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1
 INDEX
Part-I Goods and Services Tax
Chapter 1: GST in India - An Introduction 4
Chapter 2: Supply under GST 18
Chapter 3: Charge of GST 53
Chapter 4: Exemptions from GST 76
Chapter 5: Place of Supply 109
Chapter 6: Time of Supply 130
Chapter 7: Value of Supply 150
Chapter 8: Input Tax Credit 196
Chapter 9: Registration 297
Chapter 10: Tax Invoice, Credit and Debit Notes 316
Chapter 11: Accounts and Records; E-way Bill 325
Chapter 12: Payment of Tax 335
Chapter 13: Returns 357
Chapter 14– Import And Export Under Gst 365
Chapter 15– Refunds 372
Chapter 16– Job Work 386
Chapter 17- Assessment And Audit 392
Chapter 18- Inspection, Search, Seizure And Arrest 399
Chapter 19- Demands And Recovery 403
Chapter 20- Liability to Pay Tax in Certain Cases 418
Chapter 21- Offences And Penalties 423
Chapter 22- Appeals And Revisions 439
Chapter 23- Advance Ruling 453
Chapter 24- Miscellaneous Provisions 458

2
 Part-II Customs & FTP
Chapter 1: Levy of and Exemptions from Customs Duty 463
Chapter 2: Types of Duty 479
Chapter 3: Classification of Imported and Export Goods 492
Chapter 4: Valuation under the Customs Act, 1962 498
Chapter 5: Importation, Exportation and Transportation of 562
Goods
Chapter 6: Warehousing 595
Chapter 7: Duty Drawback 601
Chapter 8: Refund 613
Chapter 9: Foreign Trade Policy 622

3
 CHAPTER-1 GST IN INDIA – AN INTRODUCTION
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY ILL-1-3, QSTNS 4 to 11, 13, 17,18, 19, 20

MAT

PAST NO QUES Q-14 Q-15 Q-12, 16 NO QUES NO QUES

EXAMS

MTP NO QUES NO QUES

RTP NO QUES

ILLUSTRATION 1
In case of local supply of goods/ services, the supplier would charge dual GST i.e., CGST and SGST at
specified rates on the supply.
I. Supply of goods/ services by A to B

Amount (in Rs.)

Value charged for supply of 10,000
goods/ services
Add: CGST @ 9% 900
Add: SGST @ 9% 900
Total price charged by A from B 11,800
for local supply of goods/ services

The CGST & SGST charged on B for supply of goods/services will be remitted by A to the appropriate account

4
of the Central and State Government respectively.
A is the first stage supplier of goods/services and hence, does not have credit of CGST, SGST or IGST.
II. Supply of goods/services by B to C – Value addition @ 20%
B will avail credit of CGST and SGST paid by him on the purchase of goods/ services and will utilise such
credit for being set off against the CGST and SGST payable on the supply of goods/services made by him to
C.
Amount (in Rs.)
Value charged for supply of goods/ 12,000
services (Rs. 10,000 x 120%)
Add: CGST @ 9% 1080
Add: SGST @ 9% 1080
Total price charged by B from C for 14160
local supply of goods/ services

Computation of CGST, SGST payable by B to Government

Amount (in Rs.)
CGST payable 1080
Less: Credit of CGST 900
CGST payable to Central 180
Government
SGST payable 1080
Less: Credit of SGST 900
SGST payable to State Government 180

Note: Rates of CGST and SGST have been assumed to be 9% each for the sake of simplicity.
Statement of revenue earned by Central and State Government
Transaction Revenue to Revenue to State
Central Government (Rs.)
Government
(Rs.)
Supply of goods/services by A to B 900 900
Supply of goods/services by B to C 180 180
Total 1080 1080

5
Inter-State Supply

ILLUSTRATION 2
In case of inter-State supply of goods/ services, the supplier would charge IGST at specified rates on the
supply.

I. Supply of goods/services by X of State 1 to A of State 1

 Amount (in Rs.)
Value charged for supply of goods/services 10,000
Add: CGST @ 9% 900
Add: SGST @ 9% 900
Total price charged by X from A for intra-State 11,800
supply of goods/services

X is the first stage supplier of goods/services and hence, does not have any credit of CGST, SGST or IGST.

II. Supply of goods/services by A of State 1 to B of State 2 – Value addition @ 20%

Amount (in Rs.)

Value charged for supply of goods/services (Rs. 10,000 x 12,000
120%)
Add: IGST @ 18% 2,160
Total price charged by A from B for inter-State supply of 14,160
goods/services

Computation of IGST payable to Government

Amount (in Rs.)
IGST payable 2,160
Less: Credit of CGST 900
Less: Credit of SGST 900
IGST payable to Central Government 360

The IGST charged on B of State 2 for supply of goods/services will be remitted by A of State 1 to the
appropriate account of the Central Government. State 1 (Exporting State) will transfer SGST credit of Rs. 900
utilised in the payment of IGST to the Central Government.

III. Supply of goods/services by B of State 2 to C of State 2 – Value addition @ 20%

6
B will avail credit of IGST paid by him on the purchase of goods/services and will utilise such credit for being
set off against the CGST and SGST payable on the local supply of goods/services made by him to C.
Amount (in Rs.)
Value charged for supply of goods/ services (Rs. 12,000 x 14,400
120%)
Add: CGST @ 9% 1,296
Add: SGST @ 9% 1,296
Total price charged by B from C for local supply of 16,992
goods/services
Computation of CGST, SGST payable to Government
Amount (in Rs.)
CGST payable 1,296
Less: Credit of IGST 1,296
CGST payable to Central Government Nil
SGST payable 1,296
Less: Credit of IGST (Rs. 2,160 - Rs. 1,296) 864
SGST payable to State Government 432
Central Government will transfer IGST credit of Rs. 864 utilised in the payment of SGST to State 2 (Importing
State).

Note: Rates of CGST, SGST and IGST have been assumed to be 9%, 9% and 18% respectively for the sake of
simplicity.

Statement of revenue earned by Central and State Governments

Transaction Revenue to Revenue to Revenue to

Central Government Government
Government of State 1 of State 2
(Rs.) (Rs.) (Rs.)
Supply of goods/services by X to A 900 900
Supply of goods/services by A to B 360
Transfer by State 1 to Centre 900 (900)
Supply of goods/services by B to C 432
Transfer by Centre to State 2 (864) 864
Total 1,296 Nil 1,296

QUESTIONS
3. List some of the benefits that GST to accrues to the economy.
ANSWER:

7
GST accrues following benefits to the economy:

(a) Creation of unified national market: GST has made India a common market with common tax rates and
procedures. Further, it has removed the economic barriers resulting in an integrated economy at the national
level.

(b) Boost to ‘Make in India' initiative: GST has given a major boost to the ‘Make in India' initiative of the
Government of India by making goods and services produced in India competitive in the national as well as
international market. This will make India a manufacturing hub.
(c) Enhanced investment and employment: The subsuming of major Central and State taxes in GST, complete
and comprehensive set-off of input tax on goods and services and phasing out of Central Sales Tax (CST) has
reduced the cost of locally manufactured goods and services. Resultantly, the competitiveness of Indian goods
and services in the international market has increased which has given boost to investments and Indian
exports. With a boost in exports and manufacturing activity, more employment is likely to be generated and
GDP is likely to be increased.

4. Explain with the help of examples how a particular transaction of goods and services is taxed
simultaneously under Central GST (CGST) and State GST (SGST)?

ANSWER:
The Central GST and the State GST is levied simultaneously on every intra-State supply of goods or services or
both made by registered persons except the exempted goods and services as well as goods and services which
are outside the purview of GST. Further, both are levied on the same price or value. The same can be better
understood with the help of following examples:

Example I: Suppose that the rate of CGST is 10% and that of SGST is 10%. When a wholesale dealer of steel in
Uttar Pradesh supplies steel bars and rods to a construction company which is also located within the same
State for, say Rs. 100, the dealer would charge CGST of Rs. 10 and SGST of Rs. 10 in addition to the basic price
of the goods. He would be required to deposit the CGST component into a Central Government account while
the SGST portion into the account of the concerned State Government
(viz. U.P.). It is important to note that he might not actually pay Rs. 20 (Rs. 10 + Rs. 10) in cash as he would be
entitled to set-off this liability against the CGST or SGST paid on his eligible purchases (inputs, input services
and capital goods) assuming that all his purchases are intra-State. However, for paying CGST, he would be
allowed to use only the credit of CGST paid on his purchases while for U.P. GST he can utilize the credit of U.P.
GST alone. In other words, CGST credit cannot, in general, be used for payment of SGST. Nor can SGST credit
be used for payment of CGST.

Example II: Suppose, again the rate of CGST is 10% and that of SGST is 10%. When an advertising company
located in Mumbai supplies advertising services to a company manufacturing soap also located within the
State of Maharashtra for, let us say Rs. 100, the ad company would charge CGST of Rs. 10 as well as
Maharashtra GST of Rs. 10 at the basic value of the service. He would be required to deposit the CGST
component into a Central Government account while the Maharashtra GST portion into the account of the

8
Maharashtra Government. He might not actually pay Rs. 20 (Rs. 10+Rs. 10) in cash as it would be entitled to
set-off this liability against the CGST or SGST paid on his eligible purchases (say, of inputs such as stationery,
office equipment, services of an artist etc.) assuming that all his purchases are intra-State. However, for paying
CGST, he would be allowed to use only the credit of CGST paid on its purchase while for Maharashtra GST, he
can utilise the credit of Maharashtra GST alone. In other words, CGST credit cannot, in general, be used for
payment of SGST. Nor can SGST credit be used for payment of CGST.
5 was the need to amend the Constitution of India before introducing the GST?

ANSWER:
Earlier, the fiscal powers between the Centre and the States were clearly demarcated in the Constitution with
almost no overlap between the respective domains. The Centre had the powers to levy tax on the
manufacture of goods (except alcoholic liquor for human consumption, opium, narcotics etc.) while the States
had the powers to levy tax on the sale of goods. In the case of inter-State sales, the Centre had the power to
levy the Central Sales Tax but the tax was collected and retained entirely by the States. As for services, it was
the Centre alone that was empowered to levy service tax.

Introduction of the GST necessitated the amendments in the Constitution so as to simultaneously empower
the Centre and the States to levy and collect this tax. The Constitution of India was amended by the
Constitution (101st Amendment) Act, 2016 for this purpose. Article 246A of the
Constitution introduced thereby empowered the Centre and the States to simultaneously levy and collect the
GST.

6. GST is a destination-based tax on consumption of goods or services or both. Discuss the validity of the
statement.

ANSWER:
The given statement is valid. GST is a destination-based tax on consumption of goods or services or both. GST
is known as destination-based tax since the tax would accrue to the taxing authority which has jurisdiction
over the place of consumption which is also termed as place of supply.

For example, if A in Delhi produces the goods and sells the goods to B in Haryana. In this case, the tax would
accrue to the State of Haryana and not to the State of Delhi. On the other hand, under pre-GST regime, origin-
based taxation was prevailing in such cases. Under origin-based taxation, the tax used to accrue to the State
from where the transaction originated. In the given case, under origin-based taxation, the central sales tax
would have been levied by Centre and collected by the State of Delhi and not by the State of Haryana.

9
7. Discuss the leviability of GST or otherwise on the following:

(a) Alcoholic liquor for human consumption

(b) Petroleum crude, diesel, petrol, ATF and natural gas

(c) Tobacco

(d) Opium, Indian hemp and other narcotic drugs and narcotics
ANSWER:

(a) Alcoholic liquor for human consumption: is outside the realm of GST. The manufacture/production of
alcoholic liquor continues to be subjected to State excise duty and inter-State/intra-State sale of the same is
subject to CST/VAT respectively.

(b) Petroleum crude, diesel, petrol, ATF and natural gas: As regards petroleum crude, diesel, petrol, ATF and
natural gas are concerned, they are not presently leviable to GST. GST will be levied on these products from a
date to be notified on the recommendations of the GST Council.
Till such date, central excise duty continues to be levied on manufacture/production of petroleum crude,
diesel, petrol, ATF and natural gas and inter-State/intra-State sale of the same is subject to CST/ VAT
respectively.

(c) Tobacco: Tobacco is within the purview of GST, i.e. GST is leviable on tobacco. However, Union
Government has also retained the power to levy excise duties on tobacco and tobacco products manufactured
in India. Resultantly, tobacco is subject to GST as well as central excise duty.

(d) Opium, Indian hemp and other narcotic drugs and narcotics: Opium, Indian hemp and other narcotic
drugs and narcotics are within the purview of GST, i.e. GST is leviable on them. However, State Governments
have also retained the power to levy excise duties on such products manufactured in India. Resultantly,
Opium, Indian hemp and other narcotic drugs and narcotics are subject to GST as well as State excise duties.

8 Under Goods and Services Tax (GST), only value addition is taxed and burden of tax is to be borne by the
final consumer. Examine the statement.

ANSWER:
The statement is correct. Goods and Services Tax is a destination-based tax on consumption of goods and
services. It is levied at all stages right from manufacture up to final consumption with credit of taxes paid at
previous stages available as setoff. Resultantly, only value addition is taxed and burden of tax is to be borne by
the final consumer.

10
9. Which are the commodities which have been kept outside the purview of GST? Examine the status of
taxation of such commodities after introduction of GST?

ANSWER:
Article 366(12A) of the Constitution as amended by 101st Constitutional Amendment Act, 2016 defines the
Goods and Services tax (GST) as a tax on supply of goods or services or both, except supply of alcoholic liquor
for human consumption. Therefore, alcohol for human consumption is kept out of GST by way of definition of
GST in the Constitution.
Five petroleum products viz. petroleum crude, motor spirit (petrol), high speed diesel, natural gas and aviation
turbine fuel have temporarily been kept out of the purview of GST; GST Council shall decide the date from
which they shall be included in GST. The erstwhile taxation system (CST/VAT & central excise) still continues in
respect of the said commodities.

10. A dual GST has been implemented in India. Elaborate.

ANSWER:
A dual GST has been implemented in India with the Centre and States simultaneously levying it on a common
tax base. The GST levied by the Centre on intra-State supply of goods and / or services is called the Central GST
(CGST) and that levied by the States/ Union territory is called the State GST (SGST)/ Union GST (UTGST).
Similarly, Integrated GST (IGST) is levied and administered by Centre on every inter-State supply of goods
and/or services. India is a federal country where both the Centre and the States have been assigned the
powers to levy and collect taxes through appropriate legislation. Both the levels of Government have distinct
responsibilities to perform according to the division of powers prescribed in the Constitution for which they
need to raise resources. A dual GST, therefore, keeps with the Constitutional requirement of fiscal federalism.

11. Discuss Article 269A pertaining to levy and collection of GST on inter-State supply.

ANSWER:
Article 269A of the Constitution stipulates that Goods and Services Tax onsupplies in the course of inter-State
trade or commerce shall be levied andcollected by the Government of India and such tax shall be apportioned
betweenthe Union and the States in the manner as may be provided by Parliament by lawon the
recommendations of the Goods and Services Tax Council.
Here, supply of goods, or of services, or both in the course of import intothe territory of India shall be deemed
to be supply of goods, or of services,or both in the course of inter-State trade or commerce.
The amount so apportioned to a State shall not form part of theConsolidated Fund of India. Where an amount
collected as IGST has beenused for payment of SGST or vice versa, such amount shall not form part ofthe
Consolidated Fund of India/State respectively. This is to facilitatetransfer of funds between the Centre and the
States.
Parliament is empowered to formulate the principles for determining theplace of supply, and when a supply of

11
goods, or of services, or both takesplace in the course of inter-State trade or commerce.
12. Discuss Article 246A which grants the power to make laws with respect to Goods and Services Tax. (PAST
EXAM JAN 2021)

ANSWER:
Article 246A stipulates that Parliament, and, the Legislature of every State,have power to make laws with
respect to goods and services tax imposed bythe Union or by such State.
Parliament has exclusive power to make laws with respect to goods andservices tax where the supply of
goods, or of services, or both takes place inthe course of inter-State trade or commerce.

However, in respect to petroleum crude, high speed diesel, motor spirit(commonly known as petrol), natural
gas and aviation turbine fuel, theaforesaid provisions shall apply from the date to be notified by
theGovernment on the recommendations by the GST Council.

13. "State Government has exclusive power to notify a transaction to be supply of goods or services."
Discuss the correctness of the statement.

ANSWER
The said statement
is not correct. State Government can notify a transaction to be supply of goods or services but only on the
recommendations of the GST Council. Further, Central Government, on the recommendations of the GST
Council, can also notify an activity to be the supply of goods and not supply of services or supply of services
and not supply of goods or neither a supply of goods nor a supply of services.

14. Enumerate any five matters on which the GST Council may make recommendations under Article 279A
of the Constitution of India. (PAST EXAM NOV 2019)

Answer
The matters on which the GST Council may make recommendations under Article 279A of the Constitution of
India are as under:

12
(i) the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may
be subsumed in GST;

(ii) the goods and services that may be subjected to, or exempted from GST;

(iii) model GST Laws, principles of levy, apportionment of GST levied on supplies in the course of inter -State
trade or commerce and the principles governing the place of supply;
(iv) the threshold limit of turnover below which goods and services may be exempted from GST;

(v) the rates including floor rates with bands of GST;

(vi) any special rate or rates for a specified period, to raise additional resources during any natural calamity or
disaster;

(vii) special provision with respect to Special Category States

(viii) the date on which the GST be levied on petroleum crude, high speed diesel, motor spirit (commonly
known as petrol), natural gas and aviation turbine fuel.

(ix) any other matter relating to the GST, as the Council may decide.

15. Who are the members of the GST Council? Enumerate any two recommendations that can be made by
the GST Council. (PAST EXAM NOV 2020)

Answer

The GST Council shall consist of the following members, namely: —

(a) the Union Finance Minister is the Chairperson
(b) the Union Minister of State in charge of Revenue or Finance is the Member;
(c) the Minister in charge of Finance or Taxation or any other Minister nominated by each State Government
are the Members.

The recommendations that can be made by GST Council are as under: -

(i) the taxes, cesses and surcharges levied by the Union, the States and the local bodies which may be
subsumed in GST;

(ii) the goods and services that may be subjected to, or exempted from GST;

13
(iii) model GST Laws, principles of levy, apportionment of GST levied on supplies in the course of inter-State
trade or commerce and the principles governing the place of supply;

(iv) the threshold limit of turnover below which goods and services may be exempted from GST;

(v) the rates including floor rates with bands of GST;

(vi) any special rate(s) for a specified period, to raise additional resources during any natural
calamity/disaster;
(vii) special provision with respect to Special Category States;

(viii) the date on which the GST be levied on petroleum crude, high speed diesel, motor spirit (commonly
known as petrol), natural gas and aviation turbine fuel;

(ix) any other matter relating to the GST, as the Council may decide.

16. Why was there a need for making a constitutional amendment for introduction of GST? Discuss
significant provisions of Constitution (101st Amendment) Act, 2016. (PAST EXAM JAN 2021)

Answer
There was a need for making constitutional amendment for introduction of GST so as to enable integration of
the central excise duty, additional duties of customs, State VAT and certain State specific taxes and service
tax into a comprehensive Goods and Services Tax and to empower both Centre and the States to
simultaneously levy and collect it.

The significant provisions of Constitution (101st Amendment) Act, 2016 are as under: -

(i) Concurrent powers on Parliament and State Legislatures to make laws governing taxes on goods and
services.

(ii) Levy of IGST on inter -State transactions of goods and/or services to be levied and collected by the
Central Government and apportioned between the Union and States in the manner provided by Parliament
by law as per the recommendation of the GST Council.

(iii) Principles for determining the place of supply and when a supply takes place in the course of inter - State
trade/commerce shall be formulated by the Parliament, by law.

(iv) GST will be levied on all supply of goods and services except alcoholic liquor for human consumption.

(v) On the following products, GST shall not be levied till a date to be notified on the recommendations

14
of the GST Council:
• Petroleum Crude
• High Speed Diesel
• Motor Spirit (commonly known as Petrol)
• Natural Gas
• Aviation Turbine Fuel

(vi) The Union Government shall retain the power to levy duties of excise on the aforesaid products besides
tobacco and tobacco products manufactured or produced in India.
(vii) President is empowered to constitute a joint forum of the Centre and States namely, Goods &
Services Tax Council (GST Council).

(viii) The Union Finance Minister is the Chairman of GST Council and Ministers in charge of Finance/Taxation
or any other Minister nominated by each of the States & UTs with Legislatures
are its members. Besides, the Union Minister of State in charge of Revenue or Finance is also its member.

(ix) The function of the GST Council is to make recommendations to the Union and the States on
important issues like tax rates, exemptions, threshold limits, dispute resolution etc.

(x) The provisions relating to GST Council came into force on 12th September, 2016. President
constituted the GST Council on 15th September, 2016.

(xi) The concept of ‘declared goods of special importance’ under the Constitution is done away with.
Earlier, certain restrictions were placed on the powers of States in regard to tax on such go ods.

(xii) Transitional provisions to take care of any inconsistency with respect to any law relating to tax on
goods or services or both, in force in any State. Such tax to continue to be in force until amended or repealed
or until expiration of one year from commencement of GST, whichever is earlier

17. Write a short note on various Lists provided under Seventh Schedule to the Constitution of India.

Answer
The constitutional provisions in India on the subject of distribution of legislative powers between the Union
and the States are defined under several articles; the most important in this regard being specifically under
articles 245 & 246 of the Constitution of India. The Seventh Schedule to the Constitution of India defines and
specifies allocation of powers and functions between Union & States. It contains three lists; i.e. 1) Union List,
2) State List and 3) Concurrent List.

Union List
The Union List is a list of 98 (Originally 97) numbered items as provided in the Seventh Schedule to the
Constitution of India. The Union Government or Parliament of India has exclusive power to legislate on

15
matters relating to these items.

State List
The State List is a list of 61 (Originally 66) items in the Schedule Seven to the Constitution of India. The
respective state governments have exclusive power to legislate on matters relating to these items.

Concurrent List
There are 52 (Originally 47) items currently in the list: This includes items which are under joint domain
of the Union as well as the respective States.
18. Discuss how GST resolved the double taxation dichotomy under previous indirect tax laws.

Answer
Before implementation of GST we have Excise Duty, Service Tax and Customs as Indirect Taxes in India
at Central Level. Coming to States every state had its own VAT Laws (Value Added Tax).
In pre - GST regime you will not get credit of Interstate purchases in any State because Inter State
purchases will be dealt by CST (Central State Tax).

As there are many laws governing a single transaction and we could not get credit of Tax paid in One law
in other law. But after GST Implementation all these laws were subsumed in to GST Except Customs duty, we
will be getting credit of all the taxes paid from the stage of Purchase of Raw Material to Stage of Finished
Goods.

19. Discuss the dual GST model as introduced in India.

Answer
Many countries in the world have a single unified GST system i.e. a single tax applicable throughout the
country. However, in federal countries like Brazil and Canada, a dual GST system is prevalent whereby GST is
levied by both the federal and state or provincial governments. In India, a dual GST is proposed whereby a
Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST) will be levied on the taxable
value of every transaction of supply of goods and services

20. List the Central and State levies which have been subsumed in GST in India.
Answer
Central Indirect Taxes:
Following Central Indirect Taxes and Levies would be subsumed in GST:
• Central Excise Duty
• Additional Excise Duties

16
• Excise Duty levied under the Medicinal and Toilet Preparations (Excise Duties) Act, 1955
• Service Tax
• Additional Customs Duty commonly known as Countervailing Duty
• Special Additional Duty of Customs
• Central Surcharges and Cess, so far as they relate to the supply of goods and services.
State Indirect Taxes:
Following State Indirect Taxes and Levies would be subsumed in GST:
• State Value Added Tax/Sales Tax
• Entertainment Tax (other than the tax levied by the local bodies)
• Central Sales Tax (levied by the Centre and collected by the States)

• Octroi and Entry Tax

• Purchase Tax
• Luxury Tax
• Taxes on lottery
• Betting and gambling
• State cess and surcharges insofar as they relate to supply of goods and services.

The above taxes are directly relatable to the supply of goods and services and fall in the supply chain from the
point of procurement of the raw material to the consumption of the goods and services by the end customer

17
 CHAPTER-2 SUPPLY UNDER GST
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS -1-3, 5, 6, 8-10, 12-14, 16-18, 20,23-27

MAT

PAST NO QUES Q-28 ------

EXAMS

MTP Q-15, 24 Q-19 NO Q-19 NO QUES NO QUES Q-4 Q-7,11

QUES

RTP NO QUES Q-21 NO Q- Q-22 NO QUES NO QUES NO

QUES 15, QUES
17,
18

1. Satyamev Printers is a printing house registered under GST. It receives an order for printing 5000 copies
of a book on yoga and meditation authored by a well-known yoga guru. The content of the book is to be
provided by the yoga guru to Satyamev Printers. It is agreed that Satyamev Printers will use its own paper
to print the said books. You are required to determine the rate of GST applicable on supply of printed books
by Satyamev Printers assuming that rate of GST applicable on printing services is 18% whereas the rate of
GST applicable on supply of paper used in printing the books is 12%.

ANSWER:

Section 2(30) provides that a composite supply means a supply made by a taxable person to a recipient
consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are
naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which

18
is a principal supply. Circular No. 11/11/2017 GST dated 20.10.2017 has clarified that supply of books,
pamphlets, brochures, envelopes, annual reports, leaflets, cartons, boxes etc. printed with logo, design, name,
address or other contents supplied by the recipient of such printed goods, are composite supplies.

Further, section 8(a) stipulates that a composite supply comprising two or more supplies, one of which is a
principal supply, is treated as a supply of such principal supply. Hence, one needs to ascertain what constitutes
the principal supply in this supply. As per section 2(90), principal supply is the supply of goods or services
which constitutes the predominant element of a composite supply and to which any other supply forming part
of that composite supply is ancillary.
The above circular further clarifies that in the composite supply of printing of books, pamphlets, brochures,
annual reports, and the like, where only content is supplied by the publisher or the person who owns the
usage rights to the intangible inputs while the physical inputs including paper used for printing belong to the
printer, supply of printing [of the content supplied by the recipient of supply] is the principal supply and
therefore such supplies would constitute supply of service.

Accordingly, in the given case, the supply of printed books by Satyamev Printers is a composite supply wherein
the principal supply is supply of printing services. Thus, the rate of GST applicable thereon is the rate
applicable on supply of printing services, i.e. 18%.

2. Answer the following questions:

(a) Sudama Associates, a registered supplier, disposes the computers owned by the business without
consideration and it has not claimed input tax credit on such computers.
Examine whether the disposal of computers by Sudama Associates qualifies as deemed supply under
Schedule I of the CGST Act.

(b) Prithvi Enterprises appoints Champak to procure certain goods from the market. Champak identifies
various suppliers who can provide the goods as desired by Prithvi Enterprises, and asks a supplier – Satya
Manufacturers to send the goods and issue the invoice directly to Prithvi Enterprises.

You are required to determine whether Champak can be considered as an agent of Prithvi Enterprises in
terms of Schedule I of the CGST Act.

ANSWER:

(a) As per section 7(1)(c) read with Schedule I of the CGST Act, permanent transfer or disposal of business
assets is treated as supply even though the same is made without consideration. However, this provision
would apply only if input tax credit has been availed on such assets. Therefore, the disposal of computers by
Sudama Associates is not a supply as the input tax credit has not been availed on the same.

(b) As per section 7(1)(c) read with Schedule I of the CGST Act, supply of goods by an agent to his principal 19
where the agent undertakes to receive such goods on behalf of the principal qualifies as supply even if the
same is made without consideration. Further, Circular No. 57/31/2018 GST dated 04.09.2018 clarifies that
principal-agent relationship falls within the ambit of the Schedule I only where the goods being procured by
the agent on behalf of the principal are invoiced in the name of the agent. In that case, further provision of the
said goods by the agent to the principal without consideration, would be covered in Schedule I and thus would
qualify as supply.
In the given case, Champak is only acting as the procurement agent, and has in no way involved himself in the
supply or receipt of the goods. The invoice is being issued in the name of Prithvi
Enterprises and not Champak. Hence, Champak is not an agent of Prithvi Enterprises for the supply of goods in
terms of Schedule I of the CGST Act.

3. Ajatasatru Industries enters into a contract with an actor – Chandragupta - to act as a brand ambassador
of products manufactured by Ajatasatru Industries. The duration of the contract is 5 years and the contract
fee payable to Chandragupta for being a brand ambassador is Rs. 50 lakh per annum. As per the terms of
the contract, in case the contract is terminated by Chandragupta before the end of the contract period,
Chandragupta will have to repay to Ajatasatru Industries, 50% of the contract fee received by him till the
time of termination of contract.
At the end of 3rd year, Chandragupta terminates the contract with Ajatasatru Industries. He has received
the contract fee for 3 years at the time of termination of contract.
You are required to determine whether the given transaction(s) qualifies(y) as supply(ies).

ANSWER:

As per section 7(1)(a), supply includes all forms of supply of goods or services or both made or agreed to be
made for a consideration by a person in the course or furtherance of business. In the given case,
Chandragupta has agreed to provide his services as a brand ambassador of the products
manufactured by Ajatasatru Industries at an agreed annual consideration. Thus, his services fall within the
purview of the term “supply” under GST where the consideration charged for such supply is Rs. 50 lakh per
annum.

Further, section 7(1A) provides that when certain activities or transactions constitute a supply in accordance
with the provisions of section 7(1), they shall be treated either as a supply of goods or supply of services as
referred to in Schedule II of the CGST Act. Tolerating non-performance of a contract is an activity or
transaction which is treated as a supply of service as per Schedule II and the person is deemed to have
received the consideration in the form of fines or penalty and is, accordingly, required to pay tax on such
amount.

In the given case, since Ajatasatru Industries is tolerating the act of Chandragupta of terminating the contract
before the expiry of its contract period, 50% of contract fee for 3 years amounting to Rs. 75 lakh is being

20
received by it as a penalty for the same. The act of tolerating the non-performance of a contract by
Chandragupta by Ajatasatru Industries is a supply of service where the consideration charged for such supply
is Rs. 75 lakh [50% of (Rs. 50 Lakh × 3 years)].
4. Shivaji Pvt. Ltd., a registered supplier, supplies the following goods and services for construction of
buildings and complexes -
- excavators for required period at a per hour rate
- manpower for operation of the excavators at a per day rate
- soil-testing and seismic evaluation at a per sample rate.

The excavators are invariably hired out along with operators. Similarly, excavator operators are supplied
only when the excavator is hired out.

For a given month, the receipts (exclusive of GST) of Shivaji Pvt. Ltd. are as follows:
- Hire charges for excavators - Rs. 18,00,000
- Service charges for supply of manpower for operation of the excavator - Rs. 20,000
- Service charges for soil testing and seismic evaluation at three sites - Rs. 2,50,000
Compute the GST payable by Shivaji Pvt. Ltd. for the given month.
Assume the rates of GST to be as under:
Hiring out of excavators – 12%

Supply of manpower services and soil-testing and seismic evaluation services – 18%
(MTP JULY 2021)

ANSWER:

Computation of GST payable by Shivaji Pvt. Ltd.

Particulars Value Rate of GST GST payable (Rs.)
received (Rs.)
Hiring charges for 18,00,000 12% 2,16,000
excavators
Service charges for supply 20,000 12% 2,400
of manpower for operation
of excavators [Refer Note 1]
Service charges for soil 2,50,000 18% 45,000
testing and seismic
evaluation [Refer Note 2]

21
GST liability 2,63,400

Notes:

1. Since the excavators are invariably hired out along with operators and excavator operators are supplied
only when the excavator is hired out, it is a case of composite supply under section 2(30) wherein the principal
supply is the hiring out of the excavator.
As per section 8(a), the composite supply is treated as the supply of the principal supply. Therefore, the supply
of manpower for operation of the excavators will also be taxed at the rate applicable for hiring out of the
excavator (principal supply), which is 12%.
2. Soil testing and seismic evaluation services being independent of the hiring out of excavator will be taxed at
the rate applicable to them, which is 18%.

5. Vikramaditya is a salaried employee and is planning to invest in stocks. He has opened a trading account
with Vaydaa Brokers. During the month, Vikramaditya undertook future contracts (without a physical
delivery option, but are cash settled on the expiry of the contract date), amounting to Rs. 35,00,000.
Vikramaditya needs your advice whether such future contracts undertaken by him amount to supply and
are liable to GST.

ANSWER:
For a transaction to fall within the purview of supply, it must be a supply of either goods or services or both.
The definitions of the terms “goods” and “services” specifically exclude “securities” from their purview.
Further, ‘derivatives’ are included in the definition of ‘securities’. As ‘derivatives’ fall in the definition of
securities, they are neither goods nor services and hence, are not liable to GST.

Future contracts are in the nature of financial derivatives, the price of which is dependent on the value of
underlying stocks or index of stocks or certain approved currencies and the settlement happens normally by
way of net settlement with no actual delivery.
Since future contracts are in the nature of derivatives, these qualify as ‘securities’ and thus, are not subject to
GST.
In view of the above discussion, it can be inferred that since the future contracts undertaken by Vikramaditya
are in the nature of derivatives, these qualify as ‘securities’ and do not qualify as supply and thus, are not
subject to GST.

6. Angad Private Ltd. is engaged in the business of distribution of construction material. As an incentive,
Angad Private Ltd. pays an amount of Rs. 75,000 to its employees upon achieving a specified sales target.
The incentive is part of the salary of the employees and applicable tax is deducted at source as per relevant
income tax provisions. Angad Private Ltd. is of the view that GST is not leviable on such incentive paid to the
employees. Whether the view taken by Angad Private Ltd. is correct?

22
ANSWER:
Yes, Angad Private Ltd.’s view is correct. In terms of section 7(2) read with Schedule III of the CGST Act,
services by an employee to employer in the course of or in relation to his employment shall not be treated as
supply under GST. Further, the amount paid as incentive by Angad Private Ltd. is not in the nature of gift, and
thus, is not covered under Schedule I of the CGST Act. In fact, in the given case, the incentive is part of the
salary and is directly linked to the sales target. Therefore, the services provided by the employees in return of
the incentive given to them shall not be treated as a “supply”.
In the light of above discussion, GST is not leviable on the incentive paid by Angad Private Ltd. to employees.
7. Nandeeshwar Manufacturers sends certain category of yarn for processing to the job worker. The job
worker undertakes the processing work on the yarn as per the requirement of Nandeeshwar
Manufacturers. During the process, the job worker uses his own material also. The processed yarn is sold by
Nandeeshwar Manufacturers directly from the job worker premises. Balance quantity of yarn and waste
material is sent back by the job worker to Nandeeshwar Manufacturers. The job worker is of the opinion
that he is using his own material also in the processing and hence the supply to Nandeeshwar
Manufacturers is in the nature of supply of goods as well as services. Do you agree with the opinion of job
worker? (MTP- NOV 2021)

ANSWER:
No, the opinion of the job worker is not fully correct. Section 7(1A) provides that when certain activities or
transactions constitute a supply in accordance with the provisions of section 7(1), they shall be treated either
as a supply of goods or supply of services as referred to in Schedule II of the CGST Act. Any processing activity
carried on any other person’s goods is treated as supply of service in terms of Schedule II. The job worker, in
addition to the goods received from the principal, can use his own goods for providing the services of job
work. These goods are not supply per se, but being used in the processing activity carried out by it.
Thus, the activity undertaken by the job worker, in the given case, squarely falls within the purview of
Schedule II and shall be considered as supply of service by the job worker to Nandeeshwar Manufacturers.

8. Mokshabhumi Industries has its manufacturing unit in the State of Maharashtra. It stores the finished
goods manufactured by it at a depot located in the State of Gujarat. The depot is owned by Punyabhumi
Ltd. – a related person of Mokshabhumi Industries. Punyabhumi Ltd. has not charged any consideration
from Mokshabhumi Industries for usage of depot for storage purpose. Whether the storage of goods
permitted by Punyabhumi Ltd. to Mokshabhumi Industries qualifies as supply under GST?

ANSWER:
As per section 7(1)(c) read with Schedule I of the CGST Act, supply of goods or services or both between
related persons without consideration when made in the course or furtherance of business qualifies as supply.
Thus, the storage services provided by Punyabhumi Ltd. to Mokshabhumi Industries in course or furtherance
of business qualifies as supply under GST even though no consideration has been charged for the same.

9. Rob Shareholding Ltd., an approved intermediary, has entered into a transaction wherein certain 23
securities were to be lent to Dhandhan Bank, under Securities Lending Scheme, 1997. Dhandhan Bank shall
pay specified lending fee against such lending of securities to it. Explain the taxability of transactions
involved in the Securities Lending Scheme, 1997.

ANSWER:
Securities Lending Scheme, 1997 (hereafter referred to as SLS) facilitates the lending and borrowing of
securities. Securities are neither covered in the definition of goods nor covered in the definition of services.
Therefore, a transaction in securities which involves disposal of securities is not a supply in GST and hence not
taxable. However, SLS doesn’t treat lending of securities as disposal of securities and therefore is not excluded
from the definition of services. The lending fee charged from the borrowers of securities has the character of
consideration and is taxable under GST. Apart from above, the activities of the intermediaries facilitating
lending and borrowing of securities for commission or fee are also taxable separately [Circular No.
119/38/2019 GST dated 11.10.2019].

10. Krishnadev is a trader based in India. Ramakrishna, brother of Krishnadev, is located in China and is also
engaged in business of trading of goods. Krishnadev places an order with Ramakrishna for procurement of
certain goods from local market in China. Before the shipment of goods from China to India, Krishnadev sold
such goods to Christiano, a trader located in Brazil. The goods were subsequently shipped from China to
Brazil. Comment on the taxability of transaction between Krishnadev and Christiano under GST in India.

ANSWER:
The transaction between Krishnadev and Christiano is in the nature of merchant trading. As per Schedule III of
the CGST Act, transactions involving sale of goods from a place in non-taxable territory to another place in
non-taxable territory, without such goods entering into India, shall not be treated as supply under GST.
Therefore, the transaction between Krishnadev and Christiano shall not be treated as supply and is thus not
leviable to GST.

11. Mohandas International entered into a transaction for import of goods from a vendor located in Italy.
Due to financial issues, Mohandas International was not in a situation to clear the goods upon payment of
import duty. Mohandas International sold the goods to Radhakrishnan Export House by endorsement of
title to the goods, while the goods were in high seas. The agreement further provided that Mohandas
International shall purchase back the goods in future from Radhakrishnan Export House. Discuss the
taxability of transaction(s) involved, under the GST law. (MTP- NOV 2021)

ANSWER:
As per Schedule III of the CGST Act, high seas sale transactions i.e. supply of goods by the consignee to any
other person, by endorsement of documents of title to the goods, after the goods have been dispatched from
the port of origin located outside India but before clearance for home consumption shall not be considered as
supply under GST. Thus, the sale of goods by Mohandas International to Radhakrishnan Export House in high
seas shall not be liable to GST.

24
Further, the import duty including IGST shall be payable by Radhakrishnan Export House at the time of
clearance of goods at port of import. In case the goods are sold back by Radhakrishnan Export House to
Mohandas International at a subsequent point of time, the same shall be treated as normal domestic sale
transaction and GST shall be applicable on the same subject to other conditions prescribed under GST Law.
12. Mr. Happy has a huge residential property located at a prime location in Mumbai, Maharashtra. He has
let out the 1st and 2nd floor to Mr. Peace for residential purposes in April. Mr. Peace surrenders his tenancy
rights to Mr. Serene for a tenancy premium of Rs. 10,00,000 on 1st June. Mr. Serene has also paid the
applicable stamp duty and registration charges on transfer of tenancy rights. Moreover, Mr. Serene has
agreed to pay a monthly rent of Rs. 1,00,000 to Mr. Happy from June.
Determine the taxability of the transaction(s) involved in the given case, for the month of June.

ANSWER:
Circular No. 44/2018 CT dated 02.05.2018 clarifies that the activity of transfer of tenancy right against
consideration [i.e. tenancy premium] is squarely covered under supply of service liable to GST. It is a form of
lease or renting of property and such activity is specifically declared to be a service in Schedule II i.e. any lease,
tenancy, easement, licence to occupy land is a supply of services.
Although stamp duty and registration charges have been levied on such transfer of tenancy rights, it shall be
still subject to GST. Merely because a transaction/supply involves execution of documents which may require
registration and payment of registration fee and stamp duty, would not preclude them from the ‘scope of
supply’ and from payment of GST.
The transfer of tenancy rights cannot be treated as sale of land/ building in Schedule III. Thus, it is not a non-
supply under GST and consequently, a consideration for the said activity shall attract levy of GST.

Services provided by outgoing tenant by way of surrendering the tenancy rights against consideration in the
form of a portion of tenancy premium is liable to GST. Hence, in the given case, the tenancy premium of Rs.
10,00,000 received by Mr. Peace for surrendering his tenancy rights to Mr. Serene is liable to GST.
The circular further clarifies that since renting of residential dwelling for use as a residence is exempt [Entry 12
of Notification No. 12/2017 CT (R) dated 28.06.201732], grant of tenancy rights in a residential dwelling for
use as residence dwelling against tenancy premium or periodic rent or both is exempt. Consequently, monthly
rent Rs. 1,00,000 received by Mr. Happy from Mr. Serene is exempt.

13. (a) Rudraksh Kapoor, owner of Rudraksh Publishing House, Ghaziabad, U.P., donated some money to a
Divyaprakash Charitable Trust in the memory of his late father. The Divyaprakash Charitable Trust
constructed a room in the school run by it from such donation and wrote “Donated by Rudraksh Kapoor in
the memory of his father” on the door of the room so constructed. Examine whether the money donated by
Rudraksh Kapoor is leviable to GST.

25
(b) In the above question, if the Divyaprakash Charitable Trust had written on the door of the room
constructed in the school run by it from the money donated by Rudraksh Kapoor “Donated by Rudraksh
Publishing House, Ghaziabad, U.P.”, would the given transaction/activity qualifies as supply.

ANSWER:
Circular No. 116/35/2019 GST dated 11.10.2019 has clarified that in case of donations received by a charitable
institution, when the name of the donor is displayed in recipient institution’s premises, in such a manner,
which can be said to be an expression of gratitude and public recognition of donor’s act of philanthropy and is
not aimed at giving publicity to the donor in such manner that it would be an advertising or promotion of his
business, then it can be said that there is no supply of service for a consideration (in the form of donation).
Donations received by the charitable organisations are treated as consideration only if there exists, quid pro
quo, i.e., there is an obligation on part of recipient of the donation or gift to do anything (supply a service).
Thus, GST is not leviable where all the following three conditions are satisfied namely:
Gift or donation is made to a charitable organization
Payment has the character of gift or donation
Purpose is philanthropic (i.e., it leads to no commercial gain) and not advertisement.

(a) In the backdrop of the above discussion, since in the given case, the way the name of Rudraksh Kapoor is
displayed on the door of the room constructed in the school run by Divyaprakash Charitable Trust, it is only an
expression of gratitude and public recognition of Rudraksh’s act of philanthropy and is not aimed at
advertising or promoting his business. There is no reference/mention of his publishing house which otherwise
would have got advertised.
Thus, the money donated by Rudraksh Kapoor is not a leviable to GST.

(b) In the given case, since the name of Rudraksh Publishing House has been displayed on the door of the
room constructed in the school run by Divyaprakash Charitable Trust, it might be aimed at advertising or
promoting his business. There is a direct mention of his publishing house which is being advertised. In such a
case, it is a supply of service by Divyaprakash Charitable Trust for a consideration received in the form of
donation.

14. Mrs. Kajal, a registered supplier of Jaipur (Rajasthan), has made the following supplies in the month of
January:
(i) Supply of a laptop along with the laptop bag to a customer of Mumbai for Rs. 55,000 (exclusive of GST).

(ii) Supply of 10,000 kits (at Rs. 50 each) amounting to Rs. 5,00,000 (exclusive of GST) to Ram Fancy Store in
Kota (Rajasthan). Each kit consists of 1 hair oil, 1 beauty soap and 1 hair comb.
(iii) 100 kits are given as free gift to Jaipur customers (all unrelated) on the occasion of Mrs. Kajal's birthday.
Each kit consists of 1 hair oil and 1 beauty soap. Cost of each kit is Rs. 35. Input tax credit has not been
taken on the goods contained in the kit.

(iv) Event management services provided free of cost to her brother (wholly dependent on her) for his son’s

26
marriage function in Indore (Madhya Pradesh). Cost of providing said services is Rs. 80,000.

(v) 1,400 chairs and 100 coolers hired out to Function Garden, Ajmer (Rajasthan) for Rs. 3,30,000 (exclusive
of GST) including cost of transporting the chairs and coolers from Mrs. Kajal's godown at Jaipur to Function
Garden, Ajmer. Since Mrs. Kajal is not a GTA, transportation services provided by her are exempt vide
Notification No. 12/2017 CT (R) dated 28.06.201731.
Assume rates of GST to be as under:-
S. No. Particulars Rate of GST
1. Laptop 18%
2. Laptop bag 28%
3. Hair oil 18%
4. Beauty soap 28%
5. Hair comb 12%
6. Event management service 5
7. Service of renting of chairs and coolers 12%
8. Transportation service 5%

From the above information, examine each of the above supplies made by Mrs. Kajal for the month of
January and determine the rate of GST applicable on the same.

ANSWER:

S. No. Particulars Rate of GST

(i) Supply of laptop bag along with laptop to Mumbai customer 18%
[Being naturally bundled, supply of laptop bag along with the laptop is a composite
supply which is treated as the supply of the principal supply [viz. laptop] in terms of
section 8(a). Accordingly, rate of principal supply, i.e. laptop will be charged.]
(ii) Supply of kits to Ram Fancy Store 28%
[It is a mixed supply and is treated as supply of that particular supply which attracts
highest tax rate [viz. beauty soap] in terms of section 8(b).]

(iii) Free gifts to customers Nil

[Cannot be considered as supply under section 7 read with Schedule I as the gifts are
given to unrelated customers without consideration.]

(iv) Event management services provided free of cost to her brother for his son’s 5%
marriage shall be considered as supply as the services are being provided to a
related person. Since it is an individual supply, it will be taxed at the rate applicable

27
on said service.
(v) Chairs and coolers hired out to Function Garden 12%
[Transportation services provided by Mrs. Kajal are exempt. However, since chairs
and coolers are hired out along with their transportation, it is a case of composite
supply wherein the principal supply is hiring out of chairs and coolers. Accordingly,
transportation service will also be taxed at the rate applicable for renting of chairs
and coolers*]
*Note: As per section 2(30) of the CGST Act, 2017, composite supply means a supply made by a taxable person
to a recipient consisting of two or more taxable supplies. Since in point (v), service of hiring out of chairs &
coolers is taxable while transportation service is exempt, it is possible to take a view that this is not a case of
composite supply. In that case, the two services will be treated as independent services and taxed accordingly.

15 Diligent Force, a professional training institute, gets its training material of ‘Aptitute Quotient’ printed
from ‘Durga Printing House’ -a printing press. The content of the material is provided by the Diligent Force
who owns the usage rights of the same while the physical inputs including paper used for printing belong to
the Durga Printing House.
Ascertain whether supply of training material by the Durga Printing House constitutes supply of goods or
supply of services. (RTP NOV 2019) (MTP MAY 2018)

Answer
Circular No. 11/11/2017 GST dated 20.10.2017 has clarified that supply of books printed with contents
supplied by the recipient of such printed goods, is composite supply and the question, whether such
supplies constitute supply of goods or services would be determined on the basis of what constitutes the
principal supply.

Principal supply has been defined in section 2(90) of the CGST Act, 2017 as supply of goods or services
which constitutes the predominant element of a composite supply and to which any other supply forming
part of that composite supply is ancillary.

In the case of printing of books where content is supplied by the publisher or the person who owns the
usage rights to the intangible inputs while the physical inputs including paper used for printing belong
to the printer, supply of printing [of the content supplied by the recipient of supply] is the principal
supply and therefore, such supplies would constitute supply of service.

Thus, in view of the above- mentioned provisions, the supply of training material by the Durga Printing
House would constitute supply of services

28
16 Mrs. Kajal, a registered supplier of Jaipur (Rajasthan), has made the following supplies in the month of
January, 20XX:

(i) Supply of a laptop bag along with the laptop to a customer of Mumbai for ₹ 55,000 (exclusive of GST).

(ii) Supply of 10,000 kits (at ₹ 50 each) amounting to ₹ 5,00,000 (exclusive of GST) to Ram Fancy Store in
Kota
(Rajasthan). Each kit consists of 1 hair oil, 1 beauty soap and 1 hair comb.
(iii) 100 kits are given as free gift to Jaipur customers on the occasion of Mrs. Kajal's birthday. Each kit
consists of 1 hair oil and 1 beauty soap. Cost of each kit is ₹ 35, but the open market value of such kit of
goods and of goods of like kind and quality is not available. Input tax credit has not been taken on the
goods contained in the kit.

(iv) Event management services provided free of cost to her brother for his son’s marriage function in
Indore (Madhya Pradesh). Cost of providing said services is ₹ 80,000, but the open market value of
such services and of services of like kind and quality is not available.

(v) 1,400 chairs and 100 coolers hired out to Function Garden, Ajmer (Rajasthan) for ₹ 3,30,000 (exclusive
of GST) including cost of transporting the chairs and coolers from Mrs. Kajal's godown at Jaipur to the
Function Garden, Ajmer.

Mrs. Kajal has paid the cost of transportation of chairs and coolers to an unregistered Goods Transport
Agency (GTA) [located in the State of Rajasthan] @ ₹ 20 (exclusive of GST) for each chair and each cooler
and in turn, has charged ₹ 20 only for each chair and each cooler from Function Garden for transportation of
the same.
Interest of ₹ 6,400 (inclusive of GST) was collected by Mrs. Kajal in January from Ram Fancy Store, Kota
for the payment received with a delay of 30 days.

Assume rates of GST to be as under:

From the above information, compute the GST liability (CGST and SGST and/ or IGST, as the case may be) of 29
Mrs. Kajal for the month of January, 20XX.

Answer

Computation of GST liability of Mrs. Kajal for the month of January, 20XX
30
Note: As per section 2(30) of the CGST Act, 2017, composite supply means a supply made by a taxable person
to a recipient consisting of two or more taxable supplies. Since in point (v), service of hiring out of chairs &
coolers is taxable while transportation service is exempt (being provided by a person other than a GTA), it is
possible to take a view that this is not a case of composite supply. In that case, the two services will be
treated as independent services and taxed accordingly.

17. Mr. Zombi, a supplier registered in Hyderabad (Telangana), procures goods from China and directly
supplies the same to a customer in US. With reference to the provisions of GST law, examine whether the
said activity of supply of goods by Mr. Zombi to customer in US is taxable under GST. If yes, determine the
place of supply of the same. (RTP NOV 2019)

Answer
Schedule III to the CGST Act specifies transactions/ activities which shall be neither treated as supply of goods
nor supply of services. One of such activity/transaction is supply of goods from a place in the non - taxable
territory to another place in the non - taxable territory without such goods entering into India.
Thus, it seeks to exclude from the tax net such transactions which involve movement of goods, caused by
a registered person, from one non - taxable territory to another non -taxable territory.
Therefore, in view of the above - mentioned provisions, the said activity is not a supply. Hence, it is not
leviable to GST since “supply” is the taxable event for chargeability of GST. Therefore, since the transaction is
not leviable to GST, the question of place of supply does not arise in the given case.

18. Allfit Laboratories Ltd. is a registered supplier of bulk drugs in Delhi paying tax under regular scheme. It
manufactures bulk drugs and supplies the same in the domestic and overseas market. The bulk drugs are
supplied within Delhi and in the overseas market directly from the company’s warehouse located in
South Delhi. For supplies in other States of India, the company has appointed consignment agents in each
such State. However, supplies in Gurgaon (Haryana) and Noida (U.P.) are effected directly from South Delhi
warehouse. The drugs are supplied to the consignment agents from the South Delhi warehouse.

Allfit Laboratories Ltd. also provides drug development services to drug manufacturers located in India,

31
including testing of their new drugs in its laboratory located in Delhi.
The company has furnished the following information for the month of January, 20XX
You are required to determine the GST liability [CGST & SGST or IGST, as the case may be] of Allfit
Laboratories Ltd. for the month of January, 20XX with the help of the following additional information
furnished by it for the said period:

1. Consignments of bulk drugs were sent to Cardinal Pharma Pvt. Ltd. and Rochester Medicos – agents
of Allfit Laboratories Ltd. in Punjab and Haryana respectively. Cardinal Pharma Pvt. Ltd. and Ro chester
Medicos supplied these drugs under their invoices to the Medical Stores located in their respective States
for Rs. 60,00,000 and Rs. 50,00,000 respectively.

2. Bulk drugs have been supplied to Ronn Medicos a wholesale dealer of bulk drugs in Gurgaon,
Haryana for consideration of Rs. 15,00,000. Allfit Laboratories Ltd. owns 72% shares of Ronn Medicos Pvt.
Ltd. Open market value of the bulk drugs supplied to Ronn Medicos Pvt. Ltd. is Rs. 30,00,000. Further, Ronn
Medicos Pvt. Ltd. is not eligible for full input tax credit. (MTP MAY 2018)

Note:
(i) All the given amounts are exclusive of GST, wherever applicable.
(ii) Assume the rates of GST to be as under:

32
You are required to make suitable assumptions, wherever necessary. (RTP NOV 2019)

Answer

Computation of GST Liability of Allfit Laboratories Ltd. for the month of January, 20XX
Notes:

1. Being an intra -State supply of services, supply of drug development services to Orochem Ltd. of Delhi is
subject to CGST and SGST @ 9% each. Further, in terms of section 13(2) of the CGST Act, the time of supply of
services is the earlier of the date of invoice or date of receipt of payment, if the invoice is issued within 30
days of the supply of service. In the given case, invoice is issued within 30 days of the supply of service.
Therefore, time of supply of services will be date of receipt of advance and hence, GST is payable on the
advance received in January, 20XX.

2. Being an inter - State supply of goods, supply of bulk drugs to Novick Pharmaceuticals of Gurgaon, Haryana

33
is subject to IGST @ 5%. Further, in terms of section 12(2) of the CGST Act, the time of
supply of goods is the earlier of the date of issue of invoice/last date on which the invoice is required to be
issued or date of receipt of payment.
However, Notification No. 66/2017 CT dated 15.11.2017 specifies that time of supply of goods for the
purpose of payment of tax is the date of issue of invoice/last date of issue of invoice.
Thus, GST is not payable at the time of receipt of advance against supply of goods. The time of supply of the
advance received for bulk drugs to be supplied to Novick Pharmaceuticals is the time of issue of invoice, which
is in March, 20XX. Thus, said advance will be taxed in March, 20XX and not in January, 20XX.
3. Being an intra - State supply of goods, supply of bulk drugs to wholesale dealers of drugs in Delhi is
subject to CGST and SGST @ 2.5 % each.

4. Section 2(5) of the IGST Act defines export of goods as taking goods out of India to a place outside India. In
view of the said definition, supply of the bulk drugs to Anchor Pharmaceuticals Inc. of USA under LUT is export
of goods.

Export of goods is a zero - rated supply [Section 16(1) of the IGST Act]. A zero - rated supply under LUT is
made without payment of integrated tax [Section 16(3)(a) of IGST Act].

5. Being an intra -State supply of services, supply of drug development services to Unipharma Ltd. of Delhi is
subject to CGST and SGST @ 9% each.

6. Value of supply of goods made through an agent is determined as per rule 29 of the CGST Rules.
Accordingly, the value of supply of goods between the principal and his agent is the open market value of the
goods being supplied, or at the option of the supplier, is 90% of the price charged for the supply of goods of
like kind and quality by the recipient to his unrelated customer, where the goods are intended for further
supply by the said recipient.

7. In the given case, since open market value is not available, value of bulk drugs supplied to consignment
agents
- Cardinal Pharma Pvt. Ltd. and Rochester Medicos – will be 99,00,000 [90% of (60,00,000 + 50,00,000)].
Further, being an inter
-State supply of goods, supply of bulk drugs to the consignment agents is subject to IGST @ 5%.

8. If any person directly or indirectly controls another person, such persons are deemed as related persons.
[Clause (a)(v) of explanation to section 15 of the CGST Act]. In the given case, since Allfit
Laboratories Ltd. owns 72% shares of Ronn Medicos, both are related persons.

9. Value of supply of goods between related persons (other than through an agent) is determined as per rule
28 of the CGST Rules. Accordingly, the value of supply of goods between related persons
is the open market value of such goods and not the invoice value. Furthermore, since Ronn Medicos is not

34
eligible for full input tax credit, value declared in the invoice cannot be deemed to be the
open market value of the goods. Thus, open market value of the bulk drugs supplied to Ronn Medicos, i.e
30,00,000 is the value of supply of such goods. Further, being an inter -State supply of goods, supply of bulk
drugs to Ronn Medicos is subject to IGST @ 5%.
19 Power Engineering Pvt. Ltd., a registered supplier, is engaged in providing expert maintenance and repair
services for large power plants that are in the nature of immovable property, situated all over India.

The company has its Head Office at Bangalore, Karnataka and branch offices in other States. The work is
done in the following manner.

- The company has self-contained mobile workshops, which are container trucks fitted out for
carrying out the repairs. The trucks are equipped with items like repair equipments, consumables,
tools, parts etc. to handle a wide variety of repair work.

- The truck is sent to the client location for carrying out the repair work. Depending upon the repairs
to be done, the equipment, consumables, tools, parts etc. are used from the stock of such items
carried in the truck.

- In some cases, a stand-alone machine is also sent to the client’s premises in such truck for carrying
out the repair work.
- The customer is billed after the completion of the repair work depending upon the nature of the
work and the actual quantity of consumables, parts etc. used in the repair work.

- Sometimes the truck is sent to the company’s own location in other State(s) from where it is further
sent to client locations for repairs.

Work out the GST liability [CGST & SGST or IGST, as the case may be] of Power Engineering Pvt. Ltd.,
Bangalore on the basis of the facts as described, read with the following data for the month of November
20XX

35
Also, specify the document(s), if any, which need to be issued by Power Engineering Pvt. Ltd., Bangalore
for the above transactions. All the given amounts are exclusive of GST, wherever applicable. Assume the
rates of taxes to be as under:

You are required to make suitable assumptions, wherever necessary. (MTP NOV 2019) (MTP NOV 2018)

Answer
Computation of GST Liability of Power Engineering Pvt. Ltd., Bangalore for the month of November 20XX

36

Notes:
(1) Movement of goods without any consideration to a ‘distinct person’ as specified in section 25(4) of the
CGST Act, 2017 is deemed to be a supply in terms of
section 7 read with Schedule I of the said Act. The purchase value is taken as taxable value, being the open
market value in terms of rule 28(a) of the CGST Rules 2017. (However, if the regional office is eligible to take
full input tax credit, any value may be declared in the tax invoice and that will be taken to be the open market
value in terms of the second proviso to the same rule.)
In the given case-
• the location of the supplier is in Bangalore (Karnataka); and
• the place of supply of items contained in the truck is the location of such goods at the time at which the
movement of goods terminates for delivery to the recipient i.e., Tamil Nadu in terms
of section 10(1)(a) of the IGST Act, 2017.

Therefore, the given supply of items is an inter-State supply as the location of the supplier and the place of
supply are in two different States [Section 7(1)(a) of IGST Act, 2017]. Thus, the supply is
leviable to IGST in terms of section 5(1) of the IGST Act, 2017.

Since the activity is a supply, a tax invoice is to be issued by Power Engineering Pvt. Ltd. in terms of section
31(1)(a) of the CGST Act, 2017 for sending the items to its own location in Tamil Nadu.

(2) As per section 25(4) of the CGST Act, 2017, a person who has obtained more than one registration,
whether in one State or Union territory or more than one State or Union territory shall, in respect
of each such registration, be treated as ‘distinct persons’.
Schedule I to the CGST Act, 2017 specifies situations where activities are to be treated as supply even if made
without consideration. Supply of goods and/or services between ‘distinct persons’ as
specified in section 25 of the CGST Act, 2017, when made in the course or furtherance of business is one such
activity included in Schedule I under para 2.

However, in view of the GST Council’s recommendation, it has been clarified that the inter-State movement of
various modes of conveyance between ‘distinct persons’ as specified in section 25(4),
not involving further supply of such conveyance, including trucks carrying goods or passengers or both; or for
repairs and maintenance, may be treated ‘neither as a supply of goods nor supply of
service’ and therefore, will not be leviable to IGST. Applicable CGST/SGST/IGST, however, shall be leviable on
repairs and maintenance done for such conveyance [Circular No. 1/1/2017 IGST dated 07.07.2017].

Since the activity is not a supply, tax invoice is not required to be issued by Power Engineering Pvt. Ltd.
However, a delivery challan is to be issued by the company in terms of rule 55(1)(c) of CGST Rules, 2017 for
sending the truck

37
to its own location in Tamil Nadu.

(3) Supply of goods without consideration is deemed to be a supply inter alia when the goods are supplied to a
‘distinct person’. However, in this case,
stand-alone machine and container truck are moved to client location and not between ‘distinct persons’.
Hence, the same will fall outside the
scope of definition of supply and will not be leviable to GST. Here again, a delivery challan is to be issued in
terms of rule 55(1)(c) of CGST Rules, 2017 for sending the stand-alone machines and container truck to client
location.
(4) As per section 2(119) of the CGST Act, 2017, ‘works contract’ means a contract for, inter alia, repair,
maintenance of any immovable property wherein transfer of property in goods (whether as goods or in some
other form) is involved in the execution of such contract.

In this case, the supplier provides maintenance and repair services for power plants that are in the nature of
immovable property and uses consumables and parts, wherever necessary, for the repairs. Hence, the
contract is that of a works contract.
Further, as per section 2(30) of the CGST Act, 2017, a works contract is a ‘composite supply’ as it consists of
taxable supplies of both goods and services which are naturally bundled and supplied in conjunction with each
other. The composite supply of works contract is treated as supply of
service in terms of para 6(a) of Schedule II to the CGST Act, 2017.

The items used in relation to the repair and maintenance work could be consumables or could be identifiable
items/parts. In either case, the transfer of property in goods is incidental to a
composite supply of works contract service. Thus, the value of the items actually used in the repairs will be
included in the invoice raised for the service and will be charged to tax at that point of time.
Here again, a delivery challan is to be issued in terms of rule 55(1)(c) of CGST Rules, 2017 for sending the items
for carrying out the repairs.

(5) The activity is a composite supply of works contract, which is treated as supply of service. As per section
8(a) of the CGST Act, 2017, a composite supply is treated as a supply of the principal supply
involved therein and charged to tax accordingly

Since the activity is a supply of service, a tax invoice is to be issued by Power Engineering Pvt. Ltd. in terms of
section 31(2) of the CGST Act, 2017.

(6) In the given case -

• the location of the supplier is in Bangalore (Karnataka); and
• the place of supply of works contract services relating to the power plant (immovable property) is the
location at which the immovable property is located i.e., Tamil Nadu in terms of section
12(3)(a) of the IGST Act, 2017. Therefore, the given supply is an inter-State supply as the location of the
supplier and the place of
supply of services are in two different States [Section 7(3)(a) of IGST Act, 2017]. Thus, the supply will be
leviable to IGST in terms of section 5(1) of the IGST Act, 2017.

(7) In the given case, the location of the supplier and the place of supply of works contract services are within 38
the same State. Therefore, the given supply is an intra
-State supply in terms of section 8(2) of IGST Act, 2017 and thus, chargeable to CGST and SGST.
20 Mr. NY, a supplier of goods pays GST under regular scheme. Mr. NY is not eligible for any threshold
exemption. He has made the following outward taxable supplies during September 20XX:

He has also furnished the following information in respect of supplies received by him during September
20XX:

Mr. NY has following ITCs with him at the beginning of September 20XX:

Note:

39
(i) Both inward and outward supplies are exclusive of taxes, wherever applicable.

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

Compute net GST payable by Mr. NY for the month of September 201XX. Make suitable assumptions
wherever required.
Answer

Computation of GST payable by Mr. NY for the month of September, 20XX:

Computation of total ITC available

Note 1. ITC of IGST shall be first utilize fully to pay IGST, CGST and SGST in that order.

40
Note 2. IGST credit after setting it against IGST liability of Rs. 63,000/- i.e. Rs. 14,000/- to be adjusted
first with SGST liability since CGST credit is almost sufficient to set off CGST liability.
21 Jaskaran, a registered supplier of Delhi, has made the following supplies in the month of January, 20XX:
(RTP NOV 2018)

*excluding GST

You are required to determine the GST liability [CGST & SGST and/or IGST, as the case may be] of Jaskaran
for the month of January, 20XX with the help of the following additional information furnished by him for
the said period:

1. Penalty of ₹ 10,000 was collected from Sukhija Gift Shop for the payment received with a delay of 10
days.

2. The transportation of the generators from Jaskaran’s warehouse to the customer’s premises is arranged
by Jaskaran through a Goods Transport Agency (GTA) who pays tax @ 12%.

41
3. Assume the rates of GST to be as under
Answer
Computation of GST liability of Jaskaran for the month of January, 20XX

Notes:
1. As per section 2(74) of the CGST Act, 2017, mixed supply means two or more individual supplies of goods or
services, or any combination thereof, made in conjunction with each other by a taxable
person for a single price where such supply does not constitute a composite supply. Supply of a package
containi
ng chocolates, fruit juice bottles and a packet of toy balloons is a mixed supply as each of these items can be
supplied separately and is not dependent on any other. Further, as per section 8(b) of the CGST Act, 2017, the
mixed supply is treated as a supply of that particular supply which attracts the highest rate of tax. Thus, in the
given case, supply of packages
is treated as supply of chocolates [since it attracts the highest rate of tax]. Consequently, being an inter
-State supply of goods, supply of packages to Sukhija Gift Shop of Punjab is subject to IGST @ 18% each.

Further, value of supply includes interest or late fee or penalty charged for delayed payment of any
consideration for any supply in terms of section 15(2)(d) of the CGST Act, 2017. Thus, penalty of ₹ 10,000
[considered as inclusive of GST] collected from Sukhija Gift Shop for the delayed payment
will be included in the value of supply. The total value of supply is ₹ 6,08,475 [₹ 6,00,000 + (₹ 10,000 ×
100/118)]

42
2. Services by way of transportation of goods by road except the services of a Goods Transportation Agency
(GTA) are exempt vide Notification No. 9/2017 IT (R) dated 28.06.2017. Since Jaskaran is
not a GTA, transportation services provided by him are exempt from GST. However, since the generators are
invariably hired out along with their transportation till customer’s premises, it is a case of composite supply
under section 2(30) of the CGST Act, 2017 wherein the principal supply is the renting of generator.
As per section 8(a) of the CGST Act, 2017, the composite supply is treated as the supply of the principal supply.
Therefore, the service of transportation of generators will also be taxed at the
rate applicable for renting of the generator (principal supply). Consequently, being an inter-State supply of
service, service of hiring out the generators to Morarji
Banquet Halls of Chandigarh is subject to IGST @ 18% each.

3. As per section 7(1)(c) of the CGST Act, 2017, an activity made without consideration can be treated as
supply only when it is specified in Schedule I of the CGST Act, 2017. Para 2. of Schedule I provides
that supply of goods or services or both between related persons or between distinct persons as specified in
section 25, when made in the course or furtherance of business, are to be treated as supply even if made
without consideration. However, since the question does not provide that customers are related to Jaskaran,
free gifts given to the customers cannot be considered as a supply under section 7. Consequently, no tax is
leviable on the same.

Further, the catering services provided by Jaskaran to his elder brother without consideration will be treated
as supply as Jaskaran and his elder brother, being members of same family, are related persons in terms of
explanation (a)(viii) to section 15 of the CGST Act, 2017 and said services have been provided in
ourse/furtherance of business. Value of supply of services between related
persons, other than through an agent is determined as per rule 28 of the CGST Rules, 2017. Accordingly, the
value of supply is the open market value of such supply; if open market value is
not available, the value of supply of goods or services of like kind and quality. However, if value cannot be
determined under said methods, it must be worked out based on the cost of the supply plus 10% mark-up.
Thus, in the given case, value of catering services provided to the elder brother
of Jaskaran is ₹ 60,500 [₹ 55,000 × 110%]. Further, being an intra-State supply of services, catering services are
subject to CGST and SGST @ 2.5% each.

4. As per Notification No. 13/2017 CT(R) dated 28.06.2017, GST is payable by the recipient on reverse charge
basis on the receipt of services of transportation of goods by road from a goods transport
agency (GTA) provided such GTA has not paid GST @ 12%. Since in the given case, Jaskaran has received
services from a GTA who has paid GST @ 12%, reverse charge provisions will not be
applicable.

22 Skylark Pvt. Ltd., Noida (Uttar Pradesh) is engaged in various kinds of commercial activities. It

43
Manufactures taxable goods as also provides certain services. The company has branch office in New
Delhi. The Head office at Noida and the branch office in New Delhi are registered under GST. The branch
office at New Delhi is eligible for full input tax credit.
The company has reported a total turnover of ₹ 256 crore (exclusive of GST) for the month of August
20XX. The following information is provided by the company in relation to such turnover:

(i) The turnover includes ₹ 45 crore from sale of securities which were purchased for ₹ 30 crore in the
month of January last year.

(ii) The company supplied goods worth ₹ 50 crore to ABC Ltd. in UK under a letter of undertaking (LUT).
The total export proceeds are received in the month of August 20XX itself; ₹ 30 crore in foreign
currency and balance ₹ 20 crore in Indian rupees.

(iii) The company provided consulting services to Sherpa & Sons in Nepal for ₹ 30 crore under a LUT.
The entire consideration is received in Indian rupees in the month of August 20XX itself,
with the permission of RBI.

(iv) The turnover includes supply of goods worth ₹ 10 crore to Shanghai Jianguo Trading Company Ltd.,
a company based in China. As per the sale contract, the goods were to be assembled at Shanghai
Jianguo Trading Company Ltd.’s office in Gurugram, Haryana. The payment of the goods is received
in convertible foreign exchange in the month of August 20XX itself.

(v) Goods worth ₹ 20 crore are supplied under a LUT to DEF Pvt. Ltd. located in a SEZ in the State of
Uttar Pradesh.

(vi) Goods worth ₹ 40 lakh were being procured from a vendor in Japan. While the goods were in transit,
the company secured an order for the said goods for ₹ 50 lakh from a buyer in Thailand. Thus, the
goods were directly sent to Thailand without entering India.

(vii) The company owns three immovable properties in Noida. The first building is let out for running a
printing press at ₹ 10 lakh per month. The second building is let out for residential purpose at ₹ 5
lakh per month. The third building is let out to a Cold Storage operator at ₹ 5 lakh per month. The
cold storage operator sub-lets the building as a warehouse to store potatoes.

(viii) The remaining turnover comprised of taxable goods sold within the State and outside the State in
the ratio of 3:2. Total turnover of ₹ 256 crore includes the turnover referred to in points (i) to (vii) above. In
addition to above –

(i) the company transferred its stock (taxable goods) from Noida to Delhi branch without any
consideration; the value declared in the invoice is ₹ 4.5 crore (exclusive of GST) . The cost of
production of such goods is ₹ 10 crore. Such stock is sold to independent buyers at ₹ 15 crore
(exclusive of GST).

44
(ii) the company had sent goods worth ₹ 12 crore (exclusive of GST) to M/s Sharma Traders in Haryana
on approval basis on 15th January, 20XX, 15th February 20XX & 15th March 20XX (₹ 4 crore each
month). Goods sent during all the three months are approved in the month of September 20XX.
Compute the GST liability [CGST & SGST or IGST, as the case may be] of Skylark Pvt. Ltd., Noida for the
month of August 20XX. Make suitable assumptions wherever required.
Assume the rates of taxes to be as under:

(RTP MAY 2020)

Answer

Computation of GST liability of Skylark Pvt. Ltd. for the month of August 20XX

45

Notes:
(1) As per section 2(5) of the IGST Act, 2017, export of goods means taking goods out of India to a place
outside India. Receipt of consideration in foreign exchange is not a pre-requisite for export of goods.
Export of goods is a zero rated supply in terms of section 16(1)(a) of the IGST Act, 2017. A zero rated supply is
supplied without payment of tax under a LUT in terms of section 16(3)(a) of that Act.
(2) As per section 2(5) of the IGST Act, 2017, export of goods means taking goods out of India to a place
outside India. Since, in the given case, the goods are being assembled in India (Gurugram, Haryana),
the same are not exported. Hence, the place of supply thereof will be governed by section 10 of the IGST Act,
2017 which prescribes the provisions for determining the place of supply of goods other than supply
of goods imported into or exported from India. As per section 10(1)(d) of the IGST Act, 2017, where the goods
are assembled or installed at site, the place of supply shall be the place of such installation or assembly.
Therefore, in the given case, the place of supply will be Gurugram, Haryana.

Since the location of the supplier (Uttar Pradesh) and the place of supply (Haryana) are in two
different States, the same is an inter-State supply liable to IGST [Section 7(1)(a) of the IGST Act, 2017
read with section 5(1) of that Act].

(3) As per section 7(5)(b) of the IGST Act, 2017, supply of goods and/or services to a special economic
zone (SEZ) unit is treated to be a supply of goods and/or services in the course of inter-State trade
or commerce. Therefore, supply of goods to a SEZ unit located within the same State shall be liable
to IGST [Section 5(1) of the IGST Act, 2017].

Supply of goods and/or services to a SEZ unit is a zero rated supply in terms of section 16(1)(b) of the IGST Act,
2017. A zero rated supply is supplied without payment of tax under a LUT in terms of section 16(3)(a) of that
Act.

(4) Remaining turnover will be calculated as under ₹ 256 crore

– (₹ 45 crore + ₹ 50 crore + ₹ 30 crore + ₹ 10 crore + ₹ 20 crore + ₹ 0.50 crore + ₹ 0.10 crore + ₹ 0.05 crore + ₹
0.05 crore)
= ₹ 100.30 crore

Supply within the State - ₹ 100.30 crore x 3/5 = ₹ 60.18

Supply outside the State - ₹ 100.30 crore x 2/5 = ₹ 40.12
Supply within the State is intra-State supply in terms of section 8(1) of IGST Act, 2017 and thus, chargeable to
CGST and SGST. Supply outside the State is inter
- State supply chargeable to IGST [Section 7(1) of IGST Act, 2017 read with section 5(1) of the said Act].

46
(5) As per section 25(4) of the CGST Act, 2017, a person who has obtained more than one registration,
whether in one State or Union territory or more than one State or
Union territory shall, in respect of each such registration, be treated as ‘distinct persons’.

Schedule I to the CGST Act, 2017 specifies situations where activities are to be treated as supply even if made
without consideration. Supply of goods and/or services between ‘distinct persons’ as specified in section 25 of
the CGST Act, 2017, when made in the course or furtherance of business is
one such activity included in Schedule I under para 2.
In the given case
- the location of the supplier is in Noida (Uttar Pradesh); and
- the place of supply is the location of such goods at the time at which the movement thereof terminates for
delivery to the recipient i.e., Delhi, in terms of sectio
n 10(1)(a) of the IGST Act, 2017.

Therefore, the stock transfer by Noida office to Delhi branch is an inter-State supply as the location of the
supplier and the place of supply are in two different States [Section 7(1)(a) of IGST Act, 2017].
Thus, the supply is leviable to IGST in terms of section 5(1) of the IGST Act, 2017.

Rule 28 of the CGST Rules, 2017 prescribes the provisions to determine the value of supply of goods or
services or both between distinct or related persons, other than through an agent.
Second proviso to the said rule lays down that where the recipient is eligible for full input tax credit, the value
declared in the invoice shall be deemed to be the open market value of the goods or services.

Therefore, the value of supply in this case will be ₹ 4.5 crore and open market value and cost of production of
the goods will be irrelevant.

(6) As per section 31(7) of the CGST Act, 2017, where the goods being sent or taken on approval for sale or
return are removed before the supply takes place, the i
nvoice shall be issued before or at the time of supply or six months from the date of removal, whichever is
earlier.

In the given case, the time period of six months for goods sent on 15th February, 20XX expires on 15.08.20XX.
Therefore, the invoice for the said goods shall be issued on 15.08.20XX and in terms of section 12(2)(a) of the
CGST Act, 2017 read with Notification No. 66/2017 CT dated 15.11.2017, this
date would also be the time of supply of such goods. Thus, such goods will be liable to tax in the month of
August 20XX. Goods sent in the month of January would have been taxed in the month of
July and goods sent in the month of March would be taxed in the month of September.

Here,
- the location of the supplier is in Noida (Uttar Pradesh); and
- the place of supply is the location of the goods at the time at which the movement thereof

47
terminates for delivery to the recipient i.e., Haryana in terms of section 10(1)(a) of the IGST Act, 2017.

Since the location of the supplier (Uttar Pradesh) and the place of supply (Haryana) are in two different States,
the same is an inter
-State supply liable to IGST [Section 7(1)(a) of the IGST Act, 2017 read with section 5(1) of that Act].

(7) The given case is an export of service as per section 2(6) of the IGST Act, 2017, as-

(i) the supplier of service is located in India (Noida);

(ii) the recipient of service is located outside India (Nepal);
(iii) the place of supply of service is outside India (Place of supply of consulting service will be the location of
recipient, i.e. Nepal);

(iv) the payment for such service has been received by the supplier of service in convertible foreign exchange
or in Indian rupees wherever permitted by the Reserve Bank of India (Receipt of
export consideration in Indian rupees is permitted by RBI in the given case); and (v)
the supplier of service and the recipient of service are not merely establishments of a distinct person in
accordance with Explanation 1 in section 8.

Export of services is a zero rated supply in terms of section 16(1)(a) of the IGST Act, 2017. A ero rated supply is
supplied without payment of tax under a LUT in terms of section 16(3)(a) of that Act.

(8) Letting out of the building including a commercial, industrial or residential complex for business or
commerce, either wholly or partly, is a supply of service in terms of para 2(b) of the Schedule II to the CGST
Act, 2017. Services by way of renting of residential dwelling for use as residence is exempt
from tax [Notification No. 12/2017 CT (R) dated 28.06.2017]. Therefore, rent of ₹ 10 lakh received from letting
out of building for printing press will be liable to tax and rent of ₹ 5 lakh received from
letting out of building for residential purposes will be exempt from tax.

Further, services by way of loading, unloading, packing, storage or warehousing of agricultural produce is
exempt from tax [Notification No. 12/2017 CT (R) dated 28.06.2017]. However, in the given case, the Cold
Storage Operator and not Skylark Pvt. Ltd. is engaged in warehousing of agricultural produce. Therefore, the
Cold Storage
Operator providing warehousing services for potatoes, being an agricultural produce, will be eligible for such
exemption and services provided by Skylark Pvt. Ltd., being services of renting of immovable property (₹ 5
lakh), will be liable to tax.

In case of letting out of first and third buildings,

- the location of the supplier is in Noida (Uttar Pradesh); and
- the place of supply is the location of the immovable property, i.e. Noida in terms of section 12(3)(a) of the
IGST Act, 2017.
Since the location of the supplier (Uttar Pradesh) and the place of supply (Noida) are in the same State, the
same is an intra
-State supply in terms of section 8(1) of the IGST Act, 2017 and is thus, liable to CGST and SGST.

(9) GST is leviable on supply of goods and/or services [Section 9(1) of the CGST Act, 2017]. Securities are 48
specifically excluded from the definition of goods and services as provided under clause (52) and
clause (102) respectively of section 2 of the CGST Act, 2017. Therefore, sale of securities will not be liable to
GST.
(10) Paragraph 7 of the Schedule III to CGSTAct, 2017 provides that supply of goods from a place in the non-
taxable territory to another place in the non -taxable territory without such goods entering into India (third
country shipments) is treated
neither as a supply of goods nor a supply of services. Thus, there is no GST liability on such sales. Further, since
such goods do not enter India at any point of time, customs duty and IGST leviable on imported goods will also
not be leviable on such goods.

23. Mr. Rajesh Surana has a proprietorship firm in the name of Surana & Sons in Jaipur. The firm, registered
under GST in the State of Rajasthan, manufactures taxable products. The firm also provides taxable
consultancy services.
Mr. Rajesh Surana has provided the consultancy service to his brother - Mr. Akhilesh Surana (located in
USA) without any consideration. The products manufactured by Mr. Akhilesh are similar to the ones
manufactured by Mr. Rajesh Surana. Mr. Surana charges Rs. 3,00,000 for providing similar consultancy
services to other independent customers located in USA.
Compute the GST liability, if any, in the given case assuming the rate of CGST, SGST and IGST to be 9%,
9% and 18% respectively.

Answer

Consultancy service to Mr. Akhilesh Surana (located in USA) has been provided without any
consideration. Activity without consideration is not a supply in terms of section 7(1)(a) of the CGST Act, 2017.
However, Schedule I to the CGST Act, 2017 enlists the activities to be treated as supply even if made
without consideration. Accordingly, Para 2. of Schedule I treats supply of goods or services or both between
related persons or between distinct persons as specified in section 25, when made in the course or
furtherance of business as a supply even if made without consideration.
However, a brother who is not dependant on the person supplying the service, does not come within the
purview of term family as defined under section 2(49) of the CGST Act, 2017 and hence, is not a related
person. Therefore, the export of service to an independent brother without any consideration will not
fall under para 2. of the Schedule I to CGST Act, 2017. Hence, the activity is not a supply and is thus, not liable
to any tax.

24. Sharma Carriers is a Good Transport Agency engaged in transportation of goods by road. As per the 49
general business practice, Sharma carriers also provides intermediary and ancillary services like loading
/unloading, packing/unpacking, transhipment and temporary warehousing in relation to transportation
of goods by road. With reference to the provisions of GST law, analyse whether such services are to be
treated as part of the GTA services, being a composite supply or as mixed supply. (MTP MAY 2018)

Answer
Composite supply means a supply made by a taxable person to a recipient consisting of two or more taxable
supplies of goods or services or both, or any combination thereof, which are naturally bundled
and supplied in conjunction with each other in the ordinary course of business, one of which is a principal
supply [Section 2(30) of the CGST Act, 2017].

Mixed supply means two or more individual supplies of goods or services, or any combination thereof,
made in conjunction with each other by a taxable person for a single price where such supply does not
constitute a composite supply [Section 2(74) of the CGST Act, 2017].

The various intermediary and ancillary services provided by GTA are not provided as independent
services but as ancillary to the principal service, namely, transportation of goods by road. The invoice issued
by the GTA for providing the said service includes the value of intermediary and ancillary services.
In view of this, if any intermediary and ancillary service is provided in relation to transportation of goods by
road, and charges, if any, for such services are included in the invoice issued by Sharma Carriers, such
service would form part of the GTA service, and thus will be composite supply, and not a mixed supply even
though a single price is charged for the supply.

Further, if such incidental services are provided as separate services and are billed separately, whether in the
same invoice or separate invoices, they will be treated as separate supply and not composite supply and there
being no single price, the supply will also not be treated as mixed supply.

25 Determine whether the following supplies amount to composite supplies

a. A hotel provides 4 days-3 nights package wherein the facility of breakfast and dinner is provided
along with the room accommodation.
b. A toothpaste company has offered the scheme of free toothbrush along with the toothpaste.

Answer
Under composite supply, two or more taxable supplies of goods or services or both, or any combination
thereof, are naturally bundled and supplied in conjunction with each other, in the ordinary course of
business, one of which is a principal supply [Section 2(30) of the CGST Act]. In view of the same,

(a) since, supply of breakfast and dinner with the accommodation in the hotel are naturally bundled, said

50
supplies qualify as ‘composite supply’.

(b) since supply of toothbrush along with the toothpaste are not naturally bundled, said supplies do not
qualify as ‘composite supply’
26. State whether the following supplies would be treated as supply of goods or supply of services as per
Schedule II of the CGST Act

a) Renting of immovable property

b) Goods forming part of business assets are transferred or disposed of by/under directions of person
carrying on the business, whether or not for consideration.

c) Transfer of right in goods without transfer of title in goods.

d) Transfer of title in goods under an agreement which stipulates that property shall pass at a future date

Answer
a) Supply of services
b) Supply of goods
c) Supply of services
d) Supply of goods

27 Examine whether the following activities would amount to supply under section 7 read with Schedule I
of the CGST Act:

a. Sulekha Manufacturers have a factory in Delhi and a depot in Mumbai. Both these establishments are
registered in respective States. Finished goods are sent from factory in Delhi to the Mumbai
depot without consideration so that the same can be sold.

b. Raman is an architect in Chennai. His brother who is settled in London is a well-known lawyer.
Raman has taken legal advice from him free of cost with regard to his family dispute.

c. Would your answer be different if in the above case, Raman has taken advice in respect of his business
unit in Chennai?

Answer

a. Title as well as possession both have to be transferred for a transaction to be considered as a supply of 51
goods. In case title is not transferred, the transaction would be treated as supply of service in
terms of Schedule II (1)(b) of the CGST Act. In some cases, possession may be transferred immediately but title
may be transferred at a future date like in case of sale on approval basis or
hire purchase arrangement. Such transactions will also be termed as supply of goods.
b. Schedule I of CGST Act, inter alia, stipulates that import of services by a taxable person from a related
person located outside India, without consideration is treated as supply if it is provided in
the course or furtherance of business. Explanation to section 15, inter alia, provides that persons shall be
deemed to be “related persons” if they are members of the same family. Further, as per section 2(49) of the
CGST Act, 2017, family means, —

i. the spouse and children of the person, and

ii. the parents, grand-parents, brothers and sisters of the person if they are wholly or mainly dependent on the
said person.

In the given case, Raman has received free of cost legal services from his brother. However, in view of section
2(49)(ii) above, Raman and his brother cannot be considered to be related as Raman’s brother is a well-known
lawyer and is not wholly/mainly dependent on Raman. Further, Raman
has taken legal advice from him in personal matter and not in course or furtherance of business.
Consequently, services provided by Raman’s brother to him would not be treated as supply under section 7 of
the CGST Act read with Schedule.

c. In the above case, if Raman has taken advice with regard to his business unit, services provided by Raman’s
brother to him would still not be treated as supply under section 7 of the CGST Act read
with Schedule I as although the same are provided in course or furtherance of business, such services have not
been received from a related person.

28. (PAST PAPER JULY 2021)

XYZ Ltd. has obtained a loan from a foreign bank. The company does not have an account with the foreign
bank from whom it has taken the loan. Whether RCM liability under GST laws should be discharged in this
regard for import of services received in relation to the loan?
Provide relevant legal provisions in support of your answer.

ANSWER

Yes. RCM liability needs to be discharged on such services. 52

The place of supply of services supplied by a banking company in case where either supplier or recipient is
located outside India is location of supplier provided said services are supplied to an account holder,
otherwise the place of supply is the location of the recipient.
Accordingly, in the given case, the place of supply is the location of recipient – XYZ Ltd., i.e., India.
Since the supplier is outside India and recipient and place of supply are in India, said service qualifies as import
of services which in turn, is considered as inter-State supply.
 CHAPTER-3 CHARGE OF GST
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS 1 to 13, 19, 20, 21

MAT

NO QUES Q-10, 16 NO Q-17 Q-18 NO QUES NO QUES ------

QUES
PAST
EXAMS

NO QUES Q-10,11

MTP

NO QUES Q-7, 15 NO Q-14 Q-4, 5 NO QUES NO QUES NO

QUES QUES
RTP

QUESTIONS
1. Panini Private Limited agrees to sponsor a sports event organized by Pink City Club in Jaipur. Panini
Private Limited has paid an amount of Rs. 50,00,000 for such sponsorship of the sports event. Consequently,
said event was named after the brand name of Panini Private Limited. Examine who is the person liable to
pay tax in the given case.

ANSWER:

53
Notification no 13/2017 CT (R) dated 28.06.2017 as amended (hereinafter referred to as reverse charge
notification), provides that sponsorship services provided by any person to a body corporate or partnership
firm located in the taxable territory, shall be liable to GST under reverse charge in the hands of recipient.
In the present case, Pink City Club is the supplier of sponsorship services which is receiving the consideration
in the form of sponsorship fee of Rs. 5,00,000 from Panini Private Limited, against the provision of sponsorship
service. Since the recipient of sponsorship services- Panini Private Limited is a body corporate, the tax on said
services is payable by the recipient - Panini Private Limited, under reverse charge.
2. Arpan Singhania is a director in Narayan Limited. The company paid him the sitting fee amounting to Rs.
25,000, for the month of January. Further, salary was paid to Arpan Singhania amounting to Rs. 1.5 lakh for
the month of January on which TDS was also deducted as per applicable provisions under Income-tax law.
Tapasya & Associates, in which Arpan Singhania is a partner, supplied certain professional services to
Narayan Limited in the month of January for an amount of Rs. 2 lakh. Discuss the person liable to pay tax in
each of the supplies involved in the given case.

ANSWER:

Sitting fee paid to director – As per reverse charge notification, tax on services supplied by a director of a
company/ body corporate to the said company/ body corporate, located in the taxable territory, is payable
under reverse charge. Hence, in the present case, the sitting fee amounting to Rs. 25,000, payable to Arpan
Singhania by Narayan Limited, is liable to GST under reverse charge and thus, recipient of service - Narayan
Limited – is liable to pay GST on the same.

Salary paid to director - As per Circular No.140/10/2020 GST dated 10.06.2020, the part of director’s
remuneration which is declared as salary in the books of a company and subjected to TDS under section 192 of
the Income-tax Act, are not taxable being consideration for services by an employee to the employer in the
course of or in relation to his employment in terms of Schedule III. Therefore, in the given case, the salary
received by Arpan Singhania of Rs. 1.5 lakh is not liable to GST.

Services provided by Tapasya & Associates – Tapasya & Associates have rendered certain professional
services to Narayan Limited. The fact that Arpan Singhania is a partner in Tapasya & Associates and a director
in Narayan Limited does not have any impact on the taxability of the professional services supplied by Tapasya
& Associates to Narayan Limited.

The professional services provided by Tapasya & Associates to Narayan Limited are liable to GST under
forward charge and thus, supplier - Tapasya & Associates – is liable to pay GST on the same.

3. Suvidha Technologies is in the business of development of e-commerce platforms for various customers.
Chennai Creations obtained the ownership rights of an e-commerce platform developed by Suvidha
Technologies by paying a specified amount against ownership rights of said portal. Chennai Creations also
entered into an annual maintenance contract with Suvidha Technologies for technical maintenance of the

54
said portal. Chennai Creations supplies its own goods and services through the said portal to ultimate
customers. Examine who is the e-commerce operator in the given case as per the provisions of the GST law.

ANSWER:

As per section 2(44), electronic commerce means the supply of goods or services or both, including digital
products over digital or electronic network. Further, as per section 2(45), electronic commerce operator
means any person who owns, operates or manages digital or electronic facility or platform for electronic
commerce.
In the given transaction, the e-commerce platform is developed by Suvidha Technologies. However, the
ownership of the electronic platform is sold by Suvidha Technologies to Chennai Creations. Thus, Chennai
Creations is the owner of the e-commerce platform and is also operating/managing the said platform for
supply of its own goods and services. In view of the definition of e-commerce operator, it is Chennai Creations
which owns, operates or manages digital or electronic facility or platform for electronic commerce. Suvidha
Technologies is merely providing the annual management services for the electronic platform, but the
ownership rights lie with Chennai Creations. Thus, Suvidha Technologies cannot be termed as electronic
commerce operator in the given case and Chennai Creations is the e-commerce operator.

4. Varun & Arun Associates started a partnership firm of architects in Bhopal (Madhya Pradesh) on 1st April,
The firm provides architecture services, in Madhya Pradesh. It provided the following details of its turnover:
April - June Rs. 20 lakh
July - Sept Rs. 30 lakh
Oct - Dec Rs. 20 lakh
The firm has obtained the registration under section 22 and pays tax under composition scheme. Determine
the tax liability of Varun & Arun Associates for the quarters: Apr-Jun, Jul-Sept and Oct-Dec.
Note: The rates of tax on architectural services are CGST- 9% and SGST-9%. (RTP NOV 2020)

ANSWER:

The composition scheme under sub-sections (1) and (2) of section 10 is available in case of goods and
restaurant service. Further, marginal services upto specified limit can be provided along with the supply of
goods or restaurant service, as the case may be. Since, in the given case, Varun & Arun Associates is supplying
services other than restaurant services, it is not eligible to pay tax under sub-sections (1) and (2) of section 10.
However, section 10(2A) provides an option to a registered person, who is not eligible to pay tax under sub-
sections (1) and (2) of section 10, of paying tax @ 6% (CGST-3% and SGST/UTGST-3%) provided his aggregate
turnover in the preceding financial year is upto Rs. 50 lakh. Said person can pay tax @ 6% of the turnover in
State or turnover in Union territory up to an aggregate turnover of Rs. 50 lakh, subject to specified conditions.
In the given case, Varun & Arun Associates has started the supply of services in the current financial year.
Therefore, its aggregate turnover in the preceding financial year is Nil. Consequently, it is eligible to avail the
benefit of composition scheme under section 10(2A) of the CGST Act in the current financial year. It becomes
eligible for the registration when its aggregate turnover exceeds Rs. 20 lakh. While registering under GST, it
has to opt for composition scheme under section 10(2A).

55
For determining its turnover of the State for payment of tax under composition scheme under section 19(2A),
turnover of April-June quarter [Rs. 20 lakh] shall be excluded as the value of supplies from the first day of April
of a financial year up to the date when such person becomes liable for registration under this Act are to be
excluded for this purpose.
On next Rs. 30 lakh [turnover of July-Sept quarter], it shall pay tax @ 6% [3% CGST and 3% SGST], i.e. CGST Rs.
90,000 and SGST Rs. 90,000.
By the end of July-Sept quarter, its aggregate turnover reaches Rs. 50 lakh*.
Consequently, its option to avail composition scheme under section 10(2A) shall lapse by the end of July-Sept
quarter and thereafter, it is required to pay tax at the normal rate. Thus, the tax payable for Oct-Dec quarter is
Rs. 20 lakh × 9%, i.e. CGST - Rs. 1,80,000 and SGST - Rs. 1,80,000.
*Note - While computing aggregate turnover for determining Varun & Arun Associates’ eligibility to pay tax
under composition scheme, value of supplies from the first day of April of a financial year up to the date when
such person becomes liable for registration under this Act (i.e. turnover of April-June quarter), are also
included.

5. Examine whether the suppliers are eligible for composition levy under section 10 in the following
independent cases in the beginning of the current financial year.

(a) Technology Enterprises, registered in Jalandhar, Punjab, is engaged in manufacturing computer systems.
Its aggregate turnover in the preceding financial year is Rs. 125 lakh. Technology Enterprises supplies the
computer systems manufactured by it within the State of Punjab only. With a view to expand its business
operations, it will also start providing the repairing services of computer systems in the current financial
year.

(b) M/s. Siddharth & Sons, registered in Delhi, owns a restaurant ‘Tasty Foods’ with a turnover of Rs. 112
lakh in the preceding financial year. In view of the growing customer demand, it will also start intra-State
trading of juices in Delhi.

(c) Sitaram Associates, registered in Sikkim, is engaged in running a food chain ‘Veg Kitchen’ in the State. It
has a turnover of Rs. 73 lakh in the preceding financial year. In the current financial year, it decides to shut
down the food chain owing to huge losses being incurred in the said business. Instead, it will start providing
intra-State architect services.

(d) Deepti Services Ltd., registered in Uttarakhand, is exclusively providing hair styling services. It has
turnover of Rs. 34 lakh in the preceding financial year.
Will your answer be different, if Deepti Services Ltd. also start supplying beauty products alongwith
providing hair styling services in the current financial year? (RTP NOV 2020)

ANSWER:

As per section 10(1), the following registered persons, whose aggregate turnover in the preceding financial
year did not exceed Rs. 1.5 crore, may opt turnover in the preceding financial year did not exceed Rs. 1.5

56
crore, may opt to pay tax under composition levy:
(i) Manufacturer,
(ii) Persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II (restaurant
services), and
(iii) Any other supplier eligible for composition levy.
The composition scheme under sub-sections (1) and (2) of section 10 can essentially be availed in respect of
goods and only one service namely, restaurant service. However, the scheme permits supply of other marginal
services for a specified value along with the supply of goods and restaurant service, as the case may be. Such
marginal services can be supplied for a value up to 10% of the turnover in the preceding year or Rs. 5 lakh,
whichever is higher. Further, the registered person should not be engaged in making any inter-State outward
supplies of goods.
Furthermore, newly inserted section 10(2A) provides an option to a registered person, who is not eligible to
pay tax under section 10(1) and 10(2), of paying tax @ 6% (CGST-3% and SGST/UTGST-3%) provided his
aggregate turnover in the preceding financial year is upto Rs. 50 lakh. Said person can pay tax @ 6% of the
turnover in State or turnover in Union territory up to an aggregate turnover of Rs. 50 lakh, subject to specified
conditions. One of such conditions is that the registered person should not be engaged in making any inter-
State outward supplies of goods or services.
In view of the above-mentioned provisions, the answer to the given independent cases is as under:-

(a) The turnover limit for being eligible for composition scheme under under sub-sections (1) and (2) of section
10 for Jalandhar (Punjab) is Rs. 1.5 crore in the preceding financial year. Thus, Technology Enterprises can opt
for said composition scheme as its aggregate turnover is less than Rs. 1.5 crore in

the preceding financial year and it is making intra-State supplies. Further, since the registered person opting
for composition scheme can also supply services (other than restaurant services) for a value up to 10% of the
turnover in the preceding year or Rs. 5 lakh, whichever is higher. Thus, Technology Enterprises can supply
repair services up to a value of Rs. 12.5 lakh [10% of Rs.125 lakh] in the current financial year.

(b) In the given case:-

(i) the turnover in the preceding year is less than the eligible turnover limit under composition scheme under
sub-sections (1) and (2) of section 10 for Delhi, i.e. Rs. 1.5 crore.
(ii) the supplier is engaged in providing restaurant service which is an eligible supply under said composition
scheme.
(iii) the supplier wants to engage in trading of goods which is also an eligible supply under said composition
scheme.
Thus, M/s. Siddharth & Sons is eligible for composition scheme under sub-sections (1) and (2) of section 10.

(c) The turnover limit for being eligible for composition scheme under sub-sections (1) and (2) of section 10 for
Sikkim is Rs. 75 lakh in the preceding financial year. However, a registered person who is exclusively engaged
in supplying services other than restaurant services are not eligible for said composition scheme. Thus,
Sitaram Associates cannot opt for composition scheme under sub-sections (1) and (2) of section 10.

57
However, the benefit of composition scheme under section 10(2A) is available in case of a registered person
who is not eligible to pay tax under sub-sections (1) and (2) of section 10 provided its aggregate turnover in
the preceding financial year does not exceed Rs. 50 lakh.
Thus, in view of the above-mentioned provisions, Sitaram Associates cannot avail the benefit of composition
scheme under section 10(2A) also as its aggregate turnover in the preceding financial year is more than Rs. 50
lakh.

(d) A service provider can opt for the composition scheme under sub-sections (1) and (2) of section 10 only if
he is engaged in supply of restaurant services. Said scheme permits supply of marginal services for a specified
value, but only when the same are supplied along with goods and/ or restaurant service. Since Deepti Services
Ltd.is exclusively engaged in supply of services other than restaurant services, it is not eligible for composition
scheme sub-sections (1) and (2) of section 10 even though its turnover in the preceding year is less than Rs. 75
lakh, the eligible turnover limit for Uttarakhand.
However, since Deepti Services Ltd. is not eligible to opt for composition scheme under sub-sections (1) and
(2) of section 10 and its aggregate turnover in the preceding financial year does not exceed Rs. 50 lakh, Deepti
Services Ltd.is entitled to avail benefit of composition scheme under section 10(2A) in the current financial
year.
Further, the answer will remain the same even if Deepti Services Ltd. also start supplying beauty products
alongwith providing hair styling services in the current financial year since it fulfils the conditions laid down for
availing the benefit of composition scheme under section 10(2A) of the CGST Act. It can avail the benefit of
composition scheme under section 10(2A) till the time its aggregate turnover in the current year doesn’t
exceed Rs. 50 lakh.

6. B & D Company, a partnership firm, in Nagpur, Maharashtra is a wholesaler of a taxable product ‘P’ and
product ‘Q’ exempt by way of a notification. The firm supplies these products only in the eastern part of
Maharashtra. All the procurements (both goods and services) of the firm are from the suppliers registered
under regular scheme in the State of Maharashtra. The firm pays tax under composition scheme.
B & D Company has furnished the following details with respect to its turnover (exclusive of taxes) and stock
(exclusive of taxes):
Particulars Turnover for the Turnover for the
quarter ended 30th quarter ended 30th
June (Rs.) September (Rs.)
‘P’ 60,00,000 50,00,000
‘Q’ 17,65,000 17,00,000

The extract of the only bill book maintained by the firm showed the following details-
Bill No. Date Value of products (exclusive of taxes)
‘P’ (Rs.) ‘Q’ (Rs.) Total (Rs.)
2306 1st October 2,00,000 3,000 2,03,000
2307 1st October 1,36,000 2,250 1,38,250
2308 2nd October 67000 39,250 1,06,250
2309 3rd October 58,750 33,750 92,500

58
2310 5th October 1,00,000 - 1,00,000
2311 6th October 94,000 6,000 1,00,000
2312 6th October - 17,000 17,000
2313 8th October 50,000 6,000 56,000
2314 9th October 60,000 9,000 69,000
2315 …………….. …………….. …………….. ……………..
………. …………….. …………….. …………….. ……………..

Further, B & D Company paid freight of Rs. 1,40,000 to Goods Transport Agency during the period April to
October. Assume equal amount of freight is paid each month on the 10th day of each month. Also, assume
that the goods for which the freight is paid on 10th day of the month are transported between 11th to
20thday of the month.

All the above amounts are exclusive of taxes, wherever applicable.

Compute the GST liability (ignoring ITC provisions) of B & D Company for the period April to October under
composition scheme under sub-sections (1) and (2) of section 10 showing calculations for each quarter
separately.

Note: Make suitable assumptions wherever required. Rate of CGST and SGST on service of transportation of
goods by GTA is 2.5% each. Stock is valued at cost price.

ANSWER:

As per section 10(3) read with Notification No.14/2019 CT dated 07.03.2019 as amended, the option availed
by a registered person to pay tax under composition scheme under sub-sections (1) and (2) of section 10 shall
lapse with effect from the day on which his aggregate turnover during a financial year exceeds Rs. 1.5 crore

[Rs. 75 lakh in case of Special Category States except Assam, Himachal Pradesh and Jammu and Kashmir].
As per section 2(6), aggregate turnover means the aggregate value of all taxable supplies (excluding the value
of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of
goods or services or both and inter-State supplies of persons having the same PAN, to be computed on all
India basis but excludes CGST, SGST/UTGST, IGST and GST Compensation Cess.

In the given case, the firm is registered under the composition scheme in the State of Maharashtra. The
aggregate turnover of the firm exceeds Rs. 1.5 crore on 3rd October [aggregate of both taxable and exempt
turnover from 1st April to 3rd October, i.e. Rs. 1,50,05,000 (Rs. 1,44,65,000 + Rs. 2,03,000 + Rs. 1,38,250 + Rs.
1,06,250 + Rs.92,500)]

The inward supplies of goods transportation services in respect of which the firm has to pay tax under reverse
charge have not been included in the aggregate turnover in terms of section 2(6). The tax is payable under
reverse charge on such services as the applicable rate of tax on such services is given as 5% and not 12%, in
which case the GTA would have been liable to pay tax under forward charge [Notification No. 13/2017 CT (R)
dated 28.06.2017 as amended].

59
Thus, the firm will have to pay tax under regular scheme (Section 9) from 3rd October.

Output tax liability of B & D Company under composition scheme

During the period when the firm pays tax under composition scheme, i.e. from 1st April to 2nd October, tax
will be payable on quarterly basis and no ITC will be available [Section 10(4) read with sub-sections (2) and (7)
of section 39]. Further, since the firm is trading in goods, tax will be payable @ ½% [Effective rate - 1% (½%
CGST + ½% SGST)] of the turnover of taxable supplies of goods and services (i.e. ‘P’) in the State [Section 10(1)
read with rule 7].
The tax liability for the quarters ended June, September and December under composition scheme will be
computed as under-

Particulars Quarter ended 30th Quarter ended 30th Quarter ended

June September 31st December
(Rs.) (Rs.) (Rs.)
Turnover of ‘P’ (Taxable supplies) 60,00,000 50,00,000 4,03,000
[2,00,000 +
1,36,000 +
67,000]
CGST @ 0.5% [A1] 30,000 25,000 2,015

SGST @ 0.5% [B1] 30,000 25,000 2,015

Inward supply on which tax is payable 60,000 60,000 Nil [Paid on 10th
under reverse charge [Service of goods [(1,40,000/7) x 3] [(1,40,000/7) x 3] day for goods
transportation availed from a GTA @ transported
5%] between 11th to
20th day of the
month, so the
same will be
assessed under
regular scheme]
CGST @ 2.5% [A2] 1,500 1,500 -

SGST @ 2.5% [B2] 1,500 1,500 -

Total CGST [A1 + A2] 31,500 26,500 2,015

Total SGST [B1 + B2] 31,500 26,500 2,015

60

Total CGST liability for the period from 60,015 [31,500 + 26,500
1st April to 2nd October + 2015]

Total SGST liability for the period from 60,015 [31,500 + 26,500
1st April to 2nd October + 2015]
7. Shubhlaxmi Foods is engaged in supplying restaurant service in Maharashtra. In the preceding financial
year, it had a turnover of Rs. 140 lakh from the restaurant service. Further, it had earned the bank interest
of Rs. 20 lakh from the fixed deposits. You are required to advise Shubhlaxmi Foods whether it is eligible for
the composition scheme under sub-sections (1) and (2) of section 10 in the current financial year. Further,
assuming that in the current financial year, its turnover is Rs. 130 lakh from the supply of restaurant services
and Rs. 10 lakh from the supply of farm labour in Maharashtra. It has also earned the bank interest of Rs. 30
lakh from the fixed deposits. Compute the tax payable by Shubhlaxmi Foods in the current FY.
(RTP NOV 2018)

ANSWER:

As per section 10(1) read with Notification No. 14/2019 CT dated 7.03.2019, a registered person, whose
aggregate turnover in the preceding financial year did not exceed Rs. 1.5 crore, may opt to pay, in lieu of the
tax payable by him, an amount calculated at the specified rates if, inter alia, he is not engaged in the supply of
services other than restaurant services.

However, the scheme permits supply of other marginal services for a specified value along with the supply of
goods and restaurant service, as the case may be. Such marginal services can be supplied for a value up to 10%
of the turnover in the preceding year or Rs. 5 lakh, whichever is higher [Second proviso to section 10(1)].
Although exempt services are included in determining the value of turnover in a State or Union territory,
explanation to section 10(1) clarifies that for the purposes of second proviso to section 10(1), the value of
exempt supply of services provided by way of extending deposits, loans or advances in so far as the
consideration is represented by way of interest or discount shall not be taken into account for determining the
value of turnover in a State or Union territory.

Further, the exempt services are also included in the aggregate turnover [Section 2(6)]. However, explanation
1 to section 10 excludes value of exempt supply of services provided by way of extending deposits, loans or
advances in so far as the consideration is represented by way of interest or discount from aggregate turnover.
In this backdrop, in the given case, the aggregate turnover of Shubhlaxmi Foods in the preceding FY is Rs. 140
lakh (since bank interest of Rs. 20 lakh from the fixed deposits will not be taken into account for computing
aggregate turnover). Resultantly, it is eligible to opt for composition scheme under sub-sections (1) and (2) of
section 10 in the current FY.

61
Further, apart from restaurant services, it can provide services upto Rs. 14 lakh [i.e. 10% of Rs. 140 lakh or Rs.
5 lakh, whichever is higher], in the current FY. As already seen, bank interest of Rs. 20 lakh from fixed deposits
will not be considered while determining this limit.

Further, tax payable @ 5% (2½% CGST+ 2½% SGST) of the turnover in the State by Shubhlaxmi Foods in the
current financial year is as follows:
= 5% of Rs. 1,40,00,000 [Rs. 1,30,00,000 + Rs. 10,00,000] [(Bank interest of Rs. 30 lakh from the fixed deposits
is not considered while computing turnover in the State for determining the tax payable under composition
scheme (In terms of explanation 2 to section 10)]
= Rs. 7,00,000 [CGST = Rs. 3,50,000 and SGST = Rs. 3,50,000]
8. Bansal and Chandiok started a partnership firm of Chartered Accountants in Jaipur (Rajasthan) on 1st
April. The firm specializes in providing audit services to banks in Rajasthan. It provided the following details
of its turnover:
Quarter Amount (in Rs.)
Apr-Jun 10 lakh
Jul-Sep 20 lakh
It crossed the threshold limit of Rs. 20 lakh on 1st August. Bansal and Chandiok wishes to opt to pay tax at
concessional rate under section 10(2A). Examine whether the firm is eligible for this scheme? If yes, then
determine the tax payable by it in quarters (i) Apr-Jun & (ii) Jul-Sep?

ANSWER:

The composition scheme under sub-sections (1) and (2) of section 10 is available in case of goods and
restaurant service. Further, marginal services upto specified limit can be provided along with the supply of
goods or restaurant service, as the case may be. Since, in the given case, Bansal and Chandiok is supplying
services other than restaurant services, it is not eligible to pay tax under sub-sections (1) and (2) of section 10.
However, section 10(2A) provides an option to a registered person, who is not eligible to pay tax under sub-
sections (1) and (2) of section 10, of paying tax @ 6% (CGST-3% and SGST/UTGST-3%) provided his aggregate
turnover in the preceding financial year is upto Rs. 50 lakh. Said person can pay tax @ 6% of the turnover in
State or turnover in Union territory up to an aggregate turnover of Rs. 50 lakh, subject to specified conditions.
In the given case, Bansal and Chandiok has started the supply of services in the current financial year.
Therefore, its aggregate turnover in the preceding financial year is Nil. Consequently, it is eligible to avail the
benefit of composition scheme under section 10(2A) of the CGST Act in the current financial year. It becomes
eligible for the registration when its aggregate turnover exceeds Rs. 20 lakh. While registering under GST, it
has to opt for composition scheme under section 10(2A).

Tax payable by the firm is as follows:

(i) Apr-Jun quarter: Tax payable by the firm in first quarter is nil since the firm’s turnover [Rs. 10 lakh] has not
yet exceeded the threshold limit of Rs.20 lakh (viz. the threshold limit applicable for registration in the State of
Rajasthan).

(ii) July-Sep quarter: While computing the tax payable by the firm in second quarter, the turnover from 1st

62
April to the date from which he becomes liable for registration under the Act is to be excluded. Tax payable
will be computed as under-
Total Turnover Rs. 30,00,000/-
Less: Threshold limit for registration Rs. 20,00,000/-
Taxable Turnover Rs. 10,00,000/-
Tax @ 6% Rs. 60,000/-*
*CGST = Rs. 30,000 and SGST = Rs. 30,000
9. Mr. Prem is running a restaurant in New Delhi. In the preceding financial year, it has an aggregate
turnover of Rs. 120 lakh from the restaurant services. In the current financial year, apart from restaurant
service, he also wants to provide food delivery services to other small restaurants. He estimated the
turnover of such services is upto Rs. 5 lakh.
Mr. Prem wishes to opt for composition scheme under sub-sections (1) and (2) of section 10 in the current
financial year. You are required to advise him for same.

ANSWER:

As per section 10(1) read with Notification No.14/2019 CT dated 07.03.2019, a registered person, whose
aggregate turnover in the preceding financial year did not exceed Rs. 1.5 crore, may opt to pay, in lieu of the
tax payable by him, an amount calculated at the specified rates if, inter alia, he is not engaged in the supply of
services other than restaurant services.
However, the scheme permits supply of other marginal services for a specified value along with the supply of
goods and restaurant service, as the case may be. Such marginal services can be supplied for a value up to 10%
of the turnover in the preceding year or Rs. 5 lakh, whichever is higher.
In the present case, since the aggregate turnover of Mr. Prem was Rs. 120 lakh in preceding financial year (i.e.
it did not exceed Rs. 1.5 crore), he is eligible for composition scheme in the current financial year. Further, in
the current financial year, he can also supply services other than restaurant services for a value upto Rs. 12
lakh (10% of Rs. 120 lakh) or Rs. 5 lakh, whichever is higher. Thus, till the time his turnover from food delivery
services does not exceed Rs. 12 lakh, he is eligible for the scheme.

10. M/s Heeralal and Sons, registered in Karnataka, has opted to avail the benefit of composition scheme
under sub-sections (1) and (2) of section 10. It has furnished the following details for the quarter ended on
30th June. (PAST EXAM NOV 2018)
S. No. Items Rs.
(i) Taxable turnover of goods within the State 15,00,000
(ii) Exempted turnover of goods within the State 17,00,000
Total Turnover 32,00,000

Using the above information, calculate tax to be paid by the firm for quarter ended on 30th June in

63
following independent situations:
(i) M/s Heeralal and Sons is a manufacturer
(ii) M/s Heeralal and Sons is a trader (MTP- NOV 2021)

ANSWER:
Computation of amount payable under composition scheme

(i) If M/s Heeralal and Sons is a manufacturer:

Tax is to be paid @ 1% (½% CGST+ ½% SGST) of the turnover in the State as under:
1% of Rs. 32,00,000 [Rs. 15,00,000 + 17,00,000]
= Rs. 32,000 [CGST = Rs. 16,000 and SGST = Rs. 16,000]

(ii) If M/s Heeralal and Sons is a trader:

Tax is to be paid @ 1% (½% CGST + ½%SGST) of the turnover of taxable supplies of goods and services in the
State as under:
= 1% of Rs. 15,00,000
= Rs. 15,000 [CGST = Rs. 7,500 and SGST = Rs. 7,500]

11. Harishchandra of New Delhi makes a request for a motor cab to "Super ride" for travelling from New
Delhi to Gurgaon (Haryana). After Harishchandra pays the cab charges using his debit card, he gets details of
the driver - Jorawar Singh and the cab's registration number.
"Super ride" is a mobile application owned and managed by Perry India Ltd. located in India. The application
"Super ride" facilitates a potential customer to connect with the persons providing cab service under the
brand name of "Super ride". Perry India Ltd. claims that cab service is provided by Jorawar Singh and hence,
he is liable to pay GST. With reference to the provisions of IGST Act, 2017, determine who is the person
liable to pay GST in this case? (MTP- NOV 2021)

ANSWER:

Section 5(5) of the IGST Act, 2017 provides that tax on inter-State supplies of specified services notified by
Government shall be paid by the electronic commerce operator (ECO) located in taxable territory if such
services are supplied through it. Services by way of transportation of passengers by a motor cab supplied
through ECO is one of the notified service.
Electronic commerce operator (ECO) means any person who owns, operates or manages digital or electronic
facility or platform for supply of goods or services or both [Section 2(45)].
Since Perry India Ltd. owns and manages a mobile application in the name of “Super ride”, to facilitate supply
of passenger transportation service in motor cabs over a digital network, it is an ECO. Thus, Perry India Ltd., an
ECO located in India, is liable to pay GST in the given case.

12. MN Ltd. has two registered places of business in the State of Haryana. Its aggregate turnover during the
previous financial year for both the places of business was Rs. 62 lakh. It wishes to opt for composition levy
under sub-sections (1) and (2) of section 10 for one of the place of business in the current year and wants to

64
continue with registration under regular scheme and pay taxes at the normal rate for the other place of
business. Can MN Ltd. do so? Explain with reason.

ANSWER:
As per proviso to section 10(2), where more than one registered persons are having the same PAN issued
under the Income-tax Act, 1961, the registered person shall not be eligible to opt for the composition scheme
under section 10(1) unless all such registered persons opt to pay tax under said composition scheme.
In the given case, since MN Ltd. has two places of business (they are not separate entities under the Income-
tax Act, 1961), they would be registered under the same PAN. Therefore, MN Ltd. cannot opt for composition
levy for only one of the places of business and pay tax under regular scheme for other place of business.
13. Ranveer Industries, registered in Himachal Pradesh, is engaged in making inter-State supplies of
readymade garments. The aggregate turnover of Ranveer Industries in the preceding financial year is Rs. 70
lakh. It has opted for composition levy under sub-sections (1) and (2) of section 10 in the current financial
year and paid tax for the April – June quarter of current year under composition levy.
The proper officer has levied penalty for wrongly availing the scheme on Ranveer Industries in addition to
the tax payable by it.
Examine the validity of the action taken by proper officer.

ANSWER:
As per section 10(1), a registered person, whose aggregate turnover in the preceding financial year did not
exceed Rs. 1.5 crore in a State/UT [Rs. 75 lakh in case of Special Category States except Assam, Himachal
Pradesh and Jammu and Kashmir], may opt for composition scheme.
However, he shall not be eligible to opt for composition scheme if, inter alia, he is engaged in making any
inter-State outward supplies of goods.
In the given case, since Ranveer Industries is engaged in making inter-State supplies of readymade garments, it
is not eligible to opt for composition scheme in current year irrespective of its turnover not exceeding the
threshold limit of Rs. 75 lakh in the preceding FY.

Further, if the proper officer has reasons to believe that a taxable person has paid tax under composition
scheme despite not being eligible, such person shall, in addition to any tax payable, be liable to a penalty and
the provisions of section 73 or section 74 shall, mutatis mutandis, apply for determination of tax and penalty.
Thus, the action taken by the proper officer of levying the penalty for wrongly availing the composition
scheme is valid in law.

14 Examine whether the suppliers are eligible for composition scheme in the following independent cases.
Is there any other option available for concessional tax payment with any of these suppliers, wherever
composition scheme cannot be availed?

(a) M/s. Devlok, a registered dealer, is dealing in intra-State trading of electronic appliances in Jaipur
(Rajasthan). It has turnover of ₹ 130 lakh in the preceding financial year. In the current financial

65
year, it has also started providing repairing services of electronic appliances.

(b) M/s. Narayan & Sons, a registered dealer, is running a “Khan a Khazana” Restaurant near City Palace
in Jaipur. It has turnover of ₹ 140 lakh in the preceding financial year. In the current financial year,
it has also started dealing in intra-State trading of beverages in Jaipur (Rajasthan).

(c) M/s. Indra & Bro, a registered dealer, is providing restaurant services in Uttarakhand. It has
turnover of ₹ 70 lakh in the preceding financial year. It has started providing intra-State interior
designing services in the current financial year and discontinued rendering restaurant services.
(d) M/s. Him Naresh, a registered dealer, is exclusively providing intra -State architect services in
Uttarakhand. It has turnover of ₹ 40 lakh in the preceding financial year. (RTP NOV 2019)

Answer

As per section 10(1) of the CGST Act, 2017, the following registered persons, whose aggregate turnover in the
preceding financial year did not exceed ₹ 1.5 crore, may opt to pay tax under composition levy:

a) Manufacturer,

b) Persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II

(restaurant services), and

c) Any other supplier eligible for composition levy.

Thus, essentially, the composition scheme under sub-sections (1) and (2) of section 10 can be availed in
respect of goods and only one service namely, restaurant service. However, the scheme permits supply
of other marginal services for a specified value along with the supply of goods and restaurant service, as the
case may be. Such marginal services can be supplied for a value up to 10% of the turnover in the
preceding year or ₹ 5 lakh, whichever is higher.

Further, the registered person should not be engaged in making any inter- State outward supplies of
goods. Furthermore, newly inserted section 10(2A) provides an option to a registered person, who is not
eligible to pay tax under section 10(1) and 10(2), of paying tax @ 6% (CGST-3% and SGST/UTGST-3%) provided
his aggregate turnover in the preceding financial year is upto ₹ 50 lakh. Said person can pay tax @ 6% of
the turnover in State or turnover in Union territory up to an aggregate turnover of ₹ 50 lakh, subject to
specified conditions

One of such condition is that the registered person should not be engaged in making any inter-State outward
taxable supplies of goods or services.
In view of the above-mentioned provisions, the answer to the given independent cases is as under:-

66
a. The turnover limit for composition scheme under sub-sections (1) and (2) of section 10 in case of Jaipur
(Rajasthan) is ₹ 1.5 crore. Thus, M/s. Devlok can opt for composition scheme as its aggregate
turnover is less than ₹1.5 crore and he is making intra-State supplies. Further, since the registered person
opting for composition scheme can also supply services (other than restaurant services)
for a value up to 10% of the turnover in the preceding year or ₹ 5 lakh, whichever is higher. Thus, M/s. Devlok
can supply repair services up to a value of ₹13 lakh [10% of ₹130 lakh]in the current financial year.

b. In the given case:-

(i) the turnover in the preceding year is less than the eligible turnover limit, i.e. ₹ 1.5 crore.
(ii) the supplier is engaged in providing restaurant service which is an eligible supply under composition
scheme.

