Suggested Answers

Advanced Taxation
CAP III, June 2013
Roll No……………. Maximum Marks - 100
Total No. of Questions - 8 Total No. of Printed Pages - 4
Time Allowed - 3 Hours
Marks
Attempt all questions. Working notes should form part of the answer.
1. M/s Hazma construction company Limited entered into an agreement with Rudra
Trade Concern to construct a building for the administrative block of Rudra Trade
Concern. The key points of the agreement are as follows:
The contract price is fixed at Rs. 15 Lakhs. The expected period of completion of the
contract is three years. As per the provision for escalation, if the cost of materials and
wages go high at the end of each year by up to 10% of the level at the commencement
of the contract, the remaining contract value will remain unchanged. But if the price
goes higher than 10%, the remaining contract price will increase by 5%. The
contractor at the outset had estimated the total contract cost at Rs. 12 Lakhs.
The construction work commenced on Shrawan 01, 2066. The portion of the work
completed at the end of each financial period was: 2066-67 = 30%, 2067-68 = 65%
and 2068-69 = 100%. The market price of material and wages increased by 7% of the
original at the end of the first year and by 14% at the end of the second year. The
actual contract cost during each financial year was as follows:
2066-67 Rs. 3.78 Lakhs.
2067-68 Rs. 8.48 Lakhs.
2068-69 Rs. 13.31 Lakhs.
a) You are required to calculate the gain from the long term contract for each year. 9
b) Explain long term contract and how the net gain from a long term contract during
a particular income year is calculated as per Section 26 of the Income Tax Act
and Rule 12 of the Income Tax Rules. How Rule 11 of the Income Tax Rules has
defined Excluded Contract? 6
Answer:
For 2066-67
The contract Revenue was Rs. 15 lacs because the price escalation was not effective.
The contract cost was estimated as follows:
Original contract cost Rs.12 Lacs
Additional Expenses incurred during the year
( Rs. 3.78 Lacs – Rs. 3.60, 30% of Rs.12 Lacs) Rs. 0.18 Lacs
Expected increase in the rest of expenses Rs. 8.40*7% Rs. 0.59 Lacs
The estimated contract cost was Rs. 12.77 Lacs
Thus the gain for the year 2066-67 is 30% of (Rs. 15 Lacs – Rs.12.77 Lacs) = Rs. 66,900
For 2067-68
The contract revenue was the same because the price rise was only 7% and thus the
revenue was Rs. 15 Lacs. The contract cost was estimated as follows:
Original contract cost Rs.12 Lacs
Additional Expenses incurred during the year
( Rs. 8.48 Lacs – Rs. 7.80, 65% of Rs.12 Lacs) Rs. 0.68 Lacs
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Expected increase in the rest of expenses Rs.4.20 L *14% Rs. 0.59 Lacs
The estimated contract cost was Rs. 13.27 Lacs
Thus the gain for the year 2067-68 is 65% of (Rs. 15 Lacs – Rs.13.27 Lacs) = Rs.
112450- 66,900 = Rs. 45,550
For 2068-69
The contract revenue increased by 5% due to the price escalation clause. Thus the
contract revenue was Rs. (Rs. 15 Lacs + Rs. 15 * 35%*5%) = Rs. 15.26 Lacs.
The final actual contract cost was Rs. 13.31 lacs
Thus the gain for the year was Rs. 15.26 Lacs – Rs. 13.31 Lacs – Rs. 112,450 =
Rs.82,550
A long term contract is a contract for production, installation, construction or the
services related to them, which runs for more than twelve months and the
consideration is payable on completion of the contract. In this case, the consideration
means the final settlement of the contract price as the advance payment or payment
according to a running bill is never treated as payment of the consideration. To
establish a long-term contract under section 26, there should, on one hand, be a
deferred return as a condition of the contract and on the other, the contract should not
be an excluded contract.
The net gain from a long term contract during a particular income year should be
calculated on the basis of the percentage of completion of the contract. This means, at
the end of each financial year, a percentage of the total work is to be calculated on the
basis of the work completed. To calculate the gain for an income year from a long-
term contract, it is suggested that these figures be calculated:
a. The estimated contract revenue on the day of the balance sheet on the basis of
cumulative inclusions.
b. The estimated contract cost on the day of the balance sheet on the basis of
cumulative deductions., and
c. The percentage of the completion of the contract on the day of the balance sheet.
The estimated contract revenue may vary from year to year because of further
variations in the contract work, claims and incentive payments. In the same way, the
contract cost may vary in different periods due to an increase in the cost of materials
or other costs, variations in contract work, penalties etc. So at the end of each
financial year, a fresh estimation should be made considering the latest amendments
in the contract, price escalation clause, incentives and penalty clauses, present cost of
materials and other components of cost of the contract, etc.
Rule 11 of the Income Tax Rules has defined excluded contracts as any of the
following:
a. Any contract that is executed solely because the parties to the contract have an
inherent interest in the entity.
b. Any contract that is executed solely because on the parties to the contract has had
the membership of a retirement fund.
c. Any contract for investment insurance.

