CS Professional Advanced Tax Laws and Practice Question Paper New Syllabus
Part 1
Question 1.
(a) Determine the amount of Input Tax Credit (ITC) admissible under the provisions of CGST Act, 2017 to PQR Ltd. in respect of the following transactions which have taken place in the month of January, 2020.
Take note that (i) all the conditions necessary for availing the ITC have been complied with and fulfilled; and (ii) the registered person PQR Ltd. is not eligible for any threshold exemption.
Support your answer by giving brief reasons. (5 Marks)
| Particulars | Amount of GST (₹) |
| (i) Goods used in constructing an additional floor of office building at Jaipur. | 24,750 |
| (ii) Packing materials used in the factory | 6,500 |
| (iii) Goods destroyed in flood waters due to natural calamities | 4,750 |
| (iv) Paper purchased for computer printing and for photocopying machine used in Administrative Office | 1,250 |
| (v) Inputs used for tests or for quality control check | 15,600 |
Answer:
Computation of Input Tax Credit (ITC) admissible to PQR Ltd. for the month of January, 2020:
| Particulars | Amount (₹) |
| a. Goods used in constructing an additional floor of office building at Jaipur (Note 1) | – |
| b. Packing material used in factory (Note 2) | 6,500 |
| c. Goods destroyed in flood waters due to natural calamities (Note 3) | – |
| d Paper purchased for computers printing and for photocopying machine used in Administrative office (Note 2) | 1,250 |
| e. Inputs used for tests or for quality control check (Note 2) | 15,600 |
| Total Input Tax Credit admissible | 23,350 |
Notes:
1. As per section 17(5) of CGST Act, 2017, Input Tax Credit (ITC) is blocked on any goods used in construction of an immovable property.
2. Input Tax Credit is allowed with respect to GST on goods or services which are used or intended to be used in the course or furtherance of business.
3. As per section 17(5) of CGST Act, 2017, Input Tax Credit is blocked on any goods which are damaged, destroyed or lost.
(b) Romeo Small Finance Bank Ltd. is engaged in providing financial related services and of various types of loan facilities to its constituents, furnishes the following information relating to various services provided and the gross amount received during the month of December, 2019.
| Particulars of service | Amount (₹ in lacs) |
| (1) Commission received for debt collection service | 10 |
| (2) Discount earned on bills discounted | 3 |
| (3) Penal interest recovered from the customers for the delay in payment of loan EMIs/Dues | 2 |
| (4) Commissioner received for service rendered to Government for the collection of taxes | 5 |
| (5) Interest earned on reverse repo transaction | 10 |
| (6) Service to merchants accepting credit/debit card payments using point of sale (PoS) machine of Bank. (In 30% cases, the amount per transaction was up to ₹ 1,800 while in the other cases, the amount was exceeding ₹ 2,000) | 20 |
Compute the value of taxable supply and of the amount of GST payable for the month of December, 2019 of Romeo Small Finance Bank Ltd. Gross amount does not include the amount of GST. Take the Rate of GST as 18%. (5 Marks)
Answer:
Computation of value of taxable supply and GST payable thereon for the month of December, 2019 for Romeo Small Finance Bank Ltd.
| Particulars | Amount (₹) |
| a Commission received for debt collection service (Note 1) | 10,00,000 |
| b. Discount earned on bills discounted (Note 2) | – |
| c. Penal interest recovered from the customers for the delay in payment of loan EMIs/ dues (Note 2) | – |
| d Commission received for service rendered to Government for the collection of taxes (Note 3) | 5,00,000 |
| e. Interest earned on reverse repo transaction (Note 2) | – |
| f. Service to merchants accepting credit/debit card payments using Point of Sale (PoS) machine of Bank. (Taxable only where the amount of transaction exceeds ₹ 2,000. Hence, Taxable = ₹ 20,00,000 × 70%) (Note 4) | 14,00,000 |
| Total Value of taxable services | 29,00,000 |
| GST payable @ 18% | 5,22,000 |
Notes:
1. Charges collected in course of transfer or assignment of a debt is chargeable to GST being in the nature of consideration for supply of services.
2. As per Entry No. 27 of Notification No.12/2017-CT, inter alia, services by way of extending deposits loans or advances insofar as the consideration is represented by way of interest or discount (other than interest involved in credit card services) is exempt from GST.
Accordingly, discount on bills discounted shall be exempt.
Further, penal interest recovered from customers for delay in payment of loan EMI/dues shall also be exempt as it satisfies definition of “interest” as contained in Entry No. 27, the said interest cannot be treated as consideration for liquidated damages.
Moreover, interest on instruments like repos and reverse repos shall also fall within ambit of Entry No. 27 as repo and reverse repo transactions have characteristics of loans and deposits.
3. There is no specific exemption for services of collection of taxes rendered to Government and hence, it shall be chargeable to tax.
4. As per Entry No. 34 in Notification No. 12/2017-CT, services by an acquiring bank, to any person in relation to settlement of an amount upto ₹ 2,000 in a single transaction transacted through credit card, debit card, charge card or other payment card service is exempted.
(c) Examine the correctness or otherwise of the following statements in accordance with the provisions of GST Act, 2017 and support your answer by giving brief reasons : (1 × 5 = 5 Marks)
(i) The composition scheme will not be an optional scheme.
Answer:
Incorrect
Composition scheme as stated in section 10 of CGST Act is an OPTIONAL scheme.
(ii) A taxable person having same PAN can opt to pay tax under composition scheme by seeking separate registration for branches.
Answer:
Incorrect
A registered person cannot opt for Composition scheme if its other unit Le. branch is paying tax as per normal levy under GST. Hence, a taxable person having same PAN cannot opt to pay tax under com-position scheme by seeking separate registration for branches.
(iii) A taxable person will be eligible to opt for composition scheme only for one out of the three or more business verticals.
Answer:
Incorrect
A registered person cannot opt for Composition scheme if its other unit Le. branch is paying tax as per normal levy under GST.
(iv) Composition scheme can be availed, where the taxable person effects inter-state supplies.