(iii) the supplier wants to engage in trading of goods which is also an eligible supply under composition
scheme.
Thus, M/s. Narayan & Sons is eligible for composition scheme.

c. The turnover limit for composition scheme under sub-sections (1) and (2) of section 10 in case of
Uttarakhand is ₹ 75 lakh. Further, a registered person who is exclusively engaged in supplying services other
than restaurant services are not eligible for composition scheme. Thus, M/s. Indra& Bro cannot opt for
composition scheme.

Further, the benefit of concessional tax payment under section 10(2A) is available in case of a registered
person whose aggregate turnover in the preceding financial year does not exceed ₹ 50 lakh. Thus, in view of
the above -mentioned provisions, M/s. Indra& Bro cannot avail the benefit of concessional tax payment under
section 10(2A) as its aggregate turnover in the preceding financial
year is more than ₹ 50 lakh.

d. An service provider can opt for the composition scheme under sub- sections (1) and (2) of section 10 only if
he is engaged in supply of restaurant services. The composition scheme permits supply of marginal services for
a specified value, but only when the same are supplied
along with goods and/ or restaurant service.

Since M/s. Him Naresh is exclusively engaged in supply of services other than restaurant services, it is not
eligible for composition scheme under sub-sections (1) and (2) of section 10 even though its turnover in the
preceding year is less than ₹ 75 lakh, the eligible turnover limit for Uttarakhand.

However, since M/s. Him Naresh is not eligible to opt for composition scheme under sub -sections (1) and (2)
of section 10, its aggregate turnover in the preceding f
inancial year does not exceed ₹ 50 lakh and it is exclusively engaged in supply of intra- State services other
than restaurant services, M/s. Him Naresh is entitled to avail benefit of concessional payment of tax under
section 10(2A) of the CGST Act, 2017.

67
15
XYZ Ltd., New Delhi, manufactures biscuits under the brand name ‘Tastypicks’. Biscuits are supplied to
wholesalers and distributors located across India on FOR basis from the warehouse of the company
located at New Delhi. The company uses multiple modes of transport for supplying the biscuits to its
customers spread across the country. The transportation cost is shown as a line item in the invoice and
is billed to the customers with a mark-up of 2% on total amount of freight paid (inclusive of taxes). Flour
used for the production process is procured from vendors located in Madhya Pradesh on ex
-factory basis. The company engages goods transport agencies (GTA) to transport the flour from the
factories of the vendors to its factory located in New Delhi. The company has provided the following data
relating to transportation of biscuits and flour in the month of April 20XX:
- For sales within the NCR region (₹ 20,00,000), the company arranged a local mini-van belonging to an
individual and paid him ₹ 54,000.

- For sales to locations in distant States (₹ 1,78,00,000), the company booked the goods by Indian
Railways and paid rail freight of ₹ 3,17,000.

- For sales to locations in neighbouring States (₹ 55,00,000), the company booked the goods by road
carriers (GTAs) and paid road freight of ₹ 3,73,000. Out of the total sales to neighbouring States,
goods worth ₹ 10,00,000 were booked through a GTA which paid tax @ 12%. Freight of ₹ 73,000
was paid to such GTA.

- For purchase of flour from Madhya Pradesh (₹ 25,00,000), the company booked the goods by
a GTA and paid road freight of ₹ 55,000.

- For purchase of butter from Punjab (₹ 15,00,000), the company booked the goods by a GTA and
paid road freight of ₹ 35,000.

- For local purchase of baking powder, the company booked the goods by a GTA in a single carriage and paid
road freight of ₹ 1,500.

- For transferring the biscuits (open market value - ₹ 4,00,000) to one of its sister concern in Rajasthan, the
company booked the goods by a GTA and paid road freight of ₹ 40,000.

(i) Based on the particulars given above, compute the GST payable on the amount paid for transportation by
XYZ Ltd. when it avails the services of different transporters.

(ii) Compute the GST charged on transportation cost billed by the company to its customers.

68
Note: - Assume the rate of GST on transportation of goods to be 5% [except where any other rate is
specified in the question] and GST on supply of biscuits to be 12% (RTP NOV 2018)

Answer

(i) Computation of GST payable on amount paid for transportation by XYZ Ltd. when it avails the services of
different transporters
69
(ii) Computation of GST charged on transportation cost billed by XYZ Ltd. to its customers
Since XYZ Ltd. is supplying biscuits on FOR basis, the service of transportation of biscuits gets bundled with the
supply of biscuits. Thus, the supply of biscuits and transportation service is a composite supply, chargeable to
tax at the rate applicable to the principal supply (biscuits) i.e.,12% [Section 8(a) of the CGST Act, 2017 read
with the definition of ‘composite supply’ under section 2(30) of the CGST Act, 2017 and ‘principal supply’
under section 2(90) of the CGST Act, 2017].

*Note: It has been assumed that there is no mark-up on transportation cost billed to sister concern
(non-customer).

16
Mr. Sanjay of New Delhi made a request for a Motor cab to "Super ride" for travelling from New Delhi to
Gurgaon (Haryana). After Mr. Sanjay pays the cab charges using his debit card, he gets details of the driver
Mr. Jorawar Singh and the cab's registration number.

"Super ride" is a mobile application owned and managed by D.T. Ltd. located in India. The application

70
"Super ride" facilitates a potential customer to connect with the persons providing cab service under the
brand name of "Super ride".

D.T. Ltd. claims that cab service is provided by Mr. Jorawar Singh and hence, he is liable to pay GST. With
reference to the provisions of IGST Act, 2017, determine who is liable to pay GST in this case?

Would your answer be different, if D.T. Ltd. is located in New York (USA)? Also briefly state the statutory
provisions involved. (PAST EXAM NOV 2018)

Answer
Section 5 of IGST Act, 2017 provides that tax on inter-State supplies of specified services notified by
Government shall be paid by the electronic commerce operator (ECO) located in taxable territory if such
services are supplied through it. Services by way of transportation of passengers by a motor cab supplied
through ECO is one of the notified service.

Electronic commerce operator means any person who owns, operates or manages digital or electronic
facility or platform for supply of goods or services or both, including digital products over digital or electronic
network.
Since DT Ltd. owns and manages a mobile application to facilitate supply of passenger transportation service
in motor cabs over a digital network, it is an ECO. Thus, DT Ltd., an ECO located in India is liable to pay GST in
the given case.
However, where an ECO does not have a physical presence in the taxable territory, person representing ECO is
liable to pay tax. Further, where ECO has neither the physical presence nor any representative in the taxable
territory, person appointed by the ECO for the purpose of paying the tax is liable to pay tax.
Accordingly, if D.T. Ltd. is located in New York (USA), any person representing DT Ltd. for any purpose
in India is liable to pay tax.

Further, if D.T. Ltd. also does not have a representative in India, it shall appoint a person in India for the
purpose of paying tax and such person shall be liable to pay tax.

17
Mr. Rajbeer, a registered person at Delhi, is in the business of selling goods relating to interior decoration
under the firm name M/s. Rajbeer & Sons. He has opted for composition scheme for the Financial Year
(FY) 2018-19.
His turnover for FY 2018-19 is ₹ 80 lakh and is expected to achieve ₹ 130 lakh in FY 2019-20. Discuss
whether M/s Rajbeer & Sons can still enjoy the benefits of composition scheme in FY 2019-20.
His son Karan wants to start business of providing services relating to interior decoration, after
completing post-graduation course in interior decoration under same firm name M/s Rajbeer & Sons
with effect from 01.04.2019 and wants to enjoy the benefits of composition scheme under GST.
Advise Mr. Rajbeer and his son Karan. (PAST EXAM NOV 2019)

Answer

71
As per section 10 of the CGST Act, 2017, a registered person, whose aggregate turnover in the preceding
financial year did not exceed ₹ 1.5 crore in a State/UT may opt for composition scheme, provided he is,
inter alia, engaged in supply of goods and/or restaurant service. However, a person who opts for composition
scheme is permitted to supply services other than restaurant service of value not exceeding 10% of turnover
in a State/UT in the preceding financial year
or ₹ 5 lakh, whichever is higher.

In the given case, M/s. Rajbeer & Sons (It has been assumed that M/s Rajbeer & Sons is a sole proprietorship.),
engaged in business of selling goods relating to interior decoration, is eligible for composition scheme in FY
2019-20 since its aggregate turnover in preceding FY (viz. ₹ 80 lakh) does not exceed ₹ 1.5 crore.
If Karan wishes to start the business of providing services relating to interior decoration under the same
firm name M/s Rajbeer & Sons, the sole proprietorship needs to be first converted into a partnership
firm. Further, new GST registration under the new PAN is required to be obtained.

In such a case, the firm can provide services relating to interior decoration up to a value of ₹ 5 lakh (10%
of zero turnover of last year or ₹ 5 lakh, whichever is higher) to continue enjoying the benefit of composition
scheme in FY 2019-20.

18. M/s All-in-One, a partnership concern and a registered supplier under GST, is engaged in providing
various services under one roof. The concern provides the following information pertaining to supply
made/input services availed by it during the month of March 2020:

Determine the GST liability of M/s All-in-One for the month of March, 2020 by giving necessary
explanations for treatment of various items. Rate of tax for both inward and outward supply is
CGST/SGST@ 9% each except renting a vehicle, for which CGST/SGST @ 2.5% each is applicable.

M/s All -in- One commenced its business from February, 2020. All the supplies are intra-State only. (PAST
EXAM NOV 2020)

Answer 72
GST liability of M/s All-in-One

73
19. Determine whether the supplier in the following cases are eligible for composition levy provided their
turnover in preceding year does not exceed Rs. 1.5 Crore:

a) Mohan Enterprises is engaged in trading of pan masala in Rajasthan and is registered in the same
State.

b) Sugam Manufacturers has registered offices in Punjab and Haryana and supplies goods in
neighbouring States.

Answer

a) A supplier engaged in the manufacture of goods as notified under section 10(2)(e), during the preceding FY
is not eligible for composition scheme. Ice cream and other edible ice, whether or not containing cocoa, Pan
masala and Tobacco and manufactured tobacco substitutes are hereby
notified. However, in the given case, since Mohan Enterprises is engaged in trading of pan masala and not
manufacture and his turnover does not exceed Rs. 1.5 crore, he is eligible for composition
scheme subject to fulfilment of specified conditions.

b) Since supplier of inter-State outward supplies of goods is not eligible for composition levy, Sugam
Manufacturers is not eligible for composition levy.

20. A person availing composition scheme in Haryana during a financial year crosses the turnover of Rs. 1.5
crore during the course of the year i.e. he crosses the turnover of Rs. 1.5 crore in December? Will he be
allowed to pay tax under composition scheme for the remainder of the year, i.e. till 31st March?

Answer

No. The option to pay tax under composition scheme lapses from the day on which the aggregate turnover
of the person availing composition scheme during the financial year exceeds the specified limit (Rs. 1.5
crore). Once he crosses the threshold, he is required to file an intimation for withdrawal from the scheme in
prescribed form within 7 days of the occurrence of such event. Every person who has furnished such

74
an intimation, may electronically furnish at the common portal, a statement in prescribed form containing
details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on
the date on
which the option is withdrawn, within a period of 30 days from the date from which the option is withdrawn.
21. State person liable to pay GST in the following independent cases provided recipient is located in the
taxable territory:

a) Services provided by an arbitral tribunal to any business entity.

b) Sponsorship services provided by a company to an individual.

c) Renting of immovable property service provided by the Central Government to a registered business
entity.

Answer

a) Since GST on services provided or agreed to be provided by an arbitral tribunal to any business entity
located in the taxable territory is payable under reverse charge, in the given case, GST is
payable by the recipient - business entity.

b) GST on sponsorship services provided by any person to anybody corporate or partnership firm located in
the taxable territory is payable under reverse charge. Since in the given case, services
have been provided to an individual, reverse charge provisions will not be attracted. GST is payable under
forward charge by the supplier – company.

c) GST on services supplied by Central Government, State Government, Union territory/ local authority by way
of renting of immovable property to a person registered under CGST Act, 2017 is
payable under reverse charge. Therefore, in the given case, GST is payable under reverse charge by the
recipient – registered business entity.

75
 CHAPTER-4 Exemptions from GST
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS 1 to 11, 13, 18, 19, 21, 22

MAT

NO QUES Q-17 NO QUES NO QUES NO QUES ------

PAST
EXAMS

NO QUES Q-10 Q-12, Q-8 Q-20 NO QUES NO QUES NO QUES

16
MTP

NO QUES Q-2 NO NO Q-14 NO QUES Q-15 Q-23

QUES QUES
RTP

QUESTIONS
1. Examine whether the following independent intra-State services are exempt from GST:

(a) Legal services provided by BMC & Partners, Delhi, a partnership firm of advocates, to Vastukaar
Enterprises, registered in Delhi, providing architect services (with preceding financial year’s aggregate
turnover as Rs. 21 lakh).

76
(b) Minimum balance charges collected by Dhanvarsha Bank from current account and saving account
holders.

ANSWER:

(a) Services provided by a partnership firm of advocates or an individual as an advocate other than a senior
advocate, by way of legal services to a business entity with an aggregate turnover up to such amount in the
preceding financial year as makes it eligible for exemption from registration under the CGST Act, 2017, are
exempt from GST vide Notification No. 12/2017 CT (R) dated 28.06.2017 (hereinafter referred to as exemption
notification).
Since in the given case, services are being provided by the partnership firm of advocates - BMC & Partners to a
business entity – Vastukaar Enterprises whose aggregate turnover in the preceding FY exceeded Rs. 20 lakh i.e.
the threshold limit for registration applicable to a service provider in Delhi, said services are not exempt from
GST.

(b) Services by way of extending deposits, loans or advances in so far as the consideration is represented by
way of interest or discount (other than interest involved in credit card services) are exempt from GST vide
exemption notification.
However, service charges/ fees, documentation fees, broking charges, administrative charges, entry charges or
such like fees or charges collected over and above interest on loan, advance or a deposit are not exempt and
liable to GST.
In view of the above, minimum balance charges collected by Dhanvarsha Bank from current account and
saving account holders are not exempt and are liable to GST.

2. Shiva Medical Centre, a Multi-speciality hospital, is a registered supplier in Mumbai. It hires senior
doctors and consultants independently, without entering into any employer-employee agreement with
them. These doctors and consultants provide consultancy to the in-patients - patients who are admitted to
the hospital for treatment – without there being any contract with such patients. In return, they are paid
the consultancy charges by Shiva Medical Centre.

However, the money actually charged by Shiva Medical Centre from the in-patients is higher than the
consultancy charges paid to the hired doctors and consultants. The difference amount retained by the
hospital, i.e. retention money, includes charges for providing ancillary services like nursing care,
infrastructure facilities, paramedic care, emergency services, checking of temperature, weight, blood
pressure, etc.

The Department took a stand that senior doctors and consultants are providing services to Shiva Medical
Centre and not to the patients. Hence, their services are not the health care services and must be subject to
GST. Further, GST is applicable on the retention money kept by Shiva Medical Centre.
You are required to examine whether the stand taken by the Department is correct. (RTP NOV 2018)

ANSWER:

77
No, the stand taken by the Department is not correct.
Services by way of health care services by a clinical establishment, an authorised medical practitioner or para-
medics are exempt from GST vide exemption notification.
Health care services have been defined to mean any service by way of diagnosis or treatment or care for
illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India and
includes services by way of transportation of the patient to and from a clinical establishment, but does not
include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct
anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or
trauma.
Circular No. 32/06/2018 GST dated 12.02.2018 has clarified that the entire amount charged by the hospitals
from the patients including the retention money and the fee/payments made to the doctors etc., is towards
the healthcare services provided by the hospitals to the patients and is exempt from GST. In view of the same,
GST is not applicable on the retention money kept by Shiva Medical Centre.
The circular also clarifies that services provided by senior doctors/ consultants/ technicians hired by the
hospitals, whether employees or not, are also healthcare services exempt from GST. Hence, services provided
by the senior doctors and consultants hired by Shiva Medical Centre, being healthcare services, are also
exempt from GST.

3. Vedanta Hospital, Gurgaon has its own restaurant – Annapurna Bhawan - in the basement which supplies
food to its in-patients (patients admitted in the hospital) as per the advice of the doctor/nutritionist.
Annapurna Bhawan also supplies food to other patients (who are not admitted) or their attendants or
visitors. The food is prepared by the employees of the hospital and nothing is outsourced to any third-party
vendors. Vedanta Hospital is of the view that all services provided by a clinical establishment are exempt
from GST and thus, it is not liable to pay any tax. You are required to test the correctness of the view taken
by Vedanta Hospital.

ANSWER:

Services by way of health care services by a clinical establishment, an authorised medical practitioner or para-
medics are exempt from GST vide exemption notification. Circular No. 32/06/2018 GST dated 12.02.2018 has
clarified that food supplied by the hospital canteen to the in-patients as advised by the doctor/nutritionists is a
part of composite supply of healthcare services and is not separately taxable. Thus, it is exempt from GST.
However, other supplies of food by a hospital to patients (not admitted) or their attendants or visitors are
taxable.
In view of the same, GST is not applicable on the food supplied by Annapurna Bhawan to in-patients as
advised by doctors/nutritionists while other supplies of food by it to patients (not admitted) or their
attendants/visitors are taxable.

4. Indian Institutes of Management (IIM), Indore organizes a placement drive for the students studying in
the campus. Many multinational companies register for the placement program and pay the registration fee

78
of Rs. 1,00,000. IIM, Indore is of the view that such consideration received from multinational companies for
participating in the placement program is exempt from GST. Explain whether the view taken by IIM, Indore
is correct.

ANSWER:
Indian Institutes of Management Act, 2017 (IIM Act, 2017) empowers IIMs to (i) grant degrees, diplomas, and
other academic distinctions or titles, (ii) specify the criteria and process for admission to courses or
programmes of study, and (iii) specify the academic content of programmes. Resultantly, all the IIMs fall under
purview of “educational institutions” as they provide education as a part of a curriculum for obtaining a
qualification recognized by law for the time being in force.
Further, the services provided by an educational institution to its students, faculty and staff are exempt from
GST vide exemption notification.
However, in the given case, services have been provided by the educational institution (viz. IIM, Indore), to the
multinational companies. Therefore, the same is not exempt from GST.

5. India Corporations Ltd., a Public Sector Undertaking (PSU), has taken loan from a banking company -
Wellness Bank. The loan was guaranteed by the Central Government. India Corporations Ltd. defaulted in
the repayment of such loan. Examine whether the services of guaranteeing of loan by the Central
Government, in the given case, is liable to GST.

ANSWER:
Services supplied by Central Government, State Government, Union territory to their undertakings or Public
Sector Undertakings (PSUs) by way of guaranteeing the loans taken by such undertakings or PSUs from the
banking companies and financial institutions are exempt from GST vide exemption notification.
In the present case, Central Government has guaranteed the loan taken by India Corporations Ltd. [a PSU],
from Wellness Bank, [a banking company]. Consequently, services provided by the Central Government, in the
form of guarantee of loan, are exempt from tax.

6. British High Commission, chief diplomatic mission of the United Kingdom in India, is providing advisory
services to the students willing to travel to UK for further studies. The mission has organized a seminar for
such students and a registration fee of Rs. 5,000 per student has been charged from the students for the
same. You are required to determine whether the advisory services provided by British High Commission
are liable to GST.

ANSWER:
Services by a foreign diplomatic mission located in India are exempt from GST vide exemption notification.
Hence, in the given case, advisory services by British High Commission located in Delhi to the students are

79
exempt from GST.

7. Bhushan Biomedical Waste Ltd. is providing service of bio-medical waste treatment to Vishudhi Pharma
Company. For such services, Bhushan Biomedical Waste Ltd. has charged a fixed sum on monthly basis.
Whether the service provided by Bhushan Biomedical Waste Ltd. is exempt under GST?

ANSWER:
Services provided by operators of the common bio-medical waste treatment facility to a clinical establishment
by way of treatment or disposal of bio-medical waste or the processes incidental thereto are exempt GST vide
exemption notification. Further, the term “clinical establishment” means a hospital, nursing home, clinic,
sanatorium or any other institution by, whatever name called, that offers services or facilities requiring
diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised
system of medicines in India, or a place established as an independent entity or a part of an establishment to
carry out diagnostic or investigative services of diseases
In the present case the bio-medical waste treatment services are being provided to a pharma company. The
definition of term “clinical establishment” does not cover a pharma company within its purview. Therefore,
services provided by Bhushan Biomedical Waste Ltd. to Vishudhi Pharma Company are not exempt from GST.

8. Determine whether GST is payable in respect of each of the following independent services provided by
the registered persons:

(1) Fees charged from office staff for in-house personality development course conducted by Mungerilal
College providing education as part of a curriculum for obtaining a qualification recognised by Indian law -
Rs. 10,000.

(2) Bus fees collected from students by Rosemary College providing education as part of a curriculum for
obtaining a qualification recognised by Indian law - Rs. 2,500 per month.

(3) Housekeeping service provided by M/s. Clean Well to Himavarsha Montessori school, a play school, for
cleaning its playground and classrooms - Rs. 25,000 per month.

(4) Info link supplied ‘Tracing Alphabets’, an online educational journal, to students of UKG class of Sydney
Montessori School - Rs. 2,000. (MTP NOV 2019)

ANSWER:

(1) Services provided by an educational institution to its students, faculty and staff are exempt from GST vide
exemption notification. Educational Institution has been defined to mean, inter alia, an institution providing
services by way of education as a part of a curriculum for obtaining a qualification recognised by any law for

80
the time being in force.
Since Mungerilal College provides education as part of a curriculum for obtaining a qualification recognised by
Indian law, the services provided by it to its staff by way of conducting personality development course would
be exempt from GST.

(2) Since Rosemary College provides education as a part of a curriculum for obtaining a qualification
recognised by Indian law, the transport services provided by Rosemary College to its students are exempt
from GST.
(3) Services provided to an educational institution, by way of, inter alia, house-keeping services performed are
exempt from GST vide exemption notification where such services are performed in such educational
institution. However, such exemption is available only when the said services are provided to a pre-school
education and a higher secondary school or equivalent.
In view of the above discussion, house-keeping services provided to Himavarsha Montessori Play School are
exempt from GST since housekeeping services have been performed in such play school itself.

(4) Services provided to an educational institution by way of supply of online educational journals or
periodicals is exempt from GST vide exemption notification. However, such exemption is available only when
the said services are provided to an educational institution providing education as a part of a curriculum for
obtaining a qualification recognised by any law for the time being in force.
Therefore, supply of online journal to students of UKG class of Sydney Montessori School is not exempt from
GST.

9. Sarva Sugam Charitable Trust, a trust registered under section 12AA of the Income – tax Act, 1961,
provides the following information relating to supply of its services for the month of August:

Amount (Rs.)
Renting of residential dwelling for use as a residence 18,00,000
Renting of rooms for devotees (Charges per day Rs. 750) 6,00,000
Renting of kalyanamandapam (Charges per day Rs. 15,000) 12,00,000
Renting of halls and open space (Charges per day Rs. 7,500) 10,75,000
Renting of shops for business (Charges per month Rs. 9,500) 4,75,000
Renting of shops for business (Charges per month Rs. 12,000) 7,50,000

Compute the GST liability of Sarva Sugam Charitable Trust for the month of August assuming that the above
amounts are exclusive of GST and rate of GST, wherever applicable, is 18%.
Note: The rooms/ Kalyanamandapam/ halls/ open space/ shops owned by the trust are located within the
precincts of a religious place, meant for general public, owned by the trust.

ANSWER:
Renting of precincts of a religious place meant for general public, owned/managed by, inter alia, an entity
registered as a charitable trust under section 12AA of the Income-tax Act are exempt from GST vide

81
exemption notification. However, said exemption is not available if:

(i) charges for rented rooms are Rs. 1,000 per day or more;

(ii) charges for rented community halls, Kalyan mandapam, open area areRs. 10,000 per day or more;

(iii) charges for rented shops are Rs. 10,000 per month or more.
Further, services by way of renting of residential dwelling for use as residence are also exempt vide exemption
notification.
Computation of GST liability of Sarva Sugam Charitable Trust for August

Particulars Value (Rs.) GST @ 18% (Rs.)

Renting of residential dwelling for use as residence 18,00,000 Nil
[Exempt vide exemption notification]
Renting of rooms for devotees 6,00,000 Nil
[Exempt since charges per day are below Rs.1,000]
Renting of Kalyanamandapam 12,00,000 2,16,000
[Taxable since charges per day exceed Rs.10,000]
Renting of halls and open spaces 10,75,000 Nil
[Exempt since charges per day are below Rs. 10,000]
Renting of shops for business 4,75,000 Nil
[Exempt since charges per month are below Rs.10,000]
Renting of shops for business 7,50,000 1,35,000
[Taxable since charges per month exceed Rs. 10,000]
Total 3,51,000

10. Mr. Nagarjun, a registered supplier of Chennai, has received the following amounts in respect of the
activities undertaken by him during the month of September:

S. Particulars Amount
No. (Rs.)
(i) Amount charged for service provided to recognized sports body as 50,000
selector of national team.
(ii) Commission received as an insurance agent from insurance 65,000
company.
(iii) Amount charged as business correspondent for the services 15,000
provided to the urban branch of a nationalized bank with respect to
savings bank accounts.
(iv) Service to foreign diplomatic mission located in India. 28,000
(v) Funeral services. 30,000

He received the services from unregistered goods transport agency for his business activities and paid 82
freight of Rs. 45,000 (his aggregate turnover of previous year was Rs. 9,90,000).
Note: All the transactions stated above are intra-State transactions and also are exclusive of GST.
You are required to calculate gross GST liability (ignoring ITC provisions) of Mr. Nagarjun for the month of
September assuming that the rate of GST, wherever applicable, is 18% except the GTA services where the
rate of GST is 5%. Working notes should form part of your answer. (PAST EXAM MAY 2018) (MTP NOV
2020) (MTP NOV 2018)
ANSWER:

Computation of gross GST liability of Mr. Nagarjun

Particulars Value (Rs.) GST (Rs.)
Supplies on which Mr. Nagarjun is liable to pay GST under forward charge
Amount charged for service provided to 50,000 9,000
recognized sports body as selector of
national team [Note 1]
Commission received as an insurance agent Nil Nil
from insurance company [Note 2]
Amount charged as business correspondent 15,000 2,700
for the services provided to the urban
branch of a nationalised bank with respect
to savings bank accounts [Note 3]

Services provided to foreign diplomatic 28,000 5,040

mission located in India [Note 4]
Funeral services [Note 5] Nil Nil
Supplies on which Mr. Nagarjun is liable to
pay GST under reverse charge

Services received from GTA [Note 6] 45,000 2,250

GST payable 18,990

Notes:

(1) Services provided to a recognized sports body by an individual only as a player, referee, umpire, coach or
team manager for participation in a sporting event organized by a recognized sports body are exempt from
GST vide exemption notification. Thus, service provided as selector of team is liable to GST.

(2) Commission for providing insurance agent’s services is liable to GST. However, the tax payable thereon is to

83
be paid by the recipient of service i.e., insurance company, under reverse charge in terms of Notification No.
13/2017 CT (R) dated 28.06.2017. Thus, Mr. Nagarjun will not be liable to pay GST on such commission.

(3) Services provided by business correspondent to a banking company with respect to accounts in its rural
area branch are exempt from GST vide exemption notification. Thus, such services provided in respect of
urban area branch will be taxable.

(4) While services provided by a foreign diplomatic mission located in India are exempt from GST vide
exemption notification, services provided to such mission are taxable.
(5) Funeral services being covered in Schedule III of CGST Act are not a supply and thus, are outside the ambit
of GST.

(6) GST on services provided by a GTA (not paying tax @ 12%) to, inter alia, a registered person is payable by
the recipient of service i.e., the registered person, under reverse charge in terms of Notification No. 13/2017
CT (R) dated 28.06.2017. The turnover of previous year is irrelevant in this case.

11. Vividh Pvt. Ltd. is a supplier of goods and services at Bangalore, registered in the State of Karnataka,
having turnover of Rs. 200 lakh in the last financial year. It has furnished the following information for the
month of June.
Particulars Amount (Rs.) excluding GST
Services provided by way of a labour contract for 1,30,000
repairing a single residential unit otherwise than as a part of residential
complex

Fee received from students of a competitive exam training academy run by 5,40,000
Vividh Pvt. Ltd.
4 buses each with a seating capacity of 72 passengers given on hire to State 6,00,000
Transport Undertaking
Rent paid to Local Municipal Corporation for premises taken on rent for 2,50,000
competitive exam training academy
Goods transport services received from GTA, tax is payable on such services 1,80,000
@ 12%

Compute gross GST liability (ignoring ITC provisions) of Vividh Pvt. Ltd. for the month of June assuming that
the above amounts are exclusive of GST and rate of GST, wherever applicable, is 18% unless otherwise
mentioned.

ANSWER:

Computation of gross GST liability of Vividh Pvt. Ltd.

84
Particulars Value of GST @ 18%
supply (Rs.) (Rs.)
Services provided by way of labour contracts for repairing a single 1,30,000 2,34,000
residential unit otherwise than as a part of residential complex
[Services by way of pure labour contracts of construction, erection,
commissioning, or installation of original works pertaining to a
single residential unit otherwise than as a part of a residential
complex are exempt vide exemption notification. Labour contracts
for repairing, are thus, taxable.]
 Fee received from students of competitive exam training academy 5,40,000 97,200
[Fee received from students of competitive exam training academy
is taxable as it is not an educational institution since competitive
exam training does not lead to grant of a recognized qualification]
Buses each with seating capacity of 72 passengers given on hire to 6,00,000 Nil
State Transport Undertaking
[Services by way of giving on hire to a state transport undertaking
(STU), a motor vehicle meant to carry more than 12 passengers,
are exempt from GST vide exemption notification.]
Services on which tax is payable under reverse charge:
Rent paid to Local Municipal Corporation 2,50,000 45,000
[GST is payable under reverse charge in case
of renting of immovable property services supplied by a local
authority to a registered person.]
GTA services availed 1,80,000 Nil
[Since GTA is paying tax @ 12%, tax is payable under forward
charge by GTA only and not by Vividh Pvt. Ltd.]
Gross GST payable 3,76,200

12. “Chanakya Academy” is registered under GST in the State of Uttar Pradesh. The Academy runs the
following educational institutions:

(i) ‘Keshav Institute of Technology’ (KIT), a private engineering college in Ghaziabad. KIT also runs distance
learning post graduate engineering programmes. Exams for such programmes are conducted in select cities
at centres appointed by the KIT. All the engineering courses including the distance learning post graduate
engineering programme run by KIT are recognised by the law [The All India Council for Technical Education
(AICTE)].

(ii) ‘Little Millennium’, a pre-school in Lucknow.

85
(iii) ‘Bright Minds’, a coaching institute in Kanpur. The Institute provides coaching for Institute of Banking
Personnel Selection (IBPS) Probationary Officers Exam.

(iv) ‘Spring Model’ a higher secondary school affiliated to CBSE Board.

The Academy provides the following details relating to the expenses incurred by the various institutions run
by it during the period April to September:
 S. Particulars KIT Little Bright Minds Spring
No. Millennium
(Rs.) (Rs.) (Rs.) (Rs.)
(i) Printing services for printing the 2,50,000 1,50,000 2,00,000
question papers (paper and
content are provided by the
Institutions)
(ii) Paper procured for printing the 4,30,000 2,58,000 3,44,000
question papers
(iii) Honorarium to paper setters and 5,00,000
examiners (not on the rolls of
the Institution)
(iv) Rent for exam centers taken on 8,00,000 1,00,000
rent like schools etc., for
conducting examination
(v) Subscription for online 4,00,000 80,000 2,20,000 2,40,000
educational journals
[Little Millennium has taken the
subscription for online
periodicals on child
development and experiential
learning]
(vi) Hire charges for buses used to 4,80,000 5,50,000 1,30,000 7,50,000
transport students and faculty
from their residence to the
institutions and back
(vii) Catering services for running a 3,20,000 2,60,000 1,80,000 5,00,000
canteen in the campus for
students

(Catering services for KIT include a sum of Rs.

60,000 for catering at a student event organised
in a banquet hall outside the campus)

(viii) Security and housekeeping services for the 6,00,000 4,00,000 3,75,000 4,65,000 86
institution(s)
(Security and housekeeping services for Spring
Model include a sum of Rs. 80,000 payable for
security and housekeeping at the student event
organised in a banquet hall outside the campus)
With the help of the above details, determine the amount of GST payable, if any, (ignoring ITC provisions)
on goods and services received during April to September by the various educational institutions run by the
‘Chanakya Academy’; all the amounts given above are exclusive of taxes, wherever applicable.
Note: Rate of GST on goods is 12%, catering service is 5% and on other services is 18%. (RTP NOV 2019)
(MTP MAY 2019)

ANSWER:

(i) Exemption notification exempts select services provided to an educational institution. Here, the
“educational institution” means an institution providing services by way of,-

(i) pre-school education and education up to higher secondary school or equivalent;

(ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in
force;

(iii) education as a part of an approved vocational education course;

The select services which are exempt when provided to an educational institution are-
(i) transportation of students, faculty and staff;
(ii) catering, including any mid-day meals scheme sponsored by the Central Government, State Government or
Union territory;
(iii) security or cleaning or house-keeping services performed in such educational institution;
(iv) services relating to admission to, or conduct of examination by, such institution;
(v) supply of online educational journals or periodicals

However, the services mentioned in points (i), (ii) and (iii) are exempt only when the same are provided to an
educational institution providing services by way of pre-school education and education up to higher
secondary school or equivalent.

Also, the supply of online educational journals or periodicals is not exempt from GST when provided to-
(i) pre-school education and education up to higher secondary school or equivalent; or
(ii) education as a part of an approved vocational education course.
Further, services by way of giving on hire motor vehicle for transport of students, faculty and staff, to a person

87
providing services of transportation of students, faculty and staff to an educational institution providing
services by way of pre-school education and education upto higher secondary school or equivalent is
exempt17.

In the given case, all the engineering courses including the distance learning post graduate engineering
programme run by KIT are recognised by the law [The All India Council for Technical Education (AICTE)].
Therefore, since KIT imparts education as a part of a curriculum for obtaining a qualification recognised by the
Indian law, the same is an educational institution in terms of the exemption notification.
Similarly, Little Millennium and Spring Model, being a pre-school and a higher secondary school respectively
are also educational institutions in terms of the exemption notification.
However, Bright Minds, being a coaching centre, training candidates to secure a banking job, is not an
educational institution in terms of the exemption notification. Hence, none of the select services (mentioned
above) will be exempt when provided to Bright Minds.
In the light of the foregoing provisions, the amount of GST payable on goods and services received by these
educational institutions during April to September is computed as under:

Particulars KIT Little Bright Spring Model

Millennium Minds
(Rs.) (Rs.) (Rs.) (Rs.)

Printing services for printing Exempt 27,000 Exempt

the question papers (paper [Services provided [1,50,000 x
and content are provided to educational 18%]
by the Institutions) institution in
relation to conduct
of examination]
Paper procured for printing 51,600 30,960 41,280
the question papers [4,30,000 x 12%] [2,58,000 x [3,44,000 x
[Supply of select services to 12%] 12%]
educational institutions is
exempt and not supply of
goods to such educational
institutions]
Honorarium to paper Exempt
setters and examiners (not [Services provided
on the rolls of the to educational
educational institution) institution in
relation to conduct
of examination]
Rent for exam centres taken Exempt 18,000
on rent like [Services provided [1,00,000 x
schools etc., for conducting to 18%]
examination educational

88
institution in
relation to conduct
of examination]
Subscription for online educational Exempt 14,400 39,600 43,200
journals [80,000 x 18%] [2,20,000 x [2,40,000 x 18%]
[Little Millennium has taken the 18%]
subscription for online periodicals
on child development and
experiential learning]
Hire charges for buses used to 86,400 Exempt 23,400 Exempt
transport students and faculty [4,80,000 x 18%] [1,30,000 x
from their residence to the 18%]
institutions and back

Catering services for running a 16,000 Exempt 9,000 Exempt

canteen in the campus for [3,20,000 x 5%] [1,80,000 x
students 5%]
[Catering service provided to pre-
school
and the higher secondary school is
exempt irrespective of whether
the same is provided within or
outside the premises of the pre-
school and the higher secondary
school]

Security and housekeeping 1,08,000 Exempt 67,500 14,400

services for the institution(s) [6,00,000 x 18%] [3,75,000 x [80,000 x 18%]
[Security and housekeeping 18%]
service provided to pre-school and
the higher secondary school for
the student event organised in a
banquet hall will be taxable as only
the security and housekeeping
service provided within the
premises of the pre-school and the
higher

89
secondary school are exempt.]

Total GST payable on goods and 2,62,000 14,400 2,15,460 98,880

services received
13 “Chanakya Academy” is registered under GST in the State of Uttar Pradesh. The Academy runs the
following educational institutions:
(i) ‘Keshav Institute of Technology’ (KIT), a private engineering college in Ghaziabad. KIT also runs distance
learning post graduate engineering programmes. Exams for such programmes are
conducted in select cities at centres appointed by the KIT. All the engineering courses including the distance
learning post graduate engineering programme run by KIT are recognised by the law [The
All India Council for Technical Education (AICTE)].

(ii) ‘Little Millennium’, a pre-school in Lucknow.

(iii) ‘Bright Minds’, a coaching institute in Kanpur. The Institute provides coaching for Institute of Banking
Personnel Selection (IBPS) Probationary Officers Exam.

(iv) ‘Spring Model’ a higher secondary school affiliated to CBSE Board.

The Academy provides the following details relating to the expenses incurred by the various institutions
run by it during the period April 20XX to September 20XX:
Table 1

90
The academy further provides the following details relating to the receipts of the various institutions run
by it during the period April 20XX to September 20XX:

Table 2

With the help of the above details –

(i) determine the amount of GST payable, if any, on goods and services received during April 20XX to
September 20XX by the various educational institutions run by the ‘Chanakya Academy’;

(ii) Compute net GST liability of the ‘Chanakya Academy’ payable from the Electronic Cash Ledger, for
the period April 20XX to September 20XX.

All the amounts given above are exclusive of taxes, wherever applicable.

Notes:

(a) Rate of GST on goods is 12%, catering service is 5% and on other services is 18%.

(b) Wherever relevant, all the conditions necessary for availing the ITC have been complied with.

91
Answer

(i) Notification No. 12/2017 CT(R) dated 28.06.2017 (hereinafter referred to as exemption notification) which
exempts various services from GST leviable thereon exempts select services
provided to an educational institution.

Here, the “educational institution” means an institution providing services by way of,
- (i) pre-school education and education up to higher secondary school or equivalent;
(ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in
force;
(iii) education as a part of an approved vocational education course; The select services which are exempt
when provided to an educational institution are

- (i) transportation of students, faculty and staff;

(ii) catering, including any mid-day meals scheme sponsored by the Central Government, State Government or
Union territory;

(iii) security or cleaning or house-keeping services performed in such educational institution;

(iv) services relating to admission to, or conduct of examination by, such institution;

(v) supply of online educational journals or periodicals

However, the services mentioned in points (i), (ii) and (iii) are exempt only when the same are provided to an
educational institution providing services by way of pre-school education and education up to higher
secondary school or equivalent.

Also, the supply of online educational journals or periodicals is not exempt from GST when provided to

(i) pre-school education and education up to higher secondary school or equivalent; or

(ii) education as a part of an approved vocational education course.

Further, as per S. No. 22 of Notification No. 12/2017 CT (R) services by way of giving on hire motor vehicle for
transport of students, faculty and staff, to a person providing services of transportation of students, faculty
and staff to an educational institution providing services by way of pre

-school education and education upto higher secondary school or equivalent is exempt.

92
In the given case, all the engineering courses including the distance learning post graduate engineering
programme run by KIT are recognised by the law [The All India Council for Technical Education (AICTE)].

Therefore, since KIT imparts education as a part of a curriculum for obtaining a qualification recognised by the
Indian law, the same is an educational institution in terms of the
exemption notification.
Similarly, Little Millennium and Spring Model, being a pre-school and a higher secondary school
respectively are also educational institutions in terms of the exemption notification.

However, Bright Minds, being a coaching centre, training candidates to secure a banking job, is not an
educational institution in terms of the exemption notification.

Hence, none of the select services (mentioned above) will be exempt when provided to Bright Minds.

In the light of the foregoing provisions, the amount of GST payable on goods and services received by these
educational institutions during April 20XX to September 20XX is computed as under:

93
94
(ii)
(1) Sl. No. 66 of Notification No. 12/2017 CT(R) dated 28.06.2017 also exempts services provided by an
educational institution to its students, faculty and staff. All the educational institutions
run by the Chanakya Academy except Bright Minds are educational institutions in terms of the exemption
notification (as explained under point (i) above). Therefore, the education services and the transport services
provided by KIT, Little Millennium, and Spring Model to its students will be exempt from GST under Sl. No. 66
of the exemption notification. Thus, only the educational services provided by Bright Minds will be liable to
GST @ 18%.

(2) No input tax credit (ITC) will be availed on inputs and input services used in providing exempt education
services, i.e. education services by KIT, Little Millennium
, and Spring Model. Only Bright Minds will be entitled to avail ITC on inputs and input services used in
providing taxable education services. However, ITC on outdoor catering services will be blocked in terms of
section 17(5)(b)(i) of the CGST Act, 2017.

(3) Since there are no common inputs and input services being used for providing taxable and exempt services,
the need for reversal of ITC attributable to exempt supplies will not arise.
In the light of the foregoing provisions, the net GST liability of Chanakya Academy, which will comprise of only
the tax liability of Bright Minds, is computed as under:

95
14.
Pethalal has obtained registration in the current financial year in Uttar Pradesh. His turnover in the
preceding financial year was ₹ 19,90,000. He has received the following amounts in respect of the
activities undertaken by him in the month of September
Further, he has received following services in the month of September:

All the transactions stated above are intra-State transactions and amounts given are exclusive of GST,
wherever applicable.

You are required to calculate net GST payable by Pethalal for the month of September. There was no
opening balance of input tax credit.

Rate of CGST and SGST is 9% each for all the outward supplies made by Pethalal. (RTP MAY 2020)

Answer

96
Computation of net GST payable by Pethalal
Notes:
(1) Funeral services being covered in entry 4 of Schedule III to the CGST Act, 2017 are not a supply and
thus, are outside the ambit of GST.

(2) Services by way of storage/ warehousing of, inter alia, jaggery are exempt from GST vide Exemption
Notification No. 12/2017 CT(R) dated 28.06.2017 (hereinafter referred to as
exemption notification). Thus, services of warehousing of jaggery are exempt.

97
(3) Services by way of giving on hire to a local authority, an Electrically operated vehicle (EOV) meant
to carry more than 12 passengers are exempt vide exemption notification. Buses are EOVs meant to carry
more than 12 passengers. Hence, services of giving electrically operated buses on hire to Municipal
Corporation are
exempt from GST.
(4) Services provided to a recognized sports body by an individual only as a player, referee, umpire, coach or
team manager for participation in a sporting
event organized by a recognized sports body are exempt from GST vide exemption notification. Thus, service
provided as commentator is liable to GST.

(5) Though commission for providing insurance agent’s services to any person carrying on insurance business
is liable to GST, the tax payable thereon is to be paid by the recipient of service i.e., insurance company, under
reverse charge in terms of Notification No. 13/2017 CT(R) dated 28.06.2017 (hereinafter referred to as reverse
charge notification). Thus, Pethalal will not be liable to pay GST on such commission.

(6) Services provided by a business facilitator to a banking company with respect to accounts in its rural area
branch are exempt from GST vide exemption notification. Thus, services provided by
him in respect of urban area branch of the bank will be taxable. However, the tax payable thereon is to be paid
by the recipient of service i.e., banking company, under reverse charge in terms of
reverse charge notification. Hence, Pethalal will not liable to pay GST on commission received for said services.

(7) Services provided to an educational institution, by way of security services performed in such educational
institution are exempt from GST only when said services are provided to an institution
providing services by way of pre-school education and education up to higher secondary school or equivalent,
vide exemption notification. Thus, in the given case, security services provided to DEC
are not exempt. Further, the tax on security services (supply of security personnel) provided by any person
other than a body corporate to a registered person is payable by the recipient of service
under reverse charge in terms of reverse charge notification. Hence, Pethalal will not be liable to pay GST in
the given case.

(8) GST on services provided by a GTA (not paying tax @ 12%) to, inter alia, a registered person is payable by
the recipient of service i.e., the registered person, under reverse charge in terms of
reverse charge notification. Since in the given case, GTA is unregistered, Pethalal is liable to pay tax under
reverse charge @ 5% (CGST @ 2.5% and SGST @ 2.5%). Further, since said input services
are being exclusively used for effecting non-taxable supplies [funeral services], input tax credit of the GST paid

98
on the same will not be available.

(9) Legal services provided by a partnership firm of advocates to a business entity (with an aggregate turnover
up to such amount in the preceding FY as makes it eligible for exemption from
registration under the CGST Act, 2017) are exempt from GST vide exemption notification. Since the aggregate
turnover of Pethalal did not exceed ₹ 20 lakh [the applicable threshold limit for registration for Pethalal being
a supplier of services] in the preceding FY, legal services received by him are exempt from GST.
(10) As per section 49(4) of the CGST Act, 2017, amount available in the electronic credit ledger may be used
for making payment towards output tax. However, tax payable under reverse charge is not an
output tax in terms of section 2(82) of the CGST Act, 2017. Therefore, tax payable under reverse charge
cannot be
set off against the input tax credit and thus, will have to be paid in cash.

(11) Since all the transactions given hereunder are intra-State, CGST and SGST are payable in terms of section
9(1) of the CGST Act, 2017

15.
Parikshit Ltd., engaged in providing a bouquet of services, is registered under GST law. It furnishes the
following information for the month of March in relation to various services provided by it:

Compute the GST payable by Parikshit Ltd. assuming that all the above receipts are exclusive of GST
wherever applicable and the rate of GST applicable on all the supplies is 18%. (RTP JULY 2021)

Answer 99

Computation of GST payable by Parikshit Ltd. for the month of March

100
16.
Rahul Agri Millers Ltd., located in Haryana, is engaged in customs milling of paddy into rice. It does not
pay GST on the same as it is of the view that the process of milling of paddy into rice is exempt under GST
since is an intermediate production process in relation to cultivation of plants. However, Department
demands tax on said activity contending that it is not eligible for said exemption. You are required to
determine the veracity of the Department’s contention. (MTP MAY 2019)

Answer

Yes, the contention of the Department is correct. As per Notification No. 12/2017 CT (R) dated 28.06.2017,
carrying out an intermediate production process as job work in relation to cultivation of plants and rearing of
all life forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar
products or agricultural produce is exempt under GST.

Milling of paddy is not an intermediate production process in relation to cultivation of plants. It is a process
carried out after the process of cultivation is over and paddy has been harvested. Further, processing of paddy
into rice is not usually carried out by cultivators, but by rice millers. Milling of paddy into rice also changes its
essential characteristics.

Therefore, milling of paddy into rice cannot be considered as an intermediate production process in relation to
cultivation of plants for food, fibre or other similar products or agricultural produce. In view of the above, it is
clarified by CBIC that milling of paddy into rice is not eligible for exemption under said notification. Thus, GST
is payable on the said activity.

17.
BODMAS Ltd., providing educational services, furnishes you with the following information for the
various services provided by it for the month of March, 2019: (PAST EXAM NOV 2019)

101
Compute the value of taxable supply assuming that all the above receipts are exclusive of GST.

Answer

Services provided by an educational institution to its students, faculty and staff are exempt vide Notification
No. 12/2017 Central Tax (Rate) dated 28.06.2017. Further, an educational institution means,
inter alia, an institution providing services by way of-

(i) education up to higher secondary school or equivalent;

(ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time
being in force;
(iii) education as a part of an approved vocational education course.
In view of the aforesaid provisions, value of taxable supply of BODMAS Ltd. for the month of March, 2019 has
been computed as follows:

102
18.
An individual acts as a referee in a football match organized by Sports Authority of India. He has also
acted as a referee in another charity football match organized by a local sports club, in lieu of a lump sum
payment. Discuss whether he is required to pay any GST?
Answer

Services provided to a recognized sports body by an individual inter alia as a referee in a sporting event
organized by a recognized sports body is exempt from GST. Since in the first case, the football match is
organized by Sports Authority of India, which is a recognized sports body, services provided by the individual
as a referee in such football match will be exempt.
However, when he acts as a referee in a charity football match organized by a local sports club, he would
not be entitled to afore-mentioned exemption as a local sports club is not a recognized sports body and
thus, GST will be payable in this case.

19.
RXL Pvt. Ltd. manufactures beauty soap with the brand name ‘Forever Young’. RXL Pvt. Ltd. has organized
a concert to promote its brand. Ms. Ahana Kapoor, its brand ambassador, who is a leading film actress, has
given a classical dance performance in the said concert. The proceeds of the concert worth Rs. 1,20,000 will
be donated to a charitable organization Whether Ms. Ahana Kapoor will be required to pay any GST?

Answer

Services by an artist by way of a performance in folk or classical art forms of (i) music, or (ii) dance, or (iii)
theatre are exempt from GST, if the consideration charged for such performance is not more than Rs.
1,50,000. However, such exemption is not available in respect of service provided by such artist as a brand
ambassador. Since Ms. Ahana Kapoor is the brand ambassador of ‘Forever Young’ soap manufactured by RXL
Pvt. Ltd., the services rendered by her by way of a classical dance performance in the concert organized by RXL
Pvt. Ltd. to promote its brand will not be eligible for the above-mentioned exemption and thus, be liable
to GST. The fact that the proceeds of the concert will be donated to a charitable organization will not have
any bearing on the eligibility or otherwise to the above-mentioned exemption.

20 Determine taxable value of supply under GST law with respect to each of the following independent
services provided by the registered persons: (MTP NOV 2020)

103
Answer

Computation of value of taxable supply

Notes:
1. Services by an entity registered under section 12AA of the Income-tax Act, 1961 by way of charitable
activities are exempt from GST. The activities relating to advancement of yoga are
included in the definition of charitable activities. So, such activities are exempt from GST.

2. Services by business facilitator or a business correspondent to a banking company with respect to accounts
in its
rural area branch have been exempted from GST.

3. Services provided by cord blood banks by way of preservation of stem cells or any other service in relation
to such preservation are exempt from GST.

4. Services provided to a recognized sports body only by an individual as a player, referee, umpire, coach or
team manager for participation in a sporting event organized by a recognized sports body
are exempt from GST. Thus, services provided by commentators are liable to GST.

21. Examine whether GST is exempted on the following independent supplies of services:
1) Service provided by a private transport operator to Scholar Boys Higher Secondary School in
relation to transportation of students to and from the school.
2) Services provided by way of vehicle parking to general public in a shopping mall.

Answer 104

1) Yes, Services provided to an educational institution by way of transportation of students are exempted from
GST.
2) No, Services provided by way of vehicle parking to general public are not exempted from GST.
Therefore, GST is payable on the same.
22 Discuss whether GST is payable in respect of transportation services provided by Raghav Goods
Transport Agency in each of the following independent cases:

Answer

23. Kaushal Manufacturers Ltd., registered in Delhi, is a manufacturer and supplier of electronic home
appliances. It is paying tax under regular scheme. It supplies the electronic home appliances in the domestic
as well as overseas market. For supplies in other States of India, the company has appointed consignment
agents in each such State, except Gurgaon, Haryana and Noida, Uttar Pradesh, where the goods are
supplied directly from its Delhi warehouse.
In the month of January, consignments of electronic home appliances were sent to Cardinal Electricals Pvt.
Ltd. and Rochester Technos – agents of Kaushal Manufacturers Ltd. in Punjab and Madhya Pradesh
respectively. Cardinal Electricals Pvt. Ltd. and Rochester Technos supplied these electronic home appliances
under their invoices to the stores located in their respective States for ₹ 40,00,000 and ₹ 70,00,000

105
respectively. Open market value of such appliances is not available. Further, in January, electronic home
appliances have been supplied to Ronn Technomart - a wholesale dealer of electronic home appliances in
Noida, Uttar Pradesh for consideration of ₹ 23,00,000, from its Delhi warehouse. Kaushal Manufacturers
Ltd. owns 75% shares of Ronn Technomart. Open market value of the electronic home appliances supplied
to Ronn Technomart is ₹ 30,00,000. Further, Ronn Technomart is not eligible for full input tax credit.
Kaushal Manufacturers Ltd. also provides repair and maintenance services to electronic appliance
manufacturers located in India.
The company has also furnished the following information for the month of January:
Particulars ₹
Supply of electronic home appliances to wholesale dealers of such appliances in Delhi 84,00,000
Electronic home appliances supplied to Anchor Electricals Inc., USA under LUT 1,26,00,00
[Consideration received in convertible foreign exchange] 0
Repair and maintenance services provided to Unitech Ltd., an electronic appliance 8,40,000
manufacturer, located in Delhi
Advance received towards repair and maintenance services to be provided to Orelec Ltd., an 7,00,000
electronic appliance manufacturer, located in Delhi
[Repair and maintenance services have been provided in February and invoice is issued on
28th February]
Advance received for electronic home appliances to be supplied to Novick Electricals, a 8,40,000
wholesale dealer of such appliances in Gurgaon, Haryana
[Invoice for the goods is issued at the time of delivery of the electronic appliances in March]

You are required to determine the gross GST liability [CGST & SGST and/or IGST] of Kaushal Manufacturers
Ltd. for the month of January.
Note:
(i) All the given amounts are exclusive of GST, wherever applicable.
(ii) Assume the rates of GST to be as under:

Goods/services supplied CGST SGST IGST

Electronic home appliances 2.5% 2.5% 5%
Repair and maintenance services 9% 9% 18%

You are required to make suitable assumptions, wherever necessary. (rtp- nov 2021)

ANSWER

Computation of gross GST Liability of Kaushal Manufacturers Ltd. for the month of January

106
Particulars CGST (₹) SGST (₹) IGST (₹)
Supply of electronic home appliances 4,95,000 [99,00,000 × 5%]
to consignment agents - Cardinal
Electricals Pvt. Ltd. and Rochester
Technos of Punjab and Madhya
Pradesh [Note - 1]
Supply of electronic home appliances 1,50,000 [30,00,000 × 5%]
to Ronn Technomart of Noida, Uttar
Pradesh [Note - 2]
Supply of electronic home appliances 2,10,000 2,10,000
to wholesale dealers of such [84,00,000 [84,00,000 ×
appliances in Delhi [Note - 3] × 2.5%] 2.5%]
Electronic home appliances supplied to Nil
Anchor Electricals Inc., USA under LUT
[Note - 4]
Supply of repair and maintenance 75,600 75,600
services to Unitech Ltd., an electronic [8,40,000 × [8,40,000 × 9%]
appliance manufacturer, located in 9%]
Delhi [Note - 5]
Advance received for repair and 63,000 63,000
maintenance services supplied to [7,00,000 × [5,00,000 × 9%]
Orelec Ltd., a electronic appliances 9%]
manufacturer, located in Delhi [Note -
6]
Advance received for electronic home Nil
appliances to be supplied to Novick
Electricals, a wholesale dealer of
electronic appliances in Gurgaon,
Haryana [Note - 7]
Total GST liability 3,48,600 3,48,600 6,45,000

Notes:

1. Value of supply of goods made through an agent is determined as per rule 29 of the CGST Rules, 2017.
Accordingly, the value of supply of goods between the principal and his agent is the open market value of the
goods being supplied, or at the option of the supplier, is 90% of the price charged for the supply of goods of
like kind and quality by the recipient to his unrelated customer, where the goods are intended for further
supply by the said recipient.
In the given case, since open market value is not available, value of electronic home appliances supplied to
consignment agents - Cardinal Electricals Pvt. Ltd. and Rochester Technos – will be ₹ 99,00,000 [90% of
(40,00,000 + 70,00,000)]. Further, being an inter-State supply of goods, supply of electronic home appliances
to the consignment agents is subject to IGST @ 5%.

107
2. If any person directly or indirectly controls another person, such persons are deemed as related persons.
[Clause (a)(v) of explanation to section 15 of the CGST Act]. In the given case, since Kaushal Manufacturers Ltd.
owns 75% shares of Ronn Technomart, both are related persons.
Value of supply of goods between related persons (other than through an agent) is determined as per rule 28
of the CGST Rules, 2017. Accordingly, the value of supply of goods between related persons is the open
market value of such goods and not the invoice value. Furthermore, since Ronn Technomart is not eligible for
full input tax credit, value declared in the invoice cannot be deemed to be the open market value of the goods.
Thus, open market value of the electronic home appliances supplied to Ronn Technomart, i.e. ₹ 30,00,000 is
the value of supply of such goods. Further, being an inter-State supply of goods, supply of electronic home
appliances to Ronn Technomart is subject to IGST @ 5%.

3. Being an intra-State supply of goods, supply of electronic home appliances to wholesale dealers of said
appliances in Delhi is subject to CGST and SGST @ 2.5 % each.

4. Section 2(5) of the IGST Act defines export of goods as taking goods out of India to a place outside India. In
view of the said definition, supply of the electronic home appliances to Anchor Electricals Inc. of USA under
LUT is export of goods.

Export of goods is a zero-rated supply [Section 16(1) of the IGST Act]. A zero-rated supply under LUT is made
without payment of integrated tax [Section 16(3)(a) of IGST Act].

5. Being an intra-State supply of services, supply of repair and maintenance services to Unitech Ltd. of Delhi is
subject to CGST and SGST @ 9% each.

6. Being an intra-State supply of services, supply of repair and maintenance services to Orelec Ltd. of Delhi is
subject to CGST and SGST @ 9% each. Further, in terms of section 13(2) of the CGST Act, the time of supply of
services is the earlier of the date of invoice or date of receipt of payment, if the invoice is issued within 30
days of the supply of service. In the given case, invoice is issued within 30 days of the supply of service.
Therefore, time of supply of services will be date of receipt of advance and hence, GST is payable on the
advance received in January.

7. Being an inter-State supply of goods, supply of electronic home appliances to Novick Electricals of Gurgaon,
Haryana is subject to IGST @ 5%. Further, in terms of section 12(2) of the CGST Act, the time of supply of

108
goods is the earlier of the date of issue of invoice/last date on which the invoice is required to be issued or
date of receipt of payment.

However, Notification No. 66/2017 CT dated 15.11.2017 specifies that time of supply of goods for the purpose
of payment of tax is the date of issue of invoice/last date when the invoice ought to have been issued under
section 31.

Thus, GST is not payable at the time of receipt of advance against supply of goods. The time of supply of the
advance received for electronic home appliances to be supplied to Novick Electricals is the time of issue of
invoice, which is in March. Thus, said advance will be taxed in March and not in January
 CHAPTER-5 PLACE OF SUPPLY
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS 1 to 20, 25

MAT

PAST Q-17, 18 NO QUES NO NO Q-26 Q-27 NO QUES ------

EXAMS QUES QUES

MTP Q-18 Q-17 NO Q-4 Q-15,21 NO QUES Q-15, 17 Q-17,19

QUES

RTP NO QUES Q-13, 14, 22 NO Q-13 Q-23 NO QUES Q-24 Q-28

QUES

QUESTIONS

1. In case of a domestic supply, what is the place of supply where goods are removed?

ANSWER:
As per section 10(1)(a), the place of supply of goods is the location of the goods at the time at which the
movement of goods terminates for delivery to the recipient.

2. What will be the place of supply if the goods are delivered by the supplier to a person on the direction of

109
a third person?

ANSWER:
As per section 10(1)(b), it would be deemed that the third person has received the goods and the place of
supply of such goods will be the principal place of business of such person.

3. What is the place of supply where the goods or services are supplied on board a conveyance, such as a
vessel, an aircraft, a train or a motor vehicle?
ANSWER:
As per section 10(1)(e), in respect of goods, the place of supply is the location at which such goods are taken
on board.
However, in respect of services, the place of supply is the location of the first scheduled point of departure of
that conveyance for the journey in terms of sections 12(10) and 13(11).

4. The place of supply in relation to immovable property is the location of immovable property. Suppose a
road is constructed from Delhi to Mumbai covering multiple states.
What will be the place of supply of construction services? (MTP NOV 2019)

ANSWER:
Where the immovable property is located in more than one State, the supply of service is treated as made in
each of the States in proportion to the value for services separately collected or determined, in terms of the
contract or agreement entered into in this regard or, in the absence of such contract or agreement, on such
other reasonable basis as may be prescribed in this behalf [Explanation to section 12(3) for domestic supplies].
In the absence of a contract or agreement between the supplier and recipient of services in this regard, the
proportionate value of services supplied in different States/Union territories (where the immovable property
is located) is computed on the basis of the area of the immovable property lying in each State/ Union
territories [Rule 4 of the IGST Rules].

5. What would be the place of supply of services provided by an event management company for organizing
a sporting event for a Sports Federation which is held in multiple States?

ANSWER:
In case of an event, if the recipient of service is registered, the place of supply of services for organizing the
event is the location of such person. However, if the recipient is not registered, the place of supply is the place
where event is held.
Since the event is being held in multiple states and a consolidated amount is charged for such services, the
place of supply will be deemed to be in each State in proportion to the value for services determined in terms
of the contract or agreement entered into in this regard [Explanation to section 12(7)].
In the absence of a contract or agreement between the supplier and recipient of services, the proportionate

110
value of services made in each State (where the event is held) will be computed in accordance with rule 5 of
the IGST Rules by the application of generally accepted accounting principles.

6. What is the place of supply of services by way of transportation of goods, including mail or courier when
the both the supplier and the recipient of the services are located in India?

ANSWER:
If the recipient is registered, the location of such person is the place of supply. However, if the recipient is not
registered, the place of supply is the place where the goods are handed over for transportation. Further, if the
goods are transported outside India, the destination of such goods is the place of supply [Section 12(8)].

7. What will be the place of supply of passenger transportation service, if a person travels from Mumbai to
Delhi and back to Mumbai?

ANSWER:
If the person is registered, the place of supply will be the location of recipient. If the person is not registered,
the place of supply for the forward journey from Mumbai to Delhi will be Mumbai, the place where he
embarks [Section 12(9)].
However, for the return journey, the place of supply will be Delhi as the return journey has to be treated as
separate journey [Explanation to section 12(9)].

8. What is the place of supply for mobile connection? Can it be the location of supplier?

ANSWER:
The location of supplier of mobile services cannot be the place of supply as the mobile companies are
providing services in multiple states and many of these services are inter-state. The consumption principle will
be broken if the location of supplier is taken as place of supply and all the revenue may go to a few states
where the suppliers are located.
The place of supply for mobile connection would depend on whether the connection is on postpaid or prepaid
basis. In case of postpaid connections, the place of supply is the location of billing address of the recipient of
service.

In case of pre-paid connections, the place of supply is the place where payment for such connection is
received or such pre-paid vouchers are sold. However, if the recharge is done through internet/e-payment,
the location of recipient of service on record will be taken as the place of supply.

9. A person from Mumbai goes to Kullu-Manali and takes some services from ICICI Bank in Manali.

111
What is the place of supply?

ANSWER:
If the service is not linked to the account of person, place of supply will be Kullu, i.e. the location of the
supplier of services. However, if the service is linked to the account of the person, the place of supply will be
Mumbai, the location of recipient on the records of the supplier.

10. An unregistered person from Gurugram travels by Air India flight from Mumbai to Delhi and gets his
travel insurance done in Mumbai.
What is the place of supply of insurance services?

ANSWER:
When insurance service is provided to an unregistered person, the location of the recipient of services on the
records of the supplier of insurance services is the place of supply. So Gurugram is the place of supply [Section
12(13)].

11. XY Ltd. (registered in Rajasthan) received legal services from an attorney in UK (unrelated person) in
relation to registration of a trademark in UK. A consideration of £ 8,000 was paid by the company to the
attorney in UK.
Determine the place of supply for the service and suggest if XY Ltd. is required to pay tax under reverse
charge on this transaction.

ANSWER:
In the given case, the service provider is outside India, and the service recipient is in India. Thus, the place of
supply will be determined on the basis of the provisions of section 13. Since the given service does not get
covered under any of the specific provisions of section 13, the place of supply thereof will be governed by the
general rule, i.e. place of supply of services will be the location of the recipient of service, which in this case is
Rajasthan (India). Further, the given case is import of service in terms of section 2(11) as the supplier of
service is located outside India, the recipient of service is located in India and the place of supply of service is
in India. Since the services are imported for a consideration from an unrelated person, the same tantamounts
to supply in terms of section 7(1)(b) of CGST Act and are liable to GST.
As per reverse charge Notification No. 10/2017 IT(R) dated 28.06.2017, if a service is supplied by a person
located in a non-taxable territory to a person located in the taxable territory, other than non-taxable online
recipient, the tax is payable by the recipient of service under reverse charge.
Therefore, XY Ltd. will pay GST under reverse charge on £ 8000 paid by it to the attorney in UK.

12. Damani Industries has recruited Super Events Pvt. Ltd., an event management company of Gujarat, for
organising the grand party for the launch of its new product at Bangalore. Damani Industries is registered in
Mumbai. Determine the place of supply of the services provided by Super Events Pvt. Ltd. to Damani
Industries.

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Will your answer be different if the product launch party is organised at Dubai?

ANSWER:
Section 12(7)(a)(i) stipulates that when service by way of organization of an event is provided to a registered
person, place of supply is the location of recipient.
Since, in the given case, the product launch party at Bangalore is organized for Damani Industries (registered
in Mumbai), place of supply is the location of Damani Industries, i.e. Mumbai, Maharashtra.
In case the product launch party is organised at Dubai, the answer will remain the same, i.e. the place of
supply is the location of recipient (Damani Industries)– Mumbai, Maharashtra.
13. Priyank Sales of Pune, Maharashtra enters into an agreement to sell goods to Bisht Enterprises of
Bareilly, Uttar Pradesh. While the goods were being packed in Pune godown of Priyank Sales, Bisht got an
order from Sahil Pvt. Ltd. of Shimoga, Karnataka for the said goods. Bisht Enterprises agreed to supply the
said goods to Sahil Pvt. Ltd. and asked Priyank Sales to deliver the goods to Sahil Pvt. Ltd. at Shimoga.
You are required to determine the place of supply(ies) in the above situation. (RTP NOV 2019)

ANSWER:

The supply between Priyank Sales (Pune) and Bisht Enterprises (Bareilly) is a bill to ship to supply where the
goods are delivered by the supplier [Priyank Sales] to a recipient [Sahil Pvt. Ltd. (Shimoga)] or any other person
on the direction of a third person [Bisht Enterprises]. The place of supply in case of domestic bill to ship to
supply of goods is determined in terms of section 10(1)(b).
As per section 10(1)(b), where the goods are delivered by the supplier to a recipient or any other person on
the direction of a third person, whether acting as an agent or otherwise, before or during movement of goods,
either by way of transfer of documents of title to the goods or otherwise, it shall be deemed that the said third
person has received the goods and the place of supply of such goods shall be the principal place of business of
such person.

Thus, in the given case, it is deemed that the Bisht Enterprises has received the goods and the place of supply
of such goods is the principal place of business of Bisht Enterprises. Accordingly, the place of supply between
Priyank Sales (Pune) and Bisht Enterprises (Bareilly) will be Bareilly, Uttar Pradesh.
This situation involves another supply between Bisht Enterprises (Bareilly) and Sahil Pvt. Ltd. (Shimoga). The
place of supply in this case will be determined in terms of section 10(1)(a).

Section 10(1)(a) stipulates that where the supply involves movement of goods, whether by the supplier or the
recipient or by any other person, the place of supply of such goods shall be the location of the goods at the
time at which the movement of goods terminates for delivery to the recipient.

Thus, the place of supply in second case is the location of the goods at the time when the movement of goods
terminates for delivery to the recipient (Sahil Pvt. Ltd.), i.e. Shimoga, Karnataka.

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14. Musicera Pvt. Ltd. owned by Nitish Daani - a famous classical singer - wishes to organise a ‘Nitish Daani
Music Concert’ in Gurugram (Haryana). Musicera Pvt. Ltd. (registered in Ludhiana, Punjab) enters into a
contract with an event management company, Supriya (P) Ltd. (registered in Delhi) for organising the said
music concert at an agreed consideration of Rs. 10,00,000. Supriya (P) Ltd. books the lawns of Hotel
Dumdum, Gurugram (registered in Haryana) for holding the music concert, for a lump sum consideration of
Rs. 4,00,000. Musicera Pvt. Ltd. fixes the entry fee to the music concert at Rs. 5,000. 400 tickets for ‘Nitish
Daani Music Concert’ are sold.

You are required to determine the CGST and SGST or IGST liability, as the case may be, in respect of the
supply(ies) involved in the given scenario.
Will your answer be different if the price per ticket is fixed at Rs. 450?
Note: Rate of CGST and SGST is 9% each and IGST is 18%. All the amounts given above are exclusive of taxes,
wherever applicable. (RTP NOV 2018)

ANSWER:
In the given situation, three supplies are involved:
(i) Services provided by Musicera Pvt. Ltd. to audiences by way of admission to music concert.

(ii) Services provided by Supriya (P) Ltd. to Musicera Pvt. Ltd. by way of organising the music concert.

(iii) Services provided by Hotel Dumdum to Supriya (P) Ltd. by way of accommodation in the Hotel lawns for
organising the music concert.

The CGST and SGST or IGST liability in respect of each of the above supplies is determined as under:

(i) As per the provisions of section 12(6), the place of supply of services provided by way of admission to, inter
alia, a cultural event shall be the place where the event is actually held.
Therefore, the place of supply of services supplied by Musicera Pvt. Ltd. (Ludhiana, Punjab) to audiences by
way of admission to the music concert is the location of the Hotel Dumdum, i.e. Gurugram, Haryana.
Since the location of the supplier (Ludhiana, Punjab) and the place of supply (Gurugram, Haryana) are in
different States, IGST will be leviable. Therefore, IGST leviable will be computed as follows:
Consideration for supply (400 tickets @ Rs. 5,000 per ticket) = Rs. 20,00,000
IGST @ 18% on value of supply = Rs. 20,00,000 x 18% = Rs. 3,60,000.

(ii) Section 12(7)(a)(i) stipulates that the place of supply of services provided by way of organization of, inter
alia, a cultural event to a registered person is the location of such person.
Therefore, the place of supply of services supplied by Supriya (P) Ltd. (Delhi) to Musicera Pvt. Ltd. (Ludhiana,
Punjab) by way of organising the music concert is the location of the recipient, i.e. Ludhiana (Punjab).
Since the location of the supplier (Delhi) and the place of supply (Ludhiana, Punjab) are in different States,
IGST will be leviable. Therefore, IGST leviable will be computed as follows:
Consideration for supply = Rs. 10,00,000
IGST @ 18% on value of supply = Rs. 10,00,000 x 18% = Rs. 1,80,000

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(iii) As per the provisions of section 12(3)(c) of the IGST Act, 2017, the place of supply of services, by way of
accommodation in any immovable property for organizing, inter alia, any cultural function shall be the location
at which the immovable property is located.
Therefore, the place of supply of services supplied by Hotel Dumdum (Gurugram, Haryana) to Supriya (P) Ltd.
(Delhi) by way of accommodation in Hotel lawns for organising the music concert shall be the location of the
Hotel Dumdum, i.e. Gurugram, Haryana.
Since the location of the supplier (Gurugram, Haryana) and the place of supply (Gurugram, Haryana) are in the
same State, CGST and SGST will be leviable. Therefore, CGST and SGST leviable will be computed as follows:
Consideration for supply = Rs. 4,00,000
CGST @ 9% on value of supply = Rs. 4,00,000 x 9% = Rs. 36,000
SGST @ 9% on value of supply = Rs. 4,00,000 x 9% = Rs. 36,000

If the price for the entry ticket is fixed at Rs. 450, answer will change in respect of supply of service provided
by way of admission to music concert, as mentioned in point (i) above. There will be no IGST liability if the
consideration for the ticket is Rs. 450 as the inter-State services by way of right to admission to, inter alia,
musical performance are exempt from IGST vide Notification No. 9/2017 IT (R) dated 28.06.2017, if the
consideration for right to admission to the event is not more than Rs. 500 per person. However, there will be
no change in the answer in respect of supplies mentioned in point (ii) and (iii) above.

15. RST Inc., a corn chips manufacturing company based in USA, intends to launch its products in India.
However, the company wishes to know the taste and sensibilities of Indians before launching its products in
India. For this purpose, RST Inc. has approached ABC Consultants, Mumbai, (Maharashtra) to carry out a
survey in India to enable it to make changes, if any, in its products to suit Indian taste.
The survey is to be solely based on the oral replies of the surveyees; they will not be provided any sample
by RST Inc. to taste. ABC Consultants will be paid in convertible foreign exchange for the assignment. With
reference to the provisions of GST law, determine the place of supply of the service. Also, explain whether
the said supply will amount to export of service? (MTP JULY 2021) (MTP MAY 2020)

ANSWER:
As per section 13(2), in case where the location of the supplier of services or the location of the recipient of
services is outside India, the place of supply of services except the services specified in sub-sections (3) to (13)
shall be the location of the recipient of services. Sub-sections (3) to (13) provide the mechanism to determine
the place of supply in certain specific situations.

The given case does not fall under any of such specific situations and thus, the place of supply in this case will
be determined under sub-section (2) of section 13. Thus, the place of supply of services in this case is the
location of recipient of services, i.e. USA.

As per section 2(6), export of services means the supply of any service when,–
(a) the supplier of service is located in India;
(b) the recipient of service is located outside India;
(c) the place of supply of service is outside India;

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(d) the payment for such service has been received by the supplier of service in convertible foreign exchange
or in Indian rupees wherever permitted by the Reserve Bank of India; and
(e) the supplier of service and the recipient of service are not merely establishments of a distinct person in
accordance with Explanation 1 in section 8. Since all the above five conditions are fulfilled in the given case,
the same will be considered as an export of service.

16. ABC Pvt. Ltd., New Delhi, provides support services to foreign customers in relation to procuring goods
from India. The company identifies the prospective vendor, reviews product quality and pricing and then
shares the vendor details with the foreign customer.
The foreign customer then directly places purchase order on the Indian vendor for purchase of the specified
goods. ABC Pvt. Ltd. charges its foreign customer cost plus 10% mark up for services provided by it. The
company has charged US $ 1,00,000 (exclusive of GST) to its foreign customer for the services provided by it.
With reference to the provisions of GST law, examine whether the said supply will amount to export of
service?

ANSWER:
Section 2(13) defines “intermediary” to mean a broker, an agent or any other person, by whatever name
called, who arranges or facilitates the supply of goods or services or both, or securities, between two or more
persons, but does not include a person who supplies such goods or services or both or securities on his own
account.

In this case, since ABC Pvt. Ltd. is arranging or facilitating supply of goods between the foreign customer and
the Indian vendor, the said services can be classified as intermediary services.

If the location of the supplier of services or the location of the recipient of service is outside India, the place of
supply is determined in terms of section 13. Since, in the given case, the recipient of supply is located outside
India, the provisions of supply of intermediary services will be determined in terms of section 13.

As per section 13(8)(b), the place of supply in case of intermediary services is the location of the supplier, i.e.
the location of ABC Pvt. Ltd. which is New Delhi.

As per section 2(6) of the IGST Act, 2017, export of services means the supply of any service when,–

(a) the supplier of service is located in India;

(b) the recipient of service is located outside India;

(c) the place of supply of service is outside India;

(d) the payment for such service has been received by the supplier of service in convertible foreign exchange
or in Indian rupees wherever permitted by the Reserve Bank of India; and

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(e) the supplier of service and the recipient of service are not merely establishments of a distinct person in
accordance with Explanation 1 in section 8.
Since, in the given case, place of supply is in India, this transaction does not tantamount to export of service.
17. Mr. Murthy, an unregistered person and a resident of Pune, Maharashtra hires the services of Sun Ltd.
an event management company registered in Delhi, for organising of the new product launch in Bengaluru,
Karnataka.

(i) Determine the place of supply of services provided by Sun Ltd.

(ii) What would be your answer if the product launch takes place in Bangkok?

(iii) What would be your answer if Mr. Murthy is a registered person and product launch takes place in-

(a) Bengaluru
(b) Bangkok? (PAST EXAM MAY 2018) (MTP JULY 2021) (MTP NOV 2018) (MTP- NOV 2021)

ANSWER:

(i) As per section 12(7)(a)(ii), when service by way of organization of an event is provided to an unregistered
person, the place of supply is the location where the event is actually held and if the event is held outside
India, the place of supply is the location of recipient.
Since, in the given case, the service recipient [Mr. Murthy] is unregistered and event is held in India, place of
supply is the location where the event is actually held, i.e. Bengaluru, Karnataka. The location of the supplier
and the location of the recipient is irrelevant in this case.

(ii) However, if product launch takes place outside India [Bangkok], the place of supply will be the location of
recipient, i.e. Pune, Maharashtra.

(iii) When service by way of organization of an event is provided to a registered person, place of supply is the
location of recipient vide section 12(7)(a)(i).

Therefore, if Mr. Murthy is a registered person, then in both the cases, i.e. either when product launch takes
place in Bengaluru or Bangkok, the place of supply will be the location of recipient, i.e. Pune, Maharashtra.

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

Case Location of Mr. Location of Mr. Property

Mahendra Goyal Harish Jain situated at
I Delhi Maharashtra New York (USA)
II Delhi New York Paris (France)
Explain the relevant provisions of law to support your conclusions. (PAST EXAM MAY 2018)

ANSWER:

Case I
As per section 12(3), where both the service provider and the service recipient are located in India, the place
of supply of services directly in relation to an immovable property, including services provided by interior
decorators is the location of the immovable property. However, if the immovable property is located outside
India, the place of supply is the location of the recipient.
Since in the given case, both the service provider (Mr. Mahendra Goyal) and the service recipient (Mr. Harish
Jain) are located in India and the immovable property is located outside India (New York), the place of supply
will be the location of recipient, i.e. Maharashtra.

Case II
As per section 13(4), where either the service provider or the service recipient is located outside India, the
place of supply of services directly in relation to an immovable property including services of interior
decorators is the location of the immovable property.
Since in the given case, service provider (Mr. Mahendra Goyal) is located in India and service recipient (Mr.
Harish Jain) is located outside India (New York), the place of supply will be the location of immovable property,
i.e. Paris (France).

19. Asha Enterprises, supplier of sewing machines, is located in Kota (Rajasthan) and registered for purpose
of GST in the said State. It receives an order from Deep Traders, located in Jalandhar (Punjab) and registered
for the purpose of GST in the said State. The order is for the supply of 100 sewing machines with an
instruction to ship the sewing machines to Jyoti Sons, located in Patiala (Punjab) and registered in the said
State for purpose of GST. Jyoti Sons is a customer of Deep Traders. Sewing machines are being shipped in a
lorry by Asha Enterprises.

Briefly explain the following:

(a) the place of supply;

(b) the nature of supply:- whether inter-State or intra-State and

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(c) whether CGST/SGST or IGST would be applicable in this case. (MTP- NOV 2021)

ANSWER:

The supply between Asha Enterprises (Kota, Rajasthan) and Deep Traders (Jalandhar, Punjab) is a bill to ship to
supply where the goods are delivered by the supplier [Asha Enterprises] to a recipient [Jyoti Sons (Patiala,
Punjab)] on the direction of a third person [Deep Traders].
In case of such supply, it is deemed that the said third person has received the goods and the place of supply
of such goods is the principal place of business of such person [Section 10(1)(b)]. Thus, the place of supply
between Asha Enterprises (Rajasthan) and Deep Traders (Punjab) will be Jalandhar, Punjab.
Since the location of supplier and the place of supply are in two different States, the supply is an inter-State
supply in terms of section 7, liable to IGST.

This situation involves another supply between Deep Traders (Jalandhar, Punjab) and Jyoti Sons (Patiala,
Punjab). In this case, since the supply involves movement of goods, place of supply will be the location of the
goods at the time at which the movement of goods terminates for delivery to the recipient, i.e. Patiala, Punjab
[Section 10(1)(a)].

Since the location of supplier and the place of supply are in the same State, the supply is an intra-State supply
in terms of section 8, liable to CGST and SGST.

20. Determine the place of supply for the following independent cases:

(i) Grand Gala Events, an event management company at Kolkata, organises two award functions for
Narayan Jewellers of Chennai (Registered in Chennai, Tamil Nadu) at New Delhi and at Singapore.

(ii) Perfect Planners (Bengaluru, Karnataka) is hired by Dr. Kelvin (unregistered person based in Kochi,
Kerala) to plan and organise his son's wedding at Mumbai, Maharashtra.
Will your answer be different if the wedding is to take place in Malaysia?

ANSWER:

(i) When service by way of organization of an event is provided to a registered person, place of supply is the
location of recipient in terms of section 12(7)(a)(i).
Since, in the given case, the award functions at New Delhi and Singapore are organized for Narayan Jewellers
(registered in Chennai), place of supply in both the cases is the location of Narayan Jewellers, i.e. Chennai,
Tamil Nadu.

(ii) As per section 12(7)(a)(ii), when service by way of organization of an event is provided to an unregistered
person, the place of supply is the location where the event is actually held and if the event is held outside
India, the place of supply is the location of recipient.

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Since, in the given case, the service recipient [Dr. Kelvin] is unregistered and event is held in India, place of
supply is the location where the event is actually held, i.e. Mumbai, Maharashtra.
However, if the wedding is to take place outside India [Malaysia], the place of supply is the location of
recipient, i.e. Kochi, Kerala.
21
Raman Row, a registered supplier under GST in Mumbai, Maharashtra is directed by Nero Enterprises,
Kolkata, West Bengal to deliver goods valued at ₹ 12,00,000 to Fabricana of Aurangabad in Maharashtra.
Raman Row makes out an invoice at 9% tax rate under CGST and SGST respectively (scheduled rate) and
delivers it locally in Maharashtra. Discuss and comment on the above levy of tax and determine the tax
liability of goods in the above circumstances. (MTP NOV 2020)

Answer

The supply between Raman Row (Mumbai, Maharashtra) and Nero Enterprises (Kolkata, West Bengal) is a bill
to ship to supply where the goods are delivered by the supplier [Raman Row] to a recipient [Fabricana
(Aurangabad, Maharashtra)] or any other person on the direction of a third person [Nero
Enterprises]. In such a case, it is deemed that the said third person has received the goods and the place of
supply of such goods is the principal place of business of such person [Section 10(1)(b) of IGST Act, 2017].

Accordingly, the place of supply between Raman Row (Mumbai, Maharashtra) and Nero Enterprises (Kolkata,
West Bengal) will be Kolkata and thus, it will be an inter-State supply liable to IGST. Hence, Raman Row should
charge 18% IGST on ₹ 12,00,000, which comes out to ₹ 2,16,000.
This situation involves another supply between Nero Enterprises (Kolkata, West Bengal) and Fabricana
(Aurangabad, Maharashtra). The place of supply in this case will be the location of the goods at the time when
the movement of goods terminates for delivery to the recipient i.e., Aurangabad, Maharashtra in
terms of section 10(1)(a) of IGST Act, 2017. Thus, being an inter-State supply, the same will also be chargeable
to IGST.

22
(i) Parth of Pune, Maharashtra enters into an agreement to sell goods to Bakul of Bareilly, Uttar Pradesh.
While the goods were being packed in Pune godown of Parth, Bakul got an order from
Shreyas of Shimoga, Karnataka for the said goods. Bakul agreed to supply the said goods to Shreyas
and asked Parth to deliver the goods to Shreyas at Shimoga. You are required to determine the place of
supply(ies) in the above situation.

(ii) Damani Industries has recruited Super Events Pvt. Ltd., an event management company of Gujarat,
for organising the grand party for the launch of its new product at Bangalore. Damani Industries is

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registered in Mumbai. Determine the place of supply of the services provided by Super Events Pvt.
Ltd. to Damani Industries.

Will your answer be different if the product launch party is organised at Dubai? (RTP NOV 2018)

Answer
(i) The supply between Parth (Pune) and Bakul (Bareilly) is a bill to ship to supply where the goods
are delivered by the supplier [Parth] to a recipient [Shreyas (Shimoga)] or any other person on the direction of
a third person [Bakul]. The place of supply in case of bill to ship to supply of goods is
determined in terms of section 10(1)(b) of IGST Act, 2017. As per section 10(1)(b) of IGST Act, 2017, where the
goods are delivered by the supplier to a recipient or any other person on the direction of a third person,
whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of
documents of title to the goods or otherwise, it shall be deemed that the said third person has received the
goods and the place of supply of such goods shall be the principal place of business of such person.

Thus, in the given case, it is deemed that the Bakul has received the goods and the place of supply of such
goods is the principal place of business of Bakul. Accordingly, the place of supply between Parth
(Pune) and Bakul ( Bareilly) will be Bareilly, Uttar Pradesh. This situation involves another supply between
Bakul (Bareilly) and Shreyas (Shimoga). The place of supply in this case will be determined in terms of section
10(1)(a) of IGST Act, 2017.
Section 10(1)(a) of IGST Act, 2017 stipulates that where the supply involves movement of goods, whether by
the supplier or the recipient or by any other person, the place of supply of such goods shall be the location of
the goods at the time at which the movement of goods terminates for delivery
to the recipient.

Thus, the place of supply in second case is the location of the goods at the time when the movement of goods
terminates for delivery to the recipient (Shreyas) i.e., Shimoga, Karnataka.

(ii) Section 12(7)(a)(i) of IGST Act, 2017 stipulates that when service by way of organization of an event
is provided to a registered person, place of supply is the location of recipient. Since, in the given case, the
product launch party at Bangalore is organized for Damani Industries
(registered in Mumbai), place of supply is the location of Damani Industries i.e., Mumbai. In case the product
launch party is organised at Dubai, the answer will remain the same, i.e. the place of supply is the location of
Damani Industries
– Mumbai.

23 ‘PQ’, a statutory body, deals with the all the advertisement and publicity of the Government. It has
issued a release order to ‘Moon Plus’ channel (registered in State ‘A’) for telecasting an advertisement
relating to one of the schemes of the Government in the month of September 20XX. The advertisement will
be telecasted in the States of ‘A’, ‘B’, ‘C’, ‘D’ and ‘E’. The total value of the service contract entered into
between ‘Moon Plus’ and ‘PQ’ is ₹ 10,00,000 (exclusive of GST). You are required to determine the place of

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supply of the services in the instant case as also the value of
supply attributable to the States of ‘A’, ‘B’, ‘C’, ‘D’ and ‘E’. Further, compute the GST liability [CGST & SGST
or IGST, as the case may be] of
‘Moon Plus’ as also advise it as to whether it should issue one invoice for the entire contract value or
separate State-wise invoices. The other relevant information is given hereunder: (RTP MAY 2020)

Table 1
Table 2

The applicable rate of tax is as under:

Answer
As per section 12(14) of the IGST Act, 2017, the place of supply of advertisement services to the Central
Government, a State Government, a statutory body or a local authority meant for the States or Union
territories identified in the contract or agreement is taken as being in each of such States or Union
territories (where the advertisement is broadcasted/ run /played/disseminated). Therefore, in the given case,
the place of supply of advertisement service is in the States of
‘A’, ‘B’, ‘C’, ‘D’ and ‘E’.

The value of the supply of such advertisement services specific to each State/Union territory is in proportion
to the amount attributable to the services provided by way of dissemination in the respective States/Union
territories determined in terms of the contract or agreement entered into in this regard.
In the absence of such a contract or agreement between the supplier and recipient of services, the
proportionate value of advertisement services attributable to different States/Union territories (where
the advertisement is broadcasted/run/played/ disseminated) is computed in accordance with rule 3 of the

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IGST Rules, 2017.

As per rule 3(f) of the IGST Rules, 2017, in the case of advertisement on television channels, the amount
attributable to the value of advertisement service disseminated in a State shall be calculated on the basis
of the viewership of such channel in such State, which in turn, shall be calculated in the following manner,
namely: -

(i) the channel viewership figures for that channel for a State or Union territory shall be taken from
the figures published in this regard by the Broadcast Audience Research Council;
(ii) the figures published for the last week of a given quarter shall be used for calculating viewership for the
succeeding quarter;

(iii) where such channel viewership figures relate to a region comprising of more than one State or Union
territory, the viewership f
igures for a State or Union territory of that region, shall be calculated by applying the ratio of the populations
of that State or Union territory, as determined in the latest Census, to such viewership figures;

(iv) the ratio of the viewership figures for each State or Union territory as so calculated, when applied to the
amount payable for that service, shall represent the portion of the value attributable to the
dissemination in that State or Union territory. Therefore, value of supply attributable to ‘A’, ‘B’, ‘C’, ‘D’ and ‘E’,
will computed as under:

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Since, there are five different places of supply in the given case, ‘Moon Plus’ channel will have to issue five
separate invoices for each of the States namely,
‘A’, ‘B’, ‘C’, ‘D’ & ‘E’ indicating the value pertaining to that State. The GST liability of ‘Moon Plus’ channel will,
therefore, be worked out as under:

Computation of GST liability of ‘Moon Plus’

Only in case of supply of services in State ‘A’, the location of supplier (State ‘A’) and the place of supply are in
the same State, hence the same is an intra-State supply in terms of section 8(1) of the IGST Act, 2017 and is
thus, liable to CGST and SGST. In all the remaining cases of supply of services, the location of the supplier
(State ‘A’) and the places of supply (States ‘B’, ‘C’, ‘D’ & ‘E’) are in two different States, hence the same are
inter-State supplies liable to IGST [Section 7(1)(a) of the IGST Act, 2017 read with section 5(1) of that Act].

24 Determine the place of supply in the following independent cases: (RTP JULY 2021)

(i) Mr. Sahukaar (New Delhi) boards the New Delhi-Kota train at New Delhi. Mr. Sahukaar sells the goods
taken on board by him (at New Delhi), in the train, at Jaipur
during the journey.

(ii) Vidhyut Pvt. Ltd. imports electric food processors from China for its Kitchen Store in Noida, Uttar
Pradesh. Vidhyut Pvt. Ltd. is registered in Uttar Pradesh.
iii) Mr. Aatmaram, a manager in a Bank, is transferred from Bareilly, Uttar Pradesh to Bhopal, Madhya
Pradesh. Mr. Aatmaram’s family is stationed in Kanpur, Uttar Pradesh. He hires Gokul Carriers of
Lucknow, Uttar Pradesh (registered in Uttar Pradesh), to transport his household goods from Kanpur to
Bhopal.

(iv) Bholunath, a resident of New Delhi, opens his saving account in New Delhi branch of Best Bank after
undergoing the KYC process. He goes to Amritsar for some official work and withdraws money from Best
Bank’s ATM in Amritsar thereby crossing his limit of free ATM withdrawals.

(v) Mr. Chakmak, an architect (New Delhi), enters into a contract with Mr. Zeeshaan of New York to provide

124
professional services in respect of immovable properties of Mr. Zeeshaan located in Pune
and New York.

Answer

(i) Section 10(1)(e) of the IGST Act, 2017 lays down that place of supply of goods supplied on board a
conveyance like aircraft, train, vessel, or a motor vehicle, is the location where such goods have
been taken on board. Thus, in the given case, the place of supply of the goods sold by Mr. Sahukaar is the
location at which the goods are taken on board, i.e. New Delhi and not Jaipur where they have
been sold.
(ii) As per section 11(a) of the IGST Act 2017, if the goods have been imported in India, the place of supply of
goods is the place where the importer is loca
ted. Thus, in the present case, the place of supply of the goods imported by Vidhyut Pvt. Ltd. is Noida, Uttar
Pradesh.

(iii) As per section 12(8) of the IGST Act, 2017, the place of supply of services by way of transportation of
goods, including by mail or cour
ier provided to an unregistered person, is the location at which such goods are handed over for their
ransportation.
Since in the given case, the recipient – Aatmaram – is an unregistered person, the place of supply is the
location where goods are handed to Gokul Carriers over for their transportation, i.e. Kanpur.
(iv) As per section 12(12) of the IGST Act, 2017, the place of supply of banking and other financial services,
including stock broking services to any person is the location of the recipient of services in the records of the
supplier of services. Thus, in the given case, the place of supply is the location of the recipient of services in
the records of the supplier bank, i.e. New Delhi.

(v) As per section 13(4) read with section 13(6) of the IGST Act, 2017, where services supplied directly in
relation to an immovable property are supplied at more than one location, including a location
in the taxable territory, the place of supply is the location in the taxable territory. Since in the given case, the
immovable properties are located in more than one location including a location in the taxable territory, the
place of supply of architect service is the location in the taxable territory, i.e.
Pune.

25 Answer the following questions in the light of the place of supply provisions contained in the IGST Act,
2017:

(1) Quickdeal Enterprises (Ahmednagar, Gujarat) opens a new branch office at Hissar, Haryana. It purchases
a building for office from Ruhani Builders (Hissar) along with pre
-installed office furniture and fixtures. Determine place of supply of the pre-installed office furniture and
fixtures.

(2) Supra Events, an event management company at New Delhi, organizes an award function for Chirag
Diamond Merchants of Varanasi (registered in U.P.), at Mumbai. Determine place of supply of the service
supplied by Supra Events. Will your answer be different, if the award function is organised

125
at Mauritius instead of Mumbai?

Answer
1. Section 10(1)(c) of the IGST Act stipulates that if the supply does not involve movement of goods, the place
of supply is the location of goods at the time of delivery to the recipient. Since there is no
movement of office furniture and fixtures in the given case, the place of supply of such goods is their location
at the time of delivery to the recipient (Quickdeal Enterprises) i.e., Hissar, Haryana.
2. Section 12(7) of the IGST Act stipulates that the place of supply of services provided by way of organisation
of a cultural, artistic, sporting, scientific, educational or entertainment event including
supply of services in relation to a conference, fair, exhibition, celebration or similar events is the location of
recipient in a case where such service is provided to a registered person. In the given case, since the recipient
(Chirag Diamond Merchants) is a registered person, the place of supply is the location of the recipient, i.e.,
Varanasi, U.P.
Further, the place of supply will not change even if the award function is organised at Mauritius instead of
Mumbai as the location of recipient remains unchanged. Thus, in that case also, the place of supply is the
location of the
recipient, i.e., Varanasi, U.P.

26. M/s Joinder Drills of Australia exports rough rock cutting diamonds to M/s Ankit Enterprises of India, a
registered supplier in the State of Haryana. M/s Ankit Enterprises is expected to process them into tools
and export the same to the supplier in Australia. The process does not involve any sophisticated process
other than cutting, polishing and finishing. M/s Ankit Enterprises requests M/s Joinder Drills for use of
such tools for his business in India for 3 months, which is agreed to by the supplier. It then exports it to
the Australian supplier, invoicing it for ₹ 12,00,000 for processing it into the required tool. M/s Ankit
Enterprises is of the assumption that it is an export transaction and therefore, it is entitled to treat it as a
zero-rated supply and decides that no tax is payable under LUT although the rate applicable to such services
for domestic supplies is
CGST - 9%,
SGST - 9% and
IGST - 18%.

State the provisions relating to the above supply of service and explain whether the stand taken by M/s
Ankit Enterprises is correct and also determine the tax, if applicable, as the goods are now moving out of
Haryana. (PAST EXAM NOV 2020)

Answer

One of the conditions for a supply of service to qualify as export of service is that the place of supply of
said service must be outside India. The place of supply of services supplied in respect of the goods which are

126
temporarily imported into India for any other treatment/process and are exported after such
treatment/process without being put to any use in India, other than that which is required for such
treatment/process, is the location of recipient of such service [Second proviso to section 13(3)(a) of the IGST
Act, 2017].

In view of the above, in the given case, the place of supply of the services provided by M/s Ankit Enterprises is
the place where the services are actually performed, i.e., in India as the tools to be exported have been used
in India for 3 months before their export. Resultantly, the supply of services by M/s Ankit Enterprises do not
qualify as export of service.
Since the recipient is outside India, the place of supply is governed by section 13 and hence, the supply is not
an intra-State supply in terms of section 8(2) of the IGST Act, 2017. [In case where the place of supply
(determined under section 13 of the IGST Act, 2017) and the location of supplier are in the same
State, CBIC FAQs on ‘Banking, Insurance and Stock Brokers Sector’ have taken a view that such supplies will be
treated as intra-State supply.]

Therefore, since the place of supply is in India and the supply is not an intra -State supply, the same is an inter
-State supply [in terms of section 7(5)(c) of the IGST Act, 2017] of services and not of goods. Thus, the same is
liable to IGST of ₹ 1,83,051 (₹ 12,00,000/118 x 18). [It has been assumed that the amount of
₹ 12,00,000 is inclusive of IGST.]

27.
Determine place of supply along with reasons in the following cases:
(i) Mr. X, an architect (Kolkata), provides interior decorator services to Mr. Y of New York (USA) in
relation to his immovable property located in New Delhi.

(ii) Mr. A (a Chartered Accountant registered in Kolkata) supplies services to his client in Bhubaneswar
(registered in Bhubaneswar, Odisha).

(iii) ABC Ltd. of Patna imported certain goods from XYZ Inc. of USA. The goods were imported through
vessel and delivery of goods was taken at Kolkata, whereafter the movement terminates and the
goods are stored.

(iv) Mr. X, registered in Guwahati, has availed land-line services from BSNL. The telephone is installed
in residential premises in Kolkata and the billing address is office of Mr. X in Guwahati.

(v) Mr. X, residing in Chennai, is travelling with an Indian Airline aircraft and is provided with movie
-on- demand service for ₹100 as on-board entertainment during Delhi-Chennai leg of a Bangkok- Delhi
-Chennai flight.

(vi) Mr. X of Kolkata purchased online tickets for Aquatica water p ark in Mumbai.

(vii) Mr. Z, an unregistered person of Kolkata, sends a courier from New Delhi to his friend in Chennai, 127
Tamil Nadu while he was on trip to New Delhi.

(viii) Mr. X, a registered person in Ranchi, Jharkhand, buys shares from a broker in Patna on NSE,
Mumbai. Determine the place of supply of brokerage service.

(ix) XYZ Ltd., New Delhi entered into contract with an Indian airline for the supply of biscuit packets
for further supply by airline to the passengers in Kolkata-Guwahati route. The biscuits were loaded
on board in Lucknow. (PAST EXAM JAN 2021)
Answer
(i) New Delhi. In a case where location of the supplier or location of recipient of service is outside India, the
place of supply of services supplied directly in relation to an immovable property
including that of interior decorators is the place where the immovable property is located.

(ii) Bhubaneshwar, Odisha. The place of supply of services, except the specified services made to a
registered person, is the location of such person.

(iii) Patna. The place of supply of goods imported into India is the location of the importer.

(iv) Kolkata. The place of supply of services by way of fixed telecommunication line is the location where the
telecommunication line is installed for receipt of services.

(v) Bangkok. The place of supply of services on board an aircraft is the location of the first scheduled point of
departure of that aircraft or flight for the journey

(vi) Mumbai. The place of supply of services provided by way of admission to an amusement park is the place
where the park is located.

(vii) New Delhi. The place of supply of services by way of transportation of goods by courier to a person other
than a registered person is the location at which such goods are handed over for their
transportation.

(viii) Ranchi, (Jharkhand). The place of supply of stock broking services to any person shall be the location of
the recipient of services on the records of the supplier of services. [It has been assumed
that the location of the recipient of service is available in the records of the supplier of service.]

(ix) Where the supply involves movement of goods, the place of supply of such goods is the location of the
goods at the time at which the movement of goods terminates for delivery to the recipient. Therefore, the
place of supply of biscuit packets sold by XYZ Ltd. to Indian Airlines is Lucknow. [It has been assumed that in

128
the given case, the movement of goods (biscuit packets) terminates at
Lucknow.] Further, where the goods are supplied on board an aircraft, the place of supply shall be the location
at which such goods are taken on board. Thus, the place of supply of biscuit packets sold by Indian Airlines to
the passengers in Kolkata
-Guwahati route is Lucknow.
28. Dobriyal Technocrats Ltd., registered in Gurgaon, Haryana, is engaged in manufacturing heavy steel
machinery. It enters into an agreement with Mindsharp Associates, registered in Delhi, for imparting
motivational training to the top management of Dobriyal Technocrats Ltd. in a 5-day residential
motivational training programme at an agreed consideration of ₹ 20,00,000.
Mindsharp Associates books the conference hall alongwith the rooms of Hotel Chumchum, Neemrana
(registered in Rajasthan) for the training programme, for a lump sum consideration of ₹ 12,00,000.
You are required to determine the place of supply in respect of the supply(ies) involved in the given
scenario. (rtp- nov 2021)

ANSWER

In the given situation, two supplies are involved:

(i) Services provided by Mindsharp Associates to Dobriyal Technocrats Ltd. by way of providing motivational
training to its top management.

(ii) Services provided by Hotel Chumchum to Mindsharp Associates by way of accommodation in said hotel for
organizing the training programme.

The place of supply in respect of each of the above supplies is determined as under:

(i) As per the provisions of section 12(5)(a) of the IGST Act, 2017, the place of supply of services provided in
relation to training and performance appraisal to a registered person, shall be the location of such person.

Therefore, the place of supply of services supplied by Mindsharp Associates to the registered recipient -
Dobriyal Technocrats Ltd. by way of providing motivational training to its top management is the location of
Dobriyal Technocrats Ltd., i.e. Gurgaon, Haryana.

(ii) As per the provisions of section 12(3)(c) of the IGST Act, 2017, the place of supply of services, by way of
accommodation in any immovable property for organizing, inter alia, any official/ business function including
services provided in relation to such function at such property, shall be the location at which the immovable
property is located.

129
Therefore, the place of supply of services supplied by Hotel Chumchum to Mindsharp Associates by way of
accommodation of conference hall alongwith the rooms of Hotel Chumchum for the training programme shall
be the location of the Hotel Chumchum, i.e. Neemrana, Rajasthan.
 CHAPTER-6 TIME OF SUPPLY
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS 1 to 10,14-30

MAT

PAST NO QUES Q-11, 13 NO NO NO QUES NO QUES Q-32 ------

EXAMS QUES QUES

MTP NO QUES NO QUES NO Q-2 Q-13 Q-13 Q-4, 7 Q-1, 2

QUES

RTP NO QUES NO QUES NO NO NO QUES NO QUES NO QUES Q-31

QUES QUES

QUESTIONS
1. Kanchenjunga Pvt. Ltd. supplies taxable goods to Sutlej Pvt. Ltd. for Rs. 2,50,000 on 23rd June and issues
the invoice on 25th June. Payment for the goods is made by Sutlej Pvt. Ltd. on 15th July.
Determine the time of supply of goods for the purpose of payment of tax. (MTP- NOV 2021)

ANSWER:
In terms of section 12(2), the time of supply of goods is the earlier of, the date of issue of invoice/last date on
which the invoice is required to be issued or date of receipt of payment. However, Notification No. 66/2017 CT
dated 15.11.2017 specifies that a registered person (excluding composition supplier) has to pay GST on the
outward supply of goods at the time of supply as specified in section 12(2)(a), i.e. date of issue of invoice or
the last date on which invoice ought to have been issued in terms of section 31. As per section 31(1), invoice
for supply of goods should be issued before or at the time of removal of goods for supply to the recipient,

130
where supply involves movement of goods. Therefore, time of supply of goods is 23rd June being the last date
on which invoice ought to have been issued and not 25th June when the invoice is actually issued.

2. I buy a set of modular furniture from a retail store. Invoice is issued to me and I make the payment. The
furniture is to be delivered to me later in the week when a technician is available to assemble and install it.
The next day the rate of tax applicable to modular furniture is revised upward, and the store sends me a
supplementary invoice with the delivery note accompanying the furniture to collect the differential amount
of tax. Is this correct on store’s part? Explain. (MTP NOV 2019) (MTP- NOV 2021)
ANSWER:
No, the store is not correct in issuing supplementary invoice with revised rate of tax. The revised rate of tax is
not applicable to the transaction, as the issuance of invoice as well as receipt of payment occurred before the
supply. Therefore, in terms of section 14(b)(ii), the time of supply is earlier of the two events namely, issuance
of invoice or receipt of payment, both of which are before the change in rate of tax, and thus, the old rate of
tax remains applicable.

3. An online portal, Best Info, raises invoice for database access on 21st February on Roy & Bansal Ltd. The
payment is made by Roy & Bansal Ltd. by a demand draft sent on 25th February, which is received and
entered in the accounts of Best Info on 28th February. Best Info encashes the demand draft and thereafter,
gives access to the database to Roy & Bansal Ltd from 3rd March. In the meanwhile, the rate of tax is
changed from 1st March. Determine the time of supply of the service of database access by Best Info.

ANSWER:
As issuance of invoice and receipt of payment (entry of the payment in Best Info’s accounts) occurred before
the change in rate of tax, the time of supply of service by the online portal is earlier of the date of issuance of
invoice (21st February) or date of receipt of payment (28th February) i.e., 21st February. This would be so
even though the service commences after the change in rate of tax [Section 14(b)(ii)].

4. Trust Industries Ltd. has entered into a contract with VST Ltd. to supply gas by a pipeline to VST Ltd. for a
period of one year. As per the terms of the contract-

(i) VST Ltd. shall make monthly payments [Payment for a month shall be made by 7th day of the next
month]

(ii) Every quarter, Trust Industries Ltd. shall issue a statement of account showing the quantity and value of
goods dispatched, payments received and payment due.

(iii) The differential amount, if any, as mentioned in the statement of account shall be paid by VST Ltd.
The details of the various events are:

131
August 5, September 5, Payments of Rs. 2 lakh made in each month for the
October 6 quarter July-September
October 3 Statement of accounts for the quarter July –
September issued by the supplier showing amount
of Rs. 2,56,000 as unpaid
October 17 Balance payment of Rs. 56,000 received by supplier
for the quarter July – September
Determine the time of supply of goods for the purpose of payment of tax. (MTP JULY 2021)

ANSWER:
As per Notification No. 66/2017 CT dated 15.11.2017, a registered person (excluding composition supplier) has
to pay GST on the outward supply of goods at the time of supply as specified in section 12(2)(a), i.e. date of
issue of invoice or the last date on which invoice ought to have been issued in terms of section 31. As per
section 31(4), in case of continuous supply of goods, where successive statements of accounts or successive
payments are involved, the invoice is issued before or at the time of each such statement is issued or, as the
case may be, each such payment is received.

Therefore, invoices should be issued for Rs. 2 lakh each on or before August 5, and September 5, when
monthly payments of Rs. 2 lakh are received. Further, invoice should also be issued for differential payment of
Rs. 2,56,000 on or before October 3, when statement of account is issued

Thus, assuming that the invoice is issued on August 5, September 5 and October 3, the time of supply for the
purpose of payment of tax will be August 5 and September 5 respectively for goods valued at Rs. 2 lakh each
and October 3 for the goods valued at Rs. 2,56,000.

5. Renudhoot Ltd. enters into a contract with XYZ Ltd. on 2nd July 2020 for a period of 2 years for
construction of a new building - to be used for commercial purposes - for a total consideration of Rs. 150
lakh. As per the terms of contract, Renduhoot Ltd. is required to make payment at different stages of
completion of the building namely, 50%, 75% and 100%. Determine the time of supply using relevant details
given as under:
Stage Date of Date of Date of Amount
various issuance of payment paid (Rs.)
stages invoice
Initial booking 02.07.2020 02.07.2020 02.07.2020 15 lakh
50% completion of building 15.03.2021 22.03.2021 29.03.2021 60 lakh

75% completion of building 20.06.2021 24.07.2021 23.07.2021 35 lakh

100% completion of building 30.09.2021 30.09.2021 20.09.2021 40 lakh

132
ANSWER:
As per section 13, the time of supply of services is the earlier of the dates arrived at by methods (A) and (B), as
follows:

(A) Date of invoice or date of receipt of payment (to the extent the invoice or payment covers the supply of
services), whichever is earlier, if the invoice is issued within the time prescribed under section 31;

(B) Date of provision of service or date of receipt of payment (to the extent the payment covers the supply of
services), whichever is earlier, if the invoice is not issued within the time prescribed under section 31
Since in the present case, the construction services are provided under a contract for a period exceeding three
months with periodic payment obligations, such services would fall within the ambit of term “continuous
supply of services” as defined under section 2(33).

As per section 31(5), in case of continuous supply of services, the invoice should be issued either (i) on/ before
the due date of payment or (ii) before/ at the time when the supplier of service receives the payment, if the
due date of payment is not known (iii) on/ before the date of completion of the milestone event when the
payment is linked to completion of an event [Section 31(5)].
Accordingly, the time of supply with respect to each of the stages of completion is as follows:

Stages of Time of supply

completion
Initial booking Since invoice is issued within the prescribed time limit, earlier of the date of issue of
invoice or date of receipt of payment is the time of supply. However, date of issuance of
invoice (02.07.2020) and date of receipt of payment (02.07.2019) are the same.
Therefore, time of supply is 02.07.2020.
50% Since invoice has not been issued on or before the date of 50% completion, earlier of date
of provision of service (15.03.2021) or date of receipt of payment (29.03.2021), i.e.
15.03.2021 is the time of supply.
75% Since invoice has not been issued on or before the date of 75% completion, earlier of date
of provision of service (20.06.2020) or date of receipt of payment (23.07.2021), i.e.
20.06.2021 is the time of supply.
100% Since invoice is issued within the prescribed time limit, earlier of the date of issue of
invoice (30.09.2021) or date of receipt of payment (20.09.2021), i.e. 20.09.2021 is the
time of supply.

6. Mint Industries Ltd., a registered supplier, imports business support services from Green Inc. of USA on
13th August. The relevant invoice for $ 1,20,000 is raised by Green Inc on 18th August. Mint Industries Ltd.
makes the payment against the said invoice as follows:
Case I 22nd September
Case II 27th December
Determine time of supply in each of the aforesaid cases.

133
ANSWER:

In case of services supplied by any person located in a non-taxable territory to any person other than non-
taxable online recipient, tax is payable under reverse charge by the person located in the taxable territory.
[Notification No. 10/2017 IT (R) dated 28.06.2017]. Hence, in the given case, since the business support
services are provided by Green Inc (located in non-taxable territory) to Mint Ltd. (person other than non-
taxable online recipient and located in taxable territory), tax is payable under reverse charge by Mint Ltd.

The time of supply of services taxable under reverse charge is the earlier of the following:
Date of payment, or
 Date immediately following 60 days since issue of invoice (or any other document in lieu of invoice) by the
supplier.

If it is not possible to determine the time of supply by using these parameters, then the time of supply will be
the date of entry of the service in the books of account of the recipient of supply.
In view of the aforesaid provisions, the time of supply in each of the given cases will be as under:

CASE Time of supply

CASE I Since Mint Ltd makes the payment within 60 days of the date of issue
of invoice, the time of supply is the date of payment, i.e. 22nd
September.
CASE II As Mint Ltd. makes the payment after 60 days from the date of
invoice, time of supply is the date immediately following the said
period of 60 days, i.e. 61st day which is 18th October.

7. Kothari Ltd., Mumbai, holds 51% of shares of Wilson Inc., a USA based company. Wilson Inc. provides
business auxiliary services to Kothari Ltd. From the following details, determine the time of supply of service
provided by Wilson Inc: (MTP JULY 2021)

Agreed consideration US $1,00,000

Date on which services are provided by Wilson 16th June
Inc.
Date on which invoice is issued by Wilson Inc. 19th August
Date of debit in the books of account of Kothari 30th September
Ltd.
Date on which payment is made by Kothari Ltd. 23rd December

ANSWER:
Since Kothari Ltd. holds 51% shares of Wilson Inc., Kothari Ltd. and Wilson Inc. are ‘associated enterprises’ as
per section 92A of the Income-tax Act, 1961. As per second proviso to section 13(3), in case of supply by
associated enterprises, where the supplier of service is located outside India, the time of supply is the earlier

134
of the following two dates:
Date of entry in the books of account of the recipient 30th September
of supply [which is Kothari Ltd. in the present case]
OR
Date of payment [by Kothari Ltd. in the present case] 23rd December
Thus, time of supply is 30th September.
8. Basis the following information, determine the time of supply:
S. No. Event Date
(1) Commencement of provision of 05th June
service
(2) Completion of service 10th October
(3) Invoice issued 20th October
(4) Payment received by cheque and 15th October
entered in the books
(5) Amount credited in Bank account 18th October
(6) Rate changed from 12% to 18% 16th October
Note: Assume that all the days covered in the above case are working days.

ANSWER:
The explanation to section 14 lays down that the date of receipt of payment is the date on which the payment
is entered in the books of account of the supplier or the date on which the payment is credited to his bank
account, whichever is earlier. However, the date of receipt of payment is the date of credit in the bank
account if such credit in the bank account is after 4 working days from the date of change in the rate of tax.
In the given case, the payment has been credited in the bank account within 4 working days from the date of
change in the rate of tax. Therefore, the date of receipt of payment is 15th October being the date of entry in
the books of account of the supplier which is earlier than the date of credit of the payment in the bank
account (18th October).

As per section 14(a)(iii), in case of change in rate of tax, if the service is supplied before the change in rate of
tax and the invoice is issued after the change in rate of tax but the payment is received before such change in
rate of tax, the time of supply is the date of receipt of payment.
Therefore, applying the provisions of section 14(a)(iii) to the given case, the time of supply is 15th October.

9. M/s KLM Ltd., a publishing and printing house registered in Maharashtra, is engaged in supply of books,
letter cards, envelopes, guides and reference materials. The following information is provided by the
company:

135
Event Printing of books Printing of envelopes
Date of entering into printing contract 16th March 20th March
Date of receipt of advance 20th March 25th March
Date of completion of printing 10th April 5th April
Date of issue of invoice 15th May 10th April
Date of removal of books and letter 13th May 7th April
heads to buyer
Date of receipt of balance payment 31st May 30th April
In respect of printing of books, content was supplied by the author. For printing of envelopes, the design
and logo were supplied by the buyer.
Determine the time of suppl(ies) for the purpose of payment of tax.

ANSWER:
As per Circular No. 11/11/2017 GST dated 20.10.2017, in case of printing of books where only content is
supplied by the person who owns the usage rights to the intangible inputs while the physical inputs including
paper used for printing belong to the printer, supply of printing [of the content supplied by the recipient of
supply] is the principal supply and therefore, such supplies would constitute supply of service. In case of
supply of printed envelopes by the printer using its physical inputs including paper to print the design, logo
etc. supplied by the recipient of goods, predominant supply is supply of goods and the supply of printing of the
content [supplied by the recipient of supply] is ancillary to the principal supply of goods and therefore, such
supplies would constitute supply of goods.

Accordingly, the time of supply of books and envelopes will be governed by sections 12 and 13 respectively.
In terms of section 12(2), the time of supply of goods is the earlier of, the date of issue of invoice/last date on
which the invoice is required to be issued or date of receipt of payment. However, Notification No. 66/2017 CT
dated 15.11.2017 specifies that a registered person (excluding composition supplier) has to pay GST on the
outward supply of goods at the time of supply as specified in section 12(2)(a), i.e. date of issue of invoice or
the last date on which invoice ought to have been issued in terms of section 31.
As per section 31(1), invoice for supply of goods should be issued before or at the time of removal of goods for
supply to the recipient, where supply involves movement of goods. Therefore, in the given case, the last date
by which invoice ought to have been issued is 7th April. Thus, the time of supply of envelopes for the purpose
of payment of tax is 7th April.

As per section 13, the time of supply of services is the earlier of the dates arrived at by methods (A) and (B), as
follows:

(A) Date of invoice or date of receipt of payment (to the extent the invoice or payment covers the supply of
services), whichever is earlier, if the invoice is issued within the time prescribed under section 31;

(B) Date of provision of service or date of receipt of payment (to the extent the payment covers the supply of
services), whichever is earlier, if the invoice is not issued within the time prescribed under section 31.
Since in the given case, invoice for the services is not issued within 30 days, the time of supply for the advance

136
received is the date of receipt of payment, i.e. 20th March being earlier than the date of provision of service.
However, the time of supply for the balance payment is the date of provision of service, i.e. 10th April being
earlier than the date of receipt of balance payment.

10. Andes Pvt. Ltd., a registered supplier, manufactures product ‘A’ and ‘B’. While ‘A’ is taxable under
forward charge, ‘B’ is taxable under reverse charge. The following details are provided in relation to two
individual supplies of products ‘A’ and ‘B’ made by the company:
S. No. Date Event
(i) 10th February Payment of Rs. 1,00,000 made by buyer for supply of ‘A’ to be delivered in the
month of March
(ii) 13th February Receipt of Rs. 1,00,000 [as mentioned in point (i) above]

(iii) 17th February Payment of Rs. 2,00,000 made by buyer for supply of ‘B’ to be delivered in the
month of March
(iv) 20th February Receipt of Rs. 2,00,000 [as mentioned in point (iii) above]
(v) 5th March Product ‘A’ manufactured and removed
(vi) 6th March Receipt of product ‘A’ [as mentioned in point (v) above] by the buyer
(vii) 10th March Product ‘B’ manufactured and removed
(viii) 23rd March Receipt of product ‘B’ [as mentioned in point (vii) above] by the buyer
(ix) 4th March Invoice for Rs. 2,00,000 issued for supply of ‘A’
(x) 11th March Invoice for Rs. 4,00,000 issued for supply of ‘B’
(xi) 25th March Payment made by the buyer of ‘A’
(xii) 31st March Payment [as mentioned in point (xi) above] received
(xiii) 1st April Payment made by the buyer of ‘B’
(xiv) 4th April Payment [as mentioned in point (xiii) above] received
Determine the time of suppl(ies) of goods for the purpose of payment of tax.

ANSWER:

In terms of section 12(2), the time of supply of goods is the earlier of, the date of issue of invoice/last date on
which the invoice is required to be issued or date of receipt of payment. However, Notification No. 66/2017 CT
dated 15.11.2017 specifies that a registered person (excluding composition supplier) has to pay GST on the

137
outward supply of goods at the time of supply as specified in section 12(2)(a), i.e. date of issue of invoice or
the last date on which invoice ought to have been issued in terms of section 31.
Also, it is important to note that the relief of not paying GST at the time of receipt of advance is available only
in case of supply of goods, the tax on which is payable under forward charge. In case of reverse charge, GST is
payable at the time of payment, if payment is recorded/made before receipt of goods (advance payment)
[Section 12(3)].
Therefore, time of supply of product ‘A’, which is taxable under forward charge, is 4th March being the date of
issue of invoice. However, time of supply of product ‘B’, which is taxable under reverse charge, is 17th
February to the extent of Rs. 2,00,000 paid as advance being the earliest of the three stipulated dates namely,
date of receipt of goods (23rd March), date of payment (17th February) and date immediately following 30
days of issuance of invoice (11th April). For balance Rs. 2,00,000, the time of supply of product ‘B’ is 23rd
March being the earliest of the three stipulated dates namely, date of receipt of goods (23rd March), date of
payment (1st April) and date immediately following 30 days of issuance of invoice (11th April).

11 Mr. Mahendra Sharma, an interior decorator registered at Ahmedabad (Gujarat), provided service to one
of his clients XYZ Company Ltd., registered at Pune (Maharashtra). The provision of service was
completed on 10-08-20XX and payment received was entered in the books of Mr. Mahendra Sharma on
11-08-20XX. With effect from 16/08/20XX, applicable GST rate was increased from 5% to 12%. However,
payment
for the service received was credited in his bank account on 17/08/20XX and invoice for the same was
raised on 23-08-20XX.

Mr. Mahendra Sharma claimed that he is liable to pay IGST @ 5%. But the department took the view that
he is liable to pay IGST @12%.

Examine the correctness of Mr. Mahendra Sharma's contention and determine the time of supply and
applicable rate of tax as per the statutory provisions.

Would your answer undergo any change in the above case if the payment was credited to the bank
account on 14-08-20XX instead of 17-08-20XX?

Note: You may assume that all days are working days. (PAST EXAM NOV 2018)

Answer
As per section 14 of the CGST Act, 2017, in case of change in rate of tax, date of receipt of payment is
earlier of:

(i) date of entering payment in the books of account of the supplier (11.08.20XX)
or

(ii) date on which the payment is credited to his bank account (17.08.20XX).

However, if the payment is credited in the bank account after 4 working days from the date of change in

138
the rate of tax, the date of receipt of payment will be the date of credit in the bank account.