2.
a) A staff of XYZ (P) Ltd., a dealer in liquors, was injured on 11/09/2068 during the
course of stocking of cartons of liquors. He became disabled and the company is
going to compensate him as per the company’s rule. The amount of compensation

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is Rs. 900,000. Whether the compensation payment attracts withholding tax and
shall it be included in taxable salary of the staff. 5
b) XYZ Insurance Company Ltd. has taken a flat on rent for which it pays
Rs. 25,000 p.m. and the flat is given to Mr. Rabin Sharma, of Claims Department
for his residence. Mr. Binod Shrestha, Manager Marketing Department resides in
another flat of same area and he gets reimbursement from the company of Rs.
25,000 p.m. only whereas he pays rent Rs. 35,000 p.m. Basic salary of both staff
is Rs. 60,000 p.m. Withholding Tax is deducted by Insurance Company and Mr.
Binod while making payment to related house owner. What amount is to be
included in taxable salary of both employees on above transactions? 5
c) Mr. Ram had purchased a property on 2068.07.12 for Rs. 1 crore. 2069.10.15,
Ram gets divorce from his wife and during the settlement he transfers the
property to his wife Ms. Sita without any financial consideration. Ms. Sita incurs
Rs. 20,000 as transfer charges to transfer the property in her name. Mr. Ram
notifies the Inland Revenue Department about his option of application of Section
43 of the Income Tax Act in writing. On 2069.12.15 Ms. Sita sold the property for
Rs. 1.5 crores. Derive the amount that is taxable as gain in the hands of Mr. Ram
and Ms. Sita. What would be the impact if Mr. Ram does not notify the
department about his option? 5
Answer:
a) As per the provisions of section 31 of Income Tax Act 2058, if a person receives
the following amount as compensation apart from the insurance claim, it shall be
included in the employment, business or investment income of the person as the
case may be.
i. Any compensation against income received or probable income of any
business, employment or investment.
ii. Any amount of compensation received against any losses or probable losses
of a person from business or investment.
But any compensation received due to personal accident of any individual is not
includible in income and any expenses incurred for treatment is not eligible for
tax credit under Section 51.
Therefore it does not attract TDS u/s 88, and shall not be included in taxable
income.
b)
i. Section 27 (b) (2), of Income Tax Act, 2058 and Rule 13 (2), of Income Tax
Rule, 2059.
In case of Mr. Rabin Sharma, 2% of Salary income shall be include in
taxable income in case the employer provides residence to the employee.
Thus, amount of perquisite to be included in taxable salary income = Rs.
60000*2%= Rs. 1200 per month.
ii. In case of Mr. Binod Shrestha, Section 8(2) (v) reimbursement of rent for
personal house shall be included in employment income.
Thus, amount of Allowance to be included in taxable salary income= Rs.
25,000 per month and he will not get any deduction for rent paid
.
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c) Section 43 of the Income Tax Act prescribes the basis of valuation of properties
which are transferred by the couple to other as per the process of their separation.
In the given case Mr. Ram transferred the property as part of settlement during the
separation therefore for his case the net gain will be as follows:

Incomings Rs. 10,000,000

Outgoings for the property Rs. 10,000,000
Net gain Nil

Income calculation in the hands of Ms. Sita

Incomings Rs. 15,000,000

Outgoings for the property
Value of the property transferred Rs. 10,000,000
Registration expenses incurred Rs. 20,000

Net gain Rs. 4,980,000

In above situation if Mr. Ram does not notify his selection of options u/s 43 then he
will have to pay tax in the income calculated u/s 45 of the Act which prescribes of
procedure of determination of income where the property is transferred to the related
parties without considerations.

