significant notifications/ circulars issued upto 30th April, 2023

Quesiton-5 [M-8]

Miss Nitya, proprietor of M/s. Honest Enterprise, a registered supplier of taxable goods and services in the state of West Bengal, pays GST under regular scheme. It is not eligible for any threshold exemption. It provided the following information for the month of December 2022.

Notes

(i) Rate of CGST, SGST and IGST on all supplies are as below:

(ii) Both inward and outward supplies given above are exclusive of taxes.

(iii) All the conditions necessary for availing the ITC have been fulfilled.

(iv) Working note should form part of the answer.

Compute the net minimum GST payable in cash by M/s. Honest Enterprise for the month of December 2022.

Answer

WN-1 Calculation of Total output Tax

Notes

1. Intra state supply to branch having same GSTIN is not supply under GST as branch is not distinct person as per section 25(4) or (5). [Para 2 of Sch-1]

2. Sponsorship service by any person to body corporate/ firm is taxable under RCM. Hence recipient will pay GST under it. [Entry 4 of N-13/2017-CT rate]

3. For supply of services, time of supply shall be earlier of date of supply of services or date of receipts of payment. Hence GST is payable on advance received. [Section 13(2)(b)]

WN-2 Computation of ITC available

Notes:

4. ITC is not available works contract services used for construction of immovable property to the extent of capitalization to immovable property. In given case, cost is not capitalized, hence ITC is available [Section 17(5)(c)]

5. Legal services availed by a business entity from an advocate is taxable under reverse charge. Hence minimum GST payable in cash is GST on Legal services.

WN-3 Net Payment of Tax

Question-6(a) [M-6]

Mr. Dhanwan, an individual registered supplier of Ahmedabad (Gujarat), received the following amount towards rendering of the intra-state supply of various services in the month of January 2023:

You are required to compute the value of supply on which GST is to be paid by Mr. Dhanwan for the month of January, 2023. All the amounts stated above are exclusive of GST, wherever applicable. Suitable notes should form part of the answer.

Answer

Calculation of Taxable value of supply

Notes:

1. Services provided to educational institute by way of security or cleaning or housekeeping services in the educational institute providing pre school and higher secondary education is exempt. [Entry-66 of N-12/2017-CT Rate]

However, service by Mr. Dhanwan is not exempt since security and housekeeping services are performed outside the educational institution.

2. Liable to GST since it is not specifically exempt and it is also not covered in Schedule III of the CGST Act, 2017 (neither supply of good nor supply of service.

3. Not exempt, since exemption available only where transportation take place over pre-determined route and pre-determined schedule and contract carriage is hired for a period of time, during which the contract carriage is at the disposal of the recipient.

4. Services by way of training or coaching in recreational activities relating to arts or culture, by an individual is exempt [Entry-80 N-12/2017-CT rate]

5. Renting of residential dwelling for use as residence except where the resident dwelling is rented to registered person.

However, renting of residential dwelling to a proprietor (registered under GST) of a proprietorship concern in his personal capacity for use as his own residence and on his own account is exempt. [Entry-12 of N-12/2017-CT Rate]

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

Examine whether the following activities would be treated as supply under GST law?

Mr. Sonu from Chandigarh purchased a water cooler from Malhotra Bros. of Hoshiarpur for Rs.25,000 to donate it to a temple situated in Hoshiarpur. Mr. Sonu directed Malhotra Bros. to engrave the words on the water cooler- "Donated by Mr. Sonu from Chandigarh" and dispatch the water cooler directly to the temple.

Answer

(i) Supply from Malhotra Bros. to Mr Sonu

Supply of water cooler by Malhotra Bros. to Mr. Sonu is supply as it is made for consideration in course or furtherance of business.

(ii) Donation by Mr Sonu to temple

Donations received by the charitable organisations are treated as consideration only if there exists, quid pro quo, i.e., there is an obligation on part of recipient of the donation or gift to do anything (supply a service).

Since the name of the donor, Mr. Sonu is displayed in temple as an expression of gratitude and public recognition of his act of philanthropy and is not aimed at advertising or promotion of his business, hence, donation of water cooler by Mr. Sonu to temple is without quid pro quo and is, thus, not a supply under GST law.