Answer:
Incorrect
A registered person should not be engaged inter alia in inter-State taxable supplies in order to be eligible to opt for composition scheme.
(v) Composition tax can be collected from the customers.
Answer:
Incorrect
Composition tax cannot be charged separately and hence, it cannot y be collected from the customers. Composition Tax is to be paid at specified percentage of the turnover in the state.
(d) Ram Bharose, intends to start business of supply and selling of the special goods in Delhi as proprietor. However, he is not able to determine because of the complexity of the provision of the GST Act, 2017 as to :
(i) the classification of the goods proposed to be supplied by him [as the classification of said goods has been contentious]; and
(ii) the place of supply as the supplies of the said goods is to be made from Delhi to buyer located in New York.
He therefore approached his tax advisor, who advised him to get first registered under the CGST Act and thereafter apply for the advance ruling in respect of these issues as the advance ruling would bring certainly and transparency and would also avoid litigation later.
In this backdrop and the information given, you are required to advise
Ram Bharose with respect to the following:
(i) Whether he needs to get himself registered first under GST law before applying for the advance ruling? (2 Marks)
Answer:
As per section 95(c) of CGST Act, 2017, “Applicant” for the purpose of Advance Ruling means a person who is registered under GST or desirous of obtaining registration under GST.
Hence, Mr. Ram Bharose need not get himself registered under GST for the purpose of applying for Advance Ruling under GST.
(ii) Can advance ruling be obtained to determine (a) the classification of the goods proposed to be supplied; (b) the place of supply, where the supplies of said goods is from Delhi to buyers in New York ? (3 Marks)
Answer:
As per section 97(2) of CGST Act, 2017, there are specific questions regarding which an application can be made for advance rulings. Those questions inter alia include classification of goods or services or both. However, “place of supply” is not covered under the same. Hence, Mr.Ram Bharose can obtain Advance Ruling regarding “classification of goods” proposed to be supplied but cannot obtain advance ruling regarding “place of supply” where supplies of said goods is from Delhi to the buyers in New York.
Attempt all parts of either Q. No. 2 or Q. No. 2A
Question 2.
(a) PQR Travels Ltd. engaged in providing diversified services of transportation of passengers by various modes provides the details of the various services so provided to the passengers and of the amount collected there against for the month of March, 2020.
Service of Transportation of Passengers:
| (1) by National Waterways | ₹ 40,00,000 |
| (2) by air conditioned State carriages | ₹ 30,00,000 |
| (3) by contract carriages for tourism purposes | ₹ 25,00,000 |
| (4) from Mumbai to Chennai port in a vessel and such service is not for tourism purpose | ₹ 12,00,000 |
| (5) in Metered Cab | ₹ 32,50,000 |
| (6) in Radio Taxis | ₹ 25,00,000 |
| (7) in Air conditioned contract carriages | ₹ 25,00,000 |
Compute the value of the taxable supply of the services and of the amount of GST liability payable thereon by PQR Travels Ltd. for March, 2020 by taking the applicable rate of GST at 5%. (5 Marks)
Answer:
Computation of Value of Taxable supply of services and GST liability thereon for PQR Travels Ltd. for March, 2020:
| Particulars | Amount (₹) |
| a. Service of transportation of passengers by National Water – ways (Note 1) | – |
| b. Service of transportation of passengers by Air Conditioned State carriages (Note 2) | 30,00,000 |
| c. Service of transportation of passengers by contract carriages for tourism purposes (Note 3) | 25,00,000 |
| d. Service of transportation of passengers from Mumbai to Chennai in a Vessel where such service is not for tourism purpose (Exempt) (Note 1) | – |
| e. Service of transportation of passengers in a metered cab (Exempt) (Note 4) | – |
| f. Service of transportation of passengers in radio taxis (Note 5) | 25,00,000 |
| g. Service of transportation of passengers in Air Conditioned Contract Carriages | 25,00,000 |
| Total Value of Taxable Services (including GST @ 5%) | 1,05,00,000 |
| Assessable Value of taxable services (i.e. excluding GST, ₹ 1,05,00,000 × 100/105) | 1,00,00,000 |
| Therefore, GST @ 5% on ₹ 1,00,00,000 | 5,00,000 |
Notes:
1. A service of transportation of passengers by Inland waterways is exempt from GST as per Entry No. 17 of notification No.l2/2017-CT.
2. Entry No. 15 of notification No. 12/2017 provides exemption for trans-port of passengers by stage carriage other than air conditioned stage carriage.
3. Entry No.15 of notification No.12/2017 provides exemption for transport of passengers by non-air conditioned contract carriage excluding for the purpose of tourism.
4. A service of transportation of passengers by metered cabs or auto rickshaws (including e-rickshaws) is exempt from GST as per Entry No.17 of notification No. 12/2017-CT.
5. Entry No. 15 of notification No. 12/2017 provides exemption for transport of passengers by non-Air Conditioned contract carriage other than radio taxi, for transport of passengers, excluding tourism, conducted tour, charter or hire.
6. Here, it is assumed that GST is not collected separately i. e. the amounts collected are inclusive of GST. Hence, ₹ 1,05,00,000 = 105 (100 + 5).
Therefore, Assessable Value = Total Value including GST × 100/105
(b) Anand Kumar, a regular taxpayer, filed his return of outward supplies (GSTR-1) for the month of August, 2019 before the due date. Later on, in February, 2020 he discovered certain error in the GSTR-1 return of the month of August, 2019 so filed before the due date and thus intends to correct the GSTR-1 and consults you to seek an opinion.
You are required to advise as to the suitable course of action to be taken according to statutory provisions contained under the CGST Act, 2017 so as to enable him to rectify the error so noticed in the already filed GSTR-1 return of the month of August, 2019. (5 Marks)
Answer:
If the supplier discovers any error or omission in GSTR-1, he shall rectify the same in the tax period during which such error or omission is noticed, and pay the tax and interest, if any, in case there is short payment, in the return to be furnished for such tax period.