3. (4×2.5=10)
a) Mr. Suresh, after doing his graduation in Nepal migrated to UK for further studies
and for permanent source of income. He was appointed as the advisor for South
Asia Economy Evaluation Committee of UK Government. During the income
year 2068-69, he was in Nepal for almost whole year as a member of a group
appointed to make a study in Nepal. His salary accrued during the year was
Rs. 1,000,000. Is the salary taxable in Nepal?
b) More than fifty percent of the ownership of M/s Neptune International Pvt. Ltd. is
transferred in comparison to the ownership three years previously. The date of
such transfer of ownership was 2068.11.10. The company has not sought for
extension of time limit for filing the return of income. The company seeks your
advice on the due date of filing of tax returns in the referred case. From Income
Tax Department’s point of view, what would be the due date for Amended
Assessment in such case?
c) M/s Genuine Company Pvt. Limited had submitted a tax return showing a total
sale of Rs. 40 Lakhs. In the tax return, the company has claimed total expenses
amounting to Rs. 30 Lakhs. During the course of assessment it was found that the
company has not maintained the documents to substantiate the expenses claimed
in the tax return. As a tax professional, the Tax Officer enquires you whether the
fine mentioned under Section 117(2) of the Act is attracted in this case. If
attracted, calculate the amount.
d) An international non-governmental institution had invited a tender for providing
computer education to street children. One of the competitors, amongst various

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others, was an NGO (a tax exempted entity) having its object providing facilities
and vocational training to street children, was awarded the tender. Is the gain from
this activity exempt from tax for the NGO?
Answer:
a) As per section 10(kha) of the act, income derived by a natural person from an
employment of a public service of a foreign government is exempted from income
tax under the following circumstances:
• The individual is resident of Nepal only because of the posting in Nepal or he
is a non resident of Nepal; and
• The payment of the income is made from the public fund of the foreign
government
In the case given, Mr. Suresh is resident in Nepal during the year only because of
his employment and he received the salary from the public fund of the UK
Government, so the salary of Rs. 1,000,000 is not taxable in Nepal.

b) An entity is deemed to be disposed off when 50% or more of its ownership in

comparison to the ownership three years previously is transferred. In such a case
as per section 57(3) of the act, period before the date of such ownership and
period after such ownership are treated as separate income years. Further, as per
section 96(1) of the act, tax return should be filed within three months from the
expiry of the income year as the company has not sought for extension of time.
Similarly section 101 of the act fixes the time limit for amended assessment as
four years from the due dates of filing of return.

In the given case, date of transfer of ownership is 2068.11.10. Hence, periods

before and after this date is segregated into two income years. From 2068.04.01 to
2068.11.10 is one period whose due date will be 2069.02.10. From 2068.11.11 to
2069 Ashadh end is another income year whose due date will be 2069 Ashoj end.
For income tax department, time limit for amended assessment in the first case
will be 2073.02.10 and for the latter 2073 Ashoj end.

Note for evaluator:

As per sec. 2(jhha), a income year starts from 1st of Shrawan and ends at Ashad
end of next year. Thus, an income year could not be defined otherwise. The return
filing date in both the conditions shall be Asoj 31, 2069.

c) As per section 81(1)(ga) of the act, the tax payer has to maintain the documents
which substantiate the claim of expenses. Since the company has failed to
maintain such documents, it has contravened the requirement. Hence section
117(2) of the act is attracted which states that if a person has an obligation to
maintain accounts and records as per the act and fails to maintain them as per
section 81, a fine of either 0.1% per annum of the assessable income during the
year or Rs.1000 whichever is higher is charged. Assessable income for this
purpose is derived after the inclusion of all the amounts to be included in income
but before any allowed deductions.