In the given case, since the payment has been credited in the bank within 4 working days from the date
of change in the rate of tax, the date of receipt of payment will be 11.08.20XX [i.e., earlier of 11.08.20XX
or 17.08.20XX].

Section 14 further provides that where goods and/or services have been supplied before the change in
rate of tax (10.08.20XX) and the payment has been received before the change in rate of tax (11.08.20XX),
but the invoice for the same is issued after the change in rate of tax (23.08.20XX), the time of supply shall
be the date of receipt of payment.
Therefore, in the given case, the time of supply will be 11.08.20XX and the applicable rate of tax will be
rate prevalent at the time of supply, i.e. IGST @ 5%.

Therefore, the contention of Mahendra Sharma is correct.

Further, if the date on which the payment is credited to bank account of supplier is 14.08.20XX, the date of
receipt of payment will continue to be 11.08.20XX [i.e., earlier of 11.08.20XX or 14.08.20XX] since the
payment is credited in the bank account before change in rate of tax. Consequently, with other things
remaining the same, the time of
supply and the applicable rate of tax will remain the same.

12
Determine the time of supply from the following particulars:

Answer

As per section 31(2) of the CGST Act, 2017 read with rule 47 of CGST Rules, 2017a tax invoice is to be issued
within 30 days of supply of service. In the given case, the invoice is not issued within the
prescribed time limit. As per section 13(2)(b) of CGST Act, 2017, in a case where the invoice is not issued
within the prescribed time, the time of supply of service is

– (i) date of provision of service

or
(ii) date of recording the payment in the books of account of the supplier
or

139
(iii) date of crediting of payment in the supplier’s bank account whichever is earlier.

Therefore, the time of supply of service to the extent of advance of ₹ 20,000 is 8th September (date of
recording the payment in the books of account) as it is earlier than the date of crediting of payment in
the bank account and the date of provision of service.

The time of supply of service to the extent of the balance ₹ 1,00,000 is 2nd November, which is the date of
provision of service as it is earlier than the other two events in this case.

13 Chiku Traders is a registered supplier of plastic goods. On 10th April, 20XX, Chiku Traders received an
order from Neelu Traders for supply of a consignment of plastic goods. Chiku Traders gets the consignment
ready by 15th April, 20XX. The invoice for the consignment was issued the next day, 16th April, 20XX. Nee
lu Traders collects the consignment from the godown of Chiku Traders on 25th April, 20XX and hands over
the cheque towards payment on the same date. The said payment is entered in the books of accounts of
Chiku Traders on 26th April, 20XX and amount is credited in their bank account on 27th April, 20XX.
Determine the time of supply of the plastic goods supplied by Chiku Traders to Neelu Traders as per the
provisions of CGST Act, 2017. (PAST EXAM NOV 2018) (MTP MAY 2020)

Answer

In terms of section 12(2) of the CGST Act, the time of supply of goods is the earlier of the date of issue of
invoice/last date on which the invoice is required to be issued or date of receipt of payment. However,
Notification No. 66/2017 CT dated 15.11.2017 specifies that a registered person (excluding composition

supplier) has to pay GST on the outward supply of goods at the time of supply as specified in section 12(2)(a)
of the CGST Act, 2017, i.e. date of issue of invoice or the last date on which invoice ought to have been issued
in terms of section 31. As per section 31(1), the invoice in case of supply of goods needs to be issued either
before or at the time
of removal/delivery of goods. In this case, the invoice is issued before the removal of the goods and is thus,
within the time limit prescribed under section 31(1). Therefore, time of supply is the date of issue of invoice,
which is 16th April, 20XX.

14 A machine has to be supplied at site. It is done by sourcing various components from vendors and
assembling the machine at site. The details of the various events are:

140
Determine the time of supply(ies) in the above scenario for the purpose of payment of tax.

Answer

As per Notification No. 66/2017 CT dated 15.11.2017, a registered person (excluding composition supplier) has
to pay GST on the outward supply of goods at the time of supply as specified in section
12(2)(a) i.e., date of issue of invoice or the last date on which invoice ought to have been issued in terms of
section 31. Therefore, the time of supply for the purpose of payment of tax for the entire amount of ₹
12,00,000 is 20th October which is the date on which the goods were made available to the recipient as per
section 31(1)(b), and the invoice should have been issued on this date [Section 12(2)(a)].
15 Determine the time of supply from the given information.

Answer

Here, May 12 will be the time of supply, being the earliest of the three stipulated dates namely, and receipt
of goods, date of payment and date immediately following 30 days of issuance of invoice [Section 12(3)].
(Here, date of invoice is relevant only for calculating thirty days from that date.)

Question 16
Determine the time of supply from the given information.

Answer
Here, June 4, 31st day from the date of supplier’s invoice, will be the time of supply, being the earliest of
the three stipulated dates namely, receipt of goods, date of payment and date immediately following 30days
of issuance of invoice [Section 12(3)].

17 Determine the time of supply from the following particulars

141
Answer
As per section 31(2) read with rule 47 of CGST Rules, the tax invoice is to be issued within 30 days of supply of
service. In the given case, the invoice is not issued within the prescribed time limit.

As per section 13(2)(b), in a case where the invoice is not issued within the prescribed time, the time of supply
of service is the date of provision of service or receipt of payment, whichever is earlier.

Therefore, the time of supply of service to the extent of Rs. 3,000 is 6th May as the date of payment of Rs.
3,000 is earlier than the date of provision of service. The time of supply of service to the extent of the
balance Rs. 12,000 is 15th September which is the date of provision of service.

18
Investigation shows that ABC & Co carried out service of cleaning and repairs of tanks in an apartment
complex, for which the Apartment Owners’ Association showed a payment in cash on 4th April to them
against work of this description. The dates of the work are not clear from the records of ABC & Co. ABC
& Co have not issued invoice or entered the payment in their books of account.

Answer
The time of supply cannot be determined vide the provisions of clauses (a) and (b) of section 13(2) as neither
the invoice has been issued nor the date of provision of service is available as also the date of receipt of
payment in the books of the supplier is also not available. Therefore, the time of supply will be
determined vide clause (c) of section 13(2) i.e., the date on which the recipient of service shows receipt of the
service in his books of account.

Thus, time of supply will be 4th April, the date on which the Apartment Owners’ Association records the
receipt of service in its books of account.

19 Determine the time of supply from the given information. (Assume that service being supplied is taxable
under reverse charge)

Answer
Here, July 4 will be the time of supply, being the earliest of the two stipulated dates namely, date of payment
and date immediately following 60 days since issue of invoice.

20. Determine the time of supply from the given information

142

Answer

As there is no prior entry of the amount in the books of account of ABC Ltd., July 2 will be the time of supply,
being the date of payment in terms of second proviso to section 13(3).
21
Determine the time of supply in the following cases assuming that GST is payable under reverse charge:

Answer

143

22
Determine the time of supply in the following cases assuming that GST is payable under reverse charge:
Answer

144
23. Determine the time of supply in the following cases assuming that rate of GST changes from 18% to 20%
w.e.f. June 1:

Answer

24. Kabira Industries Ltd engaged the services of a transporter for road transport of a consignment on 17th
June and made advance payment for the transport on the same date, i.e. 17th June. However, the
consignment could not be sent immediately on account of a strike in the factory, and instead was sent on
20th July. Invoice was received from the transporter on 22nd July. What is the time of supply of the
transporter’s service? Note: Transporter’s service is taxed on reverse
charge basis.

Answer

145
Time of supply of service taxable under reverse charge is the earlier of the following two dates in terms
of section 13(3):

• Date of payment
• 61st day from the date of issue of invoice
In this case, the date of payment precedes 61st day from the date of issue of invoice by the supplier of service.
Hence, the date of payment, i.e. 17th June, will be treated as the time of supply of service [Section 13(3)(a)].
25 Raju Pvt Ltd. receives the order and advance payment on 5th January for carrying out an architectural
design job. It delivers the designs on 23rd April. By oversight, no invoice is issued at that time, and it is
issued much later, after the expiry of prescribed period for issue of invoice.
When is the time of supply of service?

Answer

Since the invoice has not been issued within the prescribed time period, time of supply of service will be
the earlier of the following two dates in terms of section 13(2)(b):
• Date of provision of service
• Date of receipt of payment
The payment was received on 5th January and the service was provided on 23rd April. Therefore, the
date of payment, i.e. 5th January is the time of supply of
the service in this case.

26. Investigation shows that 150 cartons of ceramic capacitors were dispatched on 2nd August but no
invoice was raised and the transaction (dispatch of cartons) was not entered in the accounts. There was no
evidence of receipt of payment. What is the time of supply of 150 cartons for the purpose of payment of
tax?

Answer

As per Notification No. 66/2017 CT dated 15.11.2017, a registered person (excluding composition supplier) has
to pay GST on the outward supply of goods at the time of supply as specified in section 12(2)(a), i.e. date of
issue of invoice or the last date on which invoice ought to have been issued in terms
of section 31. In this case since the invoice has not been issued, the time of supply for the purpose of payment
of tax
will be the last date on which the invoice is required to be issued. The invoice for supply of goods must be
issued on or before the dispatch of goods, i.e. on 2nd August. Therefore, the time of supply for the purpose of
payment of tax for the goods will be 2nd August, the date when the invoice should have been issued.

27 . An order is placed on Ram & Co. on 18th August for supply of a consignment of customized shoes. Ram 146
& Co. gets the consignment ready and informs the customer and issues the invoice on 2nd December. The
customer collects the consignment from the premises of Ram & Co. on 7th December and electronically
transfers the payment on the same date, which is entered in the accounts on the next day, 8th December.
What is the time of supply of the shoes for the purpose of payment of tax?

Answer
As per Notification No. 66/2017 CT dated 15.11.2017, a registered person (excluding composition supplier) has
to pay GST on the outward supply of goods at the time of supply as specified in section 12(2)(a), i.e. date of
issue of invoice or the last date on which invoice ought to have been issued in terms
of section 31.

In this case, the invoice is issued before the removal of the goods and is thus, within the time limit prescribed
under section 31(1). Therefore, the time of supply for the purpose of payment of tax is the date of issue of
invoice, which is 2nd December.

28 Meal coupons are sold to a company on 9th August for being distributed to the employees of the said
company. The coupons are valid for six months and can be used against purchase of food items. The
employees use them in various stores for purchases of various edible items on different dates throughout
the six months. What is the date of supply of the coupons?

Answer
As the coupons can be used for a variety of food items, which are taxed at different rates, the supply cannot
be identified at the time of purchase of the coupons. Therefore, the time of supply of the coupons
is the date of their redemption in terms of section 12(4).

29. A firm of lawyers issues invoice for services to ABC Ltd. on 17th Feb. The payment is contested by ABC
Ltd. on the ground that on account of negligence of the firm, the company’s case was dismissed by the
Court for non-appearance, which necessitated further appearance for which the firm is billing the company.
The dispute drags on and finally payment is made on 3rd November.
Identify the time of supply of the legal services. Note: Legal services are taxable on reverse charge basis.

Answer

Time of supply of services that are taxable under reverse charge is earliest of the following two dates in
terms of section 13(3):

147
• Date of payment [3rd November]
• 61st day from the date of issue of invoice [19th April]
The date of payment comes subsequent to the 61st day from the issue of invoice by the supplier of service.
Therefore, the 61st day from the date of supplier’s invoice has to be taken as the time of supply. This fixes
19th April as the time of supply.
30. Modern Security Co. provides service of testing of electronic devices. In one case, it tested a batch of
devices on 4th and 5th September but could not raise invoice till 19th November because of some dispute
about the condition of the devices on return. The payment was made in December is the method to fix the
time of supply of the service?

Answer
The time of supply of services, if the invoice is not issued in time, is the date of payment or the date of
provision of service, whichever is earlier [Section 13(2)(b)]. In this case, the service is provided on 5th
September but not invoiced within the prescribed time limit. Therefore, 5th September, the date of
provision of service, being earlier than the date of payment, will be the time of supply.

31. Dhruv & Co. sends certain textile products for dyeing to Bhanushali Manufacturers on job work basis on
16th August. On 18th August, Dhruv & Co. credited 100% of the job work charges to the bank account of
Bhanushali Manufacturers in advance and recorded it in its books of accounts on the same date. Bhanushali
Manufacturers issues the invoice for the same in first week of September.
Assuming that inputs are received back by Dhruv & Co. after job work in the month of October (i.e. within
time limit prescribed under section 143 of the CGST Act, 2017), determine the time of supply for such job
work done by Bhanushali Manufacturers. (rtp- nov 2021)

ANSWER
As per Schedule II of the CGST Act, 2017, the activity by way of any treatment or process which is applied to
another person's goods is a supply of services. Hence, job work is squarely covered within the purview of
supply of services. Accordingly, the time of supply shall be determined as per section 13 of the CGST Act, 2017.
As per section 13, time of supply of services where invoice has been issued within 30 days of provision of
services is:

(a) date of issuance of invoice, or

(b) date of recording the payment in the books of accounts of the supplier, or

(c) date on which payment is credited in the bank account of the supplier,

148
whichever is earlier.

In the present case, the service charges for job work are paid as advance at the time of sending inputs to job
worker. Hence the time of supply of job work services shall be triggered at the time of payment of advance by
Dhruv & Co., i.e. 18th August.
32. SRK Limited, registered under GST, is engaged in sale of fabrics as well as doing job work of knitting of yarn
for garment manufacturers. The company provides the following information in respect of order received for
both sale of fabrics and job work:
Event Supply of fabrics Job work of knitting
Date of confirmation of order 01-08-2020 10-09-2020
Date of receipt of advance of ₹ 1,00,000 each 05-08-2020 12-09-2020
Date of removal of goods on completion of order 10-08-2020 15-09-2020
Date of issue of invoice for full amount 15-08-2020 20-09-2020
Date of receipt of balance payment of ₹ 50,000 each 25-08-2020 25-09-2020

Determine the time of supply for the purpose of payment of tax under CGST Act, 2017, in respect of the above
orders executed by the company. (PAST PAPER JULY 2021)

ANSWER

Time of supply in case of supply of fabric:

Supply of fabric is supply of goods. The time of supply of goods for the purpose of payment of tax is the date
of issue of invoice or the last date when the invoice ought to have been issued viz. before/at the time of
removal of goods for supply to the recipient, where supply involves movement of goods. Thus, the time of
supply for advance of ₹ 1,00,000 as well as for the balance payment of ₹ 50,000 received for the supply of
fabric is 10.08.2020.
Time of supply in case of job work:
Job work is treated as supply of services. The time of supply of services in case where the invoice is issued
within 30 days of provision of service is the earlier of date of invoice or date of receipt of payment (to the
extent the invoice or payment covers the supply of services).
Thus, the time of supply for advance of ₹ 1,00,000 received for the supply of job work services is 12.09.2020
and for balance payment of ₹ 50,000 is 20.09.2020.

149
 CHAPTER-7 VALUE OF SUPPLY
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY Illustrations 1 to 5
MAT QSTNS 1 to 16

Q-13, 18, Q- 33 Q-15 NO Q-24 Q-25 Q-35 ------

34 QUES
PAST
EXAMS

Q-17 Q-9 Q-12 Ill-3 NO QUES NO QUES Q-12 NO QUES

MTP

NO QUES Q-11 NO NO Q-10, 12 NO QUES NO QUES Q-35

QUES QUES
RTP

ILLUSTRATIONS

ILLUSTRATION 1
BW Ltd. manufactures tobacco products. It has provided the following particulars relating to goods sold by it
to CF Ltd.
Particulars Rs.
Price of the goods (exclusive of all taxes/duties and 60,000
discounts)
Excise duty 6,000

150
Packing charges 2,000
Freight (arranged by BW Ltd.) 1600
Total amount billed to CF Ltd. before any discount 69,600
Discount @ 2% of the price of goods recorded in the invoice

The final amount charged from CF Ltd. is Rs. 69,600 less discount @ 2%.
Determine the value of taxable supply made by BW Ltd.
ANSWER
Computation of value of taxable supply
Particulars Rs.
Price of the goods (exclusive of taxes and discounts) 60,000
Add: Excise duty [Note 1] 6,000
Packing charges [Note 2] 2,000
Freight [Note 3] 1,600
Less: Discount @ 2% on Rs. 60,000 [Note 4] (1,200)
Value of taxable supply 68,400

Notes:
(1) As per section 15(2)(a), any taxes, duties, cesses, fees and charges other than CGST, SGST, UTGST, IGST and
GST Compensation Cess, if charged separately by the supplier should be included in the value of supply. Thus,
excise duty charged separately has been added in the value.

(2) As per section 15(2)(c), incidental expenses, including commission and packing, charged by the supplier to
the recipient of a supply should be included in the value. Thus, packing charges have been added in the value.

(3) Since transport is arranged by the supplier, the contract of supply becomes a composite supply; the
principal supply being the supply of goods. Therefore, freight becomes part of the value of the composite
supply.

(4) As per section 15(3)(a), the value of the supply does not include any discount which is given before or at
the time of the supply if such discount has been duly recorded in the invoice issued in respect of such supply.
Therefore, since in this case, discount is known at the time of supply and recorded in the supply, it is
deductible from the value.

ILLUSTRATION 2

SA Ltd. is a manufacturer of biscuits. The price of a 200 gm pack of biscuit sold by SA Ltd. is Rs. 30. It has
received subsidy of Rs. 5 per pack of biscuit sold from NM Ltd. as part of NM Ltd.’s CSR activity. SA Ltd.

151
supplied 1000 packs of biscuits @ Rs. 25 per pack to one of its wholesalers namely, MA Pvt. Ltd. during a tax
period. Loading charges of Rs. 1200 have also been charged separately from MA Pvt. Ltd. MA Pvt Ltd.
delayed the payment of consideration and thus, paid Rs. 5,000 as interest (no separate amount of GST is
paid on the interest by MA Ltd.) in the next tax period. Assume the rate of GST to be 18%.
Determine the value of taxable supply made by SA Ltd.

ANSWER
Computation of value of taxable supply
Particulars Rs.
Price of 1,000 packs of biscuits @ Rs. 25 25,000
Add: Subsidy received from NM Ltd. @ Rs. 5 for 1000 5,000
packs of biscuits [Note 1]
Loading charges [Note 2] 1,200
Interest for delay in payment of consideration [Note 3] 4,237
(rounded off)
Value of taxable supply 35,437

Notes:
(1) As per section 15(2)(e), subsidies directly linked to the price excluding subsidies provided by the Central
Government and State Governments should be included in the value.

(2) As per section 15(2)(c), incidental expenses, including commission and packing, charged by the supplier to
the recipient of a supply and any amount charged for anything done by the supplier in respect of the supply of
goods or services or both at the time of, or before delivery of goods or supply of services should be included in
the value.

(3) As per section 15(2)(e), interest or late fee or penalty for delayed payment of any consideration for any
supply should be included in the value. However, as per section 12(6), the time of supply to the extent it
relates to an addition in the value of supply by way of interest is the date when such interest is received. In the
given case, since GST has not been paid separately on the interest, the same is inclusive of GST. Thus, the
value has been computed by making back calculations. The time of supply in relation to the addition in value
by way of such interest will fall in the next tax period on the date when the same is received.

ILLUSTRATION 3

X Pvt. Ltd., a money changer, has exchanged US $ 10,000 to Indian rupees @ Rs. 74 per US $. X Pvt. Ltd.
wants to value the supply in accordance with rule 32(2)(b) of CGST Rules.
Determine the value of supply made by X Pvt. Ltd. (MTP NOV 2019)

152
ANSWER

As per rule 32(2)(b) of CGST Rules, the value in relation to the supply of foreign currency, including money
changing, is deemed to be-

(i) 1% of the gross amount of currency exchanged for an amount up to Rs. 1,00,000, subject to a minimum
amount of Rs. 250;
(ii) Rs. 1,000 and 0.5% of the gross amount of currency exchanged for an amount exceeding Rs. 1,00,000 and
up to Rs. 10,00,000.

Therefore, the value of supply, made by X Pvt. Ltd., under rule 32(2)(b) of CGST Rules is computed as under:

Particulars Rs. Rs.

Value of currency exchanged in Indian Rupees (’74 x 740000
US $10000)
Upto ‘100000 1000
For ‘640000 (0.5% x ‘640000) 3200
Value of supply 4200

ILLUSTRATION 4
UB & Sons is an air travel agent. Compute the value of supply of service made by the firm during a month
with the help of following particulars furnished by it:

Particulars Basic fare Other charges Taxes Total value

(Rs.) and fee (Rs.) (Rs.) of tickets
(Rs.)
Domestic Bookings 1,00,900 9,510 4,990 1,15,400
International Bookings 3,16,880 20,930 15,670 3,53,480

ANSWER
Computation of value of supply of services made by UB & Sons in a month
Particulars Rs. Rs.
Basic fare in case of domestic bookings 1,00,900
Value of supply @ 5% [A] Refer Note below 5,045
Basic fare in case of international bookings 3,16,880
Value of supply @ 10% [B] Refer Note below 31,688
Value of supply [A] + [B] (rounded off) 36,733

153
Note:
As per rule 32(3) of CGST Rules, the value of the supply of services in relation to booking of tickets for travel by
air provided by an air travel agent is 5% of the basic fare in the case of domestic bookings, and 10% of the
basic fare in the case of international bookings.
ILLUSTRATION 5
Arihant Life Insurance Company Ltd. (ALICL) has charged gross premium of Rs. 180 lakh from policy holders
with respect to life insurance policies in the 2019-20; out of which Rs. 100 lakh have been allocated for
investment on behalf of the policy holders. Compute the value of supply of life insurance services provided
by ALICL:

(i) if the amount allocated for investment has been intimated by ALICL to policy holders at the time of
supply of service.

(ii) if the amount allocated for investment has not been intimated by ALICL to policy holders at the time of
providing of service.

(iii) if the gross premium charged by ALICL from policy holders is only towards risk cover.

Note: ALICL has started its operations in the year 2019-20. Thus, the entire gross premium of Rs. 180 lakh is
the premium for the first year of all the policies.
ALICL has not issued any single premium annuity policy.

ANSWER

As per rule 32(4), of the CGST Rules, value of supply of services in relation to life insurance services is

(a) the gross premium reduced by the amount allocated for investment on behalf of the policy holder, if such
an amount is intimated to the policy holder at the time of supply of service;

(b) in all other cases, 25% of the premium in the 1st year and 12.5% of the premium in subsequent years

However, where the entire premium paid by the policy holder is only towards risk cover, such gross premium
is the value of supply of life insurance services. In the light of the aforesaid provisions, value of supply of life
insurance services provided by ALICL in financial year 2019-20 will be computed as follows:

(i) Amount allocated for investment intimated to policy holder at the time of supply of service Value of service
= Rs. (180-100) lakh = Rs. 80,00,000

(ii) Amount allocated for investment not intimated to policyholders at the time of supply of service Value of 154
service = 25% of Rs. 180 lakh = Rs. 45,00,000

(iii) Gross premium received is only towards risk cover Value of service = Rs. 180 lakh
QUESTIONS

1. Income tax collected at source should be added in value of the supply in terms of section 15(2)(a).
Examine the correctness of the statement.

ANSWER:
The statement is not correct. CBIC vide Circular No. 76/50/2018 GST dated 31.12.2018 (amended vide
corrigendum dated 7.03.2019) has clarified that for the purpose of determination of value of supply under
GST, tax collected at source (TCS) under the provisions of the Income Tax Act, 1961 would not be includible as
it is an interim levy not having the character of tax.

2. How should the supply made by a component manufacturer be valued, when he uses moulds and dies
owned by the original equipment manufacturer sent free of cost to him? Explain.

ANSWER:
Circular No. 47/21/2018 GST dated 08.06.2018 has clarified that while calculating the value of the supply
made by the component manufacturer using moulds and dies owned by Original Equipment Manufacturers
(OEM) sent free of cost (FOC) to him, the value of such moulds and dies shall not be added to the value of
supply made by him because the cost of moulds/dies was not to be incurred by the component manufacturer
and thus, does not merit inclusion in the value of supply in terms of section 15(2)(b).
However, if the contract between OEM and component manufacturer was for supply of components made by
using the moulds/dies belonging to the component manufacturer, but the same have been supplied by the
OEM to the component manufacturer on FOC basis, the amortised cost of such moulds/dies shall be added to
the value of the components.

3. Examine whether the following discounts ought to be excluded to determine the value of supply:
(i) Company offering 20% discount for purchases above Rs. 10,000
(ii) Company offering additional discount of 1% on purchase of 10,000 pieces in a year
(iii) After selling a product, the company re-values the product at a lower value and issues credit note to the
buyer for the differential amount

155
ANSWER:

(i) The given case is a case of staggered discounts where rate of discount increases with increase in purchase
volume. Such discounts are shown on the invoice itself. Therefore, the same are excluded to determine the
value of supply.

(ii) The given case is a case of volume discount which are offered by the suppliers to their stockists, etc. Such
discounts are established in terms of an agreement entered into at or before the time of supply though not
shown on the invoice as the actual quantum of such discounts gets determined after the supply has been
effected and generally at the year end. Such type of volume discounts are excluded to determine the value of
supply provided they satisfy the parameters laid down in section 15(3) including the reversal of ITC by the
recipient of the supply as is attributable to the discount on the basis of document (s) issued by the supplier.

(iii) This is a case of secondary discounts. These are the discounts which are not known at the time of supply or
are offered after the supply is already over. Therefore, such discounts shall not be excluded while determining
the value of supply.

4. Rajesh & Co., a partnership firm, provides financial and management consultancy to a group of
companies for an annual retainership fee of Rs. 15 lakh. Further, the firm is provided with a car (along with
a driver) for its exclusive use throughout the year. The fuel cost is also borne by the Group. Rajesh & Co.
pays GST on the amount of Rs. 15 lakh.
Is the value for the service provided by Rajesh & Co. correct under GST law? If not, please elaborate.

ANSWER:
Rajesh & Co. gets a car along with driver (including the fuel) for the whole year, which is an additional non-
monetary consideration for its services. The monetary value of such additional consideration must be added
to the retainer fee (Rs. 15 lakh) in order to arrive at the value of the taxable service provided by Rajesh & Co,
as per rule 27 relating to valuation.

5. The supplies of commodity ‘y’ to the market are channelled through a State Marketing Corporation which
conducts an auction each day to arrive at the price. Gupta and Co. supplies commodity ‘y’ through the State
Marketing Corporation.
How will the supply of ‘y’ made by Gupta and Co. to State Marketing Corporation be valued for paying tax?

ANSWER:
The State Marketing Corporation is an ‘agent’ in the meaning of the expression as defined in section 2(5),
which includes an auctioneer. Therefore, the value of supply of ‘y’ will be determined in terms of rule 29
relating to valuation.
There is no open market for the first supply of commodity ‘y’, as it is compulsorily supplied to the State
Marketing Corporation. However, Gupta & Co. has the option of valuing the supply of ‘y’ at 90% of price of

156
goods of like kind and quality sold by the State Marketing Corporation to its unrelated customers.
If the value cannot be determined by this method, it needs to be determined on the basis of the cost plus 10%
mark up as per rule 30 or on the basis of Best Judgement Method as per rule 31, in that order.

6. Easy Coupons Ltd. sells coupons that are redeemable against specified luxury food products at retail
outlets. Each coupon is sold for value of Rs. 900 but is redeemable for supplies worth Rs. 1000.
What is the value of supply of such coupon under GST law?
ANSWER:
In terms of rule 32(6) relating to valuation, the value of a coupon is the money value of the goods redeemable
against it. Therefore, though the coupon is sold for Rs. 900, its value is Rs. 1000.

7. A pharmaceutical company supplies a drug intermediate to its own unit in another State for conversion
into formulations. The product is exclusive to this company, and there is no market sale in India of this drug
intermediate. Goods of like kind and quality are also not available.
How will the value of the supply of this drug intermediate be determined under GST law?

ANSWER:
Since the supply is made to a distinct person, the same will be valued in accordance with rule 28 relating to
valuation.
There is no open market value of the drug intermediate as also there are no like goods. Therefore, value of
supply of such drug intermediate will be determined in terms of clause (c) of rule 28 i.e., by using rule 30.
Thus, the value of supply of such drug intermediate will be 110% of its cost of production or manufacture.
However, if the recipient unit is eligible for full ITC, the value declared in the invoice will be deemed to be the
open market value of the drug intermediate and thus, the invoice value will be the value of taxable supply.

8. Dushyant rents out a commercial building owned by him to Bharat for the month of December, for which
he charges a rent of Rs. 19,50,000. Dushyant pays the maintenance charges of Rs. 1,00,000 (for the
December month) as charged by the local society. These charges have been reimbursed to him by Bharat.
Also, Dushyant has paid municipal tax of Rs. 2,85,000 which he has not charged from Bharat. You are
required to determine the value of supply and the GST liability of Dushyant for the month of December
assuming CGST and SGST rates to be 9% each. Note: All the amounts given above are exclusive of GST.
(RTP MAY 2020)

ANSWER:
Computation of the value of supply and the GST liability of Dushyant for the month of December
Particulars Amount (Rs.)
Rent of the commercial buiding 19,50,000
Maintenance charges paid to the local society, 1,00,000
reimbursed by Bharat [Note 1]

157
Municipal tax paid by Dushyant [Note 2] Nil
Value of supply 20,50,000
CGST @ 9% 1,84,500
SGST @ 9% 1,84,500
Notes:
(1) Since such charges are reimbursed by the tenant (Bharat), such charges ultimately form part of the rent
paid by Bharat to Dushyant and thus, form part of the value.
(2) Since municipal tax is paid by the supplier (Dushyant) and not charged to the recipient, the same is not
includible in the value.

9. Vayu Ltd. provides you the following particulars relating to goods supplied by it to Agni Ltd.:
Particulars Amount
(Rs.)
List price of the goods (exclusive of taxes/duties and 76,000
discounts)
Special packing at the request of customer to be 5,000
charged to the customer
Duty levied by local authority on the sale of such goods 4,000
CGST and SGST charged in invoice 14,400
Subsidy received from an NGO in relation to the goods 5,000
sold (The price of Rs. 76,000 given above is after
considering the subsidy)

Vayu Ltd. offers 3% discount on the list price of the goods which is recorded in the invoice for the goods.
Determine the value of taxable supplies made by Vayu Ltd. (MTP NOV 2018)

ANSWER:
Computation of value of taxable supplies by Vayu Ltd.
Particulars Rs.
List price of the goods 76,000
Add: Special packing [Note 1] 5,000
Duty levied by local authority on sale of goods [Note 2] 4,000
CGST and SGST charged [Note 2] -
Subsidy received from an NGO [Note 3] 5,000
Less: Discount offered (2,280)

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= 3% of List price = Rs. 76,000 × 3% [Note-4]
Value of taxable supplies 87,720
Notes:

1. Being incidental expenses charged by the supplier to the recipient of supply, packing charges are includible
in the value as per section 15(2)(c).

2. Taxes, duties, etc. levied under any law for the time being in force other than CGST, SGST/UTGST, IGST are
includible in the value as per section 15(2)(a).
3. Subsidy directly linked to the price received from a non-Government body is includible in the value in terms
of section 15(2)(e).

4. Since discount is known at the time of supply, it is deductible from the value in terms of section 15(3)(a).

10. Binaca Electronics Ltd. (hereinafter referred to as BEL) is engaged in manufacturing televisions. It is
registered in the State of Haryana. It has appointed distributors across the country who sell the televisions
manufactured by it. The maximum retail price (MRP) printed on the package of a television is Rs. 12,000.
The applicable rate of GST on televisions is 18%. BEL dispatches the stock of televisions to its distributors
ordered by them on a quarterly basis.

In order to promote its sales, the Sales Head of BEL has formulated a sales promotion scheme. Under this
scheme, BEL offers a discount of 10% (per television) on televisions supplied to the distributors if the
distributors sell 500 televisions in a quarter. The discount is offered on the price at which the televisions are
sold to the distributors (excluding all charges and taxes).

It appoints Shah Electronics (an unrelated party as per GST Law) as its distributor in Haryana on 1st April
and dispatches 750 televisions on 8th April as stock for the quarter April-June. BEL has sold the televisions
to distributor - Shah Electronics at Rs. 8,400 per television (exclusive of applicable taxes). Shah Electronics
has requested BEL for a special packing of the televisions delivered to it for which BEL has charged Rs. 1,200
per television.

Shah Electronics places a purchase order of 1,000 televisions with BEL for the quarter July-September. The
distributor reports sales of 700 televisions for the quarter April-June and 850 televisions for the quarter
July-September. The discount policy offered by BEL as explained above is also available to Shah Electronics
as per the distributorship agreement.

While Shah Electronics reverses the input tax credit availed for the quarter July-September, it has failed to
reverse the input tax credit availed for the quarter April-June.
Examine the scenario with reference to section 15 and compute the taxable value of televisions supplied by
BEL to Shah Electronics during the quarters April-June and July-September assuming the rate of tax
applicable on the televisions as 18%. (RTP NOV 2020)

ANSWER: 159

Section 15(3)(a) allows discounts to be deducted from the value of taxable supply if the same is given before
or at the time of the supply and if such discount has been duly recorded in the invoice issued in respect of
such supply. In other words, pre-supply discounts recorded in invoices are allowed as deduction.
Further, post supply discounts are also allowed as deduction from the value of supply under section 15(3)(b)
if-
(i) such discount is established in terms of an agreement entered into at or before the time of such supply and
specifically linked to relevant invoices; and

(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier has been
reversed by the recipient of the supply.

In the given case, Shah Electronics is entitled for 10% discount on televisions supplied by BEL for the quarters
April-June as well as July-September as it has sold more than 500 televisions in each of these quarters.
However, since the sales targets are achieved after the entire stock for the respective quarters of April-June
and July-September has been dispatched, the discounts on the televisions supplied to Shah Electronics for the
quarters of April-June and July-September is a post-supply discount.

Such post-supply discount will be allowed as a deduction from the value of supply since the discount policy
was known before the time of such supply and the discount can be specifically linked to relevant invoices
(invoices pertaining to televisions supplied to Shah Electronics for the quarters of April-June and July-
September) provided Shah Electronics reverses the input tax credit attributable to the discount on the basis of
document issued by BEL.

The value of supply for the quarters of April-June and July-September will thus, be computed as under:

Computation of value of supply for the quarter - April-June

Particulars Amount (Rs.)

Price at which the televisions are supplied to Shah 8,400
Electronics [Note 1]
Add: Packing expenses [Note 2] 1,200
Less: Discount [Note 3] Nil
Value of taxable supply of one unit of television 9,600
Value of taxable supply of televisions for the quarter 72,00,000
April-June [Rs. 9,600 x 750]

Notes:

160
(1) The value of a supply is the transaction value, which is the price actually paid or payable for the said supply,
in terms of section 15(1) presuming that the supplier and the recipient of supply are not related and price is
the sole consideration for the supply as the supplier and recipient are not related parties.

(2) The value of supply includes incidental expenses like packing charges in terms of section 15(2)(c).

(3) Since Shah Electronics has not reversed the input tax credit attributable to such discount on the basis of
document issued by BEL, the conditions specified in section 15(3)(b) have not been fulfilled. Thus, the post-
supply discount will not be allowed as deduction from the value of supply.
Computation of value of supply for quarter - July-September
Particulars Amount
(Rs.)
Price at which the televisions are supplied to Shah 8,400
Electronics [Note 1]
Add: Packing expenses [Note 2] 1,200
Less: Discount [Note 3] (840)
Value of taxable supply of one unit of television 8,760
Value of taxable supply of televisions for the quarter 87,60,000
July-September [Rs. 8,760 x 1,000]

Notes:

(1) The value of a supply is the transaction value, which is the price actually paid or payable for the said supply,
in terms of section 15(1) presuming that the supplier and the recipient of supply are not related and price is
the sole consideration for the supply as the supplier and recipient are not related parties.

(2) The value of supply includes incidental expenses like packing charges in terms of section 15(2)(c).

(3) Since all the conditions specified in section 15(3)(b) have been fulfilled, the post-supply discount will be
allowed as deduction from the value of supply. The input tax credit to be reversed will work out to be
Rs.1,51,200 [1,000 x (8,400 x 10%) x 18%].

11. Prada Forex Private Limited, registered in Delhi, is a money changer. It has undertaken the following
purchase and sale of foreign currency: (RTP NOV 2019) (RTP NOV 2018)

(i) 1,000 US $ are purchased from Nandi Enterprises at the rate of Rs. 74 per US $. RBI reference rate for US
$ on that day is Rs. 74.60.

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(ii) 2,000 US $ are sold to Menavati at the rate of Rs. 74.50 per US$. RBI reference rate for US $ for that day
is not available.
Determine the value of supply in each of the above cases in terms of rule 32(2)(a) and rule 32(2)(b).

ANSWER:

Rule 32(2) prescribes the provisions for determining the value of supply of services in relation to the purchase
or sale of foreign currency, including money changing.
Determination of value under rule 32(2)(a)
(i) Value of supply of services for a currency, when exchanged from, or to, Indian Rupees, shall be equal to the
difference in the buying rate or the selling rate, as the case may be, and the Reserve Bank of India (RBI)
reference rate for that currency at that time, multiplied by the total units of currency. Thus, value of supply is:
= (RBI reference for US $ - Buying rate of US $) × Total number of units of US $ bought
= (74.6 – 74) × 1,000
= Rs. 600/-

(ii) When the RBI reference rate for a currency is not available, the value shall be 1% of the gross amount of
Indian Rupees provided or received by the person changing the money. Thus, value of supply is:
= 1% of the gross amount of Indian Rupees received
= 1% of (74.50 × 2,000)
= Rs. 1,490/-

Determination of value under rule 32(2)(b)

Rule 32(2)(b) provides that value in relation to the supply of foreign currency, including money changing shall
be deemed to be –

S. No. Currency exchanged Value of supply

1. UptoRs. 1,00,000 1% of the gross amount of currency exchanged
OR
Rs. 250 whichever is higher
2. Exceeding Rs. 1,00,000 and uptoRs. Rs. 1,000 + 0.50% of the (gross amount of currency
10,00,000 exchanged - 1,00,000)
3. Exceeding Rs. 10,00,000 Rs. 5,500 + 0.1% of the (gross amount of currency
exchanged - 10,00,000)
OR
Rs. 60,000 whichever is lower

Thus, the value of supply in the given cases would be computed as under:

(i) Gross amount of currency exchanged = Rs. 74 × 1,000 = Rs. 74,000.

Since the gross amount of currency exchanged is less than Rs. 1,00,000, value of supply is 1% of the gross

162
amount of currency exchanged i.e. 1% of Rs. 74,000 or Rs. 250, whichever is higher, i.e. = Rs. 740/-

(ii) Gross amount of currency exchanged = Rs. 74.50 × 2,000 = Rs. 1,49,000.
Since the gross amount of currency exchanged exceeds Rs. 1,00,000 but is less than Rs. 10,00,000, value of
supply is Rs. 1,000 + 0.50% of (Rs. 1,49,000 - Rs. 1,00,000), i.e. = Rs. 1,245/-
12. Rolly Polly Manufacturers Ltd., registered in Mumbai (Maharashtra), is a manufacturer of footwear. It
imports a footwear making machine from USA. Rolly Polly Manufacturers Ltd. enters into a contract with
Rudra Logistics, a licensed customs broker with its office at Ahmedabad (Gujarat), to meet all the legal
formalities in getting the said machine cleared from the customs station.
Apart from this, Rolly Polly Manufacturers Ltd. authorises Rudra Logistics to incur, on its behalf, the
expenses in relation to clearance of the imported machine from the customs station and bringing the same
to the warehouse of Rolly Polly Manufacturers Ltd. which shall be reimbursed by Rolly Polly Manufacturers
Ltd. to Rudra Logistics on the actual basis in addition to agency charges.
Rudra Logistics provided following details:

S. No. Particulars Amount

(Rs.)
(i) Agency charges 5,00,000
(ii) Unloading of machine at Kandla port, Gujarat 50,000
(iii) Charges for transport of machine from Kandla 25,000
port, Gujarat to its Rudra Logistics’ godown in
Ahmedabad, Gujarat
(iv) Charges for transport of machine from Rudra 28,000
Logistics’ Ahmedabad godown to the warehouse
of Rolly Polly Export Import House in Mumbai,
Maharashtra
(v) Prepared and submitted of Bill of Entry and paid 5,00,000
customs duty
(vi) Dock dues paid 50,000
(vii) Port charges paid 50,000
(viii) Hotel expenses 45,000
(ix) Travelling expenses 50,000
(x) Telephone expenses 2,000

Compute the value of supply made by Rudra Logistics with the help of given information.

Would your answer be different if Rudra Logistics has charged Rs. 13,00,000 as a lump sum consideration for

163
getting the imported machine cleared from the customs station and bringing the same to the warehouse of
Rolly Polly Manufacturers Ltd.? (RTP MAY 2020) (MTP JULY 2021) (MTP MAY 2019)

ANSWER:

As per explanation to rule 33, a “pure agent” means a person who-

(a) enters into a contractual agreement with the recipient of supply to act as his pure agent to incur
expenditure or costs in the course of supply of goods or services or both;
(b) neither intends to hold nor holds any title to the goods or services or both so procured or supplied as pure
agent of the recipient of supply;

(c) does not use for his own interest such goods or services so procured; and

(d) receives only the actual amount incurred to procure such goods or services in addition to the amount
received for supply he provides on his own account.
The supplier needs to fulfil all the above conditions in order to qualify as a pure agent.

In the given case, Rudra Logistics has entered into a contractual agreement with recipient of supply, Rolly Polly
Manufacturers Ltd., to incur, on behalf of such recipient, the expenses mentioned in S. No. (ii) to (vii) incurred
in relation to clearance of the imported machine from the customs station and bringing the same to the
warehouse of the recipient. Further, Rudra Logistics does not hold any title to said services and does not them
use for his own interest.

Lastly, Rudra Logistics receives only the actual amount incurred to procure such services in addition to agency
charges. Thus, Rudra Logistics qualifies as a pure agent.
Further, rule 33 stipulates that notwithstanding anything contained in the provisions of Chapter IV –
Determination of Value of supply, the expenditure or costs incurred by a supplier as a pure agent of the
recipient of supply shall be excluded from the value of supply, if all the following conditions are satisfied,
namely-

(I) the supplier acts as a pure agent of the recipient of the supply, when he makes the payment to the third
party on authorisation by such recipient;

(II) the payment made by the pure agent on behalf of the recipient of supply has been separately indicated in
the invoice issued by the pure agent to the recipient of service; and

(III) the supplies procured by the pure agent from the third party as a pure agent of the recipient of supply are
in addition to the services he supplies on his own account.
Since conditions (I) to (III) mentioned above are satisfied in the given case, expenses (ii) to (vii) incurred by
Rudra Logistics as a pure agent of Rolly Polly Manufacturers Ltd. shall be excluded from the value of supply.

Accordingly, value of supply made by Rudra Logistics is as follows:

164
Particulars Amount
(Rs.)
Agency charges 5,00,000
Add: Unloading of machine at Kandla port, Gujarat Nil
Charges for transport of machine from Kandla port, Gujarat Nil
to its godown in Ahmedabad, Gujarat
 Charges for transport of machine from Rudra Logistics’ Nil
Ahmedabad godown to the warehouse of Rolly Polly Export
Import House in Mumbai, Maharashtra
Customs duty Nil
Dock charges Nil
Port charges Nil
Hotel expenses 45,000
Travelling expenses 50,000
Telephone expenses 2,000
Value of supply 5,97,000
Yes, the answer would be different. If lump sum amount of Rs. 13,00,000 is paid then the value of supply shall
be Rs. 13,00,000 and tax shall be charged on value of supply since individual cost are not given.

13. Rustagi & Co. manufactures customized products at its unit situated in Madhya Pradesh. Cost of
production for Rustagi & Co. for 1000 products is Rs. 20,00,000. These products require further processing
before sale, and for this purpose products are transferred from its Madhya Pradesh unit to its another unit
in Himanchal Pradesh. The value declared on the invoice for such transfer is the cost of production of such
products.

The Himanchal Pradesh unit, apart from processing its own products, engages in processing of similar
products of other persons who supply the products of the same kind and quality. Thereafter, the Himanchal
Pradesh unit sells these processed products to wholesalers. There are no other factories in the neighbouring
area which are engaged in the same business as that of Himanchal Pradesh unit.
1,000 units of the products of same kind and quality are supplied to Himanchal Pradesh unit, at the time
when goods are sent by Madhya Pradesh unit, by another manufacturer located in Himanchal Pradesh. The
ex-factory price of such goods is Rs. 19,00,000. The Himanchal Pradesh unit of Rustagi & Co. is eligible for
full ITC.

Determine the value of 1000 products supplied by Rustagi & Co. to its Himanchal Pradesh unit. (PAST EXAM
MAY 2018)

ANSWER: 165

As per section 25(4), a person who has obtained or is required to obtain more than one registration, whether
in one State or Union territory or more than one State or Union territory shall, in respect of each such
registration, be treated as distinct persons for the purposes of this Act. Therefore, units of Rustagi & Co. in
Madhya Pradesh and Himanchal Pradesh are distinct persons under GST.

As per rule 28, the value of the supply of goods between distinct persons, other than where the supply is
made through an agent, shall –
(a) be the open market value of such supply;

(b) if open market value is not available, be the value of supply of goods of like kind and quality;

(c) if value cannot be determined under the above methods, be cost of the supply plus 10% mark-up or be
determined by other reasonable means, in that sequence.

Rule 28 also provides that where the goods are intended for further supply as such by the recipient, the value
shall, at the option of the supplier, be an amount equivalent to 90% of the price charged for the supply of
goods of like kind and quality by the recipient to his customer not being a related person.
Further, rule 28 provides that where the recipient is eligible for full input tax credit, the value declared in the
invoice shall be deemed to be the open market value of the goods or services.

In the given case, the option of valuing the goods @ 90% of the price charged by the recipient to his unrelated
customer is not available as the goods are not further supplied ‘as such’ but only after processing at Himachal
Pradesh unit. However, since the Himanchal Pradesh unit is eligible for full ITC, the value declared by the
Madhya Pradesh unit in the invoice for transfer of such products, i.e. Rs. 20,00,000 shall be deemed to be the
open market value of the products.

Thus, the value of 1000 products supplied by Rustagi & Co. to its Himanchal Pradesh unit in terms of rule 28 is
the open market value of such products which is Rs. 20,00,000.

14. Dev Enterprises is the supplier of water coolers. Dev Enterprises supplied water coolers to an unrelated
party, Vimal Traders for consideration of Rs. 2,95,000 (inclusive of GST @ 18%). Vimal Traders also gave
some materials to Dev Enterprises [valuing Rs. 10,000 (exclusive of GST)] as consideration for such supply.
At the same time, Dev Enterprises has supplied the same goods to another unrelated person at price of Rs.
2,97,360 (inclusive of GST@18%).

You are required to:

(1) Determine the value of goods supplied by Dev Enterprises to Vimal Traders.

166
(2) What would your answer be if price of Rs. 2,97,360 is not available at the time of supply of goods to
Vimal Traders? Explain briefly.

ANSWER:

(1) In the given case, price is not the sole consideration for the supply. Apart from monetary consideration, the
buyer has given some material to the supplier as consideration for such supply. Hence, the value of the supply
cannot be determined on the basis of the transaction value in terms of section 15(1).
Here, the value will be determined with the help of rule 27 which specifies that where the consideration for a
supply is not wholly in money, the value will be the open market value.
Open market value of a supply means the full value in money, excluding the applicable GST, where the
supplier and the recipient of the supply are not related and the price is the sole consideration, to obtain such
supply at the same time when the supply being valued is made.
Therefore, in the given case, the open market value of the goods supplied is Rs. 2,52,000 (Rs. 2,97,360 x
100/118) and is therefore, the value of such goods.

(2) Rule 27 further provides that if open market value of the supply is not known, the value of the supply will
be the consideration in money plus the money equivalent to the non-monetary consideration, if such amount
is known at the time of supply.

Therefore, the value in the given case will be (Rs. 2,95,000 x 100/118) + Rs. 10,000, which is Rs. 2,60,000.

15. Chirayu Life Insurance Company Limited (CLICL) has collected premium from policy subscribers. It does
not intimate the amount allocated for investment to subscribers of the policy at the time of collection of
premium. The company has provided the following details in relation to its receipts:

SI. No. Particulars Amount

1. Premium for only risk cover 25,00,000
2. Premium from new policy subscribers 40,00,000
3. Renewal premium 80,00,000
4. Single premium on annuity policy 1,00,00,00
0

All amounts are exclusive of tax. You are required to compute the value of supply by CLICL in terms of rule
32(4). (PAST EXAM MAY 2019)

ANSWER

As per rule 32(4), the value of supply of services in relation to life insurance business, when the amount
allocated for investment/ savings on behalf of the policy holder is not intimated to the policy holder at the
time of supply of service, is-

(i) in case of single premium annuity policies,10% of single premium charged from the policy holder;

167
(ii) in all other cases, 25% of the premium charged from the policy holder in the first year and 12.5% of the
premium charged from the policy holder in subsequent years;

(iii) in case the entire premium paid by the policy holder is only towards the risk cover in life insurance, the
premium so paid.

Therefore, in the given case, the value of the services provided by CLICL will be computed as under:
Computation of value of supply for CLICL

Particulars Amount (Rs.)

Premium for only risk cover 25,00,000
Premium from new policy subscribers 25% of Rs. 10,00,000
40,00,000
Renewal premium 12.5% of Rs. 80,00,000 10,00,000
Single premium on annuity policy10% of Rs. 10,00,000
1,00,00,000
Total value of supply 55,00,000

16. Aviant Ltd., registered in Noida (Uttar Pradesh), is a supplier of machinery used for making bottle caps.

The supply of machinery is effected as under:

− The wholesale price of the machinery (excluding all taxes and other expenses) at which it is supplied in the
ordinary course of the business to various customers is Rs. 42,00,000. However, the actual price at which
the machinery is supplied to an individual customer varies within a range of ± 10% depending upon the
terms of contract of supply with the particular customer.
− Apart from the price of the machinery, Aviant Ltd. charges from the customer the following incidental
expenses:

♦ associated handling and loading charges of Rs. 10,000

♦ installation and commissioning charges of Rs. 1,00,000

− The machinery can be dismantled and erected at another site, if required. The above charges are
compulsorily levied in every case of supply of machinery.

− Transportation of machinery to the customer’s premises is arranged by Aviant Ltd. through a third-party
service provider [Goods Transport Agency (GTA)]. The customer enters into a separate service contract with
the GTA and pays the freight directly to it.

168
− A cash discount of 2% on the price of the machinery is offered at the time of supply, if the customer agrees
to make the payment within 15 days of the receipt of the machinery at his premises. In the event of failure
to make the payment within the stipulated time, the company-

♦ recovers the discount (no separate amount of GST is recovered) given; and
♦ charges simple interest @ 1% per month or part of the month (no separate amount of GST is recovered)
on the total amount due from the customer (towards the machinery supplied) from the date of making the
supply till the date of payment. However, no interest is charged on the tax dues.
− For every machinery supplied, Aviant Ltd. receives a price linked subsidy of Rs. 2,00,000 from its holding
company Diligent Ltd.

Aviant Ltd. has supplied a machinery to an unrelated party, Daffodil Pvt. Ltd. on 1st August at a price of Rs.
40,00,000 (excluding all taxes). Invoice was issued on 1st August by Aviant Ltd. The corporate office of
Daffodil Ltd., which is at New Delhi, has entered into contract with Aviant Ltd. for supply of machinery.
However, the machinery has been installed at Daffodil Pvt. Ltd’s registered manufacturing unit located in
Gurugram (Haryana). Daffodil Pvt. Ltd. has paid the freight directly to the GTA. Discount @ 2% on the price
of machinery excluding taxes was given to Daffodil Pvt. Ltd. as it agreed to make the payment within 15
days. However, Daffodil Pvt. Ltd. paid the consideration on 31st October.

Assume the rates of taxes to be as under:

Bottle cap making machine

CGST – 6% SGST – 6% IGST – 12%
Service of transportation of goods
CGST – SGST – IGST – 5%
2.5% 2.5%
Other services involved in the above supply
CGST – 9% SGST – 9% IGST – 18%

Calculate the GST payable [CGST, SGST or IGST, as the case may be] on the machinery and support your
conclusions with legal provisions in the form of explanatory notes.
Make suitable assumptions, wherever needed.

ANSWER:
Computation of GST liability of Aviant Ltd.
Particulars (Rs.)
Price of machine [Note 1] 40,00,000
Add: Handling and loading charges [Note 2] 10,000
Installation and commissioning charges [Note 3] 1,00,000
Transportation cost [Note 4] Nil

169
Price linked subsidy from Diligent Ltd. [Note 5] 2,00,000
Total price of the machine 43,10,000
Less: 2% cash discount on price of machinery = Rs. (80,000)
40,00,000 × 2% [Note 6]
Taxable value of supply 42,30,000
Tax liability for the month of August [Note 10]
IGST @ 12% [Note 8 and Note 7] – [A] 5,07,600
 Tax liability for the month of October [Note 10]
Add: Interest collected @ 3% on Rs. 41,10,000 [Note 9] 1,23,300
Cash discount recovered [Note 9] 80,000
Value of interest and cash discount inclusive of tax 2,03,300
IGST = (Rs. 2,03,300/112) x 12% - [B] 21,782
Total IGST payable on the machinery [A] + [B] 5,29,382

Notes:
(1) As per section 15(1), the value of a supply is the transaction value i.e., the price actually paid or payable for
the said supply when the supplier and the recipient of the supply are not related and the price is the sole
consideration for the supply..

(2) All incidental expenses charged by the supplier to the recipient of a supply are includible in the value of
supply in terms of section 15(2)(c).

(3) Any amount charged for anything done by the supplier in respect of the supply of goods at the time of, or
before delivery of goods is includible in the value of supply in terms of section 15(2)(c).

(4) Transportation cost has not been included in the value of supply of the machinery as it is a separate service
contract between the customer and the third-party service provider. The customer pays the freight directly to
the service provider.
The supplier (Aviant Ltd), in this case, merely arranges for the transport and does not provide the transport
service on its own account. Therefore, there will be no impact from valuation point of view on transport
expenses incurred for supply of machinery as the supplier is not the party to such supply of services.

(5) Subsidies directly linked to the price excluding subsidies provided by the Central Government and State
Governments are includible in the value of supply in terms of section 15(2)(e).

(6) Cash discount was deducted by Aviant Ltd. upfront at the time of supply on 1st August, and hence, the
same is excluded from the value of supply as it did not form part of the transaction value.

(7) In the given case-

170
♦ the location of the supplier is in Noida (UP); and
♦ the place of supply of machinery is the place of installation of the machinery i.e., Gurugram (Haryana) in
terms of section 10(1)(d) of the IGST Act, 2017.
Therefore, the given supply is an inter-State supply as the location of the supplier and the place of supply are
in two different States [Section 7(1)(a) of IGST Act, 2017]. Thus, the supply will be leviable to IGST in terms of
section 5(1) of the IGST Act, 2017.

(8) The given supply is a composite supply involving supply of goods (machinery) and services (handling and
loading and installation and commissioning) where the principal supply is the supply of goods.
As per section 8(a), a composite supply is treated as a supply of the principal supply involved therein and
charged to tax accordingly. Thus, tax rate applicable to the goods (machinery) has been considered.

(9) Interest for the delayed payment (which excludes subsidy related amount of Rs 2,00,000 as the same was
not recoverable from the recipient) of any consideration for any supply is includible in the value of supply in
terms of section 15(2)(d). Further, cash discount recovered will also be includible in the value of supply as now
the transaction value i.e., the price actually paid for the machinery is devoid of any discount.
The cash discount not allowed and interest are inclusive of tax. Thus, tax payable thereon has to be computed
by making back calculations in terms of rule 35.

(10) Invoice for the supply has been issued on 1st August . Thus, the time of supply of goods is 1st August in
terms of section 12(1)(a).

As per section 12(6), the time of supply in case of addition in value by way of interest, late fee, penalty etc. for
delayed payment of consideration for goods is the date on which the supplier receives such addition in value.
Thus, the time of supply of interest received and cash discount recovered on account of delayed payment of
consideration is 31st October, the date when the full payment was made. The supplier may issue a debit note
for such interest and cash discount recovered.

17 Kaya Trade Links Pvt. Ltd. is a registered manufacturer of premium ceiling fans. It sells its fans exclusively
through distributors appointed across the country. The maximum retail price (MRP) printed on the package
of a fan is ₹ 10,000. The company sells the ceiling fans to distributors at ₹ 7,000 per fan (exclusive of
applicable taxes).

The applicable rate of GST on ceiling fans is 18%. The stock is dispatched to the distributors on quarterly
basis - stock for a quarter being dispatched in the second week of the month preceding the relevant
quarter. However, additional stock is dispatched at any
point of the year if the company receives a requisition to that effect from any of its distributors. The
company charges ₹ 1,000 per fan from distributors towards packing expenses.
The company has a policy to offer a discount of 10% (per fan) on fans supplied to the distributors for a
quarter, if the distributors sell 500 fans in the preceding quarter. The discount is offered on the price at

171
which the fans are sold to the distributors (excluding all charges and taxes).

The company appoints Prakash Sales as a distributor on 1stApril and dispatches 750 fans on 8th April as
stock for the quarter April-June. Prakash Sales places a purchase order of 1,000 fans with the company for
the quarter July
-September. The order is dispatched by the company on 10th June and the same is received by the
distributor on 18th June. The distributor makes the payment for the fans on 26th June
and avails applicable input tax credit. The distributor reports sales of 700 fans for the quarter April-June and
850 fans for the quarter July
- September.
Examine the scenario with reference to section 15 of the CGST Act, 2017 and compute the taxable value
of fans supplied by Kaya Trade Links Pvt. Ltd. to Prakash Sales during the quarter July-September.

Note: Make suitable assumptions, wherever necessary. (MTP MAY 2018)

Answer

Section 15(3)(a) of the CGST Act allows discounts to be deducted from the value of taxable supply if the same
is given before or at the time of the supply and if such discount has been duly recorded in the invoice issued in
respect of such supply. In other words, pre-supply discounts recorded in invoices are allowed as deduction.
Further, post supply discounts are also allowed as deduction from the value of supply under section 15(3)(b)
of the CGST Act if-

(i) such discount is established in terms of an agreement entered into at or before the time of such supply and
specifically linked to relevant invoices; and
(ii) input tax credit as is attributable to the discount on the basis of document issued by the supplier
has been reversed by the recipient of the supply.

In the given case, Prakash Sales is entitled for 10% discount on fans supplied by Kaya Trade Links Pvt. Ltd. for
the quarter July-September as it has sold more than 500 fans in the preceding quarter April-June.

However, since the entire stock for the quarter July-September has already been dispatched by Kaya Trade
Links Pvt. Ltd. in the month of June, the discounts on the fans supplied to
Prakash Sales for the quarter July-September will be a post- supply discount.

Such post-supply discount will be allowed as a deduction from the value of supply since the discount policy
was known before the time of such supply and the discount can be spec
ifically linked to relevant invoices (invoices pertaining to fans supplied to Prakash Sales for the quarter July
-September) provided Prakash Sales reverses the input tax credit attributable to the discount on the basis of
document issued by Kaya Trade Links Pvt. Ltd.

The value of supply will thus, be computed as under:

172
Notes:
(1) The value of a supply is the transaction value, which is the price actually paid or payable for the said supply,
in terms of section 15(1) of the CGST Act presuming that the supplier and the recipient of supply are not
related and price is the sole consideration for the supply.

(2) The value of supply includes incidental expenses like packing charges in terms of section 15(2)(c)
of the CGST Act.

(3) Since all the conditions specified in section 15(3)(b) of the CGST Act have been fulfilled, the post-supply
discount will be allowed as deduction from the value of supply presuming that Prakash
Sales has reversed the input tax credit attributable to such discount on the basis of document issued by Kaya
Trade Links Pvt. Ltd. The input tax credit to be reversed will work out to be
₹1.26 lakh [1,000 x (7,000 x 10%) x 18%].

18 Laxmi Ltd. of Bhopal (Madhya Pradesh) is a supplier of machinery. Laxmi Ltd. has supplied machinery to
PQR Enterprises in Indore (Madhya Pradesh) on 1st October, 20XX. The invoice for supply has been
issued on 1st October, 20XX. Thus, the time of supply of machinery is 1st October, 20XX. Laxmi Ltd. and
PQR Enterprise are not related. Following information is provided:
Basic price of machinery excluding all taxes but including design and engineering charges
of ₹ 10,000 and loading charges of ₹ 20,000 - ₹ 20,00,000.

Laxmi Ltd. provides 2 years free warranty for the machinery. Laxmi Ltd. also provides an extended one
year warranty on payment of additional charges of ₹ 1,00,000. The extended warranty is given by the
manufacturer at the time of supply of goods to the buyer and that the same is not available separately.
PQR Enterprises opted for one year warranty.

Laxmi Ltd. has collected consultancy charges in relation to pre- installation planning of ₹ 10,000 and freight
and insurance charges from place of removal to buyer's premises of ₹ 20,000. Laxmi Ltd. received subsidy of
₹ 50,000 from Central Government for supplying the machinery to backward region since receiver was
located in a backward region. Laxmi Ltd. also received ₹ 50,000 from the joint venture partner of PQR
Enterprises for making timely supply of machinery to the recipient.

A cash discount of 1% on the basic price of the machinery is offered at the time of supply, if PQR 173
Enterprises agrees to make the payment within 30 days of the receipt of the machinery at his premises.
Discount @ 1% was given to PQR Enterprises as it agreed to make the payment within 30 days.

The machinery attracts CGST and SGST @ 18% (9% + 9%) and IGST @18%.
Compute the CGST and SGST or IGST payable, as the case may be, on the machinery (PAST EXAM MAY 2018)
Answer
Computation of GST payable

Notes:

1. Laxmi Ltd. and PQR Enterprises are not related and price is assumed to be the sole consideration for the
supply. Therefore, in terms of section 15(1) of the CGST Act, 2017, the value of the supply
is the transaction value i.e., price actually paid or payable for the machinery by PQR Enterprises. Design and
engineering charges are includible in the value of supply as any amount charged for
anything done by the supplier in respect of the supply of goods at the time of, or before delivery of goods is so
includible in terms of section 15(2)(c) of CGST Act, 2017. Further, loading charges being incidental expenses
charged by the supplier to the recipient of supply, are includible in the value as per section 15(2)(c) of the
CGST Act, 2017.

2. Supply of machinery (goods) with supply of ancillary services like extended warranty, is a composite supply,
the principle supply of which is the supply of machinery. [Section 2(30) of the
CGST Act, 2017 read with section 2(90) of that Act]. Thus, value of such ancillary supply is includible in the
value of
composite supply.

3. Any amount charged for anything done by the supplier in respect of the supply of goods at the time of, or 174
before delivery of goods is includible in the value of su
pply in terms of section 15(2)(c) of CGST Act, 2017.

4. Supply of machinery (goods) with supply of ancillary services like freight and insurance is a composite
supply, the principle supply of which is the supply of machinery [Section 2(30) of the
CGST Act, 2017 read with section 2(90) of that Act]. Thus, value of such ancillary supply is includible in the
value of composite supply.
5. Subsidies provided by the Central Government and State Governments are not includible in the value of
supply in terms of section 15(2)(e) of the CGST Act, 2017. However, subsidy directly linked to the price
received from a non-Government body is includible in the value in terms of section
15(2)(e).

6. Cash discount has been given to PQR Enterprises upfront at the time of supply and thus, would have been
recorded in the invoice and hence, the same is excluded from the value of supply in terms
of section 15(3)(a) of the CGST Act, 2017.

7. In the given case-

• the location of the supplier is in Bhopal (Madhya Pradesh); and
• the place of supply of machinery is the location of the machinery at the time at which the movement of the
same terminates for delivery to the recipient i.e., Indore (Madhya Pradesh)
vide section 10(1)(a) of IGST Act, 2017.

Therefore, as per section 8(1) of IGST Act, 2017, the given supply is an intra-State supply as the location of the
supplier and the place of supply are in the same State. Thus, the supply will be leviable to CGST and SGST.

*Note: It is also possible to take a view that the basic price of the machinery is ₹ 19,70,000 [₹ 20,00,000 – ₹
10,000
– ₹ 20,000] and design and engineering charges and loading charges are added to such price.

In that case, 1% of discount amount will come out to be ₹ 19,700, value of supply would be ₹ 21,60,300 and
CGST nd
SGST would be ₹ 1,94,427 each.

19.
M/s Jonty India Ltd. a manufacturer of heavy machines registered at Jaipur (Rajasthan) supplied one
machine to M/s. Dhanuka Ltd. of Udaipur (Rajasthan) on 05-02-20XX under an invoice of the same date.
Using the information given below, compute the value of the machine and the GST payable (CGST & SGST

175
or IGST as the case may be) in cash for the month of February, 20XX by M/s Jonty India Ltd. with
appropriate working notes. Assume Rate of CGST, SGST and IGST on the machine to be 9%, 9% and 18%
respectively.
Note:
(i) M/s Jonty India Ltd. has no input tax credit balance at the beginning of February, 20XX. All the other
conditions necessary for availing the eligible input tax credit have been fulfilled. (PAST EXAM NOV 2018)

(ii) There are no other transactions of supplies during the month of February, 20XX.
(iii) M/s Jonty India Ltd. and M/s. Dhanuka Ltd. are not related persons.

Answer

Computation of value of machine sold by M/s. Jonty India Ltd

176
Computation of net GST payable (in cash) by M/s. Jonty India Ltd. for month of February, 20XX

Notes:
(1) As per section 15(2) of the CGST Act, 2017-

(i) All incidental expenses, including packing, charged by the supplier to the recipient of a supply are includible
in the value of supply.

(ii) Any amount charged for anything done by the supplier in respect of the supply of goods at the time of, or
before delivery of goods is includible in the value of supply.

(iii) Any taxes levied under any law for the time being in force other than CGST/SGST/UTGST/IGST, if charged
separately by the supplier are includible in the value of supply.

(iv) Any amount that the supplier is liable to pay in relation to such supply, but which has been incurred by the
recipient of the supply and not included in the price actually paid or payable for the goods and/or services is
includible in the value of supply.

(v) Interest for the delayed payment of any consideration for any supply is includible in the value of supply.
Further, it is assumed that such interest is inclusive of tax and that the same has been received by M/s. Jonty
India Ltd. in the month of February itself. Therefore, the time of supply of such interest will be in February,
20XX and the same will be considered while
paying the tax liability of that month.

177
(vi) Subsidies directly linked to the price excluding subsidies provided by the Central Government and State
Governments are includible in the value of supply. Since in the given
case, subsidy is received from State Government, the same has not been included in the value of supply
presuming it to be directly linked to the price.

(2) Trade discount has been shown in the invoice and hence, the same is excluded from the value of supply in
terms of section 15(3)(a) of the CGST Act, 2017.
(3) ITC on food or beverages is specifically disallowed unless the same is used for making outward taxable
supply of the same category or as an element of the taxable composite or mixed supply [Section 17(5)(b)(i)].
Further, since transformers are used in the course or furtherance of business, ITC thereon is available in terms
of section 16(1).

(4) In the given case

• the location of the supplier is in Jaipur (Rajasthan); and
• the place of supply of machinery is the location of the machinery at the time at which the movement of the
same terminates for delivery to the recipient i.e., Udaipur (Rajasthan) vide section 10(1)(a) of IGST Act, 2017.

Therefore, as per section 8(1) of IGST Act, 2017, the given supply is an intra-State supply as the location of the
supplier and the place of supply are in the same State. Thus, the supply will be leviable to CGST and SGST

*Note: In the above answer, it has been assumed that the basic price of the machine has been arrived at after
adjusting the subsidy and that the basic price is the price charged from the customer. Consequently, subsidy
received from State Government has not been reduced from the basic price of the machine while
arriving at the taxable value of supply.

However, it is also possible to assume that the subsidy has yet not been adjusted in the basic price and that
the price which will be charged from the customer is ₹ 27,70,000 (₹ 28,50,000 – ₹ 80,000) i.e., after excluding
subsidy. In that case, the value of supply will be ₹ 28,61,669.

20.Determine the value of supply and the GST liability, to be collected and paid by the owner, with the
following particulars:

GST rates applicable on renting of business premises are as follows: CGST 9%, SGST 9% 178

Provide suitable explanations where required.

Answer
Computation of Value of Supply and GST liability:

Note: Rent and maintenance charges are assumed to be exclusive of GST.

21. Royal Manufacturers, a registered supplier of machinery, supplied a special purpose machine to
Dharam Furnishers for which it charges a price of Rs. 9,00,000. Further, it charged the following additional
amounts in relation to said supply:

Following additional information is also available

- (a) Cash discount @ 2% on price of machinery has been allowed to Dharam Furnishers at the time of 179
supply and also recorded in invoice.

(b) GST rate – 18%.

Calculate value of supply of the special purpose machine.

Answer
Computation of value of the special purpose machine

Notes:
(1) The given supply is a composite supply involving supply of goods (special machine) and services
(transit insurance and freight) where the principal supply is the supply of goods. As per section 8(a) of the
CGST Act, 2017, a composite supply is treated as a supply of the principal supply involved therein and charged
to tax accordingly.

(2) All incidental expenses including packing charged by the supplier to the recipient of a supply are
includible in the value of supply in terms of section 15(2)(c) of CGST Act, 2017.

(3) Any amount charged for anything done by the supplier in respect of the supply of goods at the time
of, or before delivery of goods is includible in the value of supply in terms of section 15(2)(c) of CGST Act,
2017. Thus, extra designing charges are to be included in the value of supply.

(4) Cash discount was given at the time of supply and also recorded in invoice, so the same is not to be
included while computing value of supply in terms of section 15(3)(a) of CGST Act, 2017.

22. Laxmi Ltd. of Bhopal (Madhya Pradesh) is a supplier of machinery. Laxmi Ltd. has supplied

180
machinery to PQR Enterprises in Indore (Madhya Pradesh) on 1st October, 2017. The invoice for supply has
been issued on 1st October, 2017. Thus, the time of supply of machinery is 1st October, 2017. Laxmi Ltd. and
PQR Enterprise are not related.

Following information is provided:

Basic price of machinery excluding all taxes but including design and engineering charges of ₹ 10,000
and loading charges of ₹ 20,000 - ₹ 20,00,000. Laxmi Ltd. provides 2 years free warranty for the machinery.
Laxmi Ltd. also provides an extended one year warranty on payment of additional charges of ₹ 1,00,000.
PQR Enterprises opted for one year warranty.

Laxmi Ltd. has collected consultancy charges in relation to pre-installation planning of ₹ 10,000 and
freight and insurance charges from place of removal to buyer's premises of ₹ 20,000. Laxmi Ltd. received
subsidy of ₹ 50,000 from Central Government for supplying the machinery to
backward region since receiver was located in a backward region. Laxmi Ltd. also received ₹ 50,000
from the joint venture partner of PQR Enterprises for making timely supply of machinery to the recipient.
A cash discount of 1% on the basic price of the machinery is offered at the time of supply, if PQR Enterprises
agrees to make the payment within 30 days of the receipt of the machinery at his premises.
Discount @ 1% was given to PQR Enterprises as it agreed to make the payment within 30 days. The
machinery attracts CGST and SGST @ 18% (9% + 9%) and IGST @18%. Compute the CGST and SGST or IGST
payable, as the case may be, on the machinery.

Answer

Computation of GST payable

Notes:
1. Laxmi Ltd. and PQR Enterprises are not related and price is assumed to be the sole consideration for the
supply. Therefore, in terms of section 15(1) of the CGST Act, 2017, the

181
value of the supply is the transaction value i.e., price actually paid or payable for the machinery by PQR
Enterprises. Design and engineering charges are includible in the value of supply as any amount charged for
anything done by the supplier in respect of the supply of goods at the time of, or before delivery of
goods is so includible in terms of section 15(2)(c) of CGST Act, 2017. Further, loading charges being incidental
expenses charged by the supplier to the recipient of supply, are includible in the value as per section 15 (2)(c)
of the CGST Act, 2017.
2. Supply of machinery (goods) with supply of ancillary services like extended warranty, is a composite
supply, the principle supply of which is the supply of machinery. [Section 2(30) of the CGST Act, 2017 read with
section 2(90) of that Act]. Thus, value of such ancillary supply is includible in the value of
composite supply.

3. Supply of machinery (goods) with supply of ancillary services like freight and insurance is a composite
supply, the principle supp
ly of which is the supply of machinery [Section 2(30) of the CGST Act, 2017 read with section 2(90) of that Act].
Thus, value of such ancillary supply is includible in the value of composite supply.

4. Any amount charged for anything done by the supplier in respect of the supply of goods at the time of, or
before delivery of goods is includible in the value of supply in terms of section 15(2)(c) of CGST
Act, 2017.

5. Subsidies provided by the Central Government and State Governments are not includible in the value of
supply in terms of section 15(2)(e) of the CGST Act, 2017. However, subsidy directly linked to the
price received from a non-Government body is includible in the value in terms of section 15.
6. Cash discount has been given to PQR Enterprises upfront at the time of supply and thus would have been
recorded in the invoice and hence, the same is excluded from the value of supply in terms of
section 15(3)(a) of the CGST Act, 2017.

7. In the given case-

- the location of the supplier is in Bhopal (Madhya Pradesh);
and
- the place of supply of machinery is the location of the machinery at the time at which the
movement of the same terminates for delivery to the recipient i.e., Indore (Madhya Pradesh)
vide section 10(1)(a) of IGST Act, 2017.

Therefore, as per section 8(1) of IGST Act, 2017, the given supply is an intra
-State supply as the location of the supplier and the place of supply are in the same State. Thus, the supply will
be leviable to CGST and SGST.

*Note: 182
It is also possible to take a view that the basic price of the machinery is ₹ 19,70,000 [₹ 20,00,000
– ₹ 10,000
– ₹ 20,000] and design and engineering charges and loading charges are added to such price.
In that case, 1% of discount amount will come out to be ₹ 19,700, value of supply would be ₹ 21,60,300
and CGST and SGST would be ₹ 1,94,427 each.
23. Surya Agencies has agreed to supply goods to customer’s premises. Goods valued ₹ 80,000 are taxable
@ 5% IGST as it is an inter-State supply. It also pays freight and transit insurance of ₹ 12,000. GTA is a
registered entity and has charged GST (6% CGST and 6% SGST) under forward charge.

(i) Compute the invoice value of supply including IGST.

(ii) What will be the invoice value of supply including IGST, if the supply was under ex
-factory basis instead of door-delivery basis? (PAST EXAM NOV 2019)

Answer

Computation of invoice value of supply

(i) When supplier agrees to supply the goods at customer’s premises, i.e. freight and transit insurance are
paid by the supplier,

invoice value of supply will be computed as follows:

(ii) When supplier agrees to supply the goods on ex-factory basis, i.e. the buyer pays the freight
and transit insurance, invoice value of supply will be computed as follows:

183

Note:
The above answer is based on the view that part (ii) of the question is an independent case and thus, the
information provided in the first paragraph of the question regarding payment of freight and transit insurance
by Surya Agencies does not apply to it. Moreover, when the contract is ex-factory, it implies that the freight
and insurance will be the buyer’s responsibility and seller will have no role, whatsoever, in delivering the
goods to the customer’s premises.

24. M/s Global Travels is providing money changer and air travel agent services to various clients. From the
information provided below, you are required to calculate the value of taxable supply for the month of
March 2020:
(i) It had converted US $ 6,000 into Singapore dollar 9,000. RBI reference rate at that time was ₹ 72
per US $ and for Singapore dollar, it was ₹ 52.
(ii) It had booked domestic ticket value of ₹ 7,00,000 and international ticket value of ₹ 15,00,000.
Additional information:

The concern has not opted to value the money change under rule 32(2)(b) of the CGST Rules, 2017. Basic
air fare component under both domestic and international ticket value is 70% and 60% respectively. (PAST
EXAM NOV 2020)

Answer
(i) Since in the given case, neither of the currencies exchanged is Indian Rupees, value of taxable supply, in
terms of rule 32(2)(a) of the CGST Rules, 2017, is 1% of lower of the following:
(A) US dollar converted into Indian rupees at RBI reference rate = US $ 6,000 x ₹ 72 = ₹ 4,32,000
(B) Singapore dollar converted into Indian rupees at RBI reference rate
= Singapore dollar 9,000 x ₹ 52 = ₹ 4,68,000
Value of taxable service for the month of March 2020 = 1% of ₹ 4,32,000 = ₹ 4,320

(ii) Computation of value of taxable supply

184

25. X Ltd., a manufacturer of heavy machines registered at Mumbai (Maharashtra), supplied one machine
to Y Ltd. in Pune (Maharashtra) on 19.02.2020 under an invoice of the same date. Using the information
given below, compute the value of machine and the GST payable (CGST, SGST and IGST as the case may
be) in cash for the month of February 2020 by X Ltd. with appropriate working notes. Assume rate of CGST,
SGST and IGST on the machine to be 9%, 9% and 18% respectively
X Ltd. has no input tax credit balance at the beginning of February 2020. All the other conditions necessary
for availing the eligible input tax credit have been fulfilled. There is no other transaction of supplies during
the month of February 2020. X Ltd. and Y Ltd. are not related persons.
Provide your answers with reasons and with reference to the provisions of law. (PAST EXAM JAN 2021)

Answer

Computation of value of machine and GST payable in cash

185
26. Black and White Pvt. Ltd. has provided the following particulars relating to goods sold by it to Colourful
Pvt. Ltd.

Black and White Pvt. Ltd. received Rs. 2000 as a subsidy from a NGO on sale of such goods. The price of 186
Rs. 50,000 of the goods is after considering such subsidy. Black and White Ltd. offers 2% discount on the
list price of the goods which is recorded in the invoice for the goods. Determine the value of taxable suppl
y made by Black and White Pvt. Ltd.
Answer

Computation of value of taxable supply

27. Samriddhi Advertisers conceptualized and designed the advertising campaign for a new product
launched by New Moon Pvt Ltd. for a consideration of Rs. 5,00,000. Samriddhi Advertisers owed Rs.
20,000 to one of its vendors in relation to the advertising service provided by it to New Moon Pvt Ltd. Such
liability of Samriddhi Advertisers was discharged by New Moon Pvt Ltd. New Moon Pvt Ltd. delayed
the payment of consideration and thus, paid Rs. 15,000 as interest. Assume the rate of GST to be 18%.
Determine the value of taxable supply made by Samriddhi Advertisers.

Answer
Computation of value of taxable supply

187
Note:
The interest for delay in payment of consideration will be includible in the value of supply but the time of
supply of such interest will be the date when such interest is received in terms of section 13(6). Such interest
has been assumed to be inclusive of GST and thus, the value has been computed by making back calculations
[(Interest x 100)/(100 + tax rate)]
28. Arihant Life Insurance Company Ltd. (ALICL) has charged gross premium of Rs. 180 lakh from policy
holders with respect to life insurance policies in the 2017
-18; out of which Rs. 100 lakh have been allocated for investment on behalf of the policy holders.

Compute the value of supply of life insurance services provided by ALICL:

(i) if the amount allocated for investment has been intimated by ALICL to policy holders at the time of
supply of service.

(ii) if the amount allocated for investment has not been intimated by ALICL to policy holders at the
time of providing of service.

(iii) if the gross premium charged by ALICL from policy holders is only towards risk cover.
Note: ALICL has started its operations in the year 2017-18. Thus, the entire gross premium of Rs. 180
lakh is the premium for the first year of all the policies. ALICL has not issued any single premium annuity
policy.

Answer

As per rule 32(4), of the CGST Rules, value of supply of services in relation to life insurance services is

a) the gross premium reduced by the amount allocated for investment on behalf of the policy holder,
if such an amount is intimated to the policy holder at the time of supply of service;

b) in all other cases, 25% of the premium in the 1st year and 12.5% of the premium in subsequent
years However, where the entire premium paid by the policy holder is only towards risk cover, such gross
premium is the value of supply of life insurance services.
In the light of the aforesaid provisions, value of supply of life insurance services provided by ALICL in
financial year 2017-18 will be computed as follows:

(i) Amount allocated for investment intimated to policy holder at the time of supply of service
Value of service = Rs. (180-100) lakh = Rs. 80,00,000
(ii) Amount allocated for investment not intimated to policyholders at the time of supply of service
Value of service = 25% of Rs. 180 lakh = Rs. 45,00,000

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(iii) Gross premium received is only towards risk cover Value of service = Rs. 180 lakh

29. AKJ Foods Pvt. Ltd. gets an order for supply of processed food from a customer. The customer wants the
consignment tested for gluten or specified chemical residues. AKJ Foods Pvt. Ltd. does the testing and
charges a testing fee for the same from the customer. AKJ Foods Pvt. Ltd. argues that such testing fess
should not form part of the consideration for the sale as it is a separate activity. Is his argument correct in
the light of section 15?
Answer
Section 15(2) mandates the addition of certain elements to transaction value to arrive at taxable value.
Clause (c) of section 15(2) specifies that amount charged for anything done by the supplier in respect of
the supply at the time of or before delivery of goods or supply of services shall be included in taxable value.
Since AKJ Foods Pvt. Ltd. does the testing before the delivery of goods, the charges there for will be
included in the taxable value. Therefore, AKJ Foods Pvt. Ltd.’s argument is not correct. The testing fee
should be added to the price to arrive at taxable value of the consignment.

30. A philanthropic association makes a substantial donation each year to a reputed private management
institution to subsidize the education of low-income group students who have gained admission there.
The fee for these individuals is reduced thereby coming to Rs. 3 lakh a year compared to Rs. 5 lakh a year
for other students. What would be the taxable value of the service of coaching
and instruction provided by the institution?

Answer
As per section 15(2)(e), the value of a supply includes subsidies directly linked to the price, excluding State
Government and Central Government subsidies. In this case, the subsidy is not from the Government but is
from a philanthropic association. Therefore, the subsidy is to be added back to the price to arrive at the
taxable value, which comes to Rs. 5 lakh a year.

31 Mezda Banners, an advertising firm, gives an interest-free credit period of 30 days for payment by the
customer. Its customer ABC paid for the supply 32 days after the supply of service. Mezda Banners waived
the interest payable for delay of two days. The Department wants to add interest for two days as per
contract. Should notional interest be added to the taxable value?
Answer
This is a supply that is valued as per transaction value under section 15(1) as the price is the sole consideration
for the supply and the supply is made to unrelated person. The concept of transaction value has been
expanded to include certain elements like interest which are actually payable. Once waived, the interest is not
payable and is therefore, not to be added to transaction value.

32 Crunch Bakery Products Ltd sells biscuits and cakes through its dealers, to whom it charges the list price

189
minus standard discount and pays GST accordingly. When goods remain unsold with the dealers, it offered
additional discounts on the stock as an incentive to push the sales. Can this additional discount be reduced
from the price at which the goods were sold and concomitant tax adjustments made?
Answer
The discounts were not known or agreed for at the time of supply of goods to the dealers. Therefore, in terms
of section 15(3), such discounts cannot be reduced from the price on which tax had been paid.
33. (PAST EXAM NOV 2018)
Happy Ltd. located at Alwar (Rajasthan), exclusively manufactures and sells the product "Shine & Shine",
which is exempt from GST. Happy Ltd. sells "Shine & Shine" only within Rajasthan. The turnover of Happy
Ltd. in the previous year was Rs. 60 lakhs. Happy Ltd. purchased additional machinery (Capital Goods) for
manufacturing "Shine & Shine" on 1st April, 2018. The invoice for supply of machinery also was issued on
1st April, 2018. The purchase price of the machinery was Rs. 25 lakh exclusive of CGST and SGST @ 12% (6%
+ 6%). On 1st December, 2018 exemption available on the product "Shine & Shine" was withdrawn by the
Central Government and CGST and SGST @18% (9% + 9%) was imposed thereon. The turnover of Happy Ltd.
on 30th September, 2018 was Rs. 45 lakh.

Examine the issue and provide the answers (with supporting explanatory note for each answer) to the
following:

(i) Does Happy Ltd. have to register under CGST Act, 2017?

(ii) Can Happy Ltd. take Credit of tax paid on the machinery purchased? If yes, what is the amount of Input
Tax Credit (ITC) that can be availed? (5 Marks)

ANSWER

(i) As per section 22 of the CGST Act, 2017, a supplier is liable to be registered under GST in the State/ UT from
where he makes the taxable supply if his aggregate turnover in a financial year(FY) exceeds Rs. 20 lakh in such
State/UT (Rs. 10 lakh in a Special Category State other than Jammu and Kashmir). The term ‘aggregate
turnover’ includes exempt turnover also.
However, a person exclusively engaged in making exempt supplies is not liable to registration in terms of
section 23(1) of CGST Act, 2017.
In view of combined reading of above provisions, although the ‘aggregate turnover’ of Happy Ltd. exceeds the
applicable threshold limit of Rs. 20 lakh on 30.09.2018 [Rs. 45 lakh], it was not required to be registered till
30.11.2018 as it supplied only exempted goods till that day. Therefore, Happy Ltd. needs to register within 30
days from 01.12.2018 (the date on which its supplies became taxable) as its turnover had already exceeded
the threshold limit of Rs. 20 lakh on 01.12.2018

(ii) As per section 17 of the CGST Act, the input tax credit (ITC) on capital goods used or intended to be used 190
exclusively for effecting exempt supplies is disallowed. However, where an exempt supply by a registered
person becomes a taxable supply, such person gets entitled to take proportionate ITC on such capital goods in
terms of section 18(1)(d) of CGST Act, 2017. Thus, a non-registered person cannot take ITC on capital goods
under this provision.

Further, a person who has applied for registration within thirty days from the date on which he becomes liable
to registration and has been granted such registration is also not entitled to take ITC on capital goods held
with him on the day immediately preceding the date from which he becomes liable to pay tax in terms of
section 18(1)(a) of CGST Act, 2017. In the given case, Happy Ltd. is not registered at the time when its exempt
supply becomes taxable. Thus, the company cannot take proportionate ITC on capital goods as mentioned
above.

Further, the company will also not be entitled for credit on capital goods held with it when it applies for
registration in the prescribed manner.

34. Prem is running a consulting firm and also a fancy store, registered under the same PAN number.
Turnover of the fancy store is Rs. 65,00,000 and receipt of consultancy firm is Rs. 10,00,000 in the preceding
financial year. You are required to provide answers with supporting explanatory note for each answer to
the following questions:-

(i) Is Prem eligible for composition scheme under CGST Act?

(ii) Whether it is possible for Prem to opt for composition scheme only for fancy store?

(iii) If Prem is running a restaurant with turnover of Rs. 65,00,000 instead of consultancy firm as well as a
fancy store, would he be eligible for composition scheme? (3 Marks) (PAST EXAM MAY 2018)

ANSWER

(i) No, Prem is not eligible for composition scheme as he is providing services as a consulting firm. Section
10(2)(a) of the CGST Act, 2017 provides that a registered person cannot opt for composition scheme if he is
engaged in the supply of services other than restaurant services.

(ii) No, it is not possible for Prem to opt for composition scheme only for fancy store. All the registrations
under the same PAN have to opt for composition scheme in terms of proviso to section 10(2) of the CGST Act,
2017. Since the supply of consultancy service is ineligible for composition scheme, supply of goods in fancy
store too becomes ineligible for composition scheme.

(iii) No, Prem is not eligible for composition scheme if he is running a restaurant with turnover of Rs.
65,00,000 instead of consultancy firm as well as fancy store. Section 10(1) of the CGST Act, 2017 read with

191
Notification No. 46/2017 CT dated 13.10.2017 provides that an eligible registered person whose aggregate
turnover in the preceding financial year did not exceed Rs. 1 crore may opt to pay tax under composition levy.
Therefore, even though Prem provides restaurant service, which is an eligible service for composition levy,
since his aggregate turnover [Rs. 65 lakh for fancy store + Rs. 65 lakh for restaurant service] in the preceding
financial year exceeds Rs. 1 crore, Prem is not eligible for composition levy.
35. MS Ltd. is a GST registered company. During the month of October, 2020, the company has undertaken
the following transactions and wants you to work out the GST output liability, admissible input tax credit and
the amount that will have to be paid in cash by the company to the Government before taking you as a
Manager in the company. There is no carry forward amount in respect of any of the items to be considered for
the purpose of calculations other than what is mentioned specifically below.
Rate of IGST can be taken as 18%, CGST 9% and SGST 9% on all goods and services except GTA
service/transportation service and restaurant service for which CGST and SGST rate would be 2.50% each and
IGST rate would be 5%. The amounts indicated for all the items are without including the CGST and SGST or
IGST element. Whether a supply attracts IGST or CGST/SGST has to be determined on the basis of details
given.
The company has indicated to you that the GST liability for October, 2020 for their main product alone is ₹ 54
lakh of CGST and SGST each and ₹ 72 lakh IGST and the eligible credit on the inputs and input services for
October, 2020 is ₹ 1.45 crore IGST and ₹ 20 lakh each towards CGST and SGST which can be straightaway
taken for calculations.
Company has provided you the other details which is not part of the above as under:

S.No. Details of the transaction

i. During the month of October 2020, the company offered a special discount of 25% on a product,
the sale of which it intended to discontinue from 1st December 2020 onwards and issued credit
notes to the dealers. This product was lying in stock with the dealers and the discount offered to the
customers was borne by the company by issuing the credit note. The amount reimbursed to the
dealers for the discounts given to the customers in the month of October 2020 was ₹ 36,00,000 in
the course of inter-State.
ii. The company sold a van used for personal transport by auction. The van had been purchased at ₹
3,20,000. The depreciated value at the time of sale was ₹ 1,40,000. No GST credit was taken. The
van was sold for an amount of ₹ 1,50,000 during the month of October 2020 in the course of intra-
State.
iii. The company has a policy of raising invoices separately towards transportation cost of their
products on their dealers at the time of invoicing for the products sold to them. The company is
collecting GST at 5% on all transactions and the amount is collected as a percentage of the value of
the goods supplied irrespective of the distance involved. The amount collected during the month of
October 2020 towards transportation in intra-State transaction is ₹ 6 lakh and inter-State

192
transactions is ₹ 4 lakh.
iv. The security establishment of the company caught an employee who had stolen bearings of value ₹
2.50 lakh during the month of October 2020. Bearings could not be recovered. But the company
successfully recovered the cost from the employee. IGST credit of ₹ 45,000 had been taken by the
company on these bearings.
v. The company supplies food and beverages to the employees and all the items are priced at 10% of
the actual cost to the company. During the month of October, 2020, the company had charged ₹
50,000 to the employees. Assume that it is intra-State transaction.
vi. During the month of October, 2020, the company purchased 10 mobile phones in its name and
distributed to the employees to enable them to perform their duties more efficiently for the
company. Total price of the phones was ₹ 1,20,000. At the end of the month, company sold these
mobiles to employees and company recovered only ₹ 20,000 from the employees.
Assume that it is intra-State transaction.
vii. The company's registered office is located in a building which belongs to the local Municipality. The
monthly rent is ₹ 1.50 lakh.
viii The whole-time director of the company was paid a salary of ₹ 5 lakh during the month. He was also
paid ₹ 20,000 towards sitting fees for his participation in the meeting.

Give. a brief note to support your treatment for the items wherever required.
Note: Company wants to pay minimum amount of SGST as far as possible. (PAST PAPER JULY 2021)
Answer
Computation of output GST liability of MS Ltd. for October 2020
Particulars CGST SGST IGST
(₹ in lakh) (₹ in lakh) (₹ in lakh)
GST liability for main product 54 54 72
After-sales discount on a product Nil Nil
[In the given case, discount given after effecting the supply is not in
terms of an agreement that existed at the time of supply. Therefore,
discount is not allowed as deduction from value of supply.]
Sale of van used for personal transport by auction1 0.135 0.135
[1.5 × 9%] [1.5 × 9%]
Transportation cost charged on the product 0.54 0.54 0.72
[Supply of goods and transport service is a composite supply as the [6 × 9%] [6 × 9%] [4 × 18%]
transportation cost is charged at a flat rate from all customers
irrespective of the distance involved.
Therefore, rate of principal supply (product) viz. 9% CGST and SGST
each is charged on intra-State supply and 18% IGST is charged on
inter-State supply.]
Food and beverages supplied to the employees 0.45 0.45
[Goods being provided to the related person (employees), open [5.0×9%] [5.0×9%]
market value of the same [actual cost (50,000×100/10)] has been

193
considered as value. CGST & SGST @ 9% each is payable on food
items.]
Supply of mobile phones to employees2 0.108 0.108
[Supply being made to the related person (employees), open market [1.20×9%] [1.20×9%]
value3 of the same has been considered as value.]
Total output tax liability 55.233 55.233 72.72
Less: ITC set off [Refer working note (1) below] (16.597) (55.233) (72.72)
[IGST credit is first utilized for payment of IGST liability and then for
payment SGST liability followed by CGST liability since the SGST
liability is to be kept at minimum.]
After exhausting IGST credit, CGST and SGST credit is to be utilized. (20.261)
ITC of CGST cannot be utilized for payment of SGST and vice versa.
GST payable in cash [A] 18.375 Nil Ni
GST under reverse charge payable in cash [Refer working note (2) 0.153 0.153
below] [B]
[Tax payable under reverse charge, being not an output tax, cannot
be set off against ITC and thus, will have to be paid in cash.]
Total GST payable in cash = [A]+ [B] 18.528 0.153

Working notes:
(1) Computation of ITC available with MS Ltd. for October 2020

Particulars CGST SGST IGST

(₹ in lakh) (₹ in lakh) (₹ in lakh)
Eligible credit on inputs and input 20 20 145
services for the month
Ball bearings stolen [ITC on stolen (0.45)
goods is blocked. Hence, ITC taken on
stolen ball bearings needs to be
reversed.]
Mobile phones purchased for 0.108 0.108
employees [1.2 × 9%] [1.2 × 9%]
[ITC of goods used in course or
furtherance of business is allowed.]
Rent paid to Municipality 0.135 0.135
[1.5 × 9%] [1.5 × 9%]
Sitting fee paid to whole time director 0.018 0.018
[0.20 × 9%] [0.20 × 9%]
Total 20.261 20.261 144.55

(2) Tax payable under reverse charge

194
Particulars CGST SGST IGST
(₹ in lakh) (₹ in lakh) (₹ in lakh)
Rent paid to Municipality 0.135 0.135 [1.5 × 9%]
[Tax on renting of immovable property services supplied [1.5 × 9%]
by local authority to a registered person is payable under
reverse charge.]
Sitting fee paid to whole time director 0.018 0.018 [0.20 × 9%]
[Services provided by employee to employer in the course [0.20 × 9%]
of his employment are not a supply. Hence, salary paid to
director is not taxable. However, sitting fee is a
consideration for the services provided beyond course of
employment and hence,
is taxable. Further, tax on sitting fee paid to director is
payable under reverse charge.]
Total tax payable under reverse charge 0.153 0.153

195
 CHAPTER-8 INPUT TAX CREDIT
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY Illustrations -1, 2,3, Q-1-7, 9-11, 13, 15, 16-19,36,43-51

MAT

PAST Q-23 ILL-3, Q-24, 35 Q-12, Q-37 Q-38, Q-41, 42 Q-53 ------
EXAMS 14 39,40

MTP Q-22 Q-22, 28 Q-20 NO Q-21, 23 ILL-3, Q- Q-24, 25

QUES 34

RTP NO QUES Q-26, 27 Q-17 Q-8 Q-29, 30 Q-31, 32 Q-52, 53

ILLUSTRATIONS
ILLUSTRATION 1

XYZ Ltd, having its head Office at Mumbai, is registered as ISD. It has three units in different cities situated
in different States namely ‘Mumbai’, ‘Jabalpur’ and ‘Delhi’ which are operational in the current year.
M/s XYZ Ltd furnishes the following information for the month of July:
(i) CGST paid on services used only for Mumbai Unit: Rs. 3,00,000/-
(ii) IGST, CGST & SGST paid on services used for all units: Rs. 12,00,000/-
Total turnover of the units for the previous financial year are as follows: -

Unit Turnover (Rs.)

Total Turnover of three units Rs. 10,00,00,000
Turnover of Mumbai unit Rs. 5,00,00,000

196
Turnover of Jabalpur unit Rs. 3,00,00,000

Determine the credit to be distributed by XYZ Ltd. to each of its three units.

Answer
 Particulars Credit distributed to all units (Rs.)
Total credit Mumbai Jabalpur Delhi
available
CGST paid on services used only for Mumbai Unit 300000 300000 0 0
IGST, CGST & SGST paid on 12,00,000 6,00,000 3,60,000 2,40,000
services used for all units
Distribution on pro rata basis to all the units
which are operational in the current year
Total 15,00,000 9,00,000 3,60,000 2,40,000

Note 1: Credit distributed pro rata on the basis of the turnover of all the units is as under: -
(a) Unit Mumbai: (Rs. 5,00,00,000/ Rs. 10,00,00,000) * Rs. 12,00,000 = Rs. 6,00,000
(b) Unit Jabalpur: (Rs. 3,00,00,000/ Rs. 10,00,00,000) * Rs. 12,00,000 = Rs. 3,60,000
(c) Unit Delhi: (Rs. 2,00,00,000/ Rs.10,00,00,000) * Rs. 12,00,000 = Rs. 2,40,000

Illustration 2
Determine the amount of tax payable through electronic credit ledger /electronic cash ledger from the
given information:-
Taxable turnover of ABC Ltd in the month of February = ₹ 1,25,00,000 (excluding zero-rated and exempt
supply)
Total amount of input tax credit (as per books) for the month of February - ₹ 25,00,000
Total amount of input tax credit (as per GSTR-2A/2B for February – ₹ 22,00,000
Applicable tax rate: 18%

ANSWER
In the given case, ABC Ltd. would be liable to pay tax of ₹ 22,50,000 (ie ₹ 1,25,00,000 X 18%). In terms of Rule
36(4) of CGST Rules, the availment of ITC is restricted to 5% of reported invoices i.e. invoices on unreported
invoices auto-populated in GSTR-2A/2B. Hence, ABC Ltd would be entitled to avail the input tax credit of : ₹
22,00,000 (matched ITC) + 5% of 22,00,000 = ₹ 23,10,000
It can be seen from the above that ABC Ltd. can pay entire tax liability through utilization of available input tax
credit. It is pertinent to note that taxable turnover of ABC Ltd. for February 2021 is more than ₹ 50 lakh, hence,

197
rule 86B would be applicable and accordingly, ABC Ltd. cannot use input tax credit in excess of 99% of the
output tax liability in the instant scenario.
Therefore, liability of ₹ 22,50,000 would be paid in the following manner:
i) ₹ 22,27,500 (99% of output liability) to be paid via electronic credit ledger; and
ii) ₹ 22,500 to be paid via electronic cash ledger.
ILLUSTRATION 3

PQR Company Ltd., a registered supplier of Bengaluru (Karnataka), is a manufacturer of goods. The
company provides the following information pertaining to GST paid on inward supplies during the month of
April (current financial year): (PAST EXAM NOV 2018) (MTP MAY 2020)

S. No. Items GST paid in

(Rs.)
(i) Life Insurance premium paid by the company for the life 1,50,000
insurance of factory employees as per the policy of the
company. There is no legal obligation for such insurance
for employees.
(ii) Raw materials purchased for which invoice is missing but 38,000
delivery challan is available
(iii) Raw materials purchased which are used for zero rated 50,000
supply
(iv) Works contractor's service used for repair of factory 30,000
building which is debited in the profit and loss account of
company
(v) Company purchased the capital goods for Rs. 4,00,000 48,000
and claimed depreciation of Rs. 44,800 (@ 10%) on the
full amount of Rs. 4,48,000 under Income Tax Act, 1961

Other information:
(1) In the month of September of previous financial year, PQR Company Ltd. availed ITC of Rs. 2,40,000 on
purchase of raw material which was directly sent to job worker's premises under a challan on 25th
September (previous financial year). The said raw material has not been received back from the job worker
up to 30th April (current financial year).

(2) All the above inward supplies except at S. No. (iii) above have been used in the manufacture of taxable
goods. Inward supplies at S. No. (iii) above have been used in the manufacture of exempt goods.
Compute the amount of net ITC available with PQR Company Ltd. for the month of April with necessary

198
explanations for the treatment of various items as per the provisions of the CGST Act. Subject to the
information given above, assume that all the other conditions necessary for availing ITC have been fulfilled.
(MTP JULY 2021)
ANSWER
Computation of ITC available with PQR Company Ltd. for the month of April

Particulars ITC (Rs.)

Life Insurance premium paid by the company on the life of factory employees [Note 1] Nil
Raw materials purchased [Note 2] Nil
Raw materials used for zero rated supply [Note 3] 50,000
Work contractor’s service [Note 4] 30,000
Capital goods purchased in respect of which depreciation is claimed on the tax Nil
component [Note 5]
Goods sent to job worker’s premises [Note 6] -
Total ITC available 80,000

Notes:
(1) ITC on life insurance service is available only when it is obligatory for an employer to provide said services
to its employees under any law for the time being in force. Since it is not obligatory for the employer in the
instant case and thus, the ITC thereon is blocked [Second proviso to section 17(5)(b)].

(2) ITC cannot be taken since invoice is missing and delivery challan is not a valid document to avail ITC
[Section 16(2)(a)].

(3) ITC can be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt
supply [Section 16(2) of the IGST Act].

(4) ITC is blocked on works contract services when supplied for construction of an immovable property.
However, “construction” includes only that repairs which are capitalized along with the said immovable
property.
In this case, since repairs of building is debited to P & L Account, the same does not amount to ‘construction’
and hence ITC thereon is available [Section 17(5)(c)].

(5) ITC is not available when depreciation has been claimed on the tax component of the cost of capital goods
under the Income-tax Act [Section 16(3)].

199
(6) The principal is entitled to take ITC of inputs sent for job work even if the said inputs are directly sent to job
worker. However, where said inputs are not received back by the principal within a period of 1 year of the
date of receipt of inputs by the job worker, 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 received by the job worker [Sub-sections (2)
and (3) of section 19].
Hence, the ITC taken by PQR Company Ltd. in the month of September last year is valid and since one year
period has yet not lapsed in April, there will be no tax liability on such inputs.

ILLUSTRATION 3
Siddhi Ltd. is a registered manufacturer engaged in taxable supply of goods. Siddhi Ltd. purchased the
following goods during the month of January. The following particulars are provided by the company:

S. Particulars GST (Rs.)

No.
1. Capital goods purchased on which depreciation has 15,000
been taken on full value including GST paid thereon
2. Goods purchased from Ravi Traders (Invoice of Ravi 20,000
Traders is received in month of January but goods
were received in month of March)
3. Car purchased for making further supply of such car. 30,000
Such car is destroyed in accident while being used for
test drive by potential customers.
4. Goods used for setting up telecommunication towers 50,000
5. Truck purchased for delivery of finished products 80,000

Determine the amount of ITC available with Siddhi Ltd. for the month of January by giving necessary
explanations for treatment of various items as per the provisions of the CGST Act. Subject to the
information given above, assume that all the other conditions necessary for availing ITC have been fulfilled.

ANSWER

Computation of ITC available with Siddhi Ltd. for the month of January

Particulars GST (Rs.)

Capital goods [Note 1] Nil
Goods purchased from Ravi Traders [Note 2] Nil
Cars purchased for making further supply [Note 3] Nil
Goods used for setting telecommunication towers [Note 4] Nil
Trucks purchased for delivery of output goods [Note 5] 80,000
Total ITC available with Siddhi Ltd. 80,000
Notes:

200
(1) Since depreciation has been claimed on the tax component of the value of the capital goods, ITC of such
tax cannot be availed in terms of section 16(3).

(2) ITC in respect of goods not received cannot be availed in terms of section 16(2)(b).
Since the goods have been received in the month of March, ITC thereon can be availed in the month of March
and not in the month of January even though the invoice for the same has been received in the month of
January.
(3) Though ITC on motor vehicles used for further supply of such vehicles is not blocked, ITC on goods
destroyed for whatever reason is blocked [Clauses (a) and (h) of section 17(5)].

(4) ITC on goods used by a taxable person for construction of immovable property (other than plant and
machinery) on his own account is blocked even when such goods are used in the course or furtherance of
business [Section 17(5)(d)].
However, explanation to section 17 excludes telecommunication towers from the purview of plant and
machinery. Therefore, ITC thereon will not be allowed.

(5) Section 17(5)(a) blocks ITC in respect of only those motor vehicles which are used for transportation of
persons albeit with certain exceptions. Thus, ITC on motor vehicles used for transportation of goods is
allowed.

QUESTIONS

1. Xenon Pvt. Ltd., Agra, is a registered supplier engaged in the manufacture of taxable goods. Goods valued
at Rs. 10,50,000 were supplied by the company to Freshbite Pvt. Ltd., a registered supplier located at
Ferozabad, without the cover of an invoice with a fraudulent intent. Since the company evaded tax by not
issuing the invoice for the supply, a show cause notice was issued by the proper officer under section 74
requiring the company to pay tax @ 12% [Rs. 1,26,000] and applicable interest and penalty. The company
paid the tax, interest and penalty after the order was passed by the proper officer. Examine the ITC
entitlement of Freshbite Pvt. Ltd. in respect of tax of Rs. 1,26,000 paid by Xenon Pvt. Ltd.

ANSWER:
As per section 17(5), tax paid under sections 74, 129 and 130 is not available as ITC. Further, rule 36(3) also
lays down that tax paid in pursuance of any order where any demand has been confirmed on account of any
fraud, willful misstatement or suppression of facts cannot be availed as ITC by a registered person.
In the given case, Xenon Pvt. Ltd. has paid tax in pursuance of an order issued under section 74. Therefore,
Freshbite Pvt. Ltd. cannot avail ITC of such tax.

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2. Flamingo Ltd. is an airlines providing passenger transportation services by air.
The company offers meals of premium quality to passengers on board the aircraft. The value of such meals
is compulsorily included in the price of the air ticket. The company avails outdoor catering services of
Dhaniaram Pvt. Ltd. for providing such meals to its customers.
Examine whether Flamingo Ltd. can avail ITC on such outdoor catering service availed by it.

ANSWER:
As per section 17(5)(i)(b), ITC on supply of inter alia food and beverages and outdoor catering is blocked.
However, ITC in respect of such goods or services or both shall be available where an inward supply of such
goods or services or both is used by a registered person for making an outward taxable supply of the same
category of goods or services or both or as an element of a taxable composite or mixed supply.
In the given case, Flamingo Ltd. is availing outdoor catering service to provide outdoor catering (meals) to the
passengers on board the aircraft. Since ITC in respect of outdoor catering is available if the same is used for
making an outward taxable supply as an element of a taxable composite or mixed supply, Flamingo Ltd. can
avail ITC on outdoor catering service procured by it.

3. Jumbo Sales Pvt. Ltd., a supplier of readymade garments, announced ‘Buy One get Two free’ offer on
Men’s T-Shirts on Diwali to boost its sales.
You are required to advise the company on the availability of ITC in respect of inward supplies used in
relation to such supply.

ANSWER:
It may appear at first glance that in case of offers like “Buy One, Get One Free”, one item is being “supplied
free of cost” without any consideration.
As per clause (a) of section 7(1) read with clause (c) thereof, goods or services which are supplied free of cost
(without any consideration) shall not be treated as supply except in case of activities mentioned in Schedule I.
Circular No. 92/11/2019 GST dated 28.03.2019 has clarified the entitlement of ITC in the hands of supplier in
respect of sales promotional scheme like ‘buy one get one free’. Such promotional offers are not individual
supplies of free goods, but a case of two or more individual supplies where a single price is being charged for
the entire supply. It can at best be treated as supplying two goods for the price of one.
Taxability of such supply will be dependent upon as to whether the supply is a composite supply or a mixed
supply and the rate of tax shall be determined as per the provisions of section 8.
ITC shall be available to the supplier for the inputs, input services and capital goods used in relation to supply
of goods or services or both as part of such offers.
Therefore, the given case is not the case of individual supplies of free goods, but a case of three individual
supplies where a single price is being charged for the entire supply. Thus, Jumbo Sales Pvt. Ltd. will be entitled
to avail ITC on inputs, input services and capital goods used in relation to supply of T-Shirts as part of such
offer.

4. A garment factory receives a Government order for making uniforms for a commando unit. This supply is
exempt from tax under a notification issued under section 11 of the CGST Act. The fabric is separately

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procured for the supply, but thread and lining material for the collars are the ones which are used for other
taxable products of the factory.
The turnover (exclusive of taxes) of the other products of the factory and exempted uniforms in July is Rs. 4
crore and Rs. 1 crore respectively, the ITC on thread and lining material procured in July is Rs. 5000 and Rs.
15000 respectively.

ANSWER:
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 reversed in terms
of rule 42.
Credit attributable to exempt supplies = Common credit x (Exempt turnover/ Total turnover)
Common credit = Rs. 15,000 + Rs. 5,000 = Rs. 20,000
Exempt turnover = Rs. 1 crore
Total turnover = Rs. 5 crore [Rs. 1 crore + Rs. 4 crore]
Credit attributable to exempt supplies = (Rs. 1 crore /Rs. 5 crore) x Rs. 20,000 = Rs. 4,000.
Ineligible credit of Rs. 4,000 will be reversed in Form GSTR-3B. Credit of Rs. 16,000 will be eligible credit for the
month of July.

5. Ceramity Ltd. has following units:

A: Factory in Tumkur, Karnataka; turnover of Rs. 27 crores in 2019-20;
B: Service centre in Hyderabad, Telangana; turnover of Rs. 1 crore in 2019-20;
C: Service centre in Chennai, Tamil Nadu; turnover of 2 crores in 2019-20;
Ceramity Ltd.’s corporate office functions as ISD. It has to distribute ITC of Rs. 9 lakh for May, 2020. Of this,
an invoice involving tax of Rs. 3 lakh pertains to technical consultancy for Tumkur unit.
Explain in brief how should the ITC be distributed?

ANSWER:
As per rule 39(d) relating to ITC, -
• Rs. 3 lakh is attributable to Tumkur unit, and will be transferred to Tumkur unit only.
• Rs. 6 lakh have to be distributed among Tumkur unit and the service centres in Hyderabad and Chennai in
proportion of their turnover in the previous FY, that is, in 2019-20.
o Tumkur unit will get (27 crore / 30 crore) x 6 lakh = Rs. 5.4 lakh;
o Hyderabad service centre will get (1 crore /30 crore) x 6 lakh = Rs. 20,000; and
o Chennai service centre will get (2 crore /30 crore) x 6 Lakh = Rs. 40,000.
Ceramity Ltd. should issue ISD invoices (from GSTN obtained separately for ISD) for distributing ITC (as
calculated above) to its units. It should be clearly indicated in the invoices that the same are issued only for
distribution of ITC.

6. A registered supplier of taxable goods supplied goods valued at Rs. 2,24,000 (inclusive of CGST Rs. 12,000
and SGST Rs. 12,000) to Mohan Ltd. under forward charge on 15th August for which tax invoice was also
issued on the same date. The inputs were received by Mohan Ltd. on 15th August. Mohan Ltd. availed credit

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of Rs. 24,000 on 20th September by filing Form GSTR-3B for August month. However, Mohan Ltd. did not
make any payment towards such supply along with tax thereon to the supplier. Is Mohan Ltd. eligible to
avail ITC on such supply?
Discuss ITC provisions if Mohan Ltd. makes the payment of Rs. 2,24,000 to the supplier on 18th March of
next calendar year.

ANSWER:
As per section 16, Mohan Ltd. is eligible to avail ITC of the tax paid on inputs received by it on the basis of the
invoice issued by the supplier provided other conditions for availing ITC are fulfilled.
Payment of value of the goods along with the tax to the supplier is not a pre-requisite at the time of availing
credit, but Mohan Ltd. has to pay the said amount within 180 days from the date of issue of invoice. If Mohan
Ltd, fails to do so the ITC of Rs. 24,000 will be added to its output tax liability with interest. Such interest will
be paid @ 18% p.a. from the date of availing credit till the date when the amount added to the output tax
liability is paid [Second proviso to section 16(2) read with rule 37].
If Mohan Ltd. makes the payment of Rs. 2,24,000 (Value + tax) to the supplier on 18th March of next calendar
year, i.e. after the expiry of 180 days from date of issue of invoice, Mohan Ltd. can avail the credit of Rs.
24,000 while filing form GSTR-3B for the month of March.

7. State the conditions that need to be followed by an input service distributor for distribution of credit.

ANSWER:
The following conditions need to be followed by an input service distributor (ISD) for distribution of credit:

(i) The ISD is required to obtain a separate registration for distribution of credit.

(ii) The credit can be distributed to the recipients of credit against an ISD invoice containing prescribed details.

(iii) The amount of the credit distributed shall not exceed the amount of credit available for distribution.

(iv) The credit related to an input service must be distributed only to the particular recipient to whom that
input service is attributable.
(v) If the input service is attributable to more than one recipient, the relevant ITC is distributed pro rata to
such recipients in the ratio of turnover of the recipient in a State/ Union Territory to the aggregate turnover of
all the recipients to whom the input service is attributable and which are operational during the current year.

(vi) ITC pertaining to input services which are common for all units, is distributed to all the recipients in the
ratio of turnover in the prescribed manner.

(vii) ITC available for distribution in a month shall be distributed in the same month and the details thereof
shall be furnished in the prescribed form.

(viii) Both ineligible and eligible ITC are to be distributed separately.

(ix) ITC of CGST, SGST/UTGST and IGST are to be distributed separately. 204

(x) ITC of CGST, SGST/UTGST in respect of recipient located in the same State/Union Territory is distributed as
CGST and SGST/UTGST respectively.

(xi) ITC of CGST and SGST/UTGST, in respect of a recipient located in a different State/Union territory, is
distributed as IGST (total of ITC of CGST and SGST/UTGST which were to be distributed to such recipient).

(xii) ITC on account of IGST is distributed as IGST.

8. With reference to the provisions of section 17, examine the availability of ITC in the following
independent cases:

(i) MBF Ltd., an automobile company, has availed works contract service for construction of a foundation on
which a machinery (to be used in the production process) is to be mounted permanently.

(ii) Shah & Constructions procured cement, paint, iron rods and services of architects and interior designers
for construction of a commercial complex for one of its clients.

(iii) ABC Ltd. availed maintenance & repair services from “Jaggi Motors” for a truck used for transporting its
finished goods. (RTP NOV 2019)

ANSWER:

(i) Section 17(5)(c) blocks input tax credit in respect of works contract services when supplied for construction
of an immovable property (other than plant and machinery) except where it is an input service for further
supply of works contract service.

Further, the term “plant and machinery” means apparatus, equipment and machinery fixed to earth by
foundation or structural support that are used for making outward supply of goods and/or services and
includes such foundation or structural support but excludes land, building or other civil structures,
telecommunication towers, and pipelines laid outside the factory premises.
Thus, in view of the above-mentioned provisions, ITC is available in respect of works contract service availed
by MBF Ltd. as the same is used for construction of plant and machinery which is not blocked under section
17(5)(c). It is assumed that the expenditure incurred towards works contract service is capitalised in the books
of MBF Ltd. and no depreciation has been claimed on the tax component.

(ii) Section 17(5)(d) blocks ITC on goods and/or services received by a taxable person for construction of an
immovable property (other than plant and machinery) on his own account even though such goods and/or
services are used in the course or furtherance of business. Thus, ITC on goods and/or services used in the
construction of an immovable property is blocked only in those cases where the taxable person constructs the

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immovable property for his own use even if the immovable property being constructed is used in the course
or furtherance of his business.
In the given case, Shah & Constructions has used the goods and services for construction of immovable
property for some other person and not on its own account. Hence, ITC in this case will be allowed.

(iii) On a conjoint reading of section 17(5)(a) and 17(5)(ab), it can be concluded that ITC is allowed on repair
and maintenance services relating to motor vehicles, which are eligible for input tax credit. Further, as per
section 17(5)(a) ITC is allowed on motor vehicles which are used for transportation of goods.
Thus, ITC on maintenance & repair services availed from “Jaggi Motors” for a truck used for transporting its
finished goods is allowed to ABC Ltd.
9. On 25th August, M/s Agarwal & Agarwal, a registered supplier of taxable goods located in Bengaluru
(Karnataka), purchased one machine for Rs. 12,39,000 (including IGST) from one supplier of Maharashtra
who issued the invoice on the same date. M/s Agarwal & Agarwal put the machinery to use on the same
day and availed ITC for the eligible amount.

M/s Agarwal & Agarwal used the machine in the process of manufacture of taxable goods. However, M/s
Agarwal & Agarwal sold this machine to Mr. Suresh Kumar of Andhra Pradesh on 20th August of next year
for Rs. 7,50,000 (excluding lGST).

With reference to section 18(6), determine the amount payable, if any, by M/s Agarwal & Agarwal at the
time of sale of the machine.
Note: The applicable rate of IGST is 18%.

ANSWER:

As per section 18(6), if capital goods/ plant and machinery on which ITC has been taken are supplied (outward)
by a registered person, he must pay an amount that is higher of the following:

a) ITC taken on such goods reduced by 5% per quarter of a year or part thereof from the date of issue of
invoice for such goods or

(b) tax on transaction value of such outward supply determined under section 15.

Accordingly, the amount payable on supply of machinery by M/s Agarwal & Agarwal shall be computed as
follows:
Particulars Amount
(Rs.)
ITC taken on the machinery (Rs. 12,39,000 × 18/118) 1,89,000
Less: Input tax credit to be reversed @ 5% per quarter for the 28,350
period of use of machine 18,900
(i) For the previous year = (Rs. 1,89,000 × 5%) × 3 quarters

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(ii) For the current year = (Rs. 1,89,000 × 5%) × 2 quarters
Amount required to be paid (A) ** 1,41,750
Duty leviable on transaction value (Rs. 7,50,000 × 18%) (B) 1,35,000
Amount payable towards disposal of machine is higher of (A) 1,41,750
and (B)
Thus, M/s Agarwal & Agarwal is required to pay an amount of Rs.
1,41,750 at the time of sale of machinery.
** In the above solution, amount payable towards disposal of machine has been computed on the basis of rule
40(2), i.e. ITC to be reversed for the period of use of capital goods/machine has been computed @ 5% for
every quarter or part thereof from the date of the issue of invoice.
However, the said amount can also be computed in accordance with rule 44(6), i.e. ITC involved in the
remaining useful life (in months) of the capital goods/ machine can be reversed on pro-rata basis, taking the
useful life as 5 years.

10. Krishna Motors is a car dealer selling cars of an international car company. It also provides maintenance
and repair services of the cars sold by it as also of other cars. It seeks your advice on availability of ITC in
respect of the following expenses incurred by it during the course of its business operations:

(i) Cars purchased from the manufacturer for making further supply of such cars. Two of such cars are
destroyed in accidents while being used for test drive by potential customers.

(ii) Works contract services availed for constructing a car parking shed in its premises

ANSWER:

As per section 16(1), every registered person can take credit of input tax charged on any supply of goods or
services or both to him which are used or intended to be used in the course or furtherance of his business.
However, section 17(5) specifies certain goods and services on which the input tax credit is not available.
In the light of the foregoing provisions, the availability of ITC in respect of the various expenses incurred by
Krishna Motors is discussed below:

(i) Section 17(5)(a) specifically blocks ITC on motor vehicles for transportation of passengers having approved
seating capacity of not more than thirteen persons. However, the same is allowed when the motor vehicles
are used, inter alia, for further supply of such vehicles. Thus, ITC on cars purchased from the manufacturer for
making further supply of such cars will be allowed.
However, ITC on the cars destroyed in accident will not be allowed as the ITC on goods destroyed for
whichever reason is specifically blocked under section 17(5)(h).

(ii) Section 17(5)(c) specifically blocks ITC on works contract services when supplied for construction of an
immovable property (other than plant and machinery) except where it is an input service for further supply of

207
works contract service. Since, in this case the car parking shed is not a plant and machinery and the works
contract service is not used for further supply of works contract service, ITC thereon will not be allowed.

11. With the help of information given below in respect of a manufacturer for the month of September,
compute the ITC credited to the Electronic Credit Ledger, for the month. Also, compute the amount of ITC to
be added to the output tax liability for the month of September. Ignore interest, if any.
 Particulars Amount
(Rs.)
Outward supply of taxable goods (exclusive of taxes) 70,000
Outward supply of exempt goods 40,000
Total turnover 1,10,000
Inward supplies GST paid (Rs.)
Capital goods used exclusively for taxable outward supply 2,000
Capital goods used exclusively for exempt outward supply 1,800
Capital goods used for both taxable and exempt outward supply 4,200

Subject to the information given above, assume that all the other conditions necessary for availing ITC have
been fulfilled.