The maximum time limit within which such amendments are permissible is earlier of following dates:
- Date of filing of monthly return under section 39 for the month of September following the end of financial year to which such details pertain;
Or
Date of filing of relevant annual return.
In given case, Anand Kumar has to rectify certain error in GSTR-1 for the month of August, 2019 which is discovered in month of February, 2020. As the same is discovered within the time limit prescribed above, Mr. Anand Kumar is advised to rectify the error relating to the month of August, 2019 while filling GSTR-1 for the month of February, 2020.
(c) Radhey Gobind & Co. engaged in the wholesale business particularly dealing in the product of which supply was exempt from tax under GST. Subsequently, tax was imposed on the sale of the product by a notification issued from 1-10-2019. Radhey Gobind & Co. continued to sell the product without making any change in the selling price of the product. Later, in the month of March, 2020 they realised that because of no change in the selling price, they has paid higher quantum of tax and therefore decided to file an application for refund claim by stating that there was no change in the price before and after imposition of tax and hence the burden of tax had not been passed on to the buyer.
Discuss and explain in the context of provision of the CGST Act, 2017 supported with a decided case law, if any, whether the stand taken for refund claim by Radhey Gobind & Co. shall be acceptable. (5 Marks)
Answer:
As per section 54 of CGST Act, 2017, in order to claim refund, the registered person should give the application for refund which should be accompanied by documentary evidence or other evidence as the applicant may furnish to establish that the amount of tax and interest, if any, paid on such tax or any other amount paid in relation to which such refund is claimed was collected from, or paid by, him and the incidence of such tax and interest had not been passed on to any other person.
In given case, Radhey Gobind & Co. did not separately collect GST from the recipient of supply as is evident as selling price of the product when it was exempt from GST as well as selling price of the product after it becoming liable to GST is same.
In such cases, it is deemed that amount collected from customer/recipient of supply is inclusive of GST and accordingly registered person is liable to pay GST to the Government. Registered person not charging GST separately does not waive off its liability.
Hence, contention of Radhey Gobind & Co. to claim refund of GST by stating that there was no change in the price before and after imposition of tax & hence, burden of tax had not been passed on to the buyer will not be held as liability of Radhey Gobind & Co. continues under GST law. Therefore, it will not be granted refund.
(d) A show cause notice (SCN) indicating various discrepancies was issued by the proper officer to a registered person. However, the registered person despite opportunity given, failed to given satisfactory explanation and reply relating to the shortcomings indicated in the SCN.
In this backdrop, state as per provision of the CGST Act, 2017 what actions now against the registered person may be taken by the proper officer? (5 Marks)
Answer:
Proper Officer may have issued Show Cause Notice (SCN) to a registered person under section 73 or section 74 of CGST Act, as the case may be, depending on whether fraud is involved or not. Both the sections present opportunity to registered person to give explanation relating to shortcomings in the SCN.
However, if the registered person is unable to give satisfactory explanation, then as per sub-section (9) of section 73 or section 74, as the case may be, the proper officer shall determine the amount of tax, interest and penalty, as applicable due from such person and issue an order to demand the same.
It should be borne in mind that such order is to be issued within the time limits as mentioned in sub-section (10) of sections 73 and 74 of CGST Act. The time limit is 3 years from the due date of furnishing of Annual Return for the financial year to which tax not paid, etc. relates in case where fraud is not involved. Further, where short payment, non-payment, etc. is on account of involvement of fraud, the time limit is 5 years instead of 3 years.
OR (Alternate question to Q. No. 2)
Question 2A.
(i) Destiny Advertising Agency, Ahmedabad supplying services to different customers for making booking of advertisements in different media, provides the following details and of the amounts charged there against for the month of January, 2020 :
| Particulars | Amount (₹ lakh) |
| (1) Aerial advertising | 15 |
| (2) Sale of time slot for advertisement to be broadcast on television | 12 |
| (3) Advertisement via banner at public places | 7 |
| (4) Sale of time slot for advertisement on FM Radio/98 Radio Mirchi | 13 |
| (5) Advertisement in Dainik Bhaskar newspaper | 9 |
| (6) Advertisement on cover and back pages of books | 1 |
Compute the taxable value of the services and of the amount of GST payable. Take the rate of GST in print media of 5% and in other cases of 18%. All amounts given are exclusive of GST. Ignore the threshold limit. (5 Marks)
Answer:
Computation of value of taxable supply of services and amount of GST payable by Destiny Advertising Agency, Ahmedabad for the month of January, 2020:
| Particulars | Amount (₹) |
| Value of taxable supply of services in other than print media: | – |
| a. Aerial advertising | 15,00,000 |
| b. Sale of time slot for advertisement to be broadcast on television | 12,00,000 |
| c. Advertisement via banner at public places | 7,00,000 |
| d. Sale of time slot for advertisement on F.M. radio/98 Radio Mirchi | 13,00,000 |
| Total Value of taxable supply of services IN OTHER THAN PRINT MEDIA (A) | 47,00,000 |
| GST payable on above @ 18% (C) | 8,46,000 |
| Value of taxable supply of services in Print Media: | |
| a. Advertisement in Dainik Bhaskar Newspaper | 9,00,000 |
| b. Advertisement on cover and back pages of books | 1,00,000 |
| Total Value of taxable supply of services in PRINT MEDIA (B) | 10,00,000 |
| GST payable on above @ 5% (D) | 50,000 |
| Total Value of Taxable supply of Services (A + B) | 57,00,000 |
| Total GST payable (C + D) | 8,96,000 |
(ii) Trident Beauty Cosmetics Ltd. operating multiple wholesale outlets of cosmetic products in different suburbs in Mumbai, Maharashtra received an order worth ₹ 3,54,000 (inclusive of GST leviable @ 18%) for supply of different cosmetic products from Prasanna Cosmetics Store of Delhi. Trident Beauty Cosmetics Ltd. while checking the stocks found that order worth ₹ 1,18,000 can be fulfilled from the company’s Dadar (Mumbai) store and remaining goods worth ₹ 2,36,000 can be supplied from its Malad (Mumbai) store. Both the stores were instructed to issue separate invoices for the goods supplied and send by them to Prasanna Cosmetics Store of Delhi. The goods are required to be transported to Delhi in a single conveyance owned by Radhey Transport Carriers of Dadar (Mumbai).