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In the case given, assessable income is Rs. 40 Lacs, so 0.1% of 40 lacs is Rs. 4000
or Rs. 1000 whichever is charged as fine. Hence Rs. 4000 is fine in this case.

d) As per Rule 5 of Income Tax Rules 2059, if a tax exempted entity has received
the contribution after facing face to face competition with person dealing in
taxable transaction, it is not entitled for tax exemption on the contribution
received. In this case, as the NGO has acquired the tender through a process of
competition with others having profit motive, thus the gain from such activity
shall not be exempted from tax. In this case, considerable factor that the activity
should be within the objective framework of the NGO also does not work for
providing tax exemption.
4. Mr. Khadka Bahadur Gurung, born as a Nepali citizen, was recruited to the British
Army in 2025 and was based in Hongkong. While staying there, he took British
Nationality in 2040. He retired in 2050. After retirement he got pension from the
British Army and settled down in his village at Palpa in 2065. During 2068-69, he
received a pension equivalent to Rs. 400,000 credited to his bank account in Nepal.
He also undertook cultivation of lands for others. He earned about Rs. 500,000 from
such cultivation of lands and paid Rs. 200,000 to the owners of the land, for the use of
the land. His wife Mrs. Mala Gurung, born, qualified and trained in Nursing in Nepal,
worked in a private Hospital in Hongkong, while living with her husband. Along with
her husband, she also returned to Nepal. She also got pension from the hospital she
worked with, equivalent to Rs. 300,000 during the year 2068-69. After return to
village, she also worked in the Village Health Post and received a salary of
Rs. 200,000 during the year.
a) Ascertain the tax liability in the above cases, quoting the relevant applicable
provisions of the Income Tax Act. 8
b) Will it make a difference if Mrs. Mala Gurung worked for is a Government
Hospital owned by the Government of Hongkong. 2
Answer:
a) Mr. Kadka Bahadur Gurung is a British National.
i. He is staying in Nepal and has the facility to live in Nepal in his ancestral
house. Thus he is a resident of Nepal by virtue of provision of
Sec.2(kagna)(1)(ka)
ii. He has been staying for more than 183 days in the past 365 days and
therefore he is a resident of Nepal by virtue of provision of
sec.2(kagna)(1)kha)
iii. His pension form from British Army is paid by the British Government for
having worked in the British Army, a foreign government
iv. Since he is not a citizen of Nepal, his pension is exempt from tax in Nepal
under sec.10 (ga) of the Income Tax Act.
v. Since his income from cultivation of land is agriculture income earned by an
individual and the land is not covered by Land Related Act of 2021(This can
be ascertained by the amount of income derived),his net income of Rs.3
Lakhs is also exempt under sec.11(1) of the Income Tax Act.
Mrs. Mala Gurung is a Nepali citzen
i. Since Mrs. Mala Gurung has statyed for more than 365 days
[Sec.2(kagna)(1)(ka)] and has a place of residence in Nepal
[sec.2(kagna)(1)kha], she is a resident of Nepal.
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ii. Since she worked in a private hospital at Hongkong, the pension received by
her is not covered by any sub-section of sec.10 and she is liable to tax in
Nepal on the pension received in Nepal from the private hospital in Hongkong
iii. Mrs. Mala is liable to tax in Nepal under Employment (Sec.8 of the Income
Tax Act)
Pension received Rs. 3,00,000
Salary Received Rs. 2,00,000
Total income Rs. 5,00,000
Less:- Pension income@25%of Rs. 1,00,000 Rs. 40,000 [ Schedule 1,1(9)]
Rs. 4,60,000
Tax Liability will be:-
Basic @ 1% 1,60,000 1,600
Next@15% 1,00,000 15,000
Next@25% 2,00,000 50,000
66,600
Les under Schedule 1(1)(11) Less10% = 6,660
Tax liability = 59,940
Since pension is payment made in connection with past employment u/s
8(2)(cha), the pension falls under income from employment and since she has
only employment income ,she is entitled to deduction of 10% under Schedule
1(1)(11).

b) If the hospital she worked is a government hospital, then also her pension income
is taxable in Nepal and is not exempt under sec.10
i. She is a Nepali national. Therefore exemption under Sec.10(ga) will not
be applicable.
ii. She has worked in a hospital and not in Army or police of the foreign
government. Therefore exemption under Sec.10(ja)also is not available
to her.