ANSWER:

Computation of ITC credited to Electronic Credit Ledger and amount of ITC to be added to the output tax
liability for the month of September

Particulars ITC (Rs.)

Capital goods used exclusively for taxable supply 2,000
[Since used exclusively for taxable supply, full ITC is available under rule 43(1)(b)]
Capital goods used exclusively for exempt supply Nil
[Since used exclusively for exempt supply, ITC is not available under rule 43(1)(a)]
Capital goods used for both taxable and exempt supply -Common credit (Tc) 4200
[Commonly used for taxable and exempt supplies – Rule 43(1)(c)]
Total ITC credited to Electronic Credit Ledger for the month of September 6,200
Common credit for the month of September (Tm) 70
= Tc ÷ 60 = 4,200 ÷ 60 [Rule 43(1)(e)]
Common credit attributable to exempt supplies in a month (Te) 25.45
= (E ÷ F) x Tr* where,
‘E’ is the aggregate value of exempt supplies, made, during the tax period, and
‘F’ is the total turnover in the State of the registered person during the tax period [Rule

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43(1)(g)]
= (40,000/1,10,000) × Rs. 70 (rounded off)
Amount to be added to the output tax liability for the month of September [Rule 25.45
43(1)(h)]

Note: *Prior to the amendment vide Notification No. 16/2020 CT dated 23.03.2020 clause (f) of rule 43(1)
provided that the amount of ITC, at the beginning of a tax period, on all common capital goods whose useful
life remains during the tax period, be denoted as ‘Tr‘ and shall be the aggregate of ‘Tm‘ for all such capital
goods. However, clause (f) has been omitted vide the said notification. Consequently, the term “Tr” becomes
redundant in the formula provided in rule 43(1)(g).
However, for the sake of computation of common credit attributable to exempt supply, value of ‘Tm’ has been
used here. It may be noted that as per the erstwhile clause (f) of rule 43(1) value of ‘Tr’ was the aggregate of
‘Tm.’

12. X, a manufacturer of roofing sheets, has total ITC of Rs. 1,60,000 available with him on 01st June. He
provides the following information pertaining to the goods and services procured during the month of June:

(1) Input tax on raw materials is Rs. 40,000. The raw material is used for both taxable and exempt activity.

(2) Input tax on catering services procured from ‘Harvest Caterers’ in connection with his housewarming
ceremony is Rs. 10,000.

(3) Input tax on raw materials used in manufacture of exempt supplies of Rs. 2 lakh is Rs. 20,000.

(4) Input tax on cosmetic and plastic surgery of manager of the factory is Rs. 30,000.

Total turnover for the month of June is Rs. 60 lakh exclusive of tax.

Compute the ITC available for the month of June and net GST payable from Electronic Cash Ledger by X for
the month of June. Rate of GST is 18% (Ignore CGST, SGST or IGST for the sake of simplicity).
Subject to the information given above, assume that all the other conditions necessary for availing ITC have
been fulfilled. All the purchases are made from registered suppliers. (PAST EXAM MAY 2019)

ANSWER:

Computation of ITC available and net GST payable from Electronic Cash Ledger for the month of June

Particulars Amount
(Rs.)
GST on taxable turnover for the month of June 10,80,000
[Rs. 60,00,000 × 18%]
Less: ITC available as on 30th June in terms of rule 42

ITC available in the Electronic Credit Ledger on 1st Rs. 1,60,000 209
June
Add: Total ITC credited to the Electronic Credit Ledger Rs. 40,000
in the month of June [Refer working note below]
Less: ITC out of common credit attributable to exempt (Rs. 1,290) 1,98,710
supply [Refer working note below]
Net GST payable from Electronic Cash Ledger 8,81,290
Working Note:
Computation of ITC (out of common credit) attributable to exempt supplies

Particulars Amount (Rs.)

Input tax on raw materials [Note1] 40,000
Input tax on catering for housewarming [Note 2] Nil
Input tax on inputs contained in exempt supplies [Note 3] Nil
Input tax on cosmetic and plastic surgery of CEO of company Nil
[Note 4]
Total ITC credited to the Electronic Credit Ledger in terms of 40,000
rule 42 in the month of June
Common credit [Note 5] 40,000
ITC attributable towards exempt supplies [Note 6] 1,290

Notes:

(1) Being used in the course or furtherance of business, input tax on raw materials is available as ITC and is
credited to the Electronic Credit Ledger [Section 16(1)].

(2) ITC on outdoor catering is blocked in terms of section 17(5) if the same is not used for making an outward
supply of outdoor catering or as an element of a taxable composite/mixed supply. Hence, the same is not
credited to the Electronic Credit Ledger [Rule 42].

(3) Input tax on inputs used for making exempt supplies is not available as ITC and thus, not credited to the
Electronic Credit Ledger in terms of rule 42.

(4) ITC on cosmetic and plastic surgery is blocked in terms of section 17(5) if the same are not used for making
the same category of outward supply or as an element of a taxable composite/ mixed supply. Hence, the same
is not credited to the Electronic Credit Ledger [Rule 42].

(5) Since there are no inputs and input services which are used exclusively for effecting taxable supplies, the
entire ITC credited to Electronic Credit Ledger, i.e. Rs. 40,000 will be the common credit [Rule 42].

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(6) ITC attributable towards exempt supplies = Common credit x (Aggregate value of exempt supplies during
the tax period / Total turnover during the tax period)
= Rs. 40,000 × Rs. 2,00,000/ Rs. 62,00,000 - (rounded off)
= Rs. 1,290
13. Sarani Weavers, at Pune, Maharashtra is a registered input service distributor and intends to distribute
ITC for the month of March. The following are the details available for such distribution:

Branch Turnover of the last ITC specifically applicable

quarter (Rs.) to the branch (Rs.)
Ganganagar Branch (Rajasthan) 10,00,000 IGST – Rs. 12,000
CGST – Rs. 3,000
SGST –Rs. 3,000
Madhugiri Branch (Karnataka) 5,00,000 Nil
Kosala Branch (UP) 15,00,000 Nil
Mumbai Branch (Maharashtra) 20,00,000 IGST – Rs. 1,50,000
CGST– Rs. 15,000
SGST– Rs. 15,000

lTC available on input services used commonly by all branches is as under:

CGST - Rs. 60,000
SGST - Rs. 60,000
IGST - Rs. 1,20,000

lTC (IGST) of Rs. 10,000 pertaining to March (last year) was inadvertently not distributed. Whether the same
can be considered for distribution in March this year?

Madhugiri, Karnataka branch uses input services to manufacture exempted products. Turnover excludes
duties & taxes payable to Central and State Government.
Determine the manner of input tax distribution.

ANSWER:

As per section 20 read with rule 39:

(i) Total GST credit (CGST+ SGST + IGST) of Rs. 18,000 specifically attributable to Ganganagar Branch, Rajasthan
will be distributed as IGST credit of Rs. 18,000 only to Ganganagar Branch, Rajasthan [Since recipient and ISD

211
are located in different states].

(ii) IGST credit of Rs. 1,50,000, CGST credit of Rs. 15,000 and SGST credit of Rs. 15,000 specifically attributable
to Mumbai Branch, Maharashtra will be distributed as IGST credit of Rs. 1,50,000, CGST credit of Rs. 15,000
and SGST credit of Rs. 15,000 respectively, only to Mumbai Branch, Maharashtra [Since recipient is located in
the same State in which ISD is located].

(iii) CGST credit of Rs. 60,000, SGST credit of Rs. 60,000 and IGST credit of Rs.1,20,000 have to be distributed
among the three branches and Mumbai Branch, Maharashtra in proportion of their turnover of the last
quarter.
- Ganganagar Branch, Rajasthan will get: Rs. 48,000 [Rs.2,40,000 x (10,00,000/ 50,00,000)] as IGST credit.
- Madhugiri Branch, Karnataka will get: Rs. 24,000 [Rs.2,40,000 x (5,00,000/ 50,00,000)] as IGST credit.
- The credit attributable to a recipient is distributed even if such recipient is making exempt supplies.
- Kosala Branch, UP will get: Rs. 72,000 [Rs.2,40,000 x (15,00,000/ 50,00,000)] as IGST credit.
- Mumbai Branch, Maharashtra will get:

Rs. 24,000 [60,000 x (20,00,000/ 50,00,000)] as CGST credit,

Rs.24,000 [60,000 x (20,00,000/ 50,00,000)] as SGST credit and
Rs. 48,000 [1,20,000 x (20,00,000/ 50,00,000)] as IGST credit.

(iv) ITC of Rs. 10,000 of March (last year) cannot be distributed in March this year as ITC available for
distribution in a month is to be distributed in the same month.

14. George Pvt. Ltd., a registered supplier of goods at Kerala who pays GST under regular scheme, has made
the following transactions (exclusive of tax) during a tax period:

Purchases (Rs.) Sales (Rs.) Tax Rate

5,00,000 10,00,000 IGST - 18%
[Purchases made from registered [Sale made to CGST – 9%
person in New Delhi] registered person in SGST- 9%
New Delhi]
2,50,000 8,00,000
[Purchases made from registered [Sales made to registered person in
person in Trivandrum, Kerala] Trivandrum]

The company has complied with all the conditions for availing the ITC. The following further information
regarding various balances available with it on the first day of the tax period, is provided by the company:

Source Taxes (Rs.) Interest (Rs.) Penalty (Rs.)

CGST 50,000 1500 500
SGST 30,000 1500 500

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IGST 1,00,000 2000 500

Compute the minimum net CGST, SGST and IGST payable from the Electronic Cash Ledger by George Pvt.
Ltd. for the tax period as also ITC to be carried forward to next tax period, if any. (PAST EXAM MAY 2019)

ANSWER:
Computation of minimum net CGST, SGST and IGST payable from the electronic cash ledger by George Pvt.
Ltd. for the tax period

Particulars Amount CGST @ SGST @ IGST @ 18%

(Rs.) 9% (Rs.) 9% (Rs.) (Rs.)
Sales made outside Kerala (New Delhi) 10,00,000 1,80,000
–
[Being inter-State sale, the same is
liable to IGST]
Sales made in Trivandrum [Being intra- 8,00,000 72,000 72,000
State sale, the same is liable to CGST &
SGST]
Less: ITC available during the tax period for set off (72,000) (10,000) (1,80,000)
[Refer Working Note Below] CGST IGST
(52,500)
SGST
Net tax liability payable in cash Nil 9,500 Nil
ITC to be carried forward to next tax period 500 Nil Nil
(72,500- (52,500- (1,90,000-
70,000) 52,500) 1,90,000
Working Note:
ITC available during the tax period is computed as under:
Opening balance of ITC 50,000 30,000 1,00,000
Purchases from New Delhi 5,00,000 90,000
[Being inter-State purchase, IGST would
have been paid on it.]
Purchases from Trivandrum 2,50,000 22,500 22,500
Total input tax credit 72,500 52,500 1,90,000
Note: Since sufficient balance of ITC of CGST is available for paying CGST liability and cross-
utilization of ITC of CGST and SGST is not allowed, ITC of IGST has been used to pay SGST (after
paying IGST liability) to minimize cash outflow. Interest and penalty paid are not available as
credit for payment of output tax liability under GST. It can be used only against corresponding
interest/penalty under the GST law.

213
15. Quanto Enterprises is not required to register under CGST Act. However, it applied for voluntary
registration on 17th September. Registration certificate has been granted to the firm on 25th September.
The CGST and SGST liability of the firm for the month of September is Rs. 24,000 each. The firm is not
engaged in making inter-State outward taxable supplies. Quanto Enterprises provides the following
information regarding capital goods and inputs held in stock by it as on 24th September:
 Particulars Amount (Rs.)
Inputs procured on 2nd September lying in stock
- CGST @ 6% 4,500
- SGST @ 6% 4,500
Input received on 21st July contained in semi-finished goods held in stock:
- CGST @ 6% 7,500
- SGST @ 6% 7,500
Value of inputs contained in finished goods held in stock- Rs. 2,00,000 [Such
inputs were procured on 19th September last year. Invoice for the goods was
also dated the same day]
- IGST @ 18% 36,000
Inputs valued at Rs. 50,000 procured on 13th September lying in stock:
- IGST @ 18% 9,000
Capital goods procured on 12th September
-CGST @ 6% 12,000
-SGST @ 6% 12,000

You are required to compute the net GST payable from Electronic Cash Ledger by Quanto Enterprises for the
month of September.
You are also required to mention reasons for treatment of all above items.

ANSWER:

Computation of net GST payable from Electronic Cash Ledger by Quanto Enterprises for the month of
September
Particulars CGST (Rs) SGST (Rs)
Output tax liability for the month 24,000 24,000
Less: ITC [Notes 1 & 2] 9,000 (IGST) 12,000
(SGST)
12,000 (CGST)
Net GST payable (from electronic cash 3,000 12,000
ledger)

Notes: 214
1. Credit of IGST is first utilized towards payment of IGST and thereafter for CGST and SGST in any order and in
any proportion. Credit of CGST and SGST can be utilized only after IGST credit has been fully utilized [Rule 88A
read with sections 49(5), 49A and 49B].

Since Quanto Enterprises does not make any inter-State supply, in the above answer, entire credit of IGST has
been utilized towards payment of CGST. Credit of IGST can also be utilised against SGST liability or against both
CGST and SGST liabilities in any proportion and thus, the final answer will change accordingly.
2. As per section 18(1)(b) a person who takes voluntary registration is entitled to take credit of input tax in
respect of inputs held in stock and inputs contained in semi-finished/ finished goods held in stock on the day
immediately preceding the date of grant of registration.

However, he cannot take ITC in respect of capital goods held on the day immediately preceding the date of
grant of registration.
ITC on inputs needs to be availed within 1 year from the date of issue of the invoice by the supplier [Section
18(2)].

In this case, since Quanto Enterprises has been granted voluntary registration on 25th September, it will be
entitled to ITC on inputs held in stock and inputs contained in semi-finished/ finished goods held in stock, on
24th September. In view of the said provisions, eligible ITC for Quanto Enterprises is computed as follows:

Particulars CGST SGST IGST

(Rs.) (Rs.) (Rs.)
Inputs held in stock since 2nd September 4,500 4,500
Inputs received on 21st July contained in 7,500 7,500
semi-finished goods held in stock
Inputs contained in finished goods held Nil
in stock which were procured on 19th
September last year [Procured prior to
one year, hence ITC cannot be availed]
Inputs held in stock since 13th September 9,000
Capital goods procured on 12th Nil Nil
September
Total ITC 12,000 12,000 9,000

16. B & D Company, a partnership firm, in Nagpur, Maharashtra is a wholesaler of taxable product ‘P’ and
product ‘Q’ exempted by way of a notification. The firm supplies these products only in the eastern part of
Maharashtra. All the procurements (both goods and services) of the firm are from the suppliers registered
under regular scheme in the State of Maharashtra. The firm pays tax under composition scheme. B & D

215
Company has furnished the following details with respect to its turnover (exclusive of taxes) and stock
(exclusive of taxes):

Particulars Turnover for the Turnover for the

quarter ended 30th quarter ended 30th
June (Rs.) September (Rs.)
‘P’ 60,00,000 50,00,000
‘Q’ 17,65,000 17,00,000
 Particulars Stock as on Stock as on Stock as on
30th June (Rs.) 30th 31st October
September (Rs.)
(Rs.)
‘P’ 25,00,000 10,00,000 3,60,000
‘Q’ 10,00,000 2,00,000 1,20,000

The entire stock of the products ‘P’ and ‘Q’ available with the firm as on 30th September is purchased
during the said half year except a consignment of product ‘P’ valuing Rs. 3,00,000, which was purchased in
the April month of the preceding financial year. The said stock could not be sold during the month of
October. In the current financial year, in the month of October, no purchases were made, and the products
were sold with a profit margin of 20% on sales [exclusive of taxes].

The extract of the only bill book maintained by the firm showed the following details-

Bill No. Date Value of products

(exclusive of taxes)
P Q R Total (Rs.)
2306 1st October 2,00,000 3,000 2,03,000
2307 1st October 1,33,000 5,250 1,38,250
2308 2nd October 67000 39,250 1,06,250
2309 3rd October 58,750 33,750 92,500
2310 5th October 1,00,000 - 1,00,000
2311 6th October 94,000 6,000 1,00,000
2312 6th October - 17,000 17,000
2313 8th October 50,000 6,000 56,000
2314 9th October 60,000 9,000 69,000
2315 …………….. …………….. …………….. ……………..
………. …………….. …………….. …………….. ……………..

216
All the above amounts are exclusive of taxes, wherever applicable

Compute the ITC credited to the Electronic Credit Ledger of the B & D Company, when it exits composition
scheme and becomes liable to pay tax under regular scheme, in accordance with the provisions of section
18(1)(c).

Note: Make suitable assumptions wherever required. Stock is valued at cost price.

ANSWER:
As per section 10(3) read with Notification No.14/2019 CT dated 07.03.2019 as amended, the option availed of
by a registered person to pay tax under composition scheme shall lapse with effect from the day on which his
aggregate turnover during a financial year exceeds Rs. 1.5 crore [Rs. 75 lakh in case of Special Category States
except Assam, Himachal Pradesh and Jammu and Kashmir].

As per section 2(6), aggregate turnover means the aggregate value of all taxable supplies (excluding the value
of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of
goods or services or both and inter-State supplies of persons having the same PAN, to be computed on all
India basis but excludes CGST, SGST/UTGST, IGST and GST Compensation Cess.

In the given case, the firm is registered under the composition scheme in the State of Maharashtra. The
aggregate turnover of the firm exceeds Rs. 1.5 crore on 3rd October [aggregate of both taxable and exempt
turnover from 1st April to 3rd October, i.e. Rs. 1,50,05,000 (Rs. 1,44,65,000 + Rs. 2,03,000 + Rs. 1,38,250 + Rs.
1,06,250 + Rs.92,500)].

Thus, the firm will pay tax under regular scheme (Section 9) from 3rd October.

As per section 18(1)(c) read with rule 40, where any registered person ceases to pay tax under section 10, he
shall be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished
or finished goods held in stock and on capital goods on the day immediately preceding the date from which he
becomes liable to pay tax under section 9.

Further, ITC on supplies of inputs and capital goods shall not be available after the expiry of one year from the
date of issue of tax invoice [Section 18(2)].
In the light of the above-mentioned provisions, the ITC credited to the Electronic Credit Ledger of the B & D
Company on inputs held in on 2nd October will be computed as under:

Particulars Amount (Rs.)

Stock of taxable inputs as on 30th September 10,00,000
[Since no tax is paid on exempt purchases, there does not
arise any question of availing ITC on the same. Hence,
stock of only taxable inputs is considered]
Add: Purchases Nil

217
[No purchases are made in October]
Less: Cost of taxable goods sold from 1st October to 2nd 3,20,000
October
[(2,00,000 + 1,33,000 + 67,000]) x 80%]
Stock of taxable inputs as on 2nd October 6,80,000
[Since the bill numbers are in continuation, it can be
concluded that no sales are missing from the extract]
 Less: More than one year old stock 3,00,000
Stock of inputs on which ITC can be claimed 3,80,000
ITC of CGST [Since all purchases are intra-State and 34,200
@ 9% from the suppliers registered under regular
scheme]
ITC of SGST @ 9% 34,200

17. XYZ Pvt. Ltd. is a manufacturing company registered under GST in the State of Uttar Pradesh. It
manufactures two taxable products ‘Alpha’ and ‘Beta’ and one exempt product ‘Gama’. On 1st October,
while product ‘Beta’ got exempted through an exemption notification, exemption available on ‘Gama’ got
withdrawn on the same date. The turnover (exclusive of taxes) of ‘Alpha’, ‘Beta’ and ‘Gama’ in the month of
October was Rs. 9,00,000, Rs. 10,00,000 and Rs. 6,00,000.
XYZ Pvt. Ltd. has furnished the following details: (RTP MAY 2019)

S. No. Particulars Price (Rs.) GST (Rs.)

(a) Machinery ‘U’ purchased on 1st 2,00,000 36,000
October for being used in
manufacturing all the three
products
(b) Machinery ‘V’ purchased on 1st 1,00,000 18,000
October for being used in
manufacturing product ‘Alpha’
and ‘Gama’
(c) Machinery ‘W’ purchased on 1st 3,00,000 54,000
October for being exclusively
used in manufacturing product
‘Beta’
(d) Machinery ‘Y’ purchased on 1st 4,00,000 72,000
October four years ago for being
exclusively used in manufacturing

218
product ‘Beta’. From 1st October,
such machinery will also be used
for manufacturing product
‘Gama’.
(e) Machinery ‘Z’ purchased on 1st 3,00,000 54,000
October two years ago for being
used in manufacturing all the
three products
 (f) Raw Material used for 1,50,000 27,000
manufacturing ‘Alpha’ purchased
on 5th October
(g) Raw Material used for 2,00,000 36,000
manufacturing ‘Beta’ purchased
on 10th October
(h) Raw Material used for 1,00,000 18,000
manufacturing ‘Gama’ purchased
on 15th October

Compute the following:

(i) Amount of ITC credited to Electronic Credit Ledger, for the month of October

(ii) Amount of aggregate value of common credit (Tc)

(iii) Common credit attributable to exempt supplies, for the month of October

(iv) GST liability of the company payable through Electronic Cash Ledger, for the month of October

Note: Assume that all the procurements made by the company are from States other than Uttar Pradesh.
Similarly, the company sells all its products in States other than Uttar Pradesh. Rate of IGST is 18%. Subject
to the information given above, assume that all the other conditions necessary for availing ITC have been
fulfilled. Ignore interest, if any and make suitable assumptions wherever required.

ANSWER:

S. No. Particulars ITC (Rs.)

(i) Amount of ITC credited to Electronic Credit Ledger, for the
month of October
Machinery ‘U’ - ‘A’ [Note 1] 36,000
Machinery ‘V’ [Note 2] 18,000

219
Machinery ‘W’ [Note 3] -
Machinery ‘Y’ [Note 4] -
Machinery ‘Z’ [Note 5] -
Raw Material used for manufacturing ‘Alpha’ [Note 6] 27,000
Raw Material used for manufacturing ‘Beta’ [Note 6] -
Raw Material used for manufacturing ‘Gama’ [Note 6] 18,000

Amount of ITC credited to Electronic Credit Ledger, for the month of 99,000
October
 (ii) Aggregate value of common credit (Tc) – Note 7
Value of ‘A’ for Machinery ‘U’ purchased on 1st October 36,000
Value of ‘A’ for Machinery ‘Z’ purchased on 1st October 2 years ago 54,000
for effecting both taxable and exempt supplies
Input tax claimed on Machinery ‘Y’ purchased on 1st October 4 years 72,000
ago for effecting taxable supplies but used for effecting both taxable
and exempt supplies from 1st October in the current year [Note 8]
Aggregate value of common credit (Tc) 1,62,000
(iii) Common credit attributable to exempt supplies, for the month
of October
Common credit for the month of October (Tm) [Note 9] 2,700
Common credit attributable to exempt supplies, for the month of 1,080
October (Te) – Note 10
(iv) Computation of GST liability of the company for October
payable through Electronic Cash Ledger
IGST payable on ‘Alpha’ [Rs. 9,00,000 x 18%] 1,62,000
IGST payable on ‘Beta’ [Exempt] Nil
IGST payable on ‘Gama’ [Rs. 6,00,000 x 18%] 1,08,000
Total IGST payable on outward supply 2,70,000
Common credit attributable to exempt supplies for the month of 1,080
October [Note 11]
Total output tax liability of October 2,71,080
Less: ITC available in the Electronic Credit Ledger 99,000
IGST payable from Electronic Cash Ledger 1,72,080

Notes:

(1) ITC in respect of capital goods used commonly for effecting taxable supplies and exempt supplies denoted
as ‘A’ shall be credited to the electronic credit ledger [Rule 43(1)(c)].

(2) ITC in respect of capital goods used or intended to be used exclusively for effecting supplies other than
exempted supplies but including zero rated supplies shall be credited to the electronic credit ledger [Rule
43(1)(b)].

(3) ITC in respect of capital goods used or intended to be used exclusively for effecting exempt supplies shall 220
not be credited to electronic credit ledger [Rule 43(1)(a)].

(4) Machinery ‘Y’ is being used for effecting both taxable and exempt supplies from 1st October. Prior to that it
was exclusively used for effecting taxable supplies. Therefore, ITC in respect of such machinery would have
already been credited to the electronic credit ledger.
(5) Machinery ‘Z’ is being used for effecting both taxable and exempt supplies from 1st October two years ago.
Therefore, ITC in respect of such machinery would have already been credited to the electronic credit ledger.

(6) ITC in respect of inputs used for effecting taxable supplies will be credited in Electronic Credit Ledger. ITC in
respect of inputs used for effecting exempt supplies will not be credited in the electronic credit ledger [Rule
42].

(7) The aggregate of the amounts of ‘A’ credited to the electronic credit ledger in respect of common capital
goods whose useful life remains during the tax period, to be denoted as ‘Tc’, shall be the common credit in
respect of such capital goods [Rule 43(1)(d)].

(8) Where any capital goods which were used exclusively for effecting taxable supplies are subsequently also
used for effecting exempt supplies, the ITC claimed in respect of such capital goods shall be added to arrive at
the aggregate value of common credit ‘Tc’ [Proviso to rule 43(1)(d)].

(9) ITC attributable to a month on common capital goods during their useful life (Tm) shall be computed in
accordance with rule 43(1)(e) as under:
= Tc ÷ 60
= Rs. 1,62,000 ÷ 60
= Rs. 2,700
The useful life of any capital goods shall be considered as five years from the date of invoice and the said
formula shall be applicable during the useful life of the said capital goods

(10) The amount of common credit attributable towards exempted supplies, be denoted as ‘Te’, and shall be
calculated as:
Te= (E÷ F) x Tr* where,
‘E’ is the aggregate value of exempt supplies, made, during the tax period, and
‘F’ is the total turnover in the State of the registered person during the tax period [Rule 43(1)(g)].
=Tr х Turnover of exempt supplies during the month of October/ Total turnover of XYZ Pvt. Ltd. during the
month of October
= Rs. 2,700 х 10,00,000/25,00,000 = Rs. 1,080

(11) Common credit attributable to the exempt supplies (Te) along with the applicable interest (which is to be

221
ignored in this case) shall, during every tax period of the useful life of the concerned capital goods, be added
to the output tax liability of the person making such claim of credit [Rule 43(1)(h)].

*Prior to the amendment vide Notification No. 16/2020 CT dated 23.03.2020 clause (f) of rule 43(1) provided
that the amount of ITC, at the beginning of a tax period, on all common capital goods whose useful life
remains during the tax period, be denoted as ‘Tr‘ and shall be the aggregate of ‘Tm‘ for all such capital goods.
However, clause (f) has been omitted vide the said notification. Consequently, the term “Tr” becomes
redundant in the formula provided in rule 43(1)(g). However, for the sake of computation of common credit
attributable to exempt supply, value of ‘Tm’ has been used here. It may be noted that as per the erstwhile
clause (f) of rule 43(1) value of ‘Tr’ was the aggregate of ‘Tm.’
18. ‘All-in-One Store’ is a retail chain of departmental store having presence in almost all metro cities across
India. Both exempted as well as taxable goods are sold in such Stores. The Stores operate in rented
properties. All-in-One Stores pay GST under regular scheme.
In Mumbai, the Store operates in a rented complex, a part of which is used by the owner of the Store for
personal residential purpose.
All-in-One Store, Mumbai furnishes following details for a month:

(i) Aggregate value of various items sold in the Store:

Taxable items – Rs. 42,00,000
Items exempted vide a notification – Rs. 12,00,000
Items not leviable to GST – Rs. 3,00,000

(ii) Mumbai Store transfers to another All-in-One Store located in Goa certain taxable items for the purpose
of distributing the same as free samples. The value declared in the invoice for such items is Rs. 5,00,000.
Such items are sold in the Mumbai Store at Rs. 8,00,000.

(iii) Aggregate value of various items procured for being sold in the Store:
Taxable items – Rs. 55,00,000
Items exempted vide a notification – Rs. 15,00,000
Items not leviable to GST – Rs. 5,00,000

(iv) Freight paid to goods transport agency (GTA) for inward transportation of taxable items – Rs. 1,00,000

(v) Freight paid to GTA for inward transportation of exempted items – Rs. 80,000

(vi) Freight paid to GTA for inward transportation of non-taxable items - Rs. 20,000

(vii) Monthly rent payable for the complex – Rs. 5,50,000 (one third of total space available is used for
personal residential purpose).

(viii) Activity of packing the items and putting the label of the Store along with the sale price has been
outsourced. Amount paid for packing of all the items – Rs. 2,50,000

(ix) Salary paid to the regular staff at the Store – Rs. 2,00,000 222

(x) GST paid on inputs used for personal purpose – Rs. 5,000

(xi) GST paid on rent a cab services availed for transportation of employees, which is not obligatory under
any law – Rs. 4,000
(xii) GST paid on items given as free samples – Rs. 4,000
Given the above available facts, you are required to compute the following:
A. Input tax credit (ITC) credited to the Electronic Credit Ledger
B. Common Credit
C. ITC attributable towards exempt supplies out of common credit
D. Eligible ITC out of common credit
E. Net GST payable from Electronic Cash Ledger for the month

Note:

(1) Wherever applicable, GST under reverse charge is payable @ 5% by All-in-One Stores. Rate of GST in all
other cases is 18% (Ignore CGST, SGST or IGST for the sake of simplicity).

(2) All the purchases are made from registered suppliers.

(3) Wherever applicable, the amounts given are exclusive of taxes.

(4) Subject to the information given above, assume that all the other conditions necessary for availing ITC
have been fulfilled. (RTP NOV 2018)

ANSWER:

A. Computation of ITC credited to Electronic Credit Ledger

As per rule 42, the ITC in respect of inputs or input services being partly used for the purposes of business and
partly for other purposes, or partly used for effecting taxable supplies and partly for effecting exempt supplies,
shall be attributed to the purposes of business or for effecting taxable supplies.
ITC credited to the electronic credit ledger of registered person [‘C1’] is calculated as under-
C1 = T - (T1+T2+T3)

Where,
T = Total input tax involved on inputs and input services in a
tax period.
T1 = Input tax attributable to inputs and input services intended
to be used exclusively for non-business purposes

223
T2 = Input tax attributable to inputs and input services intended
to be used exclusively for effecting exempt supplies
T3 = Input tax in respect of inputs and input services on which
credit is blocked under section 17(5)
Computation of total input tax involved [T]

Particulars (Rs.)
GST paid on taxable items [Rs. 55,00,000 x 18%] 9,90,000
Items exempted vide a notification [Since exempted, no GST is Nil
paid]
Items not leviable to tax [Since non-taxable, no GST is paid] Nil
GST paid under reverse charge on freight paid to GTA for 5,000
inward transportation of taxable items - [Rs. 1,00,000 x 5%]
GST paid under reverse charge on freight paid to GTA for 4,000
inward transportation of exempted items - [Rs. 80,000 x 5%]
GST paid under reverse charge on freight paid to GTA for 1,000
inward transportation of non-taxable items - [Rs. 20,000 x 5%]
GST paid on monthly rent - [Rs. 5,50,000 x 18%] 99,000
GST paid on packing charges [Rs. 2,50,000 x 18%] 45,000
Salary paid to staff at the Store Nil
[Services by an employee to the employer in the course of or
in relation to his employment is not a supply in terms of para
1 of the Schedule III and hence, no GST is payable thereon].
GST paid on inputs used for personal purpose 5,000
GST paid on rent a cab services availed for business purpose 4,000
GST paid on items given as free samples 4,000
Total input tax involved during the month [T] 11,57,000

Computation of T1, T2, T3

224
Particulars (Rs.)
GST paid on monthly rent attributable to personal purposes 33,000
[1/3 of Rs. 99,000]
GST paid on inputs used for personal purpose 5,000
Input tax exclusively attributable to non-business purposes 38,000
[T1]
 GST paid under reverse charge on freight paid to GTA for inward transportation 4,000
of exempted items
[As per section 2(47), exempt supply means, inter alia, supply which may be
wholly exempt from tax by way of a notification issued under section 11. Hence,
input service of inward transportation of exempt items is exclusively used for
effecting exempt supplies.]
GST paid under reverse charge on freight paid to GTA for inward transportation 1,000
of non-taxable items
[Exempt supply includes non-taxable supply in terms of section 2(47). Hence,
input service of inward transportation of non-taxable items is exclusively used
for effecting exempt supplies.]

Input tax exclusively attributable to exempt supplies [T2] 5,000

GST paid on rent a cab services availed for business purpose 4,000
[ITC on rent a cab service is blocked under section 17(5)(b)(i) as the same is not
used by All-in-One Store for providing the rent a cab service or as part of a
taxable composite or mixed supply.
GST paid on items given as free samples 4,000
[ITC on goods inter alia, disposed of by way of free samples is blocked under
section 17(5)(h)].
Input tax for which credit is blocked under section 17(5) [T3] ** 8,000

**Since GST paid on inputs used for personal purposes has been considered while computing T1, the same has
not been considered again in computing T3.

ITC credited to the electronic credit ledger

C1 = T - (T1+T2+T3)
= Rs. 11,57,000 – (Rs. 38,000 + Rs. 5,000 + Rs. 8,000) = Rs. 11,06,000

B. Computation of Common Credit

C2 = C1 - T4
where C2 = Common Credit
T4 = Input tax credit attributable to inputs and input services intended to be used exclusively for effecting

225
taxable supplies
Computation of T4,
Particulars (Rs.)
GST paid on taxable items 9,90,000
GST paid under reverse charge on freight paid to 5,000
GTA for inward transportation of taxable items
Input tax exclusively attributable to taxable 9,95,000
supplies [T4]

Common Credit C2 = C1 - T4
=Rs. 11,06,000 – Rs. 9,95,000
= Rs. 1,11,000

C. Computation of ITC attributable towards exempt supplies out of common credit

ITC attributable towards exempt supplies is denoted as ‘D1’ and calculated as-
D1 = (E ÷ F) x C2

where,
‘E’ is the aggregate value of exempt supplies during the tax period, and
‘F’ is the total turnover in the State of the registered person during the tax period

Aggregate value of exempt supplies during the month

= Rs. 15,00,000 (Rs. 12,00,000 + Rs.3,00,000)
Total turnover in the State during the tax period
= Rs. 65,00,000 (Rs. 42,00,000 + Rs. 12,00,000 + Rs.3,00,000 + Rs. 8,00,000)

Note: Transfer of items to Store located in Goa is inter-State supply in terms of section 7 of the IGST Act, 2017
and hence includible in the total turnover. Such supply is to be valued as per rule 28. However, the value
declared in the invoice cannot be adopted as the value since the recipient Store at Goa is not entitled for full
credit because the goods are to be distributed as free samples, ITC on which is blocked. Therefore, open
market value of such goods, which is the value of such goods sold in Mumbai Store, is taken as the value of
items transferred to Goa Store.
D1 = (15,00,000 ÷ 65,00,000) x 1,11,000
= Rs. 25,615 (rounded off)

D. Computation of Eligible ITC out of common credit 226

Eligible ITC attributed for effecting taxable supplies is denoted as ‘C3’, where-
C3 = C2 - D1
= Rs. 1,11,000 - Rs. 25,615
= Rs. 85,385
E. Computation of Net GST liability for the month
Particulars GST (Rs.)
GST liability under forward charge
Taxable items sold in the store [Rs. 42,00,000 x 18%] 7,56,000
Taxable items transferred to Goa Store [Rs. 8,00,000 x 1,44,000
18%]
Total output tax liability under forward charge 9,00,000
Less: ITC credited to the electronic ledger 10,80,385
ITC carried forward to the next month (1,80,385)
Net GST payable [A] Nil
GST liability under reverse charge
Freight paid to GTA for inward transportation of taxable 5,000
items [Rs. 1,00,000 x 5%]
Freight paid to GTA for inward transportation of 4,000
exempted items [Rs. 80,000 x 5%]
Freight paid to GTA for inward transportation of non- 1,000
taxable items [Rs. 20,000 x 5%]
Total tax liability under reverse charge [B] 10,000
Net GST liability to be paid in cash [A] + [B] 10,000
As per section 49(4), amount available in the electronic
credit ledger may be used for making payment towards
output tax. However, tax payable under reverse charge is
not an output tax in terms of section 2(82). Therefore, tax
payable under reverse charge cannot be set off against
the ITC and thus, will have to be paid in cash.

Note: While computing net GST liability, ITC credited to the electronic ledger can alternatively be computed as
follows:
Particulars (Rs.)
GST paid on taxable items [Rs. 55,00,000 x 18%] 9,90,000
Items exempted vide a notification [Since exempted, no GST is paid] Nil
Items not leviable to tax [Since non-taxable, no GST is paid] Nil

227
GST paid under reverse charge on freight paid to GTA for inward 5,000
transportation of taxable items [Rs. 1,00,000 x 5%]
GST paid under reverse charge on freight paid to GTA for inward Nil
transportation of exempted items [Rs. 80,000 x 5%]
[As per section 2(47), exempt supply means, inter alia, supply which
may be wholly exempt from tax by way of a notification issued
under section 11. Hence,
input service of inward transportation of exempt items is exclusively
used for effecting exempt supplies. Input tax exclusively attributable
to exempt supplies is to be excluded]
GST paid under reverse charge on freight paid to GTA for inward Nil
transportation of non-taxable items [Rs. 20,000 x 5%]
[Exempt supply includes non-taxable supply in terms of section
2(47). Hence, input service of inward transportation of non-taxable
items is exclusively used for effecting exempt supplies. Input tax
exclusively attributable to exempt supplies is to be excluded]
GST paid on monthly rent – for business purposes 66,000
[(Rs. 5,50,000 x 18%) – 1/3 of [(Rs. 5,50,000 x 18%)]

GST paid on packing charges [Rs. 2,50,000 x 18%] 45,000

Salary paid to staff at the Store Nil

[Services by an employee to the employer in the course of or in
relation to his employment is not a supply in terms of para 1 of the
Schedule III to CGST Act and hence, no GST is payable thereon]
GST paid on inputs used for personal purpose Nil
[ITC on goods or services or both used for personal consumption is
blocked under section 17(5)(g)]
GST paid on rent a cab services availed for business purpose Nil
[ITC on rent a cab service is blocked under section 17(5)(b)(i) as the
same is not used by All-in-One Store for providing the rent a cab
service or as part of a taxable composite or mixed supply.]
GST paid on items given as free samples Nil
[ITC on goods inter alia, disposed of by way of free samples is
blocked under section 17(5)(h)]
Total ITC credited to the electronic ledger 11,06,000

Less: ITC reversal [ITC of common credit, attributable to exempt (25,615)

228
supplies]

Net ITC available for credit 10,80,385

19. Vansh Shoppe is a registered supplier of both taxable and exempted goods, registered under GST in the
State of Rajasthan. Vansh Shoppe has furnished the following details for a month:

(Rs.)
(1) Details of sales:
Supply of taxable goods 50,00,000
Supply of goods not leviable to GST 10,00,000
(2) Details of goods purchased for being sold in the shop:
Taxable goods 45,00,000
Goods not leviable to GST 4,00,000
Details of expenses:
3) Monthly rent payable for the shop 3,50,000
Telephone expenses paid 50,000
(Rs. 30,000 for land line phone installed at the shop and Rs.
20,000 towards mobile phone bills of the employees –
Mobile phones are given to employees for official use)
Audit fees paid to a Chartered Accountant 60,000
(Rs. 35,000 for filing of income tax return & the statutory
audit of preceding financial year and Rs. 25,000 for filing of
GST return)
Premium paid on health insurance policies taken for 10,000
specified employees of the shop as per company policy.
Freight paid to goods transport agency (GTA) for inward 50,000
transportation of goods not leviable to GST
Freight paid to goods transport agency (GTA) for inward 1,50,000
transportation of taxable goods
Goods given as free samples (Not included in Taxable goods 5,000
value of 45,00,000)

All the above amounts are exclusive of all kind of taxes, wherever applicable.

All the purchases and sales made by Vansh Shoppe are within Rajasthan. All the purchases are made from

229
registered suppliers. All the other expenses incurred are also within Rajasthan.
Assume, wherever applicable, for purpose of reverse charge payable by Vansh Shoppe, the CGST, SGST and
IGST rates as 2.5%, 2.5% and 5% respectively. CGST, SGST and IGST rates to be 6%, 6% and 12% respectively
in all other cases.

There is no opening balance in the electronic cash ledger or electronic credit ledger. Subject to the
information given above, assume that all the other conditions necessary for availing ITC have been fulfilled.
You are required to compute the following:

(1) Input Tax Credit (ITC) credited to Electronic Credit Ledger

(2) Common credit available for apportionment

(3) ITC attributable towards exempt supplies out of common credit

(4) Net GST payable from Electronic Cash Ledger for the month

ANSWER:

(1) Computation of ITC credited to Electronic Credit Ledger

ITC of input tax attributable to inputs and input services intended to be used for business purposes is credited
to the electronic credit ledger. Input tax attributable to inputs and input services intended to be used
exclusively for non-business purposes, for effecting exclusively exempt supplies and on which credit is blocked
under section 17(5) is not credited to electronic credit ledger [Sections 16 and 17].
In the light of the aforementioned provisions, the ITC credited to electronic credit ledger of Vansh Shoppe is
calculated as under:
Particulars Amount (Rs.) CGST @ 6% SGST @
(Rs.) 6% (Rs.)
GST paid on taxable goods 45,00,000 2,70,000 2,70,000
Goods not leviable to GST [Since non-taxable, no GST is paid] 4,00,000 Nil Nil

GST paid on monthly rent for shop 3,50,000 21,000 21,000

GST paid on telephone expenses 50,000 3,000 3,000
GST paid on audit fees 60,000 3,600 3,600
GST paid on premium of health insurance policies as per 10,000 Nil Nil
company policy
[ITC on health insurance service is allowed only if it is obligatory
for employers to provide such services to its employees under
any law for the time being in force-Proviso to section 17(5)(b)].

230
Goods given as free samples 5,000 Nil Nil
[ITC on goods disposed of by way of free samples is blocked
under section 17(5)(h)]
Particulars Amount (Rs.) CGST @ SGST @
2.5% (Rs.) 2.5% (Rs.)
Freight paid to GTA for inward transportation of non-taxable 50,000 Nil Nil
goods under reverse charge
[Since definition of exempt supply under section 2(47)
specifically includes non-taxable supply, the input service of
inward transportation of non-taxable goods is being exclusively
used for effecting exempt supplies.]
Freight paid to GTA for inward transportation of taxable goods 1,50,000 3,750 3,750
under reverse charge
ITC credited to the electronic ledger 3,01,350 3,01,350
Less: ITC reversal [ITC out of common credit, attributable to (4,600) (4,600)
exempt supplies](Refer point no. 2 & 3 below)

Net ITC available 2,96,750 2,96,750

(2) Computation of common credit available for apportionment

Common Credit = ITC credited to Electronic Credit Ledger – ITC attributable to inputs and input services
intended to be used exclusively for effecting taxable supplies [Section 17 read with rule 42].

Particulars CGST (Rs.) SGST (Rs.)

ITC credited to Electronic Credit Ledger 3,01,350 3,01,350
Less : ITC on taxable goods 2,70,000 2,70,000
Less: ITC on freight paid to GTA for inward 3,750 3,750
transportation of taxable goods
Common credit 27,600 27,600

231
3) Computation of ITC attributable towards exempt supplies out of common credit
ITC attributable towards exempt supplies = Common credit x (Aggregate value of exempt supplies during the
tax period/ Total turnover during the tax period)[Section 17 read with rule 42].

Particulars CGST SGST

(Rs.) (Rs.)
ITC attributable towards exempt supplies 4,600 4,600
[Rs. 27,600 x (Rs. 10,00,000/Rs.
60,00,000)]
(4) Computation of net GST liability for the month
Particulars CGST (Rs.) SGST
(Rs.)
GST liability under forward charge
Supply of taxable goods [Rs. 50,00,000 x 3,00,000 3,00,000
6%]
Total output tax liability under forward 3,00,000 3,00,000
charge
Less: ITC credited to the electronic 2,96,750 2,96,750
credit ledger
Net GST payable [A] 3,250 3,250
GST liability under reverse charge
Freight paid to GTA for inward 3,750 3,750
transportation of taxable goods
[Rs. 1,50,000 x 2.5%]
Freight paid to GTA for inward 1,250 1,250
transportation of non-taxable goods
[Rs. 50,000 x 2.5%]
Total tax liability under reverse charge 5,000 5,000
[B]
Net GST liability [A] + [B] 8,250 8,250

Note: Amount available in the electronic credit ledger may be used for making payment towards output tax
[Section 49]. However, tax payable under reverse charge is not an output tax in terms of definition of output
tax provided under section 2(82). Therefore, tax payable under reverse charge cannot be set off against the
input tax credit and thus, will have to be paid in cash.

20. Mr. Rajesh Surana has a proprietorship firm in the name of Surana & Sons in Jaipur. The firm, registered
under GST in the State of Rajasthan, manufactures three taxable products ‘M’, ‘N’ and ‘O’. Tax on ‘N’ is
payable under reverse charge. The firm also provides taxable consultancy services.
The firm has provided the following details for a tax period:
Particulars (Rs.)

232
Turnover of ‘M’ (excluding export sales) 14,00,000
Turnover of ‘N’ 6,00,000
Turnover of ‘O’ (excluding export sales) 10,00,000
Export of ‘M’ with payment of IGST (not eligible to avail 2,50,000
benefit of merchant exports under Notification No. 41/2017)
Export of ‘O’ under letter of undertaking 10,00,000
Consultancy services provided to unrelated clients located in 20,00,000
foreign countries. In all cases, the consideration has been
received in convertible foreign exchange
 Sale of building (excluding stamp duty of Rs. 2.50 lakh, being 1,20,00,000
2% of value) [Entire consideration is received post issuance
of completion certificate; building was occupied thereafter]
Interest received on investment in fixed deposits with a bank 4,00,000
Sale of shares (Purchase price Rs. 2,40,00,000/-) 2,50,00,000
Legal services received from an advocate in relation to 3,50,000
product ‘M’
Common inputs and input services used for supply of goods 50,00,000
and services mentioned above [Inputs - Rs. 35,00,000; Input
services - Rs. 15,00,000]

With the help of the above-mentioned information, compute the net GST liability of Surana & Sons, payable
from Electronic Credit Ledger and/or Electronic Cash Ledger, as the case may be, for the tax period.
Note: Assume that rate of GST on goods and services are 12% and 18% respectively (Ignore CGST, SGST or
IGST for the sake of simplicity). Subject to the information given above, assume that all the other conditions
necessary for availing ITC have been fulfilled. Turnover of Surana & Sons was Rs. 85,00,000 in the previous
financial year. (MTP MAY 2019)

ANSWER:
Computation of net GST liability of Surana & Sons for the tax period
Particulars (Rs.)
GST payable on outward supply [Refer Working Note 1] 3,18,000
Less: Input tax credit (ITC) [Refer Working Note 3] 2,78,180
GST payable from Electronic Cash Ledger [A] 39,820
Add: GST payable on legal services under reverse charge [Rs. 63,000
3,50,000 X 18%] [B]
[Tax on legal services provided by an advocate to a business
entity, is payable under reverse charge by the business entity in
terms of Notification No. 13/2017 CT (R) dated 28.06.2017.
Further, such services are not eligible for exemption provided
under Notification No. 12/2017 CT (R) dated 28.06.2017 as the
turnover of the business entity (Surana & Sons) in the preceding
financial year exceeds Rs. 20 lakh.]

233
Total GST paid from Electronic Cash Ledger [A] + [B] 1,02,820
[As per section 49(4) amount available in the electronic credit
ledger may be used for making payment towards output tax.
However, tax payable under reverse charge is not an output tax
in terms of section 2(82). Therefore, input tax credit cannot be
used to pay tax payable under reverse charge and thus, tax
payable under reverse charge will have to be paid in cash.]
Working Note 1
Computation of GST payable on outward supply
Particulars Value (Rs.) GST (Rs.)
Turnover of ‘M’ [liable to GST @ 12%] 14,00,000 1,68,000
Turnover of ‘N’ [Tax on ‘N’ is payable under reverse 6,00,000 Nil
charge by the recipient of such goods]
Turnover of ‘O’ [liable to GST @ 12%] 10,00,000 1,20,000
Export of ‘M’ with payment of IGST @ 12% 2,50,000 30,000
Export of ‘O’ under letter of undertaking (LUT) 10,00,000 Nil
[Export of goods is a zero rated supply in terms of
section 16(1)(a) of the IGST Act, 2017. A zero rated
supply can be supplied without payment of tax
under a LUT in terms of section 16(3)(a) of that
Act.]
Consultancy services provided to independent 20,00,000 Nil
clients located in foreign countries.
[The activity is an export of service in terms of
section 2(6) of the IGST Act, 2017 as-
• the supplier of service is located in India;
• the recipient of service is located outside India;
• place of supply of service is outside India (in
terms of section 13(2) of the IGST Act, 2017);
• payment for the service has been received in
convertible foreign exchange or in Indian rupees
wherever permitted by the Reserve Bank of India;
and
• supplier of service and recipient of service are not
merely establishments of distinct person.

[Export of services is a zero rated supply in terms of

section 16(1)(a) of the IGST Act, 2017. A zero rated
supply can be supplied without payment of tax
under a LUT in terms of section 16(3)(a) of that

234
Act.]
It is assumed that export has been made under LUT
Sale of building 1,20,00,000 Nil
[Sale of building is neither a supply of goods nor a
supply of services in terms of para 5 of Schedule III
to the CGST Act, provided the entire consideration
has been received after issue of completion
certificate by the competent authority or after its
occupation, whichever is earlier. Hence, the same is
not liable to GST]
 Interest received on investment in fixed deposits 4,00,000 Nil
with a bank
[Exempt vide Notification No. 12/2017 CT (R) dated
28.06.2017]
Sale of shares 2,50,00,000 Nil
[Shares are neither goods nor services in terms of
section 2(52) and 2(102). Hence, sale of shares is
neither a supply of goods nor a supply of services
and hence, is not liable to any tax.]
Total GST payable on outward supply 3,18,000

Working Note 2
Computation of common credit attributable to exempt supplies during the tax period
Particulars (Rs.)
Common credit on inputs and input services [Tax on inputs - 6,90,000
Rs. 4,20,000 (Rs. 35,00,000 x 12%) + Tax on input services –
Rs. 2,70,000 (Rs. 15,00,000 x 18%)]
Common credit attributable to exempt supplies (rounded off) 4,74,820
= Common credit on inputs and input services x (Exempt
turnover during the period / Total turnover during the
period)
= Rs. 6,90,000 x Rs. 1,33,50,000/ Rs. 1,94,00,000
Exempt turnover = Rs. 1,33,50,000 and total turnover =
Rs.1,94,00,000 [Refer note below]

Note:

As per section 17(3), value of exempt supply includes supplies on which the recipient is liable to pay tax on
reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of
Schedule II, sale of building. As per explanation to Chapter V of the CGST Rules, the value of exempt supply in
respect of land and building is the value adopted for paying stamp duty and for security is 1% of the sale value
of such security.

235
Further, as per explanation to rule 42, the aggregate value of exempt supplies inter alia excludes the value of
services by way of accepting deposits, extending loans or advances in so far as the consideration is
represented by way of interest or discount, except in case of a banking company or a financial institution
including a non-banking financial company, engaged in supplying services by way of accepting deposits,
extending loans or advances.

Therefore, value of exempt supply in the given case will be the sum of value of output supply on which tax is
payable under reverse charge (Rs. 6,00,000), value of sale of building (Rs. 2,50,000 / 2 x 100 = Rs. 1,25,00,000)
and value of sale of shares (1% of Rs. 2,50,00,000 = Rs. 2,50,000), which comes out to be Rs. 1,33,50,000.
Total turnover = Rs. 1,94,00,000 (Rs. 14,00,000 + Rs. 6,00,000 + Rs. 10,00,000 + Rs. 2,50,000 + Rs. 10,00,000 +
Rs. 20,00,000 + Rs. 1,25,00,000 + Rs. 4,00,000 + Rs. 2,50,000)

Working Note 3

Computation of ITC available in the Electronic Credit Ledger of the Surana & Sons for the tax period

Particulars (Rs.)
Common credit on inputs and input services 6,90,000
Legal services used in the manufacture of taxable product 63,000
‘M’
ITC available in the Electronic Credit Ledger 7,53,000
Less: Common credit attributable to exempt supplies during 4,74,820
the tax period [Refer Working Note 2]
Net ITC available 2,78,180

21. M/s XYZ, a registered supplier, supplies the following goods and services for construction of buildings
and complexes -

- excavators for required period at a per hour rate

- manpower for operation of the excavators at a per day rate
- soil-testing and seismic evaluation at a per sample rate.

The excavators are invariably hired out along with operators. Similarly, excavator operators are supplied
only when the excavator is hired out.
M/s XYZ receives the following services:

- Maintenance services for excavators;

- Health insurance for operators of the excavators;
- Scientific and technical consultancy for soil testing and seismic evaluation.

For a given month, the receipts (exclusive of GST) of M/s XYZ are as follows:

236
- Hire charges for excavators - Rs. 18,00,000
- Service charges for supply of manpower for operation of the excavator - Rs. 20,000
- Service charges for soil testing and seismic evaluation at three sites - Rs. 2,50,000

The GST paid during the said month on services received by M/s XYZ is as follows:
- Maintenance for excavators - Rs. 1,00,000
- Health insurance for excavator operators - Rs. 11,000
- Scientific and technical consultancy for soil testing and seismic evaluation - Rs. 1,00,000
Compute the net GST payable by M/s XYZ from Electronic Cash Ledger for the given month.

Assume the rates of GST to be as under:

Hiring out of excavators – 12%
Supply of manpower services and soil-testing and seismic evaluation services – 18%
(Ignore CGST, SGST or IGST for the sake of simplicity).

Note: - Opening balance of ITC of GST is nil. (MTP MAY 2020)

ANSWER:

Computation of net GST payable by M/s XYZ

Particulars GST payable (Rs.)
Gross GST liability [Refer Working Note 1 below] 2,63,400
Less: ITC [Refer Working Note 2 below] 2,00,000
Net GST payable from Electronic Cash Ledger 63,400

Working Notes
(1) Computation of gross GST liability
Particulars Value Rate of GST
received GST payable
(Rs.) (Rs.)
Hiring charges for excavators 18,00,000 12% 2,16,000
Service charges for supply of 20,000 12% 2,400
manpower for operation of
excavators [Refer Note 1]
Service charges for soil testing and 2,50,000 18% 45,000
seismic evaluation [Refer Note 2]
Gross GST liability 2,63,400
Notes:

(i) Since the excavators are invariably hired out along with operators and excavator operators are supplied

237
only when the excavator is hired out, it is a case of composite supply under section 2(30) wherein the principal
supply is the hiring out of the excavator.
As per section 8(a), the composite supply is treated as the supply of the principal supply. Therefore, the supply
of manpower for operation of the excavators will also be taxed at the rate applicable for hiring out of the
excavator (principal supply), which is 12%.

(ii) Soil testing and seismic evaluation services being independent of the hiring out of excavator will be taxed
at the rate applicable to them, which is 18%.
(2) Computation of ITC available for set off

Particulars GST paid ITC

(Rs.) available
(Rs.)
Maintenance services for excavators [Refer Note 1] 1,00,000 1,00,000
Health insurance for excavator operators [Refer Note 11,000 -
2]
Scientific and technical consultancy [Refer Note 1] 1,00,000 1,00,000
Total ITC available 2,00,000

Notes:

(i) Section 17(5)(d) blocks credit on goods/ or services received by a taxable person for construction of an
immovable property on his own account. Here, though the excavators are used for building projects, the same
are not used by M/s. XYZ on its own account for construction of immovable property instead they are used for
outward taxable supply of hiring out of machinery. Further, excavators are special purpose vehicles whose
credit is not restricted under section 17(5)(a), therefore, ITC on maintenance service for excavators shall be
allowed.

Therefore, the maintenance service for the excavators does not get covered by the bar under section 17 and
the credit thereon will be available. The same applies for scientific & technical consultancy for construction
projects because in this case also, the service is used for providing the outward taxable supply of soil testing
and seismic evaluation service and not for construction of immovable property.

(ii) Section 17(5)(b)(i) allows input tax credit on health insurance only where an inward supply of such services
is used by a registered person for making an outward taxable supply of the same category of goods or services
or both or as an element of a taxable composite or mixed supply or where it is obligatory for an employer to
provide the same to its employees under any law for the time being in force.
In the given case, it is assumed that it is not obligatory for employer to provide health insurance to its
employees under any law for the time being in force, therefore the credit thereon will not be allowed.

22. V-Supply Pvt. Ltd. is a registered manufacturer of auto parts in Kolkata, West Bengal. The company has a 238
manufacturing facility registered under Factories Act, 1948 in Kolkata. It procures its inputs indigenously
from both registered and unregistered suppliers located within as well as outside West Bengal as also
imports some raw material from China.
The company reports the following details for a tax period:
 Payments (Rs.) (in lakh) Receipts (Rs.) (in lakh)
Raw material 3.5 Sales 15
Consumables 1.25
Transportation charges for 0.70
bringing the raw material to
factory
Salary paid to employees on rolls 5.0
Premium paid on life insurance 1.60
policies taken for specified
employees
Audit fee 0.50
Telephone expenses 0.30
Bank charges 0.10

All the above amounts are exclusive of all kinds of taxes, wherever applicable. However, the applicable
taxes have also been paid by the company.

Further, following additional details are furnished by the company in respect of the payments and receipts
reported by it:

(i) Raw material amounting to Rs. 0.80 lakh is procured from Bihar and Rs. 1.5 lakh is imported from China.
Basic customs duty of Rs. 0.15 lakh, social welfare surcharge of Rs. 0.015 lakh and integrated tax of Rs.
0.2997 lakh are paid on the imported raw material.

Remaining raw material is procured from suppliers located in West Bengal. Out of such raw material, raw
material worth Rs. 0.30 lakh is procured from unregistered suppliers; the remaining raw material is
procured from registered suppliers.
Further, raw material worth Rs. 0.05 lakh purchased from registered supplier located in West Bengal has
been destroyed due to seepage problem in the factory and thus, could not be used in the manufacturing
process.

(ii) Consumables are procured from registered suppliers located in Kolkata and include diesel worth Rs. 0.25

239
lakh for running the generator in the factory.

(iii) Transportation charges comprise of Rs. 0.60 lakh paid to Goods Transport Agency (GTA) in Kolkata and
Rs. 0.10 lakh paid to horse pulled carts. GST applicable on the services of GTA is 5%.

(iv) Life insurance policies for specified employees have been taken by the company to fulfill a statutory
obligation in this regard. The life insurance service provider is registered in West Bengal.

(v) Audit fee is paid to M/s Goyal & Co., a firm of Chartered Accountants registered in West Bengal, for the
statutory audit of the preceding financial year.
(vi) Telephone expenses pertain to bills for landline phone installed at the factory and mobile phones given
to employees for official use. The telecom service provider is registered in West Bengal.

(vii) Bank charges are towards company’s current account maintained with a Private Sector Bank registered
in West Bengal.

(viii) The breakup of sales is as under:

Sales in West Bengal – Rs. 7 lakh
Sales in States other than West Bengal – Rs. 3 lakh
Export under LUT – Rs. 5 lakh
(ix) The opening balance of ITC with the company for the tax period is:
CGST - Rs. 0.15 lakh
SGST - Rs. 0.08 lakh
IGST - Rs. 0.09 lakh
Compute (i) ITC available with V-Supply Pvt. Ltd. for the tax period; and (ii) Net GST payable [CGST, SGST or
IGST, as the case may be] from Electronic Cash Ledger by V-Supply Pvt. Ltd. for the tax period.

Note-

(i) CGST, SGST & IGST rates to be 9%, 9% and 18% respectively, wherever applicable.

(ii) The necessary conditions for availing ITC have been complied with by V-Supply Pvt. Ltd., wherever
applicable.

You are required to make suitable assumptions, wherever necessary. (MTP NOV 2018) (MTP MAY 2018)

ANSWER:
Computation of ITC available with V-Supply Pvt. Ltd. for the tax period

S. No. ITC
Particulars Rs.CGST SGST* IGST* Total
* Rs. Rs. Rs.
1. Opening balance of ITC 15,000 8,000 9,000 32,000

240
2. Raw Material
Raw material purchased 14,400 14,400
from Bihar [Refer Note
1(i)]
Raw material imported 29,970 29,970
from China [Refer Note
1(ii)]
Raw material purchased Nil Nil Nil
from unregistered
suppliers within West
Bengal [Refer Note 1(iii)]
Raw material destroyed due to seepage [Refer Note 1(iv)] Nil Nil Nil

Remaining raw material purchased from West Bengal [Refer Note 7,650 7,650 15,300
1(i)]
[Rs. 3.5 - Rs. 1.5 – Rs. 0.80 – Rs. 0.30 – Rs. 0.05] = Rs. 0.85]
Total ITC for raw material 7,650 7,650 44,370 59,670
3. Consumables [Refer Note 2] 9,000 9,000 18,000
4. Transportation charges for bringing the raw material to factory 1,500 1,500 3,000
[Refer Note 3]
5. Salary paid to employees on rolls [Refer Note 4] Nil Nil Nil Nil
6. Premium paid on life insurance policies taken for specified 14,400 14,400 - 28,800
employees [Refer Note 5]
7. Audit fee [Refer Note 6 4,500 4,500 - 9,000
8. Telephone expenses [Refer Note 6] 2,700 2,700 5,400
9. Bank charges [Refer Note 6] 900 900 1,800
Total ITC available for the tax period 55,650 48,650 53,370 157670

Computation of net GST payable

Particulars CGST* SGST* IGST* Total
Rs. Rs. Rs. Rs.
On Intra-state sales in West Bengal 63,000 63,000 1,26,000
On Inter-state sales other than West Bengal 54,000 54,000
On exports under LUT [Note Nil Nil Nil Nil
7]
Total output tax liability 63,000 63,000 54,000 1,80,000
Less: ITC available for being (55,650) (48,650) (53,370) (1,57,670)
set off [Note 8 and Note 9]
Net GST payable from 7,350 14,350 630 22,330
Electronic Cash Ledger [A]
GST payable on inward supply of GTA 1,500 1,500 3,000
services under reverse charge through

241
Electronic Cash Ledger [Note 3 and 10]
[B]
Net GST payable through 8,850 15,850 630 25,330
Electronic Cash Ledger [A] +
[B]
Notes:
(1) (i) Credit of input tax (CGST & SGST/ IGST) paid on raw materials used in the course or furtherance of
business is available in terms of section 16(1).

(ii) IGST paid on imported goods qualifies as input tax in terms of section 2(62)(a). Therefore, credit of IGST
paid on imported raw materials used in the course or furtherance of business is available in terms of section
16(1).
(iii) Tax on intra-State procurements made by a registered person from an unregistered supplier is levied only
on notified categories of goods and services. [Section 9(4)].
(iv) ITC is not available on destroyed inputs in terms of section 17(5)(h).

2. Consumables, being inputs used in the course or furtherance of business, input tax credit is available on the
same in terms of section 16(1). However, levy of CGST on diesel has been deferred till such date as may be
notified by the Government on recommendations of the GST Council [Section 9(2)]. Hence, there being no levy
of GST on diesel, there cannot be any ITC.

3. In respect of intra-State road transportation of goods undertaken by a GTA, who has not paid CGST @ 6%,
for any person registered under the GST law, CGST is payable under reverse charge by the recipient of service.
The person who pays or is liable to pay freight for the transportation of goods is treated as the person who
receives the service [Notification No. 13/2017 CT (R) dated 28.06.2017]. Thus, V-Supply Pvt. Ltd. will pay GST
under reverse charge on transportation service received from GTA.
Further, tax payable under section 9(3) of the CGST/SGST Act qualifies as input tax in terms of clauses (b) and
(d) of section 2(62). Thus, input tax paid under reverse charge on GTA service will be available as ITC in terms
of section 16(1) as the said service is used in course or furtherance of business.
Furthermore, intra-State services by way of transportation of goods by road except the services of a GTA and a
courier agency are exempt from CGST vide Notification No. 12/2017 CT (R) dated 28.06.2017. Therefore,
since no GST is paid on such services, there cannot be any ITC on such services.

4. Services by employees to employer in the course of or in relation to his employment is not a supply in terms
of section 7 read with para 1 of Schedule III to the CGST Act. Therefore, since no GST is paid on such services,
there cannot be any ITC on such services

5. ITC on supply of life insurance service is not blocked if it is obligatory for an employer to provide such 242
service to its employees under any law for the time being in force. [Proviso to section 17(5)(b)]. Therefore, GST
paid on premium for life insurance policies will be available as ITC in terms of section 16(1) as the said service
is used in the course or furtherance of business.

6. Audit fee, telephone expenses and bank charges are all services used in the course or furtherance of
business and thus, credit of input tax paid on such service will be available in terms of section 16(1).
7. Export of goods is a zero rated supply in terms of section 16(1)(a) of the IGST Act. A zero rated supply under
LUT is made without payment of integrated tax [Section 16(3)(a) of the IGST Act].

8. Since export of goods is a zero rated supply, there will be no apportionment of ITC and full credit will be
available [Section 16 of the IGST Act read with section 17(2) of the CGST Act].

9. As per section 49(5) read with rule 88A, ITC of-

(i) IGST is utilised towards payment of IGST first and then CGST and SGST in any proportion and in any order.
(ii) CGST is utilised towards payment of CGST and IGST in that order. ITC of CGST shall be utilized only after ITC
of IGST has been utilised fully.
(iii) SGST is utilised towards payment of SGST and IGST in that order. ITC of SGST shall be utilized only after ITC
of IGST has been utilised fully.

10. Section 49(4) lays down that the amount available in the electronic credit ledger may be used for making
payment towards output tax. However, tax payable under reverse charge is not an output tax in terms of
section 2(82). Therefore, tax payable under reverse charge cannot be set off against the ITC and thus, will have
to be paid in cash

*11. CGST and SGST are chargeable on intra-State inward and outward supplies and IGST is chargeable on
inter-State inward and outward supplies.

23. ABC Company Ltd. of Bengaluru is a manufacturer and registered supplier of machineries. It has
provided the following details for a tax period:
Inward supplies GST paid (Rs.)
Health insurance of factory employees as 20,000
required by the Factories Act, 1948
Raw materials for which invoice has been 18,000
received and GST has also been paid for full
amount but only 50% of material has been
received, remaining 50% will be received in next
month
Work contractor’s service used for installation of 12,000

243
plant and machinery
Purchase of manufacturing machine sent directly 50,000
to job worker’s premises under delivery challan
Purchase of car used by director exclusively for 25,000
the purpose of business meetings
Outdoor catering service availed for business 8,000
meetings

ABC Company Ltd. also provides service of hiring of machines along with manpower for operation. As per
trade practice, machines are always hired out along with operators and also operators are supplied only
when machines are hired out.
Outward supply (exclusive of GST) for the tax period are as follows:
Particulars Value (Rs.)
Hiring receipts for machine 5,25,000
Service charges for supply of manpower 2,35,000
operators

Assume the rates of GST to be as under:

(i) Service of hiring of machine 12%

(ii) Supply of manpower operator service 18%

(Ignore CGST, SGST or IGST for the sake of simplicity)

Compute the amount of ITC available as also the net GST payable from the Electronic Cash Ledger for the
tax period by giving necessary explanations for treatment of various items.

Note: Opening balance of ITC is Nil. (PAST EXAM MAY 2018) (MTP NOV 2020)

ANSWER:
Computation of net GST payable by ABC Company Ltd.

Particulars GST payable

(Rs.)
Gross GST liability [Refer working note (2) below] 91,200
Less: Input tax credit [Refer working note (1) below] 82,000
Net GST payable from Electronic Cash Ledger 9,200
Working Notes:
(1) Computation of ITC available with ABC Company Ltd.

Particulars GST (Rs.)

Health insurance of factory employees [Note – 1] 20,000

244
Raw material received in factory [Note – 2] Nil
Work’s contractor’s service used for installation of 12,000
plant and machinery [Note -3]
Manufacturing machinery directly sent to job 50,000
worker’s premises under challan [Note -4]
Purchase of car used by director for business Nil
meetings only [Note -5]
Outdoor catering service availed for business Nil
meetings [Note -6]
Total ITC available 82,000
Notes:
1. ITC of health insurance is available in the given case in terms of proviso to section 17(5)(b) since it is
obligatory for employer to provide health insurance to its employees under the Factories Act, 1948. –

2. Where the goods against an invoice are received in lots/ instalments, ITC is allowed upon receipt of the last
lot/ instalment vide first proviso to section 16(2). Therefore, ABC Company Ltd. will be entitled to ITC of raw
materials on receipt of second instalment in next month.

3. Section 17(5)(c) provides that ITC on works contract services is blocked when supplied for construction of
immovable property (other than plant and machinery) except when the same is used for further supply of
works contract service.
Though in this case, the works contract service is not used for supply of works contract service, ITC thereon
will be allowed since such services are being used for installation of plant and machinery.

4. ITC on capital goods directly sent to job worker’s premises under challan is allowed in terms of section 19(5)
read with rule 45(1).

5. Section 17(5)(a) provides that motor vehicle for transportation of persons having approved seating capacity
of not more than 13 persons (including the driver), except when they are used for making taxable supply of-
(i) further supply of such vehicles,
(ii) transportation of passengers,
(iii) imparting training on driving, flying, navigating such vehicles and
Since ABC Company Ltd is a supplier of machine and it does not use the car for transportation of passengers or
any other use as specified, ITC thereon will not be available.

6. Section 17(5)(b)(i) provides that ITC on outdoor catering is blocked except where the same is used for
making further supply of outdoor catering or as an element of a taxable composite or mixed supply.
Since ABC Company Ltd is a supplier of machine, ITC thereon will not be available.

(2) Computation of gross GST liability

Value Rate of GST
received GST payable
(Rs.) (Rs.)

245
Hiring receipts for machine 5,25,000 12% 63,000
Service charges for supply of 2,35,000 12% 28,200
manpower operators
Gross GST liability 91,200

Note:
Since machine is always hired out along with operators and operators are supplied only when the machines
are hired out, it is a case of composite supply, wherein the principal supply is the hiring out of machines
[Section 2(30) read with section 2(90)]. Therefore, service of supply of manpower operators will also be taxed
at the rate applicable for hiring out of machines (principal supply), which is 12%, in terms of section 8(a).
,
24. Pari Ltd. of Jodhpur (Rajasthan) is a registered manufacturer of cosmetic products. Pari Ltd. has
furnished following details for a tax period: (PAST EXAM NOV 2018) (MTP- NOV 2021)
Particulars (Rs.)
Details of Outward supplies
(i) Supplies in Rajasthan 8,75,000
(ii) Supplies in States other than Rajasthan 3,75,000
(iii) Export under LUT 6,25,000
Details of expenses
(i) Raw materials purchased from registered 1,06,250
suppliers located in Rajasthan
(ii) Raw materials purchased from unregistered 37,500
suppliers located in Rajasthan
(iii) Raw materials purchased from Punjab from 1,00,000
registered supplier
(iv) Integrated tax paid on raw materials imported 22,732
from USA
(v) Consumables purchased from registered 1,56,250
suppliers located in Rajasthan including high
speed diesel (Excise and VAT paid) valuing Rs.
31,250 for running the machinery in the factory
(vi) Monthly rent for the factory building to the 1,00,000
owner in Rajasthan
(vii) Salary paid to employees on rolls 6,25,000
(viii) Premium paid on life insurance policies taken for 2,00,000
specified employees. Life insurance policies for
specified employees have been taken by Pari Ltd.
to fulfill a statutory obligation in this regard. The
life insurance service provider is registered in
Rajasthan.

All the above amounts are exclusive of all kinds of taxes, wherever

246
applicable. However, the applicable taxes have also been paid by Pari
Ltd.
The opening balance of ITC with Pari Ltd. for the given tax period is-
CGST Rs. 20,000
SGST Rs. 15,000
IGST Rs. 15,000

Assume CGST, SGST and lGST rates to be 9%, 9% and 18% respectively, wherever applicable.
Assume that all the other necessary conditions to avail the ITC have been complied with by Pari Ltd.,
wherever applicable.
Compute (i) ITC available with Pari Ltd. for the tax period; and (ii) Net GST payable [CGST, SGST or IGST, as
the case may be] from Electronic Cash Ledger by Pari Ltd. for the tax period.

ANSWER:
Computation of ITC available with Pari Ltd.
S. No. Particulars Eligible input
tax credit
CGST SGST IGST
(Rs.) (Rs.) (Rs.)
1. Raw Material
Purchased from local registered 9,562.50 9,562.50
suppliers [Note 1(i)] (Rs. 1,06,250 x
9%)
Purchased from local unregistered Nil Nil
suppliers [Note 1(ii)]
Purchased from Punjab from 18,000
registered supplier [Note 1(i)] (Rs.
1,00,000 x 18%)
Raw material imported from USA 22,732
[Note 1(iii)]
2. Consumables [Note 2] (Rs. 11,250 11,250
1,56,250- Rs. 31,250) x 9%]
3. Monthly rent for the factory 9,000 9,000
building to the owner in Rajasthan
[Note 3]
4.Salary paid to employees on rolls Nil Nil Nil
[Note 4]
5. Premium paid on life insurance 18,000 18,000 -
policies taken for specified employees
[Note 5] (Rs. 2,00,000 x 9%)
Total 47,812.50 47,812.50 40,732
Add: Opening balance of ITC 20,000 15,000 15,000
Total ITC [Note 7] 67,812.50 62,812.50 55,732

247
Computation of net GST payable

Particulars CGST SGST IGST

(Rs.) (Rs.) (Rs.)
Intra-State supply 78,750 78,750
Inter-State supply 67,500
Exports under LUT [Note 6] Nil Nil Nil
Total output tax liability 78,750 78,750 67,500
Less: ITC 67,812.50 62,812.50 55,732
Net GST payable 10,937.50 15,937.50 11,768

Notes:

1. (i) Credit of input tax (CGST & SGST/ IGST) paid on raw materials used in the course or furtherance of
business is available in terms of section 16.
(ii) Tax on procurements made by a registered person from an unregistered supplier is levied only in case of
notified goods and services in terms of section 9(4). Therefore, since no GST is paid on such raw material
purchased, there does not arise any question of ITC on such raw material.
(iii) IGST paid on imported goods qualifies as input tax in terms of section 2(62). Therefore, credit of IGST paid
on imported raw materials used in the course or furtherance of business is available in terms of section 16.

2. ITC on consumables, being inputs used in the course or furtherance of business, is available. However, since
levy of GST on high speed diesel has been deferred till a date to be notified by Government, there cannot be
any ITC of the same.

3. ITC on monthly rent is available as the said service is used in the course or furtherance of business.

4. Services by employees to employer in the course of or in relation to his employment is not a supply in terms
of section 7 read with Schedule III to the CGST Act. Therefore, since no GST is paid on such services, there
cannot be any ITC on such services.

5. ITC on life insurance service is available if the same is obligatory for an employer to provide to its employees
under any law for the time being in force as per proviso to section 17(5)(b).

6. Export of goods is a zero rated supply in terms of section 16(1)(a) of the IGST Act. A zero rated supply under 248
bond is made without payment of IGST in terms of section 16(3)(a).

7. Since export of goods is a zero rated supply, there will be no apportionment of ITC and full credit will be
available as per section 17(2).
25. Flowchem Palanpur (Gujarat) has entered into a contract with R Refinery, Abu Road (Rajasthan) on
1stJuly to supply 10 valves on FOR basis. The following information is provided in this regard: (MTP- NOV
2021)

(1) List price per valve isRs. 1,00,000, exclusive of taxes.

(2) One of the conditions of the contract is that Flowchem should ensure a two stage third party inspection
for the valves during the manufacturing process. Cost of inspection of Rs. 15,000 (for 10 valves) is directly
paid by R Refinery to testing agency.

(3) R Refinery requires a special packing for the valves. Cost of special packing is Rs. 10,000 (for 10 valves).

(4) Flowchem arranges for erection and testing of the valves supplied by it at R Refinery’s site. Cost of
erection etc. is Rs. 15,000 (for 10 valves).
(5) Goods are dispatched with tax invoice on 20thJuly and they reach the destination at Abu-Road on
21stJuly. Lorry freight ofRs. 5,000 has been paid by R Refinery directly to the lorry driver.
Assume CGST and SGST rates to be 9% each and IGST rate to be 18%. Opening balance of ITC of IGST is Nil,
CGST is Rs. 20,000 and SGST is Rs. 20,000. All the given amounts are exclusive of GST, wherever applicable.
Flowchem has also undertaken following local transactions during the month of July on which it has paid
CGST and SGST as under:

S. No. Particulars Amount paid CGST Amount paid

(Rs.) SGST
(Rs.)
1. Availed services of works contractor to erect foundation 5,000 5,000
for fixing the machinery to earth, in the factory.
2. Laid pipelines (from the water source outside the 10,000 10,000
factory) upto the gate of the factory for the purpose of
production facility.
3. For the purpose of smooth and convenient mobile 5,000 5,000
communication in its factory, it has installed
telecommunication tower of a mobile company (with
due permission)

249
4. It has entered into an agreement with a travel company 2,500 2,500
to provide home travel facility to its employees when
they are on leave.
5. It has entered into an agreement with a fitness center to 2,000 2,000
provide wellness services to its employees after office
hours

Work out the net GST [CGST, SGST or IGST, as the case may be] payable from Electronic Cash Ledger of
Flowchem, Palanpur (Gujarat) for the month of July after making suitable assumptions, if any.
(PAST EXAM MAY 2019) (MTP- NOV 2021)
ANSWER:
Computation of net GST payable by Flowchem for the month of July
Particulars CGST @ SGST @ IGST @ 18%
9% (Rs.) 9% (Rs.) (Rs.)
Output tax liability [Working Note 1] 1,88,100
Less: ITC of CGST [Working Note 2] (25,000)
Less: ITC of SGST has been utilized only after ITC (25,000)
of CGST has been utilized fully in terms of proviso to section
49(5)(c) [Working Note 2]
Net GST payable from Electronic Cash Ledger 1,38,100

Working Note 1
Computation of output tax liability of Flowchem for the month of July
Particulars Amount
(Rs.)
List price of 10 valves (Rs. 1,00,000 x 10) 10,00,000
Add: Amount paid by R Refinery to testing agency [Note 1] 15,000
Add: Special packing [Note 2] 10,000
Add: Erection and testing at site [Note 2] 15,000
Add: Freight [Note 3] 5,000
Value of taxable supply 10,45,000
IGST @ 18% [Note 4] 1,88,100

Notes:
(1) As per section 15(2), any amount that the supplier is liable to pay in relation to a supply but which has been
incurred by the recipient of the supply and not included in the price actually paid or payable for the goods
shall be included in the value of supply.
Since, in the given case, arranging inspection was the liability of the supplier, the same should be included in
the value of supply charges for the same, however, have been paid directly to the third party service provider
by the recipient. Therefore, the value shall be included in taxable value.

(2) As per section 15(2), any amount charged for anything done by the supplier in respect of the supply of

250
goods at the time of, or before delivery of goods shall be included in the value of supply.

(3) As per section 15(2), any amount that the supplier is liable to pay in relation to a supply but which has been
incurred by the recipient of the supply and not included in the price actually paid or payable for the goods
shall be included in the value of supply. Since, in the given case, the supply contract is on FOR basis, payment
of freight is the liability of supplier but the same has been paid by the recipient and thus, should be included in
the value of supply.

(4) As per section 10(1) of the IGST Act, 2017, where the supply involves movement of goods, the place of
supply is the location of the goods at the time at which the movement of goods terminates for delivery to the
recipient, which in the given case is Abu Road (Rajasthan). Since the location of the supplier (Gujarat) and the
place of supply (Rajasthan) are in two different States, the supply is an inter-State supply liable to IGST.

Working Note 2
Computation of ITC available with Flowchem for the month of July
Particulars CGST SGST (Rs.)
(Rs.)
Opening ITC 20,000 20,000
Wok contract services availed for erecting 5,000 5,000
foundation for fixing the machinery to the earth in
the factory [Note 1]
Laying of pipeline up to the gate of factory from Nil Nil
water source located outside the factory [Note 2]
Installation of telecommunication towers [Note 2] Nil Nil
Services of travel company to provide home travel Nil Nil
facility to employees Note 3]
Services of fitness center to provide wellness Nil Nil
services to employees [Note 3]
Total ITC 25,000 25,000

Notes:
(1) As per section 17(5), ITC on works contract services when supplied for construction of an immovable
property (other than plant and machinery) except where it is an input service for further supply of works
contract service, is blocked. Further, plant and machinery includes foundation and structural supports used to
fix the machinery to earth.

(2) As per section 17(5), ITC on goods and/ or services received by a taxable person for construction of an
immovable property (other than plant or machinery) on his own account including when such and/ or services
are used in course/ furtherance of business, is blocked. However, plant and machinery excludes pipelines laid
outside the factory premises and telecommunication towers.

(3) As per section 17(5), ITC on travel benefits extended to employees on home travel concession and
membership of health and fitness center is blocked unless it is obligatory for an employer to provide the same

251
to its employees under any law for the time being in force.

26 B & D Company, a partnership firm, in Nagpur, Maharashtra is a wholesaler of a taxable product ‘P’ and
an exempt product ‘Q’. The firm supplies these products only in the eastern part of Maharashtra. All the
procurements (both goods and services) of the firm are from the suppliers registered under regular scheme
in the State of Maharashtra. The firm pays tax under composition scheme. B & D Company has furnished
the following details with respect to its turnover (exclusive of taxes) and stock (exclusive of taxes): (RTP
NOV 2018)
The entire stock of the products ‘P’ and ‘Q’ available with the firm as on 30.09.20XX is purchased during
the said half year except a consignment of product ‘P’ valuing ₹ 3,00,000, which was purchased in the
April month of the preceding financial year. In the current financial year, in the month of October, no
purchases we re made, and the products were sold with a profit margin of 20% on sales [exclusive of
taxes]. The extract of the only bill book maintained by the firm showed the following details

The details of services availed by B & D Company is as follows

252
All the above amounts are exclusive of taxes, wherever applicable

(i) Compute the ITC credited to the Electronic Credit Ledger of the B & D Company, when it exits
composition scheme and becomes liable to pay tax under regular scheme, in accordance with the
provisions of section 18(1)(c) of the CGST Act, 2017.

Following additional information is also available:

Note: Make suitable assumptions wherever required. Rate of CGST and SGST on service of transportation of
goods by GTA is 2.5% each. Stock is valued at cost price.

253
Note: The Company has not claimed depreciation on the tax component of any of the capital goods
(mentioned above) under the Income -tax Act, 1961. All the conditions necessary for availing the
ITC have been complied with. Rate of CGST and SGST is 9% each.

(ii) Compute the GST liability of B & D Company payable from Electronic Credit Ledger and/or
Electronic Cash Ledger, as the case may be, for the period covered under regular scheme. (RTP NOV 2018)
Answer

(i) As per section 18(1)(c) of the CGST Act, 2017 read with rule 40 of CGST Rules, 2017, where any registered
person ceases to pay tax under section 10, he shall be entitled to take credit of input tax
in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on
capital goods on the day immed iately preceding the date from which he becomes liable to pay tax under
section 9. However, the credit on input services is not allowed and credit on capital goods shall be reduced by
5% per quarter of a year or part thereof from the date of invoice. Further, ITC on supplies of inputs and capital
goods shall not be available after the expiry of one year from the date of issue of tax invoice [Section 18(2) of
the CGST Act, 2017]. In the light of the above -mentioned provisions, the ITC credited to the Electronic Credit
Ledger of the B & D Company on inputs held in stock and capital goods on 02.10.20XX will be computed as
under:

A. ITC on inputs

B. ITC on capital goods

254
(ii) Output tax liability of B & D Company under regular scheme
From 03.10.20XX, firm will pay tax under regular scheme on monthly basis in terms of sub-sections (1) and (7)
of section 39 of the CGST Act, 2017 and will be eligible to avail ITC on inputs held in
stock and capital goods as on 02.10.20XX in terms of section 18 of the CGST Act, 2017 as also on goods and
services procured on or after 03.10.20XX and used in the course or furtherance of
business in accordance with section 16 of the CGST Act, 2017. However, since common input services and
capital goods are used in effecting taxable supplies as well as exempt supplies, ITC attributable to the exempt
supplies will need to be added to the output tax liability of the month of
October, 20XX in terms of section 17(2) read with rules 42 and 43 of the CGST Rules, 2017 respectively.
Further, since all the sales are made within the State (eastern part of Maharashtra),
CGST and SGST @ 9% each will be payable on the outward supplies. The tax liability for the month of October,
20XX under regular scheme will be computed as under-

255
Working Note 1

Working Note 2

256
Working Note 3

Working Note 4

Note - Turnover for October, 20XX will be computed as under:

*Turnover = Cost of goods sold** × 125% (20% margin on sales = 25% margin on cost)

**Cost of goods sold = Stock as on 30.09.20XX less stock as on 31.10.20XX (since no purchases are
made after September, 20XX)

27 Oberoi Industries is a manufacturing company registered under GST. It manufactures two taxable
products ‘X’ and ‘Y’ and one exempt product ‘Z’. The turnover of ‘X’, ‘Y’ and ‘Z’ in the month of April, 20XX
was ₹ 2,00,000, ₹ 10,00,000 and ₹ 12,00,000. Oberoi Industries is in possession of certain machines and
purchases more of them. Useful life of all the machines is considered as 5 years.

From the following particulars furnished by it, compute the amount to be credited to the electronic credit 257
ledger of Oberoi Industries and amount of common credit attributable towards exempted supplies, if any,
for the month of April, 20XX. (RTP NOV 2018)
Answer

258
28. Soren Enterprises is in possession of certain capital goods and purchases more of them as per the
following particulars:

259
Useful life of all the above capital goods is considered as 5 years. Compute the input tax credit to be
reversed for each tax period (monthly) on account of common credit attributable to exempted use of such
machines, while being informed that aggregate value of exempt supplies during the tax period being ₹
6,00,000 and total turnover during the tax period being ₹ 12,00,000. (MTP NOV 2018)
Answer

Apportionment of common credit pertaining to capital goods:

260
29. Arise India Pvt. Ltd., a company engaged in manufacturing of various goods, has its corporate office at
Mumbai and manufacturing units in Pune and Chennai and service centres in Kolkata and Bengaluru. The
manufacturing units at Pune and Chennai and service centres at Kolkata and Bengaluru are registered in
Maharashtra, Tamil Nadu, West Bengal and Karnataka respectively. The corporate office is registered as
an input service distributor. All the units and centres of Arise India Pvt. Ltd. are operational in the current
year. The corporate office intends to distribute input tax credit (ITC) for the month of October 20XX. The
following details are available for such distribution:
Table 1

*Note: Turnover excludes all taxes and duties

Table 2

Chennai unit manufactures exempted products.

Compute the amount of ITC to be distributed to each of the units and centres. (RTP MAY 2020)

Answer
Computation of ITC to be distributed by ISD

261
Notes:
(1) IGST credit of ₹ 3,00,000, CGST credit of ₹ 30,000 and SGST credit of ₹ 30,000 specifically attributable to
Pune unit will be distributed as IGST credit of ₹
3,00,000, CGST credit of ₹ 30,000 and SGST credit of ₹ 30,000 respectively, only to Pune unit, since recipient is
located in the same State in which ISD is located [Section 20(2)(c) of the CGST Act, 2017 read with clauses (e)
& (f)(i) of sub-rule (1) of rule 39 of the CGST Rules, 2017].

(2) Total GST credit (CGST+ SGST + IGST) of ₹ 36,000 specifically attributable to Chennai unit will be
distributed as IGST credit of ₹ 36,000, only to Chennai unit, since recipient and ISD are located in
different States [Section 20(2)(c) of the CGST Act, 2017 read with clauses (e) & (f)(ii) of sub-rule (1) of rule 39
of
the CGST Rules, 2017].

(3) Eligible ITC of CGST [₹ 1,20,000], SGST [₹ 1,20,000] and IGST [₹ 2,40,000] will be distributed among the
units and centres in the ratio of
their turnover of the last quarter [Section 20(2)(e) of the CGST Act, 2017 read with clause (a)(ii) of the
explanation to the said section and rule 39(1)(b) of the CGST Rules, 2017].

Ratio of the turnover of the units and centres in last quarter, previous to the month during which ITC is to be
distributed:
= 20 lakh : 30 lakh : 10 lakh : 40 lakh
= 2: 3: 1: 4

Therefore,
Pune unit will get = ₹ 24,000 [1,20,000 x (2/10)] as CGST credit, ₹ 24,000 [1,20,000 x (2/10)] as SGST credit and
₹ 48,000 [2,40,000 x (2/10)] as eligible IGST credit [Clauses (e) & (f)(i) of sub-rule (1) of rule 39 of the CGST
Rules, 2017].
Chennai unit will get = ₹ 1,44,000 [₹ 4,80,000 1 x (3/10)] as IGST credit [Clauses (e) & (f)(ii) of sub-rule (1) of
rule 39 of the CGST Rules, 2017]. The credit attributable to a recipient is distributed
even if such recipient is making exempt supplies [Clause (d) of sub-rule (1) of rule 39 of the CGST Rules, 2017].

Kolkata centre will get = ₹ 48,000 [₹ 4,80,000 x (1/10)] as IGST credit [Clauses (e) & (f)(ii) of sub-rule (1) of rule
39 of the CGST Rules, 2017].
Bengaluru will get = ₹ 1,92,000 [₹ 4,80,000 x (4/10)] as IGST credit [Clauses (e) & (f)(ii) of sub-rule (1) of rule 39

262
of the CGST Rules, 2017].

(4) Ineligible ITC of CGST [₹ 40,000], SGST [₹ 40,000] and IGST [₹ 80,000] will also be distributed among the
units and centres in the ratio of their turnover of the last quarter [Section 20(2)(e) of
the CGST Act, 2017 read with clause (a)(ii) of the explanation to the said section and rule 39(1)(b) of the CGST
Rules, 2017].
Ratio of the turnover of the units and centres in last quarter, previous to the month during which ITC is to be
distributed:
= 20 lakh : 30 lakh : 10 lakh : 40 lakh
= 2: 3: 1: 4
Therefore, Pune unit will get = ₹ 8,000 [40,000 x (2/10)] as CGST credit, ₹ 8,000 [40,000 x (2/10)] as SGST
credit and ₹ 16,000 [80,000 x (2/10)] as eligible IGST credit. Chennai unit will get = ₹ 48,000 [₹ 1,60,000
x (3/10)] as IGST credit.

Kolkata centre will get = ₹ 16,000 [₹ 1,60,000 x (1/10)] as IGST credit.

Bengaluru will get = ₹ 64,000 [₹ 1,60,000 x (4/10)] as IGST credit.

(5) ISD mechanism is meant only for distributing the credit on common invoices pertaining to input services
only and not goods (inputs or capital goods).

(6) Eligible ITC of CGST [₹ 30,000], SGST [₹ 30,000] and IGST [₹ 10,000] will be distributed among the Chennai
unit and Bengaluru centre in the ratio of their turnover of the last quarter [Section 20(2)(d) of the CGST Act,
2017 read with clause (a)(ii) of the explanation to the said section and
rule 39(1)(b) of the CGST Rules, 2017].

Ratio of the turnover of the Chennai unit and Bengaluru centre in last quarter, previous to the month during
which ITC is to be distributed:
= 30 lakh : 40 lakh

Therefore,
Chennai unit will get = ₹ 30,000 [₹ 70,000 x (3/7)] as IGST credit.
Bengaluru unit will get = ₹ 40,000 [₹ 70,000 x (4/7)] as IGST credit.

30.
KPI Ltd., registered in the State of Himachal Pradesh (HP), has a manufacturing unit at Baddi (HP). The
company manufactures two products: ‘Xt’ and ‘St’. While ‘Xt’ is taxable, ‘St’ is exempt from GST.
KPI Ltd. has furnished the following details:

263
Compute the following:
(i) Amount of input tax credit (ITC) credited to Electronic Credit Ledger for the month of July
(ii) Amount of ineligible credit (Tie) for the month of July
(iii) Amount of aggregate value of common credit (Tc)
(iv) Common credit for the month of July (Tm)

Note:
All the conditions necessary for availing the ITC have been complied with. Make suitable assumptions
wherever required. (RTP NOV 2020)

Answer

264
Notes:
(1) ITC in respect of capital goods used commonly for effecting taxable supplies and exempt supplies
denoted as ‘A’ shall be credited to the electronic credi t ledger [Rule 43(1)(c) of the CGST Rules, 2017].

(2) ITC in respect of capital goods used or intended to be used exclusively for effecting supplies other than
exempted supplies but including zero rated supplies shall be credited to the electronic credit
ledger [Rule 43(1)(b) of the CGST Rules, 2017].
(3) ITC in respect of capital goods used or intended to be used exclusively for effecting exempt supplies
shall not be credited to electronic credit ledger [Rule 43(1)(a) of the CGST Rules, 2017].

(4) When capital goods which were initially used exclusively for exempt supplies are subsequently used
commonly for exempt supplies as well as taxable supplies, input tax in respect of the same denoted
as ‘A’ shall be credited to the electronic credit ledger [Rule 43(1)(c) of the CGST Rules, 2017].

(5) Machinery 5 is used for effecting both taxable and exempt supplies since 1 st July. Prior to that, it was
exclusively used for effecting taxable supplies. Therefore, ITC
in respect of such machinery would have already been credited to the electronic credit ledger.

(6) Machinery 6 is being used for effecting both taxable and exempt supplies from 1 st July two years ago.
Therefore, ITC in respect of such machinery would have alr
eady been credited to the electronic credit ledger.

(7) When capital goods which were used exclusively for exempt supplies are subsequently used commonly for
exempt supplies as well as taxable supplies, input tax in respect of the same is credited
in the electronic credit ledger. The ineligible credit ‘Tie’ attributable to the period during which such capital
goods were used for making exempt supplies is computed @ 5% per quarter or part thereof
and added to the output tax liability of the tax period in which such credit is claimed [Rule 43(1)(c) of the CGST
Rules, 2017].

Thus, ‘Tie’ shall be computed as under-

= ₹ 1,44,000 × 5% × 3 quarters
= ₹ 21,600

(8) The aggregate of the amounts of ‘A’ credited to the electronic credit ledger in respect of common capital
goods
whose useful life remains during the tax period, to be denoted as ‘Tc’, shall be the common credit in respect of
such
capital goods [Rule 43(1)(d) of the CGST Rules, 2017].

(9) Where any capital goods which were used exclusively for effecting taxable supplies are subsequently also

265
used for effecting exempt supplies, the input tax credit claimed in respect of such capital goods
shall be added to arrive at the aggregate value of common credit ‘Tc’ [Proviso to rule 43(1)(d) of the CGST
Rules,
2017].

(10) ITC attributable to a month on common capital goods during their useful life (Tm) shall be computed in
accordance with rule 43(1)(e) of CGST Rules, 2017 as under:
= Tc ÷ 60
= ₹ 3,42,000 ÷ 60
= ₹ 5,700
The useful life of any capital goods shall be considered as five years from the date of invoice and the said
formula shall be applicable during the useful life of the said capital goods.

31. Sunshine Pvt. Ltd. manufactures taxable goods. The company is registered under GST in the State of
West Bengal. The company has provid
ed following information in relation to inward supplies received by it in
the month of October:

Compute the ITC that can be claimed by Sunshine Pvt. Ltd. in its Form GSTR-3B for the month of October
to be filed by 20th November.
Note: The due date of filing of Form GSTR-1 and Form GSTR-3B for the month of October are
11th November and 20th November respectively. Subject to the information given above, all the other
conditions for availing ITC have been complied with. ( RTP JULY 2021)

Answer 266

ITC to be claimed by Sunshine Pvt. Ltd. in its GSTR-3B for the month of October to be filed by 20th November
will be omputed as under
Notes:
(1) ITC in respect of the invoices whose details have not been uploaded by the suppliers shall not exceed 10%
of the eligible input tax credit available to the recipient in respect of invoices or debit
notes the details of which have been uploaded by the suppliers under section 37(1) of the CGST Act, 2017 as
on the due date of filing of the returns in Form GSTR-1 of the suppliers for the said tax period. The taxpayer
can ascertain the same from his auto populated Form GSTR 2A as available
on the due date of filing of Form GSTR-1 under section 37(1) [Rule 36(4) of the CGST Rules, 2017 read with
Circular No. 123/42/2019 GST dated 11.11.2019].

(2) 100% ITC can be availed on invoices uploaded by the suppliers in their Form GSTR-1. However,section 17(5)
of the CGST Act, 2017 blocks ITC on motor vehicles for
transportation of persons having approved seating capacity of not more than 13 persons if they are not used
for making the following taxable supplies, namely:
(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles

Since Sunshine Pvt. Ltd. is not using the car for any of the aforesaid mentioned purpose, ITC thereon will not
be available.

Thus, 100% ITC will be available in respect of invoices at S. Nos. 1, 2 & 3.

267
(3) In respect of invoices at S. Nos. 5, 6 7 and 8 not uploaded in Form GSTR-1s, the ITC has been restricted to
10% of eligible ITC in respect of invoices uploaded in Form GSTR
-1s, i.e. 10% of ₹ 4,80,000 in terms of rule 36(4) of the CGST Rules, 2017.

(4) The restriction of availment of ITC is imposed only in respect of those invoices, details of which are
required to be uploaded by the suppliers under section 37(1) of the CGST Act, 2017 and which have
not been uploaded. Therefore, full ITC can be availed in respect of IGST paid on imports which are outside the
ambit of section 37(1) [Circular No. 123/42/2019 GST dated 11.11.2019].
32. Paridhi Ltd. is a registered manufacturer engaged in taxable supply of goods. Paridhi Ltd. purchased the
following goods during the month of January and provided the following information:

Determine the amount of input tax credit (ITC) available to Paridhi Ltd. while filing GSTR-3B for the
month of January by giving necessary explanations for treatment of various items as per the provisions
of the CGST Act, 2017. You may assume that all the necessary conditions for availing the ITC have been
complied with by Paridhi Ltd. (RTP JULY 2021)

Answer
Computation of ITC available with Paridhi Ltd. in January

268
33. Enumerate the taxes which constitute ‘input tax’ as defined under section 2(62) of the CGST Act., 2017.

Answer
‘Input tax’ in relation to a registered person, means CGST, SGST, IGST or UTGST charged on any supply of
goods or services or both made to him and includes —
(a) IGST charged on import of goods;
(b) CGST, IGST, SGST or UTSGT payable under reverse charge but does not include tax paid under the
composition levy.

34. Sahu Parivar, pumps manufacturer in Vadodara (Gujarat) has provided following details for the month
of May: -

1. As a staff welfare measure, Sahu Parivar has entered into an agreement with PNS Insurance Company to
provide life insurance to its employees. PNS charged Rs. 35,00,000 for the same.

2. It has entered into an agreement with a travel company to provide home travel facility to its employees
when they are on leave. Travel company charged Rs. 1,00,000 for such facility.

3. It has entered into an agreement with a fitness center to provide wellness services to its employees after
office hours for a consideration amounting to Rs.80,000.

4. It has availed services of the works contractor to erect foundation for fixing the machinery to earth, in the
factory. It paid Rs. 50,000 for the same.

5. It laid pipelines (from the water source outside the factory) upto the gate of the factory for the purpose
of production facility. The cost incurred for the same is Rs. 4,00,000.

6. For the purpose of smooth and convenient mobile communication in its factory, It has installed
telecommunication tower of a mobile company (with
due permission) by incurring Rs. 2,00,000.

Note: All the above transactions are intra-State in nature. 269

Sahu Parivar has also entered into a contract with AP Refinery, Sambhra (Rajasthan) on 1st May to supply
and install 16 pumps on FOR basis. The following information is provided in this regard:

List price per pump is Rs. 1,60,000, exclusive of taxes. One of the conditions of the contract is that Sahu
Parivar should ensure a two stage third party inspection for the pumps during the manufacturing process.
Cost of inspection of Rs. 24,000 (for 16 pumps) is directly paid by AP Refinery to testing agency. AP Refinery
requires a special packing for the pumps and the cost of such special packing is Rs. 86,000 (for 16 pumps).
Sahu Parivar arranges for erection and testing of the pumps supplied by it at AP Refinery’s site. Cost of
erection etc. is Rs. 24,000 (for 16 pumps). Goods are dispatched with tax invoice on 20th May and they
reach the destination at Sambhra on 21st May. Lorry freight (for 16 pumps) of Rs. 16,000 has been paid by
AP Refinery directly to the lorry driver.

Assume CGST, SGST and IGST rates to be 9%, 9% and 18% respectively. For the relevant month, the opening
balance of ITC of IGST is Nil, CGST is Rs. 32,500 and SGST is Rs. 32,500.

All the given amounts are exclusive of GST, wherever applicable.

You are required to work out the net GST [CGST and SGST or IGST, as the case may be] payable from
Electronic Cash Ledger of Sahu Parivar for the month of May after making suitable assumptions, if any.
(MTP- JULY 2021)

Answer

Computation of net GST payable by Sahu Parivar for the month of May

Working Note 1

Computation of output tax liability of Sahu Parivar for the month of May

270
Notes:

(1) As per section 15(2) of the CGST Act, 2017:

(i) Any amount that the supplier is liable to pay in relation to a supply but which has been incurred by the
recipient of the supply and not included in the price actually paid or payable
for the goods shall be included in the value of supply. Since, in the given case, arranging inspection was the
liability of the supplier, the same should be included in the value of supply, charges for the same, however,
have been paid directly to
the third party service provider by the recipient. Therefore, the value shall be included in taxable value.

(ii) Any amount charged for anything done by the supplier in respect of the supply of goods at the time of, or
before
delivery of goods shall be included in the value of supply.

(iii) Any amount that the supplier is liable to pay in relation to a supply but which has been incurred by the
recipient of the supply and not included in the price actually paid or payable for the goods shall be included in
the value of supply.
Since, in the given case, the supply contract is on FOR basis, payment of freight is the liability of supplier but
the same has been paid by the recipient and thus, should be included in the value of supply.

(2) As per section 10(1) of the IGST Act, 2017, where the supply involves movement of goods, the place of
supply is the location of the goods at the time at which the movement of goods terminates for
delivery to the recipient, which in the given case is Sambhra (Rajasthan). Since the location of the supplier
(Gujarat) and the place of supply (Rajasthan) are in two different States, the supply is an
inter-State supply liable to IGST.

Working Note 2
Computation of ITC available with Sahu Parivar for the month of May

271
Notes:
As per section 17(5) of the CGST Act, 2017
(1) ITC on life insurance is blocked unless it is used in case of sub-contracting or the same is provided under
any statutory obligation. ITC on travel benefits extended to employees on home travel
concession and membership of health and fitness center is blocked unless it is obligatory for an employer to
provide the same to its employees under any law for the time being in force.

(2) ITC on works contract services when supplied for construction of an immovable property (other than plant
and machinery) except where it is an
input service for further supply of works contract service, is blocked.

Hence, ITC on works contract services for construction of plant and machinery is allowed. Further, plant and
machinery includes foundation and structural supports used to fix the machinery to earth.

(3) ITC on goods and/ or services received by a taxable person for construction of an immovable property
(other than plant or machinery) on his own account including when such and/ or services
are used in course/ furtherance of business, is blocked. However, plant and machinery excludes pipelines laid
outside the factory premises and telecommunication towers.

35. On 25th August, 2017, M/s Agarwal & Agarwal Ltd., a registered supplier of textile products located in
Bengaluru (Karnataka) purchased one machine for ₹ 12,39,000 including IGST, from one supplier of
Maharashtra who issued invoice on the same date. M/s Agarwal & Agarwal Ltd. put the machinery to use
on the same day and availed input tax credit for the eligible amount. M/s Agarwal & Agarwal Ltd. sold this
machine after using the machine in the process of manufacture of taxable goods for ₹ 7,50,000 excluding
lGST, to Mr. Suresh Kumar of Andhra Pradesh on 20th August 2018.

During purchase as well as sale of the machinery, the lGST rate applicable was 18%. Is M/s Agarwal &
Agarwal Ltd., required to pay GST? If yes, calculate the amount of tax payable under
GST Laws at the time of sale of the machine. Also briefly state the relevant statutory provisions.

Note:
Assume that there was no change in legal position after August, 2017.

272
(PAST EXAM NOV 2018)

Answer

As per section 18 of the CGST Act, 2017, if capital goods/ plant and machinery on which input tax credit
(ITC) has been taken are supplied outward by a registered person, he must pay an amount that is higher
of the following:
(a) ITC taken on such goods reduced by 5% per quarter of a year or part thereof from the date of issue
of invoice for such goods or

(b) tax on transaction value.

Accordingly, the amount payable on supply of machinery by M/s Agarwal & Agarwal Ltd. shall
be computed as follows:

* In the above solution, amount payable towards disposal of machine has been computed on the basis of
provisions of section 18(6) of the CGST Act, 2017 read with rule 40(2) of the CGST Rules, 2017 [wherein ITC to
be reversed for the period of use of capital goods/machine has been computed @ 5% for every
quarter or part thereof from the date of the issue of invoice]. However, the said amount can also be computed
in accordance with the provisions of section 18(6) of
the CGST Act, 2017 read with rule 44(6) of the CGST Rules, 2017 [wherein ITC involved in the remaining
useful life (in months) of the capital goods/machine will be reversed on pro-rata basis, taking the useful
life as 5 years].

36.
A company has entered to an agreement with a customer for the manufacture and supply of cement pipes
for their exclusive use. A company manufactured the product but before receiving the inspection
certificate, their customer rejected some quantity of goods on the grounds of quality. As per agreement,

273
the rejected quantity will be destroyed in front of the customer and shall not be sold. Examine the issue
in the light of statutory provisions and suggest future course of action to the assessee as to whether any
liability arises as per the provisions of GST law.

Answer
Section 17 of the CGST Act, 2017 blocks ITC in respect of destroyed goods. Accordingly, since in the given case
the cement pipes have been destroyed, ITC attributable to such pipes will not be allowed [Section 17(5)(h) of
the CGST Act, 2017]. Thus, in the given case, if the credit has already been availed, the same will need to be
reversed.
37. Sukhdev is a mining engineer. He has crossed the threshold limit for registration under the GST law
and is duly registered in the State of Maharashtra. He effects the following transactions in the month of
March, 2019 and wants you to compute the tax payable in cash. He has filed bond/ LUT to claim benefits
from zero-rated supplies. The following are the particulars furnished by him. (PAST EXAM NOV 2019)

274
Answer
Computation of tax payable in cash
275
276
Note: In terms of section 49B of the CGST Act, 2017, full (100%) IGST credit of ₹ 2,90,000 must be utilised
first before using CGST or SGST credit. However, the said IGST credit can be set off against the CGST and
SGST liability in any order and in any proportion. Thus, the final answer in each case would vary.

38 . Mr. Rishi, a registered supplier under GST in the State of Maharashtra, provides the following
information for the month of January 2020: (PAST EXAM NOV 2020)

Mr. Rishi provided the following additional information:

277
(a) Turnover for the previous financial year was ₹ 21 lakh.

(b) He had availed services in an inter-State transaction with a taxable value of ₹ 4,00,000 and a tax
rate of 18%. This transaction was liable to tax under reverse charge. Payment for the same to the
supplier was not made till the current month (overdue for 181 days as at 01.01.2020). However,
tax due under the said transaction was paid to Government and credit availed in the month of
transaction itself.
(c) Out of the 15 invoices as per above, 12 invoices involving IGST of ₹ 95,000 were uploaded by the
suppliers in their GSTR-1 Return. All the invoices are eligible for claiming as ITC.

(d) He had sent goods valued ₹ 1,00,000 to his job worker, in the State of Kerala, who further processed
the said goods and made direct supply on 31.01.2020 from Kerala to a buyer in the State of
Maharashtra.

(e) Out of advance received for future supply, ₹ 5,00,000 related to supply of goods and the rest related
to service.

(f) Rate of CGST, SGST and IGST are 9%, 9% and 18% respectively for both inward and outward supply
of goods and services. Same rate is also applicable for inward supplies received, except where
otherwise provided.

(g) All the amounts given are exclusive of taxes wherever applicable.
From the information given above, you are required to compute the net GST liability payable in cash
(CGST and SGST or IGST, as the case may be) for the month of January, 2020.
Assessee wants to make the cash payment of GST under SGST head as far as possible.

Answer

Computation of net GST payable in cash for the month of January 2020

278
279
280
 281

39. Input Service Distributor (ISD) of a company is registered separately in the State of Kerala and is
distributing Input Tax Credit (ITC) to other units in the company. Following details are furnished for a
particular month, and you are required to help the ISD department in distributing the ITC to other units
that are carrying on manufacturing, supplying goods and services to customers.
Also make your comments regarding the amount of ITC in credit notes, if exceeds the ITC from invoices
and debit notes in a particular month for all or any of the units. (PAST EXAM NOV 2020)

Answer

Computation of the amount of credit distributed by the ISD to various units of the company
(It has been logically assumed that credit to be distributed by ISD is credit of input services.)

282
283
*Being basic value of debit note received, amount of ₹ 50 lakh has been assumed to be exclusive of taxes.
**It has been logically assumed that the additional ITC of ₹ 6 lakh on account of the debit note received
during the month from a supplier in respect of a previous supply pertains to all the four units.
***It has been logically assumed
that there is one unit of the company located in Kerala and i.e., Trivandrum unit.
****Being total value in credit note received, amount of ₹ 118 lakh has been assumed to be inclusive of
taxes.

40.
M/s Fly-by-Night, tour operators, availed input tax credit in respect of certain transactions where no such
supplier was existent or from a person not doing any business from the registered place of business.
Jurisdictional Deputy Commissioner of GST wants to restrict the utilization of the credit by M/s Fly-by-
Night. You have been pproached by M/s Fly -by-Night to give your advice on the following questions raised
by it: (PAST EXAM NOV 2020)

(i) Is it possible for the Department to restrict the utilization of credit which is already availed?

(ii) If yes, under what circumstances this can be done by the Department?

Answer

(i) Yes, it is possible for the Department to restrict the utilization of credit which is already availed if there are
reasons to believe that such ITC has been fraudulently availed or is ineligible.
(ii) The restrictions can be imposed under the following circumstances:
- (a) ITC has been availed on the basis of tax invoices/valid documents
- • issued by a non-existent supplier or by a person not conducting any business from the registered place of
business; or
• without receipt of goods or services or both; or
• the tax in relation to which has not been paid to the Government

(b) Registered person availing ITC has been found non-existent or not to be conducting any business from the
registered place of business; or

284
(c) Registered person availing ITC is not in possession of tax invoice/valid.

41. Cash and Credit Ltd. is registered with GST Department in the State of Maharashtra. It has its registered
office at Mumbai. It is engaged in the business of production, manufacture and supply of fresh fruits,
vegetables, fresh juices and fruit pulp etc. It has made the following intra-State supplies during the month
of April, 2020: (PAST EXAM JAN 2021)
Further, for making the supplies of fruit juices, it has used the services of Goods Transport Agency
("GTA") based in Ahmedabad who have charged them ₹ 20 lakh as charges for their services. Such GTA
have not charged any tax on their invoices. Rate of tax on GTA under
reverse charge is 5%.

In respect of the above supply, the company has received the following inward supplies:

285

Compute the output GST liability, available ITC and payment to be made from Electronic Cash and Credit
Ledger for the month of April, 2020 (considering that the entire ITC shall be utilized for payment of
tax).
Answer

Computation of ITC available with Cash and Credit Ltd. for April, 2020

286
Computation of net GST payable for the month of April, 2020

Note:

In the above answer, tax payable from Electronic Cash Ledger has been computed by setting off the IGST
credit against SGST liability. However, since IGST credit can be set off against CGST and SGST liability in any
order and in any proportion, the same can be set off against CGST and/or SGST liabilities in different ways as
well. In all such cases, net CGST and net SGST payable from Electronic Cash Ledger
will differ though the total amount of net GST payable (₹ 217 lakh) in cash will remain the same.

287
*It has been assumed that the amounts given hereunder are exclusive of GST.
42. ABC Ltd., a registered supplier, is engaged in the manufacture of dyeing machines. The company
provides the following information pertaining to GST paid on the purchases made/input services availed by
it during the month of September 2020:

Determine the amount of ITC available to ABC Ltd. for the month of September, 2020 by giving necessary
explanations for treatment of various items. None of expenses incurred for staff was under statutory
obligation and seating capacity of the maxi cab was excluding driver. Subject to the information given
above, all the conditions necessary for availing the ITC have been fulfilled. (PAST EXAM JAN 2021)

Answer

Computation of ITC available with ABC Ltd. for the month of September, 2020

288
43. ABC Co. Ltd., registered under GST, is engaged in the manufacture of heavy machinery. It procured the
following items during the month of July.

Determine the amount of ITC available with ABC Co. Ltd., for the month of July by giving necessary
explanations for treatment of various items. Assume all the conditions necessary for availing the ITC have
been fulfilled.

Answer
Computation of ITC available with ABC Co. Ltd. for the month of July

44. XYZ Ltd., registered under GST, is engaged in manufacture of taxable goods. Compute the ITC available
with XYZ Ltd. for the month of October, 20XX from the following particulars

289
Note:
i. All the conditions necessary for availing the ITC have been fulfilled.
ii. The annual return for the financial year ending 31st March 20XX was filed on 15th September, 20XX.

Answer

Computation of ITC available with XYZ Ltd. for the month of October, 20XX

45. What are the conditions necessary for obtaining ITC?

Answer

Following four conditions are to be satisfied by the registered taxable person for obtaining ITC:

290
a) he is in possession of tax invoice or debit note or such other tax paying documents as may be prescribed;
b) he has received the goods or services or both;
c) subject to section 41, the supplier has actually paid the tax charged in respect of the supply to the
Government; and
d) he has furnished the return under section 39.
46. Can a person take ITC without payment of consideration for the supply along with tax to the supplier?

Answer

Yes, the recipient can take ITC. However, he is required to pay the consideration along with tax within 180
days from the date of issue of invoice. This condition is not applicable where tax is payable on reverse charge
basis. Further, in case of deemed supplies without consideration and additions made to the value
of supplies on account of supplier’s liability, in relation to such supplies, being incurred by the recipient of the
supply, consideration is deemed to have been paid.

47. A taxable person is in the business of information technology. He buys a car (maximum seating capacity
– 5 persons) for use of his Executive Directors. Can he avail the ITC in respect of GST paid on purchase of
such car?

Answer
No. As per section 17(5)(a), ITC on motor vehicles for transportation of persons with seating capacity of up to
13 persons (including driver), can be availed only if the taxable person is in the business of
transport of passengers or is providing the services of imparting training on driving such motor vehicles
or is in the business of supply of such motor vehicles.

48. A technical testing agency tests and certifies each batch of machine tools before dispatch by BMT Ltd.
Some of these tools are dispatched to a unit in a SEZ without payment of GST as these supplies are not
taxable. The finance personnel of BMT Ltd. want to know whether they need to carry out reversal of ITC
on the testing agency’s services to the extent attributable to the SEZ supplies. Give your comments.

Answer

Under section 16(2) of the IGST Act, credit of input tax is allowed to be taken for inward supplies used to
make zero rated supplies. Under section 17 of the CGST Act also, ITC is disallowed only to the extent it pertains
to supplies used for non-business purposes or supplies other than taxable and zero-rated supplies. Supplies to

291
SEZ units are zero rated supplies in terms of section 16(1) of IGST Act. Thus, full ITC
is allowed on inward supplies of BMT Ltd used for effecting supplies to the unit in the SEZ.
49. Mr. A, a registered person was paying tax under Composition Scheme up to 30th July. However, w.e.f.
31st July, Mr. A becomes liable to pay tax under regular scheme. Is he eligible for any ITC?

Answer

Mr. A is eligible for ITC on inputs held in stock and inputs contained in semi- finished or finished goods held in
stock and capital goods as on 30th July. ITC on capital goods will be reduced by 5% per quarter
or part thereof from the date of invoice [Section 18(1)(c)].

50. What are the conditions applicable to Input Service Distributor to distribute the credit?

Answer
The following conditions are applicable to Input Service Distributor to distribute the input tax credit
(ITC):
(i) The credit can be distributed to the recipients of credit against an ISD invoice containing prescribed details.
(ii) The amount of the credit distributed shall not exceed the amount of credit available for distribution.
(iii) The credit connected to an input service must be distributed only to the particular recipient to whom that
input service is attributable.
(iv) If the input service is attributable to more than one recipient, the relevant ITC is distributed pro rata to
such recipients in the ratio of turnover of the recipient in a State/ Union Territory to the aggregate turnover of
all the recipients to whom the input service is attributable and which are operational during the current year.

(v) ITC pertaining to input services which are common for all units, is distributed to all the recipients
in the ratio of turnover in the prescribed manner.

(vi) ITC available for distribution in a month shall be distributed in the same month and the details thereof
shall be
furnished in the prescribed form.

(vii) Both ineligible and eligible ITC are to be distributed separately.

292
(viii) ITC of CGST, SGST/UTGST and IGST are to be distributed separately.

(ix) ITC of CGST, SGST/UTGST in respect of recipient located in the same State/Union Territory is distributed as
CGST and SGST/UTGST respectively.

(x) ITC of CGST and SGST/UTGST, in respect of a recipient located in a different State/Union territory, is
distributed as IGST (total of ITC of CGST and SGST/UTGST which were to be distributed to such
recipient).

(xi) ITC on account of IGST is distributed as IGST.

51. Mr. X, a supplier of goods, pays GST under regular scheme. He has made the following outward taxable
supplies in a tax period:

Note:
i. Rate of CGST, SGST and IGST to be 9%, 9% and 18% respectively.
ii. Both inward and outward supplies are exclusive of taxes, wherever applicable.
iii. All the conditions necessary for availing the ITC have been fulfilled.

Compute the minimum GST, payable in cash, by Mr. X during the tax period. Make suitable assumptions
as required.

Answer

Computation of minimum GST payable in cash by Mr. X on outward supplies

293
Note:
Since sufficient balance of ITC of CGST is available for paying CGST liability and cross utilization of
ITC of CGST and SGST is not allowed, ITC of IGST has been used to pay SGST (after paying IGST liability)
to minimize cash outflow.

52. (rtp- nov 2021)

Mr. Vijay, a registered supplier, receives 100 invoices (for inward supply of goods/ services) involving GST of
₹ 10 lakh, from various suppliers during the month of October.
Compute the ITC that can be claimed by Mr. Vijay in his GSTR-3B for the month of October to be filed by
20th November in the following independent cases assuming that GST of ₹ 10 lakh is otherwise eligible for
ITC:

294
Case I: Out of 100 invoices, 80 invoices involving GST of ₹ 6 lakh have been uploaded by the suppliers in
their respective GSTR-1s filed on the prescribed due date therefor.

Case II: Out of 100 invoices, 95 invoices involving GST of ₹ 9.8 lakh have been uploaded by the suppliers in
their respective GSTR-1s filed on the prescribed due date therefor.

ANSWER
 Section 16(2) of the CGST Act, 2017 provides certain conditions for availing ITC wherein one of the conditions
is that the taxpayer must be in possession of the tax invoice or other tax paying document in respect of which
he is claiming the ITC.

Rule 36 of the CGST Rules, 2017 lays down the documents and other conditions basis which the registered
person can claim ITC. Sub-rule (4) of rule 36 of the CGST Rules, 2017 stipulates that ITC to be availed by a
registered person in respect of invoices or debit notes, the details of which have not been uploaded by the
suppliers in GSTR-1, cannot exceed 5% of the eligible credit available in respect of invoices or debit notes the
details of which have been uploaded by the suppliers in GSTR-1.
In accordance with the aforesaid provisions, given two cases have been analysed as under:

Case I
ITC to be claimed by Mr. Vijay in his GSTR-3B for the month of October to be filed by 20th November will be
computed as under-
Invoices Amount of ITC Amount of ITC that
involved in the can be availed (₹)
invoices (₹)
In respect of 80 6 lakh 6 lakh [Refer Note 1
invoices uploaded in below]
GSTR-1
In respect of 20 4 lakh 0.3 lakh [Refer Note
invoices not 2 below]
uploaded in GSTR-1
Total 10 lakh 6.3 lakh

Notes:
(1) In respect of invoices uploaded by the suppliers in their GSTR-1, full ITC can be availed.
(2) The ITC in respect of invoices not uploaded has to be restricted to 5% of eligible ITC in respect of invoices
uploaded in GSTR-1. Thus, in respect of 20 invoices not uploaded in GSTR-1s, the ITC has been restricted to ₹
0.3 lakh [5% of ₹ 6 lakh].