You are required to advise Trident Beauty Cosmetics Ltd. as per provision under the CGST Act, 2017 with regard to issuance of e-way bill/(s). (5 Marks)
Answer:
Whenever there is a movement of goods of consignment value exceeding ₹ 50,000.
- In relation to a supply; or
- for reasons other than supply; or
- due to inward supply from an unregistered person, the registered person who causes such movement of goods shall furnish the information relating to the said goods as specified in Part A of Form GST EWB-01 before commencement of such movement.
Here, consignment value of goods shall be the value:
- determined in accordance with the provisions of section 15,
- declared in an invoice, a bill of supply or a delivery challan, as the case may be, issued in respect of the said consignment and
- also includes the Central Tax, State or Union Territory Tax, integrated Tax and cess charged, if any, in the document and
- shall exclude the value of exempt supply of goods where the invoice is issued in respect of both exempt and taxable supply of goods.
In given case, Trident Beauty Cosmetics Ltd. is causing movement of goods having consignment value of ₹ 3,54,000 in total (₹ 1,18,000 in one Invoice and ₹ 2,36,000 in another invoice) for supply of cosmetic products from its two of outlets in Mumbai to Prasanna Cosmetic store of Delhi.
Since, the consignment value in each case exceeds ₹ 50,000 in relation to supply of goods, it is mandatory for Trident Beauty Cosmetics Ltd. to issue two different E-way Bills. Further, the details of these two E-way Bills may be denoted in a Consolidated E-way Bill by the transporter Radhey Transport Carriers.
(iii) A show cause notice (SCN) under section 73(1) of the CGST Act, 2017 is being proposed to be issued to Evergreen Farm Technologies Pvt. Ltd. on 31.07.2023 on account of short payment of tax during the period between 1.7.2019 and 31.12.2019. Evergreen Farm Technologies Pvt. Ltd. contends that the slow cause notice so proposed to be issued on 31.07.2023 is time barred in law and is thus a bad notice.
You are required to examine the technical veracity of the contention of Evergreen Farm Technologies Pvt. Ltd. as per CGST Act, 2017. (5 Marks)
Answer:
As per section 73(10) of CGST Act, 2017, the Show Cause Notice (SCN) should be issued at least 3 months prior to the time limit specified for passing the order determining the amount of tax, interest and any penalty payable by the defaulter.
Further, the order referred herein has to be passed within 3 years from the due date for furnishing the Annual Return for the financial year to which the tax not paid/short paid/ITC wrongly availed/utilised relates to or within 3 years from the date of erroneous refund.
Thus, the time limit for issuance of Show Cause Notice is 2 years and 9 months from due date of filing Annual Return for the financial year to which the demand pertains or from the date of erroneous refund.
In given case, a Show Cause Notice is proposed to be issued on account of short payment during 1.7.2019 and 31.12.2019 that is for financial year 2019-20. The due date for filing Annual Return for said financial Year is 31.12.2020. Consequently, last date for issue of Show Cause Notice (SCN) shall be 30.09.2023. Here, notice has been proposed to be issued on 31.07.2023 that is within time limit.
Hence, the contention of Evergreen Farm Technologies Pvt. Ltd. that Show Cause Notice proposed to be issued on 31.07.2023 is time barred in law and thus a bad notice is NOT CORRECT.
(iv) When can Summary Assessment order be made by the proper Officer under the provisions of the CGST Act, 2017? Can such an order be requested to be withdrawn and if yes, then how and before which authority? (5 Marks)
Answer:
Summary assessments can be initiated to protect the interest of revenue with the previous permission of Additional Commissioner/Joint Commissioner when:
- the proper officer has evidenced that a taxable person has incurred a liability to pay tax under the Act, and
- the proper officer has sufficient grounds to believe that delay in passing an assessment order may adversely affect the interest of revenue.
The Summary Assessment Order may be withdrawn by Additional Commissioner/Joint Commissioner
- on an application filed by taxable person for withdrawal of the summary assessment order within 30 days from the date of receipt of order; or
- on his own motion, where he finds such order to be erroneous and may instead follow the procedures laid down in section 73 or section 74 to determine the tax liability of such taxable person.
Question 3.
(a) Examine by giving reasons in brief in the context of provisions contained under the CGST Act, 2017 as to taxability or otherwise of the following independent supply of services :
(4 Marks)
(i) Tejas & Co. of Delhi a tour operator provided services to Robert, a foreign tourist resident of UK for his tour conducted in Rajasthan and Agra for a sum of ₹ 2,50,000 and of Jammu Kashmir for a sum ₹ 1,00,000 and received the total amount of ₹ 350,000.
Answer:
Since, location of recipient of service is outside India, provisions of section 13 of IGST Act shall apply to determine place of supply of services.
As per section 13(2) of IGST Act, 2017, the place of supply of services except the services specified in sub-sections (3) to (13) shall be the location of recipient of services:
Provided that where the location of recipient of services is not available in the ordinary course of business, the place of supply shall be location of supplier of services.
It should be noted that services of tour operator is not covered any-where in sub-sections (3) to (13) of IGST Act and hence will be covered by sub-section (2).
In given case, Tejas and Company of Delhi a tour operator provided services to Robert, a foreign resident of UK for his tour conducted in Rajasthan and Agra. Hence, place of supply shall be location of recipient of service that is UK.
Here, location of supplier is in India and place of supply is outside India & hence, it will be considered as export of service and therefore not chargeable to GST.
(ii) Ms. Purnima acts as a Team Manager for Indian Sports League (ISL) a recognized sports body. She was contracted by a Multi Brand Retail Company to act as Manager for a Tennis tournament organised by them and was paid an amount ₹ 5,00,000.
Answer:
Services provided by Ms. Purnima as a team manager to Indian Sports League (ISL) a recognised sports body shall be exempt as per Entry No. 68 of Notification No.12/2017-Central Tax.