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

Examine whether the following activities would be treated as supply under GST law?

Wesco Ltd, a registered person in Ahmedabad (Gujarat) having head office located in Singapore, received management consultancy services free of cost from its head office.

Answer

Import of services by a person from a related person or from any of his other establishments outside India, in the course or furtherance of business without consideration is treated as deemed supply [Para-4 of Sch-I]

In given case, Wesco ltds has received management consultancy services free of cost from its head office in Singapore, it will be treated as deemed supply.

Quesiton-7(a) [M-3]

Mr. Venaram proprietor of M/s. Lalit Kirana Stores is registered as a composition dealer in the Jodhpur district of Rajasthan. He has not furnished the statement for payment of self - assessment tax in the form GST CMP-08 for two consecutive quarters. He placed an order for purchase of taxable goods worth Rs.5,50,000 with M/s. Bob & Sons (a partnership firm), a registered dealer in the Bikaner district of Rajasthan. M/s. Bob & Sons has been regularly filing its GST returns. M/s. Bob & Sons wants to generate E-way bill with respect to intra-state supply to be made to M/s. Lalit Kirana Stores. Whether M/s. Bob & Sons is allowed to generate E-way bill as per the provisions of CGST Act, 2017? Answer with proper reasoning.

Answer

Statutory provision - Rule 138E of CGST Rules

No person shall be allowed to furnish the information in PART A of GST EWB-01 in respect of any outward movement of goods for a Composition dealer who has not furnished statement in GST CMP-08 for consecutive quarters.

Advice

In view of above provisions, M/s Lalit Kirana shall not be allowed to generate e-way bill for outward supply made by it.

However, this restriction does not apply to generation of e-way bill in respect of inward movement of goods by the defaulter.

Hence, in the given case, M/s. Bob & Sons is allowed to generate e-way bill with respect to supply to be made to M/s Lalit Kirana Stores since M/s. Bob & Sons, who is making the outward movement of goods, is a regular return filer.

Question-7(b) [M-4]

Dream World Pvt. Ltd is registered under GST in the State of Haryana. During the Financial Year 2022-23, its annual aggregate turnover was Rs.12 crore. In the month of April 2023, it supplied goods worth Rs.12 lakh to Nightmare Ltd (a registered taxable person).

(i) You are required to ascertain whether issue of e-invoice is mandatory in respect of this transaction?

(ii) What would be your answer if Nightmare Ltd is a SEZ (Special Economic Zone) unit?

Answer

Registered person whose aggregate turnover in any preceding financial year from 2017-18 exceeds Rs.10 cr [Rs.5 Cr wef 01-08-2023 ] shall prepare e-invoice in respect of B2B supply and exports.

However e-invoice is not required to be issued by SEZ unit.

Advice

In the given case, aggregate turnover of Dream World Pvt Ltd is more than Rs.10 cr in FY 2022-23, hence it is required to issue e-invoice in respect of supply to Nightmare Ltd.

Even if Nightmare Ltd is situated in SEZ, e-invoice is required to be issued by Dream world because exemption is given to supplier situated in SEZ but not recipient situated in SEZ.

Question-7(c) [M-3]

Mr. Atul of Chennai is a registered dealer under GST. He has an opening balance of input tax credit of Rs.1,20,000 (IGST) lying in the electronic credit ledger relating to the month of November,2022. During the month, a legal proceeding has been initiated under the GST law which resulted in a tax liability of Rs.80,000 (IGST, other than RCM liability). Mr. Atul agrees with the tax liability and wants to use the balance lying in the electronic credit ledger towards payment of same.

He seeks your opinion with regard to the provisions of GST laws as to whether he is allowed to use the amount lying in the electronic credit ledger for making the payment of tax liability, payable as a consequence of the proceeding?

Answer

1. Statutory Provision

Section 49(4) - The amount available in the electronic credit ledger may be used for making any payment towards output tax under this Act or under IGST Act in such manner and subject to such conditions and restrictions and within such time as may be prescribed.

