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Answer Paper

Indirect Taxation Duration: 90

Details: Test – 3 (CH – 8 & 14 to 24) Marks: 50

Instructions:

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Ans-1

Computation of Value of Taxable supply

Particulars Value of CGST SGST IGST

Supply

GST payable under forward charge mechanism:

SI No. (a): Mining and exploration services

12,00,000 1,08,000 1,08,000 -
provided to Joint Venture (JV) [WN-1]

SI No. (e): Share of a portion of the petroleum silt 6,00,000 - - -

[WN-2]

6,80,000 - - -
SI No. (f): Sale of the petroleum silt to a SEZ
Developer in Mumbai. [WN-3)

8,00,000 72,000 72,000 -

SI No. (g): Consideration is received towards
transfer of tenancy rights - Liable to GST [WN-4]

SI No. (j): Self fabricated machinery sold through 9,00,000 22,500 22,500 -

an agent [WN-5]

Total GST payable under forward charge 2,02,500 2,02,500 -

mechanism [A]

Less: Input tax credit -

18,000 12,000 60,000

SI No. (k): Opening balance. ITC availed during
the month

6,00,000 30,000
SI No. (b): Machinery purchased from outside the
state for providing services to joint venture [WN-
6]

2,00,000
27000 27000
GST paid on services under reverse charge
mechanism [WN-7]

Total available balance in electronic cash ledger 45,000 39,000 2,90,000

[B]

Computation of tax payable in cash

Total GST payable under forward charge 2,02,500 2,02,500 -

mechanism

1,57,500 1,32,500 2,90,000

Less: Extra credit of IGST to be used for payment
of CGST and SGST liability in any order
Less: Credit of CGST to be use for payment of 45,000 - -
CGST
Less: Credit of SGST to be use for payment of - 39,000 -
SGST

GST to be deposited through electronic cash 0 31,000 -

ledger

GST payable under reverse charge mechanism

through E-cash ledger

1,00,000 9,000 9,000 -

SI No. (c): Legal opinion from a local firm of
advocates to enter into the contract with the JV,
for providing services to it. [WN-8)
2,00,000 18,000 18,000 -

SI No. (d): Accommodation service availed from

the State Govt. [WN-9) 3,00,000 - - -

SI No. (h): Liquidated damages paid to the

- - - 2,00,000
Government [WN-10)

SI No. (i): Assignment of right to collect royalty

[WN-11)

Total GST liability under reverse charge 27000 27000 2,00,000

mechanism
Less: Opening balance of Electronic cash ledger 12000 - -

Balance GST payable through electronic cash 15000 27000 2,00,000

ledger [D]

Total amount of GST payable through electronic 15000 58000 2,00,000

cash ledger [C] +[D]

Working Notes:
1. Services supplied by members of Joint venture to Joint venture will be covered under
the ambit of supply. Circular No. 35/9/2018 GST dated 05-03-2018. The Central
Government vide Circular No. 32/06/2018-GST dated 12-02-2018 has clarified that oil
exploration and production contractors carry out the exploration and production of
petroleum for themselves and not as a service to the Government. Hence, cost
petroleum is not a consideration for service to GOI and thus not taxable per se.
 However, cost petroleum may be an indication of the value of mining or exploration
services provided by an operating member to the joint venture, in a situation where the
operating member is found to be supplying service to the oil exploration and production
joint venture.
Supply shall be regarded as intra-state supply as location of supplier and place of supply
are in the same state. Hence, CGST @ 9% and SGST @ 9% is levied.

