Place of Supply – Advanced Tax Laws and Practice Important Questions 

Place of Supply – Advanced Tax Laws and Practice Important Questions

Question 1.
Sakshitha Dancers, owned by Mrs. Lasliya, a famous Bharata Natyam dancer, wishes to organise a ‘Lasliya Dance Concert’ in Chandigarh (Haryana). Sakshitha Dancers is registered in Jaipur, Rajasthan. It enters into a contract with an event management company, Hasan Arts (P.) Ltd. (registered in Delhi) for organising the said dance concert at an agreed consideration of ₹10,00,000.

Hasan Arts (P) Ltd. books the lawns of Hotel Sky Dine, Chandigarh (registered in Haryana) for holding the dance concert, for a lump sum consideration of ₹6,00,000. Sakshitha Dancers fixes the entry fee to the dance event at ₹6,000; 600 tickets for ‘Lasliya Dance Concert’ are sold. From the aforesaid details, identify the different supplies which are involved and determine the CGST & SGST or IGST liability, as the case may be, in respect of all the supplies involved in the outlined situation. Rate of GST may be taken as under:

SGST: 9%
CGST: 9%
IGST: 18%

Answer:
Identification of supplies involved and GST payable:

In the given problem, three supplies are involved:

(i) Services provided by Sakshitha Dancers to audiences by way of ad-mission to dance event.
(ii) Services provided by Hasan Arts (P.) Ltd. to Sakshitha Dancers by way of organising the dance event.
(iii) Services provided by Hotel Sky Dine to Hasan Arts (P.) Ltd. by way of accommodation in the hotel lawns for organising the dance concert. The CGST and SGST or IGST liability in respect of each of the above supplies is determined as under:

(i) Services provided by Sakshitha Dancers to audiences by way of admission to dance event

As per the provisions of section 12(6) of the IGST Act, 2017, the place of supply of services provided by way of admission to, inter alia, a cultural event shall be the place where the event is actually held. Therefore, the place of supply of services supplied by Sakshitha Dancers to audiences by way of admission to the music concert is the location of the Hotel Sky Dine, i.e. Chandigarh, Haryana.

Since the location of the supplier (Jaipur, Rajasthan) and the place of supply (Chandigarh, Haryana) are in different States, IGST will be leviable.

Therefore, IGST leviable will be computed as follows:

Consideration for supply 600 tickets @ ₹6,000 per ticket = ₹36,00,000 IGST @ 18% on value of supply = ₹36,00,000 × 18% = ₹6,48,000.

(ii) Services provided by Hasan Arts (P) Ltd. to Sakshitha Dancers by way of organising the dance event.

Section 12(7)(a)(i) of IGST Act, 2017 stipulates that the place of supply of services provided by way of organization of, inter alia, a cultural event to a registered person is the location of such person.

Therefore, the place of supply of services supplied by Hasan Arts (P.) Ltd. to Sakshitha Dancers (Jaipur, Rajasthan) by way of organising the music concert is the location of the recipient, ie. Jaipur (Rajasthan). Since the location of the supplier (Delhi) and the place of supply (Jai¬pur, Rajasthan) are in different States, IGST will be leviable.

Consideration for supply = ₹10,00,000.
IGST @ 18% on value of supply = ₹10,00,000 × 18% = ₹1,80,000

(iii) Services provided by Hotel Sky Dine to Hasan Arts (P.) Ltd. by way of accommodation in the Hotel lawns for organising the dance concert

As per the provisions of section 12(3)(c) of the IGST Act, 2017, the place of supply of services, by way of accommodation in any immovable property for organizing, inter alia, any cultural function shall be the place where such immovable property is located. Therefore, the place of supply of services supplied by Hotel Sky Dine (Chandigarh, Haryana) to Hasan Arts (R) Ltd. by way of accommodation is the place where immovable property ie. Hotel Sky Dine is located.

Since the location of the supplier (Chandigarh, Haryana) and the place of supply (Chandigarh, Haryana) are in the same State, CGST and SGST will be leviable.

Therefore, CGST and SGST leviable will be computed as follows: Consideration for supply = ₹6,00,000 CGST @ 9% on value of supply = ₹6,00,000 × 9% = ₹54,000 SGST @ 9% on value of supply = ₹6,00,000 × 9% = ₹54,000

Author’s note:
Only this one-time ICSI asked a single question of having weightage of 15 marks. Otherwise, maximum marks allotted to each question is 5.

Question 2.
Mrs. Bharghavi is a registered supplier under GST law in Coimbatore, Tamil Nadu, running a factory for manufacture of electric motors. For giving training to her employees, she has utilized the services of Vibrant Trainers Pvt. Ltd., a registered supplier in Trissur, Kerala. The training programs are to be held at Trissur.
(i) What will be the place of supply of services provided by Vibrant Trainers Pvt. Ltd. to Mrs. Bharghavi?
(ii) Will your answer be different, if Mrs. Bharghavi is not a registered supplier?
(iii) In the situation given in the problem, if the training is to be provided at Singapore, what will be the place of supply?
Answer:
(i) As per section 12(5) of IGST Act, 2017, when service in relation to training is provided to a registered person, place of supply is the location of recipient. Therefore, if Mrs. Bharghavi is a registered person, the place of supply will be the location of recipient, i.e., Coimbatore, Tamil Nadu.

(ii) As per section 12(5) of IGST Act, 2017, when service in relation to training is provided to an unregistered person, the place of supply is the location where the services are actually performed. Therefore, in this case, place of supply will be Trissur, Kerala.

(iii) When the training takes place outside India (Singapore), the place of supply will be the location of recipient i.e. Coimbatore, Tamil Nadu as Mrs. Bharghavi ie. recipient of supply is registered under GST.

Question 3.
Determine the place of supply according to the provisions of Integrated Goods and Services Tax Act, 2017 in the following cases:

(i) K of Kerala places an order to H of Gurgaon (Haryana) to supply motor parts and instructs him to deliver the spare parts to U of Kanpur (U.P.) directly to save transportation cost.

(ii) P Ltd. registered in Punjab sold its pre-installed transformer tower of electricity located at Himachal Pradesh to Bharat Ltd. registered in Delhi.

(iii) M from Mumbai enters into contract with the Indian Railways controlling office situated in U.P. for sale of food items in the trains from Mumbai to Delhi.

(iv) D of Delhi has a savings bank account with HDFC Bank in Delhi. When he was in Mumbai for official tour, he gets a DD (Demand Draft) from HDFC Bank in Mumbai.

(v) K of Kerala avails architect services for his property located in Chennai (Tamil Nadu) from an architect H of Hyderabad in Telangana State.
Answer:
(i) Goods are delivered to U (Kanpur, U.P.) the recipient of goods on the direction of K of Kerala. As per section 10(1)(b) of IGST Act, 2017, where the goods are delivered by the supplier to a recipient or any other person on the direction of a third person it shall be deemed that the said third person has received the goods and the place of supply of such goods shall be the principal place of business of such person, therefore in the given case, place of supply shall be the location of principal place of K ie. Kerala.

(ii) As per section 10(1)(c) of IGST Act, 2017, where supply does not involve movement of goods, place of supply shall be the location of goods at the time of delivery to the recipient. In the given case, the location of pre-installed tower is in Himachal Pradesh, therefore, place of supply is 3 Himachal Pradesh.

(iii) As per section 10(1)(e) of IGST Act, 2017, where the goods are supplied 5 on board a conveyance, the place of supply shall be the location at which such goods are taken on board. In the given case, M from Mumbai supplying food items in the train from Mumbai to Delhi, assuming that food items are taken on board at Mumbai, therefore, place of supply shall be Mumbai.

(iv) As per section 12(12) of IGST Act, 2017, place of supply of banking services shall be location of recipient of services on the records of supplier of services. However, if location of recipient of service is not on the records of supplier, the place of supply shall be location of supplier of services. In given case, assuming that D has Bank Account with HDFC Bank and on records of HDFC Bank, address of D is of Delhi, place of supply shall be Delhi.

(v) As per section 12(3) of IGST Act, 2017, place of supply of services of architects in relation to immovable property, shall be the location where immovable property is located. Therefore, in the given case place of supply shall be Chennai (Tamil Nadu).

Question 4.
Mr. Yogesh is working in Infosys Company having office in Bengaluru. Infosys Company is registered under GST. Mr. Yogesh purchased the ticket from Hyderabad for transportation as passenger by Air from Hyderabad to Chennai. Mr. Yogesh discloses the name of the organization and its registration number and the place where the organization is registered. Supplier of service is located at Hyderabad.

Find the following:
(i) Place of supply of service and GST liability.
(ii) Whether your answer is different if Mr. Yogesh has not disclosed the name of the organization and its registration number?
Answer:
(i) Place of Supply shall be Bengaluru (i.e. location of recipient of service) in terms of section 12(9) of IGST Act, 2017 as the passenger transportation service is supplied to a registered person. Further, IGST is liable to be paid by Air Travel Operator as location of supplier (Hyderabad, Telangana) and place of supply (Bengaluru, Karnataka) is in different states.

(ii) Place of Supply shall be Hyderabad (i.e. Place where the passenger embarks on the continuous journey) in terms of section 12(9) of IGST Act, 2017 as the supply of passenger transportation service is to a person other than registered person.

Further, CGST & SGST is liable to be paid by Air Travel Operator as location of supplier and place of supply is in same state i.e. Telangana.

Question 5.
Mr. Mahendra Goyal, an interior decorator provides professional services to Mr. Harish Jain in relation to two of his immovable properties. Determine the place of supply in the transactions below as per provisions of GST law in the following independent situations:

CASE LOCATION OF MR.MAHENDRA COYAL LOCATION OF MR.HARISH JAIN PROPERTIES SITUATED AT
I Delhi Mumbai New York (USA)
II Delhi New York Paris (France)

Answer:
Case I:
As per section 12(3) of IGST Act, 2017, where both the service provider and service recipient are located in India, the place of supply of services directly in relation to an immovable property, including services provided by interior decorators is the location of immovable property.

However, if the immovable property is located outside India, the place of supply is the location of recipient. Since in the given case, both the service provider (Mr. Mahindra Goyal) and the service recipient (Mr. Harish Jain) are located in India and the immovable property is located outside India (New York), the place of supply will be location of recipient le. Mumbai.

Case II:
As per section 13(4) of IGST Act, 2017, where either the service provider or recipient of service is located outside India, the place of supply of services directly in relation to an immovable property including services of interior decorators is the location of immovable property.

Since, in given case, service recipient (Mr. Harish Jain) is located outside India (New York), the place of supply will be location of immovable property ie. Paris (France).

Place Of Supply Notes

  • “Location of supplier” and “PLACE OF SUPPLY” determine the nature of the transaction i.e. whether the supply is “Intrastate” or “Inter-state” 1 and accordingly whether “CGST + SGST/UTGST” or “IGST” is 5 chargeable.
  • Sections 10, 11, 12 & 13 of the IGST Act determine the Place of Supply. Section 10: Place of supply of goods other than supply of goods imported into, or exported from India.
Case Place of supply
(1)(a) Supply involves the movement of goods. Location of goods at the time at which movement of goods terminates for delivery to the recipient.
(1)(b) Goods are delivered by the supplier to a recipient on the direction of a third person. Principal place of business of such third person.
(1 )(c) Supply does not involve the movement of goods. Location of such goods at the time of delivery to the recipient.
(1 )(d) Goods are assembled or installed at site. Place of such installation or assembly.
(1)(e) Goods are supplied on board a conveyance. Location at which such goods are taken on board.
(2) Supply of goods cannot be determined. Determined in such manner as may be prescribed.

Section 11: Place of supply of goods imported into, or exported from India.

Case Place of supply
(a) Goods imported into India Location of the importer.
(b) Goods exported from India Location outside India

Section 12: Place of supply of services where the location of supplier and recipient is in India.

Case Place of supply
(2) Other than cases specified in (3) to (14) – GENERAL CLAUSE (a) Supply is to a REGISTERED person – Location of such person
(b) When supply is to any person other than a registered person –

(i) Address on record exists: Location of recipient.

(ii) In other cases: Location of supplier of services.

(3) Services in relation to immovable property, lodging accommodation services. Location at which the immovable property is located or intended to be located. However, if the location of immovable property is outside India:- Location of the recipient.

Explanation: If immovable property is in more than one state or Union Territory:- Each such state or union territories in specific proportion.

(4) Restaurant and catering services, personal grooming, fitness, beauty treatment, health service including cosmetic and plastic surgery. The location where the services are actually performed.
(5) Training and performance appraisal services (a) To a registered person: Location of such person

(b) To an Unregistered Person: Location where services are actually performed

(6) Services by way of admission to events or amusement park or any other place and services ancillary thereto Place where the event is actually held or where the park or such other place is located.
(7) Services by way of organization of events or services ancillary to organization of events or assigning of sponsorship to such events (i) To registered person: Location of such person.

(ii) To an unregistered Person: Place where the event is actually held. But if the event is held outside India: Location of the recipient.

Explanation: If the event is held in more than one state/UT: Each of such state/ UT in specific proportion.

(8) Services by way of transportation of goods, including by mail or courier (a) To a Registered Person: Location of such person.

(b) To an unregistered Person: Location where such goods are handed over for their transportation.

Proviso: Where transportation is to a place outside India: Place of destination of such goods.

(9) Passenger Transportation services To a Registered person: location of such person.

To an unregistered person: Place where the passenger embarks on the conveyance for continuous journey*.

’Continuous journey: Return journey shall be treated as a separate journey.

Proviso: Right to passage is given for future use and point of embarkation is not known: As per section 12(2) of the IGST Act.

(10) Services on board a conveyance Location of first scheduled point of departure of that conveyance for the journey.
(11) Telecommunication services including data transfer, broadcasting cable & DTH services. (a)          Services by Fixed Telecommunication line: Location where such telecommunication line is installed for receipt of services.

(b)          Mobile connection on post- paid basis: Location of billing address of the Recipient of services on records of supplier of services.

(c)           Mobile connection on pre-paid basis through voucher or any other means:

(i) Through a selling agent, etc.: Address of selling agent, etc. as per records of supplier.

(ii) By any other person to final subscriber: Location where such pre-payment is received or such vouchers are sold.

(d) In other cases: Address of recipient as per records of supplier of services and where such address is not available, then location of supplier of services.

Proviso: Pre-paid service is availed/Re-charge is done through internet banking or other electronic mode: Location of recipient of services on record of supplier of services.

Explanation: Leased circuit line is installed in more than one state/UT: It shall be each state/UT in which it is installed in specific proportion.

(12) Banking and other financial services To any person: Location of recipient of services on the records of supplier of services.

Proviso: If location of recipient of services is not on records of supplier:

Location of supplier of services.

(13) Insurance Services (a) To a Registered Person: Location of such person.

(b) To an unregistered person: Location of recipient of services on the records of supplier of services.

(14) Advertising Services to Central Government, State Government, a statutory body or a local authority Each of such state/UT in specific proportion of the amount attributable to services by way of dissemination in respective states/UT.

Section 13 of IGST Act: Place of supply of service where the location of supplier or recipient of the supply is outside India

Case Place of supply
(2) General provisions: For services not covered in sub-sections (3) to (13) Location of recipient of services
If in above case, location of Recipient of services is not available in ordinary course of business Location of supplier of services
(3) Performance based services:

(a)          Services supplied in respect of goods which are required to be made physically available by the recipient of services to the supplier of services, or to a person acting on behalf of the supplier of services in order to provide the services.

 

When such services are provided from a remote location by way of electronic means

 

Services supplied in respect of goods which are temporarily imported into India for repairs or for any other treatment or process and are exported after such repairs or treatment or process without being put to any use in India, other than that which is required for such repairs or treatment or process

 

(b) Services supplied to an individual, represented either as the recipient of services or a person acting on behalf of recipient, which require the physical presence of the recipient or the person acting on his behalf, with the supplier for supply of services.

 

Location where services are actually performed

 

 

 

 

 

 

 

Location where goods are situated at the time of supply of services.

 

Provisions of section 13(3) will not apply and place of supply shall be determined as per section 13(2).

 

 

 

 

 

Location where services are actually performed.

 

(4) Services relating to immovable property Place where immovable property is located or intended to be located.
(5) Services relating to events Place where the event is actually held.
(6) Services mentioned in (3), (4) and (5) provided at more than one location including a location in taxable territory. Location in Taxable territory
(7) Services referred in (3), (4) or (5) are supplied in more than one state or Union Territory. Each of the respective states or Union Territories and value of such supplies shall be in proportion to value for services separately collected or determined in terms of the contract or in absence of such contract, on such other basis as may be prescribed.
(8) Specified Services:

(a) Services supplied by a banking company or financial institution or a non-banking financial company to account holders

(b) Intermediary Services

(c) Services consisting of hiring of means of transport, including yachts but excluding aircrafts and vessels, up to a period of one month

 

Location of supplier of services

 

 

Location of supplier of services

Location of supplier of services

 

(9) Services of transportation of goods, other than by way of mail or courier Place of destination of such goods
(10) Passenger Transportation services Place where the passenger embarks on the conveyance for continuous journey.
(11) Services provided on board a conveyance First scheduled point of departure of that conveyance for the journey
(12) Online Information and Database access or Retrieval services (OIDAR) Location of recipient of services*

* Person receiving OIDAR services shall be deemed to be located in the taxable territory if any two of the following non-contradictory conditions are satisfied –

a. location of address is in the taxable territory
b. Credit Card/Debit Card etc. by which the recipient of services settles payment has been issued in the taxable territory.
c. Billing address of the Recipient of services is in the taxable territory.
d. IP Address of device used by Recipient of services is in the taxable territory.
e. Bank of Recipient of services in which account used for payment is maintained is in the taxable territory.
f. Country code of SIM card used by the recipient of services is of taxable territory.
g. Location of the fixed land line through which service is received by the recipient is in the taxable territory.
Section 13(13): To prevent double taxation or non-taxation of supply of a service, or for uniform application of rules – Government has the power to notify any description of services or circumstances in which place of supply shall be a place of effective use and enjoyment of a service.

CS Professional Advance Tax Law Notes

Miscellaneous – Advanced Tax Laws and Practice Important Questions

Miscellaneous – Advanced Tax Laws and Practice Important Questions

Question 1.
Write short notes on the following:
(i) Common Portal
(ii) Deemed Export
(iii) Taking Assistance from an Expert
Answer:
(i) Common Portal:
The Government may, on the recommendations of the Council, notify the common Goods and Services Tax Electronic Portal for facilitating registration, payment of tax, furnishing of returns, computation and settlement of integrated tax, e-way bill and for carrying out such other functions and for such purposes as may prescribed. Common portal is www.gst.gov.in.

(ii) Deemed Exports:
The Government may, on the recommendations of the to Council, notify certain supplies of goods as deemed exports, where goods do not leave India, and payment for such supplies is received either in Indian rupees or in convertible foreign exchange, if such goods are manufactured in India.

(iii) Taking Assistance from an Expert:
Any officer not below the rank of Assistant commissioner may, having regard to the nature and complexity of the case and the Interest of revenue, take assistance of any expert at any stage of scrutiny, inquiry, investigation or any other proceedings before him.

Question 2.
What is National Anti-Profiteering Authority (NAA)?
Answer:
The National Anti-Profiteering Authority (NAA) was established under section 171 of the Central Goods and Services Tax Act, 2017. The NAA was set up to monitor and to oversee whether the reduction or benefit of input tax credit is reaching the recipient by way of appropriate reduction in prices.

National Anti-profiteering Authority (NAA) is therefore primarily constituted by the central government to analyse whether input tax credits availed by any registered person or the reduction in the tax is passed onto the consumer and he/she is protected from random price increase for self-interests in the name of GST.

The primary aim of the National Anti-profiteering Authority is to ensure the benefits of reduction or lower taxes under the new GST regime are passed onto the end consumers. Which is to determine that if any reduction in the rate of tax on supply of goods or services is passed onto the final recipient by way of proportional reduction in prices?

Apart from this, the NAA also has to identify registered people/entities who have not passed on the benefit of a reduction in the rate of tax by means of ITC and bring them to task.

Question 3.
State the duties and powers of the Anti-profiteering Committee under GST law.
Answer:
Duties of Anti-profiteering committee – Section 171(3)

The Authority would have the following duties:

(i) To determine whether any reduction in the rate of tax on any supply of goods or services or the benefit of input tax credit has been passed on to the recipient by way of commensurate reduction in prices.

(ii) To identify the registered person who has not passed on the benefit of reduction in the rate of tax on supply of goods or services or the benefit of input tax credit to the recipient by way of commensurate reduction in prices;

(iii) to order, reduction in prices; return to the receipient, an amount equivalent to the amount not passed on by way of commensurate reduction in prices along with interest at the rate of eighteen per cent, form the date of collection of the higher amount till the date of the return of such amount or recovery of the amount not returned, as the case may be, in case the eligible person does not claim return of the amount or is not identifiable, and depositing the same in the Consumer Welfare Fund;

imposition of penalty; and
Cancellation of registration.

Question 4.
What is the purpose of Compliance rating mechanism?
Answer:
As per Section 149 of the CGST/SGST Act, every registered person shall be assigned a compliance rating based on the record of compliance in respect of specified parameters. Such ratings shall also be placed in the public domain. A prospective client will be able to see the compliance ratings of suppliers and take a decision as to whether to deal with a particular supplier or not. This will create healthy competition amongst taxable persons.

Question 5.
What are the objectives of Compliance Rating?
Answer:
The following are the major benefits/objectives of compliance rating: Efficient input tax credit mechanism:

A person can claim an input tax credit in GSTR-2 (return with purchase details for the month) only when the seller also files his GSTR-1 (return with monthly sales details), and the details on both these forms reconcile or match with each other. This was not so earlier. The rating of a taxable person would be relevant to determine the eligibility of input tax credit in respect of inward supplies, selection for scrutiny and other administrative/monitoring purposes.

The rating would be based on tax payer’s record of compliance with the provisions of CGST, SGST and IGST. The details of parameters and methodology for rating would be prescribed.

Preferred supplier chosen by buyers/increase customer base:

As compliance rating increases, so is customer base, in accordance with rating and reputation. The buyer will prefer to choose those suppliers whose rating is good in the market. Will ensure healthy competition and enhanced compliances: The objective of this concept of tax administration is to make people fully GST compliant and on time with the uploading of invoices and other necessary documents, which will ensure healthy competition in the market.

Lower or poor rating may attract stricter scrutiny and surveillance:

If rules and regulations are regularly followed, then the chances of business coming under the spotlight or scrutiny of the GST authorities are significantly reduced, as the need to audit accounts will be nil.

Question 6.
Narrate all those advantages which will be available to Trade because of implementation of GST.
Answer:
The advantages because of applicability of GST to trade are:-

  1. Reduction in multiplicity of taxes
  2. Mitigation of cascading/double taxation
  3. More efficient neutralization of taxes especially for exports
  4. Simpler tax regime with fewer rates and exemptions
  5. Increase in cost competitiveness for domestic industries with reduction in tax cost and also reduced cost of compliance.

Question 7.
Briefly explain the following features of GST law in India:
(i) Consumption based tax
(ii) Integrated Goods and Services Tax.
Answer:
(i) GST is a consumption based tax i.e. tax payment accure to the state where consumption of supply takes place. Exports are not taxable because place of consumption is outside India whereas imports are taxable as place of consumption is in India.

(ii) Integrated Goods and Services Tax (IGST) is charged on inter-State supply of goods or services or both and collected by Central Government under IGST Act, 2017.

IGST rate is equal to CGST and SGST rates. Revenue from IGST apportions among Union and State Governments on the basis of recommendations of GST council.

Question 8.
Answer the following independent issues in the context of provisions contained under the GST Act, 2017?
(i) The different applicable rates of GST which also apply to IGST.
(ii) GST Council.
(iii) Point of Taxation.
(iv) SGST cannot be levied in a Union Territory and to plug this loophole, the GST Council had decided to have which legislature.
(v) Name the Act and the period which provides compensation to the States for the loss of revenue because of implementation of GST.
Answer:
(i) The rates of GST (CGST + SGST/UTGST) applicable for goods are Nil, 5%, 12%, 18%, and 28%. Some goods are also liable to tax at 0.2596 and 396.