However, services provided by her to Multi Brand Retail Company as Team Manager for tennis tournament organised by them shall not be exempt as it is out of purview of Notification No. 12/2017. Hence, the said consideration of ₹ 5,00,000 shall be chargeable to GST assuming that she is taxable person under GST (Her aggregate turnover exceeds ₹ 20,00,000 during a financial year.)
(b) Determine the time of supply (ToS) by giving reason in brief in each of f the following cases in accordance with the provisions in CGST Act, 2017: (4 Marks)
Answer:
As per section 13(2) of CGST Act, 2017, Time of supply of services under forward charge mechanism where invoice is issued within specified time ie. within 30 days from the date of completion of service shall be:
Date of issue of invoice or date of receipt of payment, whichever is earlier.
However, where invoice is not issued within time, it shall be date of completion of service or date of receipt of payment, whichever is earlier.
Keeping the aforesaid provisions in view, time of supply of services can be determined as follows in given cases:
1. It shall be earlier of date of invoice ie. 21.07.2019 or date of receipt of payment ie. 26.08.2019 as invoice is issued within 30 days of completion of service.
Hence, time of supply shall be 21.07.2019.
2. It shall be earlier of date of invoice ie. 11.09.2019 or date of receipt of payment ie. 01.09.2019 as invoice is issued within 30 days of completion of service.
Hence, time of supply shall be 01.09.2019.
3. Invoice is issued within 30 days of completion of service and hence, it shall be date of issue of invoice or date of receipt of payment, whichever is earlier.
Therefore, for part payment, it shall be 11.10.2019 or 01.10.2019, whichever is earlier. Hence, it shall be 01.10.2019.
Further for remaining payment it shall be 11.10.2019 or 26.10.2019, whichever is earlier. Hence, it shall be 26.10.2019.
4. Invoice is issued within 30 days of completion of service and hence, it shall be date of issue of invoice or date of receipt of payment, which-ever is earlier.
Therefore, for part payment, it shall be 11.11.2019 or 12.11.2019, whichever is earlier. Hence, it shall be 11.11.2019.
Further for remaining payment it shall be 11.11.2019 or 15.11.2019, whichever is earlier. Hence, it shall be 11.11.2019.
(c) Ram Avtar resident of Nagpur has entered into a rollover contract approached NDMC Bank Ltd. on 12-1-2020 for selling US $ 4,50,000 at the rate of ₹ 75 per USD. RBI reference rate on 12-1-2020 was ₹ 76 and the rate of exchange declared by CBEC for the day was ? ₹ 76.50 per USD.
Calculate the value of taxable supply by explaining in brief the provisions of CGST Act, 2017 and rules framed thereunder. (4 Marks)
Answer:
Computation of value of taxable supply of Foreign Exchange services for NDMC Bank Ltd. as per Rule 32(2) of CGST Rules, 2017:
The Value shall be computed as difference between the buying rate or selling rate of currency, as the case may be and RBI reference rate for that currency at the time of exchange multiplied by total unit of foreign currency.
Hence, Assessable Value shall be (₹ 76 – ₹ 75) × 4,50,000 = ₹ 4,50,000.
Note: The rate of exchange as notified by CBEC is to be neglected.
(d) Discuss and explain in brief the provisions relating to refund of the amount of advance tax deposited by a casual taxable person under section 27(2) of the CGST Act, 2017. (4 Marks)
Answer:
As per section 54 of CGST Act, the amount of advance tax deposited by Casual Taxable Person or Non-Resident Taxable Person under section 27(2) shall be refunded only when such person has, in respect of the entire period for which the certificate of registration granted to him had remained in force, furnished all the returns required under section 39.
Further, refund of any amount, after adjusting the tax payable by the applicant out of advance tax deposited by him under section 27 at the time of registration, shall be claimed in the last return required to be furnished by him. (Rule 89 of CGST Rules.)
(e) The proper officer under the CGST Act, 2017 can authorize arrest of any person under section 69 of the CGST Act, 2017. State all those situations when the proper officer can authorize arrest of any person. (4 Marks)
Answer:
The Commissioner can authorise an officer to arrest a person if he has reasons to believe that the person has committed an offence attracting a punishment prescribed under section 132(1)(a)/(b)/(c)/(d) or section 132(2) of CGST Act.
According to said section of CGST Act, 2017, following are the offences (Situations when proper officer can authorise arrest of any person):
(a) Supplies any goods or services or both without issue of any invoice, in violation of the provisions of this Act or the rules made thereunder, with the intention to evade tax;
(b) Issues any invoice or bill without supply of goods or services or both in violation of provisions of this Act, or the rules made thereunder leading to wrongful availment or utilisation of Input Tax Credit or refund of tax;
(c) Avails Input Tax Credit using such invoice or bill referred to in clause (b));
(d) Collects any amount as tax but fails to pay the same to the Government beyond period of three months from the date on which such payment becomes due.
Further, where any person convicted of an offence under this section is again convicted of an offence under this section, then also commissioner can authorise arrest.
Question 4.
(a) Ram Ratan who has imported a machine from UK in India provides the following information and details relating to such machine and requests you to compute the assessable value and of the total amount of payable Custom duty and other taxes to be levied :
(i) FOB value of machine – 8,000 UK Pounds
(ii) Air Freight paid – 2500 UK Pounds
(iii) Design and development charges paid in UK – 500 UK Pounds
(iv) Commission payable to local agent @2% of FOB in INR
(v) Date of bill of entry – 24-10-2019 (Rate BCD 20%, Exchange rate as notified by CBIC ₹ 120 per UK Pound)
(vi) Date of entry inward – 20-10-2019 (Rate BCD 18%, Exchange rate as notified by CBIC ₹ 115 per UK Pound)
(vii) Integrated tax payable @ 12%
(viii) GST Compensations Cess – Nil
(ix) Insurance charges actually paid but details not available. (6 Marks)
Answer:
Computation of Assessable Value and Customs Duty payable by Ram Ratan on machine imported from UK
Notes:
1. Design and development charges paid in UK and commission paid to local agent (since is not a buying commission) are includible in the assessable value (Rule 10 of Customs Valuation Rules.)