2. Portion of the petroleum silt as part of the compensation while exploring the petroleum
reserves in the Bombay High - which as per the contract with the Government is part of 'Cost
Petroleum is not covered under the ambit of supply, hence not liable to GST.
3. As per Section 16(1) of the IGST Act, 2017, Supply of goods or services or both to a
Special Economic Zone developer is regarded as Zero rated supply. As he has executed
bond/LUT in respect of Zero rated supply, no GST is payable on the same.
4. It is a form of lease or renting of property and thus is squarely covered under the scope
of supply and taxable per se under the CGST Act, 2017- Circular No. 44/18/2018 CGST dated 02-
05-2018
5. As per Rule 29 of the CGST Rules, 2017, the value of supply shall be 90% of the price
charged for the supply of goods of like kind and quality by the agent to his customer not being a
related person, where the goods are intended for further supply by the said agent. Hence, value
of supply shall be 90% of Rs 10,00,000. It will be an intra-state supply and leviable to CGST @
2.5% and SGST @ 2.5%.
6. Machinery purchased from outside the state for providing services to joint ventures
shall be regarded as capital goods and shall be eligible for input tax credit. Since it is purchased
from outside the state, integrated tax is paid on the same and shall be eligible for input tax
credit.
7. The amount of GST leviable on a reverse charge basis is to be paid through electronic
cash ledger and the same shall be eligible as Input tax credit.
8. Legal services availed from a local firm of advocates is taxable under Reverse charge
mechanism as Sukhdev is registered under GST laws.
9. Accommodation service availed from the State Government is taxable under Reverse
charge mechanism as Sukhdev is registered under GST laws.
10. Liquidated damages paid to the Government is exempt from GST vide Entry 62 of
Notification No. 12/2017-CT (Rate)]
11. Services supplied by a State Government to Excess Royalty Collection Contractor (ERCC)
by way of assigning the right to collect royalty on behalf of the State Government on the
mineral dispatched by the mining lease holders is exempt from tax but where such amount of
GST paid by mining lease holders is less than the amount of GST exempted, the exemption shall
be restricted to such amount as is equal to the amount of GST paid by the mining lease holders
and the ERCC shall pay the difference between GST exempted on the service provided by State
Government to the ERCC of assignment of right to collect royalty and GST paid by the mining
lease holders on royalty. Thus, the shortfall in collection of IGST is to be paid by excess royalty
collection contractor i.e. Rs 2,00,000.

Ans-2 Thread and lining material are inputs which are used for making taxable as well as
exempt supplies. Therefore, credit on such items will be apportioned and credit attributable to
exempt supplies will be added to the output tax liability in terms of rule 43 of the CGST Rules,
2017. Computation of credit attributable to exempt supplies by apportionment of common
credit shall be arrived by following formula :

Amount of ITC attributable towards exempt supplies = Aggregate value of exempt supplies
during tax period / Total turnover in the state of registered person during the tax period X
Common Credit

Here common credit = Rs 10,000 + Rs 30,000 = Rs 40,000

Exempt turnover = Rs 2 crore

Total turnover = Rs 10 crore (Rs 8 crore + Rs 2 crore)

Amount of input tax credit attributable towards exempt supplies = Rs 2 crore / Rs 10 crore X Rs
40,000 = Rs 8,000

Ineligible credit of Rs 8,000 will be reversed in form GSTR-3B to be furnished for the month of
July. Credit of Rs 32,000 will be eligible credit for the month of July.

Ans-3 (a)

Computation of maximum amount of refund admissible to Kailash Global (P) Ltd.

Particulars Rs.

Exports of product 'A' to UK [WN-1] Nil

Domestic supplies of taxable product 'B' during the period [WN-2] 75,000

Supply of goods to Export Oriented Unit [WN-3] Nil

Export of exempt supplies [WN-4] 1,14,000

Total refund claim admissible 1,89,000

Working Notes:

(1) Refund of unutilized ITC is not allowed if the goods exported out of India are subjected to
export duty: Export of goods is a zero rated supply in terms of section 16(1)(a) of the IGST Act,
2017. Further, Kailash Global (P) Ltd. exports goods without payment of tax under letter of
undertaking in accordance with the provisions of section 16 (3)(a) of the IGST Act, 2017.
Therefore, as per clause (i) of first proviso to section 54(3) of the CGST Act, 2017, a registered
person may claim refund, of any unutilised ITC in the case of zero rated supply at the end of any
tax period. However, second proviso to section 54(3) lays down that refund of unutilized ITC is
not allowed if the goods exported out of India are subjected to export duty.

(2) Refund of unutilised ITC is allowed in case of inverted duty structure: Refund of unutilised
ITC is allowed incase of inverted duty structure, i.e. where the credit has accumulated on
account of rate of tax on inputs being higher than the rate of tax on output supplies (other than
nil rated or fully exempt supplies) except supplies of goods or services or both as may be
notified by the Government on the recommendations of the GST Council[Clause (ii) of the first
proviso to section 54(3) of the CGST Act, 2017].