(ii) GST Council means the council established under article 279A of the Constitution of India having Union Finance Minister as Chairperson, Union Minister of State in charge for Finance and State Finance Minister of every State as its member.

(iii) Point of Taxation is not used under GST. The termed used is ‘Time of Supply’. The expression ‘time of supply’ is not defined. The liability to pay GST arises at the ‘time of supply’ determined in accordance with GST Acts.

(iv) The Union Territory Goods and Service Tax Act, 2017 provides for levy of GST in Union Territories instead of State Goods and Services Tax (SGST).

(v) The Goods and Service Tax (Compensation to States) Act, 2017 for a period of 5 years.

Question 9.
State the functions of the GSTN, i.e. the role assigned to GSTN.
Answer:
Functions of the GSTN (i.e. Role assigned to GSTN):
Creation of common and shared IT infrastructure for functions facing taxpayers has been assigned to GSTN and these are:

  • filing of registration application.
  • filing of return.
  • creation of challan for tax payment.
  • settlement of IGST payment (like a clearing house).
  • generation of business intelligence and analytics, etc.

All statutory functions to be performed by tax officials under the GST like approval of registration, assessment, audit, appeal, enforcement etc. will remain with the respective tax departments.

Question 10.
How to calculate Goods and Services Tax (GST)?
Answer:
GST can be calculated simply by multiplying the Taxable amount by GST rate.

The different applicable rates of GST which also apply to IGST.

(ii) GST Council.
(ill) Point of Taxation.

If CGST & SGST/UTGST is to be applied then CGST and SGST both amounts are half of the total GST amount.
Goods and Services Tax = Taxable Amount × GST Rate.
If you have the amount which is already including the GST then you can calculate the GST excluding amount by below formula:
GST excluding amount = GST including amount/(1+ GST rate/100)
For example, GST including amount is ₹525 and GST rate is 5%.
GST excluding amount = 525/(1+5/100) = 525/1.05 = 500
GST is calculated on the transaction amount and not on the MRR

Question 11.
GST law in India came into existence with effect from 1-7-2017. What are the various central taxes which are subsumed under the GST law?
Answer:
The following are the various Central Taxes subsumed under the GST Law:
Central Excise Duty
Service Tax
Additional Excise Duties
CVD (levied on imports in lieu of Excise duty)
SAD (levied on imports in lieu of VAT)
Excise Duty levied under Medicinal and Toiletries Preparations Act,
Surcharges and Cesses

Question 12.
What is GST regime? Mention the State taxes and levies that are subsumed under GST.
Answer:
The GST is a comprehensive destination-based tax levy on manufacture, sale and consumption of goods and services at a national level which will subsume most of the indirect taxes at State and Central level to provide comprehensive and continuous chain of set-off benefits throughout the value chain.

Following state taxes and levies are subsumed under GST:

(a) Octroi
(b) VAT (except on liquor for consumption)
(c) Entry tax
(d) Stamp duty
(e) Tax on consumption or sale of electricity
(f) Entertainment tax (unless it is levied by the local bodies)
(g) Luxury tax
(h) Taxes on lottery, betting and gambling
(i) State Cess and Surcharge in so far as they relate to supply of goods and services
(j) Purchase Tax

Question 13.
Which was the first country to introduce Goods and Services Tax (GST) and When? What are the functions of the GST Council in India?
Answer:
France was the pioneer who first introduced GST in the Year 1954.

Functions of the GST Council

To recommend rate of taxes, cesses and surcharges to be levied by the Centre, States and local bodies.
To list goods and services which may be subjected to or exempted from GST.
To design model of GST laws and principles.
To fix the threshold limit of turnover below which exemption may be given.
To recommend the floor rates and special rates.
To suggest special provisions for North East States and other hilly areas.

Question 14.
What is cascading effect of Tax?
Answer:
The cascading effect implies charging tax on tax. In other words, at the time of levy of tax, the total value is considered which is inclusive of all taxes paid up to that point.

In this manner, if the tax is always charged on the selling price of the product, the burden of tax keeps on increasing at each point of sales. In this process, the effect of taxation magnifies as at each level tax is calculated on value, which includes taxes already levied and paid. The charging of tax on tax is called as ‘Cascading Effect of tax’.

Question 15.
What are the advantages of IGST Model?
Answer:
The major advantages of IGST Model are:

(a) Maintenance of uninterrupted ITC chain on inter-State transactions;
(b) No upfront payment of tax or substantial blockage of funds for the inter-State seller or buyer;
(c) No refund claim in exporting State, as ITC is used up while paying the tax;
(d) Self-monitoring model;
(e) Ensures tax neutrality while keeping the tax regime simple;
(f) Simple accounting with no additional compliance burden on the tax-payer;
(g) Would facilitate in ensuring high level of compliance and thus higher collection efficiency. Model can handle ‘Business to Business’ as well as ‘Business to Consumer’ transactions.

Question 16.
What are the recognitions to a Company Secretary under GST?
Answer:
Company Secretary to act as Goods & Services Tax Practitioner (GSTP)

Section 48(1) of the Central Goods & Services Act, 2017 (CGST) provides for “the manner of approval of goods and services tax practitioners, their eligibility conditions, duties and obligations, manner of removal and other conditions relevant for their functioning shall be such as may be prescribed.”

Pursuant to section 48 of CGST Act, 2017, read with Rule 83 of the Central Goods and Services Tax Rules, 2017, any person who has passed the Final Examination of the Institute of Company Secretaries of India (ICSI) is eligible for enrolment as a Goods & Services Tax Practitioner by making an application in Form GST PCT-01 on the common portal either directly or through a Facilitation Centre notified by the Commissioner for enrolment. A Goods & Services Tax Practitioner is eligible to undertake the following tasks:

(a) furnish details of outward and inward supplies;
(b) furnish monthly, quarterly, annual or final return;
(c) make deposit for credit into the electronic cash ledger;
(d) file a claim for refund;
(e) file an application for amendment or cancellation of registration;
(f) furnish information for generation of e-way bill;
(g) furnish details of Challan in FORM GST ITC-04;
(h) file an application for amendment or cancellation of enrolment under rule 58; and
(i) file an intimation to pay tax under the composition scheme or with¬draw from the said scheme.

Company Secretary to represent before the Appellate Authority

Under Section 116 of Central Goods & Services Tax Act, 2017, read with Rule 84 of Central Goods & Services Tax Rules, 2017, a Company Secretary is entitled to appear before an officer appointed under this Act, or the Appellate Authority or the Appellate Tribunal in connection with any proceedings under this Act.

Miscellaneous Notes

Sections involved: 143 to 174 of CGST Act

  • Job Work procedure (Section 143)
  • Presumption as to documents in certain cases.
  • Admissibility of micro films, facsimile copies of documents, and computer printout as documents and as evidence.
  • Common portal (Section 146)
  • Deemed Exports (Section 147)
  • Special provisions for certain processes
  • Goods and Services Tax compliance rating (Section 149)
  • Obligation to furnish information return (Section 150)
  • Power to collect statistics
  • Bar on disclosure of information
  • Taking assistance from an expert (Section 153)
  • Power to take samples
  • Burden of Proof
  • Persons deemed to be public servants
  • Protection of action taken under this Act
  • Disclosure of information by a public servant
  • Publication of information in respect of persons in certain cases
  • Assessment proceedings, etc., not to be valid on certain grounds
  • Rectification of errors apparent on the face of the record
  • Bar on the jurisdiction of Civil courts
  • Levy of fee
  • Power of Government to make rules
  • Power to make regulations
  • Laying of rules, regulations, and notifications
  • Delegation of powers
  • Power to issue instructions or directions
  • Service of notice in certain circumstances
  • Rounding off of tax, etc.: To nearest of rupee (Section 170)
  • Anti-profiteering measure (Section 171)
  • Removal of difficulties
  • Repeal and saving

Author’s Note:
In this topic, apart from questions relating to provisions of Chapter XXI of CGST Act which deals with “Miscellaneous”, we have also listed various questions which could not be specifically incorporated in any other topic.

CS Professional Advance Tax Law Notes

Zero Rated Supply U Exports Under Gst – Advanced Tax Laws and Practice Important Questions

Zero Rated Supply U Exports Under Gst – Advanced Tax Laws and Practice Important Questions

Question 1.
Explain the concept of “Zero-rated and Exempt transaction” for the purpose of availing of input tax credit in GST law.
Answer:
“Exempt supply” means the supply of goods or services which attracts the Nil rate of tax or which are wholly exempt from tax and includes the non-taxable supply.
“Zero-rated supply” means export of goods or services or supplies made to Special Economic Zone (SEZ) developer or SEZ unit. As per section 17(2) of CGST Act, 2017 where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies, and partly for effecting exempt supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

Question 2.
Write a note on “Deemed Exports”.
Answer:
It means such supplies of goods as may be notified under section 147 of CGST Act, 2017 [Section 2(39) of CGST Act] As per section 147 of CGST Act, 2017, the Government may, on recommendations of the council, notify certain supplies of goods as deemed exports, where goods supplied do not leave India, and payment for such supplies is received either in Indian rupees or in convertible foreign exchange if such goods are manufactured in India.

Question 3.
XYZ Education Advisory promotes the courses of foreign universities among prospective students. It has tied up with various Universities all over the world. These Universities have engaged them for promotional and marketing activities for the promotion of the courses taught by them and making the prospective students aware about the course fee and other associated costs, market intelligence about the latest educational trend in the territory, and ensuring payment of the requisite fees to the Universities if the prospective students decide upon pursuing any course promoted by the Applicant. XYZ Education Advisory receives consideration in the form of commission from the foreign University for these services rendered to prospective students. It wants to know whether the service provided to the Universities abroad would be considered “export” within the meaning of Section 2(6) of the Integrated Goods and Services Tax Act, 2017, and, therefore, a zero-rated supply under the CGST Act, 2017?
Answer:
The facts of the case are similar to the matter before Authority of Advance Ruling in the case of Global Reach Education Services Pvt. Ltd. where the West Bengal Authority for Advance Ruling has held that Section 2(6) of the Integrated Goods and Services Tax Act, 2017, reads as “export of services” means the supply of any service when – (i) the supplier of service is located in India; (it) the recipient of service is located outside India; (iii) the place of supply of service is outside India; (iv) the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India; and (v) the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in Section 8;’
It is, thus, evident from the above citation that in the case of Export of Services all the conditions as laid down under Section 2(6) of IGST Act, 2017 is to be followed in totality without any violation, and that there is no scope of partial compliance of the conditions laid down therein.

The main service provided by the applicant is facilitating the recruitment of students and the consideration is paid as commission. XYZ Education Advisory, therefore, represents the University in the territory of India and acts as its recruitment agent and not as an independent service provider. Being an intermediary service provider, the place of supply shall be determined under section 13(8)(b) of the IGST Act, 2017 and not under section 13(2) P of the IGST Act, 2017. The place of supply under the above legal framework is the territory of India. As the condition under section 2(6)(m) of the IGST Act, 2017 is not satisfied, the service provided by XYZ Education Advisory to the foreign universities does not qualify as “Export of Services”, and is, therefore, taxable under the GST Act. Pertinently, the referred Advance Ruling has also been affirmed by the Appellate AAR.

Question 4.
Mr. H is an exporter. He exports machinery out of India and pays 28% IGST. He wants to know the procedure for claim and grant of refund of IGST paid on goods exported out of India? His accountant has advised him to export machinery without payment of IGST and claim a refund of the unutilized input tax credit? Is it possible, if yes, how?
Answer:
Export on payment of Tax:
In terms of Rule 96 of the CGST Rules, shipping bills filed by an exporter of goods shall be deemed to be an application for refund of IGST tax paid on the goods exported out of India, when.
(a) person in charge of the conveyance carrying the export goods duly files an export manifest or an export report covering no. and date of shipping bills or bills of export; and (b) the applicant has furnished a valid return in FORM GSTR-3 or FORM GSTR-3B, as the case may be.

In this regard, the details of the relevant export invoices in respect of export of goods contained in FORM GSTR-1 are required to be transmitted electronically by the common portal to the system designated by the Customs (“Custom System”) and said the system will revert the confirmation of export of goods.

Upon the receipt of the information regarding the furnishing of a valid return in FORM GSTR-3 or FORM GSTR-3B, the Customs System shall process the claim for refund and an amount equal to the IGST paid in respect of each shipping bill or bill of export, shall be electronically credited to the bank account of the applicant mentioned in his registration particulars and as intimated to the Customs authorities.

Further, the persons claiming refund of integrated tax paid on exports of goods or services should not have – (a) received supplies on which the benefit of Notification No. 48/2017-Central Tax, dt. 18.10.2017 or Notification No. 40/2017-Central Tax (Rate), dt. 23.10.2017 or Notification No. 41/2017-Integrated Tax (Rate), dt. 23.10.2017 has been availed; or (b) availed the benefit under Notification No. 78/2017-Customs, dt.13.10.2017 or Notification No. 79/2017-Customs, dt. 13.10.2017. Export without payment of Tax on LUT: As per Rule 96A of CGST Rules, 2017, any registered person availing the option to make a zero-rated supply of goods or services without payment of integrated tax shall furnish a bond or a Letter of Undertaking in FORM GST RFD-11 prior to execution of such supply.

In terms of Notification No. 37/2017-Central Tax dated 04-10-2017, all registered persons, who intend to supply goods or services for export without payment of integrated tax shall be eligible to furnish a LUT in place of a bond except those who have been prosecuted for any offense under the CGST Act, SGST Act, IGST Act or any of the 49 existing laws in force in a case where the amount of tax evaded exceeds two hundred and fifty lakh rupees.

A self-declaration by the exporter that he has not been prosecuted is sufficient for the purposes of Notification No. 37/2017-Central Tax dated 4-10-2017. Department may verify the claim after acceptance of the LUT unless Department has any specific information otherwise regarding the prosecution. (Circular No. 8/8/2017-GST dated 4-10-2017).

The registered person (exporters) shall fill and submit FORM GST RFD-11 on the common portal. A LUT shall be deemed to be accepted as soon as an acknowledgment for the same, bearing the Application Reference Number (ARN), is generated online. No document needs to be physically submitted to the jurisdictional office for acceptance of LUT. (Circular No. 40/14/2018-GST dated 06-04-2018) Further, a LUT shall be deemed to have been accepted as soon as an acknowledgment for the same, bearing the Application Reference Number (ARN), is generated online. If it is discovered that an exporter whose LUT has been so accepted, was ineligible to furnish a LUT in place of the bond as per Notification No. 37/2017-Central Tax, then the exporter’s LUT will be liable for rejection.

In case of rejection, the LUT shall be deemed to have been rejected ab initio. (Circular No. 40/14/2018-GST dated 06-04-2018) Adding further, any person who is prosecuted for an evasion of more than ₹ 2,50,000 shall execute a Bond. The Bond shall be accompanied by Bank Guarantee for 1596 of the Bond amount. (Circular No. 8/8/2017-GST dated 04-10-2017).

The LUT facility is also extended to Supplies made to SEZ unit/developer. Where export is made without payment of tax, the exporter can claim the refund of unutilized credit by submitting Form GST RFD-01A on the common portal. Such REFUND and refund claims in respect of zero-rated supplies shall be filed for a tax period on a monthly basis. Further, a refund claim for a tax period may be filed only after filing the details in FORM GSTR-1 for the said tax period and a valid return in FORM GSTR-3B has been filed for the last tax period before the one in which the refund application is being filed.

Question 5.
Define “export of goods” and “export of services”. How are exports be treated under GST?
Answer:
The definition of “export of goods” in section 2(5) of the IGST Act has been straight taken from section 2( 18) of the Customs Act, 1962 and means taking goods out of India to a place outside India. As per section 2(6) of the IGST Act, “export of services” means the supply of any service when,

  • the supplier of service is located in India;
  • the recipient of service is located outside India;
  • the place of supply of service is outside India;
  • the payment for such service has been received by the supplier of service in convertible foreign exchange; and
  • the supplier of service and the recipient of service are not merely establishments of a distinct person in accordance with Explanation 1 in section 8;

All exports are deemed as inter-State supplies. Exports of goods and services are treated as zero-rated supplies. The exporter has the option either to export under bond/Letter of Undertaking without payment of tax and claim refund of ITC or pay IGST by utilizing ITC or in cash at the time of export and claim refund of IGST paid.

Question 6.
How are supplies by and to Special Economic Zones (SEZs) treated in GST?
Answer:
There is no change in the SEZ scheme. All imports by SEZs are exempted from any duty/tax. As per section 7(5), (b) of the IGST Act, 2017, a supply of goods or services or both to or by an SEZ developer or an SEZ unit is treated to be a supply of goods or services or both in the course of inter-State trade or commerce. Further as per section 16 of IGST Act, 2017 supply of goods or services or both to an SEZ developer or an SEZ unit is considered as zero-rated supply.

Zero Rated Supply U Exports Under Gst Notes

  • “Export of goods” means taking goods out of India to a place outside India.
  • Exports are ZERO RATED as per section 16 of the IGST Act.
  • The exporter is eligible to claim REFUND under the following situations:

a. He may export the goods upon payment of IGST and claim a refund of such tax paid; or
b. He may export the goods under a Letter of Undertaking, without payment of IGST and claim refund of unutilized ITC.

  • Tourists leaving India can claim a refund of IGST paid on the supply of goods to him. These goods should be taken out of India by him.
  • Concept of “Deemed Exports”
  • “Export of services” means the supply of any service when,

(i) the supplier of service is located in India;
(it) the recipient of service is located outside India;
(Hi) the place of supply of service is outside India;
(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange or in Indian rupees wherever permitted by the Reserve Bank of India; and
(v) the supplier of service and recipient of service are not merely establishments of distinct persons in accordance with Explanation 1 in section 8.

CS Professional Advance Tax Law Notes

Utgst Act – Advanced Tax Laws and Practice Important Questions

Utgst Act – Advanced Tax Laws and Practice Important Questions

Question 1.
Briefly discuss the provisions related to the levy of UTGST.
Answer:
Section 7 of UTGST Act, 2017 is a charging section that provides that Union Territory Goods and Services Tax (UTGST) will be levied on all intra-state supplies of goods or services or both within a Union Territory. Intra-State supply of alcoholic liquor for human consumption is outside the purview of UTGST. Value for the levy is guided by Section 15 of the CGST Act, 2017. Rates for UTGST are rates as notified by the Government on the recommendations of the GST Council. The maximum rate of UTGST will be 2096. Section 7 of UTGST Act, 2017 deals only with UTGS.T: In the case of intra-state supply CGST shall also be levied at a rate equal to UTGST.
For Example: If an Intra-state Supply attracts a rate of GST of 1296 then CGST will be levied at 696 and UTGST will be levied at 6%

Question 2.
Describe the impact of the merger of Dadra & Nagar Haveli and Daman & Diu?
Answer:
Merger of the Two Union Territories (UTs) Dadra & Nagar Haveli and Daman & Diu
A big step forward to recognize the vision of ‘minimum government, maximum governance’ was taken by the Union Cabinet, approving the amendments/ extension/repeal in abundant Acts and Regulations pertaining to Goods and Services Tax (GST), Value Added Tax (VAT) and State Excise of the two Union Territories ie. of Dadra & Nagar Haveli and Daman & Diu, designating the Daman as the headquarters of the Union Territory.

On the 3rd day of December 2019, the Parliament passed the Dadra and Nagar Haveli and Daman and Diu Bill, 2019 for the merger of the two UTs, and the appointed date of the said amendment was made effective from January 26, 2020. The decision was taken with an aim to strengthen administrative efficiency and fast-track the development for the citizens of these two UTs, apart from savings to government exchequer and guaranteeing consistency, stability, and consistency in the day-to-day working of tax authorities.

This will prompt common tax authorities, better conveyance of services to citizens by lessening the duplication of work and improving administrative proficiency, help in acquiring consistent in-laws related to GST, VAT, and state excise, and furthermore, maintain a strategic distance from any lawful inconveniences in the levy and collection of tax and duty, including recovery of arrears, and consolidate the system of laws under the same.

Question 3.
A registered dealer, based in Chandigarh, makes a supply to another registered dealer located in Chandigarh, valuing ₹ 1,20,000. The applicable rate of GST is 12%. Calculate the amount of tax payable under GST
Answer:
As the location of the supplier and the place of supply is in the same Union Territory, it is the case of intra-state supply and accordingly, CGST + UTGST will be levied.
Computation of GST liability

Particulars Amount (₹)
Value of taxable supply 1,20,000
CGST @ 6% 7,200
UTGST @6% 7,200
Total tax liability 14,400

Question 4.
Discuss the provisions of Section 9 of the UTGST Act regarding utilization of input tax credit of various taxes available in electronic credit ledger for payment of UTGST.
Answer:
As per Section 9 of the UTGST Act, 2017 the amount of input tax credit available in the electronic credit ledger of the registered person on account of,

(1) the integrated tax shall first be utilized towards payment of integrated tax and the amount remaining, if any, may be utilized towards the payment of central tax and State tax, or as the case may be, Union territory tax, in that order;

(2) the Union territory tax shall first be utilized towards payment of Union territory tax and the amount remaining, if any, may be utilized towards payment of integrated tax;

(3) the Union territory tax shall not be utilized towards payment of central tax.

Credit of Priority 1 Priority 2 Priority 3
IGST IGST CGST SGST/UTGST
CGST CGST IGST
SGST/UTGST SGST/UTGST IGST

Note: Credit of CGST can never be used to pay off SGST/UTGST liability.
Author’s Note:
There are no specific questions asked on this topic to date in the EXAMS.

Utgst Act Notes

There is a total of 26 sections in this Act. All provisions of this Act are similar to provisions of the CGST Act except in Advance Rulings and Transitional Provisions. Questions on them, if any are covered in those respective topics.

CS Professional Advance Tax Law Notes

Transitional Provisions – Advanced Tax Laws and Practice

Transitional Provisions – Advanced Tax Laws and Practice

Question 1.
The transitional provisions enable the existing tax payers to migrate to GST in transparent and smooth manner under the GST Act, 2017 on and from the appointed day being 1.7.2017. Explain?
Answer:
1. Migration of registration:
As per CGST Act, on and from the appointed day, 22-6-2017 in cases of registration and composition and 01.07.2017 in other cases), every person registered under any of the existing laws and having a valid Permanent Account Number shall be issued a certificate of registration on provisional basis subject to specified conditions.

Migration of CENVAT Credit or VAT Credit:
Provisions have been made in the Central Goods and Services Tax (CGST) Act, 2017 to ensure that CENVAT Credit or VAT Credit balance lying in books and other eligible credits are migrated to GST.
Answer:
(i) ITC allowed is equal to BED is ₹62,500 as CGST credit and VAT of ₹28,125 as SGST credit.
(ii) In accordance with the provisions of Transition Rules, he can claim credit to the extent of 60% of CGST paid, i.e., ₹30,240 (₹50,400 @60%) as CGST credit.

Act, 2017 to clarify how will they be dealt with i.e., whether they would be liable to old taxes or GST and how will refunds/credits, etc. will be default. Similarly, provisions have been made in case of goods were sent for job-work prior to GST.

Question 2.
Mr. X has cleared goods from his factory on 20th May, 2017 for sale to Mr. Y for ₹5,00,000. Effective rate of Excise Duty (ED) @ 12.5%. However ED ₹62,500 has been paid on 6th June, 2017. The consignment received by Mr. Y on 5th July, 2017.
Find the following:
(i) Is Mr. Y eligible for ITC if so, what amount?
(ii) Time limit within which receipt of inputs should be recorded in the books of account of Mr. Y.
(iii) Mr. Y recorded receipt of inputs in the books of account on 15.08.2017, if so can he avail the ITC
Answer:
(a) Yes. Mr. Y is eligible to avail the ITC of ₹62,500 provided he deals with taxable supplies being registered person.
(b) Inputs or Input Services recorded in the books of account in less than or equal to 30 days from 1-7-2017. Therefore, Mr. Y should account for by 30th July, 2017.
(c) Since, period of 30 days may, on sufficient cause being shown, be extended by the Commissioner for a further period not exceeding 30 days. In the given case Mr. Y can take credit on inputs on 15th Aug 2017, provided permission granted by the Commissioner for extension not exceeded 30 days.