Case II
ITC to be claimed by Mr. Vijay in his GSTR-3B for the month of October to be filed by 20th November will be
computed as under-

Invoices Amount of ITC Amount of ITC that 295

involved in the can be availed (₹)
invoices (₹)
In respect of 95 invoices uploaded in GSTR-1 9.8 lakh 9.8 lakh [Refer Note
1 below]
In respect of 5 invoices not uploaded in GSTR-1 0.2 lakh 0.2 lakh [Refer Note
2 below]
Total 10 lakh 10 lakh
Notes:
(1) In respect of invoices uploaded by the suppliers in their GSTR-1, full ITC can be availed.
(2) The ITC in respect of invoices not uploaded has to be restricted to 5% of eligible ITC in respect of invoices
uploaded in GSTR-1. However, since in this case, the actual ITC [₹ 0.2 lakh] in respect of 5 invoices not
uploaded in GSTR-1 does not exceed 5% of the eligible ITC in respect of invoices uploaded in GSTR-1s [₹ 0.49
lakh (5% of ₹ 9.8 lakh)], actual amount of ITC can be availed.

53. (PAST PAPER JULY 2021)

When lock down was announced due to corona virus, BCD Ltd. decided that it would sell its own branded
groceries at 20% of the cost to any organisation who is providing free food and groceries to the poor and
needy as its contribution to the nation. The details of the transaction from April, 2020 to September, 2020
during which it had done this are given below:

S.No. Particulars Amount in rupees

i Total turnover (excluding GST) of branded groceries and food grains during the 6 crore
period as per the invoices issued and accounted for GST purposes (Actual value
of the goods is ₹ 30 crores)
ii Tax paid on the security and maintenance services during the period CGST-1.35 lakh
SGST - 1.35 lakh
iii. Tax paid on the rent paid on the warehouse for storage of goods and for CGST - 4.50 lakh
undertaking packing etc. SGST - 4.50 lakh
iv Tax paid on packing materials and printing charges on packing materials CGST-11.15 lakh
SGST-11.15 lakh

What is the value to be adopted for the purpose of payment of GST?

Compute the admissible input tax credit and output tax liability and indicate whether any tax has to be paid in
cash. Assume the rate of CGST and SGST as 2.50% each on the branded groceries and food grains and all sales
are intra-State only.

ANSWER

Particulars Amount (₹)

Value of supply adopted for payment of GST 6,00,00,000
[Transaction value, which is the price actually paid or payable for

296
the supply, is adopted for purpose of payment of GST.]
Output tax liability CGST @ 2.5% (₹) SGST@ 2.5% (₹)
Output tax liability on ₹ 6 crores [A] 15,00,000 15,00,000
Input tax credit CGST (₹) SGST (₹)
Security and maintenance 1,35,000 1,35,000
Warehousing rent 4,50,000 4,50,000
Packing and printing 11,15,000 11,15,000
Total input tax credit available [B] 17,00,000 17,00,000
Net tax payable in cash [A] - [B] Nil Nil
 CHAPTER-9 REGISTRATION
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS 3,4,10,14,15-17

MAT

PAST Q-8 Q-7 NO Q-12 Q-13 NO QUES Q-18 ------

EXAMS QUES

MTP Q-5, 6 Q-11 NO NO Q-7,9 Q-2, 9 Q-2,7

QUES QUES

RTP NO QUES NO QUES NO Q-1 NO QUES NO QUES NO QUES

QUES

QUESTIONS

1. Mahadev Enterprises, a sole proprietorship firm, opened a shopping complex dealing in supply of ready-
made garments at multiple locations, i.e. in Himachal Pradesh, Uttarakhand and Tripura in the month of
June. It has furnished the following details relating to the supply made at such multiple locations for the
month of June:-

Particulars Himachal Pradesh Uttarakhand Tripura

297
(Rs.)* (Rs.)* (Rs.)*
Intra-State supply of taxable 22,50,000 - 7,00,000
goods
Intra-State supply of - - 6,00,000
exempted goods
Intra-State supply of non- - 21,00,000 40,000
taxable goods
* excluding GST
With the help of the above mentioned information, answer the following questions giving reasons:-

(1) Determine whether Mahadev Enterprises is liable to be registered under GST law and what is the
threshold limit of taking registration in this case assuming that it is not required to pay any tax on inward
supplies under reverse charge.

(2) Explain with reasons whether your answer in (1) will change in the following independent cases:

(a) If Mahadev Enterprises is dealing exclusively in taxable supply of goods only from Himachal Pradesh;

(b) If Mahadev Enterprises is dealing in taxable supply of goods and services only from Himachal Pradesh;

(c) If Mahadev Enterprises is dealing in taxable supply of goods only from Himachal Pradesh and has also
effected inter-State supplies of taxable goods (other than notified handicraft goods) amounting to Rs.
4,00,000. (RTP NOV 2019)

ANSWER:

As per section 22 read with Notification No. 10/2019 CT dated 07.03.2019, a supplier is liable to be registered
in the State/ Union territory from where he makes a taxable supply of goods and/or services, if his aggregate
turnover in a financial year exceeds the threshold limit. The threshold limit for a person making exclusive
intra-State taxable supplies of goods is as under:-

(i) Rs. 10 lakh for the States of Mizoram, Tripura, Manipur and Nagaland.

(ii) Rs. 20 lakh for the States of States of Arunachal Pradesh, Meghalaya, Puducherry, Sikkim, Telangana and
Uttarakhand.

(iii) Rs. 40 lakh for rest of India.

The threshold limit for a person making exclusive taxable supply of services or supply of both goods and
services is as under:-

(i) Rs. 10 lakh for the States of Mizoram, Tripura, Manipur and Nagaland. 298

(ii) Rs. 20 lakh for the rest of India.

As per section 2(6), aggregate turnover includes the aggregate value of:

(i) all taxable supplies,

(ii) all exempt supplies,

(iii) exports of goods and/or services and

(iv) all inter-State supplies of persons having the same PAN.

The above is computed on all India basis.

In the light of the afore-mentioned provisions, the aggregate turnover of Mahadev Enterprises is computed as
under:

Computation of State-wise aggregate turnover of Mahadev Enterprises

Particulars Himachal Uttarakhand Tripura
Pradesh
(Rs.)* (Rs.)* (Rs.)*
Intra-State supply of taxable goods 22,50,000 - 7,00,000
Intra-State supply of exempted goods - - 6,00,000
Intra-State supply of non-taxable goods [As - 21,00,000 40,000
per section 2(47), exempt supply includes
non-taxable supply. Thus, intra-State supply
of non-taxable goods in Uttarakhand, being
a non-taxable supply, is an exempt supply
and is, therefore, included in the aggregate
turnover]
Aggregate Turnover 22,50,000 21,00,000 13,40,000

In the given case, Mahadev Enterprises is engaged in exclusive intra-State supply of goods from Himachal
Pradesh, Tripura and Uttarakhand. However, since Mahadev Enterprises makes taxable supply of goods from
one of the specified Special Category States (i.e. Tripura), it will not be eligible for the higher threshold limit of
Rs. 40 lakh; instead, the threshold limit for registration will be reduced to Rs. 10 lakh.

(1) In view of the above-mentioned provisions, Mahadev Enterprises is liable to be registered under GST law
with the aggregate turnover amounting to Rs. 56,90,000 (computed on all India basis). The applicable
threshold limit of registration in this case is Rs. 10 lakh. Further, he is not liable to be registered in

299
Uttarakhand since he is not making any taxable supply from Uttarakhand.
(2) (a) If Mahadev Enterprises is dealing in supply of goods only from Himachal Pradesh, the applicable
threshold limit of registration would be Rs. 40 lakh. Thus, Mahadev Enterprises will not be liable for
registration as its aggregate turnover would be Rs. 22,50,000.

(b) If Mahadev Enterprises is dealing in taxable supply of goods and services only from Himachal Pradesh then
higher threshold limit of Rs. 40 lakh will not be applicable as the same applies only in case of exclusive supply
of goods. Therefore, in this case, the applicable threshold limit will be Rs. 20 lakh and hence, Mahadev
Enterprises will be liable to registration.
(c) In case of inter-State supplies of taxable goods, section 24 requires compulsory registration irrespective of
the quantum of aggregate turnover. Thus, Mahadev Enterprises will be liable to registration.

2. LMN Pvt. Ltd., Coimbatore exclusively manufactures and sells product ‘X’ which is exempt from GST vide
notifications issued under relevant GST legislations. The company sells product ‘X’ only within Tamil Nadu
and is not registered under GST. Further, all the inward supply of the company are taxable under forward
charge. The turnover of the company in the previous year was Rs. 45 lakh. The company expects the sales to
grow by 30% in the current year. The company purchased additional machinery for manufacturing ‘X’ on 1st
July. The purchase price of the capital goods was Rs. 30 lakh exclusive of GST @ 18%.
However, effective from 1st November, exemption available on ‘X’ was withdrawn by the Central
Government and GST @ 12% was imposed thereon. The turnover of the company for the half year ended on
30th September was Rs. 45 lakh.

(a) Examine the above scenario and advise LMN Pvt Ltd. whether it needs to get registered under GST.

(b) If the answer to the above question is in affirmative, advise LMN Pvt. Ltd. whether it can avail input tax
credit on the additional machinery purchased exclusively for manufacturing “X”? (RTP NOV 2019) (MTP JULY
2021) (MTP- NOV 2021)

ANSWER:

(a) Section 22(1) read with Notification No. 10/2019 CT dated 07.03.2019 inter alia provides that every
supplier who is exclusively engaged in intra-State supply of goods is liable to be registered under GST in the
State/ Union territory from where he makes the taxable supply of goods only when aggregate turnover in a
financial year exceeds Rs. 40,00,000.
However, the above provisions are not applicable to few specified States, i.e. States of Arunachal Pradesh,
Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura, Uttarakhand.
Further, a person exclusively engaged in the business of supplying goods and/or services that are not liable to
tax or are wholly exempt from tax is not liable to registration in terms of section 23(1)(a).
In the given case, the turnover of the company for the half year ended on 30th September is Rs. 45 lakh which
is more than the applicable threshold limit of Rs. 40 lakh. Therefore, as per above mentioned provisions, the
company should be liable to registration. However, since LMN Pvt. Ltd. supplied exempted goods till 31st
October, it was not required to be registered till that day; though voluntary registration was allowed under

300
section 25(3).

However, the position will change from 1st November as the supply of goods become taxable from that day
and the turnover of company is above Rs. 40 lakh. It is important to note here that in terms of section 2(6), the
aggregate turnover limit of Rs. 40 lakh includes exempt turnover also.
Therefore, turnover of ‘X’ prior to 1st November will also be considered for determining the limit of Rs. 40 lakh
even though the same was exempt from GST. Therefore, the company needs to register within 30 days from
1st November (the date on which it becomes liable to registration) in terms of section 25(1).
(b) Section 18(1)(a) provides that a person who has applied for registration within 30 days from the date on
which he becomes liable to registration and has been granted such registration shall be entitled to take credit
of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in
stock on the day immediately preceding the date from which he becomes liable to pay tax under the
provisions of this Act.
Thus, LMN Pvt. Ltd. cannot avail credit for additional machinery purchased exclusively for manufacturing X as
input tax credit of only inputs is allowed when a person gets registered for the first time.

3. SNP Pvt. Ltd., Coimbatore exclusively manufactures and sells product ‘Z’ which is exempt from GST vide
notifications issued under relevant GST legislations. The company sells product ‘Z’ only within Tamil Nadu
and it not registered under GST. Further, all the inward supply of the company are taxable under forward
charge. The turnover of the company in the previous year was Rs. 55 lakh. The company expects the sales to
grow by 20% in the current year. Owing to the growing demand for the product, the company decided to
increase its production capacity and purchased additional machinery for manufacturing ‘Z’ on 1st July. The
purchase price of the capital goods was Rs. 20 lakh exclusive of GST @ 18%.
However, effective from 1st November, exemption available on ‘Z’ was withdrawn by the Central
Government and GST @ 12% was imposed thereon. The turnover of the company for the half year ended on
30th September was Rs. 50 lakh.

(a) The Board of Directors of SNP Pvt. Ltd. wants to know whether they have to register under GST?

(b) In case in the above question, SNP Pvt. Ltd. is already registered with respect to certain taxable supplies
being made by it along with manufacture of exempt product ‘Z’, other facts remaining the same, can it take
input tax credit on additional machinery purchased exclusively for manufacturing ‘Z’? If yes, then how much
credit can be availed?

Advice SNP Pvt. Ltd. on the above issues with reference to the provisions of GST law.

ANSWER:

(a) Section 22(1) read with Notification No. 10/2019 CT dated 07.03.2019 inter alia provides that every
supplier who is exclusively engaged in intra-State supply of goods is liable to be registered under GST in the
State/ Union territory from where he makes the taxable supply of goods only when aggregate turnover in a

301
financial year exceeds Rs. 40,00,000.

However, the above provisions are not applicable to few specified States, i.e. States of Arunachal Pradesh,
Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura, Uttarakhand.
However, a person exclusively engaged in the business of supplying goods and/or services that are not liable
to tax or are wholly exempt from tax is not liable to registration in terms of section 23(1)(a).
In the given case, the turnover of the company for the half year ended on 30th September is Rs. 50 lakh which
is more than the applicable threshold limit of Rs. 40 lakh. Therefore, as per section 22, the company will be
liable to registration. However, since SNP Pvt. Ltd. supplied exempted goods till 31st October, it was not
required to be registered till that day; though voluntary registration was allowed under section 25(3).
However, the position will change from 1st November as the supply of goods become taxable from that day
and the turnover of company is above Rs. 40 lakh. It is important to note here that in terms of section 2(6), the
aggregate turnover limit of Rs. 40 lakh includes exempt turnover also.

Therefore, turnover of ‘Z’ will be considered for determining the threshold limit even though the same was
exempt from GST. Therefore, the company needs to register within 30 days from 1st November (the date on
which it becomes liable to registration) in terms of section 25(1).

Further, the company cannot avail exemption of Rs. 40 lakh from 1st November as the GST law does not
provide any threshold exemption from payment of tax but threshold exemption from obtaining registration
(which in this case had been crossed).

(b) Rule 43(1)(a) of the CGST Rules, 2017 disallows input tax credit on capital goods used or intended to be
used exclusively for effecting exempt supplies.

However, as per section 18(1)(d), where an exempt supply of goods and/or services by a registered person
becomes a taxable supply, such person gets entitled to take credit of input tax in respect of inputs held in
stock and inputs contained in semi-finished or finished goods held in stock relatable to such exempt supply
and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from
which such supply becomes taxable.

Rule 40(1)(a) of the CGST Rules, 2017 lays down that the credit on capital goods can be claimed after reducing
the tax paid on such capital goods by 5% per quarter of a year or part thereof from the date of the invoice.
Therefore, in the given case, SNP Pvt. Ltd. could not claim credit on machinery till the time the supply of
product ‘Z’ for which said machinery was being used was exempt. However, it can claim credit from 31st
October - the day immediately preceding the date from which the supply of product ‘Z’ became taxable (1st
November).

The credit will be available for the remaining useful life of the machinery and will be computed as follows:

Date of purchase of machinery 1st July

Date on which credit becomes eligible 31st October

302
Number of quarters for which credit is to be 2 (including part of quarter)
reduced
GST paid on machinery [Rs. 20,00,000 x 18%] Rs. 3,60,000
Credit to be reduced [Rs. 3,60,000 x 5% x 2] Rs. 36,000
Amount of credit that can be taken [Rs. Rs. 3,24,000
3,60,000 – Rs. 36,000]
4. Rishabh Enterprises – a sole proprietorship firm – started an air-conditioned restaurant in Virar,
Maharashtra in the month of February wherein the customers are served cooked food as well as cold
drinks/non-alcoholic beverages. In March, the firm opened a liquor shop in Raipur, Uttarakhand for trading
of alcoholic liquor for human consumption.
Determine whether Rishabh Enterprises is liable to be registered under GST law with the help of the
following information:

Particulars February March

(Rs.)* (Rs.)*
Serving of cooked food and cold drinks/non- 5,50,000 6,50,000
alcoholic beverages in restaurant in Maharashtra
Sale of alcoholic liquor for human consumption in Uttarakhand 5,00,000
Supply of packed food items from restaurant in 1,50,000 2,00,000
Maharashtra
* excluding GST
You are required to provide reasons for treatment of various items given above.

ANSWER:

As per section 22 read with Notification No. 10/2019 CT dated 07.03.2019, a supplier is liable to be registered
in the State/ Union territory from where he makes a taxable supply of goods and/or services, if his aggregate
turnover in a financial year exceeds the threshold limit. The threshold limit for a person making exclusive
intra-State taxable supplies of goods is as under:-

(i) Rs. 10 lakh for the States of Mizoram, Tripura, Manipur and Nagaland.

(ii) Rs. 20 lakh for the States of States of Arunachal Pradesh, Meghalaya, Puducherry, Sikkim, Telangana and
Uttarakhand.

(iii) Rs. 40 lakh for rest of India.

The threshold limit for a person making exclusive taxable supply of services or supply of both goods and
services is as under:-

303
(i) Rs. 10 lakh for the States of Mizoram, Tripura, Manipur and Nagaland.
(ii) Rs. 20 lakh for the rest of India.

As per section 2(6), aggregate turnover includes the aggregate value of:
(i) all taxable supplies,
(ii) all exempt supplies,
(iii) exports of goods and/or services and
(iv) all inter-State supplies of persons having the same PAN.
The above is computed on all India basis. Further, the aggregate turnover excludes central tax, State tax,
Union territory tax, integrated tax and cess. Moreover, the value of inward supplies on which tax is payable
under reverse charge is not taken into account for calculation of ‘aggregate turnover’.
In the given question, since Rishabh Enterprises is engaged in making taxable supplies of goods and services
from Maharashtra and non-taxable supplies fromUttarakhand, the threshold limit for obtaining registration is
Rs. 20 lakh.

In the light of the afore-mentioned provisions, the aggregate turnover of Rishabh Enterprises is computed as
under:

Computation of aggregate turnover of Rishabh Enterprises

Particulars Turnover of Cumulative turnover of

February (Rs.) February & March (Rs.)
Serving of cooked food and cold drinks/non-alcoholic 5,50,000 12,00,000 [Rs. 5,50,000 +
beverages in restaurant in Maharashtra Rs. 6,50,000]
Add: Sale of alcoholic liquor for human consumption in 5,00,000
Uttarakhand [As per section 2(47), exempt supply
includes non-taxable supply. Thus, supply of alcoholic
liquor for human consumption in Uttarakhand, being a
non-taxable supply, is an exempt supply and is,
therefore, includible while computing the aggregate
turnover.]
Add: Supply of packed food items from restaurant in 1,50,000 3,50,000
Maharashtra [Rs. 1,50,000 +
Rs. 2,00,000]
Aggregate Turnover 7,00,000 20,50,000

Rishabh Enterprises was not liable to be registered in the month of February since its aggregate turnover did
not exceed Rs. 20 lakh in that month. However, since its aggregate turnover exceeds Rs. 20 lakh in the month
of March, it should apply for registration within 30 days from the date on which it becomes liable to
registration. Further, he is not liable to be registered in Uttarakhand since he is not making any taxable supply

304
from Uttarakhand.

5. AB Pvt. Ltd., Pune provides house-keeping services. The company supplies its services exclusively through
an e-commerce website owned and managed by Hi-Tech Indya Pvt. Ltd., Pune. The turnover of AB Pvt. Ltd.
in the current financial year is Rs. 18 lakh.
Advise AB Pvt. Ltd. as to whether they are required to obtain GST registration. Will your advice be any
different if AB Pvt. Ltd. sells readymade garments exclusively through the e-commerce website owned and
managed by Hi-Tech Indya Pvt. Ltd.? (MTP MAY 2018)
ANSWER:

As per section 22 of the CGST Act every supplier of goods or services or both is required to obtain registration
in the State/ Union territory from where he makes the taxable supply if his aggregate turnover exceeds
threshold limit in a financial year.
However, section 24 of the said Act enlists certain categories of persons who are mandatorily required to
obtain registration, irrespective of their turnover. Persons who supply goods or services or both through such
electronic commerce operator (ECO), who is required to collect tax at source under section 52, is one such
person specified under clause (ix) of section 24. However, where the ECO is liable to pay tax on behalf of the
suppliers of services under a notification issued under section 9(5), the suppliers of such services are entitled
for threshold exemption. 22 Section 2(45) of the CGST Act defines ECO as any person who owns, operates or
manages digital or electronic facility or platform for electronic commerce. Electronic commerce is defined
under section 2(44) to mean the supply of goods or services or both, including digital products over digital or
electronic network. Since Hi-Tech Indya Pvt. Ltd. owns and manages a website for e commerce where both
goods and services are supplied, it will be classified as an ECO under section 2(45).
Notification No. 17/2017 CT (R) dated 28.06.2017 issued under section 9(5) specifies services by way of house-
keeping, except where the person supplying such service through ECO is liable for registration under section
22(1), as one such service where the ECO is liable to pay tax on behalf of the suppliers.

In the given case, AB Pvt. Ltd. provides house-keeping services through an ECO. It is presumed that Hi-Tech
Indya is an ECO which is required to collect tax at source under section 52. However, house-keeping services
provided by AB Pvt. Ltd., which is not liable for registration under section 22(1) as its turnover is less than
Rs.20 lakh, is a service notified under section 9(5).

Thus, AB Pvt. Ltd. will be entitled for threshold exemption for registration and will not be required to obtain
registration even though it supplies services through ECO.
In the second case, AB Pvt. Ltd. sells readymade garments through ECO. Such supply cannot be notified under
section 9(5) as only supplies of services are notified under that section. Therefore, in the second case, AB Pvt.
Ltd. will not be entitled for threshold exemption and will have to compulsorily obtain registration in terms of
section 24(ix).

6. Discuss the procedure for amendment of registration under CGST Act and rules thereto? (MTP MAY
2018)

ANSWER: 305
The procedure for amendment of registration are contained in section 28 read with rule 19 of CGST Rules. The
significant aspects of the same are discussed hereunder:

1. Where there is any change in the particulars furnished in registration application/UIN application at the
time of obtaining the registration or thereafter, registered person shall submit an application in prescribed
manner, within 15 days of such change, along with documents relating to such change at the Common Portal.
2. In case of amendment of core fields of information, the proper officer may, on the basis of information
furnished or as ascertained by him, approve or reject amendments in the registration particulars in the
prescribed manner. Such amendment shall take effect from the date of occurrence of event warranting such
amendment.

3. However, where change relates to non-core fields of information, registration certificate shall stand
amended upon submission of the application for amendment on the Common Portal.

4. Where a change in the constitution of any business results in change of PAN of a registered person, the said
person shall apply for fresh registration. The reason for the same is that GSTIN is PAN based. Any change in
PAN would warrant a new registration.

7. Pari & Sons is an unregistered dealer. On 10th August, aggregate turnover of Pari & Sons exceeded Rs.
20,00,000. The firm applied for registration on 27th August and was granted the registration certificate on
1st September.
Under CGST Rules, 2017, you are required to advise Pari & Sons as to what is the effective date of
registration in its case. It has also sought your advice regarding period for issuance of revised tax invoices.
(PAST EXAM MAY 2018) (MTP NOV 2020) (MTP- NOV 2021)

ANSWER:

Section 22(1) provides that every supplier is liable to be registered under this Act in the State or Union
territory, other than special category States, from where he makes a taxable supply of goods or services or
both, if his aggregate turnover in a financial year exceeds the threshold limit.
Section 25(1) provides that a supplier whose aggregate turnover in a financial year exceeds the threshold limit
in a State/UT is liable to apply for registration within 30 days from the date of becoming liable to registration
(i.e., the date of crossing the threshold limit).

Where the application is submitted within the said period, the effective date of registration is the date on
which the person becomes liable to registration vide rule 10(2) of the CGST Rules, 2017; otherwise it is the
date of grant of registration in terms of rule 10(3) of the CGST Rules, 2017.

In the given case, since Pari & Sons have applied for registration on 27th August which is within 30 days from

306
the date of becoming liable to registration (10th August), its effective date of registration is 10th August.

Further, every registered person who has been granted registration with effect from a date earlier than the
date of issuance of registration certificate to him, may issue revised tax invoices in respect of taxable supplies
effected during this period within one month from the date of issuance of registration certificate [Section
31(3)(a) read with rule 53(2) of CGST Rules, 2017]23.
In view of the same, Pari & Sons may issue revised tax invoices against the invoices already issued during the
period between effective date of registration (10th August) and the date of issuance of registration certificate
(1st September), on or before 1st October.
8. With the help of the following information in the case of M/s Jayant Enterprises, Jaipur (Rajasthan) for
the financial year, determine the aggregate turnover for the purpose of registration under the CGST Act.

Sl. No. Particulars Amount (Rs.)

(i) Sale of diesel on which Sale Tax (VAT) is levied by Rajasthan 1,00,000
Government.
(ii) Supply of goods, after completion of job work, from the place 3,00,000
of Jayant Enterprises directly by principal by declaring the
place of M/s Jayant Enterprises as its additional place of
business.
(iii) Export of goods to England (U.K.) 5,00,000
(iv) Supply to its own additional place of business in Rajasthan. 5,00,000
(v) Outward supply of services on which GST is to be paid by 1,00,000
recipient under reverse charge.

All the above amounts are excluding GST.

You are required to provide reasons for treatment of various items given above.
(PAST EXAM MAY 2018)

ANSWER:
Computation of aggregate turnover of M/s Jayant Enterprises for the FY
Particulars Rs.
Supply of diesel on which Sales Tax (VAT) is levied by Rajasthan 1,00,000
Government [Note-1]
Supply of goods, after the completion of job work, from the place of Nil
Jayant Enterprises, directly by the principal [Note-2]
Export supply to England [Note-3] 5,00,000
Supply to its own additional place of business in Rajasthan24 [Note-4] Nil
Outward supply of services on which GST is to be paid by recipient 1,00,000
under reverse charge [Note-5]
Aggregate turnover 7,00,000

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Notes:-
1. As per section 2(47), exempt supply includes non-taxable supply. Thus, supply of diesel, being a non-taxable
supply, is an exempt supply and exempt supply is specifically includible in aggregate turnover in terms of
section 2(6).

2. Supply of goods after completion of job work by a principal by declaring the place of business of job worker
its additional place of business shall be treated as the supply of goods by the principal in terms of explanation
(ii) to section 22.

3. Export supplies are specifically includible in the aggregate turnover in terms of section 2(6).
4. Supply made without consideration to units within the same State (under same registration) is a not a
supply and hence not includible in aggregate turnover.

5. Outward supplies taxable under reverse charge would be part of the “aggregate turnover” of the supplier of
such supplies. Such turnover is not included as turnover in the hands of recipient.
As per section 22 read with Notification No. 10/2019 CT dated 07.03.2019, a supplier is liable to be registered
in the State/ Union territory from where he makes a taxable supply of goods and/or services, if his aggregate
turnover in a financial year exceeds the threshold limit. The threshold limit for a person making exclusive
intra-State taxable supplies of goods is as under:-
(i) Rs. 10 lakh for the States of Mizoram, Tripura, Manipur and Nagaland.
(ii) Rs. 20 lakh for the States of States of Arunachal Pradesh, Meghalaya, Puducherry, Sikkim, Telangana and
Uttarakhand.
(iii) Rs. 40 lakh for rest of India.

The threshold limit for a person making exclusive taxable supply of services or supply of both goods and
services is as under:-
(i) Rs. 10 lakh for the States of Mizoram, Tripura, Manipur and Nagaland.
(ii) Rs. 20 lakh for the rest of India.

The applicable turnover limit for registration, in the given case, will be Rs. 20 lakh as Rajasthan is not a Special
Category State and M/s. Jayant Enterprises is engaged in supply of goods and services. Although, the
aggregate turnover of M/s Jayant Enterprises does not exceed Rs. 20 lakh, it is compulsorily required to
register in terms of section 24(i) irrespective of the turnover limit as it is engaged in making inter-State supply
of goods in the form of exports to England.

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9. Rajesh Dynamics, having its head office in Chennai, Tamil Nadu carries on the following activities with
respective turnovers in a financial year:

Rs.
Supply of petrol at Chennai, Tamil Nadu 18,00,000
Value of inward supplies on which tax is payable on reverse charge basis 9,00,000
Supply of transformer oil at Chennai, Tamil Nadu 2,00,000
Value of branch transfer from Chennai, Tamil Nadu to Bengaluru, Karnataka 1,50,000
without payment of consideration
Value of taxable supplies at Manipur branch 11,50,000
It argues that it does not have taxable turnover crossing threshold limit of Rs.40,00,000 either at Chennai,
Tamil Nadu or Bengaluru, Karnataka and including turnover at Manipur branch. It believes that the
determination of aggregate turnover is not required for the purpose of obtaining registration, but is
required for determining composition levy.

Decide based on the above facts:

(i) The aggregate turnover of Rajesh Dynamics.

(ii) All conditions that fulfil the requirements for registration under CGST Act in the given circumstances.
( MTP JULY 2021) (MTP MAY 2020)

ANSWER:
Computation of aggregate turnover of Rajesh Dynamics:
Particulars Rs.
Supply of petrol at Chennai, Tamil Nadu [Being a non-taxable 18,00,000
supply, it is an exempt supply and thus, includible in aggregate
turnover vide section 2(6)]
Value of inward supplies on which tax is payable on reverse Nil
charge basis
Supply of transformer oil at Chennai, Tamil Nadu 2,00,000
Value of branch transfer from Chennai, Tamil Nadu to 1,50,000
Bengaluru, Karnataka without payment of consideration [Being
a taxable supply, it is includible in aggregate turnover]
Value of taxable supplies of Manipur Branch 11,50,000
Aggregate turnover 33,00,000

Rajesh Dynamics is not liable to be registered in Chennai, Tamil Nadu, if his aggregate turnover in a financial
year does not exceeds Rs. 40 lakh. However, since Rajesh Dynamics also makes taxable supplies from Manipur,
a specified Special Category State, the threshold exemption gets reduced to Rs. 10 lakh in terms of section
22(1) [Notification No.10/2019-CT dated. 07.03.2019].

309
Rajesh Dynamics’ argument that it is not liable to registration since the threshold exemption of Rs. 40 lakh is
not being crossed either at Chennai, Tamil Nadu, Bengaluru, Karnataka or Manipur is not correct as firstly, the
aggregate turnover to be considered in its case is Rs. 10 lakh and not Rs. 40 lakh and secondly, the same is
computed on all India basis and not State-wise.

Further, Rajesh Dynamics is also wrong in believing that aggregate turnover is computed only for the purpose
of determining the eligibility limit for composition levy since the aggregate turnover is required for
determining the eligibility for both registration and composition levy.
Further, Rajesh Dynamics is compulsorily required to register under section 24 irrespective of the turnover
limit as it is liable to pay tax on inward supplies under reverse charge and it also makes inter-State taxable
supply.

10. What is the validity period of the registration certificate issued to a casual taxable person and non-
resident taxable person?

Answer
In terms of section 27(1) read with proviso thereto, the certificate of registration issued to a “casual taxable
person ” or a “non-resident taxable person” shall be valid for a period specified in the application for
registration or 90 days from the effective date of registration, whichever is earlier. However, the proper
officer, at the request of the said taxable person, may extend the validity of the aforesaid period of 90 days by
a further period not exceeding 90 days.

11. Determine whether registration has to be obtained under GST in case of the following as per provisions
contained under CGST Act, 2017.

(1) Fine oils is engaged in the business of machine oil as well as petrol and diesel. The total turnover
on supply of machine oil is only Rs. 8 lakhs and in case of petrol and diesel is Rs. 8 crores.

(2) Ramlal, an agriculturist, for supply of produce out of cultivation of land amounting to Rs. 21 lakhs. (MTP
NOV 2018)

Answer
(1) Supply of petrol and diesel is not leviable to GST, but supply of machine oil is taxable. In order to determine
whether Fine oils is liable for registration, turnover of both the supplies, non taxable as
well as taxable would be taken into account for the threshold of Rs. 20 lakhs. Here the turnover of machine oil,
petrol and diesel exceeds Rs. 20 lakhs (Rs. 8.08 crores). Thus, Fine oils is liable for
registration.

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(2) As per section 23 of the CGST Act, an agriculturist, to the extent of supply of produce out of cultivation of
land is not liable for registration under GST. In the case of Mr. Ramlal, even though
the turnover of produce out of cultivation has exceeded Rs. 20 lakhs, he will not be liable for registration.

12. Dharma Dutta has taken voluntary registration and has not opted for the composition scheme of levy.
He is aggrieved by the cancellation of his registration under GST, although he is filing Nil returns, as he has
not conducted any business for the past 8 months. He wants to know the circumstances under which the
proper officer can cancel registration on his own. (PAST EXAM NOV 2019)
Answer
GST registration may be cancelled suo motu by GST Officer if the registered person: -
(i) does not conduct any business from the place of business
(ii) violates the anti-profiteering provisions
(iii) issues invoice/bill without supply of goods / services
(iv) does not file his GST return for six months
(v) does not file his GST return consecutive tax periods if he has opted for composition levy.
(vi) has not commenced business within 6 months from date of registration
(vii) has obtained the registration by means of fraud, wilful misstatement or suppression of facts.

13. Decide with reason whether the registration is required under CGST Act, 2017 in the following
independent cases: (PAST EXAM NOV 2020)

(i) A casual taxable person (CTP) has provided inter-State supply of notified products being textiles hand
printing amounting to ₹ 19.25 lakh during the month of January, 2020. Those products were
made by craftsmen by both hand and machines equally. CTP had obtained PAN and generated e-way bill for
supply.

(ii) Mr. Bantu of Delhi doing trading business across India and his intra-State turnover details are as below,
(1) Taxable supplies made from Delhi - ₹ 18 lakh.
(2) Exempt supplies made from Andhra Pradesh - ₹ 10 lakh.
(3) Both taxable and exempt supplies made from Tamilnadu - ₹ 5,00,000 and ₹ 6,00,000 respectively.

Answer

(i) A casual taxable person (CTP) is liable to be registered compulsorily under GST irrespective of the threshold
limit.

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However, CTPs making inter-State taxable supplies of notified products, when made by the craftsmen
redominantly by hand even though some machinery may also be used in the process,
have been exempted from obtaining registration if their aggregate turnover does not exceed ₹ 20 lakh [₹ 10
lakh for specified special category States].

Since, in the given case, the notified products were made by craftsmen by both hand and machines equally,
they are not eligible for exemption and are required to obtain registration mandatorily.

(ii) For a supplier exclusively engaged in intra-State supply of goods, the threshold limit of turnover to obtain
registration in the States of Delhi, Andhra Pradesh and Tamil Nadu is ₹ 40 lakh. Aggregate
turnover includes value of all taxable and exempt supplies under same PAN.

Thus, aggregate turnover of Mr. Bantu doing trading business across India (It has been assumed that Mr.
Bantu makes only intra
-State supplies across India.)
= ₹ (18 lakh +10 lakh + 5 lakh + 6 lakh)
= ₹ 39 lakh.
Therefore, Mr. Bantu is not liable for registration as his turnover does not exceed ₹ 40 lakh.

14. Determine the effective date of registration in following cases:

a. The aggregate turnover of Dhampur Footwear Industries of Delhi has exceeded the applicable threshold
limit of Rs. 40 lakh on 1st September. It
submits the application for registration on 20th September. Registration certificate is granted to it on 25th
September.

b. Mehta Teleservices is an architect in Lucknow. Its aggregate turnover exceeds Rs. 20 lakh on 25th
October. It submits the application for registration on 27th November. Registration certificate is granted to
it on 5th December.

ANSWER

a. Every supplier becomes liable to registration if his turnover exceeds the applicable threshold limit [Rs. 40
lakh in this case] in a financial year [Section 22 read with Notification No. 10/2019 CT dated 07.03.2019].
Since in the given case, the turnover of Dhampur Industries exceeded Rs. 40 lakh on 1st September, it
becomes liable to registration on said date Further, since the application for registration has been submitted
within 30 days from such date,
the registration shall be effective from the date on which the person becomes liable to registration [Section 25
read with rule 10 of the CGST Rules, 2017]. Therefore, the effective date of registration is 1st September.

b. Since in the given case, the turnover of Mehta Teleservices exceeds the applicable threshold limit [Rs. 20 312
lakh] on 25th October, it becomes liable to registration on said date.
Further, since the application for registration has been submitted after 30 days from the date such person
becomes liable to registration, the registration shall be effective from the date of grant of
registration. Therefore, the effective date of registration is 5th December.
15. In order to be eligible for grant of registration, a person must have a Permanent Account Number issued
under the Income - tax Act, 1961. State one exception to it.
Answer
A Permanent Account Number is mandatory to be eligible for grant of registration. One exception to this is a
non
-resident taxable person. A non- resident taxable person may be granted registration on the basis of other
rescribed documents instead of PAN. He has to submit a self
-attested copy of his valid passport along with the application signed by his authorized signatory who is an
Indian Resident having valid PAN
and application will be submitted in a different prescribed form.

16. State which of the following suppliers are liable to be registered:

a. Agent supplying goods on behalf of some other taxable person and its aggregate turnover does not
exceed the applicable threshold limit during the financial year.

b. An agriculturist who is only engaged in supply of produce out of cultivation of land and its aggregate
turnover does not exceed the applicable threshold limit during the financial year.

Answer

a. Section 22 stipulates that every supplier becomes liable to registration if his turnover exceeds the applicable
threshold limit in a financial year. However, as per section 24
, a person supplying goods/services or both on behalf of other taxable persons whether as an agent or not is
liable to be compulsorily registered even if its aggregate turnover does not exceed the applicable threshold
limit during the financial year.

b. As per section 23, an agriculturist who is only engaged in supply of produce out of cultivation of land is not
required to obtain registration.

17. What are the advantages of taking registration in GST?

Answer 313

Registration will confer following advantages to the business:

• Legally recognized as supplier of goods or services.
• Proper accounting of taxes paid on the input goods or services which can be utilized for payment of GST due
on supply of goods or services or both by the business.
• Legally authorized to collect tax from his purchasers and pass on the credit of the taxes paid on the
goods or services supplied to purchasers or recipients.
• Become eligible to avail various other benefits and privileges rendered under the GST laws.
18. In the month of April 2020, Z started supply of goods in his proprietary firm and also set up a one-man
company named Z Ltd. He needs your assistance to work out his aggregate turnover for the purpose of GST
registration. The turnover details up to the month of July, 2020 are as under: (PAST PAPER JULY 2021)
S.No. Particulars of supplies Amount (₹ in lakh)
i. Supplies of taxable goods of his firm 31.50
ii. Supplies of taxable goods to a 100% EOU of his firm 1.50
iii Exports of taxable goods of his firm 2.60
iv. Exempt supplies of his firm 2.40
v. Supplies of non-taxable goods of his firm 3.00
vi. Supplies of taxable goods by the one-man company 2.70
set up in his name
vii. Value of supplies on which Z is liable to pay tax under 0.80
reverse charge mechanism (RCM)

Note: All his supplies are intra-State except export.

ANSWER
Computation of aggregate turnover of proprietary firm of Z

Particulars ₹ (in lakh)

Supplies of taxable goods 31.50
[Taxable supplies are included in aggregate turnover.]
Supplies of taxable goods to a 100% EOU 1.50
[Deemed exports being taxable supplies are included in aggregate turnover.]
Exports of taxable goods 2.60
[Included in aggregate turnover.]
Exempt supplies 2.40
[Included in aggregate turnover.]
Supplies of non-taxable goods 3.00
[Exempt supplies are included in aggregate turnover. Exempt supplies include non-taxable
supplies also.]
Supplies of taxable goods by one-man company set up in Z’s name -

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[Not included as one person company is a separate entity with separate PAN.]
Value of supplies on which Z is liable to pay tax under RCM -
[Value of inward supplies on which tax is payable on reverse charge basis are excluded from the
aggregate turnover.]
Aggregate turnover of proprietorship firm of Z 41.00
Computation of aggregate turnover of Z Ltd. - one man company of Z
Supplies of taxable goods by one-man company set up in Z’s name 2.70
[Taxable supplies are included in aggregate turnover.]
Aggregate turnover of Z Ltd. 2.70

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CHAPTER-10 TAX INVOICE, CREDIT AND DEBIT NOTES
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY MAT QSTNS 3,6,7,8,10-13

PAST EXAMS NO QUES ------ ------

MTP Q-2 NO QUES NO Q-9 NO QUES NO QUES ------

QUES

RTP NO Q-1 NO NO Q-4, 5 NO QUES NO QUES

QUES QUES QUES

QUESTIONS

1 Jai, a registered supplier, runs a general store in Ludhiana, Punjab. Some of the goods sold by him are
exempt whereas some are taxable. You are required to advise him on the following issues: (i) Whether Jai is
required to issue a tax invoices in all cases, even if he is selling the goods to the end consumers? (ii) Jai sells
some exempted as well as taxable goods valuing Rs. 5,000 to a school student. Is he mandatorily required to
issue two separate GST documents? (iii) Jai wishes to know whether it’s necessary to show tax amount
separately in the tax invoices issued to the customers. You are required to advise him. (RTP NOV 2018)

ANSWER:

(i) No, he is not required to issue tax invoice in all cases. As per section 31(1), every registered person
supplying taxable goods is required to issue a ‘tax invoice’. Section 31(3)(c) stipulates that every registered
person supplying exempted goods is required to issue a bill of supply instead of tax invoice.

316
Further, rule 46A provides that a registered person supplying taxable as well as exempted goods or services or
both to an un-registered person may issue a single ‘invoice-cum-bill of supply’ for all such supplies.

However, as per section 31(3)(b) read with rule 46, a registered person may not issue a tax invoice if:

(i) value of the goods supplied <Rs. 200,

(ii) the recipient is unregistered; and

(iii) the recipient does not require such invoice.

Instead, such registered person shall issue a Consolidated Tax Invoice for such supplies at the close of each day
in respect of all such supplies.

(ii) As per rule 46A, where a registered person is supplying taxable as well as exempted goods or services or
both to an unregistered person, a single “invoice-cum-bill of supply” may be issued for all such supplies. Thus,
there is no need to issue a tax invoice and a bill of supply separately to the school student in respect of supply
of the taxable and exempted goods respectively.

(iii) As per section 33, where any supply is made for a consideration, every person who is liable to pay tax for
such supply shall prominently indicate in all documents relating to assessment, tax invoice and other like
documents, the amount of tax which shall form part of the price at which such supply is made.
As per rule 46(m), a tax invoice shall contain the various particulars, interalia, namely, amount of tax charged
in respect of taxable goods or services (central tax, State tax, integrated tax, Union territory tax or cess);
Hence, Jai has to show the tax amount separately in the tax invoices issued to customers.

2 Avtaar Enterprises, Kanpur started trading exclusively in ayurvedic medicines from July 1. Its turnover
exceeded Rs. 40 lakh on October 3. The firm applied for registration on October 31 and was issued
registration certificate on November 5. Examine whether any revised invoice can be issued in the given
scenario. If the answer to the first question is in affirmative, determine the period for which the revised
invoices can be issued as also the last date up to which the same can be issued. (MTP MAY 2018)

ANSWER:
As per section 31(3)(a), a registered person may, within one month from the date of issuance of certificate of
registration, issue a revised invoice against the invoice already issued during the period beginning with the
effective date of registration till the date of issuance of certificate of registration to him.
Further, rule 10(2) lays down that the registration shall be effective from the date on which the person
becomes liable to registration where the application for registration has been submitted within a period of 30
days from such date.

In the given case, Avtaar Enterprises has applied for registration within 30 days of becoming liable for
registration and the registration has been granted. Thus, the effective date of registration is the date on which

317
Avtaar Enterprises became liable for registration i.e., October 3. Therefore, since in the given case there is a
time lag between the effective date of registration (October 3) and the date of grant of certificate of
registration (November 5), revised invoices can be issued. The same can be issued for supplies made during
this intervening period i.e., for the period beginning with October 3 till November 5. Further, the revised
invoices can be issued for the said period till December 5.
3 Discuss the provisions relating to issue of an invoice/document in the following circumstances:
(i) Advance payment is received against a supply, but subsequently no supplies are made.
(ii) Goods are sent on approval for sale or return and are removed before the supply takes place.
(iii) Mr. Mohan provides continuous supply of services to his client, where the due date of payment for such
services is not ascertainable. No advance has been received in this behalf.

ANSWER:

(i) As per section 31(3)(e), where advance payment is received against a supply for which receipt voucher has
been issued, but subsequently no supplies are made and no tax invoice is issued in pursuance thereof, a
refund voucher may be issued to the person who had made the advance payment.

(ii) As per section 31(7), where the goods are sent on approval for sale or return and are removed before the
supply takes place, the invoice shall be issued before or at the time of supply or 6 months from the date of
removal, whichever is earlier.

(iii) As per section 31(5)(b), in case of continuous supply of services, where the due date of payment is not
ascertainable from the contract, the invoice shall be issued before or at the time when the supplier of service
receives the payment.

4. An international trade exhibition is going to be held in United States of America in January. Aayaat Niryat
Export House (ANEH) has participated in it. It intends to send 100 units of taxable goods manufactured
by it to USA for display in the said exhibition. ANEH is of the view that the activity of sending the goods out
of India for exhibition is a zero-rated supply. However, its tax advisor does not concur with its view.
Examine whether the view of ANEH is correct.

Assuming that ANEH could not sell any goods at the exhibition and brings back entire 100 units to India
(i) in February, (ii) in August, Discuss the requirement to issue invoice, if any, in each of the above
independent cases.
Would your answer be different if ANEH sells an aggregate of 65 units of the taxable goods in USA

318
exhibition on different dates in January and remaining 35 units are brought back on 31st January. The
tax advisor of ANEH advises ANEH that the export of 65 units qualify as zero-rated supply and it should
apply for refund of the unutilized ITC in respect of the same. Examine the technical veracity of the tax
advisor’s advice. (RTP MAY 2020)

Answer

No, the view of ANEH that the activity of sending the goods out of India for exhibition is a zero-rated supply, is
not correct. As per section 7 of the CGST Act, for any activity or transaction to be considered a
supply, it must satisfy twin tests namely-
(i) it should be for a consideration by a person; and
(ii) it should be in the course or furtherance of business.

The exceptions to the above are the activities enumerated in Schedule I of the CGST Act which are treated
as supply even if made without consideration. Further, section 2(21) of the IGST Act defines “supply”, wherein
it is clearly stated that it shall have the same meaning as assigned to it in section 7 of the CGST
Act.

Section 16 of the IGST Act defines “zero rated supply” as any of the following supplies of goods or services
or both, namely:

(a) export of goods or services or both; or

(b) supply of goods or services or both to a Special Economic Zone developer or a Special Economic Zone unit.
Thus, only such “supplies” which are either “export” or are “supply to SEZ unit/ developer” would qualify as
zero
-rated supply.

In view of the above provisions, Circular No. 108/27/2019 GST dated 18.07.2019 clarified that the
activity of sending/ taking the goods out of India for exhibition or on consignment basis for export
promotion, except when such activity satisfy the tests laid down in Schedule I of the CGST Act, do not
constitute supply as the said activity does not fall within the scope of section 7 of the CGST Act as there is no
consideration at that point in time. Since such activity is not a supply, the same cannot be considered as “zero
rated supply” as per the provisions contained in section 16 of the IGST Act.

The said circular further clarified that the activity of sending/taking goods out of India for exhibition is in the
nature of “sale on approval basis” wherein the goods are sent/ taken outside India for the approval of the
person located abroad and it is only when the said goods are approved that the actual
supply from the exporter located in India to the importer located abroad takes place.

The activity of sending/ taking specified goods is covered under the provisions of section 31(7) of the CGST
Act, 2017 read with rule 55 of CGST Rules, 2017. As per said provisions, in case of the goods being sent or
taken on approval for sale, the invoice shall be issued before/at the time of supply or 6 months from the date
of removal, whichever is earlier. The goods which are taken for supply on approval basis can be moved from

319
the place of business of the registered supplier to another place within the same State
or to a place outside the State on a delivery challan.

In view of the said provisions, ANEH is not required to issue invoice at the time of taking the goods out of India
since the activity of merely sending/ taking the taxable goods out of India is not a supply.

However, the goods shall be accompanied with a delivery challan. Further,

(i) In case the entire quantity of goods (100 units) sent to USA is not sold but brought back by ANEH in
February, i.e. within the stipulated period of 6 months from the date of removal, no tax invoice is required to
be issued as no supply has taken place in such a case.

(ii) In case, the entire quantity of goods (100 units) sent to USA is not sold and brought back by ANEH in
August, i.e. after 6 months from the date of removal, a tax invoice is required to be issued for entire 100 units
of taxable goods in accordance with the provisions contained in section 12 [determining time of supply of
goods] and section 31 [tax invoice] of the CGST Act, 2017 read with rule 46 [tax invoice] of the CGST Rules,
2017 within the time period stipulated under section 31(7)
of the CGST Act, 2017.

However, if an aggregate of 65 units of the goods are sold in USA exhibition by ANEH on different dates in
January (i.e. within the stipulated period of 6 months), a tax invoice would be required to be issued for these
units, at the time of each of these sales, in accordance with the provisions contained in section 12
and section 31 of the CGST Act read with rule 46 of the CGST Rules. When the goods are sold in exhibition,
actual supply from the exporter in India to the importer located abroad takes place and this supply qualifies as
export. Export of goods is a zero-rated supply in terms of section 16(1)(a) of the IGST Act, 2017.

If the remaining 35 units are brought back on 31st January, i.e. within the stipulated period of 6 months from
the date of removal, no tax invoice is required to be issued as no supply has taken place in such a
case. Further, tax advisor’s advice is technically correct. Since the activity of sending / taking specified goods
out of India is not a zero-rated supply, execution of a bond/Letter of Undertaking (LUT), as required under
section 16 of the IGST Act, is not required.

However, the sender can prefer refund claim even when the specified goods were sent / taken out of India
without execution of a bond/LUT, if he is otherwise eligible for refund as per the provisions
contained in section 54(3) of the CGST Act, 2017 read with rule 89(4) of the CGST Rules, 2017 in respect of
zero-rated supply of 65 units.

5. Subhashini Ltd. agreed to provide consultancy services to Madhu Enterprises in the month of May for
which it received an advance of ₹1,00,000 on 20th April from Madhu Enterprises. Subsequently, in the
month of May, before supply of service, the said service contract has to be cancelled owing to some

320
inadvertent circumstances. However, Subhashini Ltd. has issued the invoice for the advance received in
April itself and has paid the GST thereon. You are the tax consultant of Subhashini Ltd. Please advise
whether it can claim refund of tax paid or is it required to adjust its tax liability in its returns? (RTP NOV
2020)

Answer

In case GST is paid by the supplier on advances received for a future event which got cancelled subseq
uently and for which invoice is issued before supply of service, the supplier is required to issue a “credit note”
in terms of section 34 of the CGST Act, 2017. He shall declare the details of such credit notes in the return for
the month during which such credit note has been issued. The tax liability shall be adjusted in the return
subject to conditions of section 34. There is no need to file a separate refund claim.

However, in cases where there is no output liability against which a credit note can be adjusted, registered
persons may proceed to file a refund claim [Circular No. 137/07/2020 GST dated 13.04.2020].

Therefore, in the given case, Subhashini Ltd. is required to issue a credit note, declare its details in the return
for the month during which such credit note has been issued and adjust the tax liability. However, if there is
no output liability of Subhashini Ltd. against which the said credit note can be adjusted, it may
proceed to file a refund claim.

6. Bhumika Caretakers, a registered person , provides the services of repair and maintenance of electrical
appliances. On April 1, it has entered into an annual maintenance contract with Naveen for its Air
Conditioner and Washing Machine. As per the terms of contract, maintenance services will be provided on
the first day of each quarter of the relevant financial year and payment for the same will also be due on the
date on which service is rendered. During the year, it provided the services on April 1, July 1, October 1, and
January 1 in accordance with the terms of contract. When should Bhumika Caretakers issue the invoice for
the services rendered?

Answer
Continuous supply of service means, inter alia, supply of any service which is provided, or agreed to be
provided continuously or on recurrent basis, under a contract, for a period exceeding 3 months with the
periodic payment obligations.

Therefore, the given situation is a case of continuous supply of service as repair and maintenance services
have been provided by Bhumika Caretakers on a quarterly basis, under a contract, for a period of 1 year
with the obligation for quarterly payment.

In terms of section 31 of the CGST Act, in case of continuous supply of service, where due date of payment
is ascertainable from the contract (as in the given case), invoice shall be issued on or before the due date

321
of payment.

Therefore, in the given case, Bhumika Caretakers should issue quarterly invoices on or before April 1, July 1,
October 1, and January 1.

7. Jain & Sons is a trader dealing in stationery items. It is registered under GST and has undertaken following
sales during the day:
None of the recipients require a tax invoice [Raghav Traders being a composition dealer].in respect of which
of the above supplies, Jain & Sons may issue a Consolidated Tax Invoice instead of Tax Invoice at the end of
the day?

Answer
In the given illustration, Jain & Sons can issue a Consolidated Tax Invoice only with respect to supplies made to
Oberoi Orphanage [worth Rs. 188] and Aaradhya [worth Rs. 158] as the value of goods supplied to these
recipients is less than Rs. 200 as also these recipients are unregistered and don’t require a tax
invoice. As regards the supply made to Raghav Traders, although the value of goods supplied to it is less than
Rs. 200, Raghav Traders is registered under GST. So, Consolidated Tax Invoice cannot be issued. Consolidated
Tax Invoice can also not be issued for supplies of goods made to Dhruv Enterprises and Gaurav although both
of them are unregistered. The reason for the same is that the value of goods supplied is not less than Rs. 200.

8. Sultan Industries Ltd., Delhi, entered into a contract with Prakash Entrepreneurs, Delhi, for supply of
spare parts of a machine on 7th September. The spare parts were to be delivered on 30th September.
Sultan Industries Ltd. removed the finished spare parts from ts factory on 29th September. Determine the
date by which invoice must be issued by Sultan Industries Ltd. under GST law.
Answer
As per the provisions of section 31, invoice shall be issued before or at the time of removal of goods for supply
to the recipient, where the supply involves movement of goods. Accordingly, in the given case, the
invoice must be issued on or before 29th September.

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9. The aggregate turnover of Sangri Services Ltd., Delhi exceeded Rs. 20 lakh on 12th August. He applied for
registration on 3rd September and was granted the registration certificate on 6th September. You are
required to advice Sangri Services Ltd. as to what is the effective date of registration in its case. It has also
sought your advice regarding period for issuance of Revised Tax Invoices. (MTP NOV 2019)

Answer
As per section 25 read with CGST Rules, 2017, where an applicant submits application for registration within
30 days from the date he becomes liable to registration, effective date of registration is the date on which he
becomes liable to registration. Since, Sangri Services Ltd.’s turnover exceeded Rs. 20 lakh on 12th August, it
became liable to registration on same day. Further, it applied for registration within 30
days of so becoming liable to registration, the effective date of registration is the date on which he becomes
liable to registration, i.e. 12th August.

As per section 31 read with CGST Rules, 2017, every registered person who has been granted registration with
effect from a date earlier than the date of issuance of certificate of registration to him, may issue Revised Tax
Invoices. Revised Tax Invoices shall be issued within 1 month from the date of issuance of
certificate of registration. Revised Tax Invoices shall be issued within 1 month from the date of issuance of
registration in respect of taxable supplies effected during the period starting from the effective date of
registration till the date of issuance of certificate of registration.

Therefore, in the given case, Sangri Services Ltd. has to issue the Revised Tax Invoices in respect of taxable
supplies effected during the period starting from the effective date of registration (12th August) till the date of
issuance of certificate of registration (6th September) within 1 month from the date of issuance of certificate
of registration, i.e. on or before 6th October.

10. Shyam Fabrics has opted for composition levy scheme in the current financial year. It has approached
you for advice whether it is mandatory for it to issue a tax invoice. You are required to advise him regarding
same.
Answer
A registered person paying tax under the provisions of section 10 [composition levy] shall issue, instead of a
tax invoice, a bill of supply containing such particulars and in such manner as may be prescribed [Section
31(3)(c) read with CGST Rules, 2017].
Therefore, in the given case, Shyam Fabrics cannot issue tax invoice. Instead, it shall issue a Bill of Supply.

11. Discuss the provisions relating to issuance of refund voucher under CGST Act and rules there under.
Answer
Where, on receipt of advance payment with respect to any supply of goods or services or both the registered
person issues a Receipt Voucher, but subsequently no supply is made and no tax invoice is issued in pursuance
thereof, the said registered person may issue to the person who had made the payment, a Refund Voucher
against such payment.

12. Is a registered person liable to pay tax under reverse charge under section 9(3) of the CGST Act required

323
to issue an invoice? Discuss the relevant provisions under CGST Act and rules there under.
Answer
A registered person who is liable to pay tax under reverse charge [under section 9(3)/9(4) of the CGST Act]
shall issue an Invoice in respect of goods or services or both received by him from the supplier who is not
registered on the date of receipt of goods or services or both. Thus, a recipient liable to pay tax by virtue of
section 9(3) has to issue invoice only when supplies have been received from an unregistered
supplier.
13. Discuss the provisions relating to issuance of credit and debit notes under CGST Act and rules there
under.

Answer

(i) Issuance of Debit Note:

There can be situations when after the invoice has been issued:

• The supplier has erroneously declared a value which is less than the actual value of the goods or services or
both provided.
• The supplier has erroneously declared a lower tax rate than what is applicable for the kind of the goods or
services or both supplied.
• The quantity received by the recipient is more than what has been declared in the tax invoice.
• Any other similar reasons. In order to regularize these kinds of situations, the supplier is allowed to issue a
document called as debit note to the recipient.

(ii) Issuance of Credit Note:

During the course of trade or commerce, after the invoice has been issued, there can be situations like:

• The supplier has erroneously declared a value which is more than the actual value of the goods or services
provided.

• The supplier has erroneously declared a higher tax rate than what is applicable for the kind of the goods
or services or both supplied.
• The quantity received by the recipient is less than what has been declared in the tax invoice.
• The quality of the goods or services or both supplied is not to the satisfaction of the recipient thereby
necessitating a partial or total reimbursement on the invoice value
• Any other similar reasons.

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 CHAPTER-11 ACCOUNTS AND RECORDS;
E-WAY BILL
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS 1 to 5, 11, 12

MAT

PAST NO QUES NO QUES Q-9, NO NO QUES Q-13, 14 Q-16 ------

EXAMS 10, QUES
15

MTP NO QUES NO QUES Q-8 NO Q-9 Q-7, 9 Q-6,7

QUES

RTP NO QUES NO QUES Q-6,7 NO NO QUES NO QUES NO QUES

QUES

QUESTIONS

1. Sindhu Enterprises is a supplier of goods. Its turnover has exceeded Rs. 2 crore in current financial year.
Discuss whether Sindhu Enterprises is required to get its accounts audited by the Chartered Accountant or
Cost Accountant under GST law.

ANSWER:

325
Section 35(5) read with rule 80 provides that every registered person must get his accounts audited by a
Chartered Accountant or a Cost Accountant if his aggregate turnover during a FY exceeds Rs. 2 crores. Since
the turnover of Sindhu Enterprises has exceeded Rs. 2 crore in current financial year, it has to get its accounts
audited by a Chartered Accountant/ Cost Accountant.

2. Mala Services Ltd. is a supplier of management consultancy services. It has approached you to ascertain
the period for which the books of accounts or other records need to be maintained?

ANSWER:
Section 36 stipulates that every registered person required to keep and maintain books of account or other
records in accordance with the provisions of sub-section (1) of section 35 shall retain them until the expiry of
72 months from the due date of furnishing of annual return for the year pertaining to such accounts and
records.
However, a registered person, who is a party to an appeal or revision or any other proceedings before any
Appellate Authority or Revisional Authority or Appellate Tribunal or court, whether filed by him or by the
Commissioner, or is under investigation for an offence under Chapter XIX, shall retain the books of account
and other records pertaining to the subject matter of such appeal or revision or proceedings or investigation
for a period of one year after final disposal of such appeal or revision or proceedings or investigation, or for
the period specified above, whichever is later.

3. Essel Groups has started making taxable supplies. You are required to advice it about the accounts and
records required to be maintained by it as required under section 35(1).

ANSWER:
Section 35(1) stipulates that a true and correct account of following is to be maintained:
(a) production or manufacture of goods;
(b) inward and outward supply of goods or services or both;
(c) stock of goods;
(d) input tax credit availed;
(e) output tax payable and paid
(f) such other particulars as may be prescribed.

4. Swad Restaurant has opted for composition scheme in the current financial year. Discuss the records
which are not to be maintained by a supplier opting for composition levy as enumerated in rule 56.

ANSWER:
Following records are not required to be maintained by a supplier who has opted for composition scheme as
per rule 56(2) and (4):
(I) Stock of goods: Accounts of stock in respect of goods received and supplied by him, and such accounts shall
contain particulars of the opening balance, receipt, supply, goods lost, stolen, destroyed, written off or

326
disposed of by way of gift or free sample and the balance of stock including raw materials, finished goods,
scrap and wastage thereof.
(II) Details of tax: Account, containing the details of tax payable (including tax payable under reverse charge),
tax collected and paid, input tax, input tax credit claimed, together with a register of tax invoice, credit notes,
debit notes, delivery challan issued or received during any tax period.
5. ABC Manufacturers Ltd. engages Raghav & Sons as an agent to sell goods on its behalf. For the purpose,
ABC Manufacturers Ltd. has supplied the goods to Raghav & Sons located in Haryana. Enumerate the
accounts required to maintained by Raghav & Sons as per rule 56(11).

ANSWER:
Rule 56(11) provides that every agent shall maintain accounts depicting the-

(a) particulars of authorisation received by him from each principal to receive or supply goods or services on
behalf of such principal separately;

(b) particulars including description, value and quantity (wherever applicable) of goods or services received on
behalf of every principal;

(c) particulars including description, value and quantity (wherever applicable) of goods or services supplied on
behalf of every principal;

(d) details of accounts furnished to every principal; and

(e) tax paid on receipts or on supply of goods or services effected on behalf of every principal.

6. Sindhi Toys Manufacturers, registered in Punjab, sold electronic toys to a retail seller in Gujarat, at a
value of Rs. 48,000 (excluding GST leviable @ 18%). Now, it wants to send the consignment of such toys to
the retail seller in Gujarat.

You are required to advise Sindhi Toys Manufacturers on the following issues:

(a) Whether e-way bill is mandatorily required to be generated in respect of such movement of goods?

(b) If yes, who is required to generate the e-way bill?

(c) What will be the consequences for non-issuance of e-way bill? (RTP MAY 2019) (MTP- NOV 2021)

327
ANSWER:

(a) Rule 138(1) of the CGST Rules, 2017 provides that e-way Bill is mandatorily required to be generated if the
goods are moved, inter alia, in relation to supply and the consignment value exceeds Rs. 50,000. Further,
explanation 2 to rule 138(1) stipulates that the 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 CGST, SGST/UTGST, IGST 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.
Accordingly, in the given case, the consignment value will be as follows:
= Rs. 48,000 × 118%
= Rs. 56,640.
Since the movement of goods is in relation to supply of goods and the consignment value exceeds Rs. 50,000,
e-way bill is mandatorily required to be issued in the given case.

(b) An e-way bill contains two parts namely, Part A to be furnished by the registered person who is causing
movement of goods of consignment value exceeding Rs. 50,000/- and part B (transport details) is to be
furnished by the person who is transporting the goods.
Where the goods are transported by the registered person as a consignor or the recipient of supply as the
consignee, whether in his own conveyance or a hired one or a public conveyance, by road, the said person
shall generate the e-way bill on the common portal after furnishing information in Part B [Rule 138(2)].

Where the goods are transported by railways or by air or vessel, the e-way bill shall be generated by the
registered person, being the supplier or the recipient, who shall, either before or after the commencement of
movement, furnish, on the common portal, the information in Part B [Rule 138(2A)].

Where the goods are handed over to a transporter for transportation by road, the registered person shall
furnish the information relating to the transporter on the common portal and the e-way bill shall be generated
by the transporter on the said portal on the basis of the information furnished by the registered person in Part
A [Rule 138(3)].

Where the consignor or the consignee has not generated the e-way bill and the aggregate of the consignment
value of goods carried in the conveyance is more than Rs. 50,000/, the transporter, except in case of
transportation of goods by railways, air and vessel, shall, in respect of inter-State supply, generate the e-way
bill on the basis of invoice or bill of supply or delivery challan, as the case may be, and may also generate a
consolidated e-way bill on the common portal prior to the movement of goods [Rule 138(7)].

(c) It is mandatory to generate e-way bill in all cases where the value of consignment of goods being
transported is more than Rs. 50,000/- and it is not otherwise exempted in terms of rule 138(14) of CGST Rules,
2017. If e-way bills, wherever required, are not issued in accordance with the provisions contained in rule 138,
the same will be considered as contravention of rules. As per section 122(1)(xiv) of CGST Act, 2017, a taxable
person who transports any taxable goods without the cover of specified documents (e-way bill is one of the
specified documents) shall be liable to a penalty of Rs. 10,000/- or tax sought to be evaded (wherever
applicable) whichever is greater.

Moreover, as per section 129(1) of CGST Act, 2017, where any person transports any goods or stores any 328
goods while they are in transit in contravention of the provisions of this Act or the Rules made thereunder, all
such goods and conveyance used as a means of transport for carrying the said goods and documents relating
to such goods and conveyance shall be liable to detention or seizure.
7. Power Electricals Ltd., a registered supplier of air-conditioners, is required to send from Mumbai
(Maharashtra), a consignment of parts of air-conditioner to be replaced under warranty at various client
locations in Gujarat. The value of consignment declared in delivery challan accompanying the goods is Rs.
70,000. Power Electricals Ltd. claims that since movement of goods to Gujarat is caused due to reasons
other than supply, e-way bill is not mandatorily required to be generated in this case.

You are required to examine the technical veracity of the claim made by Power Electricals Ltd. (RTP MAY
2019) (MTP JULY 2021) (MTP- NOV 2021)

ANSWER:

The goods to be moved to another State for replacement under warranty is not a ‘supply’. However, rule
138(1) of the CGST Act, 2017, inter alia, stipulates that every registered person who causes movement of
goods of consignment value exceeding Rs. 50,000:

(i) in relation to a supply; or

(ii) for reasons other than supply; or
(iii) due to inward supply from an unregistered person,
shall, generate an electronic way bill (E-way Bill) before commencement of such movement.

CBIC vide FAQs on E-way Bill has also clarified that even if the movement of goods is caused due to reasons
others than supply [including replacement of goods under warranty], e-way bill is required to be issued.

Thus, in the given case, since the consignment value exceeds Rs. 50,000, e-way bill is required to be
mandatorily generated. Therefore, the claim of Power Electricals Ltd. that e-way bill is not mandatorily
required to be generated as the movement of goods is caused due to reasons other than supply, is not correct.

8. Beauty Cosmetics Ltd. has multiple wholesale outlets of cosmetic products in Mumbai, Maharashtra. It

329
receives an order for cosmetics worth Rs. 1,20,000 (inclusive of GST leviable @ 18%) from Prasannaa, owner
of a retail cosmetic store in Delhi. While checking the stock, it is found that order worth Rs. 55,000 can be
fulfilled from the company’s Dadar (Mumbai) store and remaining goods worth Rs. 65,000 can be sent from
its Malad (Mumbai) store. Both the stores are instructed to issue separate invoices for the goods sent to
Prasannaa. The goods are transported to Prasannaa in Delhi, in a single conveyance owned by Radhey
Transporters.
You are required to advise Beauty Cosmetics Ltd. with regard to issuance of e-way bill(s). (RTP MAY 2019)

ANSWER:
Beauty Cosmetics Ltd. would be required to prepare two separate e-way bills since each invoice value exceeds
Rs. 50,000 and each invoice is considered as one consignment for the purpose of generating e-way bills.

The FAQs on E-way Bill issued by CBIC clarify that if multiple invoices are issued by the supplier to one
recipient, that is, for movement of goods of more than one invoice of same consignor and consignee, multiple
e-way bills have to be generated. In other words, for each invoice, one e-way bill has to be generated,
irrespective of the fact whether same or different consignors or consignees are involved. Multiple invoices
cannot be clubbed to generate one e-way bill.

However, after generating all these e-way bills, one consolidated e-way bill can be prepared for transportation
purpose, if goods are going in one vehicle.

9. When is an e-way bill required to be generated? (PAST EXAM MAY 2019) (MTP JULY 2021)
(MTP MAY 2020)

Answer

As per rule 138 of the CGST Rules, 2017, whenever there is a movement of goods of consignment value
exceeding
₹ 50,000:
(i) in relation to a supply; or
(ii) for reasons other than supply; or
(iii) due to inward supply from an unregistered person, e-way bill needs to be generated prior to the
commencement of transport of goods.

Further, in the following situations, e-way bill needs to be issued even if the value of the consignment is
less than ₹ 50,000:

(i) Where goods are sent by a principal located in one State/ Union territory to a job worker located in any
other State/Union t
erritory, the e-way bill shall be generated either by the principal or the job worker, if registered, irrespective of
the value of the consignment.

330
(ii) Where specified handicraft goods are transported from one State/ Union territory to another State/ Union
territory by a person who has been exempted from the requirement of obtaining
registration under section 24 of the CGST Act, 2017, the e-way bill shall be generated by the said person
irrespective of the value of the consignment.
10. The supplier opting for composition levy need not maintain certain records as per rule 56(2) and 56(4)
of the CGST Rules, 2017. Explain. (PAST EXAM MAY 2019)

Answer
As per rule 56(2) and 56(4) of the CGST Rules, 2017, the supplier opting for composition levy need not
maintain the following records:

(i) Accounts of stock in respect of goods received and supplied by him, and such accounts shall contain
particulars of the opening balance, receipt, supply, goods lost, stolen, destroyed, written off or
disposed of by way of gift or free sample and the balance of stock including raw materials, finished
goods, scrap and wastage thereof.

(ii) Account, containing the details of tax payable (including tax payable under reverse charge), tax collected
and paid, input tax, input tax credit claimed, together with a register of tax invoice, credit
notes, debit notes, delivery challan issued or received during any tax period.

11. Mr. Bala, a registered person at Chennai wants to maintain proper accounts and records relating to GST.
Advise him about the accounts and other records to be maintained under section 35(1) of the CGST Act,
2017.

Answer
Mr. Bala, is required to maintain a true and correct account of following under section 35(1) of the CGST
Act, 2017:-

(a) production or manufacture of goods;

(b) inward and outward supply of goods or services or both;

(c) stock of goods;

(d) input tax credit availed;

(e) output tax payable and paid; and

(f) other prescribed particulars 331

The records may be maintained electronically. Where more than one place of business is specified in the
certificate of registration, the accounts relating to each place of business should be kept at such places of
business.

12. Explain the provisions relating to period of retention of accounts as provided under section 36 of CGST
Act, 2017?

Answer
Section 36 of the CGST Act explains the provisions relating to period of retention of accounts as under:-
Every registered person required to keep and maintain books of account or other records shall retain them
until the expiry of 72 months from the due date of furnishing of annual return for the year pertaining to such
accounts and records.

However, a registered person, who is a party to an appeal or revision or any other proceedings before any
Appellate Authority or Revisional Authority or Appellate Tribunal or court, whether filed by him or by the
Commissioner, or is under investigation for an offence under Chapter XIX, shall retain the books
of account and other records pertaining to the subject matter of such appeal or revision or proceedings or
investigation for a period of 1 year after final disposal of such appeal or revision or proceedings or
investigation, or for the period specified above, whichever is later.

13. Whether the transporters, who are not registered under the GST, are required to maintain any records
under the provisions of CGST Act, 2017? Also explain, if any other unregistered persons who are required to
maintain records under GST. (PAST EXAM JAN 2021)
Answer
The transporters, who are not registered under GST, shall obtain a unique enrollment number on GST
common portal and maintain records of goods transported, delivered and goods stored in transit by them
along with GSTIN of the registered consignor and consignee for each of his branches. Every owner or operator
of warehouse/godown/any other place used for storage of goods, even if unregistered, is also required to
maintain
records under GST.

14. M/s. ABC Manufacturers, registered in West Bengal, sold air-conditioner to a retail seller in
Bhubaneswar, at a value of Rs. 49,000 (excluding GST leviable @ 18%). Now, it wants to send the
consignment of air-conditioning machine to the retail seller in Bhubaneswar. You are required to advise

332
M/s. ABC Manufacturers on the following issues along with suitable explanations:
(i) Whether e-way bill is mandatorily required to be generated?
(ii) What will be the consequence for non-issuance of e-way bill? (PAST EXAM JAN 2021)

ANSWER

(i) E-way bill is mandatorily required to be generated whenever there is a movement of goods of consignment
value exceeding Rs. 50,000, inter alia, in relation to a supply. Consignment value of goods includes the central
tax, State/Union territory tax, integrated tax and cess charged, if any.
Thus, the consignment value of goods, in the given case, will be Rs. 57,820 [Rs. 49,000 + (Rs. 49,000 ×18%)].
Since in the given case the movement of goods is in relation to supply of goods and the consignment value
exceeds Rs. 50,000, e-way bill is mandatorily required to be generated in respect of movement of goods from
West Bengal to Bhubaneswar.

(ii) Non-issuance of e-way bill may result in the following consequences:

(a) imposition of penalty of Rs. 10,000/- or tax sought to be evaded (wherever applicable), whichever is
greater

(b) detention and seizure of goods and the conveyance used to transport the said goods and the same will be
released only on payment of appropriate tax and penalty

(c) confiscation of goods and the conveyance used to transport the said goods if the tax and penalty is not paid
within 14 days of detention or seizure

15. (PAST EXAM MAY 2019) Enumerate any four orders against which appeal cannot be filed under the
CGST Act 2017. (4 Marks)

ANSWER
As per section 121 of the CGST Act, 2017, no appeal shall lie against any decision taken or order passed by a
CGST officer if such decision taken or order passed relates to any one or more of the following matters,
namely:

(i) an order of the Commissioner or other authority empowered to direct transfer of proceedings from
one officer to another officer; or

(ii) an order pertaining to the seizure or retention of books of account, register and other documents; or

(iii) an order sanctioning prosecution under CGST Act; or

(iv) an order passed under section 80 of the CGST Act (payment of tax in instalments).

333
16. (PAST EXAM JULY 2021)
Decide with reason whether e-way bill is required to be issued under CGST Act, 2017 in the following
independent cases:
(a) Square Ltd., registered in Andhra Pradesh, sends goods to its job worker Cube & Co. in Karnataka, which is
also registered under GST. Value of the consignment was ₹ 45,000 (including GST).
(b) Mr. Bheeshma of Telangana started doing business in notified handicraft products as a casual taxable
person. He got his first order of ₹ 30,000 from Tamil Nadu which he transports. He is not registered under GST
since he has a threshold limit of ₹ 20 lakh.
ANSWER

(a) E-way bill is mandatorily required to be issued in case of inter-State transfer of goods by principal to job-
worker, irrespective of the value of the consignment.
In view of the same, e-way is mandatorily required to be issued in the given case.

(b) E-way bill is mandatorily required to be issued in case of inter-State transfer of handicraft goods by a
person exempted from obtaining registration.
In view of the same, e-way bill is mandatorily required to be issued in the present case.

334
 CHAPTER-12
UNIT-1 PAYMENT OF TAX
UNIT II: TAX DEDUCTION AT SOURCE AND
COLLECTION OF TAX AT SOURCE

Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS 2 to 19, 22

MAT

PAST NO QUES Q-1 NO NO Q-20 Q-21 Q-23, 24 ------

EXAMS QUES QUES

MTP NO QUES NO QUES NO

QUES

RTP NO QUES NO QUES Q-16 NO NO QUES NO QUES NO

QUES QUES

QUESTIONS

1. Miss Nitya has following balances in her Electronic Cash Ledger as on 28th February as per GST portal.

335
Her tax liability for the month of February for CGST and SGST was Rs. 75,000 each. She failed to pay the tax
and contacted you as legal advisor on 12th April to advise her as to how much amount of tax or interest she
is required to pay, if any, by utilizing the available balance to the maximum extent possible as per GST Laws.
She wants to pay the tax on 20th April.

Other information:-

(i) Date of collection of GST was 18th February.

(ii) No other transaction after this up to 20th April.
(iii) Ignore penalty and late fee for this transaction.
(iv) No other balance is available.

You are required to advise her with reference to legal provisions with brief notes on the legal provisions

336
applicable. (PAST EXAM NOV 2018)

ANSWER:
Due date for payment of tax collected on 18th February is 20th March. Interest @ 18% p.a. is payable for the
period for which the tax remains unpaid in terms of section 50 of CGST Act, 2017. In the given case, since Miss
Nitya wants to pay the tax on 20th April, interest payable on the amount of CGST and SGST each is as follows:
Rs. 75,000 × 18% × 31/365 = Rs. 1,147 (rounded off)

As per Section 49(10) of the CGST Act, 2017, any amount of tax, interest, penalty, fee or any other amount
available in the electronic cash ledger under the CGST Act, 2017 can be transferred to the electronic cash
ledger for integrated tax, central tax, State tax, Union territory tax or cess, in such form and manner and
subject to such conditions and restrictions as may be prescribed. Thus, amount entered under any Minor head
(Tax, Interest, Penalty, etc.) and Major Head (CGST, IGST, SGST/UTGST) of the Electronic Cash Ledger can be
transferred to any other major or minor head. Consequently, cross-utilization among Major and Minor heads
is also possible.

Thus, Miss Nitya is liable to pay the following amount of tax and interest as under:

Note 1 – Rs. 35,000 shortfall amount has been transferred from cash ledger balance available in Major Head
IGST.

337
Note 2 – Rs. 147 shortfall amount has been transferred from cash ledger balance in minor head penalty of
major head CGST.

Note 3 – Rs. 747 shortfall amount has been transferred from cash ledger balance in minor head tax of major
head SGST.

Since there is no restriction in intra-head or inter-head transfer of available balance in cash ledger as per the
relevant provisions, it is upon the taxpayer to decide from which account the shortfall has to be made good.
2. A makes intra-State supply of goods valued at Rs. 50,000 to B within State of Karnataka. There is no input
tax credit balance available with A. B makes inter-State supply to X Ltd. (located in Telangana) after adding
10% as its margin on the value of goods excluding taxes. Thereafter, X Ltd. sells it to Y in Telangana (Intra-
State sale) after adding 10% as his margin on the value of goods excluding taxes.

Assume that the rate of GST chargeable is 18% (CGST and SGST at 9% each and IGST chargeable at 18%).
Calculate tax payable at each stage of the transactions detailed above. Wherever input tax credit is
available and can be utilized, calculate the net tax payable in cash. At each stage of the transaction, indicate
which Government will receive the tax paid and to what extent.

ANSWER:

I. Intra-State supply of goods by A to B

Value charged for supply of goods 50,000
Add: CGST @ 9% 4,500
Add: SGST @ 9% 4,500
Total price charged by A from B 59,000
A does not have credit of CGST, SGST or IGST. Thus, the entire CGST (Rs. 4,500) & SGST (Rs. 4,500) charged will
be paid in cash by A to the Central Government and Karnataka Government respectively.

II. Inter-State supply of goods by B to X Ltd. – Margin @ 10%

Value charged for supply of goods (Rs. 50,000 x 110%) 55,000
Add: IGST @ 18% 9,900
Total price charged by B from X Ltd. 64,900

Computation of IGST payable by B to Central Government in cash

IGST payable 9,900
Less: Credit of CGST 4,500
Less: Credit of SGST 4,500
IGST payable to Central Government in cash 900
Credit of CGST and SGST can be used to pay IGST [Section 49(5) of the CGST Act, 2017]. Karnataka Government
will transfer SGST credit of Rs. 4,500 utilised in the payment of IGST to the Central Government.

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III. Intra-State supply of goods by X Ltd. to Y
Value charged for supply of goods (Rs. 55,000 x 110%) 60,500
Add: CGST @ 9% 5,445
Add: SGST @ 9% 5,445
Total price charged by X Ltd. from Y 71,390
Computation of CGST and SGST payable by X Ltd in cash

CGST payable 5,445

Less: Credit of IGST 5,445
CGST payable to Central Government in cash Nil
SGST payable 5,445
Less: Available Credit of IGST [Rs. 9,900 – Rs. 5,445] 4,455
SGST payable to Telangana Government in cash 990

Credit of IGST can be used to pay IGST, CGST and SGST in any order and in any proportion. Central
Government will transfer IGST of RRs. 4,455 utilised in the payment of SGST to Telangana Government

3. Can one use input tax credit for payment of interest, penalty, and payment under reverse charge?

ANSWER:
No, as per section 49(4) the amount available in the electronic credit ledger may be used for making any
payment towards ‘output tax’.
As per section 2(82), output tax means, the CGST/SGST chargeable under this Act on taxable supply of goods
and/or services made by him or by his agent and excludes tax payable by him on reverse charge basis.
Therefore, input tax credit cannot be used for payment of interest, penalty, and payment under reverse
charge.

4. ABC limited filed the return for GST under section 39(1) for the month of November on 20thDecember
showing self-assessed tax of rRs. 2,50,000 which was not paid.
Explain what are the implications for ABC limited as per relevant provisions.
ANSWER:
As per section 2(117), “valid return” means a return furnished under sub-section (1) of section 39 on which
self-assessed tax has been paid in full.
Hence, in such a case, the return is not considered as a valid return and also input tax credit will not be
allowed to the recipient of supplies.

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5. Ms PPC & Co. have availed input tax credit of Rs. 42,500/- during September under IGST head, instead of
availing Rs. 21,250 under CGST & SGST heads. Mr. X, accountant of the above entity would like to use Form
GST PMT-09 for making a transfer from IGST head to respective CGST & SGST heads.
Examine the scenario and offer your comments.
ANSWER:
As per provisions of section 49(10) read with rule 87(13) of CGST Rules, 2017, “A registered person may, on
the common portal, transfer any amount of tax, interest, penalty, fee or any other amount available in the
electronic cash ledger under the Act to the electronic cash ledger for integrated tax, central tax, State tax or
Union territory tax or cess in FORM GST PMT-09”.
It is important to note that only amounts available under Electronic Cash Ledger can be transferred to the
respective heads using Form GST PMT-09 and not otherwise.
Accordingly, contention of the Accountant Mr. X of M/s PPC & Co., is not valid for transfer of Rs. 42,500 from
head IGST to respective CGST & SGST in Electronic Credit Ledger.

6. M/s ABC Ltd. have belatedly filed GST return (under section 39) for the month of January after 60 days
from the due date for filing such return. Total tax paid in such return is as below:
Particulars IGST (Rs. ) CGST (Rs. ) SGST (Rs. )
Output tax payable 4,50,000 2,85,000 2,85,000
Tax payable under reverse charge 18,000 32,000 32,000
Input tax available for utilisation 2,50,000 55,000 55,000
Tax paid through Electronic Cash Ledger 2,18,000 2,62,000 2,62,000
Examine the interest payable as per the provisions of GST law.
What would be your answer, if entire tax for the month of January has to be paid through Electronic Credit
Ledger except taxes to be paid on reverse charge basis?

ANSWER:
Proviso to section 50 lays down that the interest on tax payable in respect of supplies made during a tax
period and declared in the return for the said period furnished after the due date in accordance with the
provisions of section 39, except where such return is furnished after commencement of any proceedings
under section 73 or section 74 in respect of the said period, shall be levied on that portion of the tax that is
paid by debiting the electronic cash ledger.

In the given scenario, M/s ABC Ltd. have filed their return belatedly and as per the above provisions, interest is
payable on the tax component paid through Electronic Cash Ledger only. A point relevant to note here is that
tax payable on reverse charge basis also carries interest for the period of delay in remittance of tax and input

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tax credit cannot be used to pay the same (i.e. tax payable under reverse charge has to be paid in cash).

Accordingly, interest under section 50 payable for the tax paid through Electronic Cash Ledger is computed as
below:
IGST: 218,000 *18%*60/365 = 6,450
CGST: 262,000*18%*60/365 = 7,752
SGST: 262,000*18%*60/365 = 7,752
Further, if entire tax payable for January is paid through Electronic Credit ledger, except for the taxes to be
paid under reverse charge basis, then interest under section 50 is applicable only on the remittance of tax
under reverse charge basis and not for tax payable on forward charge basis. Interest payable is given as below:
IGST: 18,000 * 18% * 60/365 = 532
CGST: 32,000 * 18% * 60/365 = 946
SGST: 32,000 * 18% * 60/365 = 946

7. Examine the taxes to be paid for the month of July on the basis of below information furnished by M/s
Zinc & Co.:

Particulars IGST (Rs. ) CGST (Rs. ) SGST (Rs. )

Output tax payable 14,75,000 28,34,000 28,34,000
Tax payable under 36,000 1,44,000 1,44,000
reverse charge
Balance in Electronic 26,52,000 18,32,000 18,32,000
Credit Ledger

Output tax reported under IGST column pertains to the month of February, which was not paid for the said
period. Also, note that input tax credit available in Electronic Credit Ledger pertains to input tax on
purchases made during the month of July and no opening balance exists from previous tax period.

ANSWER:

Payment of taxes is governed as per the provisions laid in section 49 read with section 49A and 49B of CGST
Act, 2017 along with rule 88A of CGST Rules, 2017
Also, section 49(8) of CGST Act, stipulates that every taxable person shall discharge his tax and other dues
under this Act or the rules made thereunder in the following order, namely:

(a) self-assessed tax, and other dues related to returns of previous tax periods;

(b) self-assessed tax, and other dues related to the return of the current tax period;

(c) any other amount payable under this Act or the rules made thereunder including the demand determined

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under section 73 or section 74;”

As per the above provisions, self-assessed tax of previous tax period i.e. February shall be paid first and later
self-assessed tax of current tax period i.e. July shall be paid.
Payment of taxes under forward charge
Particulars IGST CGST SGST
Balance in electronic credit ledger for 26,52,000 18,32,000 18,32,000
utilization
Output tax payable for July 14,75,000 28,34,000 28,34,000
Less: Utilization of input tax credit:
a. IGST [Refer Note1] 14,75,000 5,88,500 5,88,500

b. CGST 0 18,32,000 0

c. SGST 0 0 18,32,000

Amount payable through electronic cash Nil 4,13,500 4,13,500

ledger

Total amount payable through electronic cash ledger

Particulars IGST CGST SGST
Amount payable through Electronic cash Nil 4,13,500 4,13,500
ledger under forward charge
Amount payable through electronic cash 36,000 1,44,000 1,44,000
ledger under reverse charge [Refer Note-2]
Total amount payable through electronic cash 36,000 5,57,500 557,500
ledger

Notes:-

1 After utilization of IGST credit towards output IGST liability, balance has been utilized equally amongst CGST
& SGST

2 Input tax credit cannot be utilized for discharging tax liability under reverse charge basis, thus payable vide
electronic cash ledger.

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Since, M/s Zinc & Co., have defaulted in payment of taxes for the month of February and the same has been
paid during July, interest is payable as per the provisions of section 50 of the CGST Act, 2017

8. M/s Neptune & Co. is registered under GST in the state of Maharashtra. They have made zero-rated
supply of goods worth Rs. 84,50,000/- on payment of IGST for Rs. 10,14,000/- during the month of May. The
refund application under section 54 for the above supply has been rejected by the proper officer.
Mr. A, taxation manager of the firm, has sought for recrediting the Electronic Credit Ledger as per the
provisions of rule 86 for the above rejection. Examine the scenario and offer your comments.
ANSWER:

Rule 86 of CGST Rules provides that where a registered person has claimed refund of any unutilized amount
(i.e. ITC) from the electronic credit ledger in accordance with the provisions of section 54, the amount to the
extent of the claim shall be debited in the said ledger.

If the refund so filed is rejected, either fully or partly, the amount so debited to the extent of rejection, shall
be re-credited to the electronic credit ledger by the proper officer.

In the present case, M/s Neptune & Co., have made zero-rated supply with payment of IGST for Rs.
10,14,000/- and the refund for the same has been rejected by the proper officer. Therefore, contention of Mr.
A is not sustainable as debit entry in the Electronic Credit Ledger has not been made as per sub-rule (3) of Rule
86 towards “refund of any unutilized amount”.

Supply made during May by M/s Neptune & Co. is on payment of IGST and therefore provisions laid out in sub-
rule (4) of Rule 86 shall not be applicable.

9. Mr. X is a supplier selling his own products through a web site hosted by him. Does he fall under the
definition of an “electronic commerce operator”? Whether he is required
to collect TCS on such supplies?

ANSWER
As per the definitions in Section 2(44) and 2(45) of the CGST Act, 2017, Mr. X will come under the definition of
an “electronic commerce operator”. However, according to Section 52 of the Act ibid, TCS is required to be
collected on the net value of taxable supplies made through it by other suppliers where the consideration is to
be collected by the ECO. In cases where someone is selling their own products through a website, there is no
requirement to collect tax at source as per the provisions of this Section. These transactions will be liable to
GST at the prevailing rates.

10. If Mr. A purchase goods from different vendors and in turn Mr. A, is selling them on his own website
under his own billing, Is TCS required to be collected on such supplies?
ANSWER

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No. According to Section 52 of the CGST Act, 2017, TCS is required to be collected on the net value of taxable
supplies made through E-commerce operator by other suppliers where the consideration is to be collected by
the ECO. In this case, there are two transactions - Mr. A purchase the goods from the vendors, and those
goods are sold through his own website. For the first transaction, GST is leviable, and will need to be paid to
vendor, on which credit is available to Mr. A. The second transaction is a supply on own account of Mr. A, and
not by other suppliers and there is no requirement to collect tax at source. The transaction will attract GST at
the prevailing rates.
11. Who is liable to pay GST? Explain in the context of general and special circumstances.
ANSWER:
General rule - Supplier of goods or services is liable to pay GST.
Specific circumstances –
• Import supplies – Recipient of goods or services has to pay tax under reverse charge
• The Government may, on the recommendations of the Council, by notification, specify categories of services
the tax on intra-State supplies, of which shall be paid by the electronic commerce operator, if such services are
supplied through it
• TDS – If total value of supply under contract > Rs. 2.5 lakhs, then Central and State Government, Local
authority, Government agencies is liable to deduct TDS and pay the same to the Government
• TCS - E-commerce operators are required to collect tax (TCS) on the aggregate value of supply reduced by
returns in a month

12. What will happen if the deductor fails to issue TDS Certificate within the time prescribed?
ANSWER:
As per section 51(4), if any deductor fails to furnish to the deductee the certificate, after deducting the tax at
source, within five days of crediting the amount so deducted to the Government, the deductor shall pay, by
way of a late fee, a sum of one hundred rupees per day from the day after the expiry of such five days period
until the failure is rectified, subject to a maximum amount of five thousand rupees.

13. Whether the rate of tax of 1% notified under section 52 is CGST or SGST or a combination of both CGST
and SGST?
ANSWER:
The rate of TCS as notified under CGST Act is payable under CGST and the equal rate of TCS is expected under
the SGST Act also, in effect aggregating to 1%.

14. Is every e-commerce operator required to collect tax on behalf of actual supplier?
ANSWER:
Yes, every e-commerce operator is required to collect tax where consideration with respect to the supply is
being collected by the e-commerce operator.

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15. State whether the provisions pertaining to tax collected at source under section 52 of CGST Act, will be
applicable in below mentioned scenarios -

(a) Fitan sells watch on its own through its own website

(b) ABC limited who is dealer of Fitan brand sells watches through Slipkart, an electronic commerce
operator
ANSWER:
Answers for both the scenarios is as follows:
As per Section 52, every electronic commerce operator not being an agent, shall collect an amount calculated
at such rate not exceeding one per cent., as may be notified by the Government on the recommendations of

(a) the Council, of the net value of taxable supplies made through it by other suppliers where the
consideration with respect to such supplies is to be collected by the operator.
Hence, if the person sells on his own, provisions pertaining to tax collected at source (TCS) won’t be
applicable.

(b) If ABC limited who is dealer of Fitan brand sells watches through Slipkart, then the provision of TCS will be
applicable to Slipkart.

16. Manihar Enterprises, registered in Delhi, is engaged in supply of various goods and services exclusively
to Government departments, agencies etc. and persons notified under section 51. It has provided the
information relating to the supplies made, their contract values and the payment due against each of them
in the month of October as under:

S.No. Particulars Total contract value Payment due in

(inclusive of GST) (Rs.) October (Rs.)

(i) Supply of stationery to Fisheries Department, 2,60,000 15,000

Kolkata
(ii) Supply of car rental services to Municipal 2,95,000 20,000
Corporation of Delhi
(iii) Supply of a heavy machinery to Public Sector 5,90,000 25,000
Undertaking located in Uttarakhand
(iv) Supply of taxable goods to Delhi office of 6,49,000 50,000
National Housing Bank, a society established by
Government of India under the Societies
Registration Act, 1860

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(v) Interior decoration of Andhra Bhawan located in 12,39,000 12,39,000
Delhi. Service contract is entered into with the
Government of Andhra Pradesh (registered only
in Andhra Pradesh)
(vi) Supply of printed books and printed post cards 9,72,000 50,000
to a West Delhi Post Office [Out of total contract for books & 20,000 for
value of Rs. 9,72,000, contract value for supply printed post cards
of books (exempt from GST) is Rs. 7,00,000 and
for supply of printed post cards (taxable under
GST) is Rs. 2,72,000.]
(vii) Maintenance of street lights in Municipal area of 3,50,000 3,50,000
East Delhi* [The maintenance contract entered
into with the Municipal Corporation of Delhi
also involves replacement of defunct lights and
other spares. However, the value of supply of
goods is not more than 25% of the value of
composite supply.]
*an activity in relation to any function entrusted
to a Municipality under article 243W of the
Constitution

You are required to determine amount of tax, if any, to be deducted from each of the receivable given
above assuming the rate of CGST, SGST and IGST as 9%, 9% and 18% respectively.
Will your answer be different, if Manihar Enterprises is registered under composition scheme?
(RTP MAY 2019)

ANSWER:

As per section 51 read with section 20 of the IGST Act, 2017 and Notification No. 50/2018 CT 13.09.2018, with
effect from 01.10.2018, following persons are required to deduct CGST @ 1% [Effective tax 2% (1% CGST + 1%
SGST/UTGST)] or IGST @ 2% from the payment made/credited to the supplier (deductee) of taxable goods or
services or both, where the total value of such supply, under a contract, exceeds Rs. 2,50,000:

(a) a department or establishment of the Central Government or State Government; or

(b) local authority; or

(c) Governmental agencies; or

(d) an authority or a board or any other body, -

(i) set up by an Act of Parliament or a State Legislature; or

(ii) established by any Government, with 51% or more participation by way of equity or control, to carry out

346
any function; or

(e) Society established by the Central Government or the State Government or a Local Authority under the
Societies Registration Act, 1860, or

(f) Public sector undertakings.

Further, for the purpose of deduction of tax, the value of supply shall be taken as the amount excluding CGST,
SGST/UTGST, IGST and GST Compensation Cess indicated in the invoice.
Since in the given case, Manihaar Enterprises is supplying goods and services exclusively to Government
departments, agencies etc. and persons notified under section 51, applicability of TDS provisions on its various
receivables is examined in accordance with the above-mentioned provisions as under:

S. No. Particulars Total Payment Tax to be deducted

contract due (Rs.)
value (Rs.)
CGST SGST IGST
(Rs.) (Rs.) (Rs.)
(i) Supply of stationery to Fisheries 2,60,000 15,000 --
Department, Kolkata (Note-1)
(ii) Supply of car rental services to 2,95,000 20,000 --
Municipal Corporation of Delhi
(Note-2)
(iii) Supply of a heavy machinery to 5,90,000 25,000 500
Public Sector Undertaking located
in Uttarakhand (Note-3)
(iv) Supply of taxable goods to Delhi 6,49,000 50,000 500 500
office of National Housing Bank, a
society established by
Government of India
under the Societies Registration
Act, 1860 (Note-4)
v) Interior decoration of Andhra 12,39,000 12,39,000
Bhawan located in Delhi (Note-5)

vi) Supply of printed books and 9,72,000

printed post cards to a West Delhi
Post Office (Note-6)
vii) Maintenance of street lights in 3,50,000 3,50,000
Municipal area of East Delhi
(Note-7)

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Notes:
1. Being an inter-State supply of goods, supply of stationery to Fisheries Department, Kolkata is subject to IGST
@ 18%. Therefore, total value of taxable supply [excluding IGST] under the contract is as follows:
= Rs. 2,60,000 × 100 / 118
= Rs. 2,20,339 (rounded off)
Since the total value of supply under the contract does not exceed Rs. 2,50,000, tax is not required to be
deducted.
2. Being an intra-State supply of services, supply of car rental services to Municipal Corporation of Delhi is
subject to CGST and SGST @ 9% each. Therefore, total value of taxable supply [excluding CGST and SGST]
under the contract is as follows:
= Rs. 2,95,000 × 100 / 118
= Rs. 2,50,000
Since the total value of supply under the contract does not exceed Rs. 2,50,000, tax is not required to be
deducted.

3. Being an inter-State supply of goods, supply of heavy machinery to PSU in Uttarakhand is subject to IGST @
18%. Therefore, total value of taxable supply [excluding IGST] under the contract is as follows:
= Rs. 5,90,000× 100 / 118
= Rs. 5,00,000

Since the total value of supply under the contract exceeds Rs. 2,50,000, PSU in Uttarakhand is required to
deduct tax @ 2% of Rs. 25,000, i.e. Rs. 500.

4. Being an intra-State supply of goods, supply of taxable goods to National Housing Bank, Delhi is subject to
CGST and SGST @ 9% each. Therefore, total value of taxable supply [excluding CGST and SGST] under the
contract is as follows:
= Rs. 6,49,000× 100 / 118
= Rs. 5,50,000
Since the total value of supply under the contract exceeds Rs. 2,50,000, National Housing Bank, Delhi is
required to deduct tax @ 2% (1% CGST + 1% SGST) of Rs. 50,000, i.e. Rs. 1,000.

5. Proviso to section 51(1) of the CGST Act, 2017 stipulates that no tax shall be deducted if the location of the
supplier and the place of supply is in a State or Union territory which is different from the State or as the case
may be, Union territory of registration of the recipient.
Section 12(3) of the IGST Act, 2017, inter alia, stipulates that the place of supply of services, directly in relation
to an immovable property, including services provided by interior decorators, shall be the location at which
the immovable property is located or intended to be located. Accordingly, the place of supply of the interior
decoration of Andhra Bhawan shall be Delhi.
Since the location of the supplier (Manihar Enterprises) and the place of supply is Delhi and the State of
registration of the recipient i.e. Government of Andhra Pradesh is Andhra Pradesh, no tax is liable to be

348
deducted in the given case.

6. If the contract is made for both taxable supply and exempted supply, tax shall be deducted if the total value
of taxable supply in the contract exceeds Rs. 2,50,000. Being an intra-State supply of goods, supply of printed
post cards to a West Delhi Post Office is subject to CGST and SGST @ 9% each. Therefore, total value of
taxable supply [excluding CGST and SGST] under the contract is as follows:
= Rs. 2,72,000× 100 / 118
= Rs. 2,30,509 (rounded off)
Since the total value of taxable supply under the contract does not exceed Rs. 2,50,000, tax is not required to
be deducted.
7. Composite supply of goods and services in which the value of supply of goods constitutes not more than
25% of the value of the said composite supply provided to, inter alia, local authority by way of any activity in
relation to any function entrusted to a Municipality under article 243W of the Constitution is exempt from
GST. Thus, maintenance of street lights (an activity in relation to a function entrusted to a Municipality) in
Municipal area of East Delhi involving replacement of defunct lights and other spares where the value of
supply of goods is not more than 25% of the value of composite supply is a service exempt from GST. Since tax
is liable to be deducted from the payment made or credited to the supplier of taxable goods or services or
both, no tax is required to be deducted in the given case as the supply is exempt.
The answer will remain unchanged even if Manihar Enterprises is registered under composition scheme. Tax
will be deducted in all cases where it is required to be deducted under section 51 of the CGST Act, 2017
including the scenarios when the supplier is registered under composition scheme.

17. Yash Shoppe, a registered supplier of Jaipur, is engaged in supply of various goods and services
exclusively to Government departments, agencies, local authority and persons notified under section 51.

You are required to briefly explain the provisions relating to tax deduction at source under section 51 and
also determine the amount of tax, if any, to be deducted from each of the receivables given below
(independent cases) assuming that the payments as per the contract values are made on 31 st October. The
rates of CGST, SGST and IGST may be assumed to be 6%, 6% and 12% respectively.

(1) Supply of computer stationery to Public Sector Undertaking (PSU) located in Mumbai. Total contract
value is Rs. 2,72,000 (inclusive of GST)

(2) Supply of air conditioner to GST department located in Delhi. Total contract value is Rs. 2,55,000
(exclusive of GST)

(3) Supply of generator renting service to Municipal Corporation of Jaipur. Total contract value is Rs.
3,50,000 (inclusive of GST

Answer:

As per section 51 of the CGST Act, 2017, Government departments, agencies, local authority and notified 349
persons are required to deduct tax @ 2% (1% CGST + 1% SGST/UTGST) or IGST @ 2% from payment made to
the supplier of taxable goods and/ or services where the total value of such supply [excluding tax and
compensation cess indicated in the invoice], under a contract, exceeds Rs. 2,50,000.
Since in the given case, Yash Shoppe is supplying goods and services exclusively to Government departments,
agencies, local authority and persons notified under section 51 of the CGST Act, 2017, applicability of TDS
provisions on its various receivables is examined in accordance with the above-mentioned provisions as under:
 S. No. Particulars Total contract Tax to be deducted
value due to be
received
[excluding GST]
(Rs. )
CGST @ SGST IGST
1% (Rs.) @ 1% @ 2%
(Rs.) (Rs.)
(1) Supply of computer stationery to PSU 2,42,857 -- --
in Mumbai [2,72,000 × 100 /
[Since the total value of supply under 112]
the contract [excluding IGST (being
inter-State supply)] does not exceed
Rs. 2,50,000, tax is not required to be
deducted.]
(2) Supply of air conditioner to GST 2,55,000 -- 5,100
Department in Delhi
[Since the total value of supply under
the contract [excluding IGST (being
inter-State supply)] exceeds Rs.
2,50,000, tax is required to be
deducted.]
(3) Supply of a generator renting service 3,12,500 3,125 3,125
to Municipal Corporation of Jaipur [3,50,000× 100 /
[Since the total value of supply under 112]
the contract [excluding CGST and
SGST (being intra-State supply)]
exceeds Rs. 2,50,000, tax is required
to be deducted.]
Total 3,125 3,125 5,100

18. A is an e-commerce operator supplying goods through its electronic portal in capacity of an agent. The

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goods belong to B and the consideration for such supplies is received by A and remitted to B as per the
contractual arrangement. A requires your help in arriving at the rate at which tax shall be collected from the
amount which is received by it against the supplies?
Answer:
As per Section 52(1) of the CGST Act, 2017, the TCS provisions are not applicable in cases where the ECO is an
agent of the supplier. In the present case, A being an ECO is supplying goods through the electronic portal in
capacity of an agent and hence the liability to collect tax as per Section 52 shall not arise in this case.
19. X booked a Hotel in Udaipur, Rajasthan through an e-commerce portal for an amount of Rs. 25,000. As
per the terms and conditions, the amount was payable at the hotel at the time of check in. Whether TCS
provisions shall apply in the present case?
Answer:
No, as per the provisions under Section 52 of the CGST Act, 2017 the TCS provisions shall trigger only when the
ECO is receiving the consideration for supply from the recipient of supply. In the present case the supplier i.e.
the hotel is directly receiving the consideration from the recipient of the services i.e. X. Hence, the present
transactions shall not trigger the TCS provisions under Section 52.

20 (i) A Central Government Department located at Uttar Pradesh is registered with the Commercial Tax
Department UP State for deducting GST. It enters into a contract with a Public Sector Undertaking
(PSU), registered under GST in the State of Delhi, for supplying goods valued ₹ 3,50,000. The PSU argues that
no tax is deductible on this supply by the Central Government Department as it is located outside the State
of Uttar Pradesh and therefore not liable to tax under CGST and SGST as
it is a local levy and IGST tax deduction is not applicable if it is located in another State, other than
the State in which the Department is registered. You are required to comment on this.

(ii) Would there be any difference, if instead of the PSU if it was an entity in the private sector? Applicable
tax rate for deduction is 1% CGST, 1% SGST and 2% IGST.

(iii) If the private sector entity undertakes works contract, for the above Department in New Delhi. What
would be the position of tax deduction when the contract value is ₹ 5,00,000?

(iv) The disbursing officer has not paid the tax deducted in the month of February 2019, amounting to ₹
2,00,000 under CGST and 2,00,000 under SGST to the Government's account on the relevant due
date, but has paid it on 14th May, 2019. Further, return for that month is also filed on that date and the
certificate is also issued simultaneously. What are the consequences, on such failures, to the disbursing
officer under the GST law? (PAST EXAM NOV 2020)

Answer

(i) Certain specified persons are required to deduct tax from the payment made to the supplier of taxable

351
goods and/or services, where the total value of such supply [excluding GST] under a contract, exceeds ₹
2,50,000.
However, the tax is not liable to be deducted at source when supply of goods and/or services has taken place
between one specified person to another specified person. Since both Central Government Department and
PSU are the specified persons, tax is not deductible in case of supply
of goods between them.

(ii) Central Government Department is mandatorily required to deduct IGST @ 2% since a private entity is no
t the specified person.
(iii) Since, in the given case, the location of supplier and place of supply is in the same State, i.e., Delhi and
location of recipient is in UP, Central Government Department is not required to deduct TDS
although the total value of supply under the contract is more than ₹ 2,50,000. [It has been assumed that the
location of private entity and the place of supply are in Delhi and the Central Government
Department is in U.P.]

(iv) Failure to deposit TDS with the Government and failure to furnish TDS return within the stipulated
time period will result in following consequences:

(A) Interest @ 18% p.a. on the amount of tax deducted shall be payable.

(B) Late fee of ₹ 100 per day for the period of delay in furnishing return, or ₹ 5,000, whichever is lower, shall
be payable. Equal amount of late fee will be payable under the respective State
law.

(C) Applicable penalty will also be levied.

21. From the following information of independent cases, your expert advice, with appropriate reasoning, is
on the applicability of TDS/TCS provisions of the CGST Act, 2017. You shall also quantify the amount of
TDS/TCS, as the case be, if the same is applicable.

(i) Top Fashions, a designer cloth dealer and registered in the State of West Bengal, effected supply
through 'QUICK DEAL', an electronic commerce operator. Net value of taxable intra-State supplies
effected for the month of October 2019 was ₹ 1,50,000.

(ii) M/s Super Builders, a registered supplier in Tamil Nadu, was awarded a works contract by Government
of Tamil Nadu amounting to ₹ 4,30,000. Of this, value of exempt supply was ₹ 1,00,000.

(iii) Tasty Caterers, a registered supplier of Kerala, provided catering services in Kochi, Kerala to
Government of Andhra Pradesh for its annual training camp held for its staff. Value of said services
was ₹ 4,50,000. (PAST EXAM JAN 2021)

Answer

(i) An electronic commerce operator (ECO) is required to collect TCS - an amount @ 1% (CGST 0.5% and SGST 352
@ 0.5%) of the net value of taxable supplies made through it by other suppliers.
= ₹ 1,50,000 × 0.5%
= ₹ 750 (CGST) & ₹ 750 (SGST)

(ii) A State Government is required to deduct tax from the payment made to the supplier of taxable goods a
nd/or services, where the total value of such supply [excluding GST] under a contract, exceeds ₹ 2,50,000. TDS
to be deducted in the given intra-State supply (since place of supply and location of supplier is in Tamil Nadu)
is as follows:
= ₹ (4,30,000 - 1,00,000) × 1% = ₹ 3,300 (CGST) ₹ 3,300 (SGST)

(iii) Since, in the given case, the location of supplier and place of supply are in the same State, i.e., Kerala and
location of recipient is in Andhra Pradesh,
Andhra Pradesh Government is not required to deduct TDS although the total value of supply under the
contract is more than ₹ 2,50,000.

Note:
In above question, it has been assumed that the value given is exclusive of GST, wherever applicable, since the
rate of tax is not given in the question.

22 Explain the following terms in brief:

a) E-FPB
b) CPIN
c) CIN

Answer

CPIN
stands for Common portal Identification Number. It is created for every Challan successfully generated by the
taxpayer. It is a 14-digit unique number to identify the challan. CPIN remains valid for a period of 15 days.
CIN or Challan Identification Number is generated by the banks, once payment in lieu of a generated Challan is
successful. It is a 18
-digit number that is 14
-digit CPIN plus 4-digit Bank Code.

CIN is generated by the authorized banks/Reserve Bank of India (RBI) when payment is actually received by
such authorized banks or RBI and credited in the relevant government account held with them. It is an
indication that the payment has been realized and credited to the appropriate government account. CIN is
communicated by the authorized bank to taxpayer as well as to GSTN.

E-FPB stands for Electronic Focal Point Branch. These are branches of authorized banks which are authorized

353
to collect payment of GST. Each authorized bank will nominate only one branch as its E
-FPB for pan India transaction.

The E-FPB will have to open accounts under each major head for all governments. Any amount received by
such E-FPB towards GST will be credited to the appropriate account held by such E-FPB. For NEFT/RTGS
Transactions, RBI will act as E-FPB
23. ( PAST PAPER JULY 2021)

Mr. Yash, doing business in the State of Kerala, commenced his business in the month of April 2020 and
provides the following further information.
(i) His intra-State turnover for the first two quarters was as follows:
April, 2020 - June, 2020 - ₹ 20 lakh
July, 2020 - September, 2020 - ₹ 100 lakh
(ii) In each of the quarters, exempt supply made by him was 25% of the total turnover for the said quarter.
(iii) Since the product supplied by him was eligible for composition scheme, he opted for registration under
composition scheme with effect from 1st July, 2020.
You are required to compute the tax payable by Mr. Yash under GST laws from the above information:

(i) If he is a manufacturer

(ii) If he is a trader

ANSWER

As per section 10 of the CGST Act, 2017 read with rule 7 of the CGST Rules, 2017, a registered person opting
for composition levy for goods pays tax at the rates mentioned below during the current FY, in lieu of the tax
payable by him under regular scheme:
Manufacturers, other than manufacturers of notified 1% (½% CGST+ ½% SGST/UTGST) of the turnover in
goods the State/ Union territory
Trader 1% (½% CGST+ ½% SGST/UTGST) of turnover of
taxable supplies of goods & services in the State/
Union territory

Turnover prior to getting registered will not be considered for determining the turnover in a State/Union
Territory.
(i) If Mr. Yash is a manufacturer
CGST = ₹ 100 lakh x 0.5% = ₹ 50,000
SGST = ₹ 100 lakh x 0.5% = ₹ 50,000

354
(ii) If Mr. Yash is a trader
CGST = ₹ 75 lakh (as 25% of turnover is exempt) x 0.5% = ₹ 37,500
SGST = ₹ 75 lakh (as 25% of turnover is exempt) x 0.5% = ₹ 37,500
24. ( PAST PAPER JULY 2021)
Discuss the amount of tax and penalty to be paid, if any, in the following independent cases where show
cause notices are issued under section 74 of the CGST Act, 2017.
S.No. Date on which credit was taken Amount of input Present status
wrongly tax credit taken
wrongly (₹ in
lakh)
1 31st January, 2018 200 Adjudication order passed on 26th July, 2020
demanding the entire amount of credit with
interest and imposing amount equal to the
credit as penalty.
2 30th June, 2018 250 Adjudication order passed on 26th August,
2020 demanding the entire amount of credit
with interest and imposing amount equal to
the credit as penalty.
3 30th October, 2018 120 Show cause notice has been issued on 5th
September, 2020 demanding the entire
amount of credit with interest and proposing
penalty equal to 100% of the credit taken.
4 30th January, 2019 50 Statement of the Managing Director has been
recorded on 6th September, 2020 wherein he
has admitted the non-receipt of the inputs
and availing the credit wrongly.

Note: In all the cases, assessee wants to pay the amount on 20-09-2020

ANSWER

S. No. Date on Amount of ITC Tax & penalty under section 74

which credit wrongly taken (₹ in
was taken lakh)
wrongly
1 31st January 200 Adjudication order is passed on 26th July, 2020 and
2018 payment is made on 20.09.2020 i.e., after 30 days of the

355
communication of the adjudication order5. Therefore,
entire amount of ITC wrongly availed which is ₹ 200 lakh
and equal amount of penalty i.e., ₹ 200 lakh shall be
payable.
2 30th June 250 Adjudication order is passed on 26th August, 2020 and
2018 payment is made on 20.09.2020 i.e., within 30 days of the
communication of the adjudication order6. Therefore,
entire amount of ITC wrongly availed which is ₹ 250 lakh
and 50% of the penalty imposed i.e., ₹ 125 lakh shall be
payable.
3 30th October 120 Show cause notice is issued on 5th September 2020 and
2018 payment is made on 20.09.2020 i.e., within 30 days of issue
of show cause notice. Therefore, entire amount of ITC
wrongly availed which is ₹ 120 lakh and 25% of the penalty
imposed i.e., ₹ 30 lakh shall be payable.
4 30th January 50 Alternative-I: It is assumed that payment has been made
2019 within 30 days of issue of show cause notice.
Entire amount of ITC wrongly availed which is ₹ 50 lakh and
25% of the penalty imposed i.e., ₹ 12.5 lakh shall be
payable.
Alternative-II: It is assumed that show cause notice has not
yet been issued.
Payment made on 20.09.2020 is before issuance of show
cause notice. Therefore, amount of ITC admitted to be
taken wrongfully which is ₹ 50 lakh and penalty equal to
15% of such ITC i.e., ₹ 7.5 lakh shall be payable.

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 CHAPTER-13 RETURNS
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS 1 to 4, 6-10, 13, 14

MAT

PAST Q-5 NO QUES NO NO NO QUES NO QUES NO QUES ------

EXAMS QUES QUES

MTP NO QUES Q-12 NO NO NO QUES NO QUES NO QUES

QUES QUES

RTP NO QUES NO QUES Q-11 NO QUES NO QUES Q-15

EXAMPLES

(1) The details of outward supplies pertaining to the month of October will be required to be furnished on or
before 10th November and GSTR-1 for October cannot be filed between 11th November to 15th November.

(2) A registered person who has availed the QRMP scheme wants to declare 2 invoices out of the total 10
invoices issued in the 1st month of quarter since the recipient of supplies covered by those 2 invoices
desires to avail ITC in that month itself. Details of these 2
invoices may be furnished using IFF. The details of the remaining 8 invoices shall be furnished in Form
GSTR-1 of the said quarter. The two invoices furnished in IFF shall be reflected in Form GSTR-2B of the
concerned recipient of the 1st month of the quarter and
remaining 8 invoices furnished in Form GSTR-1 shall be reflected in Form GSTR-2B of the concerned
recipient of the last month of the quarter.

(3) Mr. XY makes intra-State taxable supplies for ₹ 10,000 and ₹ 50,000 to Mr. AB, a registered person and ₹ 357
1,00,000 to Mr. DE, an unregistered person. He also makes inter-State taxable supplies for ₹ 2,60,000 and ₹
45,000 to Mr. RS, a registered person and ₹ 1,50,000 to Mr. OP, an unregistered person. Mr. XY will report
invoice-wise details of intra-State supplies made to Mr. AB and inter-State supplies made to Mr. RS, in GSTR-1
to be filed by him.

(4) For the month of October, the taxpayer can upload invoices from 1st October to 10th November. In case of
late filing of GSTR-1, invoices can be uploaded after 15th November.
(5) The turnovers of Yellow Lemon Pvt. Ltd., Red Pepper Pvt. Ltd. and Blue Berry Pvt. Ltd. in the previous
financial year are ₹ 1.5 crore, ₹ 4.8 crore and ₹ 6 crore respectively. While Yellow Lemon Pvt. Ltd. and Red
Pepper Pvt. Ltd. will be required to upload 4 digits of HSN code of the
goods sold to registered persons, uploading of 4 digits HSN code will be optional for the two companies when
the goods are sold to unregistered persons. Blue Berry Pvt. Ltd. will have to upload 6 digits of HSN code of
goods sold by it.

(6) A supplier discovers a mistake in details of the invoice furnished in GSTR-1 for the month of August, in
October. He can rectify the said mistake in the GSTR-1 for the month of October.

(7) An entity has furnished the annual return for the previous financial year on 15th August in the current
financial year. An error is discovered in respect of a transaction pertaining to the month of November of the
previous financial year. The entity has filed the
returns for the month of September of the current financial year on 20th October. In this case, any
error pertaining to the transaction in the month of November of the previous financial year cannot be
rectified beyond 15th
August in the current financial year.

(8) If a supplier opting for QRMP files an invoice dated 15th July on 13th August, it will get reflected in
GSTR-2B of July (generated on 14th August). If the document is filed on 14th August, the document will
be reflected in Form GSTR-2B of August (generated on 14th September).

(9) For the quarter July-September, Form GSTR-2B for a registered person (recipient) who has received
supplies from QRMP suppliers as well as from other suppliers will be generated as follows:

Month Date of generation of GSTR 2B

July 14th August
August 14th September
September 14th October

358
(10) If a registered person intending to avail of QRMP scheme for the quarter ‘July to September’ is
exercising his option on 27th July for the said quarter, he must have furnished the return for the month of
June which was due on
22nd/24th July.

(11) A registered person intending to avail of QRMP scheme for the quarter ‘July to September’ can
exercise his option from 1st May to 31st July.
(12) A registered person, who has opted for the QRMP Scheme, had paid a total amount of ₹ 100/- in
cash as tax liability in the previous quarter of October to December. He
opts to pay tax under fixed sum method. He therefore pays ₹ 35/- each on 25th February and 25th March
for discharging tax liability for the first 2 months of quarter viz. January and February.
In his return for the quarter, it is found that liability, based on the outward and inward supplies, for
January was ₹ 40/- and for February it was ₹42/-. However, no interest would be payable for the lesser
amount of tax (i.e. ₹ 5 and ₹7 respectively) discharged in these 2 months provided that he discharges his
entire liability for the quarter
in the Form GSTR-3B of the quarter by the due date.

(13) A registered person, who has opted for the QRMP Scheme, had paid a total amount of ₹ 100/- in
cash as tax liability in the previous quarter of October to December. He opts to pay tax under fixed sum
method. He therefore pays ₹ 35/- each on 25th February and 25th March for discharging tax liability for
the first 2 months of quarter viz. January and February. In his return for the quarter, it is found that
total liability for the quarter
net of available credit was ₹ 125, but he files the return on 30th April.
Interest would be payable at applicable rate on ₹ 55 [₹ 125 – ₹70 (deposit made in cash ledger in first
and second month)] for the period between
due date of quarterly GSTR 3B and 30th April

QUESTIONS
1. Which type of taxpayers need to file annual return under section 44? Enumerate.
ANSWER:
Every registered person, other than ISD’s, casual/non-resident taxpayers, tax deductors at source, tax collector
at source are required to file an annual return in Form GSTR-9. Taxpayer under composition scheme are
required to file annual return in Form GSTR-9A. Casual tax payers, non-resident taxpayers, ISDs and persons
authorized to deduct/collect tax at source are not required to file annual return.

2. Is an annual return under section 44 and a final return one and the same? Explain
ANSWER:
No. Annual return has to be filed by every registered person paying tax as a normal taxpayer, with certain

359
exceptions. Final return has to be filed only by those registered persons who have applied for cancellation of
registration. The final return has to be filed within three months of the date of cancellation or the date of
cancellation order, whichever is later.

3. Do input service distributors (ISDs) need to file separate statement of outward supplies with their
return? Discuss.
ANSWER:
No, the ISDs need to file only a return in Form GSTR-6 and the return has the details of credit received by them
from the service provider and the credit distributed by them to the recipient units. Since their return itself
covers these aspects, there is no requirement to file separate statement of outward supplies
4. Is it compulsory for a taxpayer to file return by himself? Explain.
ANSWER:
No. A registered taxpayer can also get his return filed through a Goods and Services Tax Practitioner.