2. As per section 14 of Customs Act, for computation of Assessable Value, the rate of exchange as notified by CBIC prevailing as on date of presentation of Bill of Entry is to be considered. Hence, in given case, the rate of exchange as on 24.10.2019 is considered ie. ? 120 per UK Pound.
3. As per section 15 of Customs Act, for determining the rate of duty in case of imported goods cleared directly for home consumption, the rate as on date of presentation of Bill of Entry or date of entry inward of vessel, whichever is later is to be considered. Hence, rate of duty as on 24.10.2019 ie. 20% shall be considered.
(b) Specify all those conditions which are required to be satisfied for imposing countervailing duty on the subsidized articles as specified in section 9 of the Customs Tariff Act, 1962. (4 Marks)
Answer:
The countervailing duty on subsidised articles is imposed if the following conditions are satisfied:
a. Any country or territory, directly or indirectly, pays or bestows subsidy upon the manufacture or production or exportation of any article. Such subsidy includes subsidy on transportation of such article.
b. Such articles are imported into India.
c. The importation may/may not directly be from the country of manufacture/production.
d. The article may be in the same condition as when exported from the country of manufacture or production or may be changed in the condition by manufacture, production or otherwise.
Part II
Question 5.
(a) Chetan Lai had borrowed on Hundi a sum of ? 25,000 by way of a bearer cheque on 11-9-2019 and repaid the same with interest in total amounting to ? 30,000 by account payee cheque on 12-12-2019.
The Assessing Officer (AO) had issued a show cause notice to treat the amount borrowed by Chetan Lai on Hundi as income chargeable to tax during the previous year ended on 31 -3-2020. Chetan Lai seeks your opinion as to the correctness of the action of the AO. (3 Marks)
Answer:
As per section 69D of Income-tax Act, where any amount is borrowed on a hundi from, or any amount due thereon is repaid to, any person otherwise than through an account payee cheque drawn on a bank, the amount so borrowed or repaid shall be deemed to be the income of the person borrowing or repaying the amount aforesaid for the previous year in which the amount was borrowed or repaid, as the case may be. Provided that, if in any case any amount borrowed on a hundi has been deemed under the provisions of this section to be income of any person, such person shall not be liable to be assessed again in respect of such amount under the provisions of this section on repayment of such amount.
In given case, Chetan Lai had borrowed on Hundi a sum of ₹ 25,000 by way of bearer cheque on 11.09.2019 and hence, it shall be deemed as income in his hands for assessment year 2020-21. Therefore, the contention of Assessing Officer to treat the amount borrowed by Chetan Lai on Hundi as income chargeable to tax during the previous year ended on 31.03.2020 is correct.
It should be noted that repayment of the amount along with interest amounting to ₹ 30,000 is by way of account payee cheque and therefore, provisions of section 69D will not attract in that case.
(b) The concept of Permanent Establishment is important in determining the tax implications of cross border transactions. Examine the significance thereof (PE), when such transactions are governed by Double Taxation Avoidance Agreements (DTAA). (3 Marks)
Answer:
Significance of Permanent Establishment:
- Permanent establishment means a fixed place of business through which the business of an enterprise is wholly or partly carried on.
- Every DTAA has a specific clause, which will deal with an explanation of permanent establishment for the purpose of such DTAA.
- Business income of a non-resident will not be taxed in India, unless such non-resident has a permanent establishment in India.
As per Article 5(2), the term Permanent Establishment includes:
a. A Place of Management
b. A Branch
c. An Office d A factory
e. A Workshop
f. A Sales Outlet
g. A Warehouse
h. A mine, an oil or gas well, a quarry, or any other place of extraction of natural resources (not exploration)
(c) How and when a unilateral Advance Pricing Agreement (APA) entered into can be converted into a bilateral APA ? (3 Marks)
Answer:
As per Advance Pricing Agreement Guidance with FAQs, a unilateral Advance Pricing Agreement (APA) can be converted into a bilateral APA before the mutually agreed draft agreement is forwarded by DGIT (International Taxation) to the Board.
While converting a unilateral APA application to a bilateral APA application, the applicant or its AE needs to make a similar request with the competent authority of the other country.
The bilateral request of the applicant shall be forwarded by the DGIT to the competent authority in India. The competent authority of India shall decide whether the bilateral request is allowable based on existence of appropriate provision on lines of OECD Model Article 9(2) in the tax treaty between India and the other country and also on the existence of an APA program in that other country. If the request is allowed, then the application would be processed as a bilateral APA application.
(d) What is the legislative intent/objective of bringing into existence the provisions relating to transfer pricing in relation to international transactions? Explain the statement in the context of Income-tax Act, 1961. (3 Marks)
Answer:
Increasing participation of multinational groups in economic activities in India has given rise to new and complex issues emerging from transactions entered into between two or more enterprises belonging to the same group.
Hence, there was a need to introduce a uniform and internationally accepted mechanism of determining reasonable, fair and equitable profits and taxes in India. Accordingly, the Finance Act, 2001 introduced law of transfer pricing in India through Sections 92 to 92F of the Income-tax Act, 1961 which guides computation of the transfer price and suggests detailed documentation procedures.
(e) The Assessing Officer can complete the assessment of income from international transactions in disregard of the order passed by the Transfer Pricing Officer (TPO) by accepting the contention of the assessee. Explain. (3 Marks)
Answer:
Provisions of section 92CA of Income-tax Act deal with reference to Transfer Pricing Officer (TPO).
It is specifically mentioned in sub-section (4) of said section that on receipt of order from Transfer Pricing Officer determining Arm’s Length Price (ALP) in relation to international transaction, the Assessing Officer shall proceed to compute the total income of the assessee in conformity with the arm’s length price so determined by the Transfer Pricing Officer.
The wording “shall” clearly indicate that Assessing Officer cannot complete the assessment of income from international transactions in disregard to order passed by the TPO by accepting the contention of the assessee.