5. XYZ (P) Ltd. has acquired necessary license and approval from excise authorities for
manufacturing of plastic packing materials and registered itself under VAT. The
company commenced its commercial operation from 1st Shrawan 2069. The company
had following transactions during the month of Shrawan 2069:
Import of plastic 50 ton granules (CIF Kalkota) Rs. 500,000
Clearing and forwarding expenses at Kalkota Rs. 20,000
Carriage inward Rs. 10,000
Factory wages Rs. 75,000
Other production cost Rs. 50,000
Stock of plastic granules at the end of Shrawan 2069 5 ton
Stock of finished products at the end of Shrawan 2069 5 ton
The company purchased 1 Motorbike, 1 Mini Truck and 1 Van (for passengers) for
Rs. 113,000, Rs. 1,130,000 and Rs. 678,000. Price of these vehicles is inclusive of
VAT.
There is no production loss, i.e. input output ratio of granules and finished product is
1:1. Custom duty paid @ 30% of landed cost is not included in above data. The

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company's directors have formed a partnership firm of distributors. The company has
appointed the firm as sole distributor of the company's products. The company sales
its product to the distributor @ Rs. 24.84 per kg. plus excise duty and applicable
VAT. The distributor firm sells the product @ Rs. 50 per kg. Normal commission to
distributors/wholesaler for same product paid by other manufacturers is Rs. 7.50 per
kg. Transportation expenses incurred by other manufacturers for distribution of the
same product are about Rs. 7.50 per kg. The rate of excise duty on the product is 5%
of the value.
a) Calculate amount of VAT payable for the month of Shrawan 2069. 8
b) Excise Officer is not satisfied with the excise collected and is of view that factory
price is not derived properly. Therefore excise authorities are considering
imposing additional excise on the company. You are also required to advise the
company on powers of the excise authorities to impose additional excise duty. 3
c) VAT authorities also feel that the company is under invoicing its product and
informed the company its intention to buy the stock of finished product at price
invoiced by the company. Can IRD buy the product without consent of the
company? 2
d) VAT authorities have assessed additional VAT on packing materials sold on the
ground that the product was heavily under invoiced than prevailing market price.
Is the company obliged to pay additional VAT? 2
Answer:
a)
VAT payable for the month of Shrawan
Particulars Rs. Rs.
Cost of plastic granules 500,000.00
Clearing and forwarding expenses 20,000.00
Carriage inward 10,000.00
Landed cost 530,000.00
Custom Duty @ 30% 159,000.00
Sub Total 689,000.00
VAT paid @ 13% 89,570.00
Cost of raw material consumed (689,000/50)*45 620,100.00
Factory wages 75,000.00
Other production cost 50,000.00
Factory Cost 834,670.00
Factory cost per kg 745,000/45,000 16.56
Margin @ 50% of factory cost[(24.84- 8.28
16.56)/16.56=50%]
Factory price to whole seller 24.84
Excise duty @ 5% 1.24
Sub Total 26.08
VAT per kg @ 13% 3.39
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Total VAT collected 40,000*3.39 135,600.00

Less VAT paid
Paid at customs 89,570
Paid in purchase of motorbike 13,000
Paid in purchase of Mini Truck 130,000
Paid in purchase of Van 31,200
Total credit to be claimed 135,600.00
Net credit to be claimed -128,170.00
Notes:
1. Since VAT paid by company in other goods and services are not mentioned in the
question, VAT paid for those goods and services are not considered. VAT paid for
other goods and services, if any, shall reduce VAT payable accordingly.
2. Rule 41(2)(kha) restricts VAT credit for automobiles to 40%. Motorbike (two
wheelers) and Mini truck (not for passenger) does not fall under automobiles.
Therefore, only claim of VAT on Van is restricted under this rule.
b) Section 10gha (na) confers power to Excise Officer to collect excise if difference
between consumer price and factory price is not reasonable. In this case excise
officer may assess and collect excise duty after considering consumer price,
commission to wholesaler or retailer, transport expenses and taxes in nearest market.
It seems excise officer is not satisfied due to difference in consumer price and
factory price. Therefore, such difference should be calculated before opposing excise
officer's view.

Consumer price 50.00

Normal commission to wholesalers 7.50
Transport expenses 7.50
Estimated selling cost 15.00
Modified consumer price 35.00
Factory price to wholesaler 24.84
Difference 10.16
Since the difference is unreasonable, excise officer's view is not contrary to the legal
provisions. Therefore, Excise Officer may order rightly to pay additional excise
duty.
c) Yes, under section 23ga(1) of VAT Act, VAT authorities have power to buy stock of
goods considered to be under invoiced. Under section 23ga(2), VAT authorities may
choose to buy stock at the value sold by the company without the consent of the
company and pay amount calculated at the rate invoiced by the company.

d) VAT Officer is empowered to assess tax under section 20(1)(e) if he has reasonable
ground to believe that the product is sold by under invoicing. Since in this case it
seems to be under invoiced compared to similar products, VAT Officer may rightly
assess additional tax.