Question 3.
Mr. Gopal is a taxable person under GST (who is a wholesaler), is having a stock worth of ₹5,00,000 as on 01-07-2017. Such person has supplied these goods for ₹5,60,000 and on which he has paid CGST @ 9% and SGST @9%. How much ITC is allowed under Sec. 140(3) of GST in the following independent cases:
(i) If he is in possession of duty paid document for the stock (namely BED is ₹62,500 and VAT ₹28,125).
(ii) If he is not in possession of duty paid document for the stock, but has invoice evidencing purchase of goods.

In accordance with the provisions of Transition Rules, he can claim credit to the extent of 60% of SGST paid, i.e., ₹30,240 (₹ 50,400 @ 60%) as SGST credit.

Note: CGST payable is 9% of ₹5,60,000 = ₹50,400 SGST payable is 9% of ₹5,60,000 = ₹50,400

Author’s comment

These provisions were important at inception of GST law as tax payers under existing laws like VAT, Excise, Service Tax, etc. had to be shifted to GST smoothly. In today’s context it may be important as scrutiny of that period may be is yet to be done by GST officials in case of some tax payers. However, the possibility of Examiner testing students on this topic is very low.

Transitional Provisions Notes

  • Sections involved: 139 to 142 of CGST Act.
  • Migration of existing taxpayers i.e. from VAT, Excise, Service Tax, and other laws to GST regime.
  • Transitional arrangements for input tax credit i.e. how the balance of Input Tax credit will be transferred from the existing laws to GST. (E.g.: How Input Tax Credit under VAT will be transferred as Input Tax Credit under GST).
  • Transitional provisions relating to Job work.
  • Miscellaneous Transitional provisions.

CS Professional Advance Tax Law Notes

Valuation Of Imports And Exports – Advanced Tax Laws and Practice Important Questions

Valuation Of Imports And Exports – Advanced Tax Laws and Practice Important Questions

Question 1.
Calculate FOB Value, Cost of Insurance, Cost of Freight, and Assessable Value where only the CIF value Is given as the US $ 5,000. Exchange rates notified by RBI and CBEC are ₹ 50 and ₹ 48 respectively for one US $.
Answer:
As per rule 10(2) proviso 3 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 where FOB value of goods, cost of insurance, and freight are not ascertainable, then cost of insurance and cost of freight shall be computed as follows:
CIF value – US$ 5,000 × ₹ 48 = ₹ 2,40,000
Freight & Insurance – ₹ 2,40,000 × 21.125/121.125 = ₹ 41,858
FOB Value – ₹ 2,40,000 – ₹ 41,858 = ₹ 1,98,142

The exchange rate notified by CBECICBIC has to be taken i.e. ₹ 48,1US$. As per Rule 10 of Valuation Rules, freight, and insurance when not availab1e has to be taken as 20% and 1.125% of FOB value respectively

Question 2.
Compute the assessable value and total customs duty payable under the Customs Act, 1962 for an Imported machine, based on the following information:

Particulars Amount (US$)
Cost of the machine at the factory of the exporter 20,000
Transport charges from the factory of the exporter to the port of shipment 800
Handling charges paid for loading the machine in the ship 50
Buying commission paid by the importer 100
Lighterage charges paid by the importer 200
Freight incurred from the port of entry to the inland container depot 1,000
Ship demurrage charges 400
Freight charges from exporting country to India 5,000
Date of Bill of Entry: 20.02.2020
(Rate of BCD: 20%; Exchange rate as notified by CBIC: ₹ 60 per US$)
Date of Entry Inward: 25.01.2020
(Rate of BCD: 12%; Exchange rate as notified by CBIC: ₹ 65 per US$)
Rate of IGST: 12%

Answer:
Computation of Assessable Value and total customs duty payable:

Particulars Amount US$
Cost of the machine 20,000
Add: Transport charges from factory of exporter to the port of shipment 800
Add: Handling charges 50
FOB Value 20,850
Add: Insurance (20,850 x 1.125%) 234.56
Add: Freight 5,000
Add: Lighterage Charges 200
Add: Ship Demurrage charges 400
CIF Value/Assessable Value 26,684.5625
Amount (₹)
Assessable Value (US$26,684.5625 x ₹ 60) 16,01,074
Add: Basic Customs Duty @ 20% (₹ 16,01,074 x 20%) 3,20,215
Add: Social Welfare Surcharge @10% of Basic Customs Duty 32,022
Value for the purpose of levy of IGST 19,53,311
Add: IGST @ 12% (₹ 19,53,311 x 12%) 2,34,397
Total Cost of Imported goods 21,87,708
Customs Duty payable (₹ 3,20,215 + 32,022 + 2,34,397) 5,86,634

Question 3.
ABC Ltd. imported a machine from the UK in November 2020. The details in this regard are as under :

1. FOB value of the machine: 12,000 UK Pound
2. Freight (Air): 4000 UK Pound
3. Licence fee, the buyer was required to pay in the UK: 500 UK Pound
4. Buying commission paid in India ₹ 20,000
5. Designing charges paid to a consultancy firm in New Delhi, which was necessary for such machine ₹ 1,00,000 (vz) Actual landing charges paid at the place of importation ₹ 25,000.
6. Insurance premium details were not available.
7. For this purpose you may consider the following:

  • Rate of exchange ₹ 98.00 per one pound.
  • Rate of Basic Customs Duty (BCD) at 10%
  • Integrated tax under section 3(7) of Customs Tariff Act at 12%
  • Social Welfare surcharge as applicable
  • Ignore GST Compensation Cess.

You are required to compute the total customs duty and integrated tax payable on the imported machine. You may make suitable assumptions wherever found necessary.
Answer:
Computation of Assessable Value and total Customs Duty and Integrated Tax payable

Particulars Amount UK Pound
FOB Value 12,000
Add: License fee required to be paid in the UK payable by the buyer as a condition of sale, are all includible in the assessable value – Rule 10(l)(c) 500
FOB Value for the purposes of Customs 12,500
Add: Air Freight (Restricted to 20% of UK Pounds 12,500) 2,500
Insurance: 1.125% of UK Pounds 12,500 140.625
CIF Value 15,140.625
Amount (₹)
Therefore, CIF Value/Assessable Value, converted in ₹ (UK Pound 15,140.625 x ₹ 98 per UK Pound) 14,83,781
Add: Basic Customs Duty @ 10% (₹ 14,83,781 x 10%) (A) 1,48,379
Add: Social Welfare Surcharge @ 10% of Basic Customs Duty (B) 14,838
Value for the levy of IGST 16,46,998
Add: Integrated Tax under section 3(7) of Customs Tariff Act @ 12% (C) 1,97,640
Total Cost of Imported Goods 18,44,638
Total Customs Duty and integrated tax payable (A + B + C) 3,60,857

Notes:
1. In the case of goods imported by Air, where actual air freight is not known, it is restricted to 20% of the FOB value of goods. (Rule 10(2) of Customs Valuation Rules)
2. Insurance charges that were not ascertainable have to be included @ 1.125% of FOB Value of Goods. (Rule 10(2) of Customs Valuation Rules)
3. Buying commission is not included in the assessable value.
4. Designing charges paid for work done in India have not been included for the purpose of arriving at the assessable value. (Rule 10(1) of Customs Valuation Rules)
5. No landing charges are to be added to the CIF Value.
4. Compute the assessable value of an imported product as of 11.12.2020 in the following independent situations:

Case 1:

Particulars Figures in Euros
FOB Value 2,000
Freight, loading, unloading, and handling charges associated with the delivery of the imported goods to the place of importation Not Known
Insurance charges 20

Case 2:

Particulars Figures in Euros
FOB Value 2,000
Sea Freight, loading, unloading, and handling charges associated with the delivery of the imported goods to the place of importation 100
Insurance charges Not Known

Answer:
Computation of Assessable Value

CASE 1:

Particulars Euro
FOB Value 2,000
Add: Cost of Transportation (Since not known, taken at 20% of FOB value) 400
Add: Cost of insurance (Actual) 20
CIF Value i.e. Assessable Value 2,420

CASE 2:

Particulars Euro
FOB Value 2,000
Add: Cost of Transportation (Actual) 100
Add: Cost of insurance (Not ascertainable, hence taken as 1.125% of FOB value) 22.50
CIF Value i.e. Assessable Value 2,122.50

Question 4.
Particulars relating to the import of product Z by Mr. Prahalad on 23-12-20 from Antwerp, Belgium to the Chennai airport, are given hereunder:

  • FOB value of the Product $10,000
  • Cost of transport, loading, unloading, and handling $ 2,500 charges associated with the delivery of the imported goods to the place of importation
  • Insurance $ 1,000
  • Unloading charges at Chennai airport ₹ 34,000
  • Exchange rate notified by CBEC on 23-12-20 1$ = ₹ 64
  • Exchange rate notified by RBI on 23-12-20 1 $ = ₹ 64.50
  • Basic customs duty 10%

Ascertain the assessable value and the amount of duty payable by Mr. Prahalad.
Answer:
Computation of Assessable Value and total tax and duty payable by Mr. Prahalad in respect of import of product Z

Particulars Amount(₹)
FOB Value of the product $10,000
Add Adjustments as per Rule 10(2) of Customs Valuation Rules:
Cost of Transportation, loading, unloading, and handling charges associated with the delivery of the imported goods to the place of importation, restricted to 20% of FOB value (US$ 10,000 × 20%) $2,000
Insurance (Actual) $1,000
CIF Value Le. Assessable Value $13,000
The exchange Rate notified by CBIC, US$ 1 = ₹ 64 is to be considered for arriving at the assessable value of the imported product ($13,000 × ₹ 64) 8,32,000
Add: Basic Customs Duty @ 10% (A) 83,200
Add: Social Welfare Surcharge @ 10% of Basic Customs Duty (B) 8,320
Therefore, Assessable Value for levy of IGST 9,23,520
Add: IGST @ 12% (Assumed GST at 12% on the goods) (C) 1,10,822
Total Cost of imported goods 10,34,342
Therefore, Total Customs Duty Payable (A+B+C) or; (Total Cost of imported Goods less Assessable Value) 2,02,342

Unloading charges at Chennai Airport are not to be added. It is to be noted that landing charges are not to be added to the CIF value in view of amendment in Rule 10(2) of the Customs Valuation Rules vide Notification No. 91/2017 – Cus. (NT) dated 26.09.2017.

Question 5.
Chandu Industries Ltd. imported some goods from the USA. The details of the transactions are as under:

CIF Value of goods: US$ 1,44,000
Rate of basic duty: 20%
SWS 10%

If similar goods were supplied in India, IGST payable as per tariff plan would be 12%. You are required to calculate the assessable value and total duty payable thereon as per provisions of customs law.
Note: Rate of Exchange is as follows:
As per CBIC: 1 US$ = ₹ 63
As per RBI: 1 US$ = ₹ 60
Answer:
Computation of Assessable Value and customs duty payable for goods imported by Chandu Industries from the USA

Particulars Amount(₹)
GIF Value (US$) i.e. Assessable Value 1,44,000
Assessable Value (Converted in ₹ by applying the rate of exchange notified by CBIC as on date of presentation of Bill of Entry. US$ 1,44,000 × ₹ 63) 90,72,000
Add: Basic Customs Duty at 10% 9,07,200
Add: Social Welfare Surcharge (S WS) @ 1096 of Basic Customs Duty 90,720
Assessable Value for the levy of IGST 1,00,69,920
Add: IGST u/s 3(7) @ 12% 12,08,390
Total cost of imported goods 1,12,78,310
Total Customs Duty payable (₹ 9,07,200 + ₹ 90,720 + ₹ 12,08,390) 22,06,310

Question 6.
Following particulars are available in respect of consignment of goods imported:

  • Cost at the factory of the exporter: US$ 20,000
  • Carriage/Freight/insurance up to the port of shipment in the exporter’s country: US$ 400
  • Charges for loading onto the ship at the shipping port: US$ 100
  • Freight charges of the ship for transport up to Indian port: US$ 1,200

Compute the assessable value for the purpose of levy/payment of customs duty.

Answer:
Computation of Assessable value for imported goods as per section 14 of Customs Act read with Rule 10 of Customs Valuation Rules:

Particulars Amount in US$
Cost of Goods at the factory of Exporter 20,000
Add: Carriage/Freight/insurance up to the port of shipment in the exporter’s country 400
Add: Charges for loading onto the ship at the shipping port 100
FOB Value of the goods 20,500
Add Freight charges of the ship for transport up to the Indian port – Rule 10(2) of Customs Valuation Rules. 1,200
Add:Insurance(UNASCERTAINABLE,therefore, 1.12596ofFOB Value) – Rule 10(2) of Customs Valuation Rules. 230.63
Therefore, CIF Value/Assessable Value 21,930.63

Note:
1 Carriage/Freight/Insurance, as well as charges for loading onto the ship, shall be included in the assessable value as these charges are necessary for importation and are incurred at the place of export.

Question 7.
Care Energy Ltd. imported a lift from England at an invoice price of ₹ 20,00,000. The assessee had supplied raw material worth ₹ 5,00,000 to the supplier for the manufacture of said lift. Due to safety reasons, the lift was not taken to the jetty in the port but was unloaded at the outer anchorage. The charges incurred for such unloading amounted to ₹ 25,000 and the cost incurred on the transport of lift from outer anchorage to jetty was ₹ 50,000. The importer was also required to pay ship demurrage charges of ₹ 10,000. The lift was imported at an actual cost of transport of ₹ 45,000 and insurance charges of ₹ 20,000. Compute its assessable value.
Answer:
Computation of assessable value for Care Energy Ltd. of the Lift imported from England:

Particulars Amount(₹)
FOB Value, being the Invoice price 20,00,000
Add: Raw material supplied by the assessee (Adjustment of Rule 10(1) of Customs Valuation Rules) 5,00,000
FOB Value of Customs 25,00,000
Add: Adjustments as per Rule 10(2) of Customs Valuation Rules
Sea Freight 45,000
Ship Demurrage charges 10,000
Lighterage 25,000
Barge charges 50,000 1,30,000
Insurance cost (Actual) 20,000
CIF Value/Assessable Value 26,50,000

Note:
The cost of transportation of the imported goods includes the ship demurrage charges on chartered vessels, lighterage and barge charges i.e. any 1 cost in relation to transport from exporter’s port to importer’s port should be added in the FOB as an adjustment of Rule 10(2) of Customs Valuation Rules while computing Assessable Value.

Question 8.
Bhaskar Ltd. has imported certain equipment from Japan at a CIF value of 5,00,000 Yen. Other details are as under:

Air Freight 90,000 Yen
Insurance charges 10,000 Yen
Freight from airport to factory in India ₹ 20,000
Date of presentation of Bill of Entry (Exchange Rate notified by CBIC: 1 Yen = ₹ 0.40) 28th April 2020
Date of arrival of goods in India (Exchange rate notified by CBIC: 1 Yen = ₹ 0.42) 8th May 2020
Commission payable to an agent in India (Not included in CIF value of 5,00,000 Yen) 10% of FOB cost in Indian ₹

Arrive at the Assessable Value for the purposes of customs duty providing brief notes wherever required with appropriate assumptions.
Answer:

Particulars Currency Amount
CIF Value Yen 5,00,000
Less: Air Freight Yen 90,000
Less: Insurance charges Yen 10,000
FOB Value Yen 4,00,000
FOB Value in ? by applying the rate of exchange as notified by CBIC as on date of presentation of Bill of Entry. Yen 4,00,000 × ₹ 0.40) 1,60,000
Add: Commission payable to Indian agent (Yen 4,00,000 × 10.40 × 10%) 16,000
FOB Value 1,76,000
Add: Air Freight, restricted to 20% of FOB Value as goods are imported by Air (Yen 90,000 × 0.40 = 136,000 or ₹ 1,76,000 × 20% = ₹ 35,200, whichever is-less) 35,200
Add: Insurance charges (Actual. Therefore, Yen 10,000 × 0.40) 4,000
Therefore, CIF Value/Assessable Value 2,15,200

Note:
Any post importation transport cost is to be neglected as it is not supposed to form part of assessable value. Therefore, Freight from airport to factory in India amounting to ₹ 20,000 is neglected while computing assessable value.

Question 9.
The following information is furnished by Kanha in respect of articles of Jewellery imported from the USA:

FOB US$ 20,000
Exchange Rate 1 US$ = ₹ 65
Air Freight US$ 4,500
Insurance charges Not known
Landing charges ₹ 1,000
Basic Customs Duty 10%
IGST leviable u/s 3(7) 12%

Calculate the total customs duty payable by Kanha.
Answer:
Computation of Customs duty payable by Kanha:

Particulars Currency Amount(₹)
FOB Value of goods US$ 20,000
Add: Adjustments of Rule 10(2) of Customs Valuation Rules
Air Freight (Actual or 20% of FOB, whichever is lower ie. US$ 4,500 or 20% of US$ 20,000 = US$ 4,000, whichever is lower.) us$ 4,000
Insurance (Not known, therefore, 1.125% of FOB i.e. 1.125% of US$ 20,000) us$ 225
Therefore, CIF Value/Assessable Value us$ 24,225
Assessable Value Converted int (US$ 24,225 × ₹ 65) 15,74,625
Add: Basic Customs Duty @10% 1,57,463
Add: Social Welfare Surcharge (SWS) at 10% of Basic Customs Duty 15,746
Value for the purpose of levy of IGST 17,47,834
Add: IGST u/s 3(7) @ 12% 2,09,740
Total Cost of imported goods 19,57,574
Total Customs Duty payable (₹ 1,57,463 + ₹ 15,746 + ₹ 2,09,740) 3,82,949

Question 10.
Honest importers imported a machine with accessories from the USA. Compute the assessable value and customs duty payable thereon from
the following data:

CIF Value of the machine (including accessories) US$1,50,000
CIF Value of accessories compulsorily supplied along with machine US$ 30,000
(Not shown separately in the invoice)
Rate of basic customs duty on machine 10%
Rate of basic customs duty on accessories 20%
Social Welfare Surcharge (SWS) 10%
Exchange Rate 1 US$ = 1 60
The effective rate of IGST on similar goods in India 12%

Answer:

Computation of Assessable Value and Customs Duty payable by Honest Importers on Machine imported from the US:

Particulars Amount (₹)
CIF Value of the machine (inclusive of accessories) (US$1,50,000 × ₹ 60}/Assessable Value 90,00,000
Add: Basic Customs Duty @10% 9,00,000
Add: Social Welfare Surcharge @ 10% of Basic Customs Duty 90,000
Value for the purpose of levy of IGST 99,90,000
Add: IGST u/s 3(7) @ 12% 11,98,800
Total Cost of imported goods 1,11,88,800
Therefore, Total customs duty payable (₹ 9,00,000 + ₹ 90,000 + ₹ 11,98,800) or; (Cost of imported goods – Assessable Value) i.e. 1,11,88,800 less 90,00,000 21,88,800

Note:
As per Accessories (Conditions) Rules, 1963, accessories and spare parts compulsorily supplied with main implements are chargeable at the same rate as applicable to the main machine. Therefore, such accessories shall also be chargeable with duty at the rate applicable to the machine i.e. @ 10% ad valorem.

Question 11.
Determine the assessable value for computation of customs duty from the following information relating to a machine imported from the USA by an Indian Company:

Cost of Machine US$ 25,000
Cost of goods supplied by the importer to the exporter to be used in the manufacturing of machine ₹ 2,00,000
Design and development charges payable to exporter US$ 9,000
Installation charges of a machine ₹ 1,00,000
Packing and Insurance charges US$ 1,000
Freight US$ 1,000
Transportation charges of the machine from port to the place of installation ₹ 50,000

Note:
The exchange rate declared by RBI was ₹ 61 per US$ while the rate declared by the Board was ₹ 60 per US$.

Answer:
Computation of Assessable Value in case of imported goods:

Particulars Amount(₹)
Cost of Machine (US$ 25,000 × ₹ 60) 15,00,000
Add: Cost of goods supplied by the importer to the exporter to be used in the manufacturing of machine (Rule 10(1) of Customs Valuation Rules) 2,00,000
Add: Development and design charges payable to the exporter (US$ 9,000 × ₹ 60) 5,40,000
Add: Packing and insurance charges (US$ 1,000 × 60) 60,000
FOB Value 23,00,000
Add: Freight (US$ 1,000 × 60) 60,000
Therefore, CIF Value/Assessable Value 23,60,000

Note:
The rate of Exchange as notified by CBIC is to be considered and hence it is taken at US$ 1 = ₹ 60. The exchange rate declared by RBI is to be neglected.

Question 12.
Zhi Ltd. has imported a machine to be used for providing a taxable service. The assessable value of the imported machine as approved by customs is ₹ 5,00,000. Customs Duty at 10% is payable. Further, if the machine is supplied in India, IGST @ 12% is leviable on such machine. Social Welfare Surcharge is applicable at prevailing rates.
You are required to:

  1. Calculate the total customs duty payable on such machine; and
  2. Examine whether Zuhi Ltd. can avail Input Tax Credit and if yes, how much Input Tax Credit can be availed.

Answer:
1. Computation of total Customs Duty payable:

Particulars Amount (₹)
Assessable Value of imported machine 5,00,000
Add: Basic Customs Duty at 10% 50,000
Add: Social Welfare Surcharge at 10% of Basic Customs Duty 5,000
Value for the purpose of levy of IGST 5,55,000
Add: IGST @ 12% 66,600
Total Cost of imported Goods 6,21,600
Therefore, Total Customs Duty payable 1,21,600

2. Zuhi Ltd. can avail Input Tax Credit only for IGST of ₹ 66,600. It should g be noted that Input Tax Credit cannot be availed with respect to basic p customs duty as well as Social Welfare Surcharge (SWS).

Question 13.
SM Ltd. imported machinery at a FOB value of ₹ 34,00,000. Does this sum include ₹ 4,00,000 attributable to post importation activities to be called by the seller? SM Ltd. had supplied raw material to the seller worth ₹ 10,00,000 for the manufacture of said machine. The goods were imported by vessel and the actual cost of transport is ₹ 1,60,000. The importer has also paid demurrage charges of ₹ 10,000 and lighterage and barge charges ₹ 30,000, in addition, to said ₹ 1,60,000. SM Ltd. also paid ₹ 50,000 for transportation of goods from the port of entry to the Inland Container. The actual cost of insurance is ₹ 1,00,000.

Compute the assessable value based on Rule 3 read with Rule 10 of the Customs Valuation Rules, 2007, assuming the amount attributable to post importation activities is not payable as a condition of sale of imported goods.
Answer:
Computation of Assessable Value of imported goods

Particulars Amount(₹) Amount(₹)
Invoice Price of goods including amount attributable to post importation activities 34,00,000
Less: Amount attributable to post importation activities included above (4,00,000)
Net Amount to be considered 30,00,000
Add: Raw material supplied by the assessee as per Rule 10(1) of Customs Valuation Rules 10,00,000
FOB Value of Goods 40,00,000
Add Adjustments as per Rule 10(2) of Customs Valuation Rules.
Transport cost
Sea Freight 1,60,000
Ship Demurrage charges 10,000
Lighterage and Barge charges 30,000 2,00,000
Insurance (Actual) 1,00,000
Therefore, CIF Value/Assessable Value 43,00,000

Notes:
1. The cost of transport of imported goods includes the ship demurrage charges on charted vessels, lighterage or barge charges. Therefore, amounts towards those are added to the FOB value of goods while computing assessable value.

2. Charges for post importation activities shall not form part of the assessable value of goods, since the same are not payable as a condition of sale. Hence, they are deducted from ₹ 34,00,000 Le. Invoice price as it included the same.

3. Freight incurred from the port of entry to inland container depot is not includible in assessable value as it is posted importation transportation cost.