Rule 89(5) of the CGST Rules, 2017 stipulates that in the case of refund on account of inverted
duty structure, refund of ITC is granted as per the following formula –

Turnover of inverted rated supply of goods and services x Net ITC

Maximum Refund Amount = - Tax
Adjusted Total Turnover

payable on such inverted rated supply of goods and services

where-

“Net ITC" means ITC availed on inputs during the relevant period other than the ITC availed for
which refund is claimed under sub-rules (4A) or (4B) or both.

“Adjusted total turnover" means the sum total of the value of:
(a)The turnover in a State/ Union territory, as defined under section 2(112), excluding turnover
of services; and

(b)The turnover of zero-rated supply of services determined in terms of specified manner and
non-zero-rated supply of services,

Excluding:

(i)The value of exempt supplies other than zero-rated supplies; and

(ii)The turnover of supplies in respect of which refund is claimed under sub-rule (4A) or sub-rule
(4B) or both, if any,

during the relevant period.

The maximum amount of refund admissible on account of inverted duty structure

(Amount in Rs.)

(i)Net ITC i.e. input tax credit availed on inputs during the relevant period [Net ITC 3,50,000
availed during the relevant period needs to be considered irrespective of whether
the ITC pertains to inputs eligible for refund of inverted rated supply of goods or
not]

(ii) Turnover of inverted rated supply of goods 10,00,000

(iii) Adjusted Total Turnover i.e. Rs. 7,00,000 + Rs. 10,00,000 + Rs. 5,00,000 + Rs. 28,00,000
6,00,000 bile

(iv) Tax payable on such inverted rated supply of goods ( 10,00,000 x 5%] 50,000

(v) Maximum refund = [(Item (ii) + Item (iii)] Item (1)] - [Item (iv)] 75,000
(3) Supply of goods to EOU – refund admissible to supplier only when disclaimer received from
recipient: As per section 2(39) of the CGST Act, 2017, deemed exports means such supplies of
goods as may be notified undersection 147 of the CGST Act, 2017. Supplies to EOU is notified as
deemed export under section 147 vide Notification No. 48/2017-CT dated 18-10-2017. In
respect of supplies regarded as deemed exports, the application of refund can be filed by the
supplier of deemed export supplies only in cases where the recipient does not avail of ITC on
such supplies and furnishes an undertaking to the effect that the supplier may claim the refund
(Third proviso to rule 89(1) of the CGST Rules, 2017]. Therefore, since in the given case, the
recipient is claiming ITC, Kailash Global (P) Ltd. (supplier of deemed exports) cannot claim
refund of ITC.

(4) Refund of ITC on account of zero rated supply: Section 16(2) of the IGST Act, 2017 stipulates
that subject to the provisions of section 17(5) of the CGST Act, ITC may be availed for making
zero-rated supplies, not with standing that such supply may be an exempt supply. Section 54(3)
of the CGST Act, 2017 allows refund of ITC in the case of zero rated supply made without
payment of tax.

Rule 89(4) of the CGST Rules, 2017 stipulates that in the case of zero-rated supply of goods or
services or both without payment of tax under bond/LUT in accordance with the provisions of
section 16(3) of the IGST Act, 2017,refund of ITC shall be granted as per the following formula:

(Turnover of zero−rated supply of goods + Turnover of zero−rated supply of services)

Refund Amount = –
Adjusted Total Turnover

Net ITC

Where-
"Net ITC” means ITC availed on inputs and input services during the relevant period other than
the ITC availed ribs for which refund is claimed under sub-rules (4A) or (4B) or both.

"Turnover of zero-rated supply of goods" means the value of zero-rated supply of goods made
during the relevant period without payment of tax under bond or letter of undertaking or the
value which is 1.5 times the value of like goods domestically supplied by the same or, similarly
placed, supplier, as declared by the supplier, whichever is less, other than the turnover of
supplies in respect of which refund is claimed under sub-rules (4A) or (4B) or both;

The maximum amount of refund admissible on account of Zero-rated supply (amount in Rs)

(i) Net ITC i.e. input tax credit availed on inputs and input services during the 5,32,000
relevant period [Rs. 3,50,000 +Rs. 2,00,000 –Rs. 18,000]

(ii) Turnover of zero-rated supply of goods i.e. value of zero-rated supply of goods 6,00,000
made during the relevant period without payment of tax under bond or letter of
undertaking

(iii) Adjusted Total Turnover [Same as discussed above] 28,00,000

(iv) Maximum refund = [(Item (ii)) + Item (iii)] * Item (i) 1,14,000

Ans-4 (a)

Computation of the amount of interest payable on finalisation of assessment: Section 60(4) of

the CGST Act, 2017 stipulates that where the tax liability as per the final assessment is higher
than under provisional assessment i.e. tax becomes due consequent to order of final
assessment, the registered person shall be liable to pay interest on tax payable on supply of
goods but not paid on the due date, at the rate specified under section 50(1) [18% p.a.), from
the first day after the due date of payment of tax in respect of the goods supplied under
provisional assessment till the date of actual payment, whether such amount is paid
before/after the issuance of order for final assessment.