Output tax does not includes tax payable on RCM.

2. Advice

It is clarified that any payment towards output tax, payable as a consequence of any proceeding instituted under the provisions of GST laws, can be made by utilization of the amount available in the electronic credit ledger of a registered person.

Thus, Mr. Atul is allowed to use the credit of IGST in electronic credit ledger for making payment of tax liability of Rs.80,000, payable as a consequence of the legal proceeding.

Question-8(a) [M-5]

Briefly explain the provisions relating to reversal of input tax credit in case of non–payment of tax by the supplier and re-availment thereof?

Answer

1. Reversal of ITC - Section 41(2) read with rule 37A

Where ITC has been availed by a RP in GSTR-3B for a tax period in respect of such invoice/ DN, the details of which have been furnished by the supplier in GSTR-1/GSTR-1A, but GSTR-3B for the same tax period has not been furnished by such supplier till the 30th day of Sep following the end of FY in which the ITC in respect of such invoice/DN has been availed, the said ITC shall be reversed by the RP, while furnishing GSTR-3B on or before the 30th day of Nov following the end of such FY.

2. Reversal of ITC with interest – 1^st Proviso to Rule 37A

where the said amount of ITC is not reversed by the RP in GSTR-3B on or before the 30th day of Nov, such amount shall be payable by the said person along with interest thereon u/s 50

3. Re-availment of said ITC on payment of tax by the supplier – 1^st Proviso to Section 41(2)

Where the said supplier subsequently furnishes GSTR-3B for the said tax period, the said RP may re-avail the amount of such credit in GSTR-3B for a tax period thereafter.

Question-8(a) [M-5]

Explain the procedure for revocation of cancellation of registration where the registration of a person is cancelled suo-motu by the proper officer as per the provisions of CGST Act, 2017.

Answer

Section 30 read with Rule 23

1. any RP, whose registration is cancelled by the PO on his own motion, may apply to such officer for revocation of cancellation of the registration in GST REG-21 [1][within a 90 days from the date of the service of the order of cancellation of registration] at the common portal.

2. no application for revocation shall be filed, if the registration has been cancelled for the failure of the RP to furnish returns, unless such returns are furnished and any tax due, in terms of such returns, has been paid along with any interest, penalty and late fee in respect of the said returns.

3. Where the PO is satisfied, for reasons to be recorded in writing, that there are sufficient grounds for Revocation of CoR, he shall revoke the CoR by an order in GST REG-22 within 30 days from the date of the receipt of the application and communicate the same to the applicant.

4. Otherwise, he may reject the revocation application. However, before rejecting the application, he has to first issue SCN to the applicant who shall furnish the clarification within 7 working days of service of SCN.

5. The proper officer shall dispose the application (accept/reject the same) within 30 days of receipt of clarification.

Question-8(b) [M-5]

Mr. Sameer, a registered person under GST, is unable to tile GSTR-1 on the reason being shown that tax payable under GSTR-1 which has been filed in respect of last tax period exceeds the tax payable under GSTR-3B which has been filed for the corresponding tax period. Explain the procedure to be followed by the department and Mr. Sameer for the same as per the provisions of Rule 88C of the CGST Rules 2017.

Answer

Refer Rule 88C [For complete provision, click here]

1. In the given case, Mr. Sameer would be intimated on the portal and his email address of such difference in DRC-01B and be directed to either

(i) pay the differential tax liability along with interest, or

(ii) explain the difference,

within 7 days period.

2. Upon receipt of the intimation Mr Sameer should-

(a) pay differential tax liability fully or partially, along with interest through GST DRC-03 and furnish the details thereof in Part B of GST DRC-01B; or

(b) furnish a reply, incorporating reasons of differential tax liability that has remained unpaid, if any, in Part B of GST DRC-01B,

within the period specified.

3. Where any amount specified in the intimation in DRC-01B remains unpaid within 7 days and no explanation or reason is furnished by RP in default or the explanation or reason furnished is not found to be acceptable by the proper officer, the said amount shall be recoverable as per section 79.