Question 14.
A material was imported by air at a CIF price of US$ 5,000. Freight paid was US$ 1,500 and insurance cost was US$ 500. The banker realized the payment from the importer at the exchange rate of ₹ 65 per US dollar. Central Board of Indirect Taxes and Customs (CBIC) notified the exchange rate at ₹ 63 per US$. Find the value of material for the purpose of levying customs duty.
Answer:
Computation of Assessable Value of imported goods:

Particulars Amount
CIF Value of goods 5,000
Less: Air Freight (1,500)
Less: Insurance Charges (500)
FOB Value 3,000
Add: Adjustments as per Rule 10(2) of Customs Valuation Rules
Freight (As it is by air, it shall be lower of 2: Actual i.e. US$ 1,500 or 20% of FOB i.e. 20% of US$ 3,000 = US$ 600) 600
Insurance (Actual) 500
CIF Value/Assessable Value in US$ 4,100
Therefore, Assessable Value converted in ₹ by applying the rate of exchange as notified by CBIC as on date of presentation of Bill of Entry (the US $ 4,100 × ₹ 63) 2,58,300

Question 15.
Compute the total customs duties and integrated tax payable based on the following information:

  • FOB Value of Solar cells: US$ 1,000
  • Freight from exporting country: US$ 250
  • Insurance: US$10
  • Buying Commission: US$ 50
  • Date of filing Bill of Entry: 20th January 2020 (Rate of Basic Customs Duty: 5%, Safeguard Duty: 70%)
  • Exchange rate notified by RBI: ₹ 70.05 and by CBIC: 170 for 1 US$ on date of presentation of the bill of entry.

Answer:
Computation of total Customs duty and Integrated tax payable

Particulars Amount (US$)
FOB Value of solar cells 1,000
Freight from exporting country (Note 1) 200
Insurance 10
Buying commission (Note 2)
CIF Value 1,210
Amount (₹)
CIF Value (US$1,210 × ₹ 70 per US$) (Note 3) i.e. Assessable Value in ₹ 84,700
Basic Customs Duty @ 5% (Note 4) (₹ 84,700 × 5%) (A) 4,235
Safeguard Duty @ 70% (Note 5) (B) 59,290
Social Welfare @ 10% of Basic Customs Duty (Note 6) (C) 424
Value for levy of IGST 1,48,649
Integrated Tax leviable @ 5% (₹ 1,48,649 × 5%) (Note 7) (D) 7,432
Total Cost of imported goods 1,56,081
Total Customs Duty payable (A + B + C + D) 71,381

Notes:

1. Actual freight incurred or 20% whichever is less has to be adopted when the import is by air (Assumed). If it is assumed that goods are imported by any mode other than by air then the full value of freight US $ 250 shall be included in the assessable value.

2. “Buying commission” is not included in the assessable value as it is the amount paid by the importer to his agent [Any amount paid to exporter directly or indirectly is only included],

3. Rate of exchange notified by CBIC on the date of presentation of the bill of entry is considered.

4. Rate of duty is the rate prevalent on the date of presentation of the bill of entry or the rate prevalent on the date of entry inwards whichever is later (Section 15 of Customs Act, 1962)

5. Safeguard duty has to be applied on the CIF Value

6. Social welfare surcharge is levied @10% on Basic Custom Duty only.

7. Integrated tax is levied on the sum total of the assessable value of the imported goods, customs duties, and applicable Social Welfare Surcharge. The integrated tax rate is assumed to be 5%.

Question 16.
A commodity is imported into India from a country covered by a notification issued by the Central Government under section 9A of the Customs Tariff Act, 1975. Following particulars are made available:
CIF Value of the consignment: US$ 25,000
Quantity imported: 500 kgs
Exchange rate applicable: ₹ 65 = 1 US$
Basic customs duty: 10%
SWS as applicable.

As per the notification, the anti-dumping duty will be equal to the difference between the cost of the commodity calculated at US$ 70 per kg. and the landed value of the commodity as imported.

Appraise the liability on account of normal duties, cess, and anti-dumping duty. Assume that only Basic customs duty and SWS are payable.
Answer:
Computation of basic customs duty, SWS, and Anti-Dumping duty payable:

Particulars Amount(?)
CIF Value of the Consignment/Assessable Value (US $ 25,000 X ? 65 per US $) 16,25,000
Add: Basic Customs Duty @10% 1,62,500
Add: Social Welfare Surcharge at 10% of Basic Customs Duty 16,250
Landed Value 18,03,750
Cost of commodity for purpose of Anti-Dumping duty notification (500 Kg X US$70 per kg X ? 65 per US $) 22,75,000
Anti-Dumping Duty (? 22,75,000 – ? 18,03,750) 4,71,250

Notes:

1. IGST under section 3 (7) of Customs Tariff Act is not leviable as the question clearly states that only Basic Customs Duty and SWS are chargeable apart from Anti-Dumping Duty.

2. For the purpose of notification imposing Anti-Dumping Duty, “landed value” means the assessable value as determined under the Customs Act, 1962 and includes all duties of customs except duties levied under sections 3, 8B, 9, and 9A of the Customs Tariff Act.

3. No SWS is imposable on Anti-Dumping Duty.

Question 17.
Miss Priya imported certain goods weighing 1000 kgs having a CIF value of US$ 40,000. The exchange rate of 1 USD was ₹ 65 on the date of presentation of a bill of entry. Basic customs duty chargeable is @ 10% and Social Welfare Cess is as applicable. However, vide Notification issued by the Government of India, anti-dumping duty has been imposed on these goods.

The anti-dumping duty will be equal to the difference between the amount calculated @ USD 60 per kg and the ‘landed value’ of goods. You are required to compute the amount of customs duty and of the anti-dumping duty payable by Miss Priya.
Note:
Neglect GST.
Answer:
Computation of amount of Customs Duty payable including the Anti-Dumping duty

Particulars Amount (₹)
CIF Value of the consignment i.e. Assessable Value in ₹ (US$ 40,000 × ₹ 65 per US$) 26,00,000
Add: Basic Customs Duty @ 10% 2,60,000
Add: Social Welfare Surcharge (S’W S) @ 10% of Basic Customs Duty 26,000
Therefore, Landed Value of the Goods 28,86,000
Cost of commodity for the purposes of Anti-Dumping notification (1,000 kgs × US$ 60 per kg × ₹ 65 per dollar) 39,00,000
Anti Dumping Duty payable (₹ 39,00,000 – ₹ 28,86,000) 10,14,000
Therefore, Total Customs Duty payable (₹ 2,60,000 + ₹ 26,000 + ₹ 10,14,000) 13,00,000

Note: For the purposes of notification imposing Anti-Dumping duty, landed | value means the assessable value as determined under the Customs Act,1962 and includes all duties of customs except duties levied under sections 3, 8B, 9, and 9A of the said Customs Tariff Act, 1975.

Question 18.
With reference to section 9AA of the Customs Tariff Act, 1975, state briefly the provisions of refund of anti-dumping duty with reference to relevant case law.
Answer:
According to the provisions of Section 9AA of the Customs Tariff Act, 1975, wherein importer proves to the satisfaction of the Central Government that he has paid any anti-dumping duty imposed on any article, in excess of the actual margin on dumping in relation to such article, he shall be entitled to refund of such duty. However, the importer will not be entitled to a refund of provisional anti-dumping duty under Section 9AA as the same is refundable under section 9A(2) of the said Act. Refund of excess anti-dumping duty paid is subject to provisions of unjust enrichment. This view was held by Apex Court in the case of – Automotive Type Manufacturers Association v. Designated Authority 2011 (63) ELT 481 Whether Anti-dumping duty/safeguard duty is to be added for determining the value for integrated tax?

Question 19.
The assessable value of an article imported into India is ₹ 100; Basic Customs Duty is 10% ad valorem; Social Welfare Charge is 10%; Safeguard duty is ₹ 20; Integrated tax rate is 18% and Compensation cess is 15%. Compute total tax liability
Answer:
Yes. In cases where imported goods are liable to Anti-Dumping Duty or Safeguard Duty, value for calculation of IGST as well as Compensation Cess shall also include Anti-Dumping Duty amount and Safeguard duty amount.

Particulars Amount (₹)
Assessable Value 100
Basic Customs Duty @10% 10
Social Welfare Surcharge (SWS) @ 10% of 10 1
Safeguard Duty 20
Value for purpose of IGST (₹ 100 + 10 + 1 + 20) 131
Integrated Tax @ 18% (₹ 131 × 18%) 24
Compensation Cess @ 15% of ₹ 131 20
Total Tax liability (₹ 10 + 1 + 20 + 24 + 20) 75

Question 20.
A consignment of 800 metric tonnes of edible oil of Malaysian origin was imported by a Charitable organization in India for free distribution to below poverty line citizens in a backward area under the scheme designed by the Food and Agricultural Organisation. This being a special transaction, a nominal price of US$ 10 per metric tonne was charged for the consignment to cover the freight and insurance charges. The Customs house found out that at or about the time of importation of this gift consignment, there were the following imports of edible oil of Malaysian origin:

Quantity imported in metric tonnes Unit Price in US$ CIF
20 260
100 220
500 200
900 175
400 180
780 160

The rate of exchange on the relevant date was 1 US$ = ₹ 65 and the rate of basic customs duty was 10% ad valorem. There is no Integrated tax and GST Compensation Cess.

Calculate the amount of duty leviable on the consignment under the Customs Act, 1962 with appropriate assumptions and explanations where required.
Answer:
Computation of Assessable Value as per Rule 4 of Customs Valuation Rules i.e. Valuation on basis of Identical goods and total Customs duty payable: 1

Particulars Amount(₹)
CIF Value i.e. Assessable Value of 800 metric tonnes @ US$ 160 per metric tonne (Converted in ₹ : 800 × 160 × ₹ 65) 83,20,000
Add: Basic Customs Duty @10% 8,32,000
Add: SWS at 10% of Basic Customs Duty 83,200
The total cost of imported goods 92,35,200
Total Customs Duty payable (₹ 8,32,000 + ₹ 83,200) or (₹ 92,35,200 – 83,20,000) 9,15,200

Notes:

1. In the given case, US$ 10 per metric tonne has been paid only towards freight and insurance charges and no amount has been paid or payable towards the cost of goods. Thus, there is no transaction value for the said goods. In such a case, the value of imported goods shall be the transaction value of identical goods sold for export to India and imported at or about the same time as the goods being valued. (Rule 4 of Customs Valuation Rules)

2. The transaction value of comparable imports should be at the same commercial level and in substantially the same quantity as the goods being valued. Therefore, consignments of 20 and loo metric tonnes cannot be considered to be substantially the same quantity. Hence, the remaining 4 consignments are left for our consideration.

3. Remaining 4 consignments are incomparable quantities that can be considered for valuation purposes. However, the unit prices in the 4 consignments are different. Rule 4 of Customs Valuation Rules stipulates that in applying Rule 4 of said Rules if more than one transaction value of identical goods is found, the lowest of such value shall be used to determine the value of imported goods. Accordingly, the unit price of consignment undervaluation is taken at US$ 160 per metric tonne.

Question 21.
From the following information you are required to determine the export duty and explain your assumptions:

  • FOB Price of goods: US$ 1,20,000
  • Shipping Bill presented electronically on: 26.04.2020
  • The proper officer passed the order permitting clearance and loading of goods for export on: 5.5.2020
  • The rate of Exchange and Rate of Export duty is as under:
Date Rate of Exchange Rate of Export Duty
26.04.2020 1 US $ = > 60 9%
05.05.2020 1 US $ = > 61 10%

(e) Rate of exchange is notified for export by CBIC.
Answer:
Computation of Export Duty payable

Particulars Amount(₹)
Transaction Value of exports is FOB price of goods (No Further adjustment is to be made) US$ 1,20,000
Rate of Exchange (it is to be taken as notified by CBIC as on date of presentation of shipping bill as per section 14 of Customs Act) ₹ 60 per US$
Assessable Value in ₹ (US$ 1,20,000 × ₹ 60) ₹ 72,00,000
Rate of duty (it is as on the date on which Proper Officer makes an order permitting clearance and loading of the goods for exportation) 10%
Exports Duty payable @ 10% (No Social Welfare Surcharge is levied on exports) ₹ 7,20,000

Question 22.
Ms. Poorvisha has exported some goods to Sydney, Australia. She provides the following details to you:

  1. CIF value of the goods = AUD 2,10,000.
  2. FOB price of goods: (Australian $) AUD 2,00,000.
  3.  Shipping bill presented electronically on 29th April 2020.
  4. The proper officer passed an order permitting clearance and loading of goods for export (Let Export Order) on 2nd May 2020.
  5. During the interval between the presentation of the shipping bill and clearance of goods, there were changes in the rate of export duty as well as the rate of exchange.

The rate of export duty and rate of exchange details are as follows:

Date Rate of exchange Rate of Export duty
29-04-2020 1 AUD = ₹ 70 11%
02-05-2020 1 AUD = ₹ 70.50 10%

You are required to calculate the export duty payable by the exporter.
Answer:
Computation of export Duty Payable

Particulars Amount(₹)
FOB price of goods [Note 1] AUD 200,000
Value in Indian currency (AUD 2,00,000 × t 70) [Note 2] ₹ 1,40,00,000
Export duty @ 10% [Note 3] ₹ 14,00,000

Notes:
1. As per section 14(1) of the Customs Act, 1962, the assessable value of the export goods is the transaction value of such goods which is the price actually paid or payable for the goods when sold for export from India for delivery at the time and place of exportation.

2. As per the third proviso to section 14(1) of the Customs Act, 1962, assessable value has to be calculated with reference to the rate of exchange notified by the CBIC on the date of presentation of a shipping bill of export.

3. As per section 16(7)(n) of the Customs Act, 1962, in case of goods entered for export, the rate of duty prevalent on the date on which the proper officer makes an order permitting clearance and loading of the goods for exportation, is considered.

Question 23.
Is the transaction value under the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, acceptable even if goods are sold to related persons? Give reasons.
Answer:
As per Rule 3(3), of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 in the following two cases the transaction value shall be accepted even if goods are sold to related persons:

1. the examination of the circumstances of the sale of the imported goods indicates that the relationship did not influence the price.
2. whenever the importer demonstrates that the declared value of the goods being valued closely approximates to one of the following values ascertained at or about the same time:

  • the transaction value of identical goods, or of similar goods, in sales to unrelated buyers in India;
  • the deductive value for identical goods or similar goods;
  • the computed value for identical goods or similar goods:

Provided that in applying the values used for comparison, due account | shall be taken of demonstrated difference in commercial levels, quantity levels, adjustments in accordance with the provisions of Rule 10, and cost incurred by the seller in sales in which he and the buyers are not related.

Question 24.
St. Thomas Hospital and Research Centre imported a machine from Long Life Scientific Ltd., the USA for in-house research. The price of the machine was settled at the US $ 8,000. The machine was shipped on 10th March 2020. Meanwhile, the hospital authorities negotiated for a reduction in the price. As a result, Long Life Scientific Ltd. agreed to reduce the price by $ 500 and communicated the revised price of $ 7,500 by sending a fax message dated 14th March 2020. The machine arrived in India on 17th March 2020. The Commissioner of Customs has decided to take the original price as the transaction value of the goods on the ground that the price is reduced only after the goods have been shipped. Do you agree with the step taken by the commissioner? Give reasons in support of your answer.
Answer:
No, the commissioner’s approach is not correct in the law. As per section 14 of the Customs Act, 1962, the transaction value is the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation. Further, the Supreme Court in the case of “Garden Silk Mills y. U 01” has held that importation gets complete only when the goods become part of the mass of goods within the country.

In the given case, the price of the goods was reduced while the goods were in transit, it could not be contended that the price was revised after importation took place. Hence, the goods should be valued as per the reduced price, which was the price actually paid at the time of importation.

Question 25.
Write a short note on the following:
(a) Safeguard Duty
(b) Anti-dumping duty
Answer:
(a) Safeguard Duty (Section 8 of Customs Tariff Act, 1975)
The Central Government may impose safeguard duty on specified imported goods if it is satisfied that the goods are being imported in large quantities and they are causing serious injury to the domestic industry. The safeguard duty is imposed for the purpose of protecting the interests of any domestic industry in India aiming to make it more competitive.

Conditions:
1. Safeguard duty is product-specific.
2. It is in addition to any other duty.

Safeguard duty, unless revoked earlier, cease to have an effect on the expiry of four years from the date of imposition. If the Central Government is of the opinion that the domestic industry has taken measures to adjust to such injury or threat thereof and it is necessary that the safeguard duty should continue to be imposed, it may extend the period of such imposition.

However, in no case, the safeguard duty shall continue to be imposed beyond a period of ten years from the date on which such duty was first imposed. If the Central Government is of the opinion that increased imports have not caused or threatened to cause serious injury to a domestic industry, it shall refund the duty so collected.

Exemptions from safeguard duty:
1. If an article originating from a developing country and the share of imports of that article from that country does not exceed 3% of the total imports of that article in India it should be exempted from safeguard duty.

2. If an article originating from more than one developing country and aggregate of imports from developing countries each with less than 3% import share taken together does not exceed 9% of the total imports of that article into India then it should be exempted from safeguard duty. Articles imported by 100% EOU or units in a free trade zone or Special Economic Zone safeguard duty shall not be applicable unless specifically made applicable in the notification.

(2) Anti-Dumping Duty (Section 9 of Customs Tariff Act, 1975)

Dumping: Dumping means exporting goods to India, at prices lower than the price in the domestic market of the exporting country, subject to certain adjustments.
When the export price of a product imported into India is less than the normal value of like articles sold in the domestic market of the exporter the Central Government may, by notification in the Official Gazette, impose an anti-dumping duty not exceeding the margin of dumping in relation to such article. Anti-dumping duty is country-specific ie. it is imposed on imports from a particular country. Normal value means the comparable price in the ordinary course of trade, in the exporting country, after making adjustments to the extent of conditions of sale, taxation, etc.

Computation of Anti-dumping duty: The anti-dumping duty is the margin of dumping or injury margin whichever is lower.

The margin of dumping: Difference between the export price and normal value of an article.

Normal Value means the comparable price in the ordinary course of trade, in the exporting country, after making adjustments to the extent of conditions of sale, taxation, etc.

Injury Margin: It means the difference between the fair selling price of domestic industry and the landed cost of imported products.

Fair Selling price: Price at which the industry has expected to charge under normal circumstances in the Indian market.

Valuation Of Imports And Exports Notes

  • Format for computation of Assessable Value in case of imported | goods as per section 14 of Customs Act read with Rule 10 of Customs Valuation Rules: I
Particulars Amount
a. Price of the goods at exporter’s factorv/godown/shop xxxx
b.Add: Cost of transporting goods from exporters factory to the exporter’s port, insurance, loading charges at exporter’s port, etc. Xxxx
c. Free on Board Price (FOB) of the goods Xxxx
d. Add: Adjustments as per Rule 10(1) of Customs Valuation Rules (Excluding buying commission, charges for post importation activities) Xxxx
e. Customs FOB (As per ICAI’s recommendation) Xxxx
f. Add: Adj ustnwnts as per Rule 10(2) of Customs Valuation Rules: Xxxx
(a) Actual Cost of transportation, loading, unloading and handling charges associated with the delivers’ of imported goods to the place of importation. (In case of AIR, it shall be actual or 20% of FOB, whichever is lower). If Transport cost is UNASCERTA1NABLE, then 20% of FOB value.

If FOB Value is also not ascertainable, then it will be 20% of  “FoB Value + Cost of Insurance”

Xxxx
(b) Actual cost of Insurance. If UNASCERTAINABLE – 1.125% of the FOB. If FOB value is not ascertainable, then it will be 1.125%of “FOB + cost of transportation, loading, unloading and handling charges” Xxxx
CIF Value i.e. Assessable Value for the purpose of computing customs duties. (1f it is in foreign currency, convert in  by applying rate of exchange as notified by CBIC as on date of presentation of Bill of Entry) xxxx

However, if the valuation cannot be done as per section 14, then sequentially, the following rules will be applied:

Rule 4: Identical Goods
Rule 5: Similar Goods
Rule 6: Residual method
Rule 7: Deductive Value
Rule 8: Computed Value

  • Types of duties under customs:

a. Basic customs duty
b. Integrated Tax – Section 3(7) of Customs Tariff Act, 1975
c. Goods and Services Tax Compensation Cess – Section 3(9) of Customs Tariff Act, 1975
d. Additional Duty of Customs (Countervailing Duty i.e. CVD) – Section 3 of Customs Tariff Act (Equivalent to Excise duty which still is leviable on the manufacture of some goods)
e. Special Additional Duty (Special Countervailing Duty Le. Special CVD) – It is to offset the effect of VAT (It is applicable on some limited goods)
f. Protective Duty
g. Safeguard Duty
h. Countervailing Duty on subsidized articles Anti-Dumping Duty
j. Social Welfare Surcharge
k. Road and Infrastructure Cess

Valuation for Exports:
Price paid/payable for delivery at the time and place of Exportation which essentially means that the price up to a port in India when goods are exported has to be considered. (Le. FOB Value of Exports is its assessable value)

CS Professional Advance Tax Law Notes

Appeals and Revision – Advanced Tax Laws and Practice

Appeals and Revision – Advanced Tax Laws and Practice

Question 1.
The proceedings under the CGST Act, 2017 before the authorities including the Appellate Tribunal can be attended by the “Authorized Representative”. Explain who can act as an authorized representative under the Act.
Answer:
For the purposes of this Act, the expression “authorized representative” shall mean a person authorized by the person referred to in section 116(1) to appear on his behalf, being:-

(a) his relative or regular employee; or

(b) an advocate who is entitled to practice in any court in India, and who has not been debarred from practicing before any court in India; or

(c) any Chartered Accountant, a Cost Accountant or a Company Secretary who holds a certificate of practice and who has not been debarred from practice; or

(d) a retired officer of the Commercial Tax Department of any State Government or Union territory or of the Board who, during his service under the Government, had worked in a post not below the rank than that of a Group-B Gazetted officer for a period of not less than two years. However, such officer shall not be entitled to appear before any proceedings under this Act for a period of one year from the date of his retirement or resignation; or

(e) any person who has been authorized to act as a goods and services tax practitioner on behalf of the concerned registered person.

Question 2.
Define “Adjudicating Authority”
Answer:
Adjudicating Authority
“Adjudicating Authority” means any authority, appointed or authorized to pass any order or decision under this Act, but does not include the Central Board of Excise and Customs, the Revisional Authority, the Authority for Advance Ruling, the Appellate Authority for Advance Ruling, the Appellate Authority and the Appellate Tribunal.

Adjudicating authority thus includes Principal Commissioner of Central Tax, Commissioner of Central Tax, Additional Commissioner of Central tax, Joint/Deputy/Assistant Commissioner of Central Tax etc.

Question 3.
Hema Lubricants Ltd., filed an appeal before the Appellate Tribunal against the order of the Appellate Authority, wherein the issue was revolving around the place of supply.

The Tribunal decided the issue against the company and in favour of the department. The company is of the firm opinion that its view is correct and hence there is need to take the issue to an appellate forum higher than the Appellate Tribunal.

As the Company Secretary, dealing with indirect tax matters, advise the company about filing of appeal before the appropriate forum.
Answer:
Where the supplier or the department is not satisfied with the order passed by the State Bench or Area Benches of the Appellate Tribunal, appeal can be filed before the High Court if the High Court is satisfied that such an appeal involves a substantial question of law.

[Section 117(1) of the CGST Act, 2017] Nevertheless, appeal against orders passed by the National Bench or Regional Benches of the Tribunal can be filed only before the Supreme Court and not before High Court.

As per section 109(5) of the Act, only the National Bench or Regional Bench of the Tribunal can decide appeals where one of the issues involved relates to the place of supply.

Since the issue involved in the given case relates to the place of supply, the appeal in case would have been decided by the National Bench or Regional Bench of the Tribunal. Consequently, Hema Lubricants Ltd., will have to file an appeal before the Supreme Court and not with the High Court.

Question 4.
Briefly discuss whether the following powers vest with the Commissioner (Appeals) under the GST Act, 2017:
(i) Remanding the case back to the adjudicating authority; and
(ii) Condoning the delay in filing appeal before him.
Answer:
(i) No, Commissioner (Appeals) being the first appellate authority does not have power to remand the case back to the adjudicating authority for fresh adjudication. The power is not given to Commissioner (Appeals) by Statute. However, Power to remand has been specifically given to Appellate Tribunal under Section 113 of the CGST Act, 2017.

(ii) Yes, Commissioner (Appeals), if satisfied that the appellant was prevented by sufficient cause from presenting the appeal within the specified period, allow it to be presented within a further period of one month under section 107(4) of the CGST Act, 2017.