5. Mr. Anand Kumar, a regular taxpayer, filed GSTR-1 for the month of August before the due date. Later, in
the month of February next year, he discovers error in the GSTR-1 of the month of August already filed and
wants to revise it.
You are required to advise him on the future course of action in this scenario. (PAST EXAM MAY 2018)
ANSWER:
The mechanism of filing revised return for any correction of errors/omission is not available under GST. The
rectification of errors/omission is allowed in the subsequent returns.
Therefore, Mr. Anand Kumar who discovered an error in GSTR-1 for the month of August cannot revise it.
However, he should rectify said error in the GSTR-1 filed for the month of February and should pay the tax and
interest, if any, in case there is short payment, in the return to be furnished for February. The error can be
rectified by furnishing appropriate particulars in the “Amendment Tables” contained in GSTR-1.
However, as per section 37(3) of the CGST Act, no rectification of details furnished in GSTR-1 shall be allowed
after:
(i) filing of monthly return/ GSTR-3 for the month of September following the end of the financial year to
which such details pertain, or

(ii) filing of the relevant annual return,

whichever is earlier.

6. B Ltd. has filed the return for the month of October belatedly. At the time of computing the late fee to be
paid for delay in filing return, B Ltd. has taken a view that if the late fee has been paid as per the provisions
under the CGST Act, there is no requirement of paying the late fee under the SGST Act for the same default.
Whether B Ltd. has taken a correct view? Examine.

ANSWER:
The understanding of B Ltd. is incorrect. For arriving at the late fee payable on account of delayed filing of GST

360
return, the computation of late fee is made separately for CGST and SGST/UTGST. This is because the
provisions of late fee on delayed filing of return are prescribed in both CGST Act and SGST/UTGST Act although
a common return is filed for both the laws.

7. Tax authorities have been scrutinizing the returns furnished by A Ltd. During the scrutiny process, A Ltd.
has been made aware by the authorities about an incorrect disclosure in a return under section 39 filed by it
for a particular tax period.
A Ltd. seeks your opinion to rectify the incorrect disclosure made in the return.
ANSWER:
In terms of section 39(9), any rectification in the return (under section 39) furnished by the registered person
is allowed only when the error or omission is discovered on account of reasons other than scrutiny, audit,
inspection, or enforcement activity by the tax authorities.
In the present case, since the incorrect disclosure has been highlighted to A Ltd. by the tax authorities during
the process of scrutiny, the rectification of the incorrect disclosure cannot be made by A Ltd. on its own.

8. ABC Ltd. has applied for cancellation of GST registration in the month of March. The consultant of ABC
Ltd. has suggested to furnish the final return in the month of September. He has advised the company that a
final return needs to be furnished before the due date of furnishing the return for the month of September
of subsequent financial year or before furnishing of annual return (for the financial year in which
cancellation has been sought for), whichever is earlier. However, the jurisdictional authorities have yet not
passed the order of cancellation due to reasons not known to ABC Ltd.
Whether the advice given by the consultant of ABC Ltd. is correct? Examine.

ANSWER:

No, the advice of the consultant is not correct.

In terms of section 45 read with rule 81, every registered person who is required to furnish GSTR-3B and
whose registration has been cancelled is required to file a final return within three months of the date of
cancellation or date of order of cancellation, whichever is later.
In the given case, the registration of the company has not been cancelled. Therefore, requirement of filing
final return will arise only when the registration of the company gets cancelled.

9. XYZ Ltd. has deducted TDS from the consideration payable to A Ltd. for supplies made by it. The
deductee, i.e. A Ltd., seeks your advice on taking credit for the TDS deducted by XYZ Ltd. Also, whether the
tax deducted by XYZ Ltd. will be shown in the electronic credit ledger or electronic cash ledger of A Ltd.?

ANSWER:
In terms of section 51(5) read with rule 66(2), the deductee shall claim credit, in his electronic cash ledger, of

361
the tax deducted and reflected in GSTR-7 of the deductor, after validation. Similarly, rule 87(9), inter alia,
provides that any amount deducted under section 51 shall be credited to the electronic cash ledger of the
deductee.
Therefore, in the present case, A Ltd., can take credit of TDS amount deducted by XYZ Ltd. in its electronic cash
ledger and use the same for payment of tax, interest, penalty, late fee or any other amount.

10. Whether GSTPs are required to furnish any return for disclosure of activities carried out by them for any
of the registered person during a tax period? Elucidate.
ANSWER:
In terms of section 48(2), a registered person may authorise an approved GSTP to furnish the details of
outward supplies under section 37, the details of inward supplies under section 38 and the return under
section 39 or annual return under section 44 or final return under section 45 and to perform other prescribed
functions. Thus, the GSTP can furnish the specified documents or information on behalf of the registered
person with prior authority of the registered person.
However, there is no specific return furnishing mechanism for GSTP to disclose the activities carried out by it
for any of the registered person during a tax period.

11. Explain the provisions of section 39(9) of the CGST Act, 2017 with reference to rectification of returns.
(RTP MAY 2019)

Answer
As per section 39(9) of the CGST Act, 2017, if any registered person after furnishing a return discovers any
omission or incorrect particulars therein, he shall rectify such omission or incorrect particulars in
the return to be furnished for the month during which such omission or incorrect particulars are noticed,
subject to payment of interest. However, section 39(9) does not permit rectification of error or omission
discovered on account of scrutiny, audit, inspection or enforcement activities by tax authorities.

Further, no such rectification of any omission or incorrect particulars shall be allowed after the due date for
furnishing of return for the month of September following the end of the financial year, or the actual date of
furnishing of relevant annual return, whichever is earlier.

12. M/s. Sahu & Co. a registered firm has filed its GST Return in GSTR-1 for the month of February, 2021
declaring an outward supply of Rs. 300 lakhs. The return was filed within the due date of its filing.
However, on a subsequent reconciliation of the return with the books of accounts it was found that 5
invoices having a total value of Rs. 20 lacs towards supply made to local parties were inadvertently
omitted to be reported.

Sahu & Co. have approached you for an advice as to the course of action to be 362
adopted to rectify the omission. (MTP NOV 2018)

Answer
As per GST law, the mechanism of filing revised returns for any correction of errors/omissions has been done
away with. The rectification of errors/omissions is allowed in the subsequent Returns. However, no
rectification is allowed after furnishing the return for the month of September following the end of
the financial year to which such details pertain or furnishing of the relevant annual return, whichever is earlier.
Hence, the omission in the month of Feb 2021 can be included in the Return for the month when the omission
is noticed. The tax and interest @ 18% due on the turnover omitted to be reported for the
month of Feb 2021 has to be paid along with the taxes for the month in which the omission is noticed.

However, such rectification will be allowed only within the prescribed period as mentioned above.

13. Mr. X, a regular tax payer, did not make any taxable supply during the month of July. Is he required to
file any goods and service tax return?

Answer
A regular tax payer is required to furnish a return u/s 39 for every month even if no supplies have been
effected during such period. In other words, filing of Nil return is also mandatory.

Therefore, Mr. X is required to file monthly return even if he did not make any taxable supply during the
month of July.

14. If a return has been filed, how can it be revised if some changes are required to be made?

Answer
In GST since the returns are built from details of individual transactions, there is no requirement for having a
revised return. Any need to revise a return may arise due to the need to change a set of invoices
or debit/ credit notes. Instead of revising the return already submitted, the system allows changing the details
of those transactions (invoices or debit/credit notes) that are required to be amended. They can be amended
in any of the future GSTR- 1 in the tables specifically provided for the purposes of amending previously
declared details.

As per section 39(9), omission or incorrect particulars discovered in the returns filed u/s 39 can be rectified in
the return to be filed for the month during which such omission or incorrect particulars are
noticed. Any tax payable as a result of such error or omission will be required to be paid along with interest.
The rectification of errors/omissions is carried out by entering appropriate particulars in

363
“Amendment Tables” contained in GSTR-1.

15. (RTP- NOV 2021)

18. Padmavati Traders, registered in Karnataka, is engaged in supply of taxable goods. Its turnover in the
preceding financial year was ₹ 230 lakh and was furnishing its GST return on monthly basis.
In the beginning of April month in the current financial year, it sought advice from its tax consultant, Dua
Consultants, whether it can furnish its GST returns on quarterly basis from now onwards. Dua Consultants
advised Padmavati Traders that it cannot furnish its return on quarterly basis as the GST law does not
provide for quarterly return under nay circulstances. Discuss the technical veracity of the advice given by
Dua Consultants.
ANSWER

No, the advice given by Dua Consultants is not valid in law. With effect from 01.01.2021, a quarterly return has
been introduced under GST law where the payment of tax is to be made on monthly basis. The scheme is
known as Quarterly Return Monthly Payment (QRMP) Scheme.
The scheme has been introduced as a trade facilitation measure and in order to further ease the process of
doing business. It is an optional return filing scheme, introduced for small taxpayers having aggregate annual
turnover (PAN based) of upto ₹ 5 crore in the current and preceding financial year to furnish their Form GSTR-
1 and Form GSTR-3B on a quarterly basis while paying their tax on a monthly basis through a simple challan.
Thus, the taxpayers need to file only 4 GSTR-3B returns instead of 12 GSTR-3B returns in a year. Similarly, they
would be required to file only 4 GSTR-1 returns since Invoice Filing Facility (IFF) is provided under this scheme.

Opting of QRMP scheme is GSTIN wise. Distinct persons can avail QRMP scheme option for one or more
GSTINs. It implies that some GSTINs for a PAN can opt for the QRMP scheme and remaining GSTINs may not
opt for the said scheme.
Since the aggregate turnover of Padmavati Traders does not exceed ₹ 5 crores in the preceding financial year,
it is eligible for furnishing the return on quarterly basis till the time its turnover in the current financial year
does not exceed ₹ 5 crore. In case its aggregate turnover crosses ₹ 5 crore during a quarter in the current
financial year, it shall no longer be eligible for furnishing of return on quarterly basis from the first month of
the succeeding quarter and needs to opt for furnishing of return on a monthly basis, electronically, on the
common portal, from the first month of the quarter, succeeding the quarter during which its aggregate
turnover exceeds ₹ 5 crore

364
 CHAPTER-14 IMPORT AND EXPORT UNDER GST
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS 1 to 12
MAT

PAST NO QUES Q-12 Q-13 ------

EXAMS

MTP NO QUES

RTP NO QUES

EXAMPLES

1) Download of an e-book online for a payment would amount to receipt of OIDAR services by the consumer.

2) ABC Ltd. India has received an order for supply of services amounting to $ 500,000/- to a US based client.
ABC Ltd. India is unable to supply the entire services from India and asks XYZ Ltd. Mexico (who is not merely
an establishment of a distinct person viz. ABC Ltd. India, in accordance with the Explanation 1 in section 8 of
the IGST Act) to supply a part of the services (say 40% of the total contract value). ABC Ltd. India shall be the
exporter of services for the entire value if the invoice for the entire amount is raised by ABC Ltd. India. The
services provided by XYZ Ltd. Mexico to the US based client shall be import of services by ABC Ltd. India and it
would be liable to pay IGST on the same under reverse charge and also be eligible to take ITC of the IGST so
paid. Further, if the provisions contained in section 2(6) of the IGST Act are not fulfilled with respect to the
realization of convertible foreign exchange, say only 60% of the consideration is received in India and the

365
remaining amount is directly paid by the US based client to XYZ Ltd. Mexico, even in such a scenario, 100% of
the total contract value shall be taken as consideration for the export of services by ABC Ltd. India provided
IGST on import of services has been paid on the part of services provided by XYZ Ltd Mexico directly to the US
based client and RBI (by general instruction or by specific approval) has allowed that a part of the
consideration for such exports can be retained outside India. In other words, in such cases, the export benefit
will be available for the total realization of convertible foreign exchange by ABC Ltd. India and XYZ Ltd. Mexico.
QUESTIONS

1. Briefly discuss how exports are treated under the GST Law.

ANSWER:
Under the GST Law, export of goods or services has been treated as:
• Inter-State supply and covered under the IGST Act.
• ‘Zero rated supply’, i.e. the goods or services exported shall be relieved of GST levied upon them either at
the input stage or at the final product stage.

2. Explain how imports are taxed under GST.

ANSWER:
All imports are deemed as inter-State supplies for the purposes of levy of GST (IGST). The incidence of tax
follows the destination principle and the tax revenue accrues to the State where the imported goods and
services are consumed. IGST paid on import of goods and services is available as ITC for set off against the
output tax liability. IGST on import of goods is levied under the IGST Act but the machinery of the customs law
is used to levy and collect the same.

3. Describe how exports are taxed under GST.

ANSWER:
Exports of goods and services are zero rated. The exporter has the option either to export under bond/LUT
without payment of IGST and claim refund of ITC or pay IGST at the time of export and claim refund thereof.

4. Is it necessary to execute a bond for effecting zero rated supplies? Elucidate.

ANSWER:
No. The facility to export under LUT has been extended to all zero rated suppliers (barring a few exceptions
such as those who have been prosecuted for an offence involving tax of Rs. 2.5 crore) vide Notification No.
37/2017 CT dated 4.10.2017. The other conditions for executing LUT have been specified in Circular No.
8/8/2017 GST dated 4.10.2017 as amended.

366

5. A Ltd. enters into an agreement for sale of goods with B Ltd., a company based in UAE. B Ltd. requires the
goods to be delivered by A Ltd. to C Ltd., a company based in Karnataka.
Whether the transaction will qualify as export of goods under GST? Analyze the scenario and offer your
comments.
ANSWER:
As per the definition of export of goods provided under section 2(5), export of goods means taking goods out
of India to a place outside India. Since in the given case, the goods remain in India, i.e. with C Ltd. located in
Karnataka, the transaction between A Ltd. and B Ltd. cannot be treated as export of goods under GST.

6. A Ltd. is making zero rated supplies which are also specifically exempt from GST. The company has paid
input tax of Rs. 2,00,000 on inputs and input services which have been used exclusively in effecting such
zero rated supplies.
Examine if A Ltd. can avail ITC of input tax of Rs. 2,00,000 paid on inputs and input services used exclusively
in effecting such zero rated supplies.

ANSWER:
As per section 16(2), ITC may be availed for making zero rated supplies, notwithstanding that such supplies are
exempt supplies. However, the same is subject to provisions u/s 17(5) of the CGST Act, i.e. blocked credit.
Hence, A Ltd. can take credit of Rs. 2,00,000 even if the outward zero rated supply is exempt from GST.
However, the credit would not be available in respect of the inputs and input services, the credit on which is
blocked under section 17(5) of the CGST Act.

7. Whether services of short-term accommodation, conferencing, banqueting etc. provided to a SEZ

unit/developer by a supplier located in the same State as that of the SEZ unit/developer should be treated
as an inter-State supply under section 7(5)(b) or an intra-State supply in terms of section 8(2) read with
section 12(3)(c)? Examine.

ANSWER:
Circular No. 48/22/2018 GST has clarified on this issue as under:
As per section 7(5)(b), the supply of goods and/or services to a SEZ unit/developer is treated as a supply of
goods and/or services in the course of inter-State trade or commerce. Whereas, as per section 12(3)(c), the
place of supply of services by way of accommodation in any immovable property for organising any functions
shall be the location at which the immovable property is located. Thus, in such cases, if the location of the
supplier and the place of supply are in the same State/ Union territory, it would be treated as an intra-State
supply.

It is an established principle of interpretation of statutes that in case of an apparent conflict between two 367
provisions, the specific provision shall prevail over the general provision. In the instant case, section 7(5)(b) is
a specific provision relating to supplies of goods and/or services made to a SEZ unit/developer, which states
that such supplies shall be treated as inter-State supplies.

Further, proviso to section 8(2) also lays down that intra-State supply of services do not include supply of
services to a SEZ unit/developer. It is, therefore, clarified that services of short-term accommodation,
conferencing, banqueting etc., provided to a SEZ unit/developer shall be treated as an inter-State supply.
8. Mr. Amar Kant, a Chartered Accountant, being a partner in GST registered firm orders a gaming software
for his son from a company located in USA. He makes the payment for the same from his personal bank
account.
Examine whether the transaction will be liable to GST. If yes, in whose hands the tax liability will arise?

ANSWER:
The supply of gaming software is in the nature of OIDAR service in terms of section 2(17).
The transaction is for personal consumption of Mr. Amar Kant and the payment has also been made from the
personal bank account of Mr. Amar Kant and not from the bank account of his GST registered firm. Therefore,
being an individual receiving OIDAR service for personal consumption, Mr. Amar Kant is a non-taxable online
recipient in terms of section 2(16).
Services received from a provider of service located in a non- taxable territory by an individual in relation to
any purpose other than commerce, industry or any other business or profession is exempt from IGST.
However, such exemption is not available in case of OIDAR services [Notification No. 9/2017 IT (R) dated
28.06.2017].

Therefore, being an OIDAR service provided by a supplier located outside India and received by a non-taxable
recipient, the same is liable to GST.

Tax on service supplied by any person located in a non-taxable territory to any person other than non-taxable
online recipient is payable by the recipient of such service under reverse charge. Therefore, tax on OIDAR
services provided by the company located in USA to Mr. Amar Kant, a non-taxable online recipient, will be
payable by such company under forward charge.

9. ‘Separate LUT is to be furnished for every export supply.’

With reference to the provisions of the GST law, examine the veracity or otherwise of the statement.

ANSWER:
No, the statement is not correct.
The LUT remains valid for the whole financial year and there is no need to furnish separate LUT for each

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export supply.

However, in case goods are not exported within the time limit specified in rule 96A(1) of the CGST Rules and
the registered person fails to pay the amount mentioned in the said sub rule, the facility of export under LUT
will be deemed to have been withdrawn. However, if the amount mentioned in the said sub-rule is paid
subsequently, the facility of export under LUT shall be restored.
As a result, exports, during the period from when the facility to export under LUT is withdrawn till the time the
same is restored, shall be either on payment of the applicable IGST or under bond with bank guarantee.

Rule 96A(1) provides inter alia that an exporter of goods has to execute the bond or LUT prior to export,
binding himself to pay the tax due along with interest @ 18% within 15 days after the expiry of 3 months, or
such further period as may be allowed by the Commissioner, from the date of issue of the invoice for export, if
the goods are not exported out of India.

10. AXT Ltd. entered into a high sea sale transaction with BYU Ltd. for certain goods. AXT Ltd. is of the view
that GST on such sale transaction is payable at the time of such sale and basic customs duty is payable at
the time of filing the bill of entry for import of goods.
Examine whether the view taken by AXT Ltd. is correct.

ANSWER:
AXT Ltd.’s view is partially correct.
Supply of goods by the consignee to any other person, by endorsement of documents of title to the goods,
after the goods have been dispatched from the port of origin located outside India but before clearance for
home consumption (high sea sale)

Thus, GST is not leviable on high sea sales. Therefore, AXT Ltd.’s view that GST is payable on a high sea sale
transaction at the time of sale, is not correct.

As per section 14 of the Customs Act, 1962, the value for the purpose of charging customs duty on imported
goods is the value at the time of importation, i.e. at the time of filing of the bill of entry. Further, IGST on
imported goods is also levied at the time of filing of bill of entry. Therefore, in case of high sea sales, the
assessable value of imported goods for levying customs duty and IGST is determined on the basis of the price
paid by the last high sea sales buyer who files the bill of entry for home consumption.

Therefore, AXT Ltd.’s view that basic customs duty is payable at the time of filing the bill of entry for import of
goods is correct. is neither treated as supply of goods nor supply of services in terms of paragraph 8(b) of
Schedule III to the CGST Act.

11. Discuss supplies which have been notified as deemed exports under section 147 of CGST Act, 2017. 369

Answer
The following supplies have been notified as deemed exports under section 147 of the CGST Act, 2017:

1. Supply of goods by a registered person against Advance Authorisation.

2. Supply of capital goods by a registered person against Export Promotion Capital Goods Authorisation.
3. Supply of goods by a registered person to Export Oriented Unit.

4. Supply of gold by a notified bank/Public Sector Undertaking against Advance Authorisation

12 GER Ltd. of Germany supplies luxurious car worth ₹ 1 crore to IND Ltd. of India. Before the car reached
Indian port but after crossing of the territorial waters of India, IND Ltd. sells it to T1 Ltd. by way of
transfer of documents of title. T1 Ltd. clears the said car for warehousing and stores said goods in customs
bonded warehouse. T1 Ltd. sells the said car from warehouse to T2 Ltd., and T2 Ltd. clears the said car from
the customs bonded warehouse.
Answer the following with brief reasons: (PAST EXAM JAN 2021)

(i) Is GST leviable on import of goods from GER Ltd. by IND Ltd.?

(ii) Is GST leviable on supply of goods by IND Ltd. to T1 Ltd.?

(iii) Is GST leviable on supply of goods by T1 Ltd. to T2 Ltd.?

(iv) Is GST leviable on clearance of goods by T2 Ltd. from the customs bonded warehouse?

Answer

(i) GST on import of goods is levied at the time when customs duty is levied on the said goods under the
Customs Act, 1962, i.e., on importation.
Importation gets completed when the goods become part of the mass of goods within the country. Thus, GST
is not leviable on import of goods from GER Ltd. by IND Ltd. since the import of goods is
not complete.

(ii) GST is not leviable on supply of goods by IND Ltd. to T1 Ltd. as supply of goods by the consignee to any
other person, by endorsement of documents of title to the goods, after the goods have been
dispatched from the port of origin located outside India but before clearance for home consumption is treated
neither as a supply of goods nor a supply of services.

(iii) GST is not leviable on supply of goods by T1 Ltd. to T2 Ltd. since supply of warehoused goods to any 370
person before clearance for home consumption is treated neither as a supply of goods n
or a supply of services.

(iv) Yes, GST is leviable on clearance of goods by T2 Ltd. from the customs bonded warehouse as customs duty
is levied on warehoused goods at the time of clearance thereof from the warehouse
and as mentioned in point (i), GST on import of goods is levied at the time when customs duty is levied
thereon.
13. (PAST PAPER JULY 2021)
Candidates are required to attempt either part (i) or part (ii).
(i) DF Ltd. exported goods valued ₹ 50 lakh and received refund of integrated tax paid amounting to ₹ 9 lakh
on 16th August, 2020. He could realise export proceeds to the extent of ₹ 25 lakh, but did not realise the
balance export proceeds within the prescribed time limit of 9 months and has applied for extension of time to
RBI. There is no dispute about the supply of the goods as regards quality, time of supply and fulfilment of
terms and conditions of sale. He wants you to inform him of the consequences under GST law in case RBI does
not give him the extension

ANSWER
(i) Where any applicant has received the refund of integrated tax paid on export of goods but could not realise
the sale proceeds of such exported goods within the prescribed time limit (or extended time period), he shall
deposit the amount so refunded along with interest of 18% within 30 days of the expiry of the said period (or
extended time period), to the extent of non-realisation of sale proceeds. However, if the RBI writes off the
requirement of such realization on merits, recovery shall not be made.
In view of the aforesaid provisions, DF Ltd. has to deposit the refund of integrated tax of ₹ 4.5 lakh (to the
extent of non-realisation of export proceeds of ₹ 25 lakh) along with interest @ 18% within 30 days of the
expiry of the prescribed time-limit.
In case of failure to do so, the amount will be recovered in accordance with the provisions relating to recovery
of erroneous refund and also penalty can be imposed

371
 CHAPTER-15 REFUNDS
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS 1 to 5, 9
MAT

NO QUES NO QUES Q-11 Q-13 Q-14 NO QUES NO QUES ------

PAST
EXAMS

NO QUES NO QUES NO NO Q-8, 11 Q-10 NO

QUES QUES QUES
MTP

NO QUES Q-7 Q-6 Q-12 NO QUES NO

QUES
RTP

QUESTIONS

1. Is there any time limit for sanctioning of refund under section 54?

ANSWER:

Yes, refund has to be sanctioned within 60 days from the date of receipt of application complete in all
respects. If refund is not sanctioned within the said period of 60 days, interest @ 6% p.a. will have to be paid
in accordance with section 56.

372
However, in case where provisional refund to the extent of 90% of the amount claimed is refundable in
respect of zero-rated supplies made by certain categories of registered persons in terms of sub-section (6) of
section 54, the provisional refund has to be given within 7 days from the date of acknowledgement of the
claim of refund.

2. Discuss the provisions relating to refund of the amount of advance tax deposited by a casual taxable
person under section 27(2).
ANSWER:
The amount of advance tax deposited by a casual taxable 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 [Section 54(13)]. Further, refund of any
amount, after adjusting the tax payable by the applicant out of the 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
[Fourth proviso to rule 89(1)].

3. In case of refund under exports of goods, whether BRC/FIRC is necessary for granting refund?

ANSWER:
In case of refund on account of export of goods, the refund rules do not prescribe BRC/FIRC as a necessary
document for filing of refund claim. However, for export of services details of BRC/FIRC is required to be
submitted along with the application for refund.

4. When is a deficiency memo issued in respect of a refund claim made under section 54?

ANSWER:
Rule 90(3) provides for communication in prescribed form (deficiency memo) where deficiencies are noticed.
The said sub-rule also provides that once the deficiency memo has been issued, the claimant is required to file
a fresh refund application after the rectification of the deficiencies.

5. State the exceptions to the principle of unjust enrichment as applicable to refund claims.

ANSWER:
The principle of unjust enrichment is applicable in all cases of refund except in the following cases:-

i. Refund of tax paid on export of goods or services or both or on inputs or input services used in making such

373
exports.

ii. Unutilized input tax credit in respect of (i) zero rated supplies made without payment of tax or, (ii) where
the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output
supplies.

iii. refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has
not been issued.
iv. refund of tax in pursuance of section 77 of CGST/SGST Act i.e. tax wrongfully collected and paid to Central
Government or State Government.

v. if the incidence of tax or interest paid has not been passed on to any other person.

vi. such other class of persons who has borne the incidence of tax as the Government may notify.

6. Kailash Global (P) Ltd. supplies various goods in domestic and international markets. It is engaged in both
manufacturing and trading of goods. The company is registered under GST in the State of Karnataka. The
company 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.

The company has made the following supplies during a tax period:

S. No. Particulars (Rs.)

(i) Export of product ‘A’ to UK for $ 10,000. Assessable value 7,00,000
under customs in Indian rupees.
[Export duty is levied on product ‘A’ at the time of exports.
Further, value of like goods domestically supplied by the
similarly placed supplier is Rs. 6,00,000]
(ii) Domestic supplies of taxable product ‘B’* during the period 10,00,000
[excluding tax @ 5%]
[Inputs used in manufacturing of such goods are taxable
@18%] *not notified as a product, in respect of which refund
of unutilised ITC shall not be allowed under section 54(3)(ii)

(iii) Supply of goods to Export Oriented Unit [excluding tax @ 5,00,000

18%]
[ITC has been claimed by the recipient]
(iv) Export of exempt supplies of goods (Value of like goods 6,00,000
domestically supplied by the similarly placed supplier is Rs.

374
5,00,000)

The ITC available for the above tax period is as follows:

S.No. Particulars (Rs.)
(i) On inputs 3,50,000
(ii) On capital goods 1,20,000
Determine the maximum amount of refund admissible to Kailash Global (P) Ltd. for the given tax period.
(RTP MAY 2019)
ANSWER:
Computation of maximum amount of refund admissible to Kailash Global (P) Ltd.
Particulars (Rs.)
Exports of product ‘A’ to UK [Note (i)] Nil
Domestic supplies of taxable product ‘B’ during the period 75,000
[Note (ii)]
Supply of goods to Export Oriented Unit [Note (iii)] Nil
Export of exempt supplies [Note (iv)] 75,000
Total refund claim admissible 1,50,000
Notes:

(i) 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),
a registered person may claim refund, of any unutilised ITC in the case of zero rated supply made without
payment of tax 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.

(ii) Refund of unutilised ITC is allowed in case 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)].
Rule 89(5) stipulates that in the case of refund on account of inverted duty structure, refund of ITC is granted
as per the following formula –

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.

375
“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; &

(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.
“Relevant period” means the period for which the claim has been filed.

Tax payable on inverted rated supply of goods = Rs. 10,00,000 × 5% = Rs. 50,000
Here, Net ITC = Rs. 3,50,000, Adjusted Total Turnover = Rs. 28,00,000 [Rs. 7,00,000 + Rs. 10,00,000 + Rs.
5,00,000 + Rs. 6,00,000] and Turnover of inverted rated supply of goods = Rs. 10,00,000

Thus, maximum refund amount under rule 89(5) = Rs. 3,50,000 x 10,00,000/ Rs. 28,00,000 - Rs. 50,000 = Rs.
75,000

(iii) As per section 2(39), deemed exports means such supplies of goods as may be notified under section 147.
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)].
Therefore, since in the given case, the recipient is claiming ITC, Kailash Global (P) Ltd. (supplier of deemed
exports) cannot claim refund of ITC.

(iv) 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, notwithstanding 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) 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:

376
where-

“Net ITC” means ITC availed on inputs and input services during the relevant period other than the ITC availed
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/LUT, 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.

“Adjusted total turnover” means the same as explained in point ii above.

Here, Turnover of zero rated supply of goods = Rs. 6,00,000 (Lower of Rs. 6,00,000 or 1.5 times of Rs. 5,00,000
i.e. 7,50,000 whichever is lower), Net ITC = Rs. 3,50,000 and Adjusted Total Turnover = Rs. 28,00,000 (as
computed in point ii above)

Thus, maximum refund amount under rule 89(4) = Rs. 3,50,000 x Rs. 6,00,000/ Rs. 28,00,000 = Rs. 75,000.

7. Super Engineering Works, a registered supplier in Haryana, is engaged in supply of taxable goods within
the State. Given below are the details of the turnover and applicable GST rates of the final products
manufactured by Super Engineering Works as also the input tax credit (ITC) availed on inputs used in
manufacture of each of the final products and GST rates applicable on the same, during a tax period:

Products Turnover* Output GST Rates ITC availed Input GST Rates
(Rs.) (Rs.)
A 500,000 5% 54,000 18%
B 350,000 5% 54,000 18%
C 100,000 18% 10,000 18%

*excluding GST

Determine the maximum amount of refund of the unutilized input tax credit that Super Engineering Works
is eligible to claim under section 54(3)(ii) provided that Product B is notified as a product, in respect of
which no refund of unutilised input tax credit shall be allowed under said section.
(RTP NOV 2018)

ANSWER:

Section 54(3)(ii) allows refund of unutilized input tax credit (ITC) at the end of any tax period to a registered
person where the credit has accumulated on account of inverted duty structure i.e. 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

377
goods or services or both as may be notified by the Government on the recommendations of the Council.
In the given case, the rates of tax on inputs used in Products A and B (18% each) are higher than rates of tax
on output supplies of Products A and B (5% each). However, Product B is notified as a product, in respect of
which no refund of unutilised ITC shall be allowed under section 54(3)(ii). Therefore, only Product A is eligible
for refund under section 54(3)(ii).

Further, rule 89(5) stipulates that in the case of refund on account of inverted duty structure, refund of ITC
shall be granted as per the following formula –
A. "Net ITC" means input tax credit availed on inputs during the relevant period;

B. Adjusted Total Turnover means the sum total of the value of-

(a) the turnover in a State or a Union territory, as defined under section 2(112), excluding the turnover of
services; and

(b) the turnover of zero-rated supply of services determined in 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 rule 89(4A) or rule 89(4B) or both, if
any,
during the relevant period.

C. Relevant period means the period for which the claim has been filed.
In accordance with the aforesaid provisions, the maximum refund amount which Super Engineering Works is
eligible to claim shall be computed as follows:

Tax payable on inverted rated supply of Product A = Rs. 5,00,000 × 5% = Rs. 25,000
Net ITC = Rs. 1,18,000 (Rs. 54,000 + Rs. 54,000 + Rs. 10,000) [Net ITC 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 as clarified vide Circular No. 79/53/2018-GST dated 31.12.2018]

Adjusted Total Turnover = Rs. 9,50,000 (Rs. 5,00,000 + Rs. 3,50,000 + Rs. 1,00,000)
Turnover of inverted rated supply of Product A = Rs. 5,00,000
Maximum refund amount for Super Engineering Works is as follows:
= [(Rs. 5,00,000 × Rs. 1,18,000)/ Rs. 9,50,000] - Rs. 25,000

378
= Rs. 37,105 (rounded off)

8. With reference to section 54(3), mention the cases where refund of unutilised input tax credit is allowed.
(MTP NOV 2020)

ANSWER:

As per section 54(3), a registered person may claim refund of unutilised input tax credit at the end of any tax
period in the following cases:
(i) Zero rated supplies made without payment of tax: Supply of goods or services or both to an SEZ
developer/unit or export of goods or services or both qualifies as zero rated supplies. However, refund of
unutilized input tax credit shall not be allowed if:
• the goods exported out of India are subjected to export duty;
• the supplier of goods or services or both avails of drawback in respect of CGST or claims refund of the IGST
paid on such supplies.

(ii) Accumulated ITC on account of inverted duty structure: 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 Council.

9. State few cases where refundable amount shall be paid to the applicant, instead of being credited to
Consumer Welfare Fund under CGST Act, 2017.

ANSWER:
Section 54(8) provides that the refundable amount shall be paid to the applicant, instead of being credited to
the Consumer Welfare Fund, if such amount is relatable to —

(a) refund of tax paid on export of goods and/or services or on inputs or input services used in making such
exports;

(b) refund of unutilized ITC in case of zero-rated supplies made without payment of tax or accumulated ITC on
account of inverted duty structure;

(c) refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has
not been issued, or where a refund voucher has been issued;

(d) refund of tax paid on a transaction treating it to be an intra-State supply, but which is subsequently held to
be an inter-State supply or vice-versa;

(e) the tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the

379
incidence of such tax and interest to any other person; or

(f) the tax or interest borne by notified class of applicants.

10. Y Ltd. exported service valued at US $ 1,00,000. Supply of service was completed on 15th January.
Payment for this service was received on 28th February. Refund claim was filed by Y Ltd. in respect of tax
paid on inputs and inputs services for Rs. 6,00,000 on 31st March. The refund claim was sanctioned on 30th
June. What is the amount of refund Y Ltd. will get in accordance with law? What is the relevant date and
rate of interest as per GST law? (MTP JULY 2021)

ANSWER:

As per clause (i) of first proviso to section 54(3), refund claim admissible to Y Ltd. on account of export of
services being a zero-rated supply, is the unutilized ITC of Rs. 6,00,000. Where the supply of services had been
completed prior to the receipt of payment, relevant date is the date of receipt of payment in convertible
foreign exchange, i.e. 28th February [Explanation to section 54].

As per section 56, where any tax ordered to be refunded to any applicant is not refunded within 60 days from
the date of receipt of application, interest shall be payable @ 6% p.a. from the date immediately after the
expiry of 60 days from the date of receipt of application till the date of refund of such tax.

Since in the given case, tax ordered to be refunded is not refunded within 60 days from the date of receipt of
application, viz., 31st March, interest @ 6% p.a. is payable.

11. Wye Ltd. provides the following details of September 20XX for computation of refund claim under rule
89(4) of the CGST Rules, 2017. Compute the eligible claim under the said rule assuming that other conditions
are fulfilled. (PAST EXAM MAY 2019) (MTP MAY 2020)

Answer
As per rule 89(4) of the CGST Rules, 2017, in case of zero-rated supply of goods without payment of tax
under bond/LUT, refund of ITC is granted as per the following formula

380
Net ITC
excludes ITC availed for which refund is claimed under rule 89(4A)/ (4B) of the CGST Rules, 2017. Further,
turnover of zero-rated supply of goods and adjusted total turnover exclude turnover of supplies in respect of
which refund is claimed under 89 (4A)/
(4B). Accordingly, turnover of zero rated supply of goods = ₹ 5,00,00,000 [₹ 6,00,00,000 – ₹ 1,00,00,000];

Net ITC = ₹ 20,00,000 [₹ 25,00,000 – ₹ 5,00,000] and Adjusted Total Turnover = ₹ 8,00,00,000 [₹ 6,00,00,000 +
₹ 3,00,00,000
– ₹ 1,00,00,000]
Thus, maximum refund amount under rule 89(4)
= ₹ 20,00,000 × ₹ 5,00,00,000 /₹ 8,00,00,000 = ₹ 12,50,000.

12. Synotex Pvt. Ltd. manufactures taxable goods, ‘Q’ and exempt goods ‘S’. Product ‘S’ is sold in
international markets without payment of tax under letter
of undertaking. The company is registered under GST in the State of Maharashtra. The company provides
the following information in relation to various supplies made by it during a tax
period:
(a) Product ‘S has been exported to UK for £ 12,000
(b) Product ‘Q’ has been supplied to Betty Enterprises within India for ₹ 20,00,000

Note: The above amounts are exclusive of taxes, wherever applicable.

The company provides the following information in relation to tax paid on inward supplies received
during the said tax period:

(a) GST of ₹ 5,00,000 has been paid on inputs

(b) GST of ₹ 2,40,000 has been paid on capital goods

(c) GST of ₹ 2,00,000 has paid on input services

(d) All the above inputs, input services and capital goods are used in the manufacturing process Following
additional in formation is also provided:

(i) Value of product ‘S’ exported to UK in Indian rupees is ₹ 12,00,000. However, value of such product when
supplied domestically by the company in similar quantities is ₹ 10,00,000.

(ii) Betty Enterprises is a 100% export-oriented undertaking. It has claimed the ITC on goods supplied
to it by Synotex Pvt. Ltd.

(iii) The balance in the electronic credit ledger of Synotex Pvt. Ltd. at the end of the tax period for which

381
the refund claim is being filed after GSTR-3B for the said period has been filed is ₹ 5,80,000.

(iv) The balance in the electronic credit ledger of Synotex Pvt. Ltd. at the time of filing the refund application
is ₹ 3,00,000.

Compute the amount refundable to Synotex Pvt. Ltd. for the tax period. (RTP NOV 2020)

Answer

Export of product ‘S’

 Export of goods is a zero rated supply in terms of section 16(1)(a) of the IGST Act, 2017. Section 16(2) of the
IGST Act, 2017 stipulates that subject to the provisions of section 17(5) of the CGST Act, 2017, ITC may be
availed for making zero-rated supplies even if such supply may be an exempt supply. As per section 54(3)(i) of
the CGST Act, 2017, a registered person may claim refund, of any unutilised ITC at the end of any tax period in
the case of zero rated supply made without payment of tax.

Therefore, in the given case, Synotex Pvt. Ltd. will be eligible to claim ITC for export of exempt product ‘S’ in
terms of section 16(2) of the IGST Act, 2017 and will thus, be able to claim refund of unutilised ITC
in terms of section 54(3)(i) of the CGST Act, 2017. As per rule 89(4) of the CGST Rules, 2017, refund of
unutilized ITC in case of zero rated supply without
payment of tax under letter of undertaking is granted in accordance with the following formula

Here,
Net ITC = ₹ 7,00,000 [Net ITC includes ITC on inputs and input services but not ITC on capital goods].
Turnover of zero-rated supply of goods (Product ‘S’) = ₹ 12,00,000 [Lower of the value of zero rated
supply of goods (₹ 12,00,000) or the value which is 1.5 times the value of like goods domestically supplied
by the same or, similarly placed, supplier (₹ 15,00,000)].

Adjusted total turnover = ₹ 32,00,000 [₹ 20,00,000 + ₹ 12,00,000]

Thus, refund amount under rule 89(4) = ₹ 7,00,000 x ₹ 12,00,000/ ₹ 32,00,000 = ₹ 2,62,500.
Circular No. 125/44/2019 GST dated 18.11.2019 provides that amount refundable to the applicant is least of
the following amounts:
(a) Maximum refund amount as per the formula in rule 89(4) of the CGST Rules [₹ 2,62,500]
(b) Balance in the electronic credit ledger at the end of the tax period for which the refund claim is
being filed after GSTR-3B for the said period has been filed [₹ 5,80,000]
(c) Balance in the electronic credit ledger at the time of filing the refund application [₹ 3,00,000]
Thus, amount refundable to Pvt. Ltd. of unutilized ITC is ₹ 2,62,500.

Supply of product ‘R’ to Betty Enterprises, a 100% EOU 382

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, Betty Enterprises (recipient) is
claiming ITC, Synotex Pvt. Ltd. (supplier of deemed exports) cannot claim refund of ITC. Therefore, amount
refundable to
Synotex Pvt. Ltd. is ₹ 2,62,500.
13. The following particulars are furnished by Delight Exporters, Karnataka, which is duly registered under
the GST law. The entity has also filed bond/LUT in order to export goods without payment of any taxes. You
are required to calculate the refund amount in respect of input tax credit on inputs and input services
relating to goods exported in the relevant tax period. (PAST EXAM NOV 2019)

Answer
In case of zero-rated supply of goods and services without payment of tax under bond/LUT, refund of ITC
relating to goods and services exported is granted as per the following formula:

Accordingly, the amount of refund shall be computed as follows:

383
Note:
The above answer is based on the following assumptions made with regard to the information given in the
table in the question:

(i) Turnover at S. No. 1 [₹ 76 lakh] includes the turnover of zero rated supply of goods given at S. No. 2 [₹ 12
lakh].

(ii) Turnover of zero rated supply of goods given at S. No. 2 [₹ 12 lakh] includes turnover of supplies of goods in
respect of which refund has been claimed under rule 89(4A) and 89(4B) [₹ 6 lakh]

(iii) Turnover of zero rated supply of services computed as per rule 89(4)(D) [₹ 50 lakh] includes the turnover
of supplies of services in respect of which the re

384
fund is claimed under rule 89(4A) and 89(4B) [₹ 6 lakh].

However, the above question can also be answered on the basis of alternate assumptions e.g., the turnover o
zero rated supply of goods given at S. No. 2 [₹ 12 lakh] excludes turnover of supplies of goods in respect of
which refund has been claimed under rule 89(4A) and 89(4B) [₹ 6 lakh] or the turnover at
S. No. 1 [₹ 76 lakh] does not include the turnover of zero rated supply of goods given at S. No. 2 [₹ 12 lakh]
and turnover of supplies of goods in respect of which refund has been claimed under rule 89(4A) and 89 (4B)
[₹ 6 lakh].
14. M/s Housefull Convention Hall is in the business of letting out its halls for functions. It provides you with
the following information for determining the amount of refund out of advance received based on time of
supply for one of its clients.

What would be the amount of refund payable to the client? (PAST EXAM NOV 2020)

Answer
The time of supply of services is the date of issue of invoice if the same is issued within 30 days from the
date of supply of service or the date of receipt of payment, whichever is earlier. In the given case, invoice is
issued within 30 days of the supply of service and advances have also been
received.

Therefore, tax becomes payable at the time of receipt of advances on 16.07.2019 and 18.08.2019 as it is not
clear at the time of receipt of such advances as to what would be the total value of the supply. However, when
invoice is issued for a lesser value on 25.11.2019, refund would become
payable to the client. In case of change in rate of tax, where the service is supplied and invoice is issued after
the change in rate of tax and payment is received before change in rate of tax, time of supply shall be date of
issue of invoice, i.e., 25.11.2019.

Hence, applicable rate of tax is new rate even though tax has been paid at old rate on advances received.
Therefore, refund payable to client will be computed as under:
Total advance received including GST* = ₹ 3,00,000
Less: Actual liability [₹ 2,50,000 + ₹ 2,50,000 x 18% (new rate of tax)] = ₹ 2,95,000
Amount of refund = ₹ 5,000

385
*It has been assumed that the advances received are inclusive of tax.
 CHAPTER-16 JOB WORK
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS 1 to 7
MAT

PAST NO QUES ------ ------

EXAMS

MTP Q-6 NO QUES Q-5 NO Q-7 NO QUES ------

QUES

RTP NO QUES

QUESTIONS

1. Under what circumstances, can the principal directly supply goods from the premises of job worker
without declaring the premises of job worker as his additional place of business?

ANSWER:
The goods can be supplied directly from the place of business of job worker without declaring it as additional
place of business in two circumstances namely where the job worker is a registered taxable person or where
the principal is engaged in supply of such goods as may be notified by the Commissioner.

386
2. What happens when the inputs or capital goods are not received back or supplied from the place of
business of job worker within prescribed time period?
ANSWER:
If the inputs or capital goods are not received back by the principal or are not supplied from the place of
business of job worker within the prescribed time limit, it would be deemed that such inputs or capital goods
had been supplied by the principal to the job worker on the day when the said inputs or capital goods were
sent out by the principal (or on the date of receipt by the job worker where the inputs or capital goods were
sent directly to the place of business of job worker). Thus, the principal would be liable to pay tax accordingly.
3. Who is responsible for the maintenance of proper accounts related to job work?
ANSWER:
It is completely the responsibility of the principal to maintain proper accounts of job work related inputs and
capital goods.

4. Genie Engineers had a mould delivered directly to a job worker from the supplier for making certain
precision parts for use in the factory of Genie Engineers. As per agreement, the mould was to remain with
the job worker as long as work was being sent to him.
After four years a departmental audit team that visited the job worker noticed the mould and traced it to
Genie Engineers. GST was demanded from Genie Engineers for taking ITC without receiving the mould and
furthermore for not bringing the mould back after three years of delivery to the job worker.
How should they respond to this?

ANSWER:
Genie Engineers should reply on the following lines:
Under section 19(6), the principal may take ITC on capital goods sent to a job worker for job work without
being first brought to his place of business.

The capital goods sent for job work should either be returned to the principal or must be supplied from the job
worker’s premises within 3 years [extendible by another 2 years] from sending them to the job worker or
direct receipt by the job worker from the supplier. If the above time-lines are not met, it is deemed that the
capital goods were supplied by the principal to the job worker (in other words, tax will be payable on them) on
the day they were sent out to the job worker [Section 19(6)].

However, sub-section (7) of section 19 provides that the time-limit of three years in sub-section (6) for
bringing back the capital goods from the job worker does not apply to moulds.
Hence, Genie Engineers have correctly taken the ITC on moulds.

5. Sudama Industries Ltd., registered in the State of Jammu & Kashmir, manufactures plastic pipes for other
suppliers on job-work basis.

387
On 10th January, Plasto Manufacturers (registered in the State of Himachal Pradesh) sent plastic worth Rs..
4 lakh and moulds worth Rs. 50,000, free of cost, to Sudama Industries Ltd. to make plastic pipes. Sudama
Industries Ltd. Also used its own material - a special type of lamination material for coating the pipes -
worth Rs. 1 lakh in the manufacture of pipes. It raised an invoice of Rs. 2 lakh as job charges for making
pipes and returned the manufactured pipes through delivery challan to Plasto Manufacturers on 20th
October in the same financial year.

The same quality and quantity of plastic pipes, as was made for Plasto Manufacturers, were made by
Sudama Industries Ltd. from its own raw material and sold to Solid Pipes (registered in Jammu and Kashmir)
for Rs. 7.5 lakh on 20th October.
Examine the scenario and offer your views on the following issues with reference to the provisions relating
to job work under the GST laws:

(i) Is there any difference between the manufacture of plastic pipes by Sudama Industries Ltd. for Plasto
Manufacturers and for Solid Pipes?

(ii) Whether Sudama Industries can use its own material even when it is manufacturing the plastic pipes on
job-work basis?

(iii) Whether sending the plastic and moulds to Sudama Industries Ltd. by Plasto Manufacturers is a supply
and a taxable invoice needs to be issued for the same?

(iv) Whether Sudama Industries should include the value of free of cost plastic and moulds supplied by
Plasto Manufacturers in its job charges? (MTP MAY 2019)

ANSWER:
(i) As per section 2(68), job work means any treatment or process undertaken by a person on goods belonging
to another registered person and the expression “job worker” shall be construed accordingly. The registered
person on whose goods (inputs or capital goods) job work is performed is called the principal. Thus, the job
worker is expected to work on the goods sent by the principal.

Therefore, when the goods are manufactured by Sudama Industries Ltd. for Plasto Manufacturers, it is job
work as the process is undertaken on inputs (plastic and moulds) supplied by the principal (Plasto
Manufacturers) and when goods are manufactured for Solid Pipes, it is manufacture on own account as the
pipes are manufactured from company’s own raw material. Further, processing or treatment on job work
basis is a supply of service in terms of para 3 of Schedule II to the CGST Act, 2017 and manufacture of pipes on
own account is a supply of goods.

(ii) It has been clarified vide Circular No. 38/12/2018 GST dated 26.03.2018 that the job worker, in addition to
the goods received from the principal, can use his own goods for providing the services of job work.

(iii) Section 143 provides that the registered principal may, without payment of tax, send inputs or capital
goods to a job worker for job work. Subsequently, on completion of the job work, the principal shall either
bring back the goods to his place of business or supply (including export) the same directly from the place of

388
business/ premises of the job worker within one year in case of inputs or within three years in case of capital
goods (except moulds and dies, jigs and fixtures or tools). Thus, the provision relating to return of goods is not
applicable in case of moulds, dies, jigs, fixtures and tools.

If the time frame of one year/ three years for bringing back or further supplying the inputs/ capital goods is
not adhered to, the activity of sending the goods for job work shall be deemed to be a supply by the principal
on the day when the said inputs/ capital goods were sent out by him. Thus, essentially, sending goods for job
work is not a supply as such, but it acquires the character of supply only when the inputs/ capital goods sent
for job work are neither received back by the principal nor supplied further by the principal from the place of
business/ premises of the job worker within one/ three years of being sent out.
Therefore, sending of plastic and moulds by Plasto Manufacturers to Sudama Industries Ltd. (job worker) is
not supply as the manufactured pipes are received back within the stipulated time and the provisions relating
to return of goods are not applicable in case of moulds.

Rule 45 provides that the inputs, semi-finished goods or capital goods being sent for job work shall be sent
under the cover of a delivery challan issued by the principal.
Therefore, Plasto Manufacturers need not issue a taxable invoice for sending the inputs to Sudama Industries
Ltd. but should send the inputs under the cover of a challan.

(iv) As per section 15(2)(b), any amount that the supplier is liable to pay in relation to such supply but which
has been incurred by the recipient of the supply and not included in the price actually paid or payable for the
goods or services or both, is includible in the value of supply. However, Sudama Industries Ltd. should not
include the value of free of cost plastic and moulds supplied by Plasto Manufacturers in its job charges as
Sudama Industries Ltd. is manufacturing the plastic pipes on job work basis. The scope of supply of the
Sudama Industries Ltd. is to manufacture plastic pipes from the raw material supplied by the Plasto
Manufacturers. Thus, at no point of time was Sudama Industries Ltd. (supplier of job work service) liable to
pay for the raw material and therefore, the value thereof should not be included in its job charges even
though the same has been incurred by Plasto Manufacturers (recipient of job work service).

6. Alok Pvt. Ltd., a registered manufacturer, sent steel cabinets worth Rs. 50 lakh under a delivery challan to
M/s Prem Tools, a registered job worker, for job work on 28th January. The scope of job work included
mounting the steel cabinets on a metal frame and sending the mounted panels back to Alok Pvt. Ltd. The
metal frame is to be supplied by M/s Prem Tools. M/s Prem Tools has agreed to a consideration of Rs. 5 lakh
for the entire mounting activity including the supply of metal frame. During the course of mounting activity,
metal waste is generated which is sold by M/s. Prem Tools for Rs. 45,000. M/s Prem Tools sent the steel
cabinets mounted on the metal frame to Alok Pvt. Ltd. on 3rd December in the same financial year.
Assuming GST rate for metal frame as 28%, for metal waste as 12% and standard rate for services as 18%,
you are required to compute the GST liability of M/s Prem Tools. Also, give reason(s) for inclusion or
exclusion of the value of cabinets in the job charges for the purpose of payment of GST by M/s Prem Tools.
(MTP MAY 2018)

ANSWER: 389

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 cited above, 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.
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.

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). 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:

Particulars Amount (Rs.)

Job charges 5,00,000
GST @ 18% (A) 90,000
Sale of metal waste 45,000
GST @ 12% (B) 5,400
Total GST payable (A) + (B) 95,400

7. Bedi Manufacturers, a registered person, instructs its supplier to send the capital goods directly to Rajesh
Enterprises, who is a job worker, outside its factory premises for carrying out certain operations on the
goods. The goods were sent by the supplier on 10th April and were received by the job worker on 15th
April. Rajesh Enterprises carried out the job work, but did not return the capital goods to their principal -
Bedi Manufacturers. Discuss whether Bedi Manufacturers are eligible to retain the input tax credit availed
by them on the capital goods. What action under the GST Act is required to be taken by Bedi
Manufacturers.

What would be your answer if in place of capital goods, jigs and fixtures are supplied to the job worker and
the same has not been returned to the principal? (MTP NOV 2020)

ANSWER:

As per section 19(5), the principal is entitled to take input tax credit of capital goods sent for job work even if

390
the said goods are directly sent to job worker.

Further, section 19(6) stipulates that where the capital goods sent directly to a job worker are not received
back by the principal within a period of 3 years of the date of receipt of capital goods by the job worker, it
shall be deemed that such capital goods had been supplied by the principal to the job worker on the day when
the said capital goods were received by the job worker.

In view of aforementioned provisions, Bedi Manufacturers are eligible to retain the input tax credit availed by
them on the capital goods. However, if the capital goods are not returned by Rajesh Enterprises within 3 years
from 15th April (date of receipt of capital goods by job worker), it shall be deemed that such capital goods had
been supplied by Bedi Manufacturers to Rajesh Enterprises on 15th April and Bedi
Manufacturers shall be liable to pay the tax along with applicable interest.
However, there is no time limit for return of moulds and dies, jigs and fixtures or tools sent out to a job worker
for job work [Section 19(7)].

However, if Rajesh Enterprises does not return the jigs and fixtures to Bedi Manufacturers, it shall not be
considered as a supply of jigs and fixtures to Rajesh Enterprises by Bedi Manufacturers. In this case also, Bedi
Manufacturers will be eligible to retain the input tax credit availed by them.

391
 CHAPTER-17 ASSESSMENT AND AUDIT
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS 1 ,2, 5, 6, 8

MAT

Q-3 Q-4, 9 NO NO NO QUES NO QUES Q-11 ------

QUES QUES
PAST
EXAMS

NO QUES Q-3 NO NO Q-4, 5 NO QUES Q-3, 4

QUES QUES
MTP

NO QUES Q-7 NO NO NO QUES NO QUES Q-10

QUES QUES
RTP

EXAMPLES
1. Let’s assume that the due date of filing of Annual Return for F/Y 2017-18 is 31.12.2018. If a person defaults
in filing of return for any tax period falling in F/Y 2017-18, period of 5 years shall be reckoned from the due
date of filing of Annual Return for F/Y 2017-18 i.e. 31.12.2018.
Accordingly, best judgment assessment can be made by Proper Officer on or before 31.12.2023.

2. Let’s assume that the due date of filing of Annual Return for F/Y 2018-19 is 31.12.2019. If the liability of a
person to take registration arises at any time in the F/Y 2018-19 for the reason that his turnover
crosses the prescribed threshold limit, period of 5 years shall be reckoned from the due date of filing of Annual

392
Return for F/Y 2018-19 i.e. 31.12.2019. Accordingly, best judgment assessment can be made by proper officer
on or before 31.12.2024.

3. When tax evaded goods are under transportation or are stored in a warehouse, and the taxable person in
respect of such goods cannot be ascertained, the person in charge of such goods shall be deemed to be the
taxable person and will be assessed to tax.
QUESTIONS

1. Is summary assessment order to be necessarily passed against the registered person?

ANSWER:
No. In certain cases, like when goods are under transportation or are stored in a warehouse, and the
registered person in respect of such goods cannot be ascertained, the person in charge of such goods shall be
deemed to be the registered person and will be assessed to tax.

2. Whether principal of natural justice is must to be followed before passing assessment order against the
unregistered person?
ANSWER:
Yes, principal of natural justice is must to be followed before passing assessment order against an
unregistered person seeking to impose any financial burden on him.

3. Explain in what cases, assessment order passed by proper officer may be withdrawn under
CGST Act, 2017? (PAST EXAM MAY 2018) (MTP MAY 2020) (MTP NOV 2018) (MTP- NOV 2021)

ANSWER:
Assessment order passed by the proper officer may be withdrawn in following cases:-

(i) Assessment of non-filers of returns-The best judgement order passed by the proper officer under section
62 of the CGST Act shall automatically stand withdrawn where a registered person files a valid return within 30
days of the service of the best judgment assessment order. However, the liability for payment of interest
under section 50(1) of the CGST Act, 2017

(ii) Summary assessment-As per section 64(2) of the CGST Act, 2017,a taxable person against whom a
summary assessment order has been passed can apply for its withdrawal to the jurisdictional Additional/ Joint
Commissioner within 30 days of the date of receipt of the order.
If the said officer finds the order erroneous, he can withdraw it and direct the proper officer to carry out

393
determination of tax liability in terms of section 73 or 74 of the CGST Act. The Additional/ Joint Commissioner
can follow a similar course of action on his own motion if he finds the summary assessment order to be
erroneous.
or for payment of late fee under section 47 of the CGST Act, 2017 shall continue.

4. Explain the difference between Audit by Tax Authorities under section 65 and Special Audit under section
66 of the CGST Act, 2017. (PAST EXAM NOV 2018) (MTP MAY 2020) (MTP- NOV 2021)

ANSWER:
Audit by Tax authorities under section 65 of the CGST Act, 2017:-
1 The Commissioner or any officer authorized by him can undertake audit of any registered person for such
period, at such frequency and in such manner as may be prescribed.
2 The audit shall be completed within a period of 3 months from the date of commencement of audit.
However, the Commissioner can extend this period by a further period upto maximum 6 months.

Special Audit under section 66 of the CGST Act, 2017:-

1 The registered person can be directed to get his records including books of account examined and audited
by a chartered accountant or a cost accountant during any stage of scrutiny, inquiry, investigation or any other
proceedings; depending upon the complexity of the case. Any officer not below the rank of Assistant
Commissioner may order special audit, with the prior approval of the Commissioner, if he is of the opinion
that the value has not been correctly declared or the credit availed is not within the normal limits.
2 Audit is to be completed within 90 days. However, the Assistant Commissioner can extend this period by a
further period of 90 days.

5. Explain the recourse that may be taken by the officer in case proper explanation is not furnished for the
discrepancy detected in the return filed, while conducting scrutiny of returns under section 61 of the CGST
Act, 2017.

ANSWER:
If proper explanation is not furnished for the discrepancy detected in return filed, while conducting scrutiny of
returns under section 61 of the CGST Act, 2017 of a registered person, the proper officer may:

(i) conduct audit of the registered person; or

(ii) direct the registered person to get his records including books of account examined and audited by a
Chartered Accountant or a Cost Accountantnominated for this purpose by the Commissioner; or.

(iii) exercise the powers of inspection, search and seizure with respect to the registered person, or

(iv) proceed to determine the tax and other dues of the registered person under Sections 73 or 74 of the Act

394
6. Write a brief note on Summary Assessment in certain special cases as per section 64 of the CGST Act,
2017.

ANSWER:
As per section 64 of the CGST Act, 2017, summary assessments can be initiated to protect the interest of
revenue with the previous permission of Additional/Joint Commissioner when the proper officer has evidence
that a taxable person has incurred a liability to pay tax under the Act, and any delay by him in passing an
assessment order may adversely affect the interest of revenue.
Additional/Joint Commissioner may withdraw summary assessment order on an application filed by taxable
person within 30 days from the date of receipt of order or on his own motion, if 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.
Where the taxable person to whom the liability pertains is not ascertainable and such liability pertains to
supply of goods, the person in charge of such goods shall be deemed to be the taxable person liable to be
assessed and liable to pay tax and any other amount due under this section.

7. Kulbhushan & Sons has entered into a contract to supply a consignment of certain taxable goods.
However, since it is unable to determine the value of the goods to be supplied by it, it applies for payment
of tax on such goods on a provisional basis along with the required documents in support of its request.
On 12thJanuary, the Assistant Commissioner of Central Tax issues an order allowing payment of tax on
provisional basis indicating the value on the basis of which the assessment is allowed on provisional basis
and the amount for which the bond is to be executed and security is to be furnished.

Kulbhushan & Sons complies with the same and supplies the goods on 25thJanuary thereafter paying the
tax on provisional basis in respect of said consignment on 19thFebruary.
Consequent to the final assessment order passed by the Assistant Commissioner of Central Tax on
21stMarch, a tax of Rs. 1,80,000 becomes due on the consignment.
Kulbhushan & Sons pays the tax due on 9thApril. Determine the interest payable, if any, by Kulbhushan &
Sons in the above case.

Assuming all the other facts remaining the same, if consequent to the final assessment order passed on
21stMarch, a tax of Rs. 4,20,000 becomes refundable on the consignment, refund of which is applied by
Kulbhushan & Sons on 9thApril and tax was refunded to it on 05thJune, determine the interest receivable, if
any, by Kulbhushan & Sons in the given case. (RTP NOV 2018)

ANSWER:
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

395
such amount is paid before or after the issuance of order for final assessment.
In the given case, due date for payment of tax on goods cleared on 25thJanuary under provisional assessment
is 20thFebruary.

In view of the provisions of section 60(4), in the given case, Kulbhushan & Sonsis liable to pay following
interest in respect of the consignment of goods supplied:
= Rs. 1,80,000 × 18% × 48/365
= Rs. 4,261 (rounded off)
If, in the given case, it is assumed that consequent to the final assessment order passed on 21stMarch, a tax of
Rs. 4,20,000 becomes refundable to Kulbhushan & Sons, answer would be as follows:
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 under section 56 [6% p.a.] from the date
immediately after the expiry of 60 days from the date of receipt of application under section 54(1) till the date
of refund of such tax.
However, since in the given case, refund has been made (05thJune) within 60 days from the date of receipt of
application of refund (09thApril), interest is not payable to Kulbhushan& Sons on tax refunded.

8. Whether principal of natural justice is must to be followed before passing assessment order against the
unregistered person?
Answer
Yes, principal of natural justice is must to be followed before passing assessment order against an
unregistered person seeking to impose any financial burden on him.

9. Divy Trader obtained permission for provisional assessment and supplied three consignments of furniture
on 28th April, 20XX. The tax payment on provisional basis was made in respect of all the three
consignments on 20th May, 20XX. Consequent to the final assessment order passed by the Assistant
Commissioner on 21stJune, 20XX, a tax of ₹ 1,20,000 and ₹ 1,50,000 became refundable on 1st and 3rd
consignments, whereas a tax of ₹ 1,20,000 became due on 2nd consignment. Divy Trader applies for the
refund of the tax on 1stand 3rd consignments on 12thJuly, 20XX and pays the tax due on 2nd consignment
on the same day. Tax was actually refunded to it of 1st consignment on 8thSeptember, 20XX, whereas of
3rd consignment on 18th September, 20XX. Customers of Divy Trader who purchased the consignments
have not taken Input Tax Credit (ITC). Determine the interest payable and receivable, if any, under CGST
Act, 2017 by Divy Trader. (PAST EXAM NOV 2018)

Answer
Where tax becomes due consequent to order of final assessment, interest is payable @ 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.

396
In the given case, due date for payment of tax on goods cleared on 28.04.20XX under provisional assessment
is 20.05.20XX. Thus, interest payable in respect of 2nd consignment

= ₹ 1,20,000 × 18% × 53 [21.05.20XX – 12.07.20XX]/365

= ₹ 3,136 (rounded off)

Further, section 56 of CGST Act, 2017 provides that where tax becomes refundable consequent to the order of
final assessment, interest is receivable @ 6% p.a. from the date immediately after the expiry of 60 days from
the date of receipt of refund application till the date of refund of such tax.
In the given case, since refund of tax of 1st consignment has been paid on 08.09.20XX which is within 60 days
from the date of receipt of application of refund (12.07.20XX), interest is not receivable on tax
refunded in respect of 1st consignment. However, interest receivable in respect of 3rd consignment is as
follows:

60 days from the date of receiving the refund application expire on 10.09.20XX.

= ₹ 1,50,000 × 6% × 8 [11.09.20XX - 18.09.20XX]/365

= ₹ 197 (rounded off).

10. Answer the following questions:

(i) Prithviraj Ltd., registered under GST in Uttar Pradesh, is served a notice for audit by the tax authority
under GST law on 10th July. The records and other documents as sought by the tax authority have been
made available by Prithviraj Ltd. on 25th July. The tax authority visits the office of Prithviraj Ltd. located in
Noida, Uttar Pradesh on 8th August for conducting audit.
Determine the time-limit within which the audit under section 65 of the CGST Act, 2017 is required to be
completed assuming that no extension is permitted in the given case. . (rtp- nov 2021)

ANSWER

(i) As per section 65(4) of the CGST Act, 2017, audit shall be completed within a period of 3 months from the
date of commencement of the audit. Further, commencement of audit means the later of the following:

(a) the date on which the records and other documents, called for by the tax authorities, are made available
by the registered person, or

(b) the actual institution of audit at the place of business of the taxpayer.

Accordingly, in the given case, date of commencement of audit is later of:

(a) the date on which the records and other documents, are made available by Prithviraj Ltd., i.e. 25th July, or
(b) the actual institution of audit at the place of business of Prithviraj Ltd., i.e. 8th August.
Thus, date of commencement of audit is 8th August.

397
Hence, audit shall be completed within 3 months from the date of commencement of the audit (8th August).
11. (PAST PAPER JULY 2021)
Explain the provisions relating to assessment of unregistered persons by the proper officer under section 63 of
the CGST Act, 2017

ANSWER

Notwithstanding anything to the contrary contained in section 73 or section 74 of the CGST Act, 2017, where a
taxable person−
• fails to obtain registration even though liable to do so; or
• whose registration has been cancelled for any of the specified reasons*, but who was liable to pay tax,

the proper officer may proceed to assess the tax liability of said taxable person to the best of his judgement
for the relevant tax periods.
*Specified reasons for cancelation are as under

(a) registered person has contravened such provisions of the CGST Act or the rules made there under as may
be prescribed; or

(b) a person paying tax under composition levy under section 10 of the CGST Act has not furnished returns for
three consecutive tax periods; or

(c) any registered person, other than a person specified in clause (b), has not furnished returns for a
continuous period of six months; or

(d) any person who has taken voluntary registration under sub-section (3) of section 25 of the CGST Act has
not commenced business within six months from the date of registration; or

(e) registration has been obtained by means of fraud, willful misstatement or suppression of facts:

The assessment order shall be issued by proper officer within a period of 5 years from the due date for
furnishing the annual return for the financial year to which non-payment of tax relates.
However, no such assessment order shall be passed without giving the person an opportunity of being heard.

398
 CHAPTER-18 INSPECTION, SEARCH, SEIZURE
AND ARREST
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS 1 to 8
MAT

PAST NO QUES NO QUES ------

EXAMS

Q-1 NO QUES NO NO Q-2 Q-8 NO

QUES QUES QUES
MTP

RTP NO QUES

QUESTIONS
1. Explain the situation in which access to business premises is allowed under section 71. Also, list the
records which are to be produced during access to business premises. (MTP MAY 2018)

ANSWER:
During the course of any proceeding under this Act, the duly empowered officer can have access to any
business premises, which may be required for the purpose of such enquiry. During such access, the officers
can inspect the books of accounts, documents, computers, computer programs, computer software and such

399
other things as may be required.

It is the duty of the persons in charge of such premises to furnish the required documents. Similarly, the
persons in charge of business premises are also duty bound to furnish such documents to the audit party
deputed by the proper officer or the Chartered Accountant or Cost Accountant, who has been deputed by the
Commissioner to carry out special audit. The following records are covered by this provision and are to be
produced, if called for.
(i) the records prepared and maintained by the registered person and declared to the proper officer in the
prescribed manner.

(ii) trial balance or its equivalent.

(iii) statements of annual financial accounts, duly audited.

(iv) cost audit report, if any.

(v) the income - tax audit report, if any.

(vi) any other relevant record.

2. Explain the safeguards provided under section 69 to a person who is placed under arrest. (MTP NOV
2020)

ANSWER:
Section 69 provides following safeguards to a person who is placed under arrest:

(a) If a person is arrested for a cognizable offence, he must be informed of the grounds of arrest and be
produced before a magistrate within 24 hours.

(b) If a person is arrested for a non-cognizable offence, he shall be admitted to bail or in default of bail,
forwarded to the custody of the Magistrate.

(c) All arrest must be in accordance with the provisions of the Code of Criminal Procedure relating to arrest in
terms of section 69(3).

3. Who can order for carrying out ‘inspection’ and under what circumstances?

ANSWER:
As per section 67, inspection can be carried out by an officer of CGST/SGST only upon a written authorization

400
given by an officer of the rank of Joint Commissioner or above. A Joint Commissioner or an officer higher in
rank can give such authorization only if he has reasons to believe that the person concerned has done one of
the following:

i. suppressed any transaction of supply;

ii. suppressed stock of goods in hand;

iii. claimed excess input tax credit;

iv. contravened any provision of the CGST Act to evade tax;
v. a transporter or an owner/operator of a warehouse/godown/any other place has kept goods which have
escaped payment of tax or has kept his accounts or goods in a manner that is likely to cause evasion of tax.

4. Who can order for search and seizure under the provisions of the CGST Act?

ANSWER:
An officer of the rank of Joint Commissioner or above can authorize an officer in writing to carry out search
and seize goods, documents, books or things. Such authorization can be given only where the Joint
Commissioner/an officer above his rank has reasons to believe that any goods liable to confiscation or any
documents or books or things relevant for any proceedings are hidden in any place. The Joint
Commissioner/an officer above his rank can himself search and seize such goods, documents or books or
things.

5. Describe the powers that can be exercised by an officer during a valid search.

ANSWER:
An officer carrying out a search has the power to search for and seize goods (which are liable to confiscation)
and documents, books or things (relevant for any proceedings under the CGST Act) from the premises
searched. During search, the officer has the power to break open the door of the premises authorized to be
searched if access to the same is denied. Similarly, while carrying out search within the premises, he can break
open any almirah or box if access to such almirah or box is denied and in which any goods, account, registers
or documents are suspected to be concealed. He can also seal the premises if access to it denied.

6. Discuss the responsibilities of the person to whom summons has been issued.

ANSWER:
A person who is issued summon is legally bound to attend either in person or by an authorized representative
and he is bound to state the truth before the officer who has issued the summon upon any subject which is

401
the subject matter of examination and to produce such documents and other things as may be required.

7. Explain the meaning of ‘arrest’.

ANSWER:
The term ‘arrest’ has not been defined in the CGST Act. However, as per judicial pronouncements, it denotes
‘the taking into custody of a person under some lawful command or authority’. In other words, a person is said
to be arrested when he is taken and restrained of his liberty by power or colour of lawful warrant.
8. State the circumstances when the proper officer can authorize ‘arrest’ of any person under
the CGST Act. (MTP JULY 2021)

ANSWER:
The Commissioner of CGST can authorize a CGST 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). This essentially means that a person can be arrested only where the tax evasion is more than
Rs. 2 crore and the offences are specified offences namely, making supply without any invoice; issue of invoice
without any supply; amount collected as tax but not paid to the Government beyond a period of 3 months and
taking input tax credit without receiving goods and services. However, the monetary limit shall not be
applicable if the offences are committed again (even after being convicted earlier), i.e. repeat offender of the
specified offences can be arrested irrespective of the tax amount involved in the case.

402
 CHAPTER-19 DEMANDS AND RECOVERY
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS 2-4,12-15

MAT

PAST NO QUES Q-10 NO QUES Q-19 Q-20 NO NO ------

EXAMS QUES QUES

MTP Q-9 Q-5 Q-22 Q-5, 11, Q-10, 11 Q-1, 21 Q-8,9

18

RTP NO QUES Q-7 Q-6 NO Q-16, 17 NO NO

QUES QUES QUES

QUESTIONS

1. Mohan Enterprises is entitled for exemption from tax under GST law. However, it collected tax from its
buyers worth Rs. 50,000 in the month of August. It has not deposited the said amount collected as GST with
the Government. You are required to brief to Mohan Enterprises the consequences of collecting tax, but not
depositing the same with Government as provided under section 76. (MTP JULY 2021)

ANSWER:
It is mandatory to pay amount, collected from other person representing tax under GST law, to the
Government. Every person who has collected from any other person any amount as representing the tax
under GST law, and has not paid the said amount to the Government, shall forthwith pay the said amount to

403
the Government, irrespective of whether the supplies in respect of which such amount was collected are
taxable or not.

For any such amount not so paid, proper officer may issue SCN for recovery of such amount and penalty
equivalent to amount specified in notice.

The proper officer shall, after considering the representation, if any, made by the person on whom SCN is
served, determine the amount due from such person and thereupon such person shall pay the amount so
determined alongwith interest at the rate specified under section 50 from the date such amount was collected
by him to the date such amount is paid by him to the Government.

2. Discuss briefly the time limit for issue of show cause notice as contained under sections 73 and 74.

ANSWER:
The provisions relating to ‘relevant date’ as contained in CGST Act, 2017 are as under:

(i) In case of section 73 (cases other than fraud/suppression of facts/willful misstatement), the time-limit for
issuance of SCN is 2 years and 9 months from the due date of filing Annual Return for the Financial Year to
which the demand pertains or from the date of erroneous refund.

(ii) In case of section 74 (cases involving fraud/suppression of facts/willful misstatement), the time-limit for
issuance of SCN is 4 years and 6 months from the due date of filing of Annual Return for the Financial Year to
which the demand pertains or from the date of erroneous refund.

3. Is there any time limit prescribed for adjudication of the cases under CGST Act, 2017? If yes, discuss the
same.

ANSWER:
The provisions relating to time-limit for adjudication of cases as contained in section 73 and 74 are as under:

(i) In case of section 73 (cases other than fraud/suppression of facts/willful misstatement), the time limit for
adjudication of cases is 3 years from the due date for filing of annual return for the financial year to which
demand relates to [Section 73(10)].

(ii) In case of section 74 (cases of fraud/suppression of facts/willful misstatement), the time limit for
adjudication is 5 years from the due date for filing of annual return for the financial year to which demand
relates to [Section 74(10)].

4. A person is chargeable with tax in case of fraud. He decides to pay the amount of demand alongwith
interest before issue of notice. Is there any immunity available to such person?

ANSWER: 404
Yes. Person chargeable with tax, shall have an option to pay the amount of tax along with interest and penalty
equal to 15% per cent of the tax involved, as ascertained either on his own or ascertained by the proper
officer, and on such payment, no notice shall be issued with respect to the tax so paid [Section 74(6)].
5. Briefly discuss the modes of recovery of tax available to the proper officer. (MTP NOV 2019) (MTP NOV
2018)

ANSWER:
The proper officer may recover the dues in following manner:

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

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

(c) Recovery from other person, from whom money is due or may become due to such person or who holds or
may subsequently hold money for or on account of such person, to pay to the credit of the Central or a State
Government;

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

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

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

(g) By enforcing the bond/instrument executed under this Act or any rules or regulations made thereunder.

(h) CGST arrears can be recovered as an arrear of SGST and vice versa [Section 79].

6. Enlist the circumstances for which a show cause notice can be issued by the proper officer under section
73. Specify the time limit for issuance of such show cause notice as also the time period for issuance of
order by the proper officer under section 73. (RTP MAY 2019)

405
ANSWER:
As per section 73, a show cause notice can be issued by the proper officer if it appears to him that:
-tax has not been paid; or
-tax has been short paid; or
-tax has been erroneously refunded; or
-input tax credit has been wrongly availed or utilized,

for any reason other than the reason of fraud or any wilful misstatement or suppression of facts to evade tax.
The notice 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 defaulter [Sub-section (2) of section 73].

The order referred herein has to be passed within three years from the due date for furnishing the annual
return for the financial year to which the tax not paid or short paid or input tax credit wrongly availed or
utilised relates to or within three years from the date of erroneous refund [Sub-section (10) of section 73].

Thus, the time-limit for issuance of show cause notice is 2 years and 9 months from the due date of filing
annual return for the financial year to which the demand pertains or from the date of erroneous refund. As
per section 44(1), the due date of filing annual return for a financial year is 31st day of December following the
end of such financial year.

7. Subharti Enterprises collected GST on the goods supplied by it from its customers on the belief that said
supply is taxable. However, later it discovered that goods supplied by it are exempt from GST.
The accountant of Subharti Enterprises advised it that the amount mistakenly collected by Subharti
Enterprises representing as tax was not required to be deposited with Government. Subharti Enterprises
has approached you for seeking the advice on the same. You are required to advise it elaborating the
relevant provisions. (RTP NOV 2018)

ANSWER:
The provisions of section 76 make it mandatory on Subharti Enterprises to pay amount collected from other
person representing tax under this Act, to the Government.

Section 76 stipulates that notwithstanding anything to the contrary contained in any order or direction of any
Appellate Authority or Appellate Tribunal or Court or in any other provisions of the CGST Act or the rules made
thereunder or any other law for the time being in force, every person who has collected from any other
person any amount as representing the tax under this Act, and has not paid the said amount to the
Government, shall forthwith pay the said amount to the Government, irrespective of whether the supplies in
respect of which such amount was collected are taxable or not.

Where any amount is required to be paid to the Government as mentioned above, and which has not been so
paid, the proper officer may serve on the person liable to pay such amount a notice requiring him to show
cause as to why the said amount as specified in the notice, should not be paid by him to the Government and

406
why a penalty equivalent to the amount specified in the notice should not be imposed on him under the
provisions of this Act.

The proper officer shall, after considering the representation, if any, made by the person on whom show cause
notice (SCN) is served, determine the amount due from such person and thereupon such person shall pay the
amount so determined.

The person who has collected any amount as representing the tax, but not deposited the same with the
Government shall in addition to paying the said amount determined by the proper officer shall also be liable to
pay interest thereon. Interest is payable at the rate specified under section 50. Interest is payable from the
date such amount was collected by him to the date such amount is paid by him to the Government.
The proper officer shall issue an order within 1 year [excluding the period of stay order] from the date of issue
of the notice. The proper officer, in his order, shall set out the relevant facts and the basis of his decision.

8. Rajul Associates has been issued a show cause notice (SCN) on 31.12.2021 under section 73(1) on account
of short payment of tax during the period between 01.07.2017 and 31.12.2017. It has been given an
opportunity of personal hearing on 15.01.2022.
Advice Rajul Associates as to what should be the written submissions in the reply to the show cause notice
issued to it. (MTP- NOV 2021)

ANSWER:

The written submissions in reply to SCN issued to Rajul Associates are as follows:

i. The show cause notice (SCN) issued for normal period of limitation under section 73(1) is not sustainable.

ii. The SCN under section 73(1) can be issued at least 3 months prior to the time limit specified for issuance of
order under section 73(10). The adjudication order under section 73(10) has to be issued within 3 years from
the due date for furnishing of annual return for the financial year to which the short-paid tax relates to.
The due date for furnishing annual return for a financial year ison or before the 31st day of December
following the end of such financial year [Section 44]. Thus, SCN under section 73(1) can be issued within 2
years and 9 months from the due date for furnishing of annual return for the financial year to which the short-
paid tax relates to.

iii. The SCN has been issued for the period between 01.07.2017 to 31.12.2017 which falls in the financial year
(FY) 2017-18. Due date for furnishing annual return for the FY 2017-18 is 31.12.2018 and 3 years’ period from
due date of filing annual return lapses on 31.12.2021. Thus, SCN under section 73(1) ought to have been
issued latest by 30.09.2021.

iv. Since the notice has been issued after 30.09.2021, the entire proceeding is barred by limitation and
deemed to be concluded under section 75(10).

9. Everest Technologies Private Limited has been issued a show cause notice (SCN) on 31.01.2022 under 407
section 73(1) on account of short payment of tax during the period between 01.07.2018 and 31.12.2018.
Everest Technologies Private Limited contends that the show cause notice issued to it is time-barred in law.
You are required to examine the technical veracity of the contention of Everest Technologies Private
Limited. ( MTP MAY 2018) (MTP- NOV 2021)

ANSWER:
The contention of Everest Technologies Private Limited is not valid in law. The SCN under section 73(1) can be
issued at least 3 months prior to the time limit specified for issuance of order under section 73(10) [Section
73(2)]. The adjudication order under section 73(10) has to be issued within 3 years from the due date for
furnishing of annual return for the financial year to which the short-paid/not paid tax relates to.
The due date for furnishing annual return for a financial year is 31st day of December following the end of
such financial year [Section 44]. Thus, SCN under section 73(1) can be issued within 2 years and 9 months from
the due date for furnishing of annual return for the financial year to which the short-paid/not paid tax relates
to.

The SCN has been issued for the period between 01.07.2018 to 31.12.2018 which falls in the financial year (FY)
2018-19. Due date for furnishing annual return for the FY 2018-19 is 31.12.2019 and 3 years’ period from due
date of filing annual return lapses on 31.12.2022. Thus, SCN under section 73(1) ought to have been issued
latest by 30.09.2022. Since in the given case, the notice has been issued on 31.01.2022, notice is not time-
barred.

10. Anant & Co. self-assessed its tax liability as Rs. 90,000 for the month of April, but failed to make the
payment. Subsequently the Department initiated penal proceedings against Anant & Co. for recovery of
penalty under section 73 for failure to pay GST and issued show cause notice on 10th August which was
received by Anant & Co. on 14th August. Anant & Co. deposited the tax along with interest on 25th August
and informed the department on the same day. Department is contending that he is liable to pay a penalty
of Rs. 45,000 (i.e. 50% of Rs. 90000). Examine the correctness of the stand taken by the Department with
reference to the provisions of the CGST Act. Explain the relevant provisions in brief. (PAST EXAM NOV 2018)
(MTP MAY 2020)

ANSWER:
Due date for payment of tax for the month of April is 20th May.
As per section 73, where self-assessed tax is not paid within 30 days from due date of payment of such tax,
penalty equivalent to 10% of tax or Rs. 10,000, whichever is higher, is payable. Thus, option to pay tax within
30 days of issuance of SCN to avoid penalty, is not available in case of self-assessed tax.

Since in the given case, Anant & Co. has not paid the self-assessed tax within 30 days of due date [i.e. 20th
May], penalty equivalent to:

(i) 10% of tax, viz., Rs. 9,000 (10% of Rs. 90,000) or 408

(ii) Rs. 10,000,

whichever is higher, is payable by him. Thus, penalty payable is Rs. 10,000.

Hence, the stand taken by the Department that penalty will be levied on Anant & Co. is correct, but the
amount of penalty of Rs. 45,000 is not correct.
11. On 05.07.20XX, a show cause notice for ₹ 5,00,000 was issued to Mr. Vijay Kumar Sharma demanding
short payment of GST of ₹ 4,50,000 for the month of January, 20XX and also interest of ₹ 50,000. Mr.
Sharma raised objections and after personal hearing on 30.08.20XX, adjudicating authority passed the final
order for ₹ 3,50,000 for GST, without any reference with regard to payment of interest.

Mr. Sharma deposited the tax of ₹ 3,50,000 on 02.09.20XX and informed the department on the same day.
Subsequently, on 15.09.20XX, department demanded payment of interest of ₹ 60,000 on GST of ₹ 3,50,000.
Mr. Vijay Kumar Sharma is not ready to pay any interest. His contention is that he is not liable for interest
because he deposited all the amount specified in the final adjudication order. Examine with a brief note the
validity of the action taken by the Department with reference to provisions of the CGST Act, 2017. (MTP
NOV 2020) (MTP NOV 2019)

Answer

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
₹ 50,000.

12 Checkernot has self-assessed tax liability under IGST Act, 2017, as ₹ 80,000. He fails to pay the tax within
30 days from the due date of payment of such tax. Determine the interest and penalty payable by him
explaining the provisions of law, with the following particulars available from his records:

Date of collection of tax 18th September, 20XX

Date of payment of tax 26th November, 20XX

No Show Cause Notice (SCN) has been issued to him so far, while he intends to discharge his liability, even 409
before it is issued to him, on the assumption that no penalty is leviable on him as payment is made
before issue of SCN.

Answer

Due date for payment of tax collected on 18.09.20XXis 20.10.20XX. However, since tax is actually paid on
26.11.20XX, interest @ 18% p.a. is payable for the period for which the tax remains unpaid [37 days] in
terms of section 50 of CGST Act, 2017 read with Notification No. 13/2017 CT dated 28.06.2017. Amount
of interest is:
= ₹ 80,000 × 18% × 37/365 = ₹ 1,460 (rounded off)

As per section 73(11) of CGST Act, 2017, where self-assessed tax/any amount collected as tax is not paid
within 30 days from due date of payment of tax, then, inter alia, option to pay such tax before issuance of SCN
to avoid penalty, is not available.
Consequently, penalty equivalent to
(i) 10% of tax, viz., ₹ 8,000 or
(ii) ₹ 10,000, whichever is higher, is payable in terms of section 73(9) of CGST Act, 2017. Therefore, penalty of
₹ 10,000 will have to be paid by Checkernot. However, such penalty is payable when the PO issues an order in
this behalf.

13 Discuss briefly the procedure for issue of adjudication order under section 74(9) & (11) and the time
limit for passing adjudication order under section 74(10) of the CGST Act, 2017.

Answer
The procedure for issue of adjudication order under section 74 of CGST Act, 2017 is as under:-
Where a show cause notice/statement is issued to a person chargeable with tax, he may furnish a
representation to the proper officer in his defence, if he is of the view that he is not so liable to pay
whole/part of the amount mentioned in the show cause notice. The proper officer after considering the
representation, if any, made by the person chargeable with tax, pass an order determining the amount of tax,
interest and penalty due from such person [Section 74(9)].

Where any person served with an adjudication order pays the tax along with interest payable thereon under
section 50 and a penalty equivalent to 50% of such tax within 30 days of communication of the order, all
proceedings in respect of the said notice shall be deemed to be concluded [Section 74(11)]. As per section
74(10) of CGST Act, 2017, the proper officer shall issue the adjudication order within 5 years from the due date
for furnishing of Annual Return for the financial year to which the tax not paid/short paid/input tax credit
wrongly availed/ utilised relates to or within 5 years from the date of erroneous refund.

14 A show cause notice was issued demanding GST of ₹ 1,80,180 for the month of July, 20XX on 1st October,
20XX. However, adjudicating authority after the personal hearing found that there was a typographical

410
error while mentioning the amount of GST and he confirmed the demand for
₹ 10,80,180. Assessee seeks your advice. What would be your advice if: (a) assessee comes to you after
issue of order or (b) a corrigendum revising the amount to ₹ 10,80,180 on 15th November, 20XX, is issued.

Answer

(i) Advice after issue of order:

As per section 75(7) of the CGST Act, 2017, inter alia, the amount of tax, interest and penalty demanded in the
order cannot exceed the amount specified in the notice. Since, in the given case, the amount of tax demanded
in the order exceeds the amount of tax
demanded in the show cause notice, the assessee can file an appeal against the adjudication order within the
prescribed time limit.

(ii) Advice after issue of corrigendum :

Any authority, who has issued, inter alia, any notice, may rectify any error which is apparent on the face of
record in such notice, inter alia, on its own motion within a period of 6 months from the date of issue of such
notice except where the rectification is purely in the nature of correction of a clerical or arithmetical error,
arising from any accidental slip or omission [Section 161 of the CGST Act, 2017].

In the given case, since the corrigendum has been issued to rectify a typographical error in the show cause
notice, which is an error apparent on the face of the record, the rectification is correct
in law. Further, being rectification of a clerical error, the time limit of 6 months will not apply.
Therefore, the assessee should reply to the show cause notice considering the revised amount of demand.

15 Mr. X, registered under GST Act, had made short payment of GST for the month of July 20XX.
He does not want a show cause notice to be served on him by proper officer. Advice Mr. X, if:
(i) Short payment of tax is on account of reasons other than fraud
(ii) Short payment of tax is on account of fraud.

Answer

(i) Short payment of tax is on account of reasons other than fraud

As per section 73 of the CGST Act, 2017, the show cause notice will not be issued by the proper officer, if Mr. X
pays the amount of tax short paid along with interest payable thereon on the basis
of his own ascertainment of such tax or the tax as ascertained by the proper officer, before the service of
notice and
inform the proper officer in writing of such payment.

(ii) Short payment of tax is on account of fraud

As per section 74 of the CGST Act, 2017, the show cause notice will not be issued by the proper officer, if Mr. X
pays the amount of tax short paid along with interest payable thereon and a penalty equal to 15% of such tax
on the basis of his own ascertainment of such tax or the tax as ascertained

411
by the proper officer, before the service of notice and inform the proper officer in writing of such payment.

16. Inoba Bhave is engaged in supply of taxable services. He supplies some services in the month of April
and collects IGST of ₹ 15,50,000 on said supply on 18th April. However, he fails to pay the tax so collected
within 30 days from the due date of payment of such tax. No Show Cause Notice (SCN) has been issued to
him so far. Inoba Bhave decides to discharge his tax liability, before the SCN is issued to him. He is of the
view that no penalty is leviable if the payment of tax is made before issue of SCN. Therefore, he self-
assesses his tax liability at ₹ 15,50,000 and pays the same on 26th June. Determine the interest and penalty,
if any, payable by Inoba Bhave. (RTP MAY 2020)
Answer
Due date for payment of tax collected on 18th April is 20th May. However, since tax is actually paid on 26th
June, interest @ 18% p.a. is payable for the period for which the tax remains unpaid [37 days] in terms of
section 50 of CGST Act, 2017 read with Notification No. 13/2017 CT dated 28.06.2017. Amount of interest is:
= ₹ 15,50,000 × 18% × 37/365 = ₹ 28,282 (rounded off)

As per section 73(11) of the CGST Act, 2017, where self-assessed tax/any amount collected as tax is not
paid within 30 days from due date of payment of tax, then, inter alia, option to pay such tax before issuance of
SCN to avoid penalty, is not available.

Consequently, penalty equivalent to

(i) 10% of tax, viz., ₹ 1,55,500 or

(ii) ₹ 10,000, whichever is higher, is payable in terms of section 73(9) of the CGST Act, 2017.

Therefore, penalty of ₹ 1,55,500 will have to be paid by Inoba Bhave.

17. Narmada Enterprises, a registered person, pays CGST and SGST on a transaction considered by it to be
an intra-State supply. However, subsequently said transaction is held to be an inter-State supply. Examine
the recourse available with Narmada Enterprises. (RTP NOV 2020)

Answer

Section 77(1) of the CGST Act, 2017 stipulates that a registered person who has paid the Central tax and State
tax or, as the case may be, the Central tax and the Union territory tax on a transaction considered by him to be
an intra -State supply, but which is subsequently held to be an inter-State supply, shall be refunded the
amount of taxes so paid.

Further, section 19(2) of the IGST Act, 2017 provides that a registered person who has paid central tax and
State tax or Union territory tax, as the case may be, on a transaction considered by him to be an intra- State
supply, but which is subsequently held to be an inter-State supply, shall not be required to pay any

412
interest on the amount of integrated tax payable.

Thus, in the given case, Narmada Enterprises shall be refunded the amount of taxes so paid and it shall not be
required to pay any interest on the amount of IGST payable by it on the transaction wrongly considered by it
earlier as intra-State transaction.
18 A taxable person has mistakenly paid CGST and SGST for an inter-State supply. Subsequently, when he
discovers the same, can he adjust the IGST liability against the wrongly paid CGST and SGST? (MTP NOV
2019)

Answer
Section 77, inter alia, stipulates that a registered person who has paid the Central tax and State tax or, as the
case may be, the central tax and the Union territory tax on a transaction considered by him to be an
intra-State supply, but which is subsequently held to be an inter-State supply, shall be refunded the amount of
taxes so paid in such manner and subject to such conditions as may be prescribed.
The IGST liability cannot be adjusted against the CGST and SGST wrongly paid.

19 A taxpayer has suppressed certain facts resulting in short payment of tax. The mistake is pointed out by
the Department, but no show cause notice (SCN) has been issued. As per the taxpayer, suppression is
accepted at ₹ 12,00,000 and he agrees that the suppression has taken place in the month of January, 2019.
He clears the dues on 20th April, 2019. However, the Department, on verification, identifies additional
suppression of ₹ 2,00,000 in the same month of January, 2019. SCN is issued and the taxpayer represents
before the proper officer, which results into an adverse order against the taxpayer. The order is passed
on 25.05.2019 and the taxpayer complies with the adverse adjudication order on 27.06.2019. Determine the
tax, interest and penalty payable at each stage. Assume Tax Rate as 18%. (PAST EXAM NOV 2019)

Answer
Note: In the given question, suppression accepted at ₹ 12 lakh may be assumed to be either the value or the
tax amount. Further, where the amount of ₹ 12 lakh is assumed to be the value of suppression. Further, as per
explanation 2 to section 74 of the CGST Act, 2017, the expression
“suppression” means non-declaration of facts or information which a taxable person is required to declare in
the return, statement, report or any other document furnished under this Act or the rules made thereunder,
or failure to furnish any information on being asked for, in writing, by the proper officer. Therefore, the
question can be answered either by assuming that the information has been suppressed in the return/
statement/ report filed IN the month of January (interest would become payable from 21st January in this
case) or by assuming that suppression activity has taken place in January and the same has been reported in
the return/statement/report filed IN the month of February (interest would become payable from 21st
February in this case).

413
In view of the above assumptions, following alternative answers are possible:

Alternative 1-
Where amount of ₹ 12 lakh is assumed to be the value of suppression Tax, interest and penalty payable
before the issue of the SCN:
In case of short payment of tax by reason of suppression of facts, if the taxpayer pays such short-paid tax and
applicable interest before the
issuance of show cause notice, penalty equal to 15% of such tax is payable.
Value suppressed = ₹ 12,00,000 Tax @ 18% = ₹ 2,16,000
Interest = ₹ 2,16,000 × 18% × 90/365 = ₹ 9,587 (rounded off) [From 21st January to 20th April]

(It has been assumed that the information has been suppressed in the return/statement/report filed in the
month
of January and thus, interest would become payable from 21st January in this case.)

OR

Interest = ₹ 2,16,000 × 18% × 59/365 = ₹ 6,285 (rounded off) [From 21st February to 20th April]

(It has been assumed that suppression activity has taken place in January and the same has been reported in
the return/statement/report filed in the month of February and thus, interest would become payable
from 21st February in this case.)

Penalty = ₹ 2,16,000 × 15% = ₹ 32,400

Tax, interest and penalty payable after the adjudication order:

In case of short payment of tax by reason of suppression of facts, if the taxpayer pays such short-paid tax and
applicable interest after 30
days of communication of the adjudication order penalty equal to 100% of such tax is payable.

Value suppressed = ₹ 2,00,000

Tax @ 18% = ₹ 36,000
Interest = ₹ 36,000 × 18% × 158/365 = ₹ 2,805 (rounded off) [From 21st January to 27th June]
(It has been assumed that the information has been suppressed in the return/statement/report filed in
the month of January and thus, interest would become payable from 21st January in this case.)

OR

Interest = ₹ 36,000 × 18% × 127/365 = ₹ 2,255 (rounded off) [From 21st February to 27th June] (It has been
assumed that suppression activity has taken place in January and the same has been reported in the

414
return/statement/report filed in the month of February and thus, interest would become payable
from 21st February in this case.)

Penalty = ₹36,000 x 100% = 36,000

Alternative 2- Where amount of ₹ 12 lakh is assumed to be the suppressed amount of tax Tax, interest and
penalty payable before the issue of the SCN:
In case of short payment of tax by reason of suppression of facts, if the taxpayer pays such short-paid tax and
applicable interest before the
issuance of show cause notice, penalty equal to 15% of such tax is payable.

Tax payable = ₹ 12,00,000

Interest = ₹ 12,00,000 × 18% × 90/365 = ₹ 53,260 (rounded off) [From 21st January to 20th April]
(It has been assumed that the information has been suppressed in the return/statement/report filed in
the month of January and thus, interest would become payable from 21st January in this case.)

OR

Interest = ₹ 12,00,000 × 18% × 59/365 = ₹ 34,915 (rounded off) [From 21st February to 20th April] (It has been
assumed that suppression activity has taken place in January and the same has been reported in the
turn/statement/report filed in the month of February and thus, interest would become payable
from 21st February in this case.)

Penalty = ₹ 12,00,000× 15% = ₹ 1,80,000

Tax, interest and penalty payable after the adjudication order:

In case of short payment of tax by reason of suppression of facts, if the taxpayer pays such short-paid tax and
applicable interest after 30
days of communication of the adjudication order penalty equal to 100% of such tax is payable.

Tax payable = ₹ 2,00,000

Interest = ₹ 2,00,000 × 18% × 158/365 = ₹ 15,584 (rounded off) [From 21st January to 27th June]

(It has been assumed that the information has been suppressed in the return/statement/report filed in the
month of January and thus, interest would become payable from 21st January in this case.)

OR

Interest = ₹ 2,00,000 × 18% × 127/365 = ₹ 12,526 (rounded off) [From 21st February to 27th June] (It has been
assumed that suppression activity has taken place in January and the same has been reported in the
return/statement/report filed in the month of February and thus, interest would become payable

415
from 21st February in this case.)
Penalty = ₹ 2,00,000

20. Mr. Jagjeevan has filed Form GSTR 3B after the due date prescribed for filing it. The adjudicating
authority is of the opinion that penalty has to be levied under section 73(9) & (11) of the CGST Act, 2017 and
has decided to pass an order for levying penalty of 10% of the tax or ₹ 10,000, whichever is higher, on the
grounds that amount collected as tax has not been paid within a period of 30 days from the due date of
payment of tax. Discuss the decision of the adjudication authority as to its correctness or otherwise. Also,
discuss the law of limitation period for issuing the show cause notice and passing the adjudication order
under section 73 of the CGST Act, 2017. (PAST EXAM NOV 2020)

Answer
The decision of the adjudicating authority is not correct in law. The provisions of section 73(11) of the CGST
Act, 2017 can be invoked only when the provisions of section 73 are invoked and the provisions of section 73
are generally not invoked in case of delayed filing
of the return in Form GSTR-3B because tax along with applicable interest has already been paid. Thus, penalty
unde
r the provisions of section 73(11) is not payable in such cases although a general penalty may be imposed
since the tax has been paid late in contravention of the provisions of the CGST Act, as clarified vide Circular
No. 76/50/2018 GST dated 31.12.2018.

The time-limit for issuance of SCN is 2 years and 9 months and time-limit for passing the adjudication order is
within 3 years from:
(i) the due date of filing annual return for the financial year to which the demand pertains or
(ii) the date of erroneous refund, as the case may be.

21. Jaiveer & Co. self-assessed its tax liability as Rs. 1,17,000 for the month of April, but failed to make the
payment. Subsequently the Department initiated penal proceedings against Jaiveer & Co. for recovery of
penalty under section 73 of the CGST Act, 2017 for failure to pay GST and issued show cause notice on 10th
August which was received by Jaiveer & Co. on 14th August.
Jaiveer & Co. deposited the tax along with interest on 25th August and informed the department on the
same day. Department is contending that he is liable to pay a penalty of Rs. 58,500 (i.e. 50% of Rs.
1,17,000). Examine the correctness of the stand taken by the Department with reference to the provisions of the
CGST Act. Explain the relevant provisions in brief. (5 Marks) (MTP JULY 2021)

ANSWER

Due date for payment of tax for the month of April is 20th May.
As per section 73 of the CGST Act, 2017, where self-assessed tax is not paid within 30 days from due date of

416
payment of such tax, penalty equivalent to 10% of tax or Rs. 10,000, whichever is higher, is payable. Thus,
option to pay tax within 30 days of issuance of show cause notice to avoid penalty, is not available in case of
self-assessed tax.

Since in the given case, Jaiveer & Co. has not paid the self-assessed tax within 30 days of due date [i.e. 20th
May], penalty equivalent to:

(i) 10% of tax, viz., Rs. 11,700 (10% of Rs. 1,17,000) or

(ii) Rs. 10,000,
whichever is higher, is payable by him. Thus, penalty payable is Rs. 11,700.
Hence, the stand taken by the Department that penalty will be levied on Jaiveer & Co. is correct, but the
amount of penalty of Rs. 58,500 is not correct.

22. (MTP MAY 2019)

Explain briefly the powers of review of the Principal Commissioner or Commissioner of Customs under
section 129D(2) of the Customs Act, 1962 in respect of decisions taken by adjudicating authority subordinate
to him. (5 Marks)

ANSWER

Section 129D(2) of the Customs Act, 1962 empowers the Principal Commissioner of Customs or Commissioner
of Customs to review any decision taken by the adjudicating authority subordinate to him. For this purpose, he
may, of his own motion, call for and examine the record of any proceeding in which an adjudicating authority
subordinate to him has passed any decision or order under the Act for the purpose of satisfying himself as to
the legality or propriety of any such decision or order.

Thereafter, the Principal Commissioner of Customs or Commissioner of Customs may, by order, direct such
authority or any officer of Customs subordinate to him to apply to the Commissioner (Appeals) for the
determination of such points arising out of the decision or order as may be specified by him in his order.

Such review application is treated as Departmental appeal against order of adjudicating authority lower in
rank than Principal Commissioner/ Commissioner of Customs like Additional/ Joint/Deputy/ Assistant
Commissioner.

417
 CHAPTER- 20 LIABILITY TO PAY IN CERTAIN CASES
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY MAT QSTNS 1 to 5

PAST Q-9 NO QUES NO QUES NO NO QUES NO QUES Q-11 ------

EXAMS QUES

MTP Q-8 Q-9 Q-7 NO QUES NO QUES Q-6,10

RTP NO QUES NO QUES NO QUES Q-6 NO QUES NO QUES NO

QUES

QUESTIONS

1. Avataar Industries, a registered person under GST, has sold whole of its business to Rolex Manufacturers.
Determine the person liable to pay GST, interest or any penalty under GST law [determined before sale, but
still unpaid] due from Avataar Industries upto the time of such transfer.

ANSWER:
Where a taxable person, liable to pay tax under this Act, transfers his business in whole or in part, by sale, gift,
lease, leave and license, hire or in any other manner whatsoever, the taxable person and the person to whom
the business is so transferred shall, jointly and severally, be liable wholly or to the extent of such transfer, to
pay the tax, interest or any penalty due from the taxable person upto the time of such transfer, whether such
tax, interest or penalty has been determined before such transfer, but has remained unpaid or is determined
thereafter.
Thus, in the given case, Avataar Industries and Rolex Manufacturers shall, jointly and severally, be liable wholly

418
or to the extent of such transfer, to pay GST, interest or any penalty [determined before sale, but still unpaid]
due from Avataar Industries upto the time of such transfer.
2. ABC Manufacturers Ltd. engages Raghav & Sons as an agent to sell goods on its behalf. Raghav & Sons
sells goods to Swami Associates on behalf of ABC Manufacturers Ltd. Determine the liability to pay GST
payable on such goods as per the provisions of section 86.

ANSWER:
Where an agent supplies or receives any taxable goods on behalf of his principal, such agent and his principal
shall, jointly and severally, be liable to pay the tax payable on such goods under this Act. Thus, in the given
case, ABC Manufacturers Ltd. and Raghav & Sons shall, jointly and severally, be liable to pay GST payable on
such goods.

3. A person, liable to pay GST, interest and penalty under GST law, dies. Determine the person liable to pay
the GST, interest and penalty due from such person under GST law determined after his death if the
business carried on by such person is continued after his death by his legal representative.

ANSWER:
Save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, where a person, liable to pay tax,
interest or penalty under this Act, dies, then if a business carried on by the person is continued after his death
by his legal representative or any other person, such legal representative or other person, shall be liable to pay
tax, interest or penalty due from such person under this Act, whether such tax, interest or penalty has been
determined before his death but has remained unpaid or is determined after his death.

4. In the question 3. above, would your answer be different if the business carried on by the person who has
died, is discontinued after his death.

ANSWER:
Save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, where a person, liable to pay tax,
interest or penalty under this Act, dies, then if a business carried on by the person is discontinued, whether
before or after his death, his legal representative shall be liable to pay, out of the estate of the deceased, to
the extent to which the estate is capable of meeting the charge, the tax, interest or penalty due from such
person under this Act, whether such tax, interest or penalty has been determined before his death but has
remained unpaid or is determined after his death.

419
5. What happens to the GST liability when the estate of a taxable person is under the control of Court of
Wards?

ANSWER:
Where the estate of a taxable person owning a business in respect of which any tax, interest or penalty is
payable is under the control of the Court of Wards/Administrator General/Official Trustee/Receiver or
Manager appointed under any order of a Court, the tax, interest or penalty shall be levied and recoverable
from such Court of Wards/Administrator General/Official Trustee/Receiver or Manager to the same extent as
it would be determined and recoverable from a taxable person.
6. Discuss the liability to pay tax in case of an amalgamation/merger, under section 87. (RTP NOV 2018)
(RTP NOV 2019) (MTP- NOV 2021)

ANSWER:
Section 87 stipulates that when two or more companies are amalgamated/ merged in pursuance of an order
of court or Tribunal or otherwise and the order is to take effect from a date earlier to the date of the order
and any two or more of such companies have supplied/ received any goods and/or services to or from each
other during the period commencing on the date from which the order takes effect till the date of the order,
then such transactions of supply and receipt shall be included in the turnover of supply or receipt of the
respective companies and they shall be liable to pay tax accordingly.
For the purposes of the CGST Act, 2017, the said two or more companies shall be treated as distinct
companies for the period up to the date of the said order. The registration certificates of the said companies
shall be cancelled with effect from the date of the said order.

7. Discuss the liability to pay tax, interest or penalty on death of a person liable to pay tax, interest or
penalty as per the provisions of section 93(1). (MTP MAY 2019)

ANSWER;
Save as otherwise provided in the Insolvency and Bankruptcy Code, 2016, where a person, liable to pay tax,
interest or penalty under CGST Act, dies, then:

-Business is continued after his death: if a business carried on by the person is continued after his death by
his legal representative or any other person, such legal representative or other person, shall be liable to pay
tax, interest or penalty due from such person under this Act.

-Business is discontinued after his death: if the business carried on by the person is discontinued, whether
before or after his death, his legal representative shall be liable to pay, out of the estate of the deceased, to
the extent to which the estate is capable of meeting the charge, the tax, interest or penalty due from such
person under this Act, whether such tax, interest or penalty has been determined before his death but has
remained unpaid or is determined after his death.

8. With reference to the provisions of CGST Act, 2017, explain the liability of partners of firm to pay tax?

420
(MTP MAY 2018)

ANSWER;
Section 90 explains the liability of partners of firm to pay tax as under:-

Partners of the firm jointly and severally liable to pay any tax, interest or penalty of the firm:
Notwithstanding any contract to the contrary and any other law for the time being in force, where any firm is
liable to pay any tax, interest or penalty under this Act, the firm and each of the partners of the firm shall,
jointly and severally, be liable for such payment.
Retiring partner liable to pay any tax, interest or penalty of the firm due up to the date of his retirement:
Where any partner retires from the firm, he or the firm, shall intimate the date of retirement of the said
partner to the Commissioner by a notice in that behalf in writing and such partner shall be liable to pay tax,
interest or penalty due up to the date of his retirement whether determined or not, on that date.
However, if no such intimation is given within 1 month from the date of retirement, the liability of such
partner shall continue until the date on which such intimation is received by the Commissioner.

9. Explain the provisions relating to liability for GST in case of company in liquidation (section 88). (PAST
EXAM MAY 2018) (MTP NOV 2018)
ANSWER:
The provisions relating to liability for GST in case of company in liquidation provided under section 88 are:-

-Where any company is being wound up whether under the orders of a court or Tribunal or otherwise, every
person appointed as a liquidator/receiver of assets of a company shall give the intimation of his appointment
to the Commissioner within 30 days of his appointment.

-The Commissioner shall ascertain the amount which in the opinion of the Commissioner would be sufficient
to provide for any tax, interest or penalty which is then, or is likely thereafter to become, payable by the
company.

-He shall communicate the details of amount to the liquidator within 3 months of the receipt of intimation of
appointment of liquidator.

-When any private company is wound up and any tax, interest or penalty determined under the CGST Act on
the company for any period, whether before or in the course of or after its liquidation, cannot be recovered,
then every person who was a director of such company at any time during the period for which the tax was
due shall, jointly and severally, be liable for the payment of such tax, interest or penalty.

However, director shall not be liable if he proves to the satisfaction of the Commissioner that the non-
recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the
affairs of the company.

421
10. Discuss the liability of the retiring partner of a firm to pay any tax, interest or penalty, if any, leviable on
the firm under CGST/ lGST/ SGST Act. (MTP- NOV 2021)

ANSWER:

Where any partner retires from the firm, he or the firm, shall intimate the date of retirement of the said
partner to the Commissioner by a notice in that behalf in writing. Such partner shall be liable to pay tax,
interest or penalty due up to the date of his retirement whether determined or not, on that date.
However, if no such intimation is given within 1 month from the date of retirement, the liability of such
partner shall continue until the date on which such intimation is received by the Commissioner [Section 90].
11. (PAST PAPER JULY 2021)
Discuss the liability of partners of firm to pay tax, interest and penalty under section 90 of the CGST Act, 2017.

ANSWER

Where any firm is liable to pay any tax, interest or penalty under the CGST Act 2017, the firm and each of the
partners of the firm are jointly and severally liable for such payment.
Where any partner retires from the firm, he or the firm, is required to intimate the date of retirement of the
said partner to the Commissioner by a notice in writing and such partner would be liable to pay tax, interest or
penalty due up to the date of his retirement whether determined or not, on that date.
However, if no such intimation is given within 1 month from the date of retirement, the liability of such
partner would continue until the date on which such intimation is received by the Commissioner.

422
 CHAPTER-21 OFFENCES AND PENALTIES
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS 1 to 3,5,9-12,14,15

MAT

PAST Q-7, 8 NO Q-14 Q-16, NO QUES Q-18 NO QUES ------

EXAMS QUES 17

MTP Q-6 Q-7, 8 NO QUES Q-19 Q-13 NO QUES NO

QUES

RTP NO QUES Q-12 NO QUES NO Q-7 NO QUES Q-20

QUES

QUESTIONS

1. What are the various type of offences which may be committed by a taxable person liable to penalty?

ANSWER:
There are 21 offences which may be committed by a taxable person and may be classified into following
categories based upon their nature:

Offences having nexus with invoice

(i) Issue of invoice or bill without making supply;
(ii) Issuing invoice or document using GSTIN of another person;
(iii) Making a supply without invoice or with false/ incorrect invoice;

423
Offences having nexus with payment of tax

(iv) Not paying any amount collected as tax for a period exceeding three months;

(v) Not paying tax collected in contravention of the CGST/SGST Act for a period exceeding 3 months;
(vi) Non deduction or lower deduction of tax deducted at source or not depositing tax deducted at source
under section 51;

(vii) Non collection or lower collection of or non-payment of tax collectible at source under section 52;
(viii) Availing/utilizing input tax credit without actual receipt of goods and/or services;
(ix) Availing/distributing ITC by an Input Service Distributor in violation of Section 20;
(x) Fraudulently obtains any refund of tax;

(xi) Suppressing turnover;

Offences having nexus with records and related information

(xii) Falsification/ substitution of financial records or furnishing of fake accounts/ documents or furnishing
false information/ return with intent to evade payment of tax;

(xiii) Failure to maintain accounts/ documents in the manner specified in the Act or failure to retain accounts/
documents for the period specified in the Act;

(xiv) Failure to furnish information/ documents required by an officer in terms of the Act/ Rules or furnishing
false information/ documents during the course of any proceeding;

(xv) Tampering/ destroying any material evidence/ documents;

(xvi) Obstructing or preventing any official in discharge of his duty;

Offences having nexus with Registration

(xvii) Failure to register despite being liable to pay tax;

(xviii) Furnishing false information regarding registration particulars either at the time of applying for
registration or subsequently

Offences having nexus with Supply/Transport of goods

(xix) Transporting goods without prescribed documents;

(xx) Supplying/ transporting/ storing any goods liable to confiscation;

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(xxi) Disposing of/ tampering with goods detained/ seized/ attached under the Act.
2. What is the quantum of penalty for an offence mentioned under section 122(1) and section 122(2)?

ANSWER;
Section 122(1) provides that any taxable person who has committed any of the 21 offences mentioned
thereunder, shall be liable to a penalty which shall be higher of the following amounts:

(a) Rs. 10,000/-; or

(b) An amount equivalent to, any of the following (Applicable as the case may be) –
(i) Tax evaded; or

(ii) Tax not deducted under section 51 or short deducted or deducted but not paid to the Government; or

(iii) Tax not collected under section 52 or short collected or collected but not paid to the Government; or

(iv) Input tax credit availed of or passed on or distributed irregularly; or

(v) Refund claimed fraudulently

However, Section 122(2) provides that if a registered person supplying goods or services has not paid any tax
or short paid it or tax has been erroneously refunded to him, or ITC has been wrongly availed or utilized, for
any reason other than the reason of fraud or any willful misstatement or suppression of facts to evade tax,
penalty shall be leviable for an amount higher of following:

(a) Rs. 10,000/-; or

(b) 10% of the tax due from such person

and in case of fraud, or any willful misstatement or suppression of facts to evade tax, penalty shall be equal to
ten thousand rupees or the tax due from such person, whichever is higher.

3. Is there any penalty prescribed for a person other than the taxable person under section 122?

ANSWER: 425

Yes, section 122(3) provides for levy of penalty extending to Rs. 25,000/- for any person who-

• aids or abets any of the 21 offences,

• deals in any way (whether receiving, supplying, storing or transporting) with goods that are liable to
confiscation,
• receives or deals with supply of services in contravention of the Act,

• fails to appear before an authority who has issued a summon,

• fails to issue any invoice for a supply or account for any invoice in his books of accounts.

4. Mr. X, an unregistered person under GST purchases the goods supplied by Mr. Y who is a registered
person without receiving a tax invoice from Mr. Y and thus helps in tax evasion by Mr. Y. What disciplinary
action may be taken by tax authorities to curb such type of cases and on whom? (PAST EXAM NOV 2019)

ANSWER:
Both Mr. X and Mr. Y will be offender and will be liable to penalty as under:
Mr. X – Penalty under section 122(3) which may extend to Rs. 25,000/-;
Mr. Y – Penalty under section 122(1), which will be higher of following, namely (i) Rs. 10,000/- or (ii) 100% of
tax evaded.

5. Suppose, in the above case, a disciplinary action is taken against Mr. X and an adhoc penalty of Rs.
20,000/- is imposed by issue of SCN without describing contravention for which penalty is going to be
imposed and without mentioning the provisions under which penalty is going to be imposed. Should Mr. X
proceed to pay for penalty or challenge SCN issued by department?

ANSWER;
The levy of penalty is subject to a certain disciplinary regime which is based on jurisprudence, principles of
natural justice and principles governing international trade and agreements. Such general discipline is
enshrined in section 126 of the Act. Accordingly—

• no penalty is to be imposed without issuance of a show cause notice and proper hearing in the matter,
affording an opportunity to the person proceeded against to rebut the allegations levelled against him,

• the penalty is to depend on the totality of the facts and circumstances of the case, the penalty imposed is to
be commensurate with the degree and severity of breach of the provisions of the law or the rules alleged,

• the nature of the breach is to be specified clearly in the order imposing the penalty, 426

• the provisions of the law under which the penalty has been imposed is to be specified.
Since SCN issued to Mr. X suffers from lack of clarity about nature of breach which has taken place and about
provision of law under which penalty has been imposed, SCN issued by department may be challenged.
6. Whether action can be taken for transportation of goods without valid documents or if goods are
attempted to be removed without proper record in books? If yes, explain the related provisions under the
CGST Act, 2017. (MTP MAY 2018)

ANSWER;
Yes, action can be taken for transportation of goods without valid documents or if goods are attempted to be
removed without proper record in books. If any person transports any goods or stores any such goods while in
transit without the documents prescribed under the Act or supplies or stores any goods that have not been
recorded in the books or accounts maintained by him, then such goods shall be liable for detention along with
any vehicle on which they are being transported [Section 129 of CGST Act].

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

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

7. Examine the implications as regards the bailability and quantum of punishment on prosecution, in
respect of the following cases pertaining to the month of December under CGST Act, 2017-

(i) 'X' collects Rs. 245 lakh as tax from its clients and deposits Rs. 241 lakh with the Central Government. It is
found that he has falsified financial records and has not maintained proper records.

(ii) 'Y' collects Rs. 550 lakh as tax from its clients but deposits only Rs. 30 lakh with the Central Government.
What will be the implications with regard to punishment on prosecution of 'X' and 'Y' for the offences?

What would be the position, if 'X' and 'Y' repeat the offences?
It may be assumed that offences are proved in the Court. (RTP MAY 2020) (PAST EXAM MAY 2018) (MTP
NOV 2018)

427
ANSWER:

(i) As per section 132(1)(d)(iii) of the CGST Act, 2017, failure to pay any amount collected as tax beyond 3
months from due date of payment is punishable with specified imprisonment and fine provided the amount of
tax evaded exceeds at least Rs. 100 lakh. Therefore, failure to deposit Rs. 4 lakh collected as tax by ‘X’ will not
be punishable with imprisonment.
Further, falsification of financial records by ‘X’ is punishable with imprisonment up to 6 months or with fine or
both vide section 132(1)(f)(iv) of the CGST Act, 2017 and the said offence is bailable in terms of section 132(4)
of the CGST Act, 2017 assuming that falsification of records is with an intention to evade payment of tax due
under the CGST Act, 2017.
(ii) Failure to pay any amount collected as tax beyond 3 months from due date is punishable with
imprisonment upto 5 years and with fine, if the amount of tax evaded exceeds Rs. 500 lakh in terms of section
132(1)(d)(i) of the CGST Act, 2017.
Since the amount of tax evaded by ‘Y’ exceeds Rs. 500 lakh (Rs. 550 lakh -Rs. 30 lakh), ‘Y’ is liable to
imprisonment upto 5 years and with fine. It has been assumed that amount of Rs. 520 lakh collected as tax is
not paid to the Government beyond 3 months from the due date of payment of tax. Further, the
imprisonment shall be minimum 6 months in the absence of special and adequate reasons to the contrary to
be recorded in the judgment vide section 132(3) of the CGST Act, 2017. Such offence is non-bailable in terms
of section 132(5) of the CGST Act, 2017.
If ‘X ’and ‘Y’ repeat the offence, they shall be punishable for second and for every subsequent offence with
imprisonment upto 5 years and with fine in terms of section 132(2) of the CGST Act, 2017. Such imprisonment
shall also be minimum 6 months in the absence of special and adequate reasons to the contrary to be
recorded in the judgment.

8. From the details given below, determine the maximum amount of fine in lieu of confiscation leviable
under section 130 of CGST, Act, 2017 on:
(i) The goods liable for confiscation.
(ii) On the conveyance used for carriage of such goods.
Details are as follows:

Cost of the goods for owner excluding GST 15,00,000

Market Value of Goods 20,00,000
GST on such goods 3,60,000

You are also required to explain relevant legal provisions in brief. (PAST EXAM MAY 2018) (MTP NOV 2018)

ANSWER:

(i) As per section 130(2) of the CGST Act, 2017, in case of goods liable for confiscation, the maximum amount
of fine leviable in lieu of confiscation is the market value of the goods confiscated, less the tax chargeable
thereon.
Therefore, the fine leviable = Rs. 20,00,000 - Rs. 3,60,000 = Rs. 16,40,000

428
The aggregate of fine and penalty shall not be less than the amount of penalty leviable under section 129(1).

(ii) In case of conveyance used for carriage of such goods and liable for confiscation, the maximum amount of
fine leviable in lieu of confiscation is equal to tax payable on the goods being transported thereon [Third
proviso to section 130(2) of the CGST Act, 2017].
Therefore, the fine leviable = Rs. 3,60,000
9. From the following details, calculate the amount to be paid, for release of goods detained or seized under
section 129 of the CGST Act, 2017, if owner of the goods does not come forward for payment of applicable
tax and penalty
Details are as follows:
Particulars Amount (Rs.)
Value of goods 30,00,000
Applicable GST on such goods 5,40,000
GST already paid on such goods 3,60,000

Would your answer be different if goods were exempted from GST and value remains the same namely Rs.
30,00,000?