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6.
a) Ganapati Industries registered under the Excise Act has been submitting its
monthly return regularly as follows within 25 days of the next month.
Excise duty Rs.
2068 Shrawan 20.000 Kartik 12,000
Bhadra 25,000 Mansir 25,000
Ashwin 20,000 Poush 25,000
But he did not pay the excise duty. At Magh end the Excise Officer issued notice
to pay off the excise duty. What are the options open to him under the Excise Act
and Rules. 2.5
b) National Pencil Industry imported certain pigments for use in pencil making for
IRs. 500,000. The custom officer classified it under Custom Code 3207 at 15%
instead of under Custom Code 3212 on which only 10% duty is payable. Your
advice is sought as to how to proceed in the matter. 4.5
c) Raghubir is a driver driving vehicle registered as a hired vehicle. When Raghubir
was waiting for customers at Biratnagar, one person approached him to go to
Dharan and he accepted to pay Rs. 2,000 for the trip. He was paid advance for
filling diesel. On the way the hirer stopped the vehicle and loaded some barrels
containing liquor. At Itahari, the vehicle was intercepted by Excise Police and one
enquiry it was found that the liquor was illicit liquor. The person who hired the
vehicle had run away in the meanwhile. The value of the liquor was estimated at
Rs. 3 lakhs. What is the punishment that could be meted out under the Excise Act
under the circumstances, quoting the relevant Sections of the Act and Rules?
What enquiries are to be made before meeting out the punishments? 8
Answer:
In this case he has to pay the excise duty which he has accepted by submitted the
monthly return.

a) If he is not able to pay the amount in one installment, he can ask for suitable
installments to pay the same. In this case, the tax officer may allow him time to
pay the amount in installments up to the period not exceeding one year, under
sec.17KA of the Excise Act.

However he has to pay late fee under sec.10I at the rate of 0.05% per day.

b)
i) Since there is no dispute with regard to the valuation under sec.13, of the Act,
he cannot refer the matter to the Valuation Review committee under sec 61 of
the Custom Act
ii) If he is able to convince the custom officer about the mistake in classification
by showing any previous consignment received of the material at the time of
assessment of duty by the customs officer and the customs officer corrects the
mistake, it will be alright.[Shankarlal vs. Custom officer ,Biratnagar,
(Ne.Kaa.Pa 2046- page1126)where it was held that once the material has been

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accepted under one code by the custom office, it cannot classify the same
material later under different code.]
iii) Otherwise he has to pay the full amount of duty determined or provide
security for the full amount of the duty and release the material. [Even though
there is a Classification committee under sec.89 of the Customs Act, it can
decide classification in the case of material for which no classification is
available in the Tariff, before the material is imported. It cannot look into
disputes in the classification between the custom officer and the importer.]
iv) Then he should file an appeal to the Revenue Tribunal under sec. 62 of the
Customs Act.
v) He should provide a copy of the appeal petition to the custom office within 15
days of filing the appeal.
(Additional 0.5 for quoting case and 0.5 for function of classification committee)
c)
1. The liquor will be confiscated and penalty equivalent to the value of the liquor
will be imposed on the manufacturer of the liquor after making proper
investigation to find out the manufacturer of the liquor, under sec.12(1) of Liquor
Act and Sec 16(1) of the Excise Duty Act.
2. The value of the confiscated liquor for the purpose will be its factory value plus
excise duty on the same for the purpose of calculating the value of penalty
payable. [Explantion to subsection (1)]
3. The manufacturer may be punished with imprisonment for one year without the
penalty or both imprisonment and penalty depending on the nature of the crime
after due investigation.[Sub-section(1) of Sec. 16]
4. If the vehicle used for transportation of the illicit liquor is a vehicle registered as a
hired vehicle, without the permission of the owner, the owner will be levied a
penalty of Rs.25,000[Proviso to Sub.sec.3]
5. The driver will be punished with imprisonment up to three months or a penalty of
Rs.15,000 or both on the basis of the nature of involvement of the driver in the
crime. In this case, he has not knowingly allowed the transportation , he may be
levied minimum penalty. [Proviso to Sub.sec.3]
6. If the vehicle has been used with the involvement of the owner, then the vehicle
can be confiscated. [Sub section 4]But since here act the involvement of owner is
not established, the vehicle may not be confiscated.
7. Proper investigation has to be made with regard to the degree of involvement of
each person before deciding the quantum of punishment.
8. They have to find out the person who ran away to ascertain the manufacturer and his
involvement in the transaction.