Question 5.
What is the jurisdiction of the National (& Regional Benches) & the State (& area benches) of the Tribunal? [Practice Manual]
Answer:
The National Bench or Regional Benches of the Appellate Tribunal shall have jurisdiction to hear appeals against the orders passed by the Appellate Authority or the Revisional Authority in the cases where one of the issues involved relates to the place of supply.

The State Bench or Area Benches shall have jurisdiction to hear appeals against the orders passed by the Appellate Authority or the Revisional Authority in the cases involving matters other than those cases where the issues involved relates to the place of supply.

Question 6.
State the provision and also the amount of pre-deposit required to be made by a registered supplier to file an appeal against the order in each of the following independent cases under the CGST Act, 2017:
(1) Order dated 18th Oct., 2018 passed in the case of M/s RR Ltd. by the Joint Commissioner creating a tax demand of ₹40,00,000. M/s RR Ltd. has admitted ₹5,00,000 as tax liability but intends to file an appeal with the Commissioner (Appeals) against the balance tax demand.

(2) In an order dated 18th Nov., 2018 passed in the case of M/s KK Ltd., the Joint Commissioner of Central Tax has created a tax demand of ₹35,00,000 and also has imposed a penalty of ₹5,00,000. M/s KK Ltd. intends to file an appeal with the Commissioner (Appeals) both against the order creating demand of ₹35,00,000 and order imposing penalty of ₹5,00,000.
Answer:
Section 107(6) of the CGST Act, 2017 requires an appellant filing appeal before the Appellate authority to pre-deposit full amount of tax, interest, fine, fee and penalty as is admitted by him, arising from the impugned order and a sum equal to 10% of the remaining amount of tax in dispute. Considering the said legal position, the pre-deposit to be made in the instant cases shall be as below;

RR Ltd. has to pre-deposit 15,00,000 (admitted tax) and 13,50,000 (i.e. 10% of ₹35,00,000 tax in dispute) in total of amount of ₹ 8,50,000.

In the case of KK Ltd., since no amount of tax or penalty has been admitted by the appellant, it has to pre-deposit 10% of the tax amount i.e. (10% of ₹35,00,000) which comes to ₹3,50,000.

Question 7.
XY Company received an adjudication order passed by the Assistant Commissioner of Central Tax on 2nd December, 2018 under section 73 of the CGST Act, 2017 wherein it was decided as follows:

IGST due ₹7,00,000
Interest ₹25,000
Penalty ₹50,000

XY Company filed an appeal before the Appellate Authority on 28th January, 2019. How much the company has to pay as pre-deposit under section 107(6) of the CGST Act, 2017 if the assessee appeals against part of the demanded amount say Tax ₹4,00,000, interest ₹15,000 and penalty ₹30,000 and admits the balance liability of tax, interest and penalty?
Answer:
Section 107(6) of the CGST Act, 2017 provides that no appeal shall be filed before Appellate Authority, unless the appellant pays:

(a) in full, such part of the amount of tax, interest, fine, fee and penalty arising from impugned order, as is admitted by him; and

(b) 10% of remaining tax in dispute arising from impugned order Thus, since XY Company admits the tax liability of ₹3,00,000 + Interest ₹10,000 and Penalty ₹20,000 it has to make a pre-deposit of:

(i) ₹3,30,000 (i.e. 300000 + 10000 + 20000)
(ii) ₹40,000 (i.e. 10% of 4,00,000)

Total ₹3,70,000

Appeals And Revision Notes

  • Sections involved: 107 to 121 of CGST Act.
  • Appeals to Appellate Authority
  • Revisional Authority and its powers
  • Appeals to Appellate Tribunal
  • Appeal to High Court
  • Appeal to Supreme Court

In respect of the above points, students should know the following:

  • Appeal can be filed against which order
  • Can Department Appeal
  • Can “Place of Supply” matters be appealed
  • Appeal Fees
  • Time Limit to file an appeal
  • Mandatory Pre deposit

CS Professional Advance Tax Law Notes

Advance Rulings Under GST – Advanced Tax Laws and Practice Important Questions

Advance Rulings Under GST – Advanced Tax Laws and Practice Important Questions

Question 1.
State the matters on which Advance Ruling can be sought under GST Law. State any four such matters as specified under the CGST Act, 2017.
Answer:
Under section 97(2) of the CGST Act, 2017, Advance Ruling can be sought for the following questions/matters/issues:

  1. Classification of any goods or services or both;
  2. Applicability of a notification issued under the provisions of this Act;
  3. Determination of time and value of supply of goods or services or both;
  4. Admissibility of Input Tax Credit of tax paid or deemed to have been paid;

Question 2.
Bharghav Pesticides Ltd., a domestic company, intends to start a business in Kolkata, involving supply of certain goods, mostly meant for foreign buyers in China. There is some difficulty in the classification of the goods. Can the company seek advance ruling from the Authority for Advance Ruling formed under CGST Act, 2017 in respect of the issue of classification of goods? Can the company also seek ruling on issues involving place of supply?
Answer:
Advance Ruling
Advance ruling under GST can be sought by a registered person or a person desirous of obtaining registration under GST law [Section 95(c) of the CGST Act, 2017]. Therefore, it is not mandatory for a person seeking advance ruling from the AAR formed under CGST Act, 2017 to be a registered person.

Section 97(2) of the CGST Act, 2017 enjoins that the questions/matters on which the advance ruling can be sought for determining the classification of any goods or services or both. Therefore, the Company can seek the advance ruling for determining the classification of goods proposed to be supplied.

Determination of place of supply is not one of the specified questions/matters on which advance ruling can be sought under section 97(2). Further, section 96 of the CGST Act, 2017 provides that AAR constituted under the provisions of a SGST/UTGST Act shall be deemed to be the AAR in respect of that State /Union territory.

Thus, AAR is constituted under the respective State /Union Territory Act and not under the Central Act. This implies that ruling given by AAR will be applicable only within the jurisdiction of the concerned State/Union territory.

It is also for this reason that the question on determination of place of supply cannot be raised with the AAR. Hence, the applicant cannot seek the advance ruling for determining the place of supply of the goods proposed to be supplied by the applicant.

Question 3.
Briefly explain the procedure to be followed by the Authority for Advance Ruling on receipt of application for Advance Ruling under section 98 of CGST Act, 2017.
Answer:
The procedure to be followed by the Authority of Advance Rulings (AAR) on receipt of the application for advance ruling under section 98 of the CGST Act is as under:

1. Upon receipt of an application, the AAR shall send a copy of application to the officer in whose jurisdiction the applicant falls and call for all relevant records.

2. The AAR may then examine the application along with the records and may also hear the applicant. Thereafter he will pass an order either admitting or rejecting the application.

3. Application for Advance Ruling will not be admitted in cases where the question raised in the application is already pending or decided in any proceedings in the case of an applicant under any of the provisions under this Act.

4. If the application is rejected, it should be by way of speaking order giving the reasons for rejection and only after giving an opportunity of being heard to the applicant.

5. If the application is admitted, the AAR shall pronounce its ruling on the question specified in the application. Before giving its ruling, it shall examine the application and any further material furnished by the applicant or by the concerned departmental officer.

6. Before giving the ruling, AAR must hear the applicant or his authorised representative as well as the jurisdictional officers of CGST/SGST.

7. If there is a difference of opinion between the two members of AAR, they shall refer to the point of points on which they differ to the Appellate Authority for hearing the issue.

8. The Authority shall pronounce its Advance Ruling in writing within 90 days from the date of receipt of application.

9. A copy of the Advance Ruling duly signed by members and certified, in a prescribed manner shall be sent to the applicant, the concerned officer, and the jurisdictional officer.

Advance Rulings Under Gst Notes

  • Sections 95-106 of CGST Act, 2017 covers provisions with respect to Advance Rulings.
  • Meaning of “Advance Ruling”.
  • “Applicant” for Advance Ruling mechanism.
  • Role and constitution of Authority for Advance Ruling (AAR) and Appellate Authority for Advance Ruling (AAAR).
  • Questions for which Advance Rulings can be sought.
  • The procedure with respect to Advance Rulings.
  • Applicability of Advance Ruling.
  • Instances where advance ruling becomes “void ab initio’’

CS Professional Advance Tax Law Notes

Inspection, Search, Seizure and Arrest, Penalties, Demand and Recovery Under GST – Advanced Tax Laws and Practice Important Questions 

Inspection, Search, Seizure and Arrest, Penalties, Demand and Recovery Under GST – Advanced Tax Laws and Practice Important Questions

Question 1.
Which are the applicable provisions for the purpose of recovery of tax short paid or not paid or amount erroneously refunded or input tax credit wrongly availed or utilized under CGST Act?
Answer:
Section 73 and Section 74 of the CGST Act, 2017 deals with the recovery of tax short paid or not paid or amount erroneously refunded or input tax credit wrongly availed or utilized.

In particular, Section 73 of the CGST Act, 2017 deals with the cases where there is no invocation of fraud/suppression/mis-statement etc. and Section 74 deals with cases where the provisions related to fraud/suppression/ mis-statement etc. are invoked.

Question 2.
Green & Green Private Limited has been issued a show cause notice (SCN) on 15th March, 2019 under section 73(1) of the CGST Act, 2017 on account of short payment of tax for the month of April, 2018. Green & Green Private Limited contends that the show cause notice so issued is time-barred in law. You are required to examine the technical veracity of the contention of Green & Green Private Limited in the context of provisions of the CGST Act, 2017.
Answer:
The show cause notice (SCN) under section 73(1) of the CGST Act, 2017 shall be issued at least 3 months prior to the time limit specified for issuance of order under section 73(10) and adjudication order under section 73(10) has to be issued within 3 years from the due date for furnishing of annual return for the financial year to which the short-paid/not paid tax relates to.

Thus, SCN under section 73(1) of the CGST Act, 2017 can be issued within 2 years and 9 months from the due date for furnishing of annual return for the financial year to which the short-paid/not paid tax relates to.

The SCN has been issued for the period April, 2018 which falls in the financial year 2018-19. Due date for furnishing annual return for the FY 2018-19 is 31-12-2019 and 3 year’s period from the due date of filing annual return lapses on 31-12-2022.

Thus, SCN under section 73(1) ought to have been issued latest by 30-9-2022, which in the given case, the notice has been issued on 15-3-2019, and therefore the same is in time. The contention of Green & Green Private Limited that the SCN is time barred is wrong.

Question 3.
(i) Deepak Garg started supply of goods within the state of Rajasthan from 1st December 2018. His turnover exceeded ₹20 lakh on 25th January 2019. However, he didn’t apply for registration. Determine the amount of penalty, if any, that may be imposed on Deepak Garg under CGST Act, 2017 on 31st March 2019, if the tax evaded as on said date, on account of failure to obtain registration is ₹8,000.
(ii) Kishore, an unregistered person under GST, purchases the goods supplied by Sanjay who is a registered person without receiving a tax invoice and thus helps in tax evasion. Determine maximum amount of penalty that may be imposed on Kishore under CGST Act, 2017.
Answer:
(i) Under section 122(1) of CGST Act, 2017 where a taxable person who is liable to be registered under this Act but fails to obtain registration, shall be liable to pay a penalty of ten thousand rupees or an amount equivalent to the tax evaded whichever is higher.

Hence Deepak Garg is liable for penalty of ₹10,000

(ii) Under section 122(3) of the CGST Act, 2017 any person who aids or abets any of the offences specified in clauses (i) to (xxi) of sub-section (1), he/she shall be liable to a penalty which may extend to twenty five thousand rupees. Hence, Kishore is liable for maximum penalty of ₹25,000 since he is helping in the tax evasion which is an offence under the CGST Act, 2017.

Question 4.
Mrs, Poomima started a business in supply of goods on 12-12-2017 at Salem, Tamil Nadu. During the year ended 31-3-2018, the details of the supplies effected at her Chennai office are as under:
(a) Supply of Taxable goods within the state: ₹16,00,000
(b) Supply of Exempt goods ₹5,00,000
She has not taken any GST registration. Determine the amount of penalty, if any, which may be imposed on her on 31-3-2018. In respect of taxable goods, SGST is 6% and CGST is 6%.
Note: Assume that she crossed the ? 20,00,000 limit on 25-1-2018.
Answer:
In given case, aggregate turnover of Financial Year 2017-18 is ₹21,00,000 (₹16,00,000 + ₹5,00,000). Where the aggregate turnover of a supplier making supplies exceeds ₹20 lakhs in a financial Year, he is liable to be registered under the Act of the concern state or union territory as the case may be. The said supplier must apply for registration within 30 days on which he becomes liable for registration.

However, in the given case, Mrs. Poornima became liable to registration on 25-1-2018, she did not apply for registration within 30 days of becoming liable to registration.

Section 122(1)(xi) of the CGST Act, 2017 enjoins that a taxable person who is liable to be registered under the CGST Act, 2017 but fails to obtain registration shall be liable to pay penalty of

(a) ₹10,000; or;
(b) An amount equivalent to the tax evaded. Whichever is higher.

In the given case, (b) is 12% of ₹1,00,000 i.e. ₹12,000. Hence a sum of ₹12,000 will be levied as penalty for failure to get himself registered.

Note:
GST is payable only when a person is registered/becomes liable to register under GST. Hence, GST liability in this case would arise only on Turnover beyond ₹20,00,000. Hence, it is computed on ₹1,00,000. It is assumed that all supplies after 25-1-2018 are taxable supplies.

Question 5.
Explain the concept of recovery in instalments under Section 80 of CGST Act 2017 giving the circumstances in which such facility can be allowed and will not be allowed to the defaulter.
Answer:
Recovery in instalments (Sections 80 of the CGST Act, 2017)

Commissioner can allow payment with interest by defaulter in monthly instalments not exceeding 24 instalments.

In case of default in payment of any one instalment on its due date, the whole outstanding balance payable on such date shall become due.

For seeking instalment facility, taxable persons can file application electronically in form GST DRC-20.

The instalment facility will not be allowed if:

The taxable person has already defaulted on the payment of any amount under GST law and recovery process is already undergoing;
The taxable person has not been allowed to make payment in instalments in the preceding financial year under GST law; and
The amount for which instalment facility is sought is less than ₹25,000.

Question 6.
What are the modes of recovery of tax available to the proper officer under GST laws?
Answer:
Section 79 of CGST Act, 2017 deals with the modes of recovery of dues. In terms of the said provision, the proper officer may recover the dues in following manner:

(a) Deduction of dues from the amount owned by the tax authorities payable to such person.

(b) Recovery by way of detaining and selling any goods belonging to such person.

(c) Recovery from other person, from whom money is due or may become due to such person or who holds or may subsequently hold money for or on account of such person.

(d) Distrain any movable or immovable property belonging to such person, until the amount payable is paid. If the dues not paid within 30 days, the said property is to be sold and with the proceeds of such sale the amount payable and cost of sale shall be recovered;

(e) Through the Collector of the district in which such person owns any property or resides or carries on his business, as if it was an arrear of land revenue;

(f) By way of an application to the appropriate Magistrate who in turn shall proceed to recover the amount as if it were a fine imposed by him;

(g) Through enforcing the bond/instrument executed under this Act or any rules or regulations made there under;

(h) CGST arrears can be recovered as an arrear of SGST and vice versa.

Question 7.
What is the meaning of the term “Search”?
Answer:
The term ‘search’ has not been expressly defined in the GST statutes. However, the powers of the GST officers to search any premises have been contained in section 67 of the CGST Act, 2017.

Section 67(2) of the CGST Act, 2017 provides that where the proper officer, not below the rank of Joint Commissioner, either pursuant to an inspection carried out under sub-section (1) or otherwise, has reasons to believe that any goods liable to confiscation or any documents or books or things, which in his opinion shall be useful for or relevant to any proceedings under this Act, are secreted in any place, he may authorise in writing any other officer of central tax to search and seize or may himself search and seize such goods, documents or books or things.

Further, section 67(10) of the CGST Act, 2017 provides that the provisions of the Code of Criminal Procedure, 1973 (2 of 1974), relating to search and seizure, shall, so far as may be, apply to search and seizure under this section subject to the modification that sub-section (5) of section 165 of the said Code shall have effect as if for the word “Magistrate”, wherever it occurs, the word “Commissioner” were substituted.

Question 8.
What are the powers of the proper officer during the search?
Answer:
The officer authorised under to carry out inspection shall have the power to seal or break open the door of any premises or to break open any almirah, electronic devices, box, receptacle in which any goods, accounts, registers or documents of the person are suspected to be concealed, where access to such premises, almirah, electronic devices, box or receptacle is denied. (Section 67(4) of the CGST Act).

Question 9.
Who can order for Search and Seizure under the provisions of CGST Act?
Answer:
An officer of the rank of Joint Commissioner or above can authorize an officer in writing to carry out search and seize goods, documents, books or things. Such authorization can be given only where the Joint Commissioner has reasons to believe that any goods liable to confiscation or any documents or books or things relevant for any proceedings are hidden in any place.

Question 10.
What is a Search Warrant and what are its contents?
Answer:
The written authority to conduct search is generally called search warrant. The competent authority to issue search warrant is an officer of the rank of Joint Commissioner or above. A search warrant must indicate the existence of a reasonable belief leading to the search. Search Warrant should contain the following details:

  • the violation under the Act,
  • the premise to be searched,
  • the name and designation of the person authorized for search,
  • the name of the issuing officer with full designation along with his round seal,
  • date and place of issue,
  • serial number of the search warrant,
  • period of validity i.e. a day or two days etc.

Question 11.
What is the meaning of the term “Inspection”? Who can order for carrying out “Inspection” and under what circumstances?
Answer:
The term ‘Inspection’ has not been expressly defined under the GST statutes. However, section 67(1) of the CGST Act, 2017 provides that where the proper officer, not below the rank of Joint Commissioner, has reasons to believe that

(a) a taxable person has suppressed any transaction relating to supply of goods or services or both or the stock of goods in hand, or has claimed input tax credit in excess of his entitlement under this Act or has indulged in contravention of any of the provisions of this Act or the rules made thereunder to evade tax under this Act; or

(b) any person engaged in the business of transporting goods or an owner or operator of a warehouse or a godown or any other place is keeping goods which have escaped payment of tax or has kept his accounts or goods in such a manner as is likely to cause evasion of tax payable under this Act,

He may authorise in writing any other officer of central tax to inspect any places of business of the taxable person or the persons engaged in the business of transporting goods or the owner or the operator of warehouse or godown or any other place.

Question 12.
What powers can be exercised by an officer during valid search?
Answer:
An officer carrying out a search has the power to search for and seize goods (which are liable to confiscation) and documents, books or things (relevant for any proceedings under CGST/SGST Act) from the premises searched. During search, the officer has the power to break open the door of the premises authorized to be searched if access to the same is denied.

Similarly, while carrying out search within the premises, he can break open any almirah or box if access to such almirah or box is denied and in which any goods, account, registers or documents are suspected to be concealed. He can also seal the premises if access to it denied.

Question 13.
Can a CGST/SGST officer access business premises under any other circumstances?
Answer:
Yes. Access can also be obtained in terms of Section 65 of CGST/SGST Act. This provision of law is meant to allow an audit party of CGST/SGST or C&AG or a cost accountant or chartered accountant nominated under section 66 of CGST/SGST Act, access to any business premises without issuance of a search warrant for the purposes of carrying out any audit, scrutiny, verification and checks as may be necessary to safeguard the interest of revenue.

However, a written authorization is to be issued by an officer of the rank of Commissioner of CGST or SGST. This provision facilitates access to a business premise which is not registered by a taxable person as a principal or additional place of business but has books of account, documents, computers etc. which are required for audit or verification of accounts of a taxable person.

Question 14.
What is meant by the term ‘Seizure’?
Answer:
The term ‘seizure’ has not been specifically defined in the GST Law. In Law Lexicon Dictionary, ‘seizure’ is defined as the act of taking possession of property by an officer under legal process. It generally implies taking possession forcibly contrary to the wish of the owner of the property or who has the possession and who was unwilling to part with the possession.

Question 15.
What are the safeguards provided in GST Act(s) in respect of Search or Seizure?
Answer:
Certain safeguards are provided in section 67 of CGST/SGST Act in respect of the power of search or seizure. These are as follows:
(i) Seized goods or documents should not be retained beyond the period necessary for their examination;

(ii) Photocopies of the documents can be taken by the person from whose custody documents are seized;

(iii) For seized goods, if a notice is not issued within six months of its seizure, goods shall be returned to the person from whose possession it was seized. This period of six months can be extended on justified grounds up to a further period of maximum six months;

(iv) An inventory of seized goods shall be made by the seizing officer;

(v) Certain categories of goods to be specified under CGST Rules (such as perishable, hazardous etc.) can be disposed of immediately after seizure;

(vi) Provisions of Code of Criminal Procedure, 1973 relating to search and seizure shall apply. However, one important modification is in relation to sub-section (5) of section 165 of Code of Criminal Procedure – instead of sending copies of any record made in course of search to the nearest Magistrate empowered to take cognizance of the offence, it has to be sent to the Principal Commissioner/Commissioner of CGST/ Commissioner of SGST.

Question 16.
What is the lime limit for issuance of SCN in respect of seized goods?
Answer:
The SCN in respect of seized goods is to be issued within six months from the date of seizure of goods, otherwise the goods shall be returned to the person from whose possession they were seized. However, the period of six months, on sufficient cause being shown can be extended by the proper officer for a further period not exceeding six months. (Section 67(7) of the Act.)

Question 17.
When can the proper officer authorize ‘arrest’ of any person under CGST/SGST Act?
Answer:
The Goods and Services Tax Authorities are empowered under section 69 of CGST Act, 2017 to arrest persons accused of offences specified under Section 132 of the CGST Act, 2017 (‘CGST Act’). The Commissioner of CGST(Central Goods and Services Tax), by order, can authorize any CGST officer to arrest a person, if he has reasons to believe that such person has committed an offence specified in clause (a) or clause (b) or clause (c) or clause (d) of section 132(1) of CGST Act, 2017 which is punishable under H clause (i) or (it) of section 132(1) or section 132(2) of the CGST Act, 2017.

This essentially means that a person can be arrested only when the amount of tax evaded or the amount of input tax credit wrongly availed or utilized or the amount of refund wrongly taken exceeds ₹1 Crore (imprisonment for a term up to 1 year with fine) or ₹5 Crores (imprisonment for a term up to 5 years with fine).

Section of CGST Act Offence
132(1)(a) Supply of any goods or services or both without issue of any invoice in violation of the provisions of the Act or Rules with intent to evade tax.
132(1)(b) Issue of any invoice or bill without supply of goods or services or both in violation of the provisions of the Act or Rules leading to wrongful availment or utilisation of input tax credit or refund of tax
132(1)(c) Availment of input tax credit using the invoice or bill referred to in clause (b)
132(1)(d) Collection of any amount of tax but failing to pay the same to the Government beyond a period of 3 months from the date on which such payment becomes due

The word arrest usually comes within the realm of criminal jurisdiction. Offences can be classified into 3 major categories:

  1. Tax evasion
  2. Wrong/fraudulent availing of Input tax credit
  3. Wrong/fraudulent obtaining of Refund

The punishment for offences in Section 132(a), (b), (c), (d) of CGST, 2017 where the quantum involved is more than 5 crore is cognizable and non-bailable. All other offences with lesser quantum are non-cognizable and bailable.

If the Commissioner of CGST/SGST believes a person has committed an offence u/s 132 of CGST Act, he can be arrested by any authorised CGST/SGST officer. The arrested person will be informed about the grounds of his arrest. He will appear before the magistrate within 24 hours of arrest in case of cognizable offence.

Question 18.
What are cognizable and non-cognizable offences under CGST Act?
Answer:
In section 132 of CGST Act, 2017 it is provided that the offences relating to taxable goods and/or services where the amount of tax evaded or the amount of input tax credit wrongly availed or the amount of refund wrongly taken exceeds ₹5 crores, shall be cognizable and non-bailable. Other offences under the act are non-cognizable and bailable.

Question 19.
When can the proper officer issue summons under CGST Act?
Answer:
Section 70 of CGST/SGST Act, 2017 gives powers to a duly authorized CGST/SGST officer to call upon a person by issuing a summon to present himself before the officer issuing the summon to either give evidence or produce a document or any other thing in any inquiry which an officer is making.

A summons to produce documents or other things may be for the production of certain specified documents or things or for the production of all documents or things of a certain description in the possession or under the control of the person summoned.