In the given case, due date for payment of tax on goods cleared on 25-01-2021 under
provisional assessment is20-02-2021. Laxmi Narayan & Sons is liable to pay following interest in
respect of 1st consignment:

Due date of payment of tax under provisional assessment 20-02-2021

Actual date of payment of tax 09-04-2021

Period of delay in days 48 days

GST Payable 1,80,000

Rate of Interest 18% p.a.

Interest payable [Rs. 1,80,000 x 18% x 49/365] (Rounded off) 4,261

Interest on refund: Further, section 60(5) of the CGST Act, 2017 stipulates that where the tax
liability as per the final assessment is less than in provisional assessment i.e. tax becomes
refundable consequent to the order of final assessment, the registered person shall be paid
interest at the rate specified u/s 56 [6% p.a.) from the date immediately after the expiry of 60
days from the date of receipt of application u/s 54(1) till the date of refund of such tax.

However, since in the given case, refund has been made (05-06-2021) within 60 days from the
date of receipt of application of refund (09-04-2021), interest is not payable to Laxmi Narayan
& Sons on tax refunded in respect of 2nd consignment

(b) Yes, An audit party of CGST or a cost accountant or chartered accountant nominated under
section 66 have access to any business premises without issuance of a search warrant for the
purposes of revenue carrying out any audit, scrutiny, verification and checks as may be
necessary to safeguard the interest of revenue. Further, in terms of Section 70(1), an officer
authorised by a proper officer not below the rank of Joint Commissioner can also have access
business premises of a registered person.

Ans-5 (a) (1) Penalty for failure to obtain registration: Where the aggregate turnover of a
supplier making supplies from a State/UT exceeds Rs. 40 lakh in a financial year, he is liable to
be registered in the said State/UT. The said supplier must apply for registration within 30 days
from the date on which he becomes liable to registration. However, in the given case, although
Shagun became liable to registration on 25-01-2021, she didn't apply for registration within 30
days of becoming liable to registration.

Section 122(1)(xi) of the CGST Act, 2017 stipulates 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 a
penalty of:

(a) Rs. 10,000, or

(b) An amount equivalent to the tax evaded [Rs. 1,26,000 in the given case],

whichever is higher.

Thus, the amount of penalty that can be imposed on Shagun is Rs.21,26,000.

(2) Penalty for non-compliance of summon: Section 12/3)(d) of the CGST Act, 2017 stipulates
that any person who fails to appear before the officer of central tax, when issued with a
summon for appearance to give evidence or produce a document in an inquiry is liable to a
penalty which may extend to Rs. 25,000. Therefore, penalty upto Rs. 25,000 can be imposed on
Sagar, in the given case.
(b) As per para 3 of Schedule II to the CGST Act, any treatment or process which is applied to
another person's goods is a supply of services and accordingly is subject to GST rate applicable
for services.

In the given case, M/s. Prem Tools (job worker) undertakes the process of mounting the steel
cabinets of Alok Pvt. Ltd. (principal) on metal frames. In view of para 3 of Schedule II to the
CGST Act, the mounting activity classifies as service even though metal frames are also supplied
as a part of the mounting activity. Accordingly, the job charges will be chargeable to rate of
18%, which is the applicable rate for services.

Valuation of Job-work Services: Further, the value of steel cabinets will not be included in the
value of taxable supply made by M/s. Prem Tools as the supply of cabinets does not fall within
the scope of supply to be made by M/s. Prem Tools. M/s. Prem Tools is only required to mount
the steel cabinets, which are to be supplied by Alok Pvt. Ltd., on metal frames, which are to be
supplied by it.