Attempt all parts of either Q. No. 6 or Q. No. 6A
Question 6.
(a) Examine in the context of provisions contained under the Income- tax Act, 1961 in each of the following independent cases and state in brief whether there exists business connection in each of the cases in India so as to bring the income earned in the previous year, if any to be taxed in India: (2 Marks each – 6 Marks)
(i) A1 Rahim Ltd. a company resident in Dubai had setup a liaison office at Mumbai to receive trade enquiries from the customers in India. The work of the liaison office is not only restricted for forwarding the trade enquiries to the company in Dubai but was also to negotiates and enters into the contracts on behalf of Al Rahim Ltd. with the customers in India.
Answer:
As per Explanation 2 to section 9(1)(ii) of Income-tax Act, “business connection” shall include any business carried out through a person acting on behalf of the non-resident.
Further, for a business connection to be established, the person acting on behalf of non-resident inter alia must have an authority, which is habitually exercised in India, to conclude contracts on behalf of the non-resident and such contracts are in the name of the non-resident.
In given case, Al Rahim Ltd. a company resident in Dubai has set up a liaison office at Mumbai to receive trade enquiries from customers in India. Further, the work of this liaison office is not only restricted for forwarding trade enquiries but it also negotiates and enters into the contracts on behalf of Al Rahim Ltd. with the customers in India.
Hence, it can be said that Al Rahim Ltd. has business connection in India and accordingly any income accruing or arising to Al Rahim Ltd. in any place outside India whether directly or indirectly through or from business connection in India would be deemed to accrue or arise in India. Further, for business carried on through this business connection, so much of income as is attributable to operations carried out in India shall be deemed to accrue or arise in India.
(ii) John Muller Pty Inc a resident company of USA has set up a branch office at Delhi for the purpose of purchase of various materials which are being used for manufacturing its products. The branch office is engaged in selling the products manufactured by John Muller Pty Inc and also in providing the sales related services to the customers in India on behalf of John Muller Pty Inc.
Answer:
For a business connection to be established, the person acting on be-half of the non-resident inter alia habitually secures orders in India, mainly or wholly for the non-resident.
In given case, John Muller Pty Inc. a resident company of USA has set up a branch office at Delhi which is inter alia engaged in selling the products manufactured by John Muller Pty Inc. Therefore, we can say that John Muller Pty Inc. has a business connection in India through this branch office at Delhi.
Accordingly, any income accruing or arising to John Muller Pty in any place outside India whether directly or indirectly through or from any business connection in India would be deemed to accrue or arise in j India. Further, for business carried on through this business connection, so much of income as is attributable to operations carried out in India shall be deemed to accrue or arise in India.
(iii) Rajendra, a resident in India and based at NOIDA is appointed as agent by KOK Pty Inc a company incorporated in USA for exploring the Indian markets. He had not been given any authority to accept the orders but was allowed for canvassing the orders and then to communicate the same to company in USA. All the orders were directly received and accepted by the company and after receiving the price/value thereof, the delivery of goods was given directly by the company from any of its outlets outside India, None of the activities either of purchase of raw material or of manufacturing of finished goods took place in India. The agent was entitled to receive the commission as a percentage on the sale so concluded by KOK Pty Inc of USA.
Answer:
It is specifically stated that business connection, shall not be established where the non-resident carries on business through a broker, general commission agent or any other agent having an independent status, if such person is acting in the ordinary course of his business.
In given case, KOK Pty Inc., a company incorporated in USA has S appointed Rajendra, a resident in India based at Noida as agent. The scope of work of agent involved is only canvassing the orders and 1 then communicating the same to the company. Further, the deliverv of goods was given directly by the company. The agent was just entitled to receive the commission as percentage of sales so concluded by KOK Pty Inc.
Hence, it can be concluded that KOK Pty Inc. does not have any business connection in India and therefore, none of its income shall be deemed to accrue or arise in India.
(b) Explain the taxability or otherwise of the following transactions entered into during the previous year 2019-20 in the hands of the recipients as per provisions contained under the Income-tax Act, 1961:
(i) Nistha, a member of her father’s HUF, transferred a house property owned by her to the HUF of her father without taking any consideration. The stump duty value of the house property so transferred by her on the date of transfer is assessed at ₹ 15,00,000. The property so transferred by her was given on rent by the HUF.
Answer:
Any sum of money or movable /immovable property received without consideration will not be charged to tax in case of HUF where received from any member thereof.
In given case, Nistha, a member of her father’s HUF has transferred house property owned by her to the HUF of her father without taking consideration. Hence, it will not be chargeable to tax in hands of HUF. However, where HUF has given such property on rent, it will be chargeable to tax under the head income from house property in hands of HUF.
(ii) Akshat received 1000 shares as a gift of ATOZ Ltd. having face value of ₹ 10 each from his friend on the occasion of his 25th marriage anniversary. The fair market value on the date of gift of the shares of ATOZ Ltd. was of ₹ 100 per share. He also received a car from his nephew on the same day and the fair market value of the car on the date of gift was assessed at ₹ 5,25,000. (4 Marks)
Answer:
Where aggregate fair market value of movable property received by taxpayer during the year exceeds ₹ 50,000, it shall be chargeable to income tax.
Here, movable property means shares/securities, jewellery, archaeological collections, drawings, paintings, sculptures or any work of art and bullion.
In given case, Akshat has received 1,000 shares as a gift from his friend, total fair market value of which is ₹ 1,00,000 (1,000 shares × ₹ 100 per share). Since, the fair market value of movable property received from other than relative during a financial year exceeds ₹ 1,00,000, it shall be chargeable to tax.
It should be noted that entire amount of ₹ 1,00,000 shall be taxable under the head Income from Other Sources.
Note: Gift received by assessee on occasion of his marriage is not taxable. Here gift of shares is received on occasion of marriage anniversary and hence continues to be taxable.
However, gift of car received by Akshat from his nephew would not be chargeable to tax as definition of property does not include “car”. It should be noted that irrespective of value of car, it will not be chargeable to tax.