Question 20.
What can be the consequences of non-appearance to summons?
Answer:
The proceeding before the official who has issued summons is deemed to be a judicial proceeding. If a person does not appear on the date when summoned without any reasonable justification, he can be prosecuted under section 174 of the Indian Penal Code (IPC).

If he absconds to avoid service of summons, he can be prosecuted under section 172 of the IPC and in case he does not produce the documents or electronic records required to be produced, he can be prosecuted under section 175 of the IPC. In case he gives false evidence, he can be prosecuted under section 193 of the IPC. In addition, if a person does not appear before a CGST/ SGST officer who has issued the summons, he is liable to a penalty up to ? 25,000 under section 122(3)(d) of CGST/SGST Act.

Question 21.
What are the guidelines for issue of summons?
Answer:
The Central Board of Indirect Taxes and Customs (CBIC) has issued guidelines from time to time to ensure that summons provisions are not misused in the field. Some of the important highlights of these guidelines are given below:

(i) summons is to be issued as a last resort where assessees are not co-operating and this section should not be used for the top management;

(ii) the language of the summons should not be harsh and legal which causes unnecessary mental stress and embarrassment to the receiver;

(iii) summons by Superintendents should be issued after obtaining prior written permission from an officer not below the rank of Assistant Commissioner with the reasons for issuance of summons to be recorded in writing;

(iv) where for operational reasons, it is not possible to obtain such prior written permission, oral/telephonic permission from such officer must be obtained and the same should be reduced to writing and intimated to the officer according such permission at the earliest opportunity;

(v) in all cases, where summons are issued, the officer issuing summons should submit a report or should record a brief of the proceedings in the case file and submit the same to the officer who had authorized the issuance of summons;

(vi) senior management officials such as CEO, CFO, General Managers of a large company or a Public Sector Undertaking should not generally be issued summons at the first instance. They should be summoned only when there are indications in the investigation of their involve¬ment in the decision-making process which led to loss of revenue.

Question 22.
What are the precautions to be observed while issuing summons?
Answer:
The following precautions should generally be observed when summoning a person:

(i) A summon should not be issued for appearance where it is not justified. The power to summon can be exercised only when there is an inquiry being undertaken and the attendance of the person is considered necessary.

(ii) Normally, summons should not be issued repeatedly. As far as practicable, the statement of the accused or witness should be recorded in minimum number of appearances.

(iii) Respect the time of appearance given in the summons. No person should be made to wait for long hours before his statement is recorded except when it has been decided very consciously as a matter of strategy.

(iv) Preferably, statements should be recorded during office hours; however, an exception could be made regarding time and place of recording statement having regard to the facts in the case.

Question 23.
What are the prescribed offences under CGST/SGST Act?
Answer:
The CGST/SGST Act codifies the offences and penalties in Chapter XVI. The Act lists 21 offences in section 122 of CGST Act, 2017, apart from the penalty prescribed under section 10 for availing compounding by a taxable person who is not eligible for it. The said offences are as follows:-

  1. Making a supply without invoice or with false/incorrect invoice;
  2. Issuing an invoice without making supply;
  3. Not paying tax collected for a period exceeding three months;
  4. Not paying tax collected in contravention of the CGST/SGST Act for a period exceeding 3 months;
  5. Non-deduction or lower deduction of tax deducted at source or not depositing tax deducted at source under section 51;
  6. Non-collection or lower collection of or non-payment of tax collectible at source under section 52;
  7. Availing/utilizing input tax credit without actual receipt of goods and/ or services;
  8. Fraudulently obtaining any refund;
  9. Availing/distributing input tax credit by an Input Service Distributor in violation of Section 20;
  10. Furnishing false information or falsification of financial records or furnishing of fake accounts/documents with intent to evade payment of tax;
  11. Failure to register despite being liable to pay tax;
  12. Furnishing false information regarding registration particulars either at the time of applying for registration or subsequently;
  13. Obstructing or preventing any official in discharge of his duty;
  14. Transporting goods without prescribed documents;
  15. Suppressing turnover leading to tax evasion;
  16. Failure to maintain accounts/documents in the manner specified in the Act or failure to retain accounts/documents for the period specified in the Act;
  17. Failure to furnish information/documents required by an officer in terms of the Act/Rules or furnishing false information/documents during the course of any proceeding;
  18. Supplying/transporting/storing any goods liable to confiscation;
  19. Issuing invoice or document using GSTIN of another person;
  20. Tampering/destroying any material evidence;
  21. Disposing of/tampering with goods detained/seized/attached under the Act.

Question 24.
What is meant by the term penalty?
Answer:
The word “penalty” has not been defined in the CGST/SGST Act but judicial pronouncements and principles of jurisprudence have laid down the nature of a penalty as: a temporary punishment or a sum of money imposed by statute, to be paid as punishment for the commission of a certain offence; a punishment imposed by law or contract for doing or failing to do something that was the duty of a party to do.

Question 25.
What is the quantum of penalty provided for in the CGST/SGST Act?
Answer:
Section 122(1) of CGST Act, 2017 provides that any taxable person who has committed any of the offences mentioned in section 122 shall be punished with a penalty that shall be higher of the following amounts: The amount of tax evaded, fraudulently obtained as refund, availed as credit, or not deducted or collected or short deducted or short collected; or; A sum of ₹10,000.

Further Section 122(2) of CGST Act, 2017 provides that any registered person who has not paid tax or makes a short payment of tax on supplies shall be a liable to penalty which will be the higher of: 10% of the tax not paid or short paid; or; ₹10,000.

Question 26.
Is any penalty prescribed for any person other than the taxable person?
Answer:
Yes. Section 122(3) of CGST Act, 2017 provides for levy of penalty extending to ₹25,000 for any person who aids or abets any of the 21 offences, deals in any way (whether receiving, supplying, storing or transporting) with goods that are liable to confiscation, receives or deals with supply of services in contravention of the Act, fails to appear before an authority who has issued a summon, fails to issue any invoice for a supply or account for any invoice in his books of account.

Question 27.
What action can be taken for transportation of goods without valid documents or attempted to be removed without proper record in books?
Answer:
If any person transports any goods or stores any such goods while in transit without the documents prescribed under the Act (i.e. invoice and a declaration) or supplies or stores any goods that have not been recorded in the books or accounts maintained by him, then such goods shall be liable for detention along with any vehicle on which they are being transported.

Where owner comes forward:
Such goods shall be released on payment of the applicable tax and penalty equal to 100% tax or upon furnishing of security equivalent to the said amount. In case of exempted goods, penalty is 2% of value of goods or ₹25,000 whichever is lesser.

Where owner does not come forward:
Such goods shall be released on payment of the applicable tax and penalty equal to 50% of value of goods or upon furnishing of security equivalent to the said amount. In case of exempted goods, penalty is 5% of value of goods or ₹25,000 whichever is lesser.

Question 28.
What is meant by confiscation?
Answer:
The word ‘confiscation’ has not been defined in the Act. The concept is derived from Roman law wherein it meant seizing or taking into the hands of emperor, and transferring to Imperial “fiscus” or Treasury. The word “confiscate” has been defined in Aiyar’s Law Lexicon as to “appropriate (private property) to the public treasury by way of penalty; to deprive of property as forfeited to the State.” In short in means transfer of the title to the goods to the Government.

Question 29.
When do goods become liable to confiscation under the provisions of CGST/SGST Act?
Answer:
As per section 130 of CGST/SGST Act, goods become liable to confiscation when any person does the following:

  • supplies or receives any goods in contravention of any of the provisions of this Act or rules made thereunder leading to evasion of tax;
  • does not account for any goods on which he is liable to pay tax under this Act;
  • supplies any goods liable to tax under this Act without having applied for the registration;
  • contravenes any of the provisions of the CGST/SGST Act or rules made thereunder with intent to evade payment of tax.

Question 30.
Can any conveyance carrying goods without cover of prescribed documents be subject to confiscation?
Answer:
Yes. Section 130 of CGST Act, 2017 provides that any conveyance carrying goods without the cover of any documents or declaration prescribed under the Act shall be liable to confiscation. However, if the owner of the conveyance proves that the goods were being transported without cover of the required documents/declarations without his knowledge or connivance or without the knowledge or connivance of his agent then the conveyance shall not be liable to confiscation as aforesaid.

Question 31.
What is Prosecution?
Answer:
Prosecution is the institution or commencement of legal proceeding; the process of exhibiting formal charges against the offender. Section 198 of the Criminal Procedure Code defines “prosecution” as the institution and carrying on of the legal proceedings against a person.

Question 32.
Which are the offences which warrant prosecution under the CGST/ SGST Act?
Answer:
Section 132 of the CGST/SGST Act codifies the major offences under the Act which warrant institution of criminal proceedings and prosecution. 12 such major offences have been listed as follows:

(a) Making a supply without issuing an invoice or upon issuance of a false/incorrect invoice;
(b) Issuing an invoice without making supply;
(c) Not paying any amount collected as tax for a period exceeding 3 months;
(d) Availing or utilizing credit of input tax without actual receipt of goods and/or services;
(e) Obtaining any fraudulent refund
(f) evades tax, fraudulently avails ITC or obtains refund by an offence not covered under clauses (a) to (e);
(g) Furnishing false information or falsification of financial records or furnishing of fake accounts/documents with intent to evade payment of tax;
(h) Obstructing or preventing any official in the discharge of his duty;
(i) Dealing with goods liable to confiscation i.e. receipt, supply, storage or transportation of goods liable to confiscation;
(j) Receiving/dealing with supply of services in contravention of the Act;
(k) tampers with or destroys any material evidence or documents;
(l) Failing to supply any information required of him under the Act/Rules or supplying false information;
(m) Attempting to commit or abetting the commission of any of the of¬fences at (a) to (t) above.

Question 33.
What is the punishment prescribed on conviction of any offence under the CGST/ SGST Act?
Answer:
The scheme of punishment provided in section 132(1) is as follows:

Offence involving Punishment (imprisonment extending to)
Tax evaded exceeding ₹5 crore or repeat offender for ₹250 lakh 5 years and fine
Tax evaded between ₹2 crore and ₹5 crore 3 years and fine
Tax evaded between ₹1 crore and ₹2 crore 1 year and fine
False records/Obstructing officer/Tamper records 6 months

Question 34.
What is a culpable state of mind?
Answer:
While committing an act, a “culpable mental state” is a state of mind – wherein the act is intentional;

the act and its implications are understood and controllable;
the person committing the act was not coerced and even overcomes hurdles to the act committed;
the person believes or has reasons to believe that the act is contrary to law.

Section 135 of the CGST Act, 2017 provides that in any prosecution for an offence under this Act which requires a culpable mental state on the part of the accused, the court shall presume the existence of such mental state but it shall be a defence for the accused to prove the fact that he had no such mental state with respect to the act charged as an offence in that prosecution. The explanation to the said provision further provides that:-

(i) the expression “culpable mental state” includes intention, motive, knowledge of a fact, and belief in, or reason to believe, a fact;
(ii) a fact is said to be proved only when the court believes it to exist beyond reasonable doubt and not merely when its existence is established by a preponderance of probability

Question 35.
Can a company be proceeded against or prosecuted for any offence under the CGST/ SGST Act?
Answer:
Yes. Section 137 of the CGST/SGST Act provides that every person who was in-charge of or responsible to a company for the conduct of its business shall, along-with the company itself, be liable to be proceeded against and punished for an offence committed by the company while such person was in-charge of the affairs of the company. If any offence committed by the company

has been committed with the consent/connivance of, or
is attributable to negligence of any officer of the company then such officer shall be deemed to be guilty of the said offence and liable to be proceeded against and punished accordingly.

Question 36.
Are there any monetary limits prescribed for compounding of offence?
Answer:
Yes. The lower limit for compounding amount is to be the greater of the following amounts:
50% of tax involved; or;
₹10,000.
The upper limit for compounding amount is to be greater of the following amounts:
150% of tax involved; or;
₹30,000.

Question 37.
What is the procedure for compounding of offences?
Answer:
The applicant has to make an application in form GST CPD-01 to the Commissioner for compounding of an offence. The application is not allowed unless the tax, interest and penalty liable to be paid have been paid in the case for which the application has been made On receipt of the application, the Commissioner shall call for a report from the concerned officer with reference to the particulars furnished in the application, or any other information, which may be considered relevant for the examination of such application.

The Commissioner, after taking into account the contents of the said application, may, by order in FORM GST CPD-02, on being satisfied that the applicant has cooperated in the proceedings before him and has made full and true disclosure of facts relating to the case, allow the application indicating the compounding amount and grant him immunity from prosecution or reject such application within ninety days of the receipt of the application. The application shall not be decided without affording an opportunity of being heard to the applicant and recording the grounds of such rejection.

Inspection, Search, Seizure And; Arrest, Penalties, Demand And Recovery Under Gst Notes

Sections involved:
a. Inspection, Search, Seizure and Arrest: Sections 67 to 72 of CGST Act.

  • Power of inspection, search, seizure and arrest.
  • Inspection of goods in movement.
  • Power to arrest.
  • Power to summon persons to give evidence and produce documents.
  • Access to business premises.
  • Officers to assist proper officers.

b. Offences and penalties: Sections 122 to 138 of CGST Act:

  • Penalty for certain offences (21 offences covered): X 10,000 or tax evaded/not deducted/not collected/Input Tax Credit availed of or passed on or distributed irregularly/claimed fraudulently, whichever is higher.
  • Penalty for supplies on which tax has not been paid or short paid or erroneously refunded, or where ITC has been wrongly availed or utilised.

For any reason other than fraud: X 10,000 or 10% of the tax due from such person, whichever is higher.
For the reason of fraud: X 10,000 or 100% of the tax due from such person, whichever is higher.

  • Penalty for any person other than the taxable person: (who aids or abets any of 21 offences): Penalty up to ₹ 25,000.
  • Penalty for failure to furnish information return: ₹ 100 for

each day of the period during which failure to furnish such return continues or; ₹ 5,000, whichever is higher. 10.1

  • Fine for failure to furnish statistics: ₹ 10,000 (maximum) + if continuing offence: ? 100 each day after the first day during which offence continues but a maximum ₹ 25,000.
  • General Penalty: For person contravening any of provisions of this Act or any rules made thereunder for which no penalty is separately provided: maximum penalty – ₹ 25,000.
  • No penalty to be imposed for minor breaches
  • Power to waive penalty or fee or both in certain notified cases
  • Power of detention or seizure of goods/conveyances
  • Power of Confiscation of goods or conveyances and levy of penalty
  • Cognizable and Non-cognizable offences.
  • Provisions relating to the liability of officers and certain other persons
  • Compounding of Offences

c. Demand and recovery: Sections 73 to 84 of CGST Act.

  • Concept of Show Cause Notice (SCN)
  • Time limit for issue of SCN:

a. Where fraud is not involved:
At least 3 months prior to the time limit specified for passing the order determining the amount of tax, interest and penalty payable by the defaulter. Further, the said order is to be passed within 3 years from the due date of furnishing the annual return for F.Y. to which tax not paid, etc. relates.

Thus, the time limit for issuance of SCN is 2 years and 9 months from the due date of filing the Annual Return for the financial year to which demand pertains or from the date of erroneous refund.

b. Where fraud is involved:
At least 6 months prior to the time limit specified for passing the order determining the amount of tax, interest and penalty payable by the defaulter. Further, the said order is to be passed within 5 years from the due date of furnishing the annual return for F.Y. to which tax not paid, etc. relates. Thus, the time limit for issuance of SCN is 4 years and 6 months from the due date of filing the Annual Return for the financial year to which demand pertains or from the date of erroneous refund.

  • Quantum of Penalty:

a. Where fraud is not involved:
1096 of tax or ₹ 10,000, whichever is higher. However, NO PEN-ALTY if tax and interest are paid within 30 days of the issue of notice.
Note: Penalty continues to be payable if self-assessed tax is not paid within 30 days from the due date of payment of such tax (i.e. even if SCN is not issued, the penalty is payable if tax is paid beyond 30 days from the due date of payment of tax.)

b. Where fraud is involved:
The penalty is equivalent to tax i.e. 10096 of tax.
However, if voluntary payment of tax and interest, before SCN: 1596 of tax
If Tax, Interest paid within 30 days of issue of SCN: 2596 of tax. If Tax, Interest paid within 30 days of communication of adjudi¬cation order: 5096 of tax.

  • General provisions relating to the determination of tax.
  • Provisions relating to tax collected but not paid to Government.
  • Provisions relating to initiation of recovery proceedings.
  • Provisions dealing with the recovery of tax.
  • Payment of Tax and other amounts in instalments.
  • Transfer of property to be void in certain cases.
  • Tax to be the first charge on property as per section 82 of CGST Act.
  • Provisional attachment to protect revenue in certain cases.
  • Provisions regarding continuation and validation of certain recovery proceedings.

CS Professional Advance Tax Law Notes

Basic Concepts Of Customs Law – Advanced Tax Laws and Practice Important Questions

Basic Concepts Of Customs Law – Advanced Tax Laws and Practice Important Questions

Question 1.
Write a short note on the Basic Customs Duty.
Answer:
Basic customs duty is levied under section 12 of the Customs Act, 1962 read with section 2 of the Customs Tariff Act, 1975. The duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975 or any other law for the time being in force, on goods imported into or exported from India. The rates of Customs duty are specified in the First and Second Schedule of Section 2 of Customs Tariff Act, 1975 (First Schedule enlist the goods liable to import duty and Second Schedule enlist the goods liable to export duty).

There are different rates for different goods but the merit rate is generally 7.5%. Basic duty may be exempted, wholly or partially, with or without any conditions, by a notification under section 25 of the Customs Act, 1962. Basic Customs Duty is also exempted upfront or through drawback mechanism where the imported goods are meant for re-export or for use in the manufacture of export goods. The basic customs duty may have two rates: (A) Standard rates (B) Preferential rates:

(A) Standard Rates: Standard rate is charged where there is no provision for preferential treatment.
(B) Preferential Rates: If the goods are imported from the area notified by the Government as preferential area duty to be charged at preferential rates. Preferential rate is applied only where the owner of the article (importer) claims at the time of importation, with supporting evidence, that the goods are chargeable with the preferential rate of duty, and if the importer fails to claim with supporting evidence then duty to be charged as standard rates. Basic Customs Duty is not creditable against any tax or duty, whatsoever.

Question 2.
Explain the concept of “Import” and “importer”, with reference to the provisions of the Customs Act, 1962.
Answer:
As per section 2(23) of the Customs Act, 1962, the term import refers to bringing into India from a place outside India. Import of goods into India commences when the goods enter the territorial waters of India but get completed only when the goods become part of the mass of goods within the country. As per section 2(26) of the Customs Act, 1962, importer, in relation to any goods at any time between their importation and the time when they are cleared for home consumption, includes any owner, beneficial owner, or any person holding himself out to be the importer.

Question 3.
Write a short note on the taxable event for levy of import duty under Customs Act, 1962 giving reference of decided case law if any.
Answer:
In Garden Silk Mills Ltd. v. UOI 1999 SC ELT 358, the Supreme Court held the import of goods in India commences when the goods enter into ter¬ritorial waters of India but continue and are completed when goods become part of the mass of goods within the country. The taxable event is at the time when the goods reach the customs barrier and the bill of entry for home consumption is filed. In the case of warehoused goods, the goods continue to be in customs hands. Hence, the import takes place only when goods are cleared from the warehouse for home consumption by filing an ex-bond bill of entry.

Question 4.
Distinguish between “First Appraisement and Second Appraisement.”
Answer:
First Appraisement or goods-based assessment means assessment of goods after the goods are examined. This system is resorted to only in exceptional cases where it is not possible for the Appraiser to determine the value or classification of the goods or for any other reason on the basis of the documents as produced by the importers. Second Appraisement or document-based means making the assessment on the basis of the declaration made by the importers on the strength of documents such as invoice, catalog, literature showing the composition and use, price lists, etc., as produced by the importers. Under this system, the goods are examined after assessment and collection of duty.

Question 5.
What is the meaning of the terms Derelict, Jetsam, Flotsam, and Wreck used under Customs law?
Answer:
Derelict – This refers to any cargo, vessel, etc. abandoned in the sea with no hope of recovery.
Jetsam – This refers to goods jettisoned from the vessel to save from sinking. ;4 “Jettisoned” connotes the action of throwing goods overboard to lighten £ the load of the ship if it is in danger of being sunk.
Flotsam – Jettisoned goods that continue floating in the sea are called “p flotsam.
Wreck – This refers to cargo or vessel or any property which are cast ashore by tides after the shipwreck.

Question 6.
What is the difference between clearance for home consumption and clearance for warehousing under Customs law?
Answer:
Clearance for home consumption implies that the customs duty on import of the goods has been discharged and the goods are cleared for utilization/home consumption. The goods may instead of being cleared for home consumption be deposited in a warehouse and cleared at a later time. When the goods are deposited in the warehouse the collection of customs duties will be deferred till such goods are cleared for home consumption. The importer of the goods requires to execute a bond for a sum thrice the amount of duty assessed on the goods at the time of import of goods. The importer is also liable to pay interest, rent, and charges for the storage of goods in a warehouse.

Question 7.
Briefly Explain

  1. Bill of entry;
  2. Kinds of bills of entry;
  3. Basic documents to be filed along with the bill of entry.

Answer:
(1) A Bill of Entry is a statement of the nature and value of goods to be imported or exported, prepared by the shipper, and presented to a custom house. The Bill of Entry inter alia has columns for indicating the description of goods, value, quantity, marks and numbers, country of origin, etc.

(2) There are three kinds of Bills of Entry viz,

  • Bill of Entry for Home-consumption (White Colour)
  • Warehousing (into-Bond) Bill of Entry (Yellow Colour)
  • Bill of Entry for Clearance ‘Ex-Bond’ (Green Colour).

The home-consumption Bill of Entry which is printed on white paper is referred to as “white Bill of Entry”, the “into Bond” or “Warehousing Bill of Entry” is printed on yellow paper and “ex-bond” is printed on green paper. Each Bill of Entry has to be filed in quadruplicate. The columns in the original are printed in black, in blue in duplicate, and in violet in triplicate, and in green in quadruplicate.

(3) The following basic documents are to be filed along with the Bill of Entry:

  1. Invoice.
  2. Indent and acceptance correspondence pertaining to the Imported goods.
  3. Bill of Lading in respect of sea-consignments/Airway Bill in respect of Air Consignments.
  4. Letter of credit or Bill of exchange.
  5. Insurance policy or Insurance certificate.
  6. Import license (Customs purpose copy).
  7. Small Scale Industries Certificate in respect of Imports sought to be covered under free goods and Imports subjected to Actual Users (AU) conditions.
  8. Catalog, drawing, write-up, analysis certificate as the case may be, in respect of the goods sought to be cleared.
  9. Any other connected/relevant document.

Question 8.
State with brief reasons, whether the following statements are true or false in the light of provisions contained in Customs Act, 1962:

  1. Customs area includes a warehouse (3 Marks)
  2. A beneficial owner of imported goods is a person on whose behalf the goods are being imported.

Answer:
(1) True.
The definition of the customs area as provided under section 2(11) of the Customs Act, 1962 has been amended vide the Taxation Laws (Amendment) Act, 2017 to include within its ambit a warehouse also. Consequent to the above, the customs area is now defined to mean the area of a customs station or a warehouse and includes any area in which imported goods or export goods are ordinarily kept before clearance by customs authorities.

(2) True.
Subsequent to the insertion of new section 2(3A) in the Customs Act, 1962 vide the Finance Act, 2017, the beneficial owner has been defined to mean any person on whose behalf the goods are being imported or exported or who exercises effective control over the goods being imported or exported.

Question 9.
In the context of the ‘Clear first, pay later’ concept evolved under the customs law, state the objectives of the concept and the persons who are eligible to avail this facility.
Answer:
“Clear first, Pay later” concept under customs laws
(A) Objectives

  1. “Clear first, pay later” is a mechanism facilitating deferred payment of customs duty.
  2. It is a mechanism that delinks duty payment and customs clearance.
  3. The aim is to have a seamless wharf to warehouse transit in order to facilitate just-in-time manufacturing. This scheme is in force w.e.f. 16th November 2016.
  4. It is a trade facilitation move wherein benefits are extended to the entities who have demonstrated strong internal control sys¬tems and willingness to comply with the laws administered by the CBEC.