Sale of waste generated during job work - Liable to GST : As regards sale of waste generated
during the job work, since M/s. Prem Tools is registered, the tax leviable on the supply will have
to be paid by it in terms of Section 143(5) of the CGST Act. Such supply will be treated as supply
of goods and subject to GST rate applicable for metal waste.

Accordingly, the GST liability of M/s. Prem Tools will be computed as under (amount in Rs ):

Job charges 500,000

GST @ 18% 90,000
Sale of metal waste 45,000
GST @ 12% 5,400
Total GST payable 95,400
Ans-6 (a) No, re-appreciation of evidence by Goods and Services Tax Appellate Tribunal on a
debatable point cannot be considered to be rectification of mistake apparent on record under
section 113(3) of the CGST Act, 2017.

Supreme Court, in case of CCE v. RDC Concrete (India) Pvt. Ltd. [2011] 270 FLT 625 (SC)
observed that a mistake apparent on record must be an obvious and patent mistake. It need
not be established by a long drawn process of reasoning. Arguments not accepted earlier
during disposal of appeal cannot be accepted while hearing rectification of mistake application

The Apex Court held that CESTAT had reconsidered its legal view as it concluded differently by
accepting the arguments which it had rejected earlier. Hence, the Court opined that in
pursuance of a rectification application, CESTAT cannot re-appreciate the evidence and
reconsider its legal view taken earlier.

(b) The issue under consideration is whether demand of interest raised by the department is
valid when the same has not been mentioned in the adjudication order.

As per section 75 of the CGST Act, 2017, the interest on the tax short paid has to be paid
whether or not the same is specified in the order determining the tax liability.

Thus, in view of the same, Mr. Vijay Kumar Sharma will have to pay the interest even though
the same is not specified in the final adjudication order. His contention that he is not liable for
interest because he deposited all the amount specified in the final adjudication order is not
valid in law.

However, the amount of interest demanded in the order cannot be in excess of the amount
specified in the notice.

Therefore, in the given case, Department cannot demand the interest in excess of the amount
specified in the notice, which will be 750,000.
 MCQs

1. C

Mr. R. in case total ITC pertaining to invoices the details of which have been uploaded reaches
Rs 9.0909 lakhs 10 lakhs/1.120). In other words, taxpayer may avail full iTC in respect of a tax
period, as and when the invoices are uploaded by the suppliers to the extent Eligible ITC/1.1.

Hence, Mr. R may avail balance ITC of Rs 2.3 lakhs in case suppliers upload details of some of
the invoices for the tax period involving ITC of Rs 2.0909 lakhs out of invoices involving ITC of Rs
3 lakhs details of which had not been uploaded by the suppliers. Rs 7 lakhs + Rs 2.090 lakhs = Rs
9.090 lakhs)

2. A

3. D

An issue on which the Appellate Authority or the Appellate Tribunal or the High Court has given
its decision which is prejudicial to the interest of revenue in some other proceedings and an
appeal to the Appellate Tribunal or the High Court or the Supreme Court against such decision
of the Appellate Authority or the Appellate Tribunal or the High Court is pending, the period
spent between the date of the decision of the Appellate Authority and that of the Appellate
Tribunal or the date of decision of the Appellate Tribunal and that of the High Court or the date
of the decision of the High Court and that of the Supreme Court shall be excluded in computing
the period of making adjudication order where proceedings are initiated by way of issue of a
show cause notice under the sections 73 and 74 of the Act.

4. C
Section 115 of CGST Act, 2017 provides for payment of interest at rate specified in Section 56
i.e. @ 6% per annum on the refund of such pre-deposit from the date of its payment to the
date of refund. Thus, interest payable on refund of pre-deposit of Rs 7,50,000 will be Rs 16,767
(rounded off) (Rs 7,50,000 x 6% x 136/365).

5. C

Where the inputs sent for job work are not received back by the Principal after completion of
job work or otherwise in accordance with the above provisions, or are not supplied from the
place of business of the job worker in accordance with the above provisions within a period of 1
year or extended period (which cannot exceed one year) of their being sent out, it shall be
deemed that such inputs had been supplied by the Principal to the job worker on the day when
the said inputs were sent out. Thus, in this case the same shall be deemed to be supplied on 27-
07-2021.

6. A

Any officer not below the rank of Assistant Commissioner with the prior approval of the
Commissioner direct such registered person by a communication in writing to get his records
including books of account examined under Section 66 of the CGST Act, 2017.