ANSWER:

If owner of the goods does not come forward for payment of applicable tax and penalty, the amount to be
paid for release of goods detained or seized under section 129 of the CGST Act, 2017, is applicable GST and
penalty equal to 50% of the value of the goods reduced by the tax amount paid thereon.
Therefore, in the given case, the amount payable
= [Rs. 5,40,000 + 50% of Rs. 30,00,000] – Rs. 3,60,000 = Rs. 16,80,000

However, in case of exempted goods, amount to be paid for release of goods detained is equal to 5% of the
value of goods or Rs. 25,000, whichever is less.
= 5% of Rs. 30,00,000 or Rs. 25,000, whichever is less
= Rs. 1,50,000 or Rs. 25,000, whichever is less
= Rs. 25,000

10. What are cognizable and non-cognizable offences under section 132 of CGST Act, 2017?

ANSWER:

As per section 132(5) of CGST Act, 2017, following offences are cognizable offences, provided amount of tax
evaded or input tax credit wrongly availed/ utilised or refund wrongly taken >Rs. 5 crores, namely:

429
(a) Supply without issuance of invoice with the intention to evade tax

(b) Issuance of any invoice/ bill without supply leading to wrongful availment/ utilisation of ITC or refund of
tax

(c) Availment of ITC using invoice/ bill against which no supplies have been made

(d) Failure to pay the amount collected as tax to the Government beyond a period of 3 months from the due
date of payment.
Further, section 132(4) of CGST Act, 2017 provides that all offences specified under section 132 are non-
cognizable offences except the cognizable offences.

11. Where an offence under the GST law is committed by a taxable person being a trust, who are deemed to
be guilty of the offence and under what circumstances? When do the relevant provisions become
inapplicable in respect of individuals concerned with the trust?

ANSWER:

Section 137 of the CGST Act, 2017 stipulates that where an offence under the GST law is committed by a
taxable person being a trust, the managing trustee shall be deemed to be guilty of that offence and shall be
liable to be proceeded against and punished accordingly.

Further, where it is proved that the offence committed by the trust has been committed –
• with the consent or connivance of, or
• is attributable to any negligence on the part of any other individual concerned with the trust,
he shall also be deemed to be guilty of that offence and shall be liable to be proceeded against and punished
accordingly.

The relevant provisions will become inapplicable in respect of individuals concerned with the trust, if they
prove that the offence was committed without their knowledge or that they had exercised all due diligence to
prevent the commission of such offence.

12
Answer the following questions:

(a) Radhaswamy owns and supplies certain goods costing ₹ 30,00,000 in a conveyance hired from
Manikaran Transporters. Market value of said goods is ₹ 40,00,000 and tax chargeable thereon is
₹ 4,80,000. The goods supplied by Radhaswamy and the conveyance [owned by Manikaran Transporters]
used for carriage of such goods are confiscated since Radhaswamy has supplied said goods in contravention
of the provisions of the CGST Act, 2017 with an intent to evade payment of tax.
However, the proper officer intends to give an option to Radhaswamy and Manikaran Transporters to pay
in lieu of confiscation, a fine leviable under section 130 of the CGST, Act, 2017. Determine the maximum

430
amount of the fine in lieu of confiscation on:

(i) the goods liable for confiscation.

(ii) the conveyance used for carriage of such goods.

(b) Raghuraman is a registered supplier in Madhya Pradesh. He failed to pay the GST amounting to ₹ 7,400
for the month of January, 20XX. The proper officer imposed a penalty on Raghuraman for failure to pay tax.
Raghuraman believes that it is a minor breach and in accordance with the provisions of section 126 of the
CGST Act, 2017, no penalty is imposable for minor breaches of tax
regulations. Examine the correctness of Raghuraman’s claim. (RTP NOV 2018)

Answer
(a) (i) In case of goods liable for confiscation, maximum amount of fine leviable in lieu of confiscation
in terms of first proviso to section 130(2) of the CGST Act, 2017 is the market value of the goods confiscated,
less the tax chargeable thereon. Therefore, in the given case, maximum fine leviable: = ₹ 40,00,000
- ₹ 4,80,000 = ₹ 35,20,000

(ii) In case where conveyance used for carriage of such goods is liable for confiscation, the maximum amount
of fine leviable in lieu of confiscation in terms of third proviso to section
130(2) of the CGST Act, 2017 is equal to tax payable on the goods being transported thereon.
Therefore, in the given case, maximum fine leviable = ₹ 4,80,000

(b) No, Raghuraman’s claim is not tenable in law. Section 126(1) of the CGST Act, 2017 provides that no officer
shall impose any penalty under CGST Act, 2017,
inter alia, for minor breaches of tax regulations or procedural requirements. Further, explanation to section
126(1) of the CGST Act, 2017 stipulates that a breach shall be considered a ‘minor breach’ if the amount of tax
involved is less than ₹ 5,000.

In the given case, breach made by Raghuraman is not a ‘minor breach’ since the amount involved is not less
than ₹ 5,000. So, penalty is imposable under the CGST Act, 2017.

13 Answer the following questions:

(i) Shagun started supply of services in Vasai, Maharashtra from 01.01.20XX. Her turnover exceeded ₹ 20
lakh on 25.01.20XX. However, she didn’t apply for registration. Determine the amount of
penalty, if any, that may be imposed on Shagun on 31.03.20XX, if the tax evaded by her, as on said date, on
account of failure to obtain registration is ₹ 1,26,000.

(ii) Sagar, managing director of Telecom Solutions Ltd., is issued a summon to appear before the central tax
officer to produce the books of accounts of Telecom Solutions Ltd. in an inquiry
conducted on said company. Determine the amount of penalty, if any, that may be imposed on Sagar, if he
fails to appear before the central tax officer. (MTP NOV 2020)

431
Answer

(i) Where the aggregate turnover of a supplier making supply of services from a State/UT exceeds ₹ 20 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 25.01.20XX, 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) ₹ 10,000

or

(b) an amount equivalent to the tax evaded [₹ 1,26,000 in the given case], whichever is higher.
Thus, the amount of penalty that can be imposed on Shagun is ₹ 1,26,000.

(ii) Section 122(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 ₹ 25,000. Therefore, penalty upto ₹ 25,000
can be imposed on Sagar, in the given case.

14. XYZ carries goods from Vadodara, Gujarat to Pune, Maharashtra. The value of the goods is ₹ 80,000
which are chargeable to tax @ 18% IGST and in transit, proper officer intercepted the same under section 68
of the CGST Act, and found contravention.
Calculate the penalty payable under section 129 of CGST Act, 2017: -

If XYZ comes forward for payment of tax and penalty, - If XYZ does not come forward for payment of tax
and penalty. (PAST EXAM MAY 2019)

Answer

The penalty payable under section 129 of the CGST Act, 2017 is

(a) 100% of the tax payable on goods detained or seized where the owner of the goods comes forward
for payment of tax and penalty;

(b) 50% of the value of the goods reduced by the tax amount paid thereon where the owner of the goods does
not come forward for payment of tax and penalty.

By virtue of section 20 of the IGST Act, 2017 provisions of penalty payable under section 129 of the CGST Act,
2017 apply in case of IGST as well. However, where the penalty is leviable under the CGST Act, 2017 and the

432
SGST/ UTGST Act, 2017, the penalty leviable under the IGST Act, 2017 shall be the sum total of
the said penalties. Therefore, penalty payable under IGST Act, 2017 is double the penalty payable under
section 129 of the CGST Act, 2017.

Therefore, in the given case the penalty payable will be computed as under:

If XYZ comes forward for payment of tax and penalty (It has been assumed that XYZ is the owner of the goods)
= ₹ 80,000 × 18% (9% CGST and 9% SGST/ UTGST) × 100% = ₹ 14,400
If XYZ does not come forward for payment of tax and penalty (It has been assumed that tax has been paid on
the goods)

= [₹ 80,000 × 100% (50% under CGST plus 50% under SGST/ UTGST)] – [₹ 80,000 × 18%]
= ₹ 80,000 - ₹ 14,400
= ₹ 65,600

Note: In the above answer, the penalty payable has been computed in accordance with the provisions of
the IGST Act, 2017 as tax chargeable on the goods is IGST. However, the question can also be answered
on the basis of the provisions of section
129 of the CGST Act, 2017.

14 Mangeshwar, registered under the CGST Act, 2017 has made a breach in payment of tax amounting to ₹
6,100. Assessing Authority has imposed a penalty as per law applicable to the breach. Invoking the
provisions of section 126, Mangeshwar argues that it is a minor breach and therefore, no penalty is
imposable.

In another instance, Mangeshwar has omitted certain details in documentation that is not easily
rectifiable. This has occurred due to the gross negligence of his accountant and he makes a plea that he
was unaware of it and therefore, no penalty should be levied. Mangeshwar voluntarily writes accepting a
major procedural lapse from his side and requests the officer to condone the lapse as the loss caused to the
revenue was not significant.

Also a lapse on the part of Mangeshwar has no specific penalty provision under the CGST Act, 2017. He
is very confident that no penalty should be levied without a specific provision under the Act.
Discuss what action may be taken by the Assessing Authority under law for each of the above breaches.

Answer

As per section 126(1) of the CGST Act, 2017, no penalty shall be leviable under the Act for minor breaches
of tax regulations. In terms of Explanation (a) to section 126(1), a breach shall be considered as “minor
breach”, if tax involved is less than ₹ 5,000. Therefore, breach made by Mangeshwar is not a ‘minor

433
breach’ since the amount involved is not less than ₹ 5,000. So, penalty is imposable.

Any omission or mistake in documentation which is easily rectifiable and made without fraudulent
intent/gross negligence is not liable for penalty in terms of section 126(1) of the CGST Act, 2017.However,
penalty is imposable in the present case, since the omission in the documentation is not easily rectifiable and
has occurred due to gross negligence.
As per section 126(5) of the CGST Act, 2017, where there is a voluntary disclosure of breach, prior to its
discovery by the officer, the proper officer may consider this fact as a mitigating factor when quantifying the
penalty. Since Mangeshwar has voluntarily disclosed the breach of procedural requirement to the
officer, the proper officer may consider this fact as a mitigating factor when quantifying the penalty.
Therefore, the quantum of penalty will depend on the facts and circumstances of the case.

As per section 125 of the CGST Act, 2017, when no specific penalty has been specified for contravention of any
of the provisions of the Act or any rules made there under, it shall be liable to a penalty which may extend to ₹
25,000. Therefore, general penalty upto ₹ 25,000 may be imposed on Mangeshwar

15 Department initiated prosecution proceedings against a taxable person who had evaded GST of ₹ 4.2
crores. He has approached the Commissioner with a request for compounding the offence. After considering
the request, the Commissioner has directed him to pay an amount of ₹ 2.5 crores as
compounding amount. Indicate the minimum and maximum limits for compounding amount. Is the
amount fixed by the Commissioner in this case within the limits prescribed under the law? What is the
consequence of the decision of the commissioner allowing the request for compounding the offence?

Answer
As per section 138 of the CGST Act, 2017, the minimum limit for compounding amount is higher of the
following amounts:
- (i) 50% of tax involved, or
(ii) ₹ 10,000, and
the upper limit for compounding amount is higher of the following amounts: -

(i) 150% of tax involved, or

(ii) ₹ 30,000

In the present case, the minimum limit for compounding is ₹ 2.10 crores. [₹ 2.10 crores (50% x ₹ 4.2
crores) or ₹ 10,000, whichever is higher]. The maximum limit for compounding in this case is ₹ 6.3 crores [₹ 6.3
crore (150% x ₹ 4.2 crores) or ₹ 30,000, whichever is higher].

Thus, the amount fixed by the Commissioner at ₹ 2.5 crores is within the limits prescribed under the law.

434
If the taxable person pays the compounding amount decided by the Commissioner, no further proceedings
shall be initiated under GST law against the accused person in respect of the same offence and any criminal
proceedings, if already initiated in respect of the said offence, shall stand abated.

16. Ganesh Enterprises, a registered supplier under the GST law, has committed an offence that is
compoundable. The Department has instituted prosecution against the proprietor of Ganesh Enterprises
and he is of the opinion that he shall not be able to apply for compounding of the offence as the
prosecution has been launched. He seeks your advice whether he has the opportunity to apply for
compounding of the offence and the consequences arising therefrom. (PAST EXAM NOV 2019)

Answer
A person accused of an offence is permitted to make an application for compounding of an offence even after
the institution of prosecution against him. Therefore, in the given case, Ganesh Enterprises can apply for
compounding of offence even though
prosecution has been instituted/launched against him. On payment of compounding amount determined by
the Commissioner, the criminal proceedings which have been initiated against Ganesh Enterprises in respect
of the said offence, shall stand abated.
The lower limit for compounding amount is to be the greater of the following amounts:
- 50% of tax involved, or
- ₹ 10,000

The upper limit for compounding amount is to be greater of the following amounts
- 150% of tax involved or
- ₹ 30,000.

17. Neurological Systems Private Limited has been subject to confiscation of goods on the ground that it has
not accounted for the goods that are liable to tax under the CGST Act, 2017. The directors would like to
know from you as to how such goods are to be released from the Department. You are required to advise
the directors regarding the provisions of law on this matter. (PAST EXAM NOV 2019)
Answer

To get the confiscated goods released from the Department, the directors of Neurological Systems Private
Limited are advised as under:

Neurological Systems Private Limited shall get an option to pay redemption fine in lieu of confiscation.
Such fine should be less than or equal to ≤ [Market value of goods confiscated – Tax chargeable thereon]
Aggregate of such fine and penalty leviable should be more than or equal to ≥ Amount of penalty leviable
under section 129(1) of the CGST Act, 2017.

Neurological Systems Private Limited can get its confiscated goods released on payment of such redemption
fine plus the tax, penalty and charges payable in respect of such goods.

435
18 Elaborate about cognizable and non-cognizable offences under the CGST Act, 2017. What is the
difference between these two while exercising powers by the GST authorities? (PAST EXAM JAN 2021)

Answer
All offences specified under section 132 except the offences that are cognizable and non-bailable (as
mentioned below) are non
-cognizable offences under the CGST Act, 2017.
Cognizable offences under the CGST Act, 2017 are the following offences, where amount of tax evaded or
input tax credit wrongly availed or utilised or refund wrongly taken more than (exceeding) ₹ 5 crores,
namely:

(a) Supply without issue of any invoice, in violation of provisions of GST, with intention to evade tax;

(b) Issue of any invoice/bill without any supply in violation of the provisions of GST law leading to wrongful
availment or utilisation of ITC/refund of tax;

(c) Avails ITC using such invoice/bill referred to in clause (b);

(d) Collects any amount as tax but fails to pay the same to the Government beyond a period of 3 months
from the date on which such payment becomes due; In case of a cognizable offence, the officer authorised to
arrest the person shall inform such person of the grounds of arrest and produce him before a Magistrate
within 24 hours.

In case of a non-cognizable offence, the arrested person shall be admitted to bail or in default of bail,
forwarded to the custody of the Magistrate.
The Deputy/Assistant Commissioner shall for the purpose of releasing an arrested person on bail or otherwise,
have the same powers and be subject to the same provisions as an officer
-in-charge of a police station.

19. (MTP NOV 2019) Mr. X, an unregistered person under GST purchases the goods supplied by Mr. Y who is
a registered person without receiving a tax invoice from Mr. Y and thus helps in tax evasion by Mr.
Y. What disciplinary action may be taken by tax authorities to curb such type of cases and on
whom?

Suppose, in the above case, a disciplinary action is taken against Mr. X and an adhoc penalty of
Rs. 20,000/- is imposed by issue of SCN without describing contravention for which penalty is
going to be imposed and without mentioning the provisions under which penalty is going to be
imposed. Should Mr. X proceed to pay for penalty or challenge SCN issued by department?
(5 Marks)

ANSWER 436
Both Mr. X and Mr. Y will be offender and will be liable to penalty as under:

Mr. X – Penalty under section 122(3) which may extend to Rs. 25,000/-;
Mr. Y – Penalty under section 122(1), which will be higher of following, namely (i) Rs. 10,000/- or
(ii) 100% of tax evaded.
The levy of penalty is subject to a certain disciplinary regime which is based on jurisprudence, principles of
natural justice and principles governing international trade and agreements. Such general discipline is
enshrined in section 126 of the Act. Accordingly—
(i) no penalty is to be imposed without issuance of a show cause notice and proper hearing in the matter,
affording an opportunity to the person proceeded against to rebut the allegations levelled against him,

(ii) the penalty is to depend on the totali ty of the facts and circumstances of the c as e, the penalty imposed is
to be commensurate wi th the degree and severity of b r e ach o f th e provisions of the law or the rules
alleged,

(iii ) the nature of the breach is to be specified clearly in the order imposing the penalty,

(iv) the provisions of the law under which the penalty has been imposed is to be specified.

Since SCN issued to Mr. X suffers from lack of clarity about nature of breach which has taken place and about
provision of law under which penalty has been imposed, SCN issued by department may be challenged.

20. (RTP- NOV 2021)

Answer the following questions: (rtp- nov 2021)

(i) Nirmal Private Limited, registered in Vasai, Maharashtra, is engaged in supply of taxable goods and
services. In the month of April, it sold goods worth ₹ 5,00,000 (excluding GST) to Suraksha Enterprises and
collected tax @ 28% on said goods from the buyer. However, the actual rate of tax appliable in the given
case was 18%.

Nirmal Private Limited deposited the tax @ 18% on these goods to the Government on the due date and
retained the remaining tax collected. Determine the amount of penalty, if any, that may be imposed on
Nirmal Private Limited in the month of October in the given case ignoring interest payable, if any.

(ii) Bindusar, Chief Executive Officer of Ashoka Solutions Ltd., is issued a summon to appear before the
central tax officer to produce the books of accounts of Ashoka Solutions Ltd. in an inquiry conducted on said
company. Determine the amount of penalty, if any, that may be imposed on Bindusar, if he fails to appear
before the central tax officer.

ANSWER 437

(i) Section 122(1)(iv) of the CGST Act, 2017 stipulates that a taxable person who collects any tax in
contravention of the provisions of the CGST Act, but fails to pay the same to the Government beyond a period
of 3 months from the date on which such payment becomes due shall be liable to pay a penalty of:
(a) ₹ 10,000
or

(b) an amount equivalent to the tax evaded

whichever is higher.

In the given case, since Nirmal Private Limited has collected tax at a wrong rate (i.e. 28%), but fails to deposit
the full tax collected to the Government i.e. it deposits only tax @ 18% thereby retaining the remaining tax
collected, the amount of penalty that can be imposed on Nirmal Private Limited is as follows:

(a) ₹ 10,000
or
(b) an amount equivalent to the tax evaded [₹ 50,000 (₹ 5,00,000× 28%) - (₹ 5,00,000× 18%)],
whichever is higher, i.e. ₹ 50,000.

(ii) Section 122(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 ₹ 25,000. Therefore, penalty upto ₹ 25,000 can be imposed on
Bindusar, in the given case.

438
 CHAPTER-22 APPEALS AND REVISION
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS 1, 2,4, 5, 13

MAT

PAST Q-11 Q-12, 17 NO QUES NO QUES Q-15 Q-16 Q-18 ------

EXAMS

MTP Q-9, 10 Q-3 NO QUES NO QUES Q-8 Q-8 Q-6,11

RTP NO QUES Q-15 Q-7 Q-6 NO QUES Q-14 NO QUES

QUESTIONS

1. Does CGST law provide for any appeal to a person aggrieved by any order or decision passed against him
by an adjudicating authority under the CGST Act? Explain the related provisions under the CGST Act.

ANSWER:

Yes, any person aggrieved by any order or decision passed by an adjudicating authority under the CGST Act
has the right to appeal to the Appellate Authority under section 107. The appeal should be filed within 3
months from the date of communication of such order or decision. However, the Appellate Authority has the
power to condone the delay of up to 1 month in filing the appeal if there is sufficient cause for the delay. The
appeal can be filed only when the admitted liability and 10% of the disputed tax amount is paid as pre-deposit
by the appellant.

However, no appeal can be filed against the following orders in terms of section 121:-

(a) an order of the Commissioner or other authority empowered to direct transfer of proceedings from one 439
officer to another officer;

(b) an order pertaining to the seizure or retention of books of account, register and other documents; or

(c) an order sanctioning prosecution under the Act; or

(d) an order passed under section 80 (payment of tax in installments).

2. Describe the provisions relating to Departmental appeal to Appellate Authority under section 107.

ANSWER:

Section 107(2) provides that Department can file a “review application/appeal” with the Appellate Authority.
The Commissioner may, on his own motion, or upon request from the SGST/UTGST Commissioner, examine
the record of any proceedings in which an adjudicating authority has passed any decision/order to satisfy
himself as to the legality or propriety of the said decision /order.

The Commissioner may, by order, direct any officer subordinate to him to apply to the Appellate Authority
within 6 months from the date of communication of the said decision/order for the determination of such
points arising out of the said decision/order as may be specified him.
The AA can condone the delay in filing of appeal by 1 month if it is satisfied that there was sufficient cause for
such delay [Section 107(4)].

Such application shall be dealt with by the AA as if it were an appeal made against the decision/order of the
adjudicating authority [Section 107(3)]. There is no requirement of making a pre-deposit in case of
departmental appeal.

3. With reference to sections 107(6) and 112(8), specify the amount of mandatory pre-deposit which should
be made along with every appeal made before the Appellate Authority and the Appellate Tribunal. Does
making the pre-deposit have any impact on recovery proceedings? (MTP NOV 2018)

ANSWER:
Section 107(6) provides that no appeal shall be filed before the Appellate Authority, unless the appellant has
paid—

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

(b) a sum equal to 10% of the remaining amount of tax in dispute arising from the impugned order, subject to

440
a maximum of Rs. 25 crore.

Section 112(8) lays down that no appeal can be filed before the Appellate Tribunal, unless the appellant
deposits2

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

(b) 20% of the remaining amount of tax in dispute, in addition to the amount deposited before the AA, arising
from the said order, subject to a maximum of Rs. 50 crore, in relation to which appeal has been filed.
The above limits are applicable for the pre-deposits to be made under the CGST Act. Equal amount of pre-
deposit is payable under the respective SGST Act as well.

Where the appellant has made the pre-deposit, the recovery proceedings for the balance amount shall be
deemed to be stayed till the disposal of the appeal.

4. With reference to section 108, elaborate whether a CGST/SGST authority can revise an order passed by
his subordinates.

ANSWER;
Section 2(99) defines “Revisional Authority” as an authority appointed or authorised under the CGST Act for
revision of decision or orders referred to in section 108.

Section 108 of the Act authorizes such “revisional authority” to call for and examine any order passed by his
subordinates and in case he considers the order of the lower authority to be erroneous in so far as it is
prejudicial to revenue and is illegal or improper or has not taken into account certain material facts, whether
available at the time of issuance of the said order or not or in consequence of an observation by the
Comptroller and Auditor General of India, he may, if necessary, can revise the order after giving opportunity of
being heard to the person concerned. The “revisional authority” can also stay the operation of any order
passed by his subordinates pending such revision.

The “revisional authority” shall not revise any order if-

(a) the order has been subject to an appeal under section 107 or under section 112 or under section 117 or
under section 118; or

(b) the period specified under section 107(2) has not yet expired or more than 3 years have expired after the
passing of the decision or order sought to be revised.

(c) the order has already been taken up for revision under this section at any earlier stage.

441
(d) the order is a revisional order

5. The Appellate Tribunal has the discretion to refuse to admit any appeal. Examine the correctness of the
above statement.

ANSWER;
The statement is partially correct.

Though the Appellate Tribunal does have the power to refuse to admit an appeal, it cannot refuse to admit
ANY appeal. It can refuse to admit an appeal where –
o the tax or input tax credit involved or

o the difference in tax or the difference in input tax credit involved or

o the amount of fine, fees or penalty determined by such order, does not exceed Rs. 50,000.

6. In an order dated 20th August issued to GH (P) Ltd., the Joint Commissioner of CGST has confirmed IGST
demand of Rs. 280 crore. The company is disputing the entire demand of IGST and wants to know the
amount of pre-deposit it has to make under the IGST Act for filing an appeal before the Appellate Authority
against the order of the Joint Commissioner.
Assuming that the Appellate Authority also confirms the order of the Joint Commissioner and the company
wants to file an appeal before the Appellate Tribunal against the order of the Appellate Authority,
determine the amount of pre-deposit to be made by the company for filing the said appeal.
(RTP NOV 2019) ( MTP- NOV 2021)

ANSWER;

Section 107(6) read with section 20 of the IGST Act provides that no appeal shall be filed with the Appellate
Authority unless the applicant has paid in full, such part of the amount of tax, interest, fine, fee and penalty
arising from the impugned order, as is admitted by him and a sum equal to 10% of the remaining amount of
tax in dispute arising from the said order subject to a maximum of Rs. 50 crore. Thus, the amount of pre-
deposit for filing an appeal with Appellate Authority cannot exceed Rs. 50 crore (for tax in dispute) where IGST
demand is involved In the given case, the amount of pre-deposit for filing an appeal with the Appellate
Authority against the order of Joint Commissioner, where entire amount of tax is in dispute, is:

(i) Rs. 28 crore [10% of the amount of tax in dispute, viz. Rs. 280 crore]

or

(ii) Rs. 50 crore,

whichever is less.

= Rs. 28 crore. 442

Further, section 112(8) provides that no appeal shall be filed with the Appellate Tribunal unless the applicant
has paid in full, such part of the amount of tax, interest, fine, fee and penalty arising from the impugned order,
as is admitted by him and a sum equal to 20% of the remaining amount of tax in dispute, in addition to the
amount paid as pre-deposit while filing appeal to the Appellate Authority, arising from the said order subject
to a maximum of Rs. 100 crores.
Thus, in the given case, the amount of pre-deposit for filing an appeal with the Appellate Tribunal against the
order of the Appellate Authority, where entire amount of tax is in dispute, is:

(i) Rs. 56 crores [20% of the amount of tax in dispute, viz. 280 crores]

or

(ii) Rs. 100 crores,

whichever is less.

= Rs. 56 crores.

7. With reference to the provisions of section 121, specify the orders against which no appeals can be filed.
(RTP MAY 2019)

ANSWER:

As per section 121, no appeal shall lie against any decision taken or order passed by a CGST officer if such
decision taken or order passed relates to any one or more of the following matters, namely:—

(a) an order of the Commissioner or other authority empowered to direct transfer of proceedings from one
officer to another officer; or

(b) an order pertaining to the seizure or retention of books of account, register and other documents; or

(c) an order sanctioning prosecution under the CGST Act; or

(d) an order passed under section 80 (payment of tax in instalments).

443
8. Mr. A had filed an appeal before the Appellate Tribunal against an order of the Appellate Authority where
the issue involved relates to place of supply. The order of Appellate Tribunal is also in favour of the
Department. Mr. A now wants to file an appeal against the decision of the Appellate Authority as he feels
the stand taken by him is correct.

You are required to advise him suitably with regard to filing of an appeal before the appellate forum higher
than the Appellate Tribunal. (MTP JULY 2021) (MTP MAY 2020)

ANSWER:
As per section 117(1), an appeal against orders passed by the State Bench or Area Benches of the Tribunal
would lie to the High Court if the High Court is satisfied that such an appeal involves a substantial question of
law.

However, appeal against orders passed by the National Bench or Regional Benches of the Tribunal would lie to
the Supreme Court and not High Court. As per section 109(5) of the Act, only the National Bench or Regional
Benches of the Tribunal can decide appeals where one of the issues involved relates to the place of supply.

Since the issue involved in Mr. A’s case relates to place of supply, the appeal in his case would have been
decided by the National Bench or Regional Bench of the Tribunal. Thus, Mr. A will have to file an appeal with
the Supreme Court and not with the High Court.

9. Pursuant to audit conducted by the tax authorities under section 65, a show cause notice was issued to
Home Furnishers, Surat, a registered supplier, alleging that it had wrongly availed the input tax credit
without actual receipt of goods for the month of July. In the absence of a satisfactory reply from Home
Furnishers, Joint Commissioner of Central Tax passed an adjudication order dated 20th August (received by
Home Furnishers on 22nd August) confirming a tax demand of Rs. 50,00,000 (i.e., CGST 25,00,000 and SGST
25,00,000) and imposing a penalty of equal amount under section 122.

Home Furnishers does not agree with the order passed by the Joint Commissioner. It decides to file an
appeal with the Appellate Authority against the said adjudication order. It has approached you for seeking
advice on the following issues in this regard:

(1) Can Home Furnishers file an appeal to Appellate Authority against the adjudication order passed by the
Joint Commissioner of Central Tax? If yes, till what date can the appeal be filed?

(2) Does Home Furnishers need to approach both the Central and State Appellate Authorities for exercising
its right of appeal?

(3) Home Furnishers is of the view that there is no requirement of paying pre-deposit of any kind before
filing an appeal with the Appellate Authority. Give your opinion on the issue. (MTP MAY 2018)

444
ANSWER;

(1) An appeal against a decision/order passed by any adjudicating authority under the CGST Act or SGST Act/
UTGST Act is appealable before the Appellate Authority [Section 107(1)]. Thus, Home Furnishers can file an
appeal to Appellate Authority against the adjudication order passed by the Joint Commissioner of Central Tax.
Further, such appeal can be filed within 3 months from the date of communication of such decision/order
[Section 107(1)]. Thus, Home Furnishers can file the appeal to Appellate Authority on or before 22nd
November. Further, the Appellate Authority can also condone the delay in filing of appeal by 1 month if it is
satisfied that there was sufficient cause for such delay [Section 107(4)].
(2) GST law makes provisions for cross empowerment between CGST and SGST/UTGST officers to ensure that
a proper officer under the CGST Act is also treated as the proper officer under the SGST/UTGST Act and vice
versa. Thus, a proper officer can issue orders with respect to both, the CGST as well as the SGST/UTGST laws.
GST law also provides that where a proper officer under one Act (say CGST) has passed an order, any
appeal/review/ revision/rectification against the said order will lie only with the proper officers of that Act
(CGST Act). Accordingly, if any order is passed by the proper officer under a SGST Act, any appeal/ review/
revision/ rectification against the said order will lie only with the proper officer under that SGST Act. Thus,
Home Furnishers is required to file an appeal only with the Central Tax Appellate Authority [Section 6 of CGST
Act].

(3) Home Furnishers’ view is not correct in law. Section 107(6) provides that no appeal shall be filed before the
Appellate Authority, unless the appellant has paid—

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

(b) a sum equal to 10% of the remaining amount of tax in dispute arising from the impugned order subject to a
maximum of Rs. 25 crore*.

*Equivalent amount is required to be deposited with respect to SGST liability.

Since in the given case, Home Furnishers disagrees with the entire tax demanded, it has to make a pre-deposit
of 10% of the amount of tax in dispute arising from the impugned order, i.e., 10% of Rs. 50,00,000 which is Rs.
5,00,000 (i.e. Rs. CGST 2,50,000 and SGST Rs. 2,50,000).

10. With reference to the provisions of section 120, list the cases in which appeal is not to be filed and also
specify other relevant provisions in this respect. (MTP MAY 2018)

ANSWER:

(1) The Board may, on the recommendations of the GST Council, issue orders or instructions or directions

445
fixing monetary limits for regulating filing of appeal or application by the CGST officer.

(2) Non-filing of appeal/application by a CGST officer on account of such monetary limits fixed by the Board
shall not preclude such officer from filing appeal or application in any other case involving the same or similar
issues or questions of law.

(3) No person, who is a party in application or appeal can contend that the CGST Officer has acquiesced in the
decision on the disputed issue by not filing an appeal or application (on account of monetary limits).
(4) The Appellate Tribunal or Court hearing such appeal or application shall have regard to circumstances for
non-filing of appeal or application by the CGST officer on account of monetary limits fixed by the Board.

11. XY Company received an adjudication order passed by the Assistant Commissioner of Central Tax on 1st
November under section 73 wherein it was decided as follows:
CGST+SGST due Rs. 6,00,000
Interest @ 18% p.a. for number of delayed
days
Penalty Rs. 60,000

The taxpayer filed an appeal before the Appellate Authority on 26th November.

Determine the amount of pre-deposit to be made by the company for filing the appeal.

Whether your answer would be different if the taxpayer appeals only against part of the demanded amount
say Rs. 4,00,000 and admits the balance liability of tax amounting to Rs. 2,00,000 and proportionate penalty
arising from the said order? (PAST EXAM MAY 2018) (MTP- NOV 2021)

ANSWER:

Section 107(6) provides that no appeal shall be filed before Appellate Authority, unless the appellant pays*:-

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

(b) 10% of remaining tax in dispute arising from the impugned order subject to a maximum of Rs. 25 crore, in
relation to which the appeal has been filed.

*Equivalent amount is required to be deposited with respect to SGST liability.

Thus, in Case-I, XY Company has to make a pre-deposit of 10% of Rs. 6,00,000, which is Rs. 60,000 (i.e. CGST
Rs. 30,000 and SGST Rs. 30,000) assuming that XY Company disagrees with the entire tax demanded.

However, when XY Company admits the liability of only Rs. 2,00,000 (CGST + SGST) and disputes the balance

446
tax demanded of Rs. 4,00,000, it has to make a pre-deposit of:

(i) Rs. 2,00,000 + Rs. 20,000 [proportionate penalty on tax admitted] + interest @ 18% p.a. payable on the tax
admitted for the period of delay, and

(ii) 10% of Rs. 4,00,000 which is Rs. 40,000.

12. Rule 112 of the CGST Rules lays down that the appellant shall not be allowed to produce before the
Appellate authority (AA) or the Tribunal any evidence, whether oral or documentary, other than the
evidence produced by him during the course of the proceedings before the adjudicating authority or, as the
case may be, the AA.

What are the exceptional circumstances specified in the rule where the production of additional evidence
will be allowed? Can AA or the Tribunal direct production of any document or examination of any witness?
(PAST EXAM NOV 2018)

Answer

Exceptional circumstances specified in rule 112 of the CGST Rules, 2017 where the production of additional
evidence will be allowed are as follows:

(a) where the adjudicating authority/ appellate authority (AA) has refused to admit evidence which ought to
have been admitted.

(b) where the appellant was prevented by sufficient cause from producing the evidence which he was called
upon to produce by the adjudicating authority/ AA.

(c) where the appellant was prevented by sufficient cause from producing before the adjudicating authority/
AA any evidence which is relevant to any ground of appeal; or

(d) where adjudicating authority/ AA has made the order appealed against without giving sufficient
opportunity to the appellant to adduce evidence relevant to any ground of appeal. Yes, the AA or the Tribunal
can direct the production of any document or examination of any witness to enable it to dispose of the appeal.

13. The original adjudicating authority confirmed a demand of GST of ₹ 42,50,000 with interest and imposed
a penalty of ₹ 4,25,000 in its order dated 1st March, 20XX. The assessee filed an appeal before appellate
authority challenging the demand as well as penalty.

The internal audit party, after an audit of the records of the assessee, submitted a note to the

447
Commissioner that actual amount demanded should have been ₹ 48,50,000. While the issue was pending
before the appellate authority, based on the note, the Commissioner stayed the order of the original
authority and issued a show cause notice on 15th September, 20XX, proposing revision of the order of the
original authority and revise the demand on the basis of the audit note. Examine the correctness of the
action taken by the Commissioner in accordance with the provisions of GST law.

Answer
As per section 108 of the CGST Act, 2017, Revisional Authority cannot revise an order if, inter alia, such order
has been subject to an appeal before Appellate Authority or Tribunal or High Court or Supreme Court. The
Revisional Authority may, however, pass an order on any point which has not been raised and decided in an
appeal before Appellate Authority/Tribunal/High Court/Supreme Court.

In the given case, the Commissioner wants to revise the order on the point which is the subject matter in
the appeal.

Therefore, the Commissioner cannot exercise the power of revision in respect of such order

Note: It is assumed that the given rectification is not an error which is apparent on the face of record.
However, if the rectification is done on the base of error which is apparent on the face of record, Section
161 of CGST Act 2017 shall apply and rectification order may be passed by the commissioner instead of
revisionary authority.

14. Briefly examine whether the appeal/review application filed in the following independent cases is
within the time limit prescribed under the GST law: (RTP JULY 2021)

(i) The adjudicating authority issued the adjudication order on 23rd April and the same is communicated to
the taxpayer
- Mr. X - on 28th April. Mr. X, aggrieved by the order of the adjudicating authority filed an appeal to the
Appellate Authority on 26th July.

(ii) The adjudicating authority passed the order on 3rd March (communicated same day to the
Commissioner). The Commissioner directs his subordinate officer to file a review application with
the Appellate Authority. The subordinate officer filed the review application on 23rd September.

Answer

(i) A person aggrieved by any decision/order of an adjudicating authority can file an appeal to the Appellate
Authority within 3 months from the date of communication of such decision/order. The
Appellate Authority can condone the delay in filing of appeal by 1 month if it is satisfied that there was a suffici

448
ent cause for such delay [Section 107 of the CGST Act, 2017]. In view of the aforesaid provisions, in the given
case, the relevant date for computing the period of 3 months (for filing the appeal to Appellate Authority) is
28th April (date of communication of order) and not 23rd April. Accordingly, an appeal can be filed by Mr. X to
Appellate Authority within
3 months from the date of communication of order (28th April), i.e. 28th July.
Thus, Mr. X has filed the appeal within the time limit prescribed under the GST law.
(ii) The Commissioner may, by order, direct any officer subordinate to him to apply to the Appellate Authority
within 6 months from the date of communication of the decision/
order for the determination of such points arising out of the said decision/ order as may be specified by him.
The Appellate Authority can condone the delay in filing of appeal by 1 month if it is satisfied that there was
sufficient cause for such delay [Section 107 of the CGST Act, 2017]. In the present case, the Commissioner
directs his subordinate officer to file a review application with the Appellate Authority. The subordinate officer
should have filed the said application till 3rd September (i.e. within 6 months from the date of communication
of order). However, the subordinate officer filed the application on 23rd September, i.e. after the expiry of
period of 6 months from the date of communication of order. Thus, in the given case, appeal has not been
filed within the time limit prescribed under the GST law. However, Appellate Authority can condone delay in
filing of appeal upto 3rd October (up to 1 month) if it is satisfied that there was sufficient cause for such delay.

15. Mr. Mahendran is aggrieved by the order of the Revisional Authority (RA) and wants to make an appeal
to the First Appellate Authority.
While commenting on the decision of Mr. Mahendran, you are also required to state the powers of the
Revisional Authority to revise the orders passed by the subordinate officers under section 108 of the CGST
Act, 2017. What is the time period for the Revisional Authority to exercise the power of revision? (RTP NOV
2018) (PAST EXAM NOV 2020)

Answer
The decision of Mr. Mahendran of making an appeal to the First Appellate Authority against the order of the
RA is not valid in law. Any person aggrieved by an order passed against him by RA under CGST Act may appeal
to the Appellate Tribunal, the second level of appeal
The powers of the RA to revise the orders passed by the subordinate officers under section 108 of the CGST
Act, 2017 are as under: -

(i) The RA may, on his own motion, or upon information received by him or on request from the SGST/ UTGST
Commissioner, call for and examine the record of any proceedings.

(ii) On examination of the case records, if RA is of the view that the decision/order passed by any officer

449
subordinate to him is erroneous and illegal/improper or has not taken into account material
facts, he may stay the operation of such order for such period as he deems fit.

(iii) The RA, after giving the person concerned an opportunity of being heard and after making necessary
further inquiry, pass such order, as he thinks just and proper, including enhancing or
modifying or annulling the said order. The RA can revise an order after the expiry of a period of 6 months from
the date of communication of the said order but not later than expiry of a period of 3 years from the passing
of the said decision/order.
In case of an order subject to an appeal before Appellate Authority (AA)/Tribunal/High Court/ Supreme
Court, the RA can pass an order on any point which has not been raised and decided in the appeal, before the
expiry of a period of 1 year from the date of the order in such appeal or before the expiry of a period
of 3 years from the date of initial order, whichever is later.

16. Anirudh Ltd. is registered in Telangana and paid IGST on a transaction considering the same to be inter
- State supply on the basis that the customer is situated in Delhi. However, GST authorities have raised a
dispute and have issued a show cause notice that since the services are rendered within Telangana, it is an
intra-State supply leviable to CGST and SGST. Anirudh Ltd. has lost the case before the proper officer and
also in first appeal before the Departmental Appellate Authority. Advise Anirudh Ltd. regarding the
following:

(i) Can Anirudh Ltd. file an appeal against the order of the first Appellate Authority? If yes, before which
forum can Anirudh Ltd. file the said appeal?

(ii) Once a valid appeal is filed by Anirudh Ltd. before the appropriate forum, can the authorities insist
Anirudh Ltd. to deposit the CGST and SGST which the authorities are claiming that Anirudh Ltd. ought to
have paid but has not paid.

(iii) If Anirudh Ltd. loses at the 2nd appellate stage as well, is there any other Statutory forum available
for Anirudh Ltd. to file another appeal? If yes, before which forum?

(iv) Assuming Anirudh Ltd. loses at all levels, would there be any interest liability on Anirudh Ltd.?
(PAST EXAM JAN 2021)

Answer

(i) Yes, Anirudh Ltd. can file an appeal against the order of the first Appellate Authority to the Appellate
Tribunal. National Bench/ Regional Benches of the Tribunal will have jurisdiction to hear the appeal as place of
supply is one of the issues in dispute.

450
(ii) No, Authority can ’t insist, because once a valid appeal is filed i.e., on payment of requisite pre-deposit, the
recovery proceedings for the balance amount of the demand in dispute gets stayed till
the disposal of appeal.

(iii) Yes, Anirudh Ltd. can file another appeal against the decision of the National Bench/Regional Bench of the
Tribunal, directly before the Supreme Court.
(iv) No, there will be no interest liability on Anirudh Ltd. if it loses at all levels. A registered person who has
paid IGST on a transaction considered by him to be an inter-State supply, but which is subsequently held to be
an intra-State supply, is not required to pay any interest on the amount of CGST and SGST payable because
there is no shortfall of overall tax amount.

17. In an order issued to SC Ltd., the adjudicating authority has confirmed a duty demand of Rs. 50 lakhs and
imposed a penalty of equal amount under section 114A of the Customs Act, 1962, plus a penalty of Rs. 1
lakh under section 117 of the Customs Act, 1962. Their appeal to Commissioner (Appeals), challenging the
duty demand and imposition of penalty after payment of required pre-deposit was dismissed. Now, they
wish to file an appeal before CESTAT. Indicate the amount they paid when they filed appeal before the
Commissioner (Appeals) and they are required to pay towards pre deposit for filing the appeal under
section 129E of the Customs Act, 1962 before the Customs, Excise, and Service Tax Appellate Tribunal:

(a) if they dispute their liability to pay duty and penalties;

(b) if they accept the duty liability but dispute the imposition of penalties.

Briefly explain the legal provisions relating to pre-deposit for appeals before first appellate authority and
CESTAT. (5 Marks) (PAST EXAM NOV 2018)

ANSWER
The appellant has to deposit (i) 7.5% of the duty, in case where duty or duty and penalty are in dispute, or (ii)
7.5% of the penalty, where such penalty is in dispute, while filing an appeal before Commissioner (Appeals).
While filing appeal before CESTAT against the order passed by Commissioner (Appeals), the appellant has to
deposit another (i) 10% of the duty, in case where duty or duty and penalty are in dispute, or (ii) 10% of the
penalty, where such penalty is in dispute. Further, where penalty alone is in dispute and penalties have been
imposed under different provisions of the Customs Act, pre-deposit would be calculated based on the
aggregate of all penalties imposed in the order sought to be appealed against.

The amount of pre-deposit shall not exceed Rs. 10 crores.

In view of the aforementioned provisions, pre-deposit amounts would be as follows:

(a) If SC Ltd. dispute their liability to pay duty and penalties, before Commissioner (Appeals)
= 7.5% of duty = 7.5% of Rs. 50 lakh =Rs. 3,75,000

(b) If SC Ltd. accept the duty liability but dispute the imposition of penalties, before Commissioner (Appeals) 451
= 7.5% of penalties = 7.5% of Rs. 51 lakh (Rs. 50 lakh + Rs. 1 lakh) = Rs. 3,82,500

(a) If SC Ltd. dispute their liability to pay duty and penalties, before CESTAT
= 10% of duty = 10% of Rs. 50 lakh = Rs. 5,00,000

(b) If SC Ltd. accept the duty liability but dispute the imposition of penalties, before CESTAT
= 10% of penalties = 10% of Rs. 51 lakh (Rs. 50 lakh + Rs. 1 lakh) = Rs. 5,10,000
18. (PAST PAPER JULY 2021)
Discuss the validity of the following independent cases under the provisions of CGST Act, 2017:

(i) CGST officer had issued a notice under section 74(1) against which appeal was preferred by the assessee. Appellate
Authority concluded that the notice issued under section 74(1) was not sustainable for the reason that charges of
fraud had not been established. Now the officer wishes to determine the tax payable by treating the said notice as if
it was issued under section 73(1). Is the action of the officer valid?

(ii) CGST officer issued an adjudication order which did not specify payment of interest on the tax short paid by the
registered person. So, the assessee contends that interest cannot be demanded as the said order is silent on the
same. Is the contention of the assessee correct?

ANSWER

(i) Valid. As per section 75 of the CGST Act, 2017, if the Appellate Authority concludes that the notice issued under
section 74(1) is not sustainable for the reason that the charges of fraud has not been established, the proper officer
can determine the tax payable by deeming as if the notice was issued under section 73(1).

(ii) Incorrect. As per section 75 of the CGST Act, 2017, the interest on the tax short paid or not paid shall be payable
whether or not the same is specified in the order determining the tax liability.

452
 CHAPTER-23 ADVANCE RULING
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY MAT QSTNS 1 -5, 8

PAST NO QUES Q-7 NO QUES NO QUES ------

EXAMS

MTP NO QUES Q-9 NO

QUES

RTP NO QUES

QUESTIONS

1. Which are the questions for which advance ruling can be sought?

ANSWER:
Advance Ruling can be sought for the following questions:
(a) classification of any goods or services or both;
(b) applicability of a notification issued under provisions of the GST Act(s);
(c) determination of time and value of supply of goods or services or both;
(d) admissibility of input tax credit of tax paid or deemed to have been paid;
(e) determination of the liability to pay tax on any goods or services under the Act;
(f) whether applicant is required to be registered under the Act;
(g) whether any particular thing done by the applicant with respect to any goods or services amounts to or
results in a supply of goods or services, within the meaning of that term.

453

2. What is the objective of having a mechanism of Advance Ruling?

ANSWER;
The broad objective for setting up such an authority is to:
(i) provide certainty in tax liability in advance in relation to an activity being undertaken or proposed to
beundertaken by the applicant;
(ii) helps taxpayer in financial planning and making new investments

(iii) attract Foreign Direct Investment (FDI);

(iv) reduce litigation;

(v) pronounce ruling expeditiously in transparent and inexpensive manner

3. To whom will the Advance Ruling be applicable?

ANSWER:
The advance rulings are given in personem and not in rem, that is, not to the whole world and therefore,
rulings cannot apply to other similar cases. Section 103 provides that an advance ruling pronounced by AAR or
AAAR shall be binding only on the applicant who sought it in respect of any matter referred to in section 97(2)
and on the jurisdictional tax authority of the applicant. This clearly means that an advance ruling is not
applicable to similarly placed taxable persons in the State. It is only limited to the person who has applied for
an advance ruling.

4. What is the time period for applicability of Advance Ruling?

ANSWER:
The law does not provide for a fixed time period for which the ruling shall apply. Instead, in section 103(2), it is
provided that advance ruling shall be binding till the period when the law, facts or circumstances supporting
the original advance ruling have changed. Thus, a ruling shall continue to be in force so long as the transaction
continues and so long as there is no change in law, facts or circumstances.

5. Can an advance ruling given be nullified?

454
ANSWER;
Section 104(1) provides that an advance ruling shall be held to be ab initio void if the AAR or AAAR finds that
the advance ruling was obtained by the applicant by fraud or suppression of material facts or
misrepresentation of facts. In such a situation, all the provisions of the GST Act(s) shall apply to the applicant
as if such advance ruling had never been made (but excluding the period when advance ruling was given and
up to the period when the order declaring it to be void is issued). An order declaring advance ruling to be void
can be passed only after hearing the applicant.
6. Ranjan intends to start selling certain goods in Delhi. However, he is not able to determine (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 if he supplies said goods from Delhi to buyers in U.S.
Ranjan’s tax advisor has advised him to apply for the advance ruling in respect of these issues. He told
Ranjan that the advance ruling would bring him certainty and transparency in respect of the said issues and
would avoid litigation later. Ranjan agreed with his view, but has some apprehensions.
In view of the information given above, you are required to advise Ranjan with respect to following:

(i) The tax advisor asks Ranjan to get registered under GST law before applying for the advance ruling as
only a registered person can apply for the same. Whether Ranjan needs to get registered?

(ii) Ranjan is apprehensive that if at all advance ruling is permitted to be sought, he has to seek it every
year. Whether Ranjan’s apprehension is correct?

(iii) The tax advisor is of the view that the order of Authority for Advance Ruling (AAR) is final and is not
appealable. Whether the tax advisor’s view is correct?

(iv) Sambhav - Ranjan’s friend - is a supplier registered in Delhi. He is engaged in supply of the goods, which
Ranjan proposes to supply at the same commercial level that Ranjan proposes to adopt.
He intends to apply the classification of the goods as decided in the advance ruling order to be obtained by
Ranjan, to the goods supplied by him in Delhi. Whether Sambhav can do so? (MTP MAY 2019)

ANSWER:

(i) Advance ruling under GST can be sought by a registered person or a person desirous of obtaining
registration under GST law [Section 95(c)]. Therefore, it is not mandatory for a person seeking advance ruling
to be registered.
(ii) Section 103(2) stipulates that the advance ruling shall be binding unless the law, facts or circumstances
supporting the original advance ruling have changed. Therefore, once Ranjan has sought the advance ruling
with respect to an eligible matter/question, it will be binding till the time the law, facts and circumstances
supporting the original advance ruling remain same.

(iii) No, the tax advisor’s view is not correct. As per section 100, if the applicant is aggrieved with the finding of

455
the AAR, he can file an appeal with Appellate Authority for Advance Ruling (AAAR). Similarly, if the concerned/
jurisdictional officer of CGST/SGST does not agree with the findings of AAR, he can also file an appeal with
AAAR.
Such appeal must be filed within 30 days from the date on which the ruling sought to be appealed against is
communicated. The Appellate Authority may allow additional 30 days for filing the appeal, if it is satisfied that
there was a sufficient cause for delay in presenting the appeal.
(iv) Section 103 provides that an advance ruling pronounced by AAR is binding only on the applicant who had
sought it and on the concerned officer or the jurisdictional officer in respect of the applicant. This implies that
an advance ruling is not applicable to similarly placed other taxable persons in the State. It is only limited to
the person who has applied for an advance ruling.
Thus, Sambhav will not be able to apply the classification of the goods that will be decided in the advance
ruling order to be obtained by Ranjan, to the goods supplied by him in Delhi.

7. Briefly explain the procedure to be followed by the Authority for Advance Ruling on receipt of the
application for Advance Ruling under section 98. (PAST EXAM NOV 2018)

ANSWER:
The procedure to be followed by the Authority for Advance Ruling (AAR) on receipt of the application for
advance ruling under section 98 is as under:-

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

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

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

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

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

6. Before giving the ruling, AAR must hear the applicant or his authorized representative as well as the

456
jurisdictional officers of CGST/ SGST.

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

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

9. A copy of the advance ruling duly signed by members and certified in prescribed manner shall be sent to the
applicant, the concerned officer and the jurisdictional officer.
8. Briefly explain whether an appeal could be filed before the Appellate Authority against order of Authority
for Advance Ruling (AAR), with reference to sections 100 and 101.

ANSWER;

Yes, the concerned officer, jurisdictional officer or applicant aggrieved by any advance ruling may appeal to
the Appellate Authority for Advance Ruling (AAAR) within 30 days [extendible by another 30 days] from the
date on which such ruling is communicated to him in the prescribed form and manner.

The AAAR must pass an order confirming or modifying the ruling appealed against within a period of 90 days
of the filing of an appeal, after hearing the parties to the appeal.

If members of AAAR differ on any point referred to in appeal, it shall be deemed that no advance ruling can be
issued in respect of the question under appeal. A copy of the advance ruling pronounced by the AAAR is sent
to applicant, concerned officer, jurisdictional officer and to the Authority.

9. Discuss briefly provisions of CGST Act, 2017 regarding questions for which advance ruling can be sought.
(MTP JULY 2021)

ANSWER:

As per section 97(2), advance ruling can be sought for the following questions:-

(a) classification of any goods or services or both

(b) applicability of a notification issued under the CGST Act

(c) determination of time and value of supply of goods or services or both

(d) admissibility of input tax credit of tax paid or deemed to have been paid

457
(e) determination of the liability to pay tax on any goods or services or both

(f) whether applicant is required to be registered

(g) whether any particular activity with respect to any goods and/or services, amounts to/results in a supply of
goods and/or services, within the meaning of that term.
 CHAPTER-24 MISCELLANEOUS PROVISIONS
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY QSTNS -1, 2, 3,5, 7, 8, 9, 10

MAT

PAST NO QUES Q-6 NO NO NO QUES NO QUES NO QUES ------

EXAMS QUES QUES

MTP NO QUES NO QUES Q-4 NO NO QUES Q-4 NO QUES

QUES

RTP NO QUES NO QUES NO NO QUES NO QUES NO QUES

QUES

QUESTIONS

1. Briefly explain how the GST compliance rating score is determined.

ANSWER:
As per section 149(2), the GST compliance rating is determined on a scale of ten on the basis of prescribed
parameters.

458
2. When shall the power to collect statistics be exercised under GST laws? Explain.

ANSWER:
As per section 151, if the Commissioner considers that collection of statistics is necessary for the purpose of
better administration of the Act, he may direct that statistics be collected.
3. When shall the particulars relating to any proceedings or prosecution be published under GST laws?
Discuss the relevant provisions.

ANSWER;
When the Commissioner/authorised officer is of opinion that it is necessary or expedient in the public interest
to publish the name of any person and any other particulars relating to any proceedings or prosecution under
the CGST Act in respect of such person, it may cause to be published such name and particulars [Section
159(1)].
No publication under this section shall be made in relation to any penalty imposed under the CGST Act until
the time for presenting an appeal to the Appellate Authority under section 107 has expired without an appeal
having been presented or the appeal, if presented, has been disposed of [Section 159(2)].

4. Explain the provisions relating to rectification of errors apparent on the face of record under section 161.
(MTP JULY 2021) (MTP MAY 2019)

ANSWER:
Section 161 lays down that any authority, who has passed or issued any decision or order or notice or
certificate or any other document, may rectify any error which is apparent on the face of record in such
decision or order or notice or certificate or any other document, either on its own motion or where such error
is brought to its notice by any GST officer or by the affected person within a period of three months from the
date of issue of such decision or order or notice or certificate or any other document, as the case may be.
However, no such rectification shall be made after a period of six months from the date of issue of such
decision or order or notice or certificate or any other document. Further, the said period of six months shall
not apply in such cases where the rectification is purely in the nature of correction of a clerical or arithmetical
error, arising from any accidental slip or omission.
Principles of natural justice should be followed by the authority carrying out such rectification, if it adversely
affects any person.

5. Write a short note on Anti-profiteering measure.

ANSWER;
As per section 171, any reduction in rate of tax on any supply of goods or services or the benefit of input tax

459
credit shall be passed on to the recipient by way of commensurate reduction in prices. National Anti-
profiteering Authority may examine whether input tax credits availed by any registered person or the
reduction in the tax rate have actually resulted in a commensurate reduction in the price of the goods or
services or both supplied by him.
6. Elaborate the duties of Anti-profiteering Authority. (PAST EXAM NOV 2018)

ANSWER;
The duties of the Anti-profiteering Authority are:
(i) to determine whether the reduction in tax rate or the benefit of input tax credit has been passed on by the
seller to the buyer (hereinafter collectively referred to as ‘benefit’) by reducing the prices
(ii) to identify the taxpayer who has not passed on the benefit
(iii) to order
(a) reduction in prices
(b) return to the recipient, an amount equivalent to the amount not passed on by way of commensurate
reduction in prices along with interest at the rate of 18% from the date of collection of the higher amount till
the date of the return of such amount or recovery of the amount not returned, as the case may be.
If the eligible person does not claim return of the amount or is not identifiable, the amount must be deposited
in the Consumer Welfare Fund;
(c) imposition of penalty
(d) cancellation of registration
(iv) to furnish a performance report to the GST Council by the 10th of the month succeeding each quarter
[Rule 127 of the CGST Rules, 2017]

7. State the various modes of service of a notice, decision, order, summons, or any other communication
under the CGST Act, on the taxable person or any other person to whom it is intended.

ANSWER:
Section 169(1) provides that any decision, order, summons, notice or other communication under the CGST
Act and the rules made thereunder can be served by any one of the following methods:

(a) Giving/tendering directly including by a courier to the addressee or authorised representative or to any
adult member of family residing with the taxable person; or

(b) By Registered post/speed post/courier with acknowledgement due at the last known place of business or
residence; or

(c) By Email to the e-mail address provided at the time of registration or as amended from time to time; or 460

(d) By making the same available at common portal; or

(e) Publication in newspaper circulating in the locality in which the addressee is last known to have resided,
carried on business or personally worked for gain; or
(f) If none of the above modes is practicable then by Affixing at last known place of business or residence and
if such mode is not practicable for any reason, then by affixing a copy thereof on the notice board of the office
of the concerned officer or authority concerned.

8. Section 158(1) lays down that the information obtained by a public servant from the record of any
proceeding under the CGST Act is confidential and cannot be disclosed.
Is there any exception to this rule? Discuss in brief.

ANSWER:
Yes, the confidential information can be disclosed by the public servant for certain specific purposes in terms
of section 158(3). Such specific purposes are given in brief hereunder:

(i) For prosecution

(ii) For carrying out the objects of the CGST Act

(iii) For service of notice or recovery of demand

(iv) For furnishing information to Court in a proceeding where Government is a party

(v) For audit of tax receipts or refunds

(vi) For inquiry into the conduct of a GST officer

(vii) For enabling levy, realisation of any tax or duty

(viii) In lawful exercise of powers

(ix) For enquiry into a charge of misconduct by any professional

461
(x) For data entry on automated system

(xi) For fulfilling the requirement under any other law and in public interest.
9. Explain the scope of circulars and instructions issued by the Board.

ANSWER:

Section 168 empowers the Board (CBIC) to issue orders, instructions or directions to the CGST officers for the
purpose of uniformity in the implementation of the CGST Act. All officers and all other persons employed in
the implementation of the Act observe and follow such orders, instructions or directions.
The binding nature of such orders, instructions and directions has been a matter of debate and scrutiny. The
general understanding that prevails now is that a circular is binding on the officers, but not on the assessee.
However, in case such circular states something contrary to the law, the law shall prevail over the circular.

10. ‘The time limits provided under the CGST Act cannot be extended.’
Do you agree with the statement? Give your views with reference to section 168A.

ANSWER:
The statement is not correct.
The Government has power to extend the time limits provided under the CGST Act. However, such powers are
not unbridled powers. Section 168A empowers the Government to extend the time limits only when the
actions cannot be completed or complied with due to force majeure. Here, force majeure means war,
epidemic, flood, drought, fire, cyclone, earthquake or any other calamity caused by nature affecting the
implementations of provisions of the CGST Act. This power can also be exercised retrospectively.

462
 CHAPTER-1 LEVY OF AND EXEMPTIONS FROM
CUSTOMS DUTY
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY Illustrations – 1 to 4
MAT
QSTNS 1, 4, 6 to 16

PAST ILL-5 Q-17 Q-5 NO QUES NO Q-18,19 NO QUES ------

EXAMS QUES

MTP Q-2 ILL-5 NO QUES Q-2 Q-2, 3 Q-3 Q-2, 17

RTP NO QUES NO QUES ILL-6, 7, 8 NO QUES NO QUES NO QUES Q-20

llustration 1

A machine was originally imported from Japan at Rs. 250 lakh in July on payment of all duties of customs.

463
The said machine was exported (sent-back) to supplier for repairs in December and re-imported without
any re-manufacturing or re-processing in October next year after repairs. Since the machine was under
warranty period, the repairs were carried out free of cost.
However, the fair cost of repairs carried out (including cost of material Rs. 6 lakh) would have been Rs. 9
lakh. Actual insurance and freight charges (to and from) were Rs. 3 lakh. The rate of basic customs duty is
10% and integrated tax is 12%. Ignore GST compensation cess.
Compute the amount of customs duty payable (if any) on re-import of the machine after repairs. The
ownership of the machine has not been changed during the period.
Note: The importer intends to avail exemption, if any, with regard to re-importation of goods which had
been exported for repairs abroad.
Answer

As per Notification No. 45/2017 Cus. dated 30.06.2017, duty payable on re-importation of goods which had
been exported for repairs abroad is the duty of customs which would be leviable if the value of re-imported
goods after repairs were made up of the fair cost of repairs carried out including cost of materials used in
repairs (whether such costs are actually incurred or not), insurance and freight charges, both ways. However,
following conditions need to be satisfied for availing this concession:

(a) goods must be re-imported within 3 years, extendable by further 2 years, after their exportation;

(b) exported goods and the re-imported goods must be the same;

(c) ownership of the goods should not change.

Since all the conditions specified above are fulfilled in the given case, the customs duty payable on re-
imported goods will be computed as under:

Illustration 2
Distinguish between Jetsam and Flotsam

464
Answer
Jetsam and Flotsam are goods which are jettisoned (i.e. thrown with speed) from the vessel into the sea to
reduce weight of vessel to prevent it from sinking. They are not abandoned goods. Jetsam gets sunk whereas
Flotsam does not sink but floats. Duty is payable on both unless they are entitled to be admitted free of duty.
Illustration 3
An importer imported consignment of goods chargeable to duty @ 40% ad valorem. The vessel arrived on
31st May. A bill of entry for warehousing the goods was presented on 2nd June and the goods were duly
warehoused. In the meantime, an exemption notification was issued on 15th October reducing the effective
customs duty to 25% ad valorem.
Thereafter, the importer filed a bill of entry for home consumption on 20th October claiming 25% duty. The
customs Department charged higher rate of duty @ 40% ad valorem. Give your views on the same,
discussing the relevant provisions of the Customs Act, 1962.

Answer
According to section 15(1)(b) of the Customs Act, the relevant date for determination of rate of duty and tariff
value in case of goods cleared from a warehouse is the date on which a bill of entry for home consumption in
respect of such goods is presented. Therefore, the relevant date for determining the duty in the given case will
be 20th October 2020 (the date on which the bill of entry for home consumption is presented) and thus, the
relevant rate of duty will be 25%.

Illustration 4
If the value of goods is Rs. 10,000 and after damage the value is Rs. 2,000 then duty payable on Rs. 10,000/-
should be appropriately reduced to 20% (proportion of 2000 to 10000).

Illustration 5
Peerless Scraps, imported during August, by sea, a consignment of metal scrap weighing 6,000 M.T. (metric
tons) from U.S.A. They filed a bill of entry for home consumption. The Assistant Commissioner passed an
order for clearance of goods and applicable duty was paid by them. Peerless Scraps thereafter found, on
taking delivery from the Port Trust Authorities (i.e., before the clearance for home consumption), that only
5,500 M.T. of scrap were available at the docks although they had paid duty for the entire 6,000 M.T., since
there was no short-landing of cargo. The short-delivery of 500 M.T. was also substantiated by the Port-Trust
Authorities, who gave a “weighment certificate” to Peerless Scraps.
On filing a representation to the Customs Department, Peerless Scraps has been directed in writing to
justify as to which provision of the Customs Act, 1962 governs their claim for remission of duty on the 500
M.T. not delivered by the Port-Trust.

465
You are approached by Peerless Scraps as “Counsel” for an opinion/advice. Examine the issues and tender
your opinion as per law, giving reasons. (PAST EXAM MAY 2018) (MTP NOV 2018)

Answer
As per provisions of section 23, where it is shown to the satisfaction of Assistant or Deputy Commissioner that
any imported goods have been lost or destroyed, otherwise than as a result of pilferage at any time before
clearance for home consumption, the Assistant or Deputy Commissioner shall remit the duty on such goods.
Therefore, duty shall be remitted only if loss has occurred before clearance for home consumption.
In the given case, it is apparent from the facts that quantity of scrap received in India was 6000 metric tonnes
and 500 metric tonnes thereof was lost when it was in custody of Port Authorities i.e. before clearance for
home consumption was made. Also, the loss of 500 MT of scrap cannot be construed to be pilferage, as loss of
such huge quantity cannot be treated as “Petty Theft”.
Hence, Peerless Scraps may take shelter under section 23 justifying his claim for remission of duty.

Illustration 6 (RTP MAY 2019)

With reference to section 70 of the Customs Act, 1962, briefly discuss the conditions to be satisfied for
remission of duty in case of volatile goods.

ANSWER
As per section 70 of the Customs Act, 1962, the conditions to be satisfied for remission of duty in case of
volatile goods are:
(a) The goods should be found deficient in quantity at the time of delivery from the warehouse;
(b) The deficiency should be on account of natural loss, i.e. evaporation etc. and not due to pilferage or thefts

Illustration 7 (RTP MAY 2019)

Enumerate the goods specified as volatile for the purposes of remission of duty under the provisions of
Customs Act, 1962.

ANSWER
The following goods have been specified as volatile for the purpose of remission of duty vide Notification No.
03/2016 Cus. (NT) dated 11.01.2016:
(a) aviation fuel, motor spirit, mineral turpentine, acetone, methanol, raw naptha, vaporizing oil, kerosene,
high speed diesel oil, batching oil, diesel oil, furnace oil and ethylene dichloride, kept in tanks;
(b) wine, spirit and beer, kept in casks
(c) liquid helium gas kept in containers
(d) crude stored in caverns

Illustration 8 (RTP MAY 2019)

Explain rule 3 of the General Rules for the Interpretation of the Import Tariff

ANSWER 466
Rule 3 of the General Rules for the Interpretation of the Import Tariff is used when the goods consists of more
than one material or substance which are classifiable under two or more headings. The rule provides as under:

(i) Rule 3(a) - Specific over general: The heading that provides a more specific description should be preferred
over the heading that provides a general description. However, when two or more headings each refer to part
only of the materials or substances contained in mixed or composite goods or to part only of the items in a set
up for retail sale, those headings are to be regarded as equally specific in relation to those goods, even if one
of them gives a more complete or precise description of the goods.
(ii) Rule 3(b) – Essential character principle: Sub-rule (b) would apply only if the goods cannot be classified
under sub-rule (a). This sub-rule provides that composite goods consisting of different materials or made up of
different components, and goods put up in sets for retail sale, should be classified on the basis of that material
or substance that gives it its essential character

iii) Rule 3(c) – Latter the better: If both sub-rules (a) and (b) fail to classify the goods in question, then resort
may be had to sub-rule (c), which provides that composite goods shall be classified on the basis of the heading
that occurs last in numerical order among those which equally merit consideration

QUESTIONS

1. What are the provisions relating to effective date of notifications issued under section 25 of the Customs
Act, 1962?

ANSWER:
Date of effect of every notification issued will be the date of its issue by the Central Government for
publication in the Official Gazette, unless provided otherwise in the notification. Issue means signed by
competent authority and sent for publication to Government press.
The provision is made as there may be delay of one or two days in publishing in Gazette e.g. if the notification
is issued on 2nd November and published in Official Gazette on 4th November, the notification will be
effective from 2nd November.
The above rules do not apply to exemptions granted through special orders. Special orders are issued
separately for each case and communicated to the beneficiary directly by the Government.

2. An importer imported certain inputs for manufacture of final product. A small portion of the imported
inputs were damaged in transit and could not be used in the manufacture of the final product. An
exemption notification was in force providing exemption in respect of specified raw materials imported into
India for use in manufacture of specified goods, which was applicable to the imports made by the importer
in the present case.
Briefly examine whether the importer could claim the benefit of the aforesaid notification in respect of the

467
entire lot of the inputs imported including those that were damaged in transit. (MTP JULY 2021) (MTP NOV
2020) (MTP NOV 2019) (MTP MAY 2018) (MTP- NOV 2021)

ANSWER:
The facts of the case are similar to the case of BPL Display Devices Ltd. v. CCEx., Ghaziabad (2004) 174 ELT 5
(SC) wherein the Supreme Court has held that the benefit of the notifications cannot be denied in respect of
goods which are intended for use for manufacture of the final product but cannot be so used due to shortage
or leakage.
The Apex Court has held that no material distinction can be drawn between loss on account of leakage and
loss on account of damage. The benefit of said exemption cannot be denied as inputs were intended for use in
the manufacture of final product but could not be so used due to shortage/leakage/damage. It has been
clarified by the Supreme Court that words “for use” have to be construed to mean “intended for use”.
Therefore, the importer can claim the benefit of the notification in respect of the entire lot of the inputs
imported including those that were damaged in transit.

3. M/s Pure Energy Ltd. is engaged in oil exploration and has imported software containing seismic data.
The importer is entitled to exemption from customs duty subject to the condition that an “essentiality
certificate” granted by the Director General of Hydrocarbons is produced at the time of importation of the
goods. Though the importer applied for the certificate within the statutory time limit prescribed for the
same, the certificate was not made available to the importer within a reasonable time by the Director
General of Hydrocarbons. The customs department rejected the importer’s claim for exemption. Examine
briefly whether the department’s action is sustainable in law. (MTP JULY 2021) (MTP MAY 2020)

ANSWER:
This issue has been addressed by the Supreme Court in the case of Commissioner of Customs v. Tullow India
Operations Ltd. (2005) 189 ELT 401 (SC). The Apex Court has observed that if a condition is not within the
power and control of the importer and depends upon the acts of public functionaries, non-compliance of such
a condition, subject to just exceptions cannot be held to be a condition precedent which would disable it from
obtaining the benefit for all times to come.
In the given case also the certificate has not been granted within a reasonable time. Therefore, in view of the
above-mentioned judgement, the importer M/s Pure Energy Ltd. cannot be blamed for the lapse by the
authorities. The Directorate General of Hydrocarbons is under the Ministry of Petroleum and Natural Gas and
such a public functionary is supposed to grant the essentiality certificate within a reasonable time so as to
enable the importer to avail of the benefits under the notification.

4. Explain, with reference to decided case law, whether clearances from Domestic Tariff Area (DTA) to
Special Economic Zone is chargeable to export duty under the SEZ Act, 2005 or the Customs Act, 1962.

ANSWER:

468
In the case of Tirupati Udyog Ltd. v. UOI 2011 (272) E.L.T. 209 (A.P.), it is held that the clearances of goods
from DTA to Special Economic Zone are not chargeable to export duty either under the SEZ Act, 2005 or under
the Customs Act, 1962 on the basis of the following observations:-

• The charging section needs to be construed strictly. If a person is not expressly brought within the scope of
the charging section, he cannot be taxed at all.

• SEZ Act does not contain any provision for levy and collection of export duty on goods supplied by a DTA unit
to a Unit in a Special Economic Zone for its authorised operations. Since there is no charging provision
in the SEZ Act providing for the levy of customs duty on such goods, export duty cannot be levied on the DTA
supplier.

• Reading section 12(1) of the Customs Act, 1962 along with sections 2(18), 2(23) and 2(27) makes it apparent
that customs duty can be levied only on goods imported into or exported beyond the territorial waters of
India.

Since both the SEZ unit and the DTA unit are located within the territorial waters of India, supplies from DTA
to SEZ would not attract section 12(1) [charging section for customs duty].
The above view has also been confirmed in Essar Steel v. UOI 2010 (249) ELT 3 (Guj.) [maintained by SC]
wherein the Departmental appeal has been dismissed by Supreme Court on 12.07.2010 - 2010 (255) ELT A115.

5. M/s. XYZ, a 100% export oriented undertaking (100% E.O.U. in short) imported DG sets and furnace oil
duty free for setting up captive power plant for its power requirements for export production. This benefit
was available vide an exemptions notification. They used the power so generated for export production but
sold surplus power in domestic tariff area.
Customs Department has demanded duty on DG sets and furnace oil as surplus power has been sold in
domestic tariff area. The notification does not specifically restrict the use of imported goods for
manufacture of export goods. Do you think the demand of the Customs Department is valid in law. (PAST
EXAM MAY 2019)

ANSWER:
The facts of the case are similar to the case of Commissioner v. Hanil Era Textile Ltd. 2005 (180) ELT A044 (SC)
wherein the Supreme Court agreed to the view taken by the Tribunal that in the absence of a restrictive clause
in the notifications that imported goods are to be solely or exclusively used for manufacture of goods for
export, there is no violation of any condition of notification, if surplus power generated due to unforeseen
exigencies is sold in domestic tariff area.

Therefore, no duty can be demanded from M/s XYZ for selling the surplus power in domestic tariff area for the
following reasons:

(i) They have used the DG sets and furnace oil imported duty free for generation of power, and

(ii) such power generated has been used for manufacturing goods for export, and 469

(iii) only the surplus power has been sold, as power cannot be stored.
6. Referring to section 25 of the Customs Act, 1962, discuss the following:
(i) Special exemption
(ii) General exemption

ANSWER:

(i) Special Exemption: As per section 25(2) of the Customs Act, 1962, if the Central Government is satisfied
that it is necessary in the public interest so to do, it may, by special order in each case, exempt from payment
of duty, any goods on which duty is leviable only under circumstances of an exceptional nature to be stated in
such order. Further, no duty shall be collected if the amount of duty leviable is equal to, or less than, Rs. 100.
This type of exemption is called as ad hoc exemption. Order under section 25(2) is not required to be
published in the Official Gazette.

(ii) General Exemption: As per section 25(1) of the Customs Act, 1962, if the Central Government is satisfied
that it is necessary in the public interest so to do, it may, by notification in the Official Gazette, exempt
generally either absolutely or subject to such conditions (to be fulfilled before or after clearance) as may be
specified in the notification, goods of any specified description from the whole or any part of duty of customs
leviable thereon. Further, this exemption applies to all importers while exemption under section 25(2) is for
specific importer and specific goods under import.

7. Write a brief note on the following with reference to the Customs Act, 1962:
(i) Remission of duty on imported goods lost
(ii) Pilfered goods

ANSWER:

(i) Remission of duty on imported goods lost: Section 23(1) of the Customs Act, 1962 provides for remission
of duty on imported goods lost (otherwise than as a result of pilferage) or destroyed, if such loss or
destruction is at any time before clearance for home consumption. Such loss or destruction covers loss by
leakage. Duty is payable under this section but it is remitted by Assistant/Deputy Commissioner of Customs if
the importer is able to prove the loss or destruction. Thus, unless remitted, duty has to be paid and burden of

470
proof is on the importer. The provisions of this section are applicable for warehoused goods also.

(ii) Pilfered goods: Section 13 provides that if imported goods are pilfered after unloading thereof but before
the proper officer has made an order for clearance for home consumption or deposit in a warehouse, no duty
is payable on the goods, unless the pilfered goods are restored to importer. In such a case, duty on pilfered
goods is payable by the Port authorities. Also, the importer does not have to prove pilferage. However, the
loss must be only due to pilferage. Section 13 is not applicable for warehoused goods.
8. Distinguish between Pilfered goods and Lost/destroyed goods

ANSWER:

9. Goods manufactured or produced in India, which were earlier exported and thereafter imported into
India will be treated at par with other goods imported into India. Is the proposition correct or any

471
concession is provided on such import? Discuss briefly.

ANSWER:
The given proposition is correct i.e., goods produced in India, which were earlier exported and thereafter
imported into India will be treated at par with other goods imported into India [Section 20 of the Customs Act,
1962]. However, the following concessions are being provided in this regard:

(i) Maximum import duty will be restricted to duty drawback or refund availed or integrated tax not paid at
the time of export.
(ii) Where the goods were originally exported for repairs, the duty on re-importation is restricted to the fair
cost of repairs including cost of materials used in repairs whether such costs are actually incurred or not,
insurance and freight charges, both ways done abroad.

The above two concessions are given subject to the condition that:
(a) the re-importation is done within 3 years or 5 years if time is extended.
(b) the exported goods and re-imported goods must be the same.

In case of point (ii) above, the ownership of the goods should also not have changed.

However, these concessions would not be applicable if-

• re-imported goods had been exported by EOU or a unit in FTP

-re-imported goods had been exported from a public/private warehouse

• re-imported goods which fall under Fourth schedule to the Central Excise Act, 1944.
[Notification No. 45/2017 Cus dated 30.06.2017]

(iii) When exported goods come back for repairs and re-export, the re-imported goods other than the
specified goods can avail exemption from paying of import duty subject to the following conditions:

(i) the re-importation is for repairs only

(ii) the time limit is 3 years. In case of Nepal, such time-limit is 10 years.

(iii) the goods must be re-exported after repairs

(iv) the time limit for export is 6 months (extendable to one year).
[Notification No. 158/95 Cus. dated 14.11.1995 as amended vide Notification No. 60/2018 Cus dated
11.09.2018]

10. Write a brief note on stages of imposition of taxes and duties.

ANSWER: 472

Three stages of imposition of taxes and duties

All taxes and duties are imposed in three stages, which are levy, assessment and collection:-

(a) Levy is the stage where the declaration of liability is made and the persons or the properties in respect of
which the tax or duty is to be levied is identified and charged.
(b) Assessment is the procedure of quantifying the amount of liability. The liability to pay tax or duty does not
depend upon assessment.

(c) The final stage is where the tax or duty is actually collected. The collection of tax or duty may for
administrative or other reasons be postponed to a later time.

11. Discuss the provisions relating to denaturing or mutilation of goods.

ANSWER:
Section 24 of the Customs Act, 1962 empowers Central Government to make rules for permitting to
denature/mutilate the imported goods, which are ordinarily used for more than one purpose, so as to render
them unfit for one or more of such purpose. If any imported goods can be used for more than one purpose
and duty is leviable on the basis of its purpose of utilisation, then denaturing or mutilation of such goods is
useful. By denaturing, goods are made unfit for other purposes. After denaturing process, goods can be used
only for one purpose and accordingly duty can be levied. Denaturing of Spirit Rules, 1972 specify procedure for
denaturing spirit.

12. Briefly explain the provisions relating to abatement of duty on damaged or deteriorated goods under
section 22 of the Customs Act, 1962.
ANSWER:
ABATEMENT OF DUTY ON DAMAGED OR DETERIORATED GOODS [SECTION 22] Where it is shown to the
satisfaction of the Assistant Commissioner of Customs or Deputy Commissioner of Customs - (a) that any
imported goods had been damaged or had deteriorated at any time before or during the unloading of the
goods in India; or (b) that any imported goods, other than warehoused goods, had been damaged at any time
after the unloading thereof in India but before their examination under section 17, on account of any accident
not due to any wilful act, negligence or default of the importer, his employee or agent; or (c) that any
warehoused goods had been damaged at any time before clearance for home consumption on account of any
accident not due to any wilful act, negligence or default of the owner, his employee or agent, such goods shall
be chargeable to duty in accordance with the provisions of sub-section (2) [Sub-section (1)]. The duty to be
charged on the goods referred to in sub-section (1) shall bear the same proportion to the duty chargeable on
the goods before the damage or deterioration which the value of the damaged or deteriorated goods bears to
the value of the goods before the damage or deterioration [Sub-section (2)]. For the purposes of this section,
the value of damaged or deteriorated goods may be ascertained by either of the following methods at the
option of the owner:- (a) the value of such goods may be ascertained by the proper officer, or (b) such goods

473
may be sold by the proper officer by public auction or by tender, or with the consent of the owner in any other
manner, and the gross sale proceeds shall be deemed to be the value of such goods [Sub-section (3)].

13. Briefly explain the following with reference to the provisions of the Customs Act, 1962:
(i) Indian customs waters
(ii) India

ANSWER:
Indian customs waters [Section 2(28)] Indian customs waters means the waters extending into the sea up to
the limit of Exclusive Economic Zone under section 7 of the Territorial Waters, Continental Shelf, Exclusive
Economic Zone and other Maritime Zones Act, 1976 and includes any bay, gulf, harbour, creek or tidal river. If
a person has committed any offence punishable under customs law within the Indian customs waters, he may
be arrested. Also, goods may be confiscated and vessel be stopped in the Indian customs waters if the same is
found to be used in the smuggling. Further, prohibited goods can also be confiscated if brought within the
Indian customs waters.
India includes the territorial waters of India [Section 2(27)].

14. Distinguish between Indian territorial waters and Indian custom waters.
ANSWER:
Meaning and significance of territorial waters of India As per Territorial Waters, Continental Shelf, Exclusive
Economic Zone and other Maritime Zones Act, 1976, territorial waters of India extend to 12 nautical miles into
sea from the appropriate base line. Goods are deemed to have been imported if the vessel enters the
imaginary line on the sea at the 12th nautical mile i.e. if the vessel enters the territorial waters of India.
Therefore, a vessel not bound to India should not enter these waters. India includes not only the surface of sea
in the territorial waters, but also the air space above and the ground at the bottom of the sea.
Indian customs waters [Section 2(28)] Indian customs waters means the waters extending into the sea up to
the limit of Exclusive Economic Zone under section 7 of the Territorial Waters, Continental Shelf, Exclusive
Economic Zone and other Maritime Zones Act, 1976 and includes any bay, gulf, harbour, creek or tidal river. If
a person has committed any offence punishable under customs law within the Indian customs waters, he may
be arrested. Also, goods may be confiscated and vessel be stopped in the Indian customs waters if the same is
found to be used in the smuggling. Further, prohibited goods can also be confiscated if brought within the
Indian customs waters.

15. Write a brief note on the constitutional provisions governing the levy of customs duties.

ANSWER:

Article 265 of the Constitution provides that “No tax shall be levied or collected except by authority of law”. All
the enactments enacted by the Parliament should have its source in the Constitution of India. The power for
enacting the laws is conferred on the Parliament and on the legislature of a State by Article 245 of the

474
Constitution. The said Article provides:

Subject to the provisions of this Constitution, Parliament may make laws for the whole or any part of the
territory of India, and the legislature of a State may make laws for the whole or any part of the state. No law
made by the Parliament shall be deemed to be invalid on the ground that it would have extra-territorial
operation.

Article 246 governs the subject matter of the laws made by the Parliament and by the legislature of a State.
The matters are listed in the Seventh Schedule to the Constitution.
The seventh schedule is classified into three lists as follows:
List I [referred as Union List]
This list enumerates the matters in respect of which the Parliament has an exclusive right to make laws. Entry
83 of Union List has given the power to the Union to frame laws to levy duties of Customs including export
duties.

List II [referred as State List]

This list enumerates the matters in respect of which the legislature of a State has an exclusive right to make
laws.

List III [referred as the concurrent list]

This list enumerates the matters in respect of which both the Parliament and, subject to List I, legislature of a
State, have powers to make laws.
Parliament has a further power to make any law for any part of India not comprised in a state,
notwithstanding that such matter is included in the State List.

Article 286 of the Constitution provides for restrictions as to imposition of tax on certain supply of goods or
services or both. The said Article provides as follows-

No law of a State shall impose, or authorise the imposition of, a tax on the supply of goods or services or both,
where such supply takes place-

(a) outside the State; or

(b) in the course of the import of the goods or services or both into, or export of the goods or services or both
out of, territory of India.

Further, the said Article provides that Parliament may by law formulate principles for determining when a
supply becomes, import of export.

Thus, the power to levy customs duties on import/export, as well as the power to legislate the principles to
determine whether a transaction qualifies as import/export, lies solely with the Union, i.e. the Parliament of
India.

16. Examine the validity of the following statements: 475

(a) A beneficial owner of imported goods is a person on whose behalf the goods are being imported.

(b) Customs area does not include a warehouse.

(c) Customs station includes international courier terminal.

ANSWER:
(a) The statement is valid. Section 2(3A) defines beneficial owner to mean any person on whose behalf the
goods are being imported or exported or who exercises effective control over the goods being imported or
exported.

(b) The statement is not valid. The definition of customs area includes within its ambit a warehouse too.
The customs area is defined to mean the area of a customs station or a warehouse and includes any area in
which imported goods or export goods are ordinarily kept before clearance by customs authorities.

(c) The statement is valid. International courier terminal and foreign post office are included within the scope
of customs station as defined under section 2(13) of the Customs Act, 1962.
As per the amended section 2(13), a customs station means any customs port, customs airport, international
courier terminal, foreign post office or land customs station.

17. In January, 2020, Rock & Rock India Ltd. imported a consignment from U.S.A (by sea). The value of
consignment was Rs. 7,50,000 and total duty payable was Rs. 1,50,000.
Company filed bill of entry for home consumption but before inspection and clearance for home
consumption it found that the goods were damaged.
On filing a representation to the Customs Department, proper officer refused the claim for abatement
because goods were already unloaded. The proper officer is in agreement with the claim that the value of
goods has come down to only Rs. 1,50,000.

Examine the issue with reference to the relevant statutory provisions and calculate the amount of total duty
payable:

Would your answer be different in the above case if the goods get deteriorated after unloading and
examination but before clearance for home consumption, and value comes down to Rs. 7,00,000 ? (PAST
EXAM NOV 2018) (MTP- NOV 2021)

476
ANSWER:

The abatement of duty is allowed where it is shown to the satisfaction of the Assistant/Deputy Commissioner
of Customs that, inter alia, any imported goods, other than warehoused goods, had been damaged at any time
after the unloading thereof in India but before their examination, on account of any accident not due to any
wilful act, negligence or default of the importer.

Thus, in view of the above-mentioned provisions, the stand taken by the proper officer of refusing the claim
for abatement is not valid in law.
The duty to be charged on the damaged goods shall be reduced in proportion to the reduction in the value of
goods on account of damage.

Thus, in the given case, the amount of total duty payable

= [Rs. 1,50,000/Rs. 7,50,000] x Rs. 1,50,000 = Rs. 30,000

The abatement of duty is allowed in case of deterioration only if such deterioration occurs before or during
the unloading of goods. Since in this case, imported goods have deteriorated before clearance for home
consumption but after unloading, abatement of duty will not be allowed and full duty will have to be paid.

18. Precise Finishing Ltd. imported consignment of graphic design system and one electronic flat knitting
machine. The graphic design system is a computer system required to design the artwork which shall be
knitted by the flat knitting machine. Graphic design system is not an integral part of electronic flat
knitting machine. In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, an
exemption had been granted in respect of electronic flat knitting machine and falling within Chapter 85 of
the First Schedule to the Customs Tariff Act, 1975. The exemption does not include any specific mention of
accessories to the machine. Precise Finishing Ltd. has claimed exemption of the said notification in respect
of Graphic Design System also as accessory of Flat Knitting Machine.
The Customs Department rejected the importer's claim for exemption on Graphic Design System. Examine
whether the Department's action is sustainable in law. (PAST EXAM JAN 2021)

Answer

The graphic design system is not an integral part of the electronic flat knitting machine. It is an accessory
to the machine. Hence, electronic flat knitting machine and graphic design system cannot be treated as one
single unit and should be classified and assessed separately.

In the given case, the exemption had been granted under the customs law specifically in respect of the
electronic flat knitting machine falling under Chapter 85 of the First Schedule to the Customs Tariff Act,
1975 and not to its accessory – the graphic design system.

477
Therefore, the benefit of the exemption notification available in respect of the electronic flat knitting
machine will not be available to graphic design system. The Department’s action is sustainable in law.
19. Elaborate the meaning and historical background of "customs". Also elucidate the constitutional
entries/provisions which provide the power to make laws relating to customs duty, and who possesses
the power to make such laws. (PAST EXAM JAN 2021)

Answer

The term ‘customs’ derives its colour and essence from the term ‘custom’, which means a habitual practice or
course of action that characteristically is repeated in like circumstances.

Duties on import and export of goods were levied through legislations during the British period before which,
during monarchical governance, said duty was collected at the city gates at the time of goods coming in and
going out. The legislations of the British period were replaced by the enactment and
promulgation of the Customs Act, 1962 and the Customs Tariff Act, 1975 The power to make laws is conferred
on the Parliament and the legislature of a State by Article 245 of the Constitution of India. Further, entry 83 of
the List I [Union List] of the Seventh Schedule to Article 246 of the Constitution of India grants the power to
frame laws relating to customs duty.

The power to make laws relating to customs duty vests exclusively with the Parliament.

478
 CHAPTER-2 TYPES OF DUTY
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY Illustrations – 1 to 4
MAT
QSTNS 1, 3, 4, 5, 7, 8, 10

PAST NO QUES ILL-4 NO QUES Q-11 Q-13 NO QUES NO QUES ------

EXAMS

MTP NO QUES NO QUES NO QUES Q-6 Q-6, 9 Q-9 ILL-3,

Q-11
RTP NO QUES NO QUES NO QUES Q-2 NO QUES Q-12 NO
QUES

Illustration 1
Write a short note on the applicability of safeguard measures under the Customs Tariff Act, 1975 on articles
imported by EOU/SEZ unit and cleared as such into domestic tariff area (DTA).

Answer
Section 8B of Customs Tariff Act, 1975, provides for levy of safeguard measures on articles imported by an
100% EOU/unit in a SEZ that are cleared as such into DTA. In such cases, safeguard measures shall be applied
on that portion of the article so cleared as was leviable when it was imported into India.

Illustration 2
What will be the dates of commencement of the definitive anti-dumping duty in the following cases under
section 9A of the Customs Tariff Act, 1975 and the rules made thereunder:
(i) where no provisional duty is imposed;

479
(ii) where provisional duty is imposed;
(iii) where anti-dumping duty is imposed retrospectively from a date prior to the date of imposition of
provisional duty.

Answer
The Central Government has power to levy anti-dumping duty on dumped articles in accordance with the
provisions of section 9A of the Customs Tariff Act, 1975 and the rules framed thereunder.

(i) In a case where no provisional duty is imposed, the date of commencement of anti-dumping duty will be
the date of publication of notification, imposing anti-dumping duty under section 9A(1), in the Official Gazette.
(ii) In a case where provisional duty is imposed under section 9A(2), the date of commencement of anti-
dumping duty will be the date of publication of notification, imposing provisional duty under section 9A(2), in
the Official Gazette.

(iii) In a case where anti-dumping duty is imposed retrospectively under section 9A(3) from a date prior to the
date of imposition of provisional duty, the date of commencement of anti-dumping duty will be such prior
date as may be notified in the notification imposing anti-dumping duty retrospectively, but not beyond 90
days from the date of such notification of provisional duty.

Illustration 3

With reference to the Customs Tariff Act, 1975, discuss the validity of the imposition of customs duties in
the following cases:- (MTP JULY 2021) (MTP- NOV 2021)

(a) Both countervailing duty and anti-dumping duty have been imposed on an article to compensate for the
same situation of dumping.

(b) Countervailing duty has been levied on an article for the reason that the same is exempt from duty
borne by a like article when meant for consumption in the country of origin.

(c) Definitive anti-dumping duty has been levied on articles imported from a member country of World
Trade Organization as a determination has been made in the prescribed manner that import of such article
into India threatens material injury to the indigenous industry.

Answer

(a) Not valid. As per section 9B of the Customs Tariff Act, 1975, no article shall be subjected to both
countervailing and anti-dumping duties to compensate for the same situation of dumping or export
subsidization.

(b) Not valid. As per section 9B of the Customs Tariff Act, 1975, countervailing or anti-dumping duties shall not
be levied by reasons of exemption of such articles from duties or taxes borne by the like articles when meant
for consumption in the country of origin or exportation or by reasons of refund of such duties or taxes.

480

(c) Valid. As per section 9B of the Customs Tariff Act, 1975, no definitive countervailing duty or anti-dumping
duty shall be levied on the import into India of any article from a member country of the World Trade
Organisation or from a country with whom Government of India has a most favored nation agreement, unless
a determination has been made in the prescribed manner that import of such article into India causes or
threatens material injury to any established industry in India or materially retards the establishment of any
industry in India.
Illustration 4 (PAST EXAM NOV 2018)
With regard to the powers of the Customs officers to draw samples under section 144 of the Customs Act,
1962, indicate
I. The purposes for which samples can be drawn;
II. When can the samples be drawn;
IlI. The provisions for disposal of the samples after the purpose is over. (5 Marks)

ANSWER

(I) The samples can be drawn for examination or testing, or for ascertaining the value thereof, or for any other
purposes of Customs Act.

(II) The samples can be taken on the entry or clearance of any goods or at any time while such goods are being
passed through the customs area.

(III) After the purpose for which a sample was taken is over, such sample shall, if practicable, be restored to
the owner, but if the owner fails to take delivery of the sample within 3 months of the date on which the
sample was taken, it may be disposed of in such manner as the Principal Commissioner of Customs or
Commissioner of Customs may direct.

QUESTIONS

1. With reference to section 9AA of Customs Tariff Act, 1975, state briefly the provisions of refund of anti-
dumping duty.

ANSWER:
According to the provisions of section 9AA of the Customs Tariff Act, 1975, where an importer proves to the
satisfaction of the Central Government that he has paid any anti-dumping duty imposed on any article, in
excess of the actual margin of dumping in relation to such article, he shall be entitled to refund of such excess
duty. However, the importer will not be entitled for refund of provisional anti-dumping duty under section
9AA as the same is refundable under section 9A(2) of the said Act. Refund of excess anti-dumping duty paid is
subject to provisions of unjust enrichment – Automotive Tyre Manufacturers Association v. Designated

481
Authority 2011 (263) ELT 481 (SC).

2. With reference to section 9A(1A) of the Customs Tariff Act, 1975, mention the ways that constitute
circumvention of antidumping duty imposed on an article which may warrant action by the Central
Government. (RTP NOV 2019)

ANSWER:
As per section 9A(1A) of the Customs Tariff Act, 1975, following are the ways that would constitute
circumvention (avoiding levy of duty by unscrupulous means) of antidumping duty imposed on an article that
may warrant action by the Central Government:

(i) altering the description or name or composition of the article subject to such anti-dumping duty,

(ii) import of such article in an unassembled or disassembled form,

(iii) changing the country of its origin or export, or

(iv) any other manner, whereby the anti-dumping duty so imposed is rendered ineffective.
In such cases, investigation can be carried out by Central Government and then anti dumping can be imposed
on such articles.

3. When shall the safeguard measures under section 8B of the Customs Tariff Act, 1975 be not imposed?
Discuss briefly.

ANSWER:
The safeguard measures under section 8B of the Customs Tariff Act, 1975 is not imposed on the import of the
following types of articles:

(i) Articles originating from a developing country, so long as the share of imports of that article from that
country does not exceed 3% of the total imports of that article into India;

(ii) Articles originating from more than one developing country, so long as the aggregate of imports from
developing countries each with less than 3% import share taken together does not exceed 9% of the total
imports of that article into India;

(iii) Articles imported by a 100% EOU or units in a Special Economic Zone unless it is specifically made
applicable on them or the article imported is either cleared as such into DTA or used in the manufacture of any
goods that are cleared into DTA. In such cases, safeguard measures shall be applied on that portion of the
article so cleared or so used as was leviable when it was imported into India.

482
4. What are the conditions required to be fulfilled by the importer to make the imported goods eligible for
preferential rate of duty prescribed by the Central Government by notification under section 25 of the
Customs Act, 1962?

ANSWER:
The Government may by notification under section 25 of the Customs Act, 1962 prescribe preferential rate of
duty in respect of imports from certain preferential areas. The importer will have to fulfill the following
conditions to make the imported goods eligible for preferential rate of duty:

(i) At the time of importation, he should make a specific claim for the preferential rate.

(ii) He should also claim that the goods are produced or manufactured in such preferential area.

(iii) The area should be notified under section 4(3) of the Customs Tariff Act, 1975 to be a preferential area.

(iv) The origin of the goods shall be determined in accordance with the rules made under section 4(2) of the
Customs Tariff Act, 1975.

Determination of Origin’ is important to allow concessional rate of customs duty. Generally, as per the rules

(a) if the goods are un-manufactured, it should be grown or produced in that area

(b) If it is fully manufactured in that country, it should be manufactured from material produced or with un-
manufactured materials from that country

(c) if it is partially manufactured in that country, final process should be completed in that country and at least
specified percentage of expenditure on material or labour should be in that country.

5. Write a note on "Emergency power to impose or enhance import duties under section 8A of the Customs
Tariff Act, 1975".

ANSWER:

483
Section 8A of Customs Tariff Act, 1975 provides that the where the Central Government is satisfied that the
basic customs duty leviable on any article should be increased and that circumstances exist which render it
necessary to take immediate action, it may, by notification amend the First Schedule of the Customs Tariff to
increase the import duty leviable on such article to such extent as it thinks necessary.
6. Determine the customs duty payable under the Customs Tariff Act, 1975 including the safeguard duty of
30% under section 8B of the said Act with the following details available on hand:

Assessable value of Sodium Nitrite imported from a Rs.

developing country from 26thOctober, 2019 to 25th October, 30,00,000
2020 (both days inclusive)
Share of imports of Sodium Nitrite from the developing 4%
country against total imports of Sodium Nitrite to India
Basic custom duty 10%
Integrated tax 12%
Social welfare surcharge 10%
Note: Ignore GST compensation cess. (MTP NOV 2020) (MTP NOV 2019)

ANSWER:
Computation of customs duty and integrated tax payable thereon
Particular Amount(Rs.)
Assessable value of sodium nitrite imported 30,00,000
Add: Basic custom duty @ 10% (Rs. 30,00,000 × 10%) 3,00,000
Safeguard duty @ 30% on Rs.30,00,000 [Safeguard duty is 9,00,000
imposable in the given case since share of imports of sodium
nitrite from the developing country is more than 3% of the
total imports of sodium nitrite into India (Proviso to section
8B(2) of the Customs Tariff Act, 1975)]
Social welfare surcharge @ 10% x Rs.3,00,000 30,000
Total 42,30,000
Integrated tax (Rs.42,30,000 × 12%) [Note] 5,07,600
Total customs duty payable 17,37,600
(Rs.3,00,000 +Rs.9,00,000+ Rs.30,000+ Rs.5,07,600)
Note: It has been clarified by DGFT vide Guidance note that value for calculation of integrated tax shall also
include safeguard duty amount.

7. Differentiate between protective duty and safeguard duty.

484
ANSWER:
Protective duties: are intended to give protection to indigenous industries. If resort to protective duties is not
made there could be a glut of cheap imported articles in the market making the indigenous goods
unattractive.

Factors to be considered while giving protection through protective duties: The protection through
protective duties is given considering the following factors.
(a) The protective duties should not be very stiff so as to discourage imports.

(b) It should be sufficiently attractive to encourage imports to bridge the gap between demand and supply of
those articles in the market.

Levied by Central Government: The protective duties are levied by the Central Government upon the
recommendation made to it by the Tariff Commission and upon it being satisfied that circumstances exist
which render it necessary to take immediate action to provide protection to any industry established in India
[Section 6].

Duration of protective duties: The protective duty shall be effective only upto and inclusive of the date if any,
specified in the First Schedule [Section 7(1)].

Power of Central Government to alter such duties: The Central Government may reduce or increase the duty
by notification in the Official Gazette.
However, such duty shall be altered only if it is satisfied, after such inquiry as it thinks necessary, that such
duty has become ineffective or excessive for the purpose of securing the protection intended to be afforded
by it to a similar article manufactured in India [Section 7(2)].

In case of increase in duty, approval of Parliament required: If there is any increase in the duty as specified
above, then the Central Government is required to place such notification in the Parliament for its approval.
Every notification insofar as it relates to increase of such duty, shall be laid before each House of Parliament if
it is sitting as soon as may be after the issue of the notification, and if it is not sitting within seven days of its
re-assembly, and the Central Government shall seek the approval of Parliament to the notification by a
resolution moved within a period of fifteen days beginning with the day on which the notification is so laid
before the House of the People. If the Parliament recommends any change in the notification, then the
notification shall have effect subject to such changes. However, anything done pursuant to the notification
before the recommendation by the Parliament shall be valid [Section 7(3)].

POWER OF CENTRAL GOVERNMENT TO APPLY SAFEGUARD MEASURES [SECTION 8B OF THE CUSTOMS

TARIFF ACT]
Circumstances in which safeguard measures can be imposed: Central Government after conducting enquiry
can impose the safeguard measures if it is satisfied that,
(a) Any article is imported into India in increased quantities; and

485
(b) Such increased importation is causing or threatening to cause serious injury to domestic industry.

Duration of safeguard measures: The measures imposed under this section shall be in force for a period of 4
years from the date of its imposition.

Extension of period: The Central Government may extend the period of such imposition from the date of first
imposition provided it is of the opinion that:-
(a) Domestic industry has taken measures to adjust to such injury or as the case may be to such threat and

(b) It is necessary that the safeguard measures should continue to be imposed.

However, the total period of levy of safeguard measures is restricted to 10 years.

Applicability of all machinery provisions of the Customs Act, 1962:

The provisions of the Customs Act, 1962 and the rules and regulations made there under, including those
relating to the date for determination of rate of duty, assessment, non-levy, short levy, refunds, interest,
appeals, offences and penalties shall, as far as may be, apply to the duty chargeable under this section as they
apply in relation to duties leviable under that Act.

Exemptions from safeguard measures

(a) Articles from developing country: Articles originating from developing country, so long as the share of
imports of that article from that country does not exceed 3% of the total imports of that article into India.

(b) Articles originating from more than one developing country: Articles originating from more than one
developing country, so long as the aggregate of imports from developing countries each with less than 3%
import share taken together does not exceed 9% of the total imports of that article into India.

(c) Imports by 100% EOU or units in a Special Economic Zone: Safeguard measures shall not apply to articles
imported by a 100% EOU/SEZ unit unless -

(i) specifically made applicable; or

(ii) the article imported is either cleared as such into DTA or used in the manufacture of any goods that are
cleared into DTA and in such cases safeguard measures shall be applied on that portion of the article so
cleared or so used as was leviable when it was imported into India.

Provisional Assessment

486
(a) The Central Government is also empowered to impose provisional safeguard measures.

(b) This provisional safeguard measures may be imposed on the basis of preliminary determination that
increased imports have caused or threatened to cause serious injury to a domestic industry.

(c) The provisional safeguard measures shall be in force for a maximum period of 200 days from the date of its
imposition.
(d) If upon final determination, the Central Government is of the opinion that the increased imports have not
caused or threatened to cause serious injury to a domestic industry, the safeguard duty collected shall be
refunded.

8. Briefly examine the nature and significance of the levy of anti-dumping duty under the Customs Tariff Act,
1975
ANSWER:

When the export price of a product imported into India is less than the Normal Value of ‘like articles’ sold in
the domestic market of the exporter, it is known as dumping. Although there is nothing inherently illegal or
immoral in exporter charging a price less than the price prevailing in its domestic market, Designated
Authority can initiate necessary action for investigations and subsequent imposition of anti-dumping duties, if
such dumping causes or threatens to cause material injury to the domestic industry of India.

Anti-dumping action can be taken only when there is an Indian industry which produces “like articles” when
compared to the allegedly dumped imported goods. Further, this duty is country specific i.e. it is imposed on
imports from a particular country.

Section 9A(1)of the Customs Tariff Act, 1975 provides that where any article is exported by an exporter or
producer from any country or territory (hereinafter in this section referred to as the exporting country or
territory) to India at less than its normal value, then, upon the importation of such article into India, the
Central Government may, by notification in the Official Gazette, impose an anti-dumping duty not exceeding
the margin of dumping in relation to such article.

Every notification issued under this section shall as soon as may be after it is issued, be laid before each House
of Parliament [Sub-section (7)]. Further, the provisions of the Customs Act, 1962 and the rules and regulations
made thereunder, including those relating to the date for determination of rate of duty, assessment, non-levy,
short levy, refunds, interest, appeals, offences and penalties shall, as far as may be, apply to the duty
chargeable under this section as they apply in relation to duties leviable under that Act [Sub-section (8)].

Computation of anti-dumping duty: Anti-dumping duty is: (i) Margin of dumping or (ii) Injury margin
whichever is lower. The anti-dumping duty chargeable under this section is in addition to any other duty

487
imposed under this Act or any other law for the time being in force. In Designated Authority vs Haldor Topsoe
2000 (120) ELT 11, the Supreme Court held that anti-dumping duty could be fixed with reference to prices in a
territory and that European Union could also be a territory.
9. Chaintop Industries has challenged the imposition of anti-dumping duty retrospectively on the grounds
that it is unconstitutional. Explain whether it would succeed in its contention. (MTP JULY 2021) (MTP MAY
2020)

ANSWER:

Section 9A(3) of the Customs Tariff Act, 1975 provides that the anti-dumping duty can be imposed with
retrospective effect provided the Government is of the opinion that:-

(a) there is a history of dumping which caused injury or that the importer was, or should have been, aware
that the exporter practices dumping and that such dumping would cause injury, and

(b) the injury is caused by massive dumping of an article imported in a relatively short time, which in the light
of timing and volume of the imported article dumped and other circumstances is likely to seriously undermine
the remedial effect of the anti-dumping duty liable to be levied.

The duty can be levied retrospectively by issuing a notification but not beyond 90 days from the date of
notification.

Thus, Chaintop Industries would succeed in its contention only if all of the above conditions are not satisfied.

10. Determine the total duties payable under Customs Act if Mr. Rao imported rubber from Malaysia at
landed price (exclusive of duties) of Rs.25 lakh. It has been notified by the Central Government that share of
imports of rubber from the developing country against total imports to India exceeds 5%. Safeguard duty
notified on this product is 30%, IGST u/s 3(7) is 12% and BCD is 10%.

ANSWER:

Computation of total duties payable under the Customs Act

S. No. Particulars (Rs.)
1 Landed price 25,00,000
2 Add: Basic customs duty @ 10% 2,50,000
3 Add: Safeguard duty @ 30% on Rs. 25,00,000 7,50,000

488
4 Add: Social welfare surcharge (SWS) @ 10 % on Rs. 2,50,000 25,000
[While calculating SWS, safeguard duty is excluded]
5 Add: Integrated tax 4,23,000
12% of Rs. 35,25,000 (Rs. 25,00,000 + Rs. 2,50,000 + Rs. 7,50,000 + Rs. 25,000)
[Integrated tax is levied on the sum total of the assessable value of the imported
goods, customs duties and applicable SWS]
6 Total customs duties and tax payable 14,48,000
[Rs. 2,50,000 + Rs. 7,50,000 + Rs. 25,000 + Rs. 4,23,000]
11. During the year 2021, the customs authorities have noticed that there is an increased quantity of
Product XYZ being imported into the country. Determine whether the Central Government should consider
levying safeguard duty or anti-dumping duty with appropriate reasons. Also enumerate any
exemptions/reliefs available from such duty. (PAST EXAM NOV 2019) ( MTP- NOV 2021)

ANSWER:

In the given case, since Product XYZ is being imported into the country in increased quantity, Central
Government should consider levying safeguard Duty and not anti-dumping duty.
Anti-dumping duty is imposed when any article is exported from any country to India at less than its normal
value, which is not the case here.
However, safeguard duty can be imposed only when Central Government is satisfied that such increased
importation is causing/threatening to cause serious injury to the domestic industry.

Exemptions/reliefs:

(a) Safeguard duty shall not be imposed on articles originating from developing country if the share of imports
of that article from that country ≤ 3% of the total imports of that article into India.

(b) Safeguard duty shall not be imposed on articles originating from more than one developing country if the
aggregate of imports from developing countries each with less than 3% import share taken together ≤ 9% of
the total imports of that article into India.

(c) Safeguard duty shall not be applicable on articles imported by a 100% EOU/ SEZ unit unless specifically
made applicable;

(d) Safeguard duty shall not be applicable on articles imported by a 100% EOU/ SEZ unit unless the article
imported is either cleared as such/ used in the manufacture of any goods that are cleared, into DTA.

(e) Central Government may exempt notified quantity of any article, when imported from any country into
India, from whole/part of the safeguard duty.

489
12. KTU Limited has imported certain goods for sale in India from Country Z, which are liable for anti-
dumping duty. Country Z sell the like goods in its domestic market in the ordinary course of trade at USD
300 per piece. The imported goods are sold in domestic Indian industry @ USD 275 per piece. KTU Limited
has imported the goods at USD 180 per piece. Landed value of the imported goods is USD 190 per piece.
Compute the anti-dumping duty payable by KTU Limited for 800 pieces of these goods it has imported
during the year assuming conversion rate @ ₹ 72 per USD. ( RTP JULY 2021)
Answer

The quantum of anti-dumping duty is:

(i) margin of dumping or
(ii) injury margin whichever is lower.

Margin of dumping is the difference between export price and normal value of the imported article.
Injury margin is the difference between the fair selling price [non-injurious price (NIP)] due to the
domestic industry and the landed value of the dumped imports.

Export price in relation to an article, means the price of an article exported from the exporting country or
territory. KTU Limited has imported the goods at USD 180 per piece. Thus, export price is USD 180 per piece.

Normal value in relation to an article, means comparable price, in the ordinary course of trade, for the like
article when destined for consumption in the exporting country or territory as determined in accordance with
the rules. Since Country Z sell the like goods in its domestic market in the ordinary course of trade at USD 300
per piece, thus normal value in the given case is USD 300 per piece.
Fair Selling Price (FSP) [Non-Injurious Price] is that level of price, which the industry is, expected to have
charged under normal circumstances in the Indian market during the period defined. Since the imported
goods are sold in domestic Indian Industry @ USD 275 per piece, thus Fair selling price in the present case is
USD 275 per piece.

Landed Value is taken as the assessable value under the Customs Act and the applicable basic customs duties
except CVD, SAD and special duties. Landed value in the given case is USD 190 per piece.
In the given case, anti-dumping duty per piece is:

(i) Margin of dumping is USD 120 [USD 300- USD 180] or

(ii) Injury margin is USD 85 [USD 275 – USD 190] whichever is lower i.e. USD 85
Anti-dumping duty for 800 pieces (in rupees) = USD 85 x 800 pieces x ₹ 72 = ₹ 48,96,000.

13. PCB Limited has imported printed circuit boards for sale in India from Country X, which are liable for

490
anti-dumping duty. You are provided with the following details. (PAST EXAM NOV 2020)

(i) Country X does not sell these goods in its domestic market. However, it exports the same printed circuit
boards at USD 200 per piece to another third country.
(ii) The printed circuit board is sold in domestic industry @ USD 175 per piece.
(iii) PCB Limited has imported the printed circuit boards at USD 100 per piece.
(iv) Landed value of the printed circuit boards is USD 125 per piece
Compute the anti-dumping duty payable by PCB Limited for 1,000 pieces of printed circuit boards it has
imported during the year assuming conversion rate @ ₹ 75 per USD.

Answer
The quantum of anti-dumping duty is:
(i) margin of dumping or (ii) injury margin, whichever is lower.

Margin of dumping is the difference between export price and normal value of the imported article and injury
margin is the difference between the fair selling price [non-injurious price (NIP)] due to the domestic industry
and the landed value of
the dumped imports.

In the given case, anti-dumping duty per piece is:

(i) Margin of dumping is USD 100 [USD 200* - USD 100**]
or
(ii) Injury margin is USD 50 [USD 175*** – USD 125****]

whichever is lower i.e. USD 50

Anti-dumping duty for 1,000 pieces (in rupees) = USD 50 × 1,000 pieces x ₹ 75 = ₹ 37,50,000

*When there are no sales of the like article in the domestic market of the exporting country, normal value is
taken as the comparable representative price of the like article when exported from the exporting country to
an propriate third country.
**Export price is price of the article exported from the exporting country.

***Fair Selling Price/Non-Injurious Price is that level of price, which the industry is, expected to have charged
under normal circums
tances in the Indian market. It has been most logically assumed that the “domestic industry” referred to in
point

(ii) of the question refers to the domestic Indian market.

****Landed value

491
 CHAPTER-3 CLASSIFICATION OF IMPORTED
AND EXPORT GOODS
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY Illustrations – 1 to 3
MAT
QSTNS 1, 3, 4, 5

PAST NO QUES NO QUES ------

EXAMS

MTP Q-2 Q-2 NO QUES NO

QUES

RTP NO QUES

Illustration 1
Briefly explain “standard unit of quantity” with reference to the First Schedule to the Customs Tariff Act,
1975.

Answer
Standard Unit of Quantity is a unit of measure. It has been prescribed in column 3 of the First Schedule to the
Customs Tariff for each tariff item to facilitate the collection, comparison and analysis of trade statistics. The
unit of measure is indicated by abbreviations. Some abbreviations are cc-cubic centimeter, cm-centimetre(s),
g-gram(s), mt-metric tonne.

492
Illustration 2
Write a brief note on rule 1 of the Rules of Interpretation of the First Schedule
to Customs Tariff Act, 1975.

Answer
Rule 1 of the general rules for interpretation states that the titles of sections, chapters and sub-chapters in the
First Schedule to the Customs Tariff Act, 1975 are provided for ease of reference only. For legal purposes,
classification shall be determined according to the terms of the headings and any relative section or chapter
notes and provided such headings or chapter notes do not otherwise require, according to the rule 2 to 6.
Thus, the tiles of sections, chapters and sub-chapters cannot be used to determine classification of a product.
Illustration3

Your client manufactures Almond Milk which is an almond based drink.

The manufacturing process of almond milk is as follows:

• Selection of high quality California almonds;

• Blanching of almonds, roasting, and grinding into a paste

• Almond paste is blended with other ingredients like RO water, salt, vitamins and minerals.
• Sterlization of mixture by ultra-high temperature processing

• Homogenization
• Packaging in a septic package

As per the Rate Notification for goods issued under GST, following entries are relevant:

Rate:12%

Entry 41 – 2009 - Fruit juices (including grape must) and vegetable juices, unfermented and not containing
added spirit, whether or not containing added sugar or other sweetening matter
Entry 48 – 2202 9920 – Fruit pulp or fruit juice based drinks
Entry 50 – 2202 9930 – Beverages containing milk

Rate: 18%
Entry 24A – 2202 9100 or 2202 99 90 - Other non-alcoholic beverages other than tender coconut water
Your client is confused with the correct classification of Almond Milk under GST. He has approached you for
your opinion so as to enable him to discharge the tax correctly.
Following additional information may be relevant:
As per First Schedule to the Customs Tariff Act, 1975, the following entries of Chapter 20, 22 and 8 are
relevant:

Chapter 20 - Preparations of vegetables, fruit, nuts or other parts of plants

Tariff Item Description of goods

493
2009 Fruit juices (including grape must) and vegetable juices,
unfermented and not containing added spirit, whether or
not containing added sugar or other sweetening matter
- Juice of any other single fruit or vegetable :
2009 8100 -- Cranberry (Vaccinium macrocarpon, Vaccinium, Oxycoccos,
Vaccinium vitis-idaea ) juice
2009 89 -- Other
2009 89 10 --- Mango
2009 89 90 --- Other
2009 90 00 - Mixtures of juices
Chapter 22 - Beverages, spirits and vinegar
Tariff Item Description of goods
2202 - Waters, including mineral waters and aerated waters,
containing added sugar or other sweetening matter or
flavoured, section-iv 172 chapter-22 and other non-alcoholic
beverages, not including fruit or vegetable juices of heading
2009
2202 10 10 --- Aerated Waters
2202 10 20 --- Lemonade
2202 10 90 --- Other
- Other
2202 91 00 -- Other Non-alcoholic Beer
2202 99 -- Other
2202 99 10 --- Soya milk drinks, whether or not sweetened or flavored
2202 99 20 --- Fruit pulp or fruit juice based drink
2202 99 30 --- Beverages containing milk
2202 99 90 --- Other

Chapter 8 - Edible fruit and nuts; peel of citrus fruit or melons

Tariff Item Description of goods
0802 Other nuts, fresh or dried, whether or not shelled or
peeled
- Almonds:
0802 11 00 -- In Shell
0802 12 00 -- Shelled

Further, explanatory notes to Chapter 20 specify that:

The fruit and vegetable juices of this heading are generally obtained by pressing fresh, healthy and ripe fruit
or vegetables. This may be done (as in the case of citrus fruits) by means of “mechanical extractors"
operating on the same principle as the household lemon-squeezer, or by pressing which may or may not be
preceded either by crushing or grinding (for apples in particular) or by treatment with cold or hot water or

494
with steam (e.g., tomatoes, black currants and certain vegetables such as carrots and celery).

Answer

The first step in the classification of Almond Milk is to determine if the same would fall under Chapter 20 or 22
of the First Schedule of Customs Tariff Act, 1975. On a plain reading of Heading of Chapter 20 along with
Explanatory Notes, it emerges that Chapter 20 is applicable to juices of ripe fruits and vegetables. Therefore, it
is important to determine if the “almond” qualifies to be a fruit or not.
While in common parlance, we refer ‘almonds’ as dry fruits, however if we analyze Chapter 8 of the First
Schedule of Customs Tariff Act, 1975, it appears that ‘almonds’ are referred to as ‘nuts’ under sub-heading
0802.
Therefore, the ‘almonds’ do not classify as ‘fruit’ for the purpose of classification under the HSN system.
Accordingly, the classification under Chapter 20 is completely ruled out.
Now, the 3 entries relevant under Chapter 22 are:

(a) 2202 99 20 – Fruit pulp or fruit juice based drink – As stated above, since almond is not a fruit but a nut for
the purpose of classification, this entry is ruled out.

(b) 2202 99 30 – Beverages containing milk – Admittedly, as per the process specified above, the Almond Milk
does not contain any milk. Therefore, this entry is also ruled out.

(c) 2202 9100 or 2202 99 90 - Other non-alcoholic beverages other than tender coconut water – The Almond
milk will be classifiable under 2202 99 90 as Others.

Therefore, the Almond Milk will be chargeable to 18% GST.

This view is also supported by CBIC’s Circular No. 113/32/2019 GST dated 11.10.2019 which states that:

“Almond Milk is made by pulverizing almonds in a blender with water and is then strained. As such almond
milk neither constitutes any fruit pulp or fruit juice. Therefore, it is not classifiable under tariff item 2202 99
20. Almond milk is classified under the residual entry in the tariff item 2202 99 90 and attract GST rate of 18%”

QUESTIONS
1. Briefly explain the provisions of rule 2(a) of Rules of Interpretation of the First Schedule to the Customs
Tariff Act, 1975 on classification of incomplete/unfinished articles.

ANSWER:

The provisions of rule 2(a) of Rules of Interpretation of the First Schedule to the Customs Tariff Act, 1975 on
classification of incomplete/unfinished articles are as under:-
If any particular heading refers to a finished/complete article, the incomplete/unfinished form of that article

495
shall also be classified under the same heading provided the incomplete/unfinished goods have the essential
characteristics of the finished goods.
Reference to an article will also include the article complete or finished (or failing to be classified as complete
or finished) presented un-assembled or dis-assembled. The provisions of rule 2(a) of Rules of Interpretation of
the First Schedule to the Customs Tariff Act, 1975 on classification of incomplete/unfinished articles are as
under:-

If any particular heading refers to a finished/complete article, the incomplete/unfinished form of that article
shall also be classified under the same heading provided the incomplete/unfinished goods have the essential
characteristics of the finished goods.
Reference to an article will also include the article complete or finished (or failing to be classified as complete
or finished) presented un-assembled or dis-assembled.

2. What is the purpose of including General Rules of Interpretation of First Schedule in Customs Tariff? Do
they form part of the Tariff Schedule? Explain the Akin Rule of interpretation. (MTP NOV 2018) (MTP MAY
2018)

ANSWER:

The Customs Tariff has a set of six General Rules for Interpretation of the First Schedule and three General
Explanatory Notes. The six General Rules of Interpretation and three General Explanatory Notes are integral
part of the Tariff Schedule. The purpose of their inclusion in Customs Tariff is to standardize the manner in
which the nomenclature in the schedule is to be interpreted so as to reduce classification disputes.
Rule 4 of the Rules of Interpretation is called as akin rule. This rule lays down that goods which cannot be
classified in accordance with rules 1, 2 and 3 of the Rules of Interpretation shall be classified under the
heading appropriate to the goods to which they are most akin. In other words, akin rule’ is a residual rule
which is to be applied when classification is not possible by applying any of the earlier rules. It is a rule of last
resort.

3. Write a note on “Project Imports” under the Customs Tariff Act, 1975.

ANSWER:
Project Imports are the imports of machinery, instruments, and apparatus etc., falling under different
classifications, required for initial set up of a unit or for substantial expansion of an existing unit.
Heavy customs duty on imported machinery for projects make the initial project cost very high and project
may become unviable. Hence, concept of ‘project import’ is introduced to bring machinery etc. required for
initial setup or substantial exemption at concessional customs duty.
In a project several different items are required, each of which is importable at different rates of customs
duties. Thus, this simple method is adopted, as otherwise, classifying each machinery and its parts in different
heads and valuing them would have been cumbersome and would have delayed clearances, which would
cause demurrages. Further, individual exemption notification will apply even for items grouped under the said

496
heading of the customs tariff liable to duty at the project rate as per recent Supreme Court judgement.