Eligible Persons

  1. Central Government has permitted importers certified under the Authorized Economic Operator program as AEO (Tier-Two) and AEO (Tier-Three) being eligible importers to make deferred payment of import duty under the clear first, pay later mechanism.
  2. The CBEC has rolled out the AEO (Authorized Economic Operator) program, as a part of the ease of doing business focus of the Government of India.

Question 10.
With reference to recent amendments made (Vide Finance Act, 2017) in the Customs Act, 1962, examine the validity of the following statements:

  1. A beneficial owner of imported goods is a person on whose behalf the goods are being imported but cannot be exported.
  2. The Customs area does not include a warehouse.
  3. Customs station includes international courier terminal but does not include the foreign post office.

Answer:
(1) The statement is invalid: A new section 2(3A) has been inserted in the Customs Act, 1962 vide the Finance Act, 2017 to define beneficial owner 7 means any person on whose behalf the goods are imported or exported or “ who exercise effective control over the goods being imported or exported.

(2) The statement is invalid: Section 2(11) of Customs Act, 1962 has been amended to include a warehouse within the customs area.

(3) The statement is invalid: The Finance Act, 2017 has included international courier terminals and foreign post offices within the scope of customs I station as defined under section 2(13) of Customs Act, 1962.

Question 11.
Raj Bihari Ltd., an importer of goods, had filed a bill of entry after 60 days of the filing of the Import General Manifest. The Deputy Commissioner of Customs imposed a penalty of ₹ 10,000 for the delayed filing of the bill of entry. Since Raj Bihari Ltd., the importer, wanted to clear the goods being urgently required, they have paid the amount of penalty of ₹ 10,000. In this backdrop, you are required to examine the issue (i) regarding the period available for filing the bill of entry (if) whether a penalty is imposed for delayed filing of the bill of entry, and (iii) whether a bill of entry can be filed in advance, in the context of the provisions contained under the Customs Act, 1962.
Answer:
Bill of Entry under customs law
(i) As per Section 46(3) of the Customs Act, 1962, the time limit for filing a bill of entry is before the end of the next day following the day (excluding holidays) on which the aircraft/vessel/vehicle carrying the goods arrives at a customs station at which such goods are to be cleared for home consumption or warehousing.

(ii) As per Regulation 3 of Bill of Entry (Electronic Integrated Declaration and Paperless Processing) Regulations, 2018, where the bill of entry is not filed within the time specified in Section 46(3) of the Customs Act, 1962 and regulations made thereunder and the proper officer of Customs is satisfied that there was no sufficient cause for such delay, the importer shall be liable to pay charges for late presentation of the bill of entry at the rate of rupees five thousand per day for the initial three days of default and at the rate of rupees ten thousand per day for each day of default thereafter. Provided that where the proper officer is satisfied with the reasons for the delay, he may waive off the charges.

In the present case, Raj Bihari Ltd. has filed the bill of entry late and therefore, shall be subject to charges @ ₹ 5,000 per day for 3 days and thereafter @ ₹ 10,000 per day. As such, there is no provision under the Customs Act where under penalty can be levied for delay in the filing of the Bill of Entry. Thus, the penalty imposed by the Deputy Commissioner of Customs cannot sustain.

Question 12.
Shandaar Scraps Ltd., imported during October 2018 by the sea a consignment of metal scrap weighing 7,000 M.T. (metric tonnes) from the U.S.A. They filed a bill of entry for home consumption. The Assistant Commissioner passed an order for clearance of goods and applicable duty was paid by them.

Shandaar Scraps Ltd. thereafter found, on taking delivery from the Port Trust Authorities (i.e., before the clearance for home consumption), that only 6,400 M.T. of scrap were available at the docks although they had paid duty for the entire 7,000 M.T. since there was no short-landing of cargo. The short-delivery of 600 M.T. was also substantiated by the Port-Trust Authorities, who gave a “weighment certificate” to Shandaar Scraps Ltd. On filing a representation to the Customs Department, Shandaar Scraps Ltd. has been directed in writing to justify as to which provision of the Customs Act, 1962 governs their claim for remission of duty on the 600 M.T. not delivered by the Port-Trust.

You are approached by Shandaar Scraps Ltd. as “Counsel” for an opinion/ advice. Examine the issues and tender your opinion as per Customs Act, 1962, giving reasons in brief and the provisions of the Customs Act, 1962.
Answer:
Remission of Customs duty As per the provisions of section 23 of the Customs Act, 1962 where it is shown to the satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner of Customs that any imported goods have been lost (otherwise than as a result of pilferage) or destroyed, at any time before clearance for home consumption, the Assistant Commissioner of Customs or Deputy Commissioner of Customs shall remit the duty on such goods. Therefore, the duty shall be remitted only, if the loss has occurred before clearance for home consumption.

In the given case, it is apparent from the facts that the quantity of scrap received in India was 7000 metric tonnes and 600 metric tonnes thereof was lost when it was in the custody of Port Authorities i.e. before clearance for home consumption was made. The loss of 600 MT of scrap cannot be construed to be pilferage, as loss of such a huge quantity cannot be treated as “Petty Theft”.

Hence, the company is being advised to take shelter under section 23 justifying his claim for remission of duty on the goods short supplied by the Port Trust Authorities as per the certificate issued.

Question 13.
GP Scraps, imported during August 2018, by sea, a consignment of metal scrap weighing 8,000 M.T. from China and filed a bill of entry for home consumption. The Assistant Commissioner passed an order for clearance of goods and applicable duty was paid on the goods. GP Scraps thereafter found, on taking delivery from the Port Trust Authorities (i.e. before the clearance for home consumption), that only 7,500 M.T. of scrap was available at the docks, although they had paid duty for the entire 8,000 M.T., as there was no short-landing of cargo had been indicated. The short-delivery of 500 M.T. was also substantiated by the Port-Trust Authorities, who gave a “weighment certificate” to GP Scraps.

On filing a representation to the Customs Department, GP Scraps has been directed by the Department in writing to justify as to which provision of the Customs Act, 1962 governs their claim for remission of duty on the 500 M.T. not delivered by the Port-Trust to them. You are approached by GP Scraps as ‘Counsel’ for an opinion/advice. Examine the issues and tender your opinion as per law, giving reasons.
Answer:
Remission of Customs duty
As per the provisions of section 23 of the Customs Act, 1962 where it is shown to the satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner of Customs that any imported goods have been lost (otherwise than as a result of pilferage) or destroyed, at any time before clearance for home consumption, the Assistant Commissioner of Customs or Deputy Commissioner of Customs shall remit the duty on such goods. Therefore, the duty shall be remitted only, if the loss has occurred before j clearance for home consumption.

In the given case, it is apparent from the facts that the quantity of scrap received in India was 8000 metric tons and 500 metric tons thereof was lost when it was in the custody of Port Authorities i.e., before clearance for home consumption. The loss of 500 M.T of scrap cannot be construed to be pilferage, as loss of such huge quantity cannot be treated as “Petty Theft”.

Hence, GP Scraps is being advised to take shelter under section 23 of Customs Act, 1962 justifying its claim for remission of duty on the goods short; supplied by the Port Trust Authorities as per the certificate issued.

Question 14.
What is the difference between Section 13 and Section 23 of the Customs Act, 1962?
Answer:
Section 13 of Customs Act, 1962 covers the situation of “pilferage of the goods” and Section 23 of Customs Act, 1962 covers “loss of goods” and these are quite different as explained by the table below:

Basis Section 13 Section 23
Meaning Pilfer means to steal, especially in small quantities Words lost or destroyed refers to “total loss” of goods
Duty Duty Duty if already paid, it will be remitted
Restoration If goods are restored after pilfer-age, importer is liable to pay Duty Restoration is not possible
Warehousing provisions Do not apply to this section Apply to this section
Onus to prove Does not lie on importer as it comes during examination of officer Has to prove
Time of occurrence After unloading but before order for clearance Before clearance for home consumption

Question 15.
What do you mean by the following specific terms used within the meaning of the Customs Act, 1962?

  1. Adjudicating Authority
  2. Baggage
  3.  Coastal goods
  4. Beneficial Owner
  5. Customs Area

Answer:
(1) “Adjudicating Authority” means any authority competent to pass any order on decision under this Act, but does not include the Board, Commissioner (Appeals), or Appellate Tribunal.
(2) “Baggage” includes unaccompanied baggage but does not include motor Vehicles [Section 2(3)]
(3) “Coastal Goods” means goods, other than imported goods, transported in a vessel from one port in India to another [Section 2(7)]
(4) “Beneficial Owner” means any person on whose behalf the goods are being imported or exported or who exercised effective control over the goods being imported or exported [Section 2 (3A)]
(5) “Customs Area” means the area of a customs station and includes any 2 areas in which imported goods or export goods are ordinarily kept before T clearance by customs Authorities, Customs area includes workhouse [Section 2(11)]

Question 16.
What do you understand with the term “Container” used under Customs Act, 1962?
Answer:
Word ‘container’ is not defined in the Customs Act. In a normal sense,
1. A container is simply a box. It is no more complex than a truck body, a railway freight van, or a ship’s hold. Containers are made of aluminum, steel, fiberglass, or plywood for lightness with steel frames to give strength. Standard sizes for containers are 40, 20, or 10 feet long, 8 ft, wide, and 8 ft, in height. Some have open tops or sides for loading special cargo.

2. Liquids are carried in boiler-shaped tanks surrounded by a rectangular framework.

3. Other containers are insulated or refrigerated and are constructed according to International standards and inspected by Insurance companies.

Question 17.
What do you mean by the following specific terms used within the meaning of the Customs Act, 1962:

  1. Appellate Tribunal
  2. Bill of entry
  3. Bill of export
  4. Smuggling
  5. Proper officer.

Answer:

  1. “Appellate Tribunal” means the Customs, Excise and Service Tax Appellate Tribunal constituted under section 129 of the Customs Act, 1962;
  2. “Bill of entry” means a bill of entry referred to in section 46 [Section 2(4)] used for clearance of imported goods;
  3. “Bill of export” means a bill of export referred to in section 50 [Section 2(5)] submitted by the exporter for export of goods by land route;
  4. “Smuggling”, in relation to any goods, means any act or omission which will render such goods liable to confiscation under section 111 or section 113 [Section 2(39)];
  5. “Proper Officer”, in relation to any functions to be performed under this Act, means the officer of customs who is assigned those functions by the Board or the Commissioner of Customs [Section 2(34)];

Question 18.
What do you understand by the expressions “India” and “Indian Customs Waters” under the Customs Law? Are there any differences between “Indian territorial waters” and “Indian customs waters”? Explain the significance of Indian customs waters under Customs Law.
Answer:
As per section 2(27) of the Customs Act, 1962, “India” includes the territorial waters of India. Further, “Indian customs waters” means the waters extending into the sea up to the limit of contiguous zone of India under section 5 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone, and other Maritime Zones Act, 1976 (80 of 1976) and includes any bay, gulf, harbor, creek or tidal river [Section 2(25)].

The concept of territorial waters and Indian customs waters are different for the purpose of Customs law. Territorial waters extend up to twelve nautical miles from the baseline on the coast of India.

Indian customs waters extend up to the contiguous zone of India which is twenty-four nautical miles from the nearest point of baseline. Thus, Indian customs waters extend up to twelve nautical miles beyond territorial waters. The significance of Indian customs waters is that the Customs Officer has powers to arrest a person; to stop and search any vessel; to confiscate a vessel concealing goods; to search any person onboard any vessel and; to confiscate goods in these waters. Marine police can go only up to 12 nautical miles whereas customs officers j have extended mileage up to 24 nautical miles.

Question 19.
State the relevant dates for determination of the rale of duty and tariff value for imports.
Answer:
The relevant date for determination of the rate of duty and tariff value (Section 15):

  • In case of goods entered for home consumption under section 46 – the date on which bill of entry is presented or the date of entry inwards whichever is later.
  • In case of goods cleared from a warehouse under section 68 – the date on which a bill of entry for home consumption is presented.
  • In case of any other goods – the date of payment of duty.

Question 20.
Distinguish between Transit and Transshipment of goods under Customs Act, 1962.
Answer:
The basic difference between transit and transshipment is that in ‘transit’ goods continue to be on the same vessel, while in transshipment, goods are transferred to another vessel/vehicle. Section 53 of Customs Act, 1962 dealing with transit provide that any goods imported in any conveyance will be allowed to remain on the conveyance and to be transited without payment of customs duty, to any place out of India or any customs station. However, all these goods must be mentioned in the import manifest or import report submitted by the person in charge of the conveyance

Under section 54 of Customs Act, 1962 Transshipment means transfer from one conveyance to another (the conveyance may be vehicle, ship, or aircraft). Such transshipment may be to any major port or airport in India. The following points detail the distinction between transit and transshipment:

Transit of goods Transshipment of goods
Goods are lying in the ship at an intermediate port. Goods are transferred to the intermediate port.
Only import manifest has to be submitted for entry. Bill of transshipment/declaration is also required for transshipment.
Transit is allowed in every port normally. Transshipment is allowed in specified ports only.
No supervision is required for transit goods. Transshipment takes place under the supervision of a proper officer.
No additional conditions or formalities are required. Specific conditions are imposed if goods are deliverable at an Indian port
Only one conveyance is involved in transit goods and the same carry the goods to the port of clearance. At least two conveyances are involved in transshipment and the transferee ship reaches the destination port

Basic Concepts Of Customs Law Notes

  • Levy of Customs duty: It is imposed on goods imported into or exported out of India as per the rates specified under the Customs Tariff Act, 1975 or any other law.
  • Relevant date for determination of the rate of duty and tariff valuation
  • Provisions regarding duty on “Pilfered goods”
  • Provisions relating to duty on “Derelict”, “Jetsam”, “Flotsam” or “Wreck” goods brought or coming to India.
  • Provisions relating to abatement of duty on damaged or deteriorated goods.
  • Remission of duty on goods lost, destroyed or abandoned
  • Right to relinquish the title to the goods – abandonment of goods
  • Exemption from customs duty

CS Professional Advance Tax Law Notes

Taxation Of Companies – Advanced Tax Laws and Practice Important Questions

Taxation Of Companies – Advanced Tax Laws and Practice Important Questions

Question 1.
Apple Industries Ltd. provides the following information for the financial year 2020-21:

Particulars Amount (₹ in lakhs)
Net Profit as per Statement of Profit and Loss after debiting/ crediting the following 120
Proposed Dividend 30
Profit from unit established in SEZ 20
Provision for Income Tax 18
Provision for deferred tax 10
Provision for permanent diminution in value of investments 3
Depreciation debited to statement of Profit and Loss (includes depreciation on revaluation of assets to the tune of ₹ 1 lakh) 10

Brought forward losses and unabsorbed depreciation as per books of the company are as follows: ₹ in lakhs

Previous Year Brought forward losses Unabsorbed depreciation
2015-16 1 4
2016-17 1 1
2017-18 10 5

Compute Book Profits of the company as per section 115JB for the Assessment Year 2021-22.
Answer:
Computation of Book Profits of Apple Industries Ltd. for Assessment Year 2021-22 (Relevant to the Previous Year 2020-21) ₹ in lakhs

Particulars Amount Amount
Net Profit as per Profit and Loss Account 120
Add:
Proposed Dividend 30
Provision for Income Tax 18
Provision for Deferred Tax 10
Provision for permanent diminution in value of investments 3
Depreciation debited to Statement of Profit and Loss 10 71
Sub-Total 191
Less:
Depreciation (Excluding depreciation on revaluation) 9
Aggregate unabsorbed depreciation (4+1+5) 10 (19)
Book Profits u/s 115JB 172

Notes:

  1. Since unabsorbed depreciation is less than brought forward losses, unabsorbed depreciation is considered.
  2. Profit from the unit established in SEZ is not deductible.

Question 2.
The profit and loss account of XYZ Ltd. for the year ended 31-3-2021 showed a net profit of ₹ 80,00,000 after making the following adjustments:
(a) Depreciation ₹ 24 lakh (including depreciation on revaluation of assets of ₹ 4 lakh).
(b) Provisions for unascertained liabilities ₹ 2 lakh.
(c) Transfer to General Reserve ₹ 9 lakh.
(d) Agricultural Income ₹ 15 lakh.
(e) Amount transferred to profit and loss account from general reserve ₹ 3 lakh. Brought forward business losses and unabsorbed depreciation as per books of account were ₹ 15 lakh and ₹ 11 lakh respectively.

Compute Book Profits and Minimum Alternate Tax (MAT) under section 115JB payable by XYZ Ltd. for A. Y. 2021 -22.
Answer:
Computation of Book Profits and Minimum Alternate Tax of XYZ Ltd. for Assessment Year 2021-22 (Relevant to the Previous Year 2020-21)

Particulars Amount (₹) Amount (₹)
Net profit as per Profit and Loss Account for the year ended 31.03.2021 80,00,000
Add: Depreciation including depreciation on revaluation of assets 24,00,000
Transfer to General Reserve 9,00,000
Provision for unascertained liability 2,00,000 35,00,000
Sub-Total 1,15,00,000
Less: Depreciation excluding revaluation of assets 20,00,000
Agricultural income 15,00,000
Transfer to P&L from General Reserve 3,00,000
Brought forward business loss and depreciation, whichever is less. 11,00,000 (49,00,000)
BOOK PROFITS u/s 115JB 66,00,000

Computation of Minimum Alternate Tax:

Minimum Alternate Tax at 15% of book profits 9,90,000
Add: Health and Education Cess @ 4% 39,600
Tax liability u/s 115JB 10,29,600

Question 3.
Define the term ‘MAT Credit’ under section 115JAA of the Income Tax Act. And also calculate the tax payable by the company in the assessment year 2021-22, if the book profits of a company in the previous year 2020-21 computed in accordance with section 115JB is ₹ 20 Lakhs. The total income computed for the same period as per the provisions of the Income Tax Act is ₹ 7.5 Lakhs. You are also required to indicate whether the company is eligible for any tax credit.
Answer:
MAT Credit under section 115JAA:
Where tax payable on books probes (15% of book probes) exceeds the tax payable as per normal provisions viz. MAT exceeds Normal tax, then, such excess tax paid is allowed as a credit under Section 115JAA to be set off in subsequent years; such credit is called MAT Credit. MAT Credit can be used only if normal tax is higher and even after allowing credit, tax payable cannot be less than MAT.

Computation of tax payable by the company for Assessment Year 2021-22 (Relevant to the Previous Year 2020-21)

Particulars Amount (₹)
Tax on total income (₹ 7,50,000 × 25%) 1,87,500
Add: Health and Education Cess @ 4% 7,500 1,95,000
Minimum Alternate Tax (MAT) on book profits @ 15% (₹ 20,00,000 × 15%) 3,00,000
Add: Health and Education Cess @ 4% 12,000 3,12,000
Therefore, Income tax payable shall be equal to MAT, being higher of above 2 3,12,000
MAT Credit (₹ 3,12,000 – ₹ 1,95,000) 1,17,000

Note: MAT credit can be carried forward for the subsequent 15 years from Assessment Year 2021-22.

Question 4.
Compute the Book Profits of company A Ltd. using the following summarised details of the Profit and Loss account for the year ended 31st March, 2021:

Particulars Debit side (₹ in lakhs) Particulars Credit side (₹ in lakhs)
Purchases 37 Sales 90
Depreciation

(Normal)

6 Withdrawal from Reserve created in 2006 by debiting Profit and Loss Account 10
Depreciation be-cause of revaluation 4 without debiting Profit and Loss 9
Other Expenses 5 Withdrawal from revaluation reserve 4
Net Profit 61
Total 113 Total 113

Answer:
Computation of Book Profits of A Ltd. for the Assessment Year 2021 -22 (Relevant to the Previous Year 2020-21)

Particulars Amount (₹ in lakhs)
Net Profit as per Profit and Loss Account 61
Add: Items as per Explanation 1 to section 115JB of Income Tax Act
Total depreciation debited to Profit and Loss Account (₹ 6 lakhs + ₹ 4 lakhs) 10
Less: Items as per Explanation 1 to section 115JB of Income Tax Act
Withdrawal from reserve (10)
Depreciation debited (6)
Withdrawal from revaluation reserve (4)
Therefore, Book Profits 51

Note:

1. Total depreciation debited i.e. normal as well as on account of revaluation has to be added.
2. Withdrawal from the reserve which was initially created by debiting Profit and Loss Account has to be reduced while computing Book Profits.
3. Normal depreciation (excluding depreciation because of revaluation) has to be deducted.
4. Withdrawal from revaluation reserve (not exceeding depreciation on account of revaluation) has to be deducted.

Question 5.
The net profit as per Statement of Profit and Loss of PQR Ltd., a resident company for the year ended 31st March 2021 is ₹ 280 lakh arrived at after debiting/crediting the following items:
(i) Depreciation on Assets: 1110 lakh (includes ₹ 30 lakh on revaluation)
(ii) Dividend received from Indian companies: ₹ 8 lakh
(iii) Transfer to general reserve: ₹ 5 lakh
(iv) Provision for tax: ₹ SO lakh
(v) Proposed dividend: ₹ 20 lakh
(vi) Amount is withdrawn from revaluation reserve: ₹ 40 lakh.

Following further information is also provided by the company:

(i) Provision for tax includes ₹ 15 lacs of tax payable on the distribution of profit and of ₹ 3 lacs of interest payable on income tax.
(ii) Brought forward loss and unabsorbed depreciation as per books are ₹ 13 lakh and ₹ 9 lakh respectively.

Compute Minimum Alternate Tax (MAT) under section 115JB of Income Tax Act, 1961 for the Assessment Year 2021-22.
Answer:
Computation of Book Profits and Minimum Alternate Tax for Assessment Year 2021-22 (Relevant to the Previous Year 2020-21)

Particulars Amount (₹ in lakhs)
Profit as per Profit and Loss Account 280
Add: Items as per Explanation 1 to section 115JB of Income Tax Act
Depreciation on assets including depreciation on revaluation of assets 110
Transfer to General reserve 5
Provision of tax including the tax on distributed profit under section 115-0 and including interest under the Income Tax Act 50
Proposed Dividend 20 185
Sub-Total 465
Less: Items as per Explanation 1 to section 115JB of Income Tax Act
Dividend from Indian companies is exempt u/s 10(34) 8
Depreciation excluding depreciation on revaluation of assets 80
Amount withdrawn from revaluation reserve restricted to the amount of depreciation on account of revaluation 30
Unabsorbed depreciation or unabsorbed losses as per books of account, whichever is less 9 127
Book Profits as per section 11 5JB 338
Tax @ 15% 50.70
Add: Surcharge @ 7% 3.55
Sub-Total 54.25
Add: Health and Education Cess at 4% 2.17
Total Minimum Alternate Tax (MAT) 56.42

Question 6.
X Ltd. is a resident company engaged in garment manufacturing in Kolkata. The Profit & Loss Account has been prepared in accordance with Schedule III of the Companies Act, 2013. Net profit for the year ended 31st March 2021 is ₹ 99,000 arrived at after the following adjustments:

Particulars Amount (₹)
Depreciation (includes Revaluation of assets ₹ 1,000) 4,000
Provision for Income Tax 3,000
Proposed dividend 5,000
Loss of subsidiary A Ltd. 2,000
Interest on term loan from the nationalized bank (Not yet paid) 1,20,000
Income
Dividend received from C Ltd. 1,000

Compute the Book profit u/s 115JB and the Minimum Alternate Tax (MAT) liability.
Answer:
Computation of Book Profits under section 115JB of Income Tax Act & MAT payable for Assessment Year 2021-22 (Relevant to the Previous Year 2020-21)

Particulars Amount (₹)
Net Profit for the year ended on 31st March 2021 99,000
Add: Items as per Explanation 1 to section 115JB of Income Tax Act
Depreciation including depreciation on revaluation of assets 4,000
Provision for Income Tax 3,000
Proposed Dividend 5,000
Loss of subsidiary A Ltd. 2,000 14,000
Sub-Total 1,13,000
Less: Items as per Explanation 1 to section 115JB of Income Tax Act
Dividend received from C Ltd. 1,000
Depreciation excluding depreciation on revaluation of assets (₹ 4,000 – ₹ 1,000) 3,000 (4,000)
Therefore, Book Profits 1,09,000
Minimum Alternate Tax @15% 16,350
Add: Health and Education Cess 654 17,004
Rounded off to nearest of ₹ 10 u/s 288B 17,000

Note: Delayed or non-remittance of interest to bank attracts disallowance u/s 43B only. No adjustments are required under section 115JB while computing Book Profits.