7.
a) Whether the Excise Duty shall be levied on the followings? (5×1=5)
i) Production of Pet bottles (under Custom Code 3923) by mineral water
industry for packing of its finished goods.
ii) Sale of molasis (Khudo) by manufacturer.
iii) Local production of marble.
iv) Local production of motorcycle
v) Production & sale of junk foods.

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b) A & A Enterprises has paid custom of Rs. 25,400 on 2068.06.02 and cleared the
required raw materials. On scrutiny of accounts, it came to knowledge that custom
has been overpaid to the department by Rs. 3,200. Answer the following in this
regards. (2+3=5)
i) A & A Enterprises wanted to claim refund of the custom and applied to
related custom department on 2068.09.03. Is A & A Enterprises entitled to
claim for refund?
ii) What are the conditions under which overpaid custom shall not be refunded
by the department? Answer should be based on provisions of Custom Act,
2064.
Answer:
a)
i) No, Excise shall not be levied on Production of Pet bottles (under Custom
Code 3923) by mineral water industry for packing of it’s finished goods.
(Schedule-1 of Excise Act)
ii) Excise shall be levied on Sale of molasses by manufacturer. (Schedule-1 of
Excise Act)
iii) No, excise shall not be levied on Local Production of marble. (Schedule-1 of
Excise Act)
iv) Yes, excise shall be levied on Local production of Motorcycle. (Schedule-1
of Excise Act)
v) Yes, excise shall be levied on Production & sale of Junk Foods. (Schedule-1
of Excise Act)
b)
i) As per Section 75 of Custom Act, 2064, overpaid custom shall not be refunded
if the application to the related custom department is made after 60 days of
goods cleared at custom. Here goods have been cleared on 2068.06.02, but
the application for refund is given on 2068.09.03, i.e. after 60 days of goods
clearance. So, A & A enterprises is not entitled to get refund of extra custom
paid.

ii) As per section 75 of Custom Act, 2064 overpaid custom shall not be
refunded under following situations:
a. Application for refund of amount is not made within 60 days of release of
goods to the concerned customs office.
b.The amount claimed for refund is less than Rs. 500.
c. If, in making decision on an appeal made under this Act against the duty or
fine recovered by the Customs Officer, decision is made to waive all or any
of the duty or fine so recovered, the Customs Officer may, notwithstanding
anything contained in the prevailing laws, refund such customs duty or fine
to the concerned person only where no further appeal can be made against
that order or only after the concerned court decides not to grant permission.

8. Distinguish between the following under Custom Act, 2064. (2×5=10)

a) Transaction value of identical goods and similar goods method.
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b) Deductive value method and computed value method.

Answer:
a) Transaction value of identical goods and similar goods method:
If the customs value of any goods cannot be determined on the basis of the
transaction value declared by the importer or the bills, invoices and documents
submitted by the importer, the customs officer will give a notice, accompanied by
the reason for the same to the concerned importer. If the customs value cannot be
determined on the basis of the transaction value, the customs duty of such goods
will be determined on the basis of the transaction value of identical goods already
imported into Nepal prior to the import of such goods. The term identical goods
means goods which are the same in all respects, including the physical
characteristics, quality and reputation.
If the customs value cannot be determined on the basis of the transaction value of
identical goods, the customs duty of such goods will be determined on the basis of
the transaction value of similar goods already imported into Nepal prior to the
import of such goods. The term similar goods means goods which although not
alike in all respects, have like characteristics and like component materials which
enable them to perform the same functions and to be commercially
interchangeable.
b) Deductive value method and computed value method:
If the customs value cannot be determined on the basis of the transaction value of
similar goods and such goods have already been imported into Nepal and sold at
market to a person who is not related to the importer, the customs value of such
goods will be determined on the basis of deductive value method, by deductive
the tax, duty levied in Nepal on the selling price of each unit of the maximum unit
so sold, and other related costs and profits.
If the customs value cannot be determined on the basis of deductive value
method, the customs value will be determined on the basis of computed value
method, also calculating the costs incurred in the production or manufacturing of
such goods and profits made or likely to be made by the seller while selling such
goods to the importer.

VND P.T.O.