(c) Examine in brief the doctrine of “form and substance” in the context of tax planning under the Income-tax Act, 1961. Support your answer with the decided court cases explaining the principle of form and substance which will prevail in Income Tax matters. (5 Marks)
Answer:
One of the reasons which prompts a taxpayer to resort to tax planning is the existence of the doctrine of form and substance.
The principle involved in this doctrine is simple. How far court may stretch the wording of a statute to cover a particular set of facts, where those facts have clearly been created by the taxpayer in order to avoid or minimise his tax and the literal interpretation of the statute is not, at first sight apt to cover them? Is it possible to ignore the form of a transaction and determine substance thereof?
Landmark judgments explaining the principle of form and substance will prevail in income tax matters:
1. In Commissioner of Income Tax v/s Motor and General Stores (P) Ltd., the Supreme Court had observed that in the absence of any suggestion of bad faith or fraud the true principle is that the taxing statute has to be applied in accordance with legal rights of the parties to the transaction. According to the Court, when the transaction is embodied in a document the liability to tax depends on the meaning and content of the language used in accordance with ordinary rules of construction.
2. It was held in CIT v/s B.M. Kharwar (SC) that the taxing authority is entitled and is indeed bound to determine the true legal relation resulting from a transaction. If the parties have chosen to conceal by device the legal relation, it is open to the taxing authority to unravel the device and to determine the true character of the relationship. However, the legal effect of a transaction cannot be displaced by probing into the substance of the transaction.
OR (Alternate question to Q. No. 6)
Question 6A
(i) What do you understand by the term double taxation ? Discuss the connecting factors which lead to double taxation of an income. (6 Marks)
Answer:
1. Double Taxation means taxing the same income twice in the hands of an assessee. It is likely to arise where a taxpayer is a resident in one country and has a source of income situated in another country.
2. There are two rules which govern the process of International Taxation in such cases;
- The Source Rule: Income is to be taxed in the country in which it originates irrespective of whether it accrues to a resident or a non-resident.
- The Residence Rule: Authority to tax should rest with the country in which the taxpayer resides.
3. If both the above mentioned rules are applied simultaneously to an assessee, it will lead to double taxation as, being a resident of one country, if he earns an income in another country and is taxed by the country of residence applying the Rule of Residence and then again being taxed by the source country in which the income has been originated.
4. Double taxation may occur in a transaction where the Governments of two countries have not entered into a Double Taxation Avoidance Agreement (DTAA) resulting into taxing an assessee twice as per the taxation laws of both the countries.
5. A business entity may also be taxed doubly by the simultaneous application of both the rules resulting into the entity suffering heavy operating costs and it will also deter the process of globalisation.
(ii) “Live Tele Films”is a UK base foreign company not having any Indian citizen/resident of India holding its shares. It has shot a TV film during the year ended on 31-3-2020 entirely on the Indian locations so as to show the Indian cultural heritage. The film is to be telecast exclusively in the foreign countries, but it has also been agreed with the Government of India to give the right of telecast of the film in India to “DD-H” free of charge. The A.O. issued a show cause notice asking the foreign company to pay tax in India on the income derived by it from the telecast of the film for A.Y. 2020-2021. Company claims that it is not liable to pay any tax in India and therefore seeks your opinion. (5 Marks)
Answer:
As per section 5 of Income-tax Act, a non-resident is liable to pay income tax on income received in India or income accruing or arising in India or is deemed to accrue of arise to him in India during such year.
Further as per clause (d) of Explanation 1 section 9(1)(i) of Income-tax Act, inter alia, in the case of non-resident being a company which does not have any shareholder who is a citizen of India or who is resident in India, no income shall be deemed to accrue or arise in India to such company through or from operations which are confined to the shooting of any cinematograph film in India.
In given case, “Live Tele Films” is a UK based foreign company not having any citizen/resident of India holding its shares. Further, it has only shot a TV Film in India. It should be noted that the film is to be telecast exclusively in foreign countries and therefore, no income is deemed to accrue or arise in India. Moreover, even with respect to right of telecast of film in India to “DD-II”, it is free of charge. Hence, in that respect also there is no income arising in India.
Hence, the contention of Assessing Officer asking the foreign company to pay tax in India on income derived by it from the telecast of the film for A.Y. 2020-21 is not correct. The company is not liable to pay any income tax in India.
(iii) XYZ Ltd. took over the running business of a sole proprietor by a sale deed. As per terms of the sale deed, XYZ Ltd. required to pay overriding charges of ₹ 75,000 p.a. to the wife of the sole-proprietor for ten years in addition to the sale consideration. The sale deed also specifically mentioned that the amount of ₹ 75,000 is a charge on the net profits of XYZ Ltd. who had accepted the obligation as a condition of purchase of the business as a going concern. Is the payment of overriding charges by XYZ Ltd., to the wife of the sole-proprietor in the nature of diversion of income or application of income ? Discuss and explain as per provisions of Income-tax Act, 1961. (4 Marks)
Answer:
The Supreme Court decision in case of CIT v. Sitaldas Tirthdas is the authority for the proposition that where by an obligation, income is diverted before it reaches the assessee, it is deductible from his income as for all practical purposes it is not his income at all (as it is diversion of income by overriding title). But, where the income is required to be applied to discharge an obligation after it reaches the assessee, it is not deductible (as it is called as application of income). Thus, there is the difference between the diversion of income by an overriding title and application of income as the former is deductible while the latter is not.
In given case, XYZ Ltd. is required to pay overriding charges of ₹ 75,000 p.a. to the wife of sole proprietor for 10 years in addition to the sale consideration. Further, it is specifically mentioned that the amount of ₹ 75,000 is a charge on net profits of XYZ Ltd. who had accepted the obligation as a condition of purchase of the business as a going concern.
Therefore, the payment of overriding charges by XYZ Ltd. to the wife of sole proprietor is in the nature of diversion of income. It should be noted that it is an expense which is deductible. It is a charge on the profits and the available profits to the company will be lower to the extent of such overriding charges paid.