Question 7.
Shakshitha Pvt. Ltd., furnishes the following summarized position of its profit and loss account and pertinent additional information thereto, for the year ended 31-3-2021: (All amounts are ₹ in lakhs)

(i) Net profit as per books 26
(ii) Share income from an AOP 6 Expenditure debited in books for earning such income 0.8
(iii) Provision for income-tax 2
(iv) CSR expenditure debited to P &. L Account 14
(v) Royalty received relating to business (Chargeable at 10%) 6
(vi) The brought forward business loss and depreciation are as under:

As per books As per IT Act
Business loss for AY 2017-18 4 12
Depreciation 3 11

(vii) The members as well as their shares in the AOP in which Shakshitha Pvt. Ltd. is a member, are specific and determinate.
(viii) In the current year, the depreciation charged as per books is the same as that of the one allowable as per Income-tax Act, 1961, before considering the provisions of section 32(2).

Compute the book profits of the company and the tax on book profits under section 115JB for the AY 2021-22. The company is not an Ind-AS compliant company.

Answer:
Computation of Book Profits u/s 115 JB and MAT payable for Shakshita Pvt. Ltd. for Assessment Year 2021 -22 (Relevant to the Previous Year 2020-21)

Particulars Amount (₹ in lakhs)
Net Profit as per books 26
Add Items as per Explanation 1 to section 115JB
Provision for Income tax 2
Sub-Total 28
Less: Items as per Explanation 1 to section 115JB Royalty received relating to business (to be considered separately as it is taxed at a special rate of 10%). Hence to be deducted. (6)
Lower of brought forward loss or depreciation (3)
Book Profits 19
MAT payable
MAT @ 15% of ₹ 19 lakhs 2.85
On royalty @ 10% (₹ 6 lakhs X 10%) 0.60
Total 3.45
Add: Health and Education Cess at 4% 0.138
Total MAT payable as per section 115JB 3.588

Question 8.
The net profit of Renuka Ltd., an Indian company, as per its Profit and Loss Account prepared as per the Income Tax Act, 1961 is ₹ 90,00,000 after debiting and crediting the following items:

Particulars Amount (₹)
Provision for Income Tax 5,00,000
Provision for deferred tax 3,00,000
Proposed Dividend 7,50,000
Depreciation including depreciation on revaluation of assets ₹ 20,00,000 debited to Profit and Loss Account 60,00,000
Profit from Industrial unit in SEZ area 80,000
Provision for permanent diminution in the value of an investment 70,000

Compute tax liability u/s 115JB for the Assessment Year 2021-22. The turnover in the Previous Year 2018-19 was ₹ 4.5 crores.
Answer:
Computation of book profits of Renuka Ltd. under section 115 JB of Income Tax Act and MAT payable for Assessment Year 2021-22 (Relevant to the Previous Year 2020-21)

Particulars Amount (₹) Amount (₹)
Net Profit as per Profit and Loss Account 90,00,000
Add: Items as per Explanation 1 to section 115JB
Provision for Income Tax 5,00,000
Provision for deferred tax 3,00,000
Proposed Dividend 7,50,000
Depreciation 60,00,000
Provision for permanent diminution in value of an investment 70,000 76,20,000
Sub-Total 1,66,20,000
Less: Items as per Explanation 1 to section 115 JB
Depreciation (Excluding depreciation on revalua¬tion of assets) i.e. ₹ 60,00,000 – ₹ 20,00,000 (40,00,000)
Book Profits as per section 115JB 1,26,20,000
Minimum Alternate Tax (MAT) @ 15% of Book Profits (₹ 1,26,20,000 × 15%) 18,93,000
Add: Surcharge @ 7% 1,32,510
Sub-Total 20,25,510
Add: Health and Education Cess @ 4% 81,020 21,06,530

Note: Provisions of MAT are applicable to profits from units in SEZ. Therefore, no adjustment is required for profit from an industrial units in SEZ area.

Question 9.
The book profits of a company in the previous year 2020-21 computed in accordance with section 115JB is ₹ 15,00,000. If the total income computed for the same period as per the provisions of the Income Tax Act, 1961 is ₹ 3,00,000, calculate the tax payable by the company in the Assessment Year 2021-22 and also indicate whether the company is eligible for any tax credit. The turnover of the company for the financial year 2018-19 is ₹ 200 crore.
Answer:
Computation of tax payable by the company for Assessment Year 2021-22 (Relevant to the Previous Year 2020-21)

Particulars Amount (₹) Amount (₹)
Total Income as per provisions of Income Tax Act 3,00,000
Tax on total income @ 25% 75,000
Add: Health and Education Cess @ 4% (₹ 75,000 × 4%) 3,000 78,000
Book Profits as per section 115JB 15,00,000
Minimum Alternate Tax @ 15% (₹ 15,00,000 × 15%) 2,25,000
Add: Health and Education Cess @ 4% 9,000 2,34,000
Tax payable, Higher of tax under step 2 & step 4 2,34,000
MAT Credit to be carried forward (₹ 2,34,000 – ₹ 78,000) 1,56,000

Notes:

  1. There shall be MAT Credit as tax payable under section 115JB is higher than the normal tax payable.
  2. Since total turnover during P.Y. 2018-19 does not exceed ₹ 400 crores in the case of a domestic company, income tax is computed at 25%.

Question 10.
“Transfer pricing adjustments must be made while computing book profit for levy of Minimum Alternate Tax (MAT)”. In the context of provisions contained in the Income-tax Act, 1961, examine the correctness of the above statement.

Answer:
For the purpose of computing book profit for levy of minimum alternate tax, the net profit shown in the Statement of Profit and Loss account prepared in accordance with the Companies Act, 2013 must be increased/ decreased only by the additions and deductions specified in Explanation 1 to section 115JB of the Income Tax Act, 1961.

Explanation 1 to section 115JB of the Income Tax Act, 1961 does not provide for adjustments for Transfer Pricing, and therefore, transfer pricing adjustments cannot be made while computing book profit for levy of Minimum Alternate Tax. Hence, the statement that Transfer pricing adjustment must be made while computing book profit for levy of Minimum Alternate Tax (MAT) is incorrect

Question 11.
Comment on the following in the context of provisions contained in the Income-tax Act, 1961:

  1. The provisions of section 115JB are applicable in the case of foreign companies.
  2. The provisions of dividend distribution tax are applicable to an undertaking or enterprise engaged in developing, operating, and maintaining a special economic zone (SEZ).

Answer:
(1) Section 115JB of the Income Tax Act, 1961, states that all companies having book profits under the Companies Act shall have to pay MAT at the rate of 1596; there is no provision restricting its applicability to only domestic companies. Thus, MAT is applicable to all companies irrespective of it being a domestic company or a foreign company.

However, MAT is required to be computed with reference to book profits computed on the basis of profit and loss account prepared as per the Com¬panies Act, and the Companies Act requires only foreign companies, having a place of business within India, to prepare and file its financial statements with the Registrar of Companies. Hence, the MAT provisions shall not apply to foreign companies, which do not have any presence in India.

Further, the Authority for Advance Ruling has delivered the ruling in the case of the Timken Company holding that the provisions of section 115JB of the Income-tax Act, 1961 levying MAT on the book profit of a company would not apply to a foreign company not having any physical presence in India. Hence, provisions of Section 115JB are applicable only to those foreign companies which have a physical presence in India.

(2) Finance Act, 2011 inserted a proviso to sub-section (6) of Section 115-0 of Income Tax Act, 1961 by which the provisions of Section 115-0 relating to dividend distribution tax (DDT) shall also be applicable on an enterprise or undertaking engaged in developing, operating and maintaining an SEZ. Thus, the exemption from DDT in the case of SEZ Developers under the Income-tax Act for dividends declared, distributed, or paid is not available after 1st June 2011.

Question 12.
Winco Ltd. was able to arrive at the book profits in accordance with section 115JB on the finalization of its accounts. The company filed the tax return before the due date and paid the income tax amount due. The income tax department levied interest under sections 234B and 234C. Is that action correct?
Or;
Whether Minimum Alternate Tax (MAT) under section 115 JB is payable in advance and interest under sections 234B and 234C is payable on failure to pay such advance tax? Also explain whether MAT Credit admissible under section 115JAA has to be set off against the assessed tax payable before calculating the interest under sections 234A, 234B, and 234C. You may take the help of decided case law if any.
Answer:
Section 115JB is a complete code in itself. There is a specific provision in section 115JB(5) providing that all other provisions of the Income Tax Act, 1961 shall apply to every assessee, being a company, mentioned in that section. Thus, by virtue of section 115JB(5), the liability for payment of advance tax would be attracted. Therefore, if a company defaults in payment of advance tax in respect of tax payable under section 115JB, it would be liable to pay interest under sections 234B and 234C. Therefore, interest under sections 234B and 234C shall be payable on failure to pay advance tax in respect of tax payable u/s 115JB. The same view has been expressed by the Supreme Court in Joint CITv. Rolta India Ltd [2011] 330 ITR 470 (SC).

Question 13.
Discuss the provisions in respect of tax credit granted under section 115 JAA.
Answer:
Tax Credit in respect of tax paid on deemed income relating to certain companies (Section 115JAA):
1. Tax credit becomes available in the assessment year in which the assessee pays minimum alternate tax in accordance with provisions of section 115JB.

2. Tax credit to be allowed shall be a difference of tax paid for any assessment year under section 115JB and the amount of tax payable by the assessee on his total income computed in accordance with the other provisions of this Act.

3. No interest shall be payable on the tax credit allowed under this section.

4. Where the amount of tax credit in respect of any income tax paid in any country or specified territory outside India, under section 90 or section 90A or section 91, allowed against the tax payable under the provisions of section 115JB exceeds the amount of such tax credit admissible against the tax payable by the assessee on its income in accordance with the other provisions of this Act, then, while computing the amount of credit under this sub-section, such excess amount shall be ignored.

5. The amount of tax credit shall be carried forward up to 15 years im-mediately succeeding the assessment year in which tax credit becomes available.

6. The tax credit shall be allowed set off in a year when tax becomes payable on total income computed in accordance with provisions of this Act exceeds Minimum Alternate Tax under section 115JB.

7. Set-off in respect of brought forward tax credit shall be allowed for any assessment year to the extent of difference between the tax on his total income and the tax which would have been payable under the provisions of section 115JB, as the case may be for that assessment year.

8. Where as a result of an order under section 143(1) or 143(3), section 144, section 147, section 154, section 155, section 245D(4), section 250, section 254, section 260, section 262, section 263 or section 264, the amount of tax payable under this Act is reduced or increased, as the case may be, the amount of tax credit allowed under this section shall also be increased or reduced accordingly.

9. In case of conversion of a private company or unlisted public company into a Limited Liability Partnership under the Limited Liability Partnership Act, 2008, the provisions of this section shall not apply to the successor Limited Liability Partnership.

Question 14.
Minimum Alternate Tax (MAT) is attracted under section 115JB, on account of tax on total income is less than 15% of net profit as per the profit and loss account for the relevant previous year. Comment.
Answer:
The statement is incorrect as, the minimum alternate tax (MAT) is attracted under section 115JB, on account of tax on total income is less than 15% of book profit. Chapter XII-B is a self-contained code for the computation of book profit. The net profit as per the profit and loss account for the relevant previous year prepared in accordance with the provisions of Companies Act, 2013, as increased/reduced by the specified adjustments provided for in Explanation 1 to section 115JB would be the book profit for levy of MAT under section 115JB.

The rate of MAT has been reduced from 18.5% to 15% vide amendment in sub-section (1) of section 115JB by the Taxation Laws (Amendment) Act applicable for FY 2019-20 onwards.

Question 15.
ABC Ltd. has invested in bonds of the National Highway Authority of India within the prescribed time and claimed exemption on the income from long-term capital gains under section 54EC. Further, it also claimed exclusion of long-term capital gains in the computation of “book profit” under section 115JB because of exemption available on it by virtue of section 54EC. The Assessing Officer, however, reckoned the book profit including long-term capital gains for the purpose of levy of minimum alternate tax payable under section 115JB. Is the action of the Assessing Officer justified? Comment.
Answer:
The issue under consideration, in this case, is whether long-term cap¬ital gain exempted by virtue of section 54EC can be included in the book profit computed under section 115JB for levy of minimum alternate tax. As long-term capital gains are part of the profits included in the profit and loss account prepared in accordance with the provisions of the Companies Act, capital gains cannot be excluded unless provided under Explanation 1 to section 115JB. Since Explanation 1 to section 115JB does not provide for deduction in respect of capital gain in course of investment in bonds of National Highways Authority of India within the prescribed time, the long-term capital gains so exempt would still be taken into account for computing book profit under section 115JB for levy of MAT. The same was so held by the Kerala High Court in N. J. Jose and Co. (P.) Ltd. v. ACIT [2010] 321 ITR 0132. Therefore, the action of the Assessing Officer is justified in law.

Question 16.
Discuss provisions under section 115BBD vs. 115BBDA with reference to the taxation of foreign dividends.
Answer:
Section 115BBD of Income Tax Act, 1961: Where the total income of an assessee, being an Indian company, includes any income by way of dividend declared, distributed, or paid by a specified foreign company, the income-tax payable shall be the aggregate of:

  • The amount of income-tax calculated on the income by way of such dividends, at the rate of fifteen percent; and
  • The amount of income tax with which the assessee would have been chargeable had its total income reduced by the aforesaid income by way of dividends.

Notes:

  1. The aforesaid amount would be increased by the applicable surcharge and cess.
  2. Deduction in respect of any expenditure or allowance shall not be allowed to the assessee under any provision of this Act in computing its income by way of aforesaid dividends.
  3. The above provisions are not applicable to deemed dividend u/s 2(22){e).
  4. A specified foreign company means a foreign company in which the Indian company holds 26% or more in nominal value of the equity share capital of the company.

Section 115BBD A of Income Tax Act, 1961:
Notwithstanding anything contained in this Act, where the total income of an assessee, being a Resident individual, Hindu Undivided Family or a Firm, or any person (not being a domestic company, or a fund/institution/trust/university/educational institution/hospital/other medical institution referred to in section 10(23Q, or a trust/institution registered u/s 12A/12AA), includes any income in aggregate exceeding 10 lakh rupees, by way of dividend declared, distrib¬uted or paid by a domestic company or companies, the income tax payable shall be the aggregate of:

  • The amount of income-tax calculated on the income by way of such dividends in aggregate exceeding 10 lakhs rupees, at the rate of 10% and
  • The amount of income tax with which the assessee would have been chargeable had the total income of the assessee been reduced by the amount by way of dividends.

Notes:

  1. No deduction in respect of any expenditure or allowance or set-off of loss shall be allowed to the assessee under any provision of this Act in computing the income by way of dividends referred to in clause (a) of sub-section (1).
  2. The aforesaid amount would be increased by the applicable surcharge and cess.
  3. The above provisions are not applicable to deemed dividend u/s 2(22)(e).

Author’s Note:
Applicability of the provisions of section 115BBDA has been restricted w.e.f. A.Y. 2021-22 to dividend declared, distributed, or paid by domestic companies on or before 31st March 2020. (As w.e.f. A.Y. 2021-22, every amount of dividend received will be taxable in hands of shareholders.)

Question 17.
X Ltd. an Indian Company received a dividend of ₹ 15 lakhs from a foreign company in which it holds 28% of the nominal value of the equity share capital of the company. X Ltd. and incurred an expenditure of ₹ 0.25 lakhs on earning this income. Examine the taxability of the dividend under the provisions of the Income-tax Act, 1961.
Answer:
Under section 115BBD, dividend received by an Indian company from a foreign company in which it holds 26% or more in nominal value of the equity share capital of the company, would be subject to a concessional tax rate of 15% plus surcharge and cess, as against the tax rate of 30% applicable to other income of a domestic company. This rate of 15% plus surcharge and health and education cess would be applied on gross dividend, in the sense, that no expenditure would be allowable in respect of such dividend.

Therefore, a dividend of ₹ 15 lakhs received by X Ltd. from a foreign company, in which it holds 28% in nominal value of equity share capital of the company, would be subject to tax @15% under section 115BBD. Such dividends would be taxable under the head “Income from other sources”. No deduction is allowable in respect of ₹ 0.25 lakhs spent on earning this income.

Question 18.
The business income of Raman Ltd., an Indian company computed as per the provisions of the Income Tax Act is ₹ 53,00,000. It has also received the following dividend income during the Previous Year 2020-21:

Particulars Amount of dividend received (₹) Remuneration paid for realizing Dividend (₹)
From Geneva Inc., a Swiss company in which it holds 23% of the nominal value of equity share capital 72,000 7,000
From Shares held in Michigan Inc., a US company in which it holds 51% of the nominal value of equity share capital 2,10,000

 

8,000
From shares held in Ontario Inc., a Canadian company in which it holds 23% of the nominal value of equity share capital 1,92,000
From shares held in Indian subsidiaries 58,000 6,000

Compute the total income and tax liability of Raman Ltd. ignoring MAT. (Assume income tax rate as 30%)

Further, assuming that Raman Ltd. has distributed a dividend of ₹ 3,80,000 in March 2021 compute additional income tax payable by it under section 115-0.
Answer:
Computation of Total Income and tax liability of Raman Ltd. for the Assessment Year 2021-22 (Relevant to the Previous Year 2020-21)

Particulars Amount (₹) Amount (₹)
Profits and Gains from business or profession 53,00,000
Income from Other Sources
Dividend from Geneva Inc. (? 72,000 – ? 7,000) 65,000
Dividend from shares held in Michigan Inc., a US company in which it holds 51% of the nominal value of equity share capital (No deduction is allowable in respect of any expenditure incurred to earn such dividend as it will be taxed as per section 115BBD at the special rate of 15%) 2,10,000
Dividend received from Ontario Inc., a Canadian company 1,92,000
Dividends received from shares held in Indian subsidiaries (₹ 58,000 – ₹ 6,000) 52,000 5,19,000
Total Income of the Company 58,19,000
Tax Liability
Tax at 15% under section 115BBD on ₹ 2,10,000 31,500
Tax on balance income at 30% (₹ 58,19,000 – 2,10,000) × 30% 16,82,700
Sub-Total 17,14,200
Add: Health and Education Cess @ 4% 68,568
Total tax 17,82,768
Rounded off to nearest of ₹ 10 under section 288B 17,82,770

Notes:
1. With effect from 1st April 2020, Dividend Distribution Tax (DDT) under section 115-0 is not applicable. All dividends even from domestic companies are taxable in hands of recipient shareholders. Hence, in the given case, Raman Ltd. will be liable to pay income tax on dividends received from domestic companies. Therefore, such dividends form part of the Total income (after allowing a deduction for expenses incurred to earn them) of Raman Ltd. and are taxed at normal rates. Further, with respect to the dividend declared by Raman Ltd., it is not liable to pay DDT.

2. Any Dividend received from a foreign company is taxable.

3. As per section 115BBD of Income Tax, if a Domestic company receives a dividend from a Specified foreign company i.e. Foreign company in which such domestic company holds 26% or more of shares in shares carrying voting rights, then such dividend income is taxable at concessional rate of tax of 15% + Surcharge if applicable + Health and Education Cess. It should be noted that no deduction is allowed for any expenses incurred to earn such dividend income.

Question 19.
Parimal, Managing Director of Heavens Engg. Pvt. Ltd. holds 70% of its paid-up capital of ₹ 20 lakh. The balance as of 31st March 2021 in General Reserve was ₹ 6 lakh. Hie company on 1st July 2020 gave an interest-free loan of ₹ 5 lakh to its Supervisor having a salary of ₹ 4,000 p.m., who in turn on 15th August 2020 advanced the said amount of loan so taken from the company to Parimal. The Assessing Officer had taxed the amount of advance in the hands of Parimal. Is the action of the Assessing Officer correct in the light of the Provisions of Income Tax Act, 1961?
Answer:
The company had advanced a loan to an employee who in turn had advanced the same to the managing director of the company holding 70% of its capital. By virtue of provisions of section 2(22)(e) of the Income Tax Act, the same shall be treated as “deemed dividend” as the payment made by a company, in which the public is not substantially interested, on behalf of, or for the individual benefit of any such shareholder (who holds not less than 10% of the voting power), to the extent to which company possesses accumulated profits.

In this case, the company has a reserve of ₹ 6,00,000 on March 31st of the preceding year and the amount of loan advanced on 1st July is ₹ 5,00,000.
Therefore, the payment is to be treated as deemed dividend. The amount of interest-free loan of X 5,00,000 given by the company to the supervisor who in turn had given the same to Mr. Parimal, shall be construed as the amount given for the benefit of Mr. Parimal and is treated as deemed dividends chargeable to tax in hands of Mr. Parimal.

{Note: W.e.f. 1st April, 2020, Dividend Distribution Tax u/s 115-0 on deemed dividend of 2(22)(e) which was 30% + SC @ 12% + Health and Education Cess @ 4% is not applicable. All dividends including a deemed dividend of section 2(22) (e) will be chargeable to tax in hands of the recipient shareholder only.}

Question 20.
Explain which income received by a foreign company, be taxable in India. Also mention the basic tax rate applicable to a foreign company that is based in the US.
Answer:
A non-resident company is chargeable to tax in India in respect of the following incomes:

  1. Income received or deemed to be received in India.
  2. Income accruing or arising or deemed to accrue or arise in India. The basic tax rate applicable in respect of the above incomes for the US-based company which is a foreign company is 40% in India.

Further, a surcharge @ 2% is applicable in case the taxable income exceeds ₹ 1 crore and is up to ₹ 10 crore, and @5% if the income exceeds ₹ 10 crores in the previous year. The Health & Education cess @ 4% is also payable.

Author’s Note:
In all above cases, wherever required, income tax is computed as per normal provisions of the Income Tax Act assuming that the company did not opt for an alternate scheme of taxation under section 115BAB or section 115BBA of the Income Tax Act.

Taxation Of Companies Notes

♦ Rates of Income-tax for Assessment Year 2021-22 (Relevant to the Previous Year 2020-21):

For domestic companies:
a. Where Total turnover or gross receipts during the Previous Year 2018-19 does not exceed ₹ 400 crores: 25%.
b. Any other domestic company: 30%

For foreign company:
a. Specified royalties and Fees for technical services received from the Government or an Indian concern in pursuance of an approved ₹ agreement made by the company with the Government or Indian concern between 1.4.1961 and 31.03.1976 (in case of royalties) f and between 1.3.1964 and 31.3.1976 (in case of FTS): 50%
b. Other income: 40%

Rates of Surcharge:

Particulars Total income does not exceed ₹ 1 crore Total income is in the range of ₹ 1 crore to ₹ 10 crores Total income exceeds ₹ 10 crores
Domestic company Nil 7% 1296
Foreign Company Nil 2% 596
  • Minimum Alternate Tax under section 115 JB of Income Tax Act
  • It is on Book Profits at 15% + Surcharge, if applicable based on book profits + Health and Education Cess @ 4%.
  • Consequently, the Tax payable by a company shall be taxable as per normal provisions of the Income Tax Act on Total Income OR; MAT on Book Profits, whichever is higher.

Note: If a unit is located in an international Financial Services Centre and derives its income solely in convertible foreign exchange, the Minimum Alternate Tax is 9% of Book Profit.

  • Dividend Distribution Tax (DDT) under section 115-0 of Income Tax Act is NOT APPLICABLE w.e.f. 1.4.2020: With effect from A.Y. 2021 -22, dividends will be taxable in hands of shareholders. Therefore, section 115-0 has been amended to provide that dividends declared, distributed, or paid on or after 1st April 2020 shall not be covered under the provisions of DDT u/s 115-0.
  • Income of an Indian company by way of dividends declared, distributed, or paid by a specified foreign company (in which the Indian company holds 26% or more of equity share capital): Taxable at 15% under section 115BBD of Income Tax Act.

Note:
Students are also expected to know the Alternative optional scheme of taxation for companies under sections 115BAB & 115BBA.

CS Professional Advance Tax Law Notes