The items eligible for project import are specified in Heading 9801 of the Customs Tariff Act, 1975. These are:
all items of machinery including prime movers, instruments, apparatus and appliances, control gear and
transmission equipment, auxiliary equipment (including those for research and development, testing and
quality control); as well as components or raw materials for manufacture of these items and their
components; required for initial setting up of a unit or substantial expansion of a specified
(1) industrial project
(2) Irrigation project
(3) Power projects
(4) Mining project
(5) Project for exploration of oils or other minerals and
(6) Other projects as may be notified by Central Government.

The spare parts, raw material and consumables stores upto 10% of the value of goods can be imported.
Few of the eligible projects are:
(i) Industrial plant
(ii) Irrigation project
(iii) Power project
(iv) Mining project
(v) Oil & mineral exploration project
(vi) Other projects as notified by the Central Government

4. Explain rule 3 of the rules for Interpretation of the Customs Tariff.

ANSWER:
The application of this rule arises when the goods consists of more than one material or substance.
When by application of rule 2(b) or for any other reason, goods are, prima facie, classifiable under two or
more headings, classification shall be effected as follows:

Rule 3(a) – Specific over general

(i) The heading which provides the most specific description shall be preferred to headings providing a more
general description.
(ii) However, when two or more headings each refer to part only of the materials or substances contained in
mixed or composite goods or to part only of the items in a set up for retail sale, those headings are to be
regarded as equally specific in relation to those goods, even if one of them gives a more complete or precise
description of the goods.

Rule 3(b) – Essential character principle: Mixtures, composite goods consisting of different materials or made
up of different components, and goods put up in sets for retail sale, which cannot be classified with reference
to (a), shall be classified as if they consisted of material which gives them their essential character, in so far as
this criterion is applicable.

497
Rule 3(c) – Latter the better: When goods cannot be classified by reference to (a) or (b), they shall be
classified under the heading which occurs last in numerical order among those which equally merit
consideration.

5. Briefly explain the meaning of abbreviation “%” in relation to the rate of duty
ANSWER:
The abbreviation “%” in any column of the Schedule in relation to the rate of duty means that the duty shall be
computed at the percentage specified on the value of the goods as defined in section 14 of the Customs Act.
 CHAPTER-4 VALUATION UNDER THE
CUSTOMS ACT, 1962
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY ILL-1,2, 4,6, 8, 9,11, 12, 14, 15, Q-1-5, 7-9,11-20, 23,26, 27, 30,37
MAT

PAST ILL-17, Q-29 Q-31 Q-22, Q-33 Q-34 Q-35, ------

EXAMS 32 39,40,41

MTP ILL-13 Q-28 Q-6 ILL-12 ILL-10 ILL-5, 13 Q-6, 10

RTP NO QUES ILL-3, 16, Q-36 Q-24 ILL-7 Q-25 Q-21 Q-38

Illustration 1
M/s IES Ltd. (assessee) imported certain goods at US $ 20 per unit from an exporter who was holding 30%
equity in the share capital of the importer company. Subsequently, the assessee entered into an agreement
with the same exporter to import the said goods in bulk at US $ 14 per unit. When imports at the reduced
price were effected pursuant to this agreement, the Department rejected the transaction value stating that
the price was influenced by the relationship and completed the assessment on the basis of transaction value
of the earlier imports i.e., at US $20 per unit under rule 4 of the Customs Valuation (Determination of Value
of Imported Goods) Rules 2007.
State briefly, whether the Department's action is sustainable in law?

Answer

No, the Department’s action is not sustainable in law. Rule 2(2) of Customs Valuation (Determination of Value 498
of Imported Goods) Rules, 2007, inter alia, provides that persons shall be deemed to be "related" if one of
them directly or indirectly controls the other. The word “control” has not been defined under the said rules.
As per common parlance, control is established when one enterprise holds at least 51% of the equity
shareholding of the other company. However, in the instant case, the exporter company held only 30% of
shareholding of the assessee. Thus, exporter company did not exercise control over the assessee. So, the two
parties cannot be said to be related.
The fact that assessee had made bulk imports could be a reason for reduction of import price. The burden to
prove under-valuation lies on the Revenue and in absence of any evidence from the Department to prove
under-valuation, the price declared by the assessee is acceptable.
In the light of foregoing discussion, it can be inferred that Department’s action is not sustainable in law.

Illustration 2

Answer the following with reference to the provisions of section 14 of the Customs Act, 1962 and the rules
made thereunder:
(i) What shall be the value, if there is a price rise of the imported goods in international market between the
date of contract and the date of actual importation but the importer pays the contract price?
(ii) Whether the payment for post-importation process is includible in the value if the same is related to
imported goods and is a condition of the sale of the imported goods?

Answer

(i) The value of the imported goods or export goods is its transaction value, which means the price actually
paid or payable for the goods. Where a contract has been entered into, the transaction value shall be the price
stated in the contract, unless it is not legally acceptable.
Price rise between date of contract and date of actual import is irrelevant, as the price actually paid or payable
shall be taken to be the value. Thus, price stated in the contract (unless unacceptable) shall be taken.
(ii) As per explanation to Rule 10(1) of the Customs Valuation (Determination of Value of Imported Goods)
Rules, 2007, the payment for post-importation process is includible in the value of the imported goods if the
same is related to such imported goods and is a condition of the sale thereof.

Illustration 3

Mother Mary Hospital and Research Centre imported a machine from Delta Scientific Equipments, Chicago
for in house research. The price of the machine was settled at US $ 5,000. The machine was shipped on
10.04. Meanwhile, the Hospital Authorities negotiated for a reduction in the price. As a result, Delta
Scientific Equipments agreed to reduce the price by $ 850 and sent the revised price of $ 4,150 under a telex
dated 15.04. The machine arrived in India on 18.04. The Commissioner of Customs has decided to take the

499
original price as the transaction value of the goods on the ground that the price is reduced only after the
goods have been shipped.
Do you agree to the stand taken by the Commissioner? Give reasons in support of your answer.
(RTP NOV 2018)

Answer

No, the Commissioner’s approach is not correct in law.

As per section 14 of the Customs Act, the transaction value of the goods is the price actually paid or payable
for the goods at the time and place of importation. Further, the Supreme Court in the case Garden Silk Mills v.
UOI has held that importation gets complete only when the goods become part of mass of goods within the
country. Therefore, since in the instant case the price of the goods was reduced while they were in transit, it
could not be contended that the price was revised after importation took place. Hence, the goods should be
valued as per the reduced price, which was the price actually paid at the time of importation.

Illustration 4
‘A’ had imported goods from Finland. Due to deep draught at the port, such goods were not taken to the
jetty in the port but were unloaded at the outer anchorage. The charges incurred for such unloading and
transport of the goods from outer anchorage to the jetty in barges (small boats) were Rs. 1,35,000. ‘A’
claims that such charges form part of the loading and unloading charges and should be deemed to be
included in the CIF value of such goods, made under rule 10(2)(b) of the Customs Valuation (Determination
of Value of Imported Goods) Rules, 2007.
Discuss the tenability of ‘A’s’ claim.

Answer
As per Rule 2(da), “place of importation” means the customs station, where the goods are brought for being
cleared for home consumption or for being removed for deposit in a warehouse. Therefore, the outer
anchorage where the goods are unloaded would not be the place of importation. Rule 10(2)(a) stipulates that
for the purposes of section 14(1) of the Customs Act, 1962 and Valuation rules, value of imported goods shall
be the value of such goods and shall include, the cost of transport, loading, unloading and handling charges
associated with the delivery of the imported goods to the place of importation.
Therefore, in cases where the big mother vessels cannot enter the harbour for any reason and goods are
brought to the docks by smaller vessels like barges, the cost incurred by the importer for bringing the goods to
the landmass or place of consumption, such as barge charges will also be included in the cost of
transportation. Therefore, ‘A’s claim is not tenable in law.

Illustration 5
A material was imported by air at CIF price of 5,000 US$. Freight paid was 1,500 US$ and insurance cost was
500 US$. The banker realized the payment from importer at the exchange rate of Rs. 71 per dollar. Central
Board of Indirect taxes and Customs notified the exchange rate as Rs. 70 per US$. Find the value of the
material for the purpose of levying duty. (MTP JULY 2021)

Answer 500
Computation of assessable value
Particulars Amount
CIF value 5000 US $
Less: Freight 1500 US $
Less: Insurance 500 US $
Therefore, FOB value 3000 US $
Assessable value for Customs purpose
 FOB value 3000 US $
Add: Freight (20% of FOB value) [Note 1] 600 US $
Add: Insurance (actual) 500 US $
CIF for customs purpose 4100 US $
Exchange rate as per CBIC [Note 2] Rs. 70 per US $
Assessable value (Rs. 70 x 4100 US $) Rs. 2,87,000

Notes:

1. If the goods are imported by air, the freight cannot exceed 20% of FOB price [Fifth proviso to rule 10(2) of
the Customs (Determination of Value of Imported Goods) Rules, 2007].

2. Rate of exchange determined by CBIC is considered [clause (a) of the explanation to section 14 of the
Customs Act, 1962].

Illustration 6
From the particulars given below, find out the assessable value of the imported goods under the Customs
Act, 1962:
US $
(i) Cost of the machine at the factory of the exporter 10,000
(ii) Transport charges from the factory of exporter to the port for shipment 500
(iii) Handling charges paid for loading the machine in the ship 50
(iv) Buying commission paid by the importer 50
(v) Freight charges from exporting country to India 1,000
(vi) Exchange rate to be considered: 1$ = Rs. 70
(vii) Actual insurance charges paid are not ascertainable
Answer

Computation of assessable value of the imported goods

US $
(i) Cost of the machine at the factory 10,000.00

501
(ii) Transport charges up to port 500.00
(iii) Handling charges at the port 50.00
FOB 10,550.00
(iv) Freight charges up to India 1,000.00
(v) Insurance charges @ 1.125% of FOB [Note 1] 118.69
CIF 11,668.69
 Rs.
CIF in Indian rupees @ Rs. 70/ per $ Rs. 8,16,808.30
Assessable Value Rs. 8,16,808.30
Assessable Value (rounded off) 8,16,808

Notes:

(1) Insurance charges have been included @ 1.125% of FOB value of goods [Third proviso to rule 10(2) of the
Customs Valuation (Determination of Value of Imported Goods) Rules, 2007].

(2) Buying commission is not included in the assessable value [Rule 10(1)(a)(i) of the Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007].

Illustration 7 (RTP NOV 2019)

Compute export duty from the following data:

(i) FOB price of goods: US $ 1,00,000.

(ii) Shipping bill presented electronically on 26.04.

(iii) Proper officer passed order permitting clearance and loading of goods for export (Let Export Order) on
04.05.2020.

(iv) Rate of exchange and rate of export duty are as under:

Rate of Exchange Rate of Export Duty

On 26.04 1 US $ = Rs. 70 10%
On 04.05 1 US $ = Rs. 72 8%

(v) Rate of exchange is notified for export by Central Board of Indirect taxes and Customs.

502
(Make suitable assumptions wherever required and show the workings.)

Answer
Computation of export duty
Particulars Amount (US $)
FOB price of goods [Note 1] 1,00,000
Amount (Rs.)
Value in Indian currency (US $ 1,00,000 x Rs. 70) [Note 70,00,000
2]
Export duty @ 8% [Note 3] 5,60,000
Notes:
1. As per section 14(1) of the Customs Act, 1962, assessable value of the export goods is the transaction value
of such goods which is the price actually paid or payable for the goods when sold for export from India for
delivery at the time and place of exportation.
2. As per third proviso to section 14(1) of the Customs Act, 1962, assessable value has to be calculated with
reference to the rate of exchange notified by the CBIC on the date of presentation of shipping bill of export.
3. As per section 16(1)(a) of the Customs Act, 1962, in case of goods entered for export, the rate of duty
prevalent on the date on which the proper officer makes an order permitting clearance and loading of the
goods for exportation, is considered.

Illustration 8
A consignment of 800 metric tonnes of edible oil of Malaysian origin was imported by a charitable
organization in India for free distribution to below poverty line citizens in a backward area under the
scheme designed by the Food and Agricultural Organization. This being a special transaction, a nominal
price of US$ 10 per metric tonne was charged for the consignment to cover the freight and insurance
charges. The Customs House found out that at or about the time of importation of this gift consignment
there were following imports of edible oil of Malaysian origin:
S. No. Quantity imported in Unit price in US
metric tonnes $ (CIF)
1. 20 260
2. 100 220
3. 500 200
4. 900 175
5. 400 180
6. 780 160
The rate of exchange on the relevant date was 1 US $ = Rs. 70.00 and the rate of basic customs duty was
10% ad valorem. Ignore Integrated tax and GST Compensation Cess. Calculate the amount of duty leviable
on the consignment under the Customs Act, 1962 with appropriate assumptions and explanations, where
required.

Answer
Determination of transaction value of the subject goods:-

503
In the instant case, while determining the transaction value of the goods, following factors need
consideration:-

1. In the given case, US $10 per metric tonne has been paid only towards freight and insurance charges and no
amount has been paid or payable towards the cost of goods. Thus, there is no transaction value for the subject
goods. Consequently, we have to look for transaction value of identical goods under rule 4 of Customs
Valuation (Determination of Value of Imported Goods) Rules, 2007 [Customs Valuation (DVIG) Rules, 2007].
2. Rule 4(1)(a) of the aforementioned rules provides that subject to the provisions of rule 3, the value of
imported goods shall be the transaction value of identical goods sold for export to India and imported at or
about the same time as the goods being valued. In the six imports given during the relevant time, the goods
are identical in description and of the same country of origin.

3. Further, clause (b) of rule 4(1) of the said rules requires that the comparable import should be at the same
commercial level and in substantially same quantity as the goods being valued. Since, nothing is known about
the level of the transactions of the comparable consignments, it is assumed to be at the same commercial
level.

4. As far as the quantities are concerned, the consignments of 20 and 100 metric tonnes cannot be considered
to be of substantially the same quantity. Hence, remaining 4 consignments are left for our consideration.

5. However, the unit prices in these 4 consignments are different. Rule 4(3) of Customs Valuation (DVIG) Rules,
2007 stipulates that in applying rule 4 of the said rules, if more than one transaction value of identical goods is
found, the lowest of such value shall be used to determine the value of imported goods. Accordingly, the unit
price of the consignment under valuation would be US $ 160 per metric tonne.
Computation of amount of duty payable
CIF value of 800 metric tonnes:
= 800 x 160 = US $ 1,28,000

At the exchange rate of $ 1 = Rs. 70

CIF Value (in Rupees) = Rs. 89,60,000

Assessable Value = Rs. 89,60,000
10% of Ad Valorem duty on Rs. 89,60,000 = Rs. 8,96,000
Add: Social Welfare Surcharge @ 10% (rounded off) = Rs. 89,600
Total custom duty payable = Rs. 9,85,600

Illustration 9
Foreign Trade International Ltd. has imported one machine from England. It has given the following

504
particulars
(i) Price of machine 8,000 UK Pounds
(ii) Freight paid (air) 2,500 UK Pounds
(iii) Design and development charges paid in UK 500 UK Pounds
(iv) Commission payable to local agent of exporter @ 2% of price of machine,
in Indian Rupees
(v) Date of bill of entry 24.10 (Rate BCD 10%;
Exchange rate as notified
by CBIC Rs. 100 per UK
Pound)
 (vi) Date of arrival of aircraft 20.10 (Rate of BCD 20%;
Exchange rate as notified
by CBIC Rs. 98 per UK
Pound)
vii) Integrated tax is 12%
(viii) Insurance charges have been actually paid but details are not available

Compute the total customs duty and integrated tax payable by Foreign Trade International Ltd.
Note: Ignore GST Compensation Cess.

Answer

Computation of total duty and integrated tax payable

Particular Amount
Price of machine 8,000 UK
pounds
Add: Design and development charges [Note 1] 500 UK pounds
Total 8,500 UK
pounds
(Rs.)
Total in rupees @ Rs. 100 per pound [Note 2] Rs. 8,50,000.00
Add: Local agency commission [Note 1] Rs. 16,000.00
(2% of 8000 UK pounds) = 160 UK pounds × Rs. 100
FOB value as per Customs 8,66,000.00
Add: Air freight (8,66,000 x 20%) [Note 3] 1,73,200.00
Add: Insurance @ 1.125% of customs FOB [Note 4] 9,742.50
CIF Value 10,48,942.50
Assessable value (rounded off) 10,48,942.00
Add: Basic custom duty @ 10% [Note 5] 1,04,894.20
Add: Social Welfare Surcharge @ 10% on Rs. 1,04,894.20 10,489.42
Total 11,64,325.62

505
Add: Integrated tax @ 12% [Note 7] 1,39,719.07
Total duty and integrated tax payable (Rounded off) (Rs. 1,04,894.20+ 2,55,102
Rs. 10,489.42+ Rs. 1,39,719.07)

Notes:

1. Design and development charges paid in UK and commission paid to local agent (since it is not buying
commission) are includible in the assessable value [Rule 10 of the Customs (Determination of Value of
Imported Goods) Rules, 2007]
2. The rate of exchange notified by the CBIC on the date of presentation of bill of entry has been considered
[Section 14 of the Customs Act, 1962].

3. If the goods are imported by air, the freight cannot exceed 20% of FOB price [Fifth proviso to rule 10(2) of
the Customs (Determination of Value of Imported Goods) Rules, 2007].

4. Where the insurance charges are not ascertainable, such cost is taken as 1.125% of FOB value of the goods
[Third proviso to Rule 10(2) of the Customs (Determination of value of Imported Goods) Rules, 2007].

5. Section 15 of the Customs Act, 1962 provides that rate of duty shall be the rate in force on the date of
presentation of bill of entry or the rate in force on the date of arrival of aircraft, whichever is later.

6. Integrated tax is levied on the sum total of the assessable value of the imported goods, customs duties and
applicable social welfare surcharge.

Illustration 10

Compute the total duty and integrated tax payable under the Customs Law on an imported equipment
based on the following information:
(i) Assessable value of the imported equipment US $ 10,100
(ii) Date of bill of entry is 25.04.2020. Basic customs duty on this date is 10% and exchange rate notified by
the Central Board of Indirect taxes and Customs is US $ 1 = Rs. 65.
(iii) Date of entry inwards is 21.04.2020. Basic customs duty on this date is 20% and exchange rate notified
by the Central Board of Indirect taxes and Customs is US $ 1 = Rs. 70.
(iv) Integrated tax: 12%
(v) Social Welfare surcharge 10%
Make suitable assumptions where required and show the relevant workings and round off your answer to
the nearest rupee.
Note: Ignore GST Compensation Cess. (MTP NOV 2020)

Answer

506
Computation of total customs duty and integrated tax payable
Particulars Rs.
Assessable value ($ 10,100 x 65) [Note-1] 6,56,500.00
Add: Basic custom duty @ 10% [Note-2] 65,650.00
Add: Social Welfare Surcharge @ 10% on Rs. 65,650 6,565.00
Total 7,28,715.00
Add: Integrated tax @ 12% [Note-3] 87,445.80
Total Customs duty and integrated tax payable (rounded off to 1,59,660
nearest rupee)
Notes:

1. Rate of exchange notified by CBIC as prevalent on the date of filing of bill of entry would be the applicable
rate [Proviso to section 14(1) of Customs Act,1962].

2. Rate of duty would be the rate as prevalent on the date of filing of bill of entry or entry inwards whichever is
later. [Proviso to section 15 of the Customs Act, 1962].

3. Integrated tax is levied on the sum total of the assessable value of the imported goods, customs duties and
applicable social welfare surcharge.

Illustration 11
Assessable value of an item imported is Rs. 1,00,000. Basic customs duty is 10%, integrated tax is 12%, and
social welfare surcharge is 10% on duty. Compute the amount of total customs duty and integrated tax
payable.
Note: Ignore GST Compensation Cess.

Answer
Computation of total customs duty and integrated tax payable
Particulars Rs.
1. Assessable Value 1,00,000
2. Basic customs duty @ 10% 10,000
3. Add: Social Welfare surcharge* @ 1000
10% on Rs. 10,000
4. Sub-total 1,11,000
5. Integrated tax @ 12% of Rs. 13,320
1,11,000
6. Total customs duty and integrated 24,320
tax payable [(2) + (3) + (5)]
*Social Welfare surcharge is presently exempt on IGST and GST compensation cess

507
Illustration 12
From the following particulars, calculate total customs duty and integrated tax payable: (MTP NOV 2019)
(i) Date of presentation of bill of entry: 20.06.2020 [Rate of BCD 20%; Inter-bank exchange rate: Rs. 61.60
and rate notified by CBIC Rs. 70].
(ii) Date of arrival of aircraft in India: 30.06.2020 [Rate of BCD 10%; Inter-bank exchange rate: Rs. 61.80 and
rate notified by CBIC Rs. 73.00].
(iii) Rate of Integrated tax: 12%. Ignore GST Compensation Cess.
(iv) CIF value 2,000 US Dollars; Air freight 500 US Dollars, Insurance cost 100 US Dollars.
(v) Social Welfare Surcharge 10%
Answer
Computation of total customs duty and integrated tax payable
Particulars Amount
CIF value 2000 US Dollars
Less: Freight 500
Insurance 100 600 US Dollars
FOB Value 1400 US Dollars
Add: Air Freight [Note1] 280
Insurance (actual amount) 100 380 US Dollars
1780 US Dollars
Rs.
Value @ Rs. 70.00 [Note 2] 1,24,600.00
Assessable Value 1,24,600.00
Basic Custom Duty @ 10% (a) [Note 3] 12,460.00
Add: Social Welfare Surcharge @ 10% on 12,460 (b) 1,246.00
Sub-total 1,38,306.00
Integrated tax (12% onRs. 1,38,306) (c) [Note 4] 16,596.72
Total duty and integrated tax (a +b + c) (rounded off) 30,303

Notes:

(1) If the goods are imported by air, the freight cannot exceed 20% of FOB price [Fifth proviso to Rule 10(2) of
the Customs (Determination of Value of Imported Goods) Rules, 2007].

(2) Rate of exchange notified by CBIC on the date of presentation of bill of entry would be the applicate rate.
[Proviso to Section 14(1) of the Customs Act, 1962].

(3) Rate of duty would be the rate as prevalent on the date of filing of bill of entry or arrival of aircraft,
whichever is later [proviso to section 15 of the Customs Act, 1962].

(4) Integrated tax is levied on the sum total of the assessable value of the imported goods, customs duties and

508
applicable social welfare surcharge.

Illustration 13
15,000 chalices were imported for charitable distribution in India by XY Charitable Trust. The Trust did not
pay either for the cost of goods or for the design and development charges, which was borne by the
supplier. Customs officer computed its FOB value at USD 20,000 (including design and development
charges), which was accepted by the Trust. Other details obtained were as follows:
Compute the amount of total customs duty and integrated tax payable on importation of chalices. Make
suitable assumptions where required. Working notes should form part of your answer.
Note: Ignore GST Compensation Cess. ( MTP JULY 2021) (MTP MAY 2018)

Answer
Computation of total customs duty and integrated tax payable
Particulars Amount
FOB value computed by Customs Officer (including design and 20,000 US $
development charges)
Exchange rate [Note 1] Rs. 70 per $
Rs.
FOB value computed by Customs Officer (in rupees) 14,00,000.00
Add: Commission payable to agent in India 12,500.00
FOB value as per customs 14,12,500.00
Add: Air freight (Rs. 14,12,500 × 20%) [Note 2] 2,82,500.00
Add: Insurance (1.125% of Rs. 14,12,500) [Note 3] 15,890.63
CIF value for customs purposes 17,10,890.63

509
Assessable value 17,10,890.63
Add: Basic custom duty @ 10% (Rs.17,10,890.63× 10%) – rounded off 1,71,089
[Note 4]
Add: Social Welfare surcharge @ 10% on Rs. 1,71,089 rounded off 17,109
Total 18,99,089
Integrated tax @ 12% (Rs.18,99,089× 12%) [Rounded off] [Note 5] 2,27,890
Total customs duty and integrated tax payable 4,16,088
(Rs. 1,71,089 + Rs. 17,109 + Rs. 2,27,890)
Note:

1. Rate of exchange notified by CBIC on the date of filing of bill of entry has to be considered [Third proviso to
section 14 of the Customs Act, 1962].

2. In case of goods imported by air, freight cannot exceed 20% of FOB value [fifth proviso to rule 10(2) of the
Customs (Determination of Value of Imported Goods) Rules, 2007].

3. Insurance charges, when not ascertainable, have to be included @ 1.125% of FOB value of goods [Third
proviso to rule 10(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007].

4. Rate of duty will be the rate in force on the date of presentation of bill of entry or on the date of arrival of
the aircraft, whichever is later [Proviso to section 15 of the Customs Act, 1962].

5. Integrated tax is levied on the sum total of the assessable value of the imported goods, customs duties and
applicable social welfare surcharge.

Illustration 14
Mr. Backpack imported second-hand goods from a UK supplier by air, which was contracted on CIF basis.
However, there were changes in prices in the international market between the date of contract and actual
importation. As a result of several negotiations, the parties agreed for a negotiated price payable as follows:
Particulars Contract Price (₤) Changed Price (₤) Negotiated Price (₤)
CIF Value 5000 5800 5500
Air Freight 300 600 500
Insurance 500 650 600
Other details for computing assessable value and duty payable are tabled below:
Particulars Amount
Vendor inspection charges (inspection carried out by foreign ₤ 600
supplier on his own, not required under contract or for making
the goods ready for shipment)
Commission payable to local agent @ 1% of FOB in local currency

510
Date of bill of entry Basic customs duty Exchange rate in Rs.
(notified by CBIC)
18.02 10% 102
Date of arrival of Basic custom duty Exchange rate in Rs. (notified by
aircraft CBIC)
15.02 15% 98

Inter-bank rate 1 UK Pound = Rs. 106

Compute the assessable value and calculate basic customs duty payable by Mr. Backpack.
Answer

Computation of custom duty payable

Particulars Amount (£)

CIF value (negotiated price) [Note-1] 5,500
Less: Air freight 500
Less: Insurance 600
FOB value 4,400
Add: Vendor inspection charges [Note-2] Nil
FOB value as per Customs 4,400
Freight [Note-3] 500
Insurance [Note-4] 600
5,500
Exchange rate is Rs. 102 per £ [Note-5]
Rs.
Value in rupees 5,61,000.00
Add: Commission payable to local agent [1% of FOB value] 4,488.00
[Note-6] = (US $ 4,400 × Rs. 102) × 1%
Total 5,65,488.00
Assessable value 5,65,488.00
Add: Basic custom duty @ 10% [Note-7] – rounded off 56,548.80
Social Welfare Surcharge (10% of Rs. 56,548.80) [rounded off] 5,655.00
Customs duty payable [rounded off] 62,204.00

Notes:

1. As per Section 14 of the Customs Act, 1962, the value of the imported goods is the transaction value, which
means the price actually paid or payable for the goods. In this case, since the contract was re-negotiated and
the importer paid the re-negotiated price, the transaction value would be such re-negotiated price and not
the contract price.

511
2. Only the payments actually made as a condition of sale of the imported goods by the buyer to the seller are
includible in the assessable value under rule 10(1)(e) of the Customs Valuation (Determination of Value of
Imported Goods) Rules, 2007. Charges of vendor inspection on the goods carried out by foreign supplier on his
own and not required for making the goods ready for shipment, are not includible in the assessable value of
the imported goods [Bombay Dyeing & Mfg. v. CC 1997 (90) ELT 276 (SC)].

3. Actual amount incurred towards freight will be considered since freight is not more than 20% of FOB value
[Fifth proviso to rule 10(2) of Customs Valuation Rules].
4. Actual insurance charges paid are includible in the assessable value as per rule 10(2)(b) of the Customs
Valuation Rules.

5. Rate of exchange notified by CBIC on the date of filing of bill of entry will be considered as per third proviso
to section 14 of the Customs Act, 1962.

6. Commission paid to local agent (since it is not buying commission) is includible in the assessable value on
the presumption that local agent has been appointed by the exporter [Rule 10(1)(a)(i) of the Customs
Valuation Rules].

7. As per proviso to section 15 of the Customs Act, 1962, rate of duty will be the rate in force on the date of
presentation of bill of entry or on the date of arrival of the aircraft, whichever is later.

Illustration 15

F. Ltd. imported a machine from UK in May, 2020. The details in this regard are as under:

(i) FOB value of the machine: 10,000 UK Pound

(ii) Freight (Air): 3,000 UK Pound

(iii) Licence fee, the buyer was required to pay in UK: 400 UK Pound

(iv) Buying commission paid in India Rs. 20,000

(v) Date of bill of entry was 20.05.2020 and the rate of exchange notified by CBIC on this date was Rs. 99.00
per one pound. Rate of BCD was 7.5%.

(vi) Date of arrival of aircraft was 25.05.2020 and the rate of exchange notified by CBIC on this date was Rs.
98.50 per pound and rate of BCD was 10%.

(vii) Integrated tax was 12% and ignore GST Compensation Cess.

(viii) Insurance premium details were not available. 512

You are required to compute the total customs duty and integrated tax payable on the importation of
machine. You may make suitable assumptions wherever required.

Answer
Computation of assessable value and total customs duty and integrated tax payable by F Ltd.

Particular Amount (£)

FOB value 10,000
Add: License fee required to be paid in UK [Note – 1] 400
Customs FOB value 10,400
Exchange rate is Rs. 99 per £ [Note – 2]
Rs.
Value in rupees 10,29,600.00
Add: Air freight [Restricted to 20% of Rs. 10,29,600 (customs 2,05,920.00
FOB value)] [Note – 3]
Insurance @ 1.125% of Rs. 10,29,600 [Note – 4] 11,583.00
Buying commission is not includible in the assessable value -
[Note – 5]
CIF Value 12,47,103.00
Assessable value 12,47,103.00
Rate of duty is 10% [Note – 6]
Add: Basic custom duty @ 10% (Rs. 12,47,103 × 10%) – 1,24,710
rounded off (A)
Add: Social Welfare Surcharge (10% of Rs. 1,24,710) [rounded 12,471
off] (B)
Value for integrated tax 13,84,284
Add: Integrated tax @ 12% -rounded off (C) [Note – 7] 1,66,114
Total customs duty and integrated tax payable [(A) + (B) + 3,03,295
(C)]

Note:

1. Engineering and design charges paid in UK, licence fee relating to imported goods payable by the buyer as a
condition of sale, materials and components supplied by the buyer free of cost and actual insurance charges
paid are all includible in the assessable value - Rule 10(1)(c) of the Customs Valuation (Determination of Value

513
of Imported Goods) Rules, 2007 [hereinafter referred to as Customs Valuation Rules].

2. Rate of exchange notified by CBIC on the date of filing of bill of entry has to be considered [Third proviso to
section 14 of the Customs Act, 1962].

3. In case of goods imported by air, freight cannot exceed 20% of FOB value [Fifth proviso to rule 10(2) of the
Customs Valuation Rules].

4. Insurance charges, when not ascertainable, have to be included @ 1.125% of FOB value of goods [Third
proviso to rule 10(2) of the Customs Valuation Rules].
5. Buying commission is not included in the assessable value [Clause (a)(i) of sub-rule (1) of rule 10 of the
Customs Valuation Rules].

6. Rate of duty will be the rate in force on the date of presentation of bill of entry or on the date of arrival of
the aircraft, whichever is later [Proviso to section 15 of the Customs Act, 1962].

7. Integrated tax is levied on the sum total of the assessable value of the imported goods, customs duties and
applicable social welfare surcharge.

Illustration 16 (RTP NOV 2018)

Raghupati Energy Corporation had imported certain goods and got them cleared for home consumption.
Subsequently, the Department discovered that import of such goods was prohibited under the Customs Act,
1962. Consequently, the goods were confiscated under section 111 of the Customs Act, 1962 and a penalty
was levied under section 112 of the said Act.
Examine the veracity of confiscation of the goods and imposition of penalty by the Department, in the given
case, with the help of a decided case law, if any.

ANSWER

The facts of the case are similar to the case of Bussa Overseas & Properties P. Ltd. v C.L. Mahar, Asstt. C.C.,
Bombay 2004 (163) E.L.T. 304 (Bom.) [maintained by the Supreme Court] wherein the Bombay High Court
observed that once goods are cleared for home consumption, they cease to be imported goods as defined in
section 2(25) of the Customs Act, 1962. The goods lose its character of imported goods on being granted
clearance for home consumption and thereafter the power to confiscate can be exercised only in cases where
the order of clearance is revised and cancelled. Therefore, in the given case the confiscation of the goods by
the Department is illegal.

The Bombay High Court further observed that section 112(a) of the Customs Act, 1962 provides that any
person who in relation to any goods, does or omits to do any act which act or omission would render such
goods liable to confiscation under section 111, or abets the doing or omission of such act, is liable to a penalty.
The High Court held that the power to impose penalty could be exercised not only when the goods are
available for confiscation but when such goods are liable to confiscation. The expression ‘liable to confiscation’

514
clearly indicates that the power to impose penalty can be exercised even if the goods are not available for
confiscation.

Mere fact that the importers secured such clearance and disposed of the goods and thereafter goods are not
available for confiscation cannot divest Customs Authorities of the powers to levy penalty under section 112
of the Act. Thus, penalty levied by the Department in the given case is tenable in law
Illustration 17 (PAST EXAM MAY 2018)

A consignment containing many items was imported by Suraj. On examination of the goods, it was found
that he had made misdeclaration in respect of all the items. You are required to indicate the penalty
imposable under section 112 of Customs Act, 1962 in each case given below. Values are exclusive of
customs duties. Basic Customs Duty is 10%, Education cesses – 3%. No other tax is attracted on these
imports.

(1) Non- prohibited dutiable goods and the value is mis-declared as Rs. 10,00,000 instead of Rs. 11,50,000.

(2) In the case at serial number 1, if the importer pays duty and interest within 30 days from the date of
communication of the order.

(3) The value of imported goods declared is higher than the value determined by Customs. Value
determined by Customs is Rs. 15,00,000 but the value declared by Suraj is Rs. 20,00,000.

(4) The value of prohibited goods was declared as 20,00,000 and the actual value determined was Rs.
15,00,000.

(5) The imported goods are prohibited goods, which were declared by Suraj to be some other goods valued
Rs. 15,00,000 and actual value is found to be Rs. 20,00,000. (5 Marks) (MTP NOV 2018)

ANSWER

As per section 112 of the Customs Act, 1962:-

(1) Penalty imposable in case of non-prohibited dutiable goods is penalty not exceeding:
(i) 10% of the duty sought to be evaded – Rs. 1,545 [10% of {(Rs. 11,50,000 - Rs. 10,00,000) × 10.30%}]
or
(ii) Rs. 5,000,
whichever is higher – Rs. 5,000.
(2) Where duty adjudicated and interest thereon is paid within 30 days from the date of communication of

515
order, penalty liable to be paid under section 112 shall be reduced to 25% of the penalty so
determined i.e. Rs. 1,250 [25% of Rs. 5,000].
(3) Penalty imposable on goods whose value has been over declared is penalty not exceeding:
(i) Difference between declared value and value determined by customs – Rs. 5,00,000 [Rs. 20,00,000 -
Rs. 15,00,000]
or
(ii) Rs. 5,000,
whichever is higher – Rs. 5,00,000.
(4) Penalty imposable on prohibited goods whose value has been over-declared is penalty not exceeding:
(i) Value of the goods – Rs. 15,00,000
(ii) Difference between declared value and value determined by customs – Rs. 5,00,000 [Rs. 20,00,000 -
Rs. 15,00,000]
or
(ii) Rs. 5,000,
whichever is higher – Rs. 15,00,000.
(5) Penalty imposable on prohibited goods whose value has been under-declared is penalty not exceeding:
(i) Value of the goods = Rs. 20,00,000
or
(ii) Rs. 5,000,
whichever is higher – Rs. 20,00,000.

QUESTIONS

1 Briefly explain the following with reference to the Customs (Determination of Value of Imported Goods)
Rules, 2007:
(i) Goods of the same class or kind
(ii) Computed value

ANSWER:

(i) As per rule 2(1)(c) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, goods of
the same class or kind, means imported goods that are within a group or range of imported goods produced
by a particular industry or industrial sector and includes identical goods or similar goods.

(ii) As per rule 2(1)(a) of the said rules, computed value means the value of imported goods determined in
accordance with rule 8. The value of imported goods is taken as computed value when valuation is not
possible as per any of rules earlier than rule 8 and cost is ascertainable.
As per rule 8, subject to the provisions of rule 3, the value of imported goods shall be based on a computed
value, which shall consist of the sum of –

516
(a) the cost or value of materials and fabrication or other processing employed in producing the imported
goods;
(b) an amount for profit and general expenses equal to that usually reflected in sales of goods of the same
class or kind as the goods being valued which are made by producers in the country of exportation for export
to India;
(c) the cost or value of all other expenses under sub-rule (2) of rule 10.
2. Whether the assessable value of the warehoused goods which are sold before being cleared for home
consumption, should be taken as the price at which the original importer has sold the goods?

ANSWER:
Section 14 of the Customs Act provides that the value of the imported goods shall be the transaction value of
goods which is the price actually paid or payable for the goods when sold for export to India for delivery at the
time and place of importation. The sale of goods after warehousing them in India cannot be considered a sale
for export to India. It cannot be stated that the export of goods is not complete even after the imported goods
were cleared for warehousing in the country of import. Hence, the price at which the imported goods are sold
after warehousing them in India does not qualify to be the transaction value as per section 14. This has been
clarified vide Circular No. 11/2010 Cus. dated 03.06.2010.
Note: The above is only applicable for levy of BCD and Social welfare surcharge. IGST is leviable as per Section
3(8A) of the Customs Tariff Act, 1975.

3. Explain when are the costs and services as given in rule 10 of the Customs Valuation (Determination of
Value of Imported Goods) Rules, 2007 be added to the value of the identical goods under rule 4.

ANSWER:
As per rule 4(1)(c) of the Customs Valuation (Determination of Value of Imported Goods Rules, 2007) where
imported goods are being valued as per rule 4, the value of the identical goods is adjusted to take into account
the difference attributable to the commercial level or to the quantity or both. According to rule 4(2) where
costs and charges referred to in rule 10 are included in the value of identical goods, adjustment has to be
made of the difference in such costs and charges between the imported goods and the identical goods.
Therefore, if the value of the identical goods does not include certain specific costs and charges relating to the
imported goods, these are to be included as per rule 10.

4. Examine the validity of the following statements with reference to the Customs Act, 1962 giving brief
reasons:

(i) Service charges paid to canalizing agent are not includible in the assessable value of imports. Such agent

517
imports the goods from foreign sellers and enters into an agreement to sell such goods with buyers in India
in high seas.

(ii) Charges for “vendor inspection” on the second hand goods carried out by foreign supplier on his own
and not required for making the goods ready for shipment, are not includible in the assessable value of the
imported goods.
ANSWER:

(i) The statement is not valid. Since the canalizing agent is not the agent of the importer nor does he represent
the importer abroad, purchases in bulk by canalizing agency from foreign seller and subsequent sale by it to
Indian importer on high seas sale basis are independent of each other. Hence, the commission or service
charges paid to the canalizing agent are includible in the assessable value as these cannot be termed as buying
commission [Hyderabad Industries Ltd. v. UOI 2000 (115) ELT 593 (SC)].

(ii) The statement is valid. As per rule 10(1)(e) of the Customs (Determination of Value of Imported Goods)
Rules, 2007, only the payments actually made as a condition of sale of the imported goods by the buyer to the
seller are includible in the assessable value.
Thus, charges of vendor inspection on the goods carried out by foreign supplier on his own and not required
for making the goods ready for shipment, are not includible in the assessable value of the imported goods
[Bombay Dyeing & Mfg. v. CC 1997 (90) ELT 276 (SC)].

5. An importer entered into a contract for supply of crude sunflower seed oil @ U.S. $ 435 C.I.F./Metric ton.
Under the contract, the consignment was to be shipped in the month of July. The period was extended by
mutual agreement and goods were shipped on 5th August at old prices.
In the meanwhile, the international prices had gone up due to volatility in market and other imports during
the month of August were at higher prices. Department sought to increase the assessable value on the basis
of the higher prices of contemporaneous imports.
Decide whether the contention of the Department is correct, with reference to a decided case law,
if any.

ANSWER:

No, the contention of the Department is not correct.

The facts of the given case are similar to the case of CCus., Vishakhapatnam v. Aggarwal Industries Ltd. 2011
(272) E.L.T. 641 (SC). The Supreme Court, in the instant case, observed that since the contract entered into for
supply of crude sunflower seed oil @ US $ 435 CIF/metric ton could not be performed on time, the extension
of time for shipment was agreed upon by the contracting parties.
The Supreme Court pointed out that the commodity involved had volatile fluctuations in its price in the

518
international market, but having delayed the shipment; the supplier did not increase the price of the
commodity even after the increase in its price in the international market.
Further, there was no allegation regarding the supplier and importer being in collusion. Thus, the appeal was
allowed in the favour of the assessee and the contract price was accepted as the ‘transaction value’.
6. BSA & Company Ltd. has imported a machine from U.K. From the following particulars furnished by it,
arrive at the assessable value for the purpose of customs duty payable.
Particulars Amount
i) Price of the machine 10,000 U.K. Pounds
(ii) Freight (air) 3,000 U.K. Pounds
(iii) Engineering and design charges paid to a 500 U.K. Pounds
firm in U.K.
(iv) License fee relating to imported goods 20% of Price of
payable by the buyer as a condition of sale machine
v) Materials and components supplied in UK by
the buyer free of cost valued at Rs. 20,000
(vi) Insurance paid to the insurer in India Rs. 6,000
(vii) Buying commission paid by the buyer to his 100 U.K. Pounds
agent in U.K.

Other particulars:
(i) Inter-bank exchange rate: Rs. 98 per U.K. Pound.

(ii) CBIC had notified for purpose of section 14 of the Customs Act, 1962, exchange rate of Rs. 100 per U.K.
Pound.

(iii) Importer paid Rs. 5,000 towards demurrage charges for delay in clearing the machine from the Airport.
(Make suitable assumptions wherever required and show workings with explanations)
(MTP MAY 2019) (MTP- NOV 2021)

ANSWER:
Computation of assessable value of machine imported by BSA & Co.
Particulars Amount (£)
Price of the machine 10,000
Add: Engineering and design charges paid in UK [Note 1] 500
Licence fee relating to imported goods payable by the buyer as a 2,000
condition of sale (20% of Price of machine) [Note 1]
Total 12,500

519
Amount
(Rs.)
Value in Indian currency [£12,500 x Rs.100] [Note 2] 12,50,000
Add: Materials and components supplied by the buyer free of cost 20,000
[Note 1]
FOB 12,70,000
Add: Freight [Note 3] 2,54,000
Insurance paid to the insurer in India [Note 1] 6,000
CIF value 15,30,000
Assessable value 15,30,000
Notes:

1. Engineering and design charges paid in UK, licence fee relating to imported goods payable by the buyer as a
condition of sale, materials and components supplied by the buyer free of cost and actual insurance charges
paid are all includible in the assessable value [Rule 10 of the Customs (Determination of Value of Imported
Goods) Rules, 2007].

2. As per Explanation to section 14(1) of the Customs Act, 1962, assessable value should be calculated with
reference to the rate of exchange notified by the CBIC.

3. If the goods are imported by air, the freight cannot exceed 20% of FOB price [Fifth proviso to rule 10(2) of
the Customs (Determination of Value of Imported Goods) Rules, 2007].

4. Buying commission is not included in the assessable value [Rule 10(1)(a) of the Customs (Determination of
Value of Imported Goods) Rules, 2007].

5. Only ship demurrage charges on chartered vessels are included in the cost of transport of the imported
goods. Thus, demurrage charges for delay in clearing the machine from the Airport will not be includible in the
assessable value [Explanation to Rule 10(2) of the Customs (Determination of Value of Imported Goods) Rules,
2007].

7. Briefly explain with reference to the provisions of the Customs Act, the relevant date for determination of
rate of duty and tariff valuation for imports through a vehicle where bill of entry is filed prior to the arrival
of the vehicle.

ANSWER:
As per section 15(1) of the Customs Act, 1962, the relevant date for determination of rate of duty and tariff
valuation of goods entered for imports through a vehicle is the date of presentation of bill of entry OR date of
arrival of the vehicle, whichever is later.
Therefore, the relevant date for determination of rate of duty and tariff valuation for imports through a
vehicle where bill of entry is filed prior to the arrival of the vehicle will be the date of the arrival of the vehicle.

520
8. With reference to the provisions of the Customs Valuation (Determination of Value of Imported Goods)
Rules, 2007, explain briefly the chief reasons on the basis of which the proper officer can raise doubts on the
truth or accuracy of the declared value.

ANSWER:
As per explanation to rule 12 of the Customs Valuation (Determination of Value of Imported Goods) Rules,
2007, the chief reasons on the basis of which the proper officer can raise doubts on the truth or accuracy of
the declared value may include:-
(a) the significantly higher value at which identical or similar goods imported at or about the same time in
comparable quantities in a comparable commercial transaction were assessed;

(b) the sale involves an abnormal discount or abnormal reduction from the ordinary competitive price;

(c) the sale involves special discounts limited to exclusive agents;

(d) the misdeclaration of goods in parameters such as description, quality, quantity, country of origin, year of
manufacture or production;

(e) the non declaration of parameters such as brand, grade, specifications that have relevance to value;

(f) the fraudulent or manipulated documents.

9. Jagat Corporation Limited imported some goods from US. The details of the transaction are as follows:-
Authority Rate of exchange
CBIC 1 US $=Rs. 70
RBI 1 US $=Rs. 71
CIF value of the goods is $ 1,50,000
Rate of basic custom duty is 10%
Rate of social welfare surcharge is 10%
Integrated tax is 18%. Ignore GST Compensation Cess.
Calculate total customs duty and integrated tax payable thereon.

ANSWER:
Computation of total custom duty and integrated tax payable
Particulars Amount
CIF Value $ 1,50,000.00
Assessable value (in Rs.) =$1,50,000 × Rs. 70 (Note -1) Rs.
1,05,00,000.00
Add: Basic custom duty @ 10% (Rs. 1,05,00,000 × 10%) Rs. 10,50,000.00

521
Add: Social Welfare surcharge [Rs.10,50,000 × 10%] Rs. 1,05,000
Sub-total 1,16,55,000.00
Add: Integrated tax (Rs. 1,16,55,000 × 18%) (Note-2) Rs. 20,97,900.00
Total custom duty and integrated tax payable (rounded Rs. 32,52,900
off)

Notes:-
(1) The applicable exchange rate is the rate notified by CBIC [Explanation to section 14(1) of the customs Act,
1962].
(2) Integrated tax is levied on the sum total of the assessable value of the imported goods, customs duties and
applicable social welfare surcharge.

10. ABC Industries Ltd. imports an equipment by air. CIF price of the equipment is 6,000 US$, freight paid is
1,200 US$ and insurance cost is 1,800 US$. The banker realizes the payment from importer at the exchange
rate of Rs. 61 per US$. Central Board of Indirect taxes and Customs notifies the exchange rate as Rs. 70 per
US$ while rate of exchange notified by RBI is Rs. 72 per US$. ABC Industries Ltd. expends Rs. 56,000 in India
for certain development activities with respect to the imported equipment.
Basic customs duty is 10%, Integrated tax is leviable @ 12% and social welfare surcharge is 10% on duty.
Ignore GST Compensation Cess.
You are required to compute the amount of total duty and integrated tax payable by ABC Industries Ltd.
under Customs law. (MTP- NOV 2021)

ANSWER:
Computation of customs duty and integrated tax payable by ABC Industries Ltd.
Particulars Amount
XRs.CIF value 6,000 US $
Less: Freight 1,200 US $
Less: Insurance 1,800 US $
FOB value 3,000 US $
Add: Freight (20% of FOB value) [Note 1] 600 US $
Add: Insurance (actual) 1,800 US $
CIF 5,400 US $
Exchange rate as per CBIC [Note 3] Rs. 70 per US
$
Assessable value = Rs. 70 x 5,400 US $ Rs. 3,78,000
Add: Basic customs duty @ 10% Rs. 37,800
Add: Social Welfare Surcharge @ 10% Rs. 3,780
Sub-total Rs. 4,19,580
Integrated tax @ 12% of Rs. 4,19,580[Note 5] Rs. 50,349.60
Total customs duty and integrated tax payable [Rs.37,800 + Rs. 3,780 + Rs. Rs. 91,929.60

522
50,349.60]
Total customs duty and integrated tax payable (rounded off) Rs. 91,930

Notes:

1. If the goods are imported by air, the freight cannot exceed 20% of FOB price [Fifth proviso to rule 10(2) of
the Customs (Determination of Value of Imported Goods) Rules, 2007].

2. Rate of exchange determined by CBIC is considered [Clause (a) of the explanation to section 14 of the
Customs Act, 1962].
3. Rule 10(1)(b)(iv) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 inter
alia provides that value of development work undertaken elsewhere than in India is includible in the value of
the imported goods. Thus, development charges of Rs. 56,000 paid for work done in India have not been
included for the purposes of arriving at the assessable value.

4. Integrated tax is levied on the sum total of the assessable value of the imported goods, customs duties and
applicable social welfare surcharge.

11. Compute the total customs duty and integrated tax payable under Customs law on an imported
machine, based on the following information:
(i) Cost of the machine at the factory of the exporter 20,000
(ii) Transport charges from the factory of exporter to the 800
port for shipment
(iii) Handling charges paid for loading the machine in the 50
ship
(iv) Freight charges from exporting country to India 5,000
(v) Buying commission paid by the importer 100
(Rs.)
(vi) Lighterage charges paid by the importer at port of 12,000
importation
(vii) Freight incurred from port of entry to Inland 60,000
Container depot
(viii) Ship demurrage charges paid at port of importation 24,000
Date of bill of entry 20.01.2020 (Rate BCD 20%; Exchange rate as
notified by CBIC Rs. 70 per US $)
Date of entry inward 25.03.2020 (Rate of BCD 10%; Exchange rate as
notified by CBIC Rs. 75 per US $)
Integrated tax 12%
Note: Ignore GST Compensation Cess.

ANSWER:
Computation of customs duty and integrated tax payable on the imported goods

523
Particulars US $
Cost of the machine at the factory 20,000
Transport charges up to port 800
Handling charges at the port 50
FOB 20,850
FOB value in Indian rupees @ Rs. 70/- per $ [Note 1] 14,59,500
Freight charges up to India [US $ 5,000 x Rs. 70] 3,50,000
Lighterage charges paid by the importer [Note 2] 12,000
Ship demurrage charges on chartered vessels [Note 2] 24,000
Insurance charges @ 1.125% of FOB [Note 3] 16,419.38
 CIF 18,61,919.38
Add: Basic customs duty @ 10% [Note 4] [a] 1,86,192
Add: Social Welfare surcharge @ 10% [b] 18,619.20
Total 20,66,730.58
Add: Integrated tax @ 12% of Rs. 20,66,730.58 [c] [Note 2,48,007.67
5]
Total custom duty and integrated tax payable [(a) +(b) + 4,52,819
(c)] rounded off

Notes:

(1) Rate of exchange notified by CBIC on the date of presentation of bill of entry is considered [Explanation to
section 14 of the Customs Act, 1962].

(2) Cost of transport of the imported goods includes ship demurrage charges and lighterage charges
[Explanation to Rule 10(2) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007].

(3) Insurance charges is included @ 1.125% of FOB value of goods [Third proviso to rule 10(2) of Customs
Valuation (Determination of Value of Imported Goods) Rules, 2007].

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

(5) Integrated tax is levied on the sum total of the assessable value of the imported goods, customs duties and
applicable Social welfare surcharge.

(6) Buying commission is not included in the assessable value [Rule 10(1)(a)(i) of Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007].

(7) Freight incurred from port of entry to Inland Container depot is not includible in assessable value [Rule
10(2)(a) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007].

12. Kaveri Enterprises imported some goods from Italy. On the basis of certain information obtained 524
through computer printouts from the Customs House, Department alleged that during the period in
question, large number of consignments of such goods were imported at a much higher price than the price
declared by Kaveri Enterprises. Therefore, Department valued such goods on the basis of transaction value
of identical goods as per rule 4 of the Customs Valuation (Determination of Value of Imported Goods) Rules,
2007 and demanded the differential duty along with penalty and interest from the Kaveri Enterprises.
However, Department did not provide these printouts to Kaveri Enterprises.
Kaveri Enterprises contended that Department’s demand was without any basis in law, without any legally
admissible evidence and opposed to the principles of natural justice as the computer printouts which
formed the basis of such demand had not been supplied to them. Resultantly, they had no means of
knowing as to whether any imports of comparable nature were made at the relevant point of time.

You are required to examine the contention of Kaveri Enterprises, with the help of a decided case law, if
any.

ANSWER:

The facts of the given case are similar to the case of Gira Enterprises v. CCus. 2014 (307) ELT 209 (SC) decided
by the Supreme Court. In the instant case, the Supreme Court observed that since Revenue did not supply the
copy of the computer printout, which formed the basis of the conclusion that the appellants under-valued the
imported goods, the appellants obviously could not and did not have any opportunity to demonstrate that the
transactions relied upon by the Revenue were not comparable transactions.

The Supreme Court held that mere existence of alleged computer printout was not proof of existence of
comparable imports. Even if assumed that such printout did exist and content thereof were true, such printout
must have been supplied to the appellant and they should have been given reasonable opportunity to
establish that the import transactions were not comparable.

In view of the above-mentioned judgment, contention of Kaveri Enterprises is correct.

13. M/s Impex imported some consignment of goods on 01.06. A bill of entry for warehousing of goods was
presented on 05.06 and the materials were duly warehoused. The goods were subject to duty @ 50% ad
valorem. In the meanwhile, on 01.07, an exemption notification was issued reducing the effecting customs
duty @ 30%, ad valorem. M/s Impex filed their bill of entry for home consumption on 01.08 claiming duty @
30% ad valorem. However, Customs Department charged duty @ 50% ad valorem being the rate on the date
of clearance into the warehouse.

Explain with reference to the provisions of the Customs Act, 1962:

(i) the rate of duty applicable for clearance for home consumption in this case.

(ii) whether the rate of exchange on 01.08 could be adopted for purpose of conversion of foreign currency 525
into local currency?

ANSWER:

(i) Section 15(1)(b) of the Customs Act, 1962 provides that in the case of goods cleared from a warehouse, rate
of duty applicable is the rate of duty in force on the date on which a bill of entry for home consumption in
respect of such goods is presented.
In the given case, since M/s Impex has filed the bill of entry for home consumption on 01.08.2020, rate of duty
is the rate prevalent on the said date viz. 30%.

(ii) Third proviso to section 14 of the Customs Act, 1962 provides that the rate of exchange notified by the
CBIC as prevalent on the date of presentation of bill of entry for warehousing is the applicable rate of
exchange for conversion of foreign currency into local currency.

Therefore, in the given case, rate of exchange that would be prevalent on date of presentation of bill of entry
for warehousing i.e. 05.06.2020 and not the one prevalent on date of presentation of bill of entry for home
consumption i.e., 01.08.2020, would be adopted.

14. Differentiate between deductive value and computed value.

ANSWER:

RULE 7 – DEDUCTIVE VALUE

(1) Subject to the provisions of rule 3, if the goods being valued or identical or similar imported goods are sold
in India, in the condition as imported at or about the time at which the declaration for determination of value
is presented, the value of imported goods shall be based on the unit price at which the imported goods or
identical or similar imported goods are sold in the greatest aggregate quantity to persons who are not related
to the sellers in India, subject to the following deductions: —

(i) either the commission usually paid or agreed to be paid or the additions usually made for profits and
general expenses in connection with sales in India of imported goods of the same class or kind;
(ii) the usual costs of transport and insurance and associated costs incurred within India;
(iii) the customs duties and other taxes payable in India by reason of importation or sale of the goods.

(2) If neither the imported goods nor identical nor similar imported goods are sold at or about the same time
of importation of the goods being valued, the value of imported goods shall, subject otherwise to the
provisions of sub-rule (1), be based on the unit price at which the imported goods or identical or similar

526
imported goods are sold in India, at the earliest date after importation but before the expiry of ninety days
after such importation.

(3) (a) If neither the imported goods nor identical nor similar imported goods are sold in India in the condition
as imported, then, the value shall be based on the unit price at which the imported goods, after further
processing, are sold in the greatest aggregate quantity to persons who are not related to the seller in India.
(b) In such determination, due allowance shall be made for the value added by processing and the deductions
provided for in items (i) to (iii) of sub-rule (1).
RULE 8 – COMPUTED VALUE

Subject to the provisions of rule 3, the value of imported goods shall be based on a computed value, which
shall consist of the sum of:-

(a) the cost or value of materials and fabrication or other processing employed in producing the imported
goods;

(b) an amount for profit and general expenses equal to that usually reflected in sales of goods of the same
class or kind as the goods being valued which are made by producers in the country of exportation for export
to India;

(c) the cost or value of all other expenses under sub-rule (2) of rule 10.

15. What is residual method of valuation? Discuss with reference to the Customs Valuation (Determination
of Value of Imported Goods) Rules, 2007.

ANSWER:

RULE 9 – RESIDUAL METHOD

(1) Subject to the provisions of rule 3, where the value of imported goods cannot be determined under the
provisions of any of the preceding rules, the value shall be determined using reasonable means consistent
with the principles and general provisions of these rules and on the basis of data available in India.
Provided that the value so determined shall not exceed the price at which such or like goods are ordinarily
sold or offered for sale for delivery at the time and place of importation in the course of international trade,
when the seller or buyer has no interest in the business of other and price is the sole consideration for the sale
or offer for sale.

(2) No value shall be determined under the provisions of’ this rule on the basis of—

527
(i) the selling price in India of the goods produced in India;

(ii) a system which provides for the acceptance for customs purposes of the highest of the two alternative
values;

(iii) the price of the goods on the domestic market of the country of exportation;

(iv) the cost of production other than computed values which have been determined for identical or similar
goods in accordance with the provisions of rule 8;
(v) the price of the goods for the export to a country other than India;

(vi) minimum customs values; or

(vii) arbitrary or fictitious values.

The residuary method can be considered if valuation is not possible by any other method. [Sanjay Chandiram
v. CC 1995 (77) E.L.T. 241 (S.C.)]

16. Enumerate the various costs and services that are to be added under rule 10 of the Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007 to arrive at the “transaction value”.

ANSWER:
RULE 10 – COST AND SERVICES

(1) In determining the transaction value, there shall be added to the price actually paid or payable for the
imported goods:

(a) the following to the extent they are incurred by the buyer but are not included in the price actually paid or
payable for the imported goods, namely:-
(i) commissions and brokerage, except buying commissions;
(ii) the cost of containers which are treated as being one for customs purposes with the goods in question;
(iii) the cost of packing whether for labour or materials.

(b) The value, apportioned as appropriate, of the following goods and services where supplied directly or
indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for
export of imported goods, to the extent that such value has not been included in the price actually paid or
payable, namely:-

(i) materials, components, parts and similar items incorporated in the imported goods;

(ii) tools, dies, moulds and similar items used in the production of the Imported goods;

(iii) materials consumed in the production of the imported goods; 528

(iv) engineering, development, art work, design work, and plans and sketches undertaken elsewhere than in
India and necessary for the production of the imported goods.

(c) royalties and licence fees related to the imported goods that the buyer is required to pay, directly or
indirectly, as a condition of the sale of the goods being valued, to the extent that such royalties and fees are
not included in the price actually paid or payable;
(d) The value of any part of the proceeds of any subsequent resale, disposal or use of the imported goods that
accrues, directly or indirectly, to the seller;

(e) all other payments actually made or to be made as a condition of sale of the imported goods, by the buyer
to the seller, or by the buyer to a third party to satisfy an obligation of the seller to the extent that such
payments are not included in the price actually paid or payable.
Explanation.- Where the royalty, licence fee or any other payment for a process, whether patented or
otherwise, is includible referred to in clauses (c) and (e), such charges shall be added to the price actually paid
or payable for the imported goods, notwithstanding the fact that such goods may be subjected to the said
process after importation of such goods.

(2) For the purposes of sub-section (1) of section 14 of the Customs Act, 1962 and these rules, the value of the
imported goods shall be the value of such goods, and shall include –
(a) the cost of transport, loading, unloading and handling charges associated with the delivery of the imported
goods to the place of importation;

(b) the cost of insurance to the place of importation:

However, where the cost referred to in clause (a) is not ascertainable, such cost shall be 20% of the free on
board value of the goods:

Further that where the free on board value of the goods is not ascertainable but the sum of free on board
value of the goods and the cost referred to in clause (b) is ascertainable, the cost referred to in clause (a) shall
be 20% of such sum:
Where the cost referred to in clause (b) is not ascertainable, such cost shall be 1.125% of free on board value
of the goods:
Where the free on board value of the goods is not ascertainable but the sum of free on board value of the
goods and the cost referred to in clause (a) is ascertainable, the cost referred to in clause (b) shall be 1.125%
of such sum:

In the case of goods imported by air, where the cost referred to in clause (a) is ascertainable, such cost shall
not exceed 20% of free on board value of the goods:
In the case of goods imported by sea or air and transshipped to another customs station in India, the cost of
insurance, transport, loading, unloading, handling charges associated with such transshipment shall be

529
excluded.

Explanation-
The cost of transport of the imported goods referred to in clause (a) includes the ship demurrage charges on
charted vessels, lighterage or barge charges.
17. In the context of Customs Valuation (Determination of Price of Imported Goods) Rules, 2007, explain the
meaning of:
(i) Similar goods
(ii) Identical goods

ANSWER:

Similar goods. The requirement that the similar goods should be imported at or about the same time as the
goods being valued could be flexibly interpreted; similar imported goods produced in a country other than the
country of exportation of the goods being valued could be the basis for customs valuation; customs values of
similar imported goods already determined under the provisions of rules 7 and 8 could be used.

Identical goods. The requirement that the identical goods should be imported at or about the same time as
the goods being valued could be flexibly interpreted; identical imported goods produced in a country other
than the country of exportation of the goods being valued could be the basis for customs valuation; customs
values of identical imported goods already determined under the provisions of rules 7 and 8 could be used.

18. Briefly discuss the provisions relating to date for determining the rate of duty and tariff valuation of
imported goods

ANSWER:

FOR IMPORTED GOODS [SECTION 15]

Section 15 of the Customs Act, 1962 specifies the relevant date for determining the rate of duty and tariff
valuation of imported goods. They are different for different situations as given below:

(a) Goods are entered for home consumption under section 46 – The relevant date for the three modes of
transport as laid down by section 15(1)(a) read with proviso would be as follows:

(i) For goods imported by vehicle at land customs station – the relevant date is the date of filing the B/E under
section 46 or date of arrival of vehicle, whichever is later.

530
(ii) For goods imported by a vessel at a customs port – the relevant date is the date of filing the B/E under
section 46 or date of entry inwards to vessel under section 31, whichever is later.

(iii) For goods imported by aircraft at a customs airport – the relevant date is the date of filing the B/E under
section 46 or date of arrival of aircraft, whichever is later.

(b) Goods cleared from a warehouse under section 68 – the relevant date is the date on which a bill of entry
for home consumption in respect of such goods is presented.
(c) In the case of any other goods – the relevant date is the date of payment of duty.
These provisions relating to determination of relevant date do not apply to baggage and imports by post, in
which sections 78 and 83 apply respectively.

FOR EXPORT GOODS [SECTION 16]

The relevant date for export goods is determined as per section 16. However, the provisions do not apply to
baggage and imports by post.
The provisions are as follows:

(a) In case of goods entered for export under Section 50 (irrespective of the mode of transport) – the
relevant date is the date of the ‘let export’ order of the proper officer permitting export and loading of cargo
on board under section 51.

(b) In case of any other goods – the relevant date is the date of payment of duty.

19. Product ‘Z’ was imported by Mr. X by air. The details of the import transaction are as follows:
Particulars US $
Price of ‘Z’ at exporter’s factory 8,500
Freight from factory of the exporter to load airport (airport in 250
the country of exporter)
Loading and handling charges at the load airport 250
Freight from load airport to the airport of importation in India 4,500
Insurance charges 2,000
Though the aircraft arrived on 22.08, the bill of entry for home consumption was presented by Mr. X on
20.08.
The other details furnished by Mr. X are:
20.08. 22.08.
Rate of basic customs duty 20% 10%
Exchange rate notified by CBIC Rs. 70 per Rs. 72 per US$
US$
Exchange rate prescribed by RBI Rs. 71 per Rs. 72 per US$

531
US$
Integrated tax leviable under 18% 12%
section 3(7) of the Customs Tariff
Act, 1975
Compute-
(i) value of product ‘Z’ for the purpose of levying customs duty
(ii) customs duty and tax payable
ANSWER:
Computation of assessable value of product ‘Z’
Particulars Amount
Ex-factory price of the goods 8,500 US $
Freight from factory of the exporter to load airport (airport in 250 US $
the country of exporter)
Loading and handling charges at the load airport 250 US $
Freight from load airport to the airport of importation in India 4,500 US $
Total cost of transport, loading and handling charges associated 5,000 US $
with the delivery of the imported goods to the place of
importation
Add: Cost of transport, loading, unloading and handling charges associated 1,800 US $
with the delivery of the imported goods to the place of importation (restricted
to 20% of FOB value) [Note 1]
Insurance (actual) 2,000 US $
CIF for customs purpose 12,300 US $
Value for customs purpose 12,300 US $
Exchange rate as per CBIC [Note 2] Rs. 70 per US $

Amount (Rs.)
Assessable value (Rs. 70 x 12,300 US $) 8,61,000
Add: Basic customs duty @ 10% [Note 3] 86,100
Add: SWS @ 10% 8,610
Value for the purpose of levying integrated tax [Note 4] 9,55,710
Add: Integrated tax @ 12% 1,14,685.2
Total duty & tax payable (rounded off) 2,09,395

Notes:
(1) In the case of goods imported by air, the cost of transport, loading, unloading and handling charges
associated with the delivery of the imported goods to the place of importation shall not exceed 20% of the
FOB value of the goods. [Fifth proviso to rule 10(2) of the Customs Valuation (Determination of Value of

532
Imported Goods) Rules, 2007 (CVR)].
FOB value in this case is the ex-factory price of the goods (8,500 US $) plus the cost of transport from factory
to load airport (250 US $) plus loading and handling charges at the load airport (250 US $) which is 9,000 US $.

(2) Rate of exchange determined by CBIC is to be considered [Clause (a) of the explanation to section 14 of the
Customs Act, 1962].

(3) Section 15 of the Customs Act, 1962 provides that rate of duty shall be the rate in force on the date of
presentation of bill of entry or the rate in force on the date of arrival of aircraft, whichever is later.
(4) Integrated tax is levied on the sum total of the assessable value of the imported goods and customs duties
[Section 3(8) of the Customs Tariff Act, 1962]. SWS leviable on integrated tax have been exempted.

20. An importer from Cochin imports goods from an exporter in US. The vessel carrying the goods reaches
Mumbai port first and from there goods are transshipped to Cochin port.
Determine the assessable value of the imported goods under the Customs Act, 1962 from the following
particulars:
S.No. Particulars Amount
(i) Cost of the machine at the factory of the US $ 20,000
exporter
(ii) Transport charges from the factory of exporter US $ 1,000
to the port for shipment
(iii) Handling charges paid for loading the machine US $ 100
in the ship
(iv) Buying commission paid by the importer US $ 100
(v) Freight charges from exporting country to India US $ 2,000
(vi) Actual insurance charges paid are not ---
ascertainable
(vii) Charges for design and engineering work US $ 5,000
undertaken for the machine in US
(viii) Unloading and handling charges paid at the Rs. 1,500
place of importation
(ix) Transport charges from Mumbai to Cochin port Rs. 25,000
(x) Exchange rate to be considered: 1$ = Rs. 70

ANSWER:

Computation of assessable value of imported goods

Particulars Amount (US $)
Price of the machine at the factory of the exporter 20,000
Add: Transport charges up to the port in the country of the 1,000

533
exporter [Note 1]
Handling charges at the port in the country of the exporter 100
[Note 1]
Charges for design and engineering work undertaken for the 5,000
machine in US [Note 2]
Buying commission [Note 3] Nil
FOB value 26,100.00
Add: Freight charges up to India 2,000.00
Insurance charges @ 1.125% of FOB [Note 4] 293.63
Transport charges from Mumbai to Cochin port [Note 5] Nil
 CIF value 28,393.63
Add: Unloading and handling charges paid at the place of Nil
importation [Note 6]
Assessable value 28,393.63
Assessable value in Indian rupees @ Rs. 70/ per $ Rs.19,87,554.10
Assessable value (rounded off) Rs. 19,87,554

Notes:

(1) The cost of transport, loading, unloading and handling charges associated with the delivery of the imported
goods to the place of importation are includible in the assessable value [Rule 10(2)(a) of the Customs
Valuation (Determination of Value of Imported Goods) Rules, 2007 (CVR)].

(2) Design and engineering work undertaken elsewhere than in India and necessary for the production of the
imported goods is includible in the assessable value [Rule 10(1)(b)(iv) of the CVR].

(3) Buying commission is not included in the assessable value [Rule 10(1)(a)(i) of the CVR].

(4) If insurance cost is not ascertainable, the same shall be added @ 1.125% of FOB value of the goods [Third
proviso to rule 10(2) of the CVR].

(5) Cost of insurance, transport, loading, unloading, handling charges associated with transshipment of
imported goods to another customs station in India is not included in the assessable value [Sixth proviso to
rule 10(2) of the CVR].

(6) As per rule 10(2) of the CVR, only charges incurred for delivery of goods “to” the place of importation are
includible in the transaction value.
The loading, unloading and handling charges associated with the delivery of the imported goods at the place
of importation are not to be added to the CIF value of the goods.

21. ABC Industries Ltd. of Mumbai imported one machine through vessel from Japan, in the month of

534
November. The following particulars are made available:
S. No. Particulars Amount in
Japanese
Yen (¥)
(i) Cost upto port of exportation incurred by 6,00,000
exporter
(ii) Loading charges at port of exportation 25,000
(iii) Freight charges from port of export to port of 1,00,000
import in India.
Following additional amounts paid by ABC Industries Ltd:-

S. No. Particulars Amount in Indian

rupees (Rs.)
(i) Designing charges, necessary for such machine, paid to consultancy 8,00,000
firm in New Delhi
(ii) Commission paid (not the buying commission) to local agent of 1,25,000
exporter.
(iii) Actual landing charges paid at the place of importation. 15,000
(iv) Actual insurance charges paid to the place of importation are not -
ascertainable.
(v) Lighterage charges paid at the port of importation 20,000

Other Information :
(i) Rate of basic customs duty is 10%
(ii) Rate of social welfare surcharge is 10%
(iii) Integrated tax leviable under section 3(7) of Customs
Tariff Act, 1975 is 12%.
(iv) Ignore GST compensation cess.
(v) Rate of exchange to be taken is 1 Japanese Yen (¥) = Rs.
0.71
Arrive at the total customs duty, including integrated tax payable under section 3(7) of the Customs Tariff
Act, 1975 with appropriate working notes. (RTP JULY 2021)

ANSWER:

Computation of assessable value of the imported goods

Japanese Yen
Cost upto port of exportation 6,00,000
Add: Loading charges at the port of exportation [Note-1] 25,000

535
Total in Japanese Yen 6,25,000
Rs.
Total in Indian rupees @ Rs. 0.71 per Japanese Yen 4,43,750.00
Add: Commission paid to local agent of exporter [Note-3] 1,25,000.00
FOB value as per customs 5,68,750.00
Add: Freight charges from port of export to port of import in India [Note-1] 71,000.00
[1,00,000 Japanese Yen × 0.71 = Rs. 71,000]
Add: Lighterage charges paid by the importer at port of importation [Note-1] 20,000
Add: Insurance charges @ 1.125% of FOB [Rs. 5,68,750 × 1.125%] [Note-4] 6,398.43
CIF value 6,66,148.43
 Assessable Value (rounded off) 6,66,148
Add: Basic customs duty @ 10% of Rs. 6,66,148 66,615
(rounded off) (A)
Add: Social welfare surcharge @ 10% of Rs. 66,615 6,662
(rounded off) (B)
Total 7,39,425
Add: Integrated tax @ 12% of Rs. 7,39,425 (rounded off) (C) 88,731
Total custom duty and integrated tax payable [(A) +(B) + (C)] (rounded off) 1,62,008

Notes:
(1) The cost of transport, loading, unloading and handling charges associated with the delivery of the imported
goods to the place of importation are includible in the assessable value [Rule 10(2) of the Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007 (CVR)]. Further, explanation to rule 10(2), inter alia,
clarifies that cost of transport of the imported goods includes lighterage charges.

(2) Design and engineering work is includible in the assessable value only when the same is undertaken
elsewhere than in India and necessary for the production of the imported goods [Rule 10(1) of the CVR].

(3) Buying commission is not included in the assessable value [Rule 10(1) of the CVR]. Commission paid to local
agent of exporter is includible in the assessable value since it is not buying commission.

(4) If insurance cost is not ascertainable, the same shall be added @ 1.125% of FOB value of the goods [Rule
10(2) of the CVR].

(5) Cost of insurance, transport, loading, unloading, handling charges associated with transshipment of
imported goods to another customs station in India is not included in the assessable value [Rule 10(2) of the
CVR].

22. Mr. X imported certain goods from a related person Mr. Q of US and transaction value has been
rejected. Rules 4 and 5 of the Import Valuation Rules are found inapplicable as no similar/ identical goods
are imported in India. Mr. X furnishes cost related data of imports and requests customs authorities to

536
determine value accordingly as per rule 8. The relevant data are

1. Cost of materials incurred by Mr. Q $ 2000

2. Fabrication charges incurred by Mr. Q $ 1000

3. Other chargeable expenses incurred by Mr. Q $ 400

4. Other indirect costs incurred by Mr. Q $ 250

5. Freight from Mr. Q 's factory to US port $ 250

6. Loading charges at US port $ 100
7. Normal net profit margin of Mr. Q is 20% of FOB
8. Air freight from US port to Indian port $ 1,500

9. Insurance from US port to Indian port $ 50

10. Exchange rate Rs. 70 per $

The customs authorities are of the opinion that since value as per rule 7 can be determined at Rs. 4,00,000,
there is no need to apply rule 8.

Can the request of Mr. X be legally acceptable? If so, compute the assessable value under the Customs Act,
1962. (PAST EXAM NOV 2019)

ANSWER:

The value of the imported goods is determined under rule 8 of the Customs Valuation (Determination of Value
of Imported Goods) Rules, 2007 (hereinafter referred to as Import Valuation Rules) if the same cannot be
determined under the earlier rules. However, the order of application of rules 7 and 8 can be reversed at the
request of the importer and with the approval of the proper officer.

Thus, request of Mr. X for determination of value under rule 8 is legally acceptable, if the same is also
approved by the proper officer.

Assuming that the request of Mr. X has been approved by the proper officer, the assessable value of the
imported goods under rule 8 will be the sum of-

(a) the cost of materials and fabrication or other processing;

(b) an amount for profit and general expenses

(c) the cost or value of all other expenses under rule 10(2) of the said rules.

Computation of assessable value

537
Particulars Amount ($)
Cost of materials 2,000
Add: Fabrication charges 1,000
Other chargeable expenses 400
Other indirect costs 250
Cost of the goods at Mr. Q’s factory 3,650
 Add: Net profit margin @ 20% of FOB, i.e. 25% of total cost 1,000
Total cost till US port = Cost of the goods at factory + Freight
from factory to US port and loading charges at US port = $
4,000 [$ 3,650 + $ 250 + $ 100]
FOB value = Total cost till port + profit = $ 5,000 ($ 4,000 + $
1,000)
Add: Freight & loading/unloading charges 1,000
[In case of import by air, the cost of transport, loading,
unloading and handling charges associated with the delivery of
the imported goods to the place of importation are restricted
to 20% of FOB value]
Insurance charges 50
Assessable value 5,700
Assessable value in Indian Rupees (Exchange rate - Rs. 70 per 3,99,000
$)

23 . Determine the assessable value of imported goods in the following cases:

Case I

538
Answer

Rule 10(2) of the Customs (Determination of Value of Imported Goods) Rules, 2007 (CVR) has been substituted
by a new sub-rule. The new sub-rule provides that for the purposes of sub-
section (1) of section 14 of the Customs Act, 1962 and these rules, the value of the imported goods shall be
the value of
such goods, and shall include –

(a) the cost of transport, loading, unloading and handling charges associated with the delivery of the
imported goods to the place of importation;

(b) the cost of insurance to the place of importation:

Provided that where the cost referred to in clause (a) is not ascertainable, such cost shall be 20% of the
free on board value of the goods.

Provided further that where the free on board value of the goods is not ascertainable but the sum of free
on board value of the goods and the cost referred to in clause (b) is ascertainable, the cost referred to in
clause (a) shall be 20% of such sum:

Provided also that where the cost referred to in clause (b) is not ascertainable, such cost shall be 1.125%
of free on board value of the goods.

Provided also that where the free on board value of the goods is not ascertainable but the sum of free on
board value of the goods and the cost referred to in clause (a) is ascertainable, the cost referred to in
clause (b) shall be 1.125% of such sum.

Provided also that in the case of goods imported by air, where the cost referred to in clause (a) is
ascertainable, such cost shall not exceed 20% of free on board value of the goods.

539
Provided also that in the case of goods imported by sea or air and transshipped to another customs station in
India, the cost of insurance, transport, loading, unloading, handling charges associated with
such transshipment shall be excluded.

- The cost of transport of the imported goods referred to in clause (a) includes the ship demurrage charges
on charted vessels, lighterage or barge charges. In the backdrop of the above provisions, the assessable value
in the various cases will be computed as under:
Computation of assessable value
Case I

540
24. Sphinx Merchandise Ltd. has exported some goods to USA by air. The FOB price of goods exported is US
$ 1,00,000. Compute the export duty payable by Sphinx Merchandise Ltd. with the help of following details
provided. (RTP MAY 2019)

Answer

Computation of export duty

Notes:
1. The transaction value, i.e. FOB price of export goods, is considered as assessable value in terms of
section 14(1) of the Customs Act, 1962.

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

3. The rate of duty prevalent on the date of let export order is considered for computing export duty in
terms of section 16(1)(a) of the Customs Act, 1962.

25. Kankan Corp had imported a machine from USA for ₹ 365 lakh on payment of appropriate customs duty 541
in February. However, in July, the machine had to be sent back to the supplier for repair (not amounting
to manufacture) from the factory of Kankan Corp. This machine was repaired and thereafter, re-imported
by Kankan Corp in November next year. The supplier has agreed to provide discount of 60% of the fair
cost of repairs, resulting in Kankan Corp paying USD 12,000. Following further particulars are available:
Determine total duty payable with appropriate notes for your computation assuming that Kankan
Corp is not an EOU. (RTP MAY 2020)

Answer

Notification No. 45/2017 Cus. dated 30.06.2017 stipulates that in case of re-importation of goods exported for
repairs, duty is payable on fair cost of repairs carried out, insurance and freight charges
- both ways, subject to fulfillment of following conditions:

(a) The time limit for re-importation is 3 years

(b) The exported goods and the re-imported goods must be the same.

(c) The ownership of the goods should not have changed.

Since all the specified conditions are fulfilled in the given case, total duty payable will be computed as
under:

Computation of total duty payable by Kankan Corp.

542
Notes:

1. Rate of exchange notified by the CBEC on date of presentation of bill of entry would be the applicable rate
in terms of third proviso to section 14(1) of the Customs Act, 1962.

2. Rate of duty is the rate in force on date of presentation of bill of entry or arrival of aircraft, whichever is
later in terms of proviso to section 15(1) of the Customs Act, 1962.

26. Rudraksh Manufacturers, Kolkata, is engaged in manufacturing the textile articles. It has decided to
enhance its production capacity in the current year. Therefore, it imports a machine through vessel from
George Inc., USA a t a price of $ 31,650 (including transport charges from the factory of George Inc. upto
US port of $ 2,500 and handling charges at US port of $ 1,750). Rudraksh Manufacturers has provided the
following additional information in respect of machine imported:

The actual insurance charges paid are not ascertainable. You are required to determine the assessable
value of the imported machine under the Customs Act, 1962 from the given particulars. (RTP NOV 2020)

Answer

Computation of assessable value of imported goods

543
Notes:
(1) The cost of transport, loading, unloading and handling charges associated with the delivery of the imported
goods to the place of importation are includible in the assessable value [Rule 10(2)(a) of
the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 (CVR)].

(2) Design and engineering work undertaken elsewhere than in India and necessary for the production
of the imported goods is includible in the assessable value [Rule 10(1)(b)(iv) of the CVR].

(3) Buying commission is not included in the assessable value [Rule 10(1)(a)(i) of the CVR].

(4) If insurance cost is not ascertainable, the same shall be added @ 1.125% of FOB value of the goods
[Third proviso to rule 10(2) of the CVR].

(5) By virtue of rule 10(2) of the CVR, only charges incurred for delivery of goods “to” the place of importation
are includible in the transaction value. The loading, unloading and handling charges associated with the
delivery of the imported goods at the place of importation are not to be added to the CIF value of the goods.
[Circular No. 39/2017 Cus. dated 26.09.2017].

27. Maxiline Corp, not being an EOU, had imported technical instruments from USA for ₹ 180 lakh on
payment of duty. It had to subsequently send back the same to the supplier for repair. The supplier has
agreed to provide discount of 50% of the fair cost of repairs, resulting in Maxiline Corp paying USD
15,000. Following further particulars are available:

544
Other details available on records:
(a) Goods are reimported within 3 years of despatch for repair.
(b) Both the exported and imported goods are the same.
(c) There is no change in the ownership of technical instruments.
(d) The export is not from a public/private warehouse and repairs does not amount to manufacture.

Determine total duty payable with appropriate notes for your computation.
Answer
In case of re-importation of goods exported for repairs, duty is payable on fair cost of repairs carried out,
insurance and freight charges, both ways, subject to fulfillment of specified conditions in terms of Notification
No. 94/96 Cus. dated 16.12.1996.

Following conditions are to be satisfied in this regard:

(a) The time limit for re-importation is 3 years

(b) The exported goods and the re-imported goods must be the same.
(c) The ownership of the goods should not have changed.

Since all the specified conditions are fulfilled in the given case, total duty payable will be computed as under:

Computation of total duty payable by Maxiline Corp.

Notes:

1. Rate of exchange notified by the CBEC on date of presentation of bill of entry would be the applicable rate
in terms of third proviso to section 14(1) of the Customs Act, 1962.

2. Rate of duty is the rate in force on date of presentation of bill of entry or arrival of aircraft, whichever is

545
later in
terms of proviso to section 15(1) of the Customs Act, 1962.

28. Niketan Industries Ltd., New Delhi has imported certain machine (by sea) from Japan.
From the following particulars furnished by it, work out the assessable value of the machine and customs
duty payable by Niketan Industries Ltd. with appropriate working notes (PAST EXAM MAY 2018)
(MTP NOV 2018)
Answer
Computation of assessable value and customs duty payable

Notes:
1. Only charges incurred for delivery of goods “to” the place of importation are includible in the transaction
value vide rule 10(2)(a) of Customs Valuation (Determination of Value of Imported
Goods) Rules, 2007. The loading, unloading and handling charges associated with the delivery of the imported
goods “at” the place of importation are not to be added to the CIF value of the goods.

2. In case of goods imported by sea and transshipped to another custom station in India, the cost of transport
associated with such transshipment is excluded in terms of sixth proviso to rule 10(2) of
Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.

3. Rule 10(1)(b)(iv) of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007
provides that only the design and engineering work undertaken elsewhere than in India is includible

546
in the assessable value.
29. Jolly overseas Ltd. of Hyderabad has imported a machine from U.K (England) through the sea route by a
vessel. The details of the import transaction are as follows:

Compute the assessable value of the machine (in rupees) for the purpose of levy of Customs Duty. (PAST

547
EXAM NOV 2018)

Answer
Computation of assessable value of machine

Notes:
(1) As per rule 10 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007

- (i) Licence fees related to the imported goods payable as a condition of the sale of the goods being
valued is includible in the assessable value

(ii) The cost of transport, loading, unloading and handling charges associated with the delivery of
the imported goods to the place of importation are includible in the assessable value.

Where such cost is not ascertainable, it shall be 20% of the free on board (FOB) value of the goods.
FOB value will be sum total of cost of machine, transport charges from factory to port of exportation, handling
charges at the port of exportation and licence fee paid as a condition of
sale of imported goods, which will be £ 22,000 [£ 20,000 + £ 600 + £ 500+ £ 900]

(iii) Only charges incurred for delivery of goods “to” the place of importation are includible in the transaction

548
value. The loading, unloading and handling charges associated with the delivery of
the imported goods at the place of importation are not to be added to the CIF value of the goods.

(2) As per section 14 of the Customs Act, 1962, the rate of exchange notified by the CBEC on the date of
presentation of bill of entry is to be considered for the purpose of conversion of assessable value
into Indian currency.
30. A Malaysian company donated 1,000 metric tons of palm oil to a charitable trust in India for free
distribution to the poor and the needy citizens. The trust in India had to meet the expenditure towards
freight and insurance only which came to US $ 20 per metric ton. The Custom Department found that at or
about the same time of importation of this consignment, there were following imports of palm oil of
Malaysian origin into India.

The rate of exchange on the relevant date was 1 US $ = ₹ 65 and the rate of customs duty was 20% ad
valorem. Calculate the amount of customs duty payable on the consignment under the Customs Act, 1962
with appropriate assumptions and explanations. It would be sufficient if only basic customs duty is
calculated.

Answer

In the given case, there is no transaction value for the subject goods. Therefore, value has to be determined
based on the transaction value of contemporaneous imports of identical/similar goods in accordance with rule
4 of Customs Valuation (Determination of Value of Imported Goods) Rules, 2007.
Rule 4(1)(a) of the aforementioned rules provides that subject to the provisions of rule 3, the value of
imported goods shall be the transaction value of identical goods sold for export to India and imported at
or about the same time as the goods being valued.

In the three imports given during the relevant time, the goods are identical in description and of the same
country of origin.

Further, clause (b) of rule 4(1) of the said rules requires that the comparable import should be at the same
commercial level and in substantially same quantity as the goods being valued. The consignment of 500
tonnes can
not be considered to be of substantially the same quantity. Hence, remaining 2 consignments will only be
relevant. If more than one transaction value of identical goods is found, the lowest of such value shall be used
to determine the value of imported goods.

Accordingly, the unit price of the consignment under valuation would be US $ 300 per metric tonne. 549
Computation of amount of duty payable

31. Determine the Assessable value under customs law of an imported machine based on the following
information: (PAST EXAM MAY 2019)

(1) Cost of machine (Contract price = ₹ 1,00,000, Revised price = ₹ 2,00,000, Negotiated & Agreed price = ₹
1,50,000)

(2) Freight from the factory of the exporter to the port for shipment = ₹ 20,000

(3) Freight incurred from port of entry to inland container depot = ₹ 60,000

(4) Handling charges paid for loading the machine in the ship = ₹ 5,000

(5) Demurrage charge paid at port = ₹ 30,000

(6) Buying commission paid by importer = ₹ 5,000

(7) Commission paid to local agent appointed by exporter = ₹ 1,000

(8) Vendor inspection charges (not required under contract) = ₹ 8,000

Answer

550
Computation of assessable value of the imported machine under customs law
Notes:
1. As per section 14 of the Customs Act, 1962, the value of the imported goods is the transaction value, i.e. the
price actually paid or payable for the goods, which in this case is the negotiated and
agreed price.

2. The cost of transport, loading, unloading and handling charges associated with the delivery of the imported
goods to the place of importation are includible in the assessable value. Further, where
such cost is not ascertainable, it shall be 20% of the free on board (FOB) value of the goods which would also
include demurrage charges3 [Rule 10(2) of the Customs Valuation (Determination of
Value of Imported Goods) Rules, 2007].

3. Where insurance cost is not ascertainable, it shall be 1.125% of the free on board (FOB) value of the goods
[Rule 10(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules,
2007].

4. Buying commission is not includible in the assessable value. However, commission paid to local agent
appointed by exporter
is includible since it’s not a buying commission [Rule 10(1) of the Customs Valuation (Determination of Value
of Imported Goods) Rules, 2007].

5. FOB value will be sum total of cost of machine, freight from factory of exporter to port for shipment,
handling
charges paid for loading the machine in the ship and commission paid to local agent appointed by exporter,
which will be ₹ 1,76,000 [(₹ 1,50,000 + ₹ 20,000 + ₹ 5000 + ₹ 1,000)].

6. Freight incurred from port of entry to Inland Container depot is not includible in assessable value [Rule
10(2) of
the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007].

7. Only the payments actually made as a condition of sale of the imported goods by the buyer to the seller are
includible in the assessable val
ue. Vendor inspection charges not required under contract are thus, not includible in the assessable value
[Rule 10(1) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007].

Note: 551
In the above answer, demurrage charges have not been added separately in the cost of transport, loading,
unloading and handling charges by taking a view that where unascertainable cost of transport etc. has been
computed as 20% of FOB value, the same includes all elements of costs of transport. However, it is also
possible to take an alternative view that actual demurrage charges should be
separately added in the cost of transport by virtue of explanation to rule 10(2) of the Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007 irrespective of whether the cost of transport
has been computed as 20% of FOB value or on the basis of actual values.
32. Mr. X has imported a machine from Japan in June, 2020 for ₹ 50 lakh. However, the machine was
exported back in December, 2020 for repairs. The supplier has agreed to carry out the repairs as the
machine was still in warranty period, which would normally take 6 months. The fair cost of the repairs will
cost ₹ 10 lakh. In the meantime, Mr. X has requested the supplier to provide him another machine so that
he can carry out his operations without hindrance. Acceding to the request, the supplier has provided him
with another machine which was imported during February, 2021. The value of the new machine is ₹ 55
lakh. Freight charges incurred were ₹ 2 lakh. You are required to compute the assessable value and total
duty payable for the above transaction of replacement. Customs duty is 10% and IGST is 12%. Social Welfare
Surcharge to be taken at 10%. (PAST EXAM NOV 2019)

Answer

Computation of assessable value and total duty payable

Special provisions relating to payment of concessional duty in case of re-importation of goods exported
for repairs are not applicable in the given case as the goods exported for repairs and the re-imported
goods are not the same.

Therefore, full customs duty will be payable on the machine received as replacement.

552
33. Detox Limited wants to import customized machine to be used in its business. Detox Ltd. provides the
following further details

You are required to compute the customs duty and integrated tax payable by Detox Ltd. on above import.
(PAST EXAM NOV 2020)
Answer
Computation of customs duty and integrated tax

553
34. ABC Trade International Limited has imported one machine from USA. It has given the following
particulars: (PAST EXAM JAN 2021)

Compute the total customs duty and IGST payable by ABC Trade International Limited. Note: Ignore GST
compensation cess and social welfare surcharge.
Answer
Computation of customs duty and integrated tax

554
35. Great Year Ltd. imported a offset printing machine from Germany for ₹ 5.00 crores and the bill of entry
or home consumption was cleared in October, 2020 on payment of duty. However, due to certain technical
glitches, the said machine could not be started functioning and the said machine was sent-Back to the
supplier for repairs in November, 2020. The manufacturer of machinery in Germany had made necessary
repairs and had sent back the machine again to Great Year Ltd. Accordingly, Great Year Ltd. re-imported the
machine without any re-manufacturing or reprocessing in March 2021.

Since the machine was having manufacturing defect, the repairs were carried out by the machine
manufacturer without charging any amount for the repairs. However, the fair cost of repairs carried out
including cost of material consumed during repairs for ₹ 70 lakh, would have been ₹ 90 lakh. Actual
insurance and freight charges incurred were ₹ 7.5 lakh each side from India to Germany and from Germany
to India. Assume the rate of basic customs duty is 10%, social welfare surcharge is 10% and integrated tax is
18%.

You are required to compute the amount of customs duty payable (if any) on re-importation of the
machine. Make the necessary assumptions, if required. Also, provide the exemption, if any, with regard
to re-importation of goods which had been exported for repairs abroad. (PAST EXAM JAN 2021)

Answer

Duty payable on re-importation of goods which had been exported for repairs abroad is the duty of customs
which would be leviable if the value of re
-imported goods after repairs were made up of the fair cost of repairs carried out including cost of material s
used in repairs (whether such costs are actually
incurred or not), insurance and freight charges, both ways. However, following conditions need to be satisfied
for availing this concession:

(a) goods must be re-imported within 3 years, extendable by further 2 years, after their exportation;
(b) exported goods and the re-imported goods must be the same;
(c) Ownership of the goods should not change.

Since all the conditions specified above are fulfilled in the given case, the customs duty payable on re-
imported
goods will be computed as under:

555
36. (RTP NOV 2018)

Abhimanyu Enterprises, India imported a machine costing US $ 17,000 from George Corp., US through a
vessel. Determine the assessable value of the said machine under the Customs Act, 1962 with the help of
the additional information given below:
US $
(i) Transport charges from the factory of George Corp. to the port for shipment 850
(ii) Freight charges from US to India 1,700
(iii) Handling charges paid for loading the machine in the ship 85
(iv) Buying commission paid by Abhimanyu Enterprises 85
(v) Exchange rate to be considered: 1$ = Rs. 60
(vi) Actual insurance charges paid are not ascertainable

ANSWER
Computation of assessable value of the imported machine

Notes:

(1) Insurance charges have been included @ 1.125% of FOB value of the machine [Third proviso to rule 10(2)
of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007].

556
(2) Buying commission is not included in the assessable value [Rule 10(1)(a)(i) of the Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007].
37. Siya imported certain goods in May, 20XX. An ‘into Bond’ bill of entry was presented on 14th May, 20XX
and goods were cleared from the port for warehousing. Assessable value on that date was US $ 1,00,000.
The order permitting the deposit of goods in warehouse for 4 months was issued on 21st May, 20XX. Siya
deposited the goods in warehouse on the same day but did not clear the imported goods even after the
warehousing period got over on 21st September, 20XX. A notice was issued under section 72 of the Customs
Act, 1962, demanding duty and interest. Siya cleared the goods on 14th October, 20XX.

Compute the amount of customs duty and interest payable by Siya while removing the goods on the basis of
the following information:

Integrated tax leviable under section 3(7) of the Customs Tariff Act, 1975 is exempt.

ANSWER
Computation of customs duty payable by Siya

Notes:

557
1. As per third proviso to section 14(1) of the Customs Act, 1962, assessable value has to be calculated with
reference to the rate of exchange prevalent on the date on which the into bond bill of entry is presented for
warehousing under section 46 of the Cus toms Act, 1962.

2. Goods which are not removed within the permissible period are deemed to be improperly removed in
terms of section 72 of the Customs Act, 1962 on the day they should have been removed [Kesoram Rayon v.
CC 1996 (86) ELT 464 (SC)]. The applicable rate of duty in such a case is the rate of duty prevalent on the last
date on which the goods should have been removed.
As per section 61(2) of the Customs Act, 1962, if goods (not meant for being used in an 100% EOU, STP unit,
EHTP unit) remain in a warehouse beyond a period of 90 days from the date on which the order under section
60(1) of the Customs Act, 1962 is made, interest is payable at such rate as may be fixed by the Central
Government under section 47 of the Customs Act, 1962 [i.e. 15% p.a.], on the amount of duty payable at the
time of clearance of the goods, for the period from the expiry of the said 90 days till the date of payment of
duty on the warehoused goods.

Therefore, interest payable will be computed as under:

38. Sambhav Industries imported a machine for manufacturing steel equipment from George Inc., USA
through vessel. The cost of the said machine at the factory of George Inc. is US $ 10,000. George Inc.
incurred the cost of US $ 500 for transporting the said machine from its factory to the port of New York and
New Jersey from which the machinery was shipped for export to Mumbai port, India. It further paid US $ 50
as handling charges for loading the machine in the ship.

You are required to determine the assessable value of the machine imported by Sambhav Industries under
the Customs Act, 1962 taking into account the following additional information: (rtp- nov 2021)

(i) Buying commission paid by Sambhav Industries US $ 50

(ii) Freight charges from port of New York and New Jersey to Mumbai port US $ 1,000

(iii) Exchange rate to be considered: 1$ = ₹ 70

(iv) Actual insurance charges paid are not ascertainable 558

(v) Lighterage charges paid by Sambhav Industries at Mumbai port ₹ 12,000

(vi) Unloading and handling charges paid at Mumbai port ₹ 24,000

ANSWER

Computation of assessable value of the imported machine

US $
(i) Cost of the machine at the factory 10,000.00
(ii) Transport charges up to port 500.00
(iii) Handling charges at the port 50.00

FOB value in US $ 10,550.00

₹
FOB value in Indian rupees @ ₹ 70 per $ 7,38,500.00
(iv) Freight charges up to India [US $ 1,000 × ₹ 70] 70,000.00
(v) Insurance charges @ 1.125% of FOB [Note 1] 8308.13
(vi) Lighterage charges paid by the importer [Note 12,000
2]
(vi) Unloading and handling charges paid at Nil
Mumbai port [Note-3]
CIF/Assessable value 8,28,808.13
Assessable value (rounded off) 8,28,808

Notes:

(1) Insurance charges have been included @ 1.125% of FOB value of goods [Third proviso to rule 10(2) of the
Customs Valuation (Determination of Value of Imported Goods) Rules, 2007].

(2) Cost of transport of the imported goods includes lighterage charges [Explanation to rule 10(2) of Customs
Valuation (Determination of Value of Imported Goods) Rules, 2007].

(3) As per rule 10(2) of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, only
charges incurred for delivery of goods “to” the place of importation are includible in the transaction value.
Thus, loading, unloading and handling charges associated with the delivery of the imported goods at the place
of importation are not to be added to the assessable value of the goods.

559
(4) Buying commission is not included in the assessable value [Rule 10(1)(a)(i) of the Customs Valuation
(Determination of Value of Imported Goods) Rules, 2007].
39. (PAST PAPER JULY 2021)
An importer imported a machine from Germany. The vessel carried the machine up to Chennai port and from
the Chennai port the machine was transhipped to Kandla port. Determine the assessable value under Customs
Act, 1962. Conversion to Indian rupees has already been done wherever required.
S.No. Particulars Amount in rupees
i Basic cost of the machine at the factory in Germany 2,00,000
ii Transport charges of the machine from the factory in Germany to the load port 10,000
for transportation to India
iii Loading and handling charges at the load port in Germany for loading the 2,000
machine on the ship
iv Freight charges payable to the shipping company for transport to India 10,000
v Insurance charges paid but not ascertainable -
vi Transhipment charges from Chennai to Kandla port 5,000
vii Unloading and handling charges paid at Kandla port 2,000
Provide brief note to support your conclusion wherever required.

ANSWER

Computation of assessable value

Particulars Amount (₹)
Cost of machine 2,00,000
Add: Transport charges from factory in exporting country to load port 10,000
Add: Loading and handling charges at load port 2,000
FOB value 2,12,000
Freight charges for transport to India 10,000
Insurance charges 2,385
[Insurance charges have been included @ 1.125% of FOB value of goods]
Assessable value 2,24,385

Note: Cost of transport, unloading and handling charges associated with transshipment of imported goods to
another customs station in India is not included in the assessable value.

560
40. (PAST PAPER JULY 2021)
Mr. Chandrakant imported a car from Britain (UK). After the car arrived in the port and was unloaded, he went
and saw the car and found that it was damaged and it was possible to get the car repaired and use it. The
examination by Customs for the purpose for assessment is not over. He has come to you seeking advice as to
what are the options available to him under the Customs Act, 1961?

ANSWER
Where any imported goods, other than warehoused goods, had been damaged at any time after unloading
but before their examination by customs authorities, on account of any accident not due to any willful act,
negligence or default of the importer, abated duty shall be charged on said goods.
In the given case, the imported goods have been damaged after unloading but before examination and such
damage is not due to negligence of the importer. Therefore, benefit of abated duty will be available to Mr.
Chandrakant.
He can either get the damaged car valued by the proper officer or it may be sold by the proper officer by
public auction or by tender, or with the consent of Mr. Chandrakant in any other manner, and the gross sale
proceeds shall be deemed to be the value of such car.
The duty charged on damaged car will be computed as under:
= Duty on car before damage × (Value of damaged car/Value of car before damage)

41. (PAST PAPER JULY 2021)

Determine the customs duty payable under the Customs Tariff Act, 1975 including the safeguard duty of 25%
under section 8B of the said Act with the following information made available by the importer
Assessable value of fibre granules imported from three developing countries during July 2020 ₹ 25,00,000
Share of imports of fibre granules from three developing countries taken together against total 10%
imports of fibre granules to India
Rate of basic customs duty 10%
Rate of integrated tax 12%
Rate of social welfare surcharge 10%

ANSWER
Computation of customs duty payable including the safeguard duty payable thereon

Particulars Amount (₹)

Assessable value of fibre granules imported 25,00,000
Add: Basic custom duty @ 10% (₹ 25,00,000 × 10%) 2,50,000
Safeguard duty @ 25% on ₹ 25,00,000 6,25,000
[Safeguard duty is imposable in the given case since share of imports of fibre granules from the
three developing countries taken together exceeds 9% of the total imports of fibre granules

561
into India.]
Social welfare surcharge @ 10% of ₹ 2,50,000 25,000
Total 34,00,000
Integrated tax (₹ 34,00,000 × 12%) 4,08,000
[Value for calculation of integrated tax shall also include safeguard duty amount.]
Total customs duty payable 13,08,000
₹ (2,50,000 +6,25,000+ 25,000+ 4,08,000)
CHAPTER-5 IMPORTATION, EXPORTATION AND
TRANSPORTATION OF GOODS
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY Illustrations – 1, 3, 6, 7, 9
MAT
QSTNS 1 to 27, 29

PAST Q-28, 33 NO QUES NO QUES Q-31 Q-34 NO NO QUES ------

EXAMS QUES

MTP ILL-5 ILL-5 ILL-4 NO QUES ILL-4 NO QUES Q-30,31

RTP NO QUES ILL-8 NO QUES NO QUES Q-32 NO QUES NO QUES

Illustration 1
M/s Pipli Imports Ltd. imported certain goods, which were unloaded in the customs area on 01.10. When
order for clearance was passed by proper officer on 05.10.2020, it was found that there was some pilferage
of such goods. As the imported goods were in the custody of Port Trust, the Department demanded duty
from the custodian under section 45(3) of the Customs Act, 1962, on such pilferage. The Port Trust denied
such demand contending that it was not an approved custodian falling under section 45 and possession of
goods by it was by virtue of powers conferred under the Major Port Trust Act, 1963. Hence, it is not liable
for customs duty on pilfered goods. M/s Pipli Imports Ltd. has also asked the Port Trust to make good the
loss of goods. Examine, whether the demands made by the Department and M/s Pipli Imports Ltd. are
justified in law, referring to decided case law.

Answer

562
The facts of the case are similar to the case of Board of Trustees v. UOI (2009) 241 ELT 513 (Bom HC DB),
wherein the High Court held that considering the language of section 45(3), the liability to pay duty is of the
person, in whose custody the goods remain as an approved person under section 45 of the Act. Therefore,
section 45(3) applies only to the private custodians who are required to be approved by Principal
Commissioner/ Commissioner of Customs under section 45(1). Accordingly, the major ports and airports
covered under Major Port Trust Act, 1963 who do not require any approval under section 45(1), are not
covered by section 45(3). Thus, the Department cannot demand duty from Port Trust on the pilferage under
section 45(3) of the Customs Act, 1962.
Section 45(3) of the Customs Act, 1962 holds the custodian responsible only in respect of the customs duty in
respect of pilfered goods. It does not extend to the value of goods lost. However, the Port Trust, as bailee of
the goods, is liable for value of the goods to the importer.

Illustration2
Mr. Krishna Bhansali, has imported some garments from Paris. He is unable to make self-assessment under
section 17(1) of the Customs Act, 1962because of differential rates for different kinds of material and hence
has made a request in writing to the proper officer for provisional assessment pending technical testing. Is
he eligible to apply for provisional assessment? Discuss.

Answer

Yes, Mr. Krishna Bhansali can apply for provisional assessment under section 18 of the Customs Act,
1962.Section 18(1) provides that provisional assessment can be resorted to, inter alia, where the importer or
exporter is unable to make self-assessment under sub-section (1) of section 17 and makes a request in writing
to the proper officer for assessment. While ‘unable’ is not about willingness but deficiency of information to
make an accurate determination of the liability, in this case Mr. Bhansali satisfies the criterion because he
lacks the information necessary to classify the goods pending technical testing.

Illustration 3

Moris Lal has imported goods from Germany and is finally re-assessed u/s 18(2) of the Customs Act, 1962
for two such consignments. Particulars are as follows:

Date of provisional assessment 12th December, 2020

Date of final re-assessment 2nd February, 2021
Duty demand for 1st consignment Rs. 1,80,000
Refund for the 2nd consignment Rs. 4,20,000
Date of refund made by the department 28th April, 2021
Date of payment of duty demanded 5th February, 2021

Determine the interest payable and receivable, if any, by Moris Lal on the final re-assessment of the two

563
consignments, with suitable notes thereon.

Answer

As per section 18(3) of the Customs Act, 1962, an importer is liable to pay interest at the rate of 15% p.a.
(Notification No. 33/2016-Cus. (NT) dated 01.03.2016), on any amount payable consequent to the re-
assessment order from the first day of the month in which the duty is provisionally assessed till the date of
payment.
Therefore, in the given case, Moris Lal is liable to pay following interest in respect of 1st consignment:
= Rs. 1,80,000 × 15% × 67/365
= Rs. 4,956 (rounded off)

If any amount refundable consequent to the re-assessment order is not refunded within 3 months from date
of re-assessment of duty, interest is payable to importer on unrefunded amount at the specified rate till the
date of refund of such amount in terms of section 18(4) of the Customs Act, 1962.

Since in the given case, refund has been made (28.04.2021) within 3 months from the date of re-assessment
of duty (02.02.2021), interest is not payable to Moris Lal on duty refunded in respect of 2nd consignment.

Illustration 4

Mr. Sujoy, an Indian entrepreneur, went to London to explore new business opportunities on 01.04.2020.
His wife also joined him in London after three months. The following details are submitted by them with the
Customs authorities on their return to India on 15.04.2021:

(a) used personal effects worthRs.80,000,

(b) 2 music systems each worth Rs.50,000,
(c) the jewellery brought by Mr. Sujoy worth Rs.48,000 [20 grams] and the jewellery brought by his wife
worthRs.96,000 [40 grams].

With reference to Baggage Rules, 2016, determine whether Mr. and Mrs. Sujoy will be required to pay any
customs duty? (MTP MAY 2020) (MTP MAY 2019)

Answer

As per rule 3 of the Baggage Rules, 2016, an Indian resident arriving from any country other than Nepal,
Bhutan or Myanmar, shall be allowed clearance free of duty articles in his bona fide baggage, that is to say,
used personal effects and travel souvenirs; and articles [other than certain specified articles], upto the value of
Rs.50,000ifthese are carried on the person or in the accompanied baggage of the passenger.

564
Thus, there is no customs duty on used personal effects and travel souvenirs and general duty free baggage
allowance is Rs.50,000 per passenger. Thus, duty liability of Mr. Sujoy and his wife is nil for the used personal
effects worth Rs.80,000 and 2 music systems each worth Rs.50,000.

As per rule 5 of the Baggage Rules, 2016, the jewellery allowance is as follows:
Jewellery brought by Duty free allowance
Gentleman Passenger Jewellery upto a weight of 20 grams with a value cap of Rs. 50,000
Lady Passenger Jewellery upto a weight of 40 grams with a value cap of Rs. 1,00,000
However, the jewellery allowance is applicable only to a passenger residing abroad for more than 1 year.
Consequently, there is no duty liability on the jewellery brought by Mr. Sujoy as he had stayed abroad for
period exceeding 1 year and weight of the jewellery brought by him is 20 grams with a value less than
Rs.50,000.

However, his wife is not eligible for this additional jewellery allowance as she had stayed abroad for a period
of less than a year. Thus, she has to pay customs duty on the entire amount of jewellery brought by her as she
has already exhausted the general duty free baggage allowance of Rs.50,000 allowed under rule 3.

Illustration 5
After visiting USA for a month, Mrs. and Mr. X (Indian residents aged 40 and 45 years respectively) brought
to India a laptop computer valued at Rs. 80,000, used personal effects valued atRs. 90,000 and a personal
computer for Rs. 52,000. What is the customs duty payable? (MTP NOV 2018) (MTP MAY 2018)

Answer

(1) As per Baggage Rules, 2016, an Indian resident arriving from any country other than Nepal, Bhutan or
Myanmar is allowed duty free clearance of-

(i) Used personal effects and travel souvenirs without any value limit.
(ii) Articles [other than certain specified articles] upto a value of Rs.50,000 carried as accompanied baggage
[General duty-free baggage allowance].

Further, such general duty-free baggage allowance of a passenger cannot be pooled with the general duty free
baggage allowance of any other passenger.

(2) One laptop computer when imported into India by a passenger of the age of 18 years or above (other than
member of crew) as baggageis exempt from whole of the customs duty[Notification No. 11/2004 Cus. dated
08.01.2004].

(3) Accordingly, there will be no customs duty on used personal effects (worth Rs. 90,000) of Mrs. and Mr. X
and laptop computer brought by them will be exempt from duty.

565
Duty payable on personal computer after exhausting the duty free baggage allowance will be Rs. 52,000 –
Rs.50,000 = Rs.2,000.
Effective rate of duty for baggage =38.5% [including social welfare surcharge @ 10%]
Therefore, total customs duty = Rs.770

Illustration 6
What is the relevant date for determination of rate of duty under the Customs Act, 1962 in the case of
clearance of baggage?
Answer
As per section 78 of the Customs Act, 1962, the relevant date for determination of rate of duty in case of
clearance of baggage is the date on which a declaration is made in respect of such baggage under section 77.

Illustration7
State the difference between transit and transhipment of goods under the provisions of the Customs Act.

Answer
Transit Transshipment
(i) Section 53 of the Customs Act, 1962 provides (i) Section 54 of the Customs Act, 1962 provides
for transit of goods. for transshipment of goods.
(ii) In case of transit of goods, goods are allowed (ii) In case of transshipment of goods, the
to remain on the same conveyance. conveyance changes i.e., the goods are unloaded
from one conveyance and loaded in another
conveyance.
(iii) In case of transit of goods, there is continuity (iii) In transshipment of goods, continuity in the
of records. records is not maintained as the goods are
transferred to another conveyance.

Illustration 8 (RTP NOV 2018)

Explain with reference to the Customs Act, 1962, the conditions to be fulfilled for filing application to
Settlement Commission
ANSWER
According to section 127B of the Customs Act 1962, the following conditions are to be fulfilled for filing an
application for settlement of cases:

(i) the applicant has filed a bill of entry, or a shipping bill, or a bill of export, or made a baggage declaration, or
a label or declaration accompanying the goods imported or exported through post or courier, as the case may
be, and in relation to such document or documents, a show cause notice has been issued to him by the proper
officer.

566
(ii) the additional duty accepted is more than Rs. 3 lakhs.

(iii) the applicant has paid the additional amount of customs duty accepted by him alongwith interest due
under section 28AA.

(iv) the case is not pending with CESTAT or any Court.

(v) the application does not relate to goods to which section 123 applies or to goods in relation to which any
offence under the Narcotic Drugs and Psychotropic Substances Act, 1985 has been committed.
(vi) the application is not for the interpretation of the classification of the goods under the Customs Tariff Act,
1975. Further, application before Settlement Commission can be made only when adjudication is pending.

Illustration 9
Mahesh imported certain goods in May 2018 and ‘ínto bond’ bill of entry was presented on 14th May 2018
and goods were cleared from the port for warehousing. Assessable value on that date was US $ 1,00,000.
The order permitting the deposit of goods in warehouse for 4 months was issued on 21st May 2018. Mahesh
deposited the goods in warehouse on the same day but did not clear the imported goods even after the
warehousing period got over on 21st September 2018. A notice was issued under section 72 of the Custom
Act, 1962, demanding duty and interest. Mahesh cleared the goods on 14th October 2018. Customs duty
paid on removal of the goods is Rs. 7,17,000. You are required to compute interest payable on such
removal, explaining the provisions of the Customs Act, 1962.

ANSWER
As per section 61(2) of the Customs Act, 1962, if goods (not meant for being used in an 100% EOU, STP unit,
EHTP unit) remain in a warehouse beyond a period of 90 days from the date on which the order permitting
deposit in a warehouse is made, interest is payable @ 15% p.a., on the amount of duty payable at the time of
clearance of the goods, for the period from the expiry of the said 90 days till the date of payment of duty on
the warehoused goods.

Therefore, in the given case, interest payable will be computed as under:-

(i) Period of 90 days commencing from the date of order permitting deposit in a warehouse expires on -
19.08.2018.

(ii) No. of days for which interest shall be payable = 56 days [12 days of August + 30
days of September + 14 days of October]

567
QUESTIONS

Note: The rates of duties, wherever mentioned in the illustrations/questions/examples may not always be the
actual rate prevalent during the period in question. They may be hypothetical rates assumed to explain the
provisions of law with more clarity.

1. ‘Queen Marry’, is a vessel containing the goods imported by XML Ltd. The events relating to its entry into
India and the discharge and onward movement and storage of the goods are as follows.
24.05. Vessel entered the Indian territorial waters.
25.05. Import manifest was delivered to the customs authorities
27.05. XML Ltd filed bill of entry for the goods
29.05. Entry inwards granted to the vessel
The rate of customs duty on the goods was increased from 8% to 10% on 28.05.2020.
At what rate should XML Ltd. pay the customs duty on the goods imported by it?

ANSWER:
Rate of duty will be 10%, because the bill of entry is deemed to have been filed on the date of entry inward
though it was actually filed before the rate of duty increased.

2. Write a brief note on self-assessment in customs under the Customs Act, 1962.

ANSWER:
ASSESSMENT OF GOODS [SECTION 17]
(a) Duty to be self-assessed by the importer/exporter: An importer entering any imported goods under
section 46, or an exporter entering any export goods under section 50, shall, save as otherwise provided in
section 85 (i.e. stores allowed to be warehoused without assessment of duty), self-assess the duty, if any,
leviable on such goods.

3. State briefly the provisions of the Customs Act, 1962 relating to payment of interest in case of provisional

568
assessment.

ANSWER:
The importer or exporter shall be liable to pay interest, on any amount payable to the Central Government,
consequent to the final assessment order or re-assessment order. The interest shall be payable at the rate
fixed by the Central Government under section 28AA. This interest shall be payable from the first day of the
month in which the duty is provisionally assessed till the date of payment thereof [Sub-section 3].
Subject to sub-section (5), if any refundable amount referred to in clause (a) of sub-section (2) is not refunded
under that sub-section within three months from the date of assessment of duty finally or re-assessment of
duty, as the case may be, there shall be paid an interest on such unrefunded amount at such rate fixed by the
Central Government under section 27A till the date of refund of such amount[Sub-section 4].
The refund of duty and interest thereon is subject to the principle of unjust enrichment. (Refer Chapter 7:
Refund of Customs Duty for detailed provisions in this regard) and shall be paid to the importer or the
exporter, as the case may be, only if such amount is relatable to:

(a) the duty and interest, if any, paid on such duty paid by the importer, or the exporter, as the case may be, if
he had not passed on the incidence of such duty and interest, if any, paid on such duty to any other person;

(b) the duty and interest, if any, paid on such duty on imports made by an individual for his personal use;

(c) the duty and interest, if any, paid on such duty borne by the buyer, if he had not passed on the incidence of
such duty and interest, if any, paid on such duty to any other person;

(d) the export duty as specified in section 26;

(e) drawback of duty payable under sections 74 and 75.

In all other cases, the amount of such refund and interest shall be credited to the Consumer Welfare Fund
[Sub-section 5].

4 What is meant by ‘boat notes’?

ANSWER:
Boat notes are issued to cover transport of cargo to or from vessels that cannot come into the port. Section 35
of the Customs Act stipulates that no imported goods shall be water borne for being loaded in any vessel, and
no export goods which are not accompanied by a shipping bill, shall be water borne for being shipped unless
the goods are accompanied by a boat note in the prescribed form. The Boat Notes Regulations 1976 prescribe
the form and manner of issue of boat notes.
However, the board may, by notification give general permission and the proper officer may in any particular
case, give special permission, for any goods or any class of goods to be water borne without being
accompanied by a boat-note

5. Discuss the provisions regarding transit of goods and transhipment of goods without payment of duty 569
under the Customs Act.

ANSWER:

TRANSIT OF GOODS IN THE SAME VESSEL OR AIR [SECTION 53]

Subject to the provisions of section 11 (power to prohibit import or export of goods), where any goods
imported in a conveyance and mentioned in the arrival manifest or import manifest or the import report, as
the case may be, as for transit in the same conveyance to any place outside India or to any customs station,
the proper officer may allow the goods and the conveyance to transit without payment of duty, subject to
such conditions, as may be prescribed.

TRANSHIPMENT OF GOODS WITHOUT PAYMENT OF DUTY [SECTION 54]

(1) Where any goods imported into a customs station are intended for transhipment, a bill of transhipment
shall be presented to the proper officer in the prescribed form. Where the goods are being transferred under
an international treaty or bilateral agreement between the Government of India and Government of a foreign
country, a declaration for transhipment instead of a bill of transhipment shall be presented to the proper
officer in the prescribed form.

(2) Subject to the provisions of sections 11 (power to prohibit import or export of goods), where any goods
imported into a customs station are mentioned in the arrival manifest or import manifest or the import
report, as the case may be, as for transhipment to anyplace outside India, such goods may be allowed to be so
transhipped without payment of duty.

(3) Where any goods imported into a customs station are mentioned in the arrival manifest or import manifest
or the import report, as the case may be, as for transhipment:-

(a) to any major port as defined in the Indian Ports Act, 1908 (15 of 1908), or the customs airport at Mumbai,
Calcutta, Delhi, or Chennai or any other custom port or customs airport which the board may, by notification
in the Official Gazette, specify in this behalf, or

(b) to any other customs station and the proper officer is satisfied that the goods bonafide intended for
transhipment to such customs station,
the proper officer may allow the goods to be transhipped without payment of duty, subject to such conditions
as may be prescribed for the due arrival of such goods at the customs station to which transshipment is
allowed.

6. Explain in brief the duty exemption to baggage under section 79(1) of the Customs Act, 1962.
ANSWER:

570
DUTY EXEMPTION TO BAGGAGE [SECTION 79]

Section 79(1) of the Customs Act refers to the duty relief available in respect of baggage. It stipulates that the
proper officer, may subject to any rules made under sub-section (2), pass free of duty

(a) any article in the baggage, of a passenger or a member of the crew, in respect of which the said officer is
satisfied that it has been in his use for such minimum period as may be specified in the rules;
(b) any article in the baggage of a passenger in respect of which the officer is satisfied that it is for the use of
the passenger or his family or is a bonafide gift or souvenir, provided that the value of each such article and
the total value of all such articles does not exceed such limits as may be specified in the rule.

The law thus envisages two categories of baggage, namely those belonging to (a) passengers; and (b)
members of the crew.

Similarly, it envisages three classes of goods, namely (a) personal effects, which have been in the use of the
person for a minimum period; (b) household effects, which is used by the family including the person; and (c)
gifts and souvenirs.

Sub-section (2) of section 79 enables the Central Government to make rules for the purposes of carrying out
the provisions of section 79(1). It also stipulates that such rules may specify

(a) the minimum period for which any article has been used by a passenger or a member of the crew for the
purposes of [clause (a) of sub-section(1)] determining personal effects;

(b) The maximum value of any individual article and the maximum total value of all the articles which may be
passed free of duty [under clause (b) of sub-section (1)] i.e., household effects, gifts, souvenirs etc.;

(c) the conditions to be fulfilled before or after clearance subject to which the baggage may be passed free of
duty. Sub-section(3) of section 79 provides that different rules may be made for different classes of persons.

7. What is the relevant date for determining the rate of duty and tariff valuation in respect of goods
imported/exported by post?

ANSWER;

Relevant date for Rate of duty and tariff valuation in respect of goods imported or exported by post [Section
83]

(1) The rate of duty and tariff value, if any, applicable to any goods imported by post or courier shall be the

571
rate and valuation in force on the date on which postal authorities or the authorized courier present to the
proper officer a list containing the particulars of such goods for the purposes of assessing the duty thereon.
However, where the postal goods arrive on a vessel, and the list containing the particulars is available and is
filed by the Post Master, before the arrival of the vessel, the list shall be deemed to have been filed on the
date of arrival of the vessel.
The effect of this proviso is that the relevant date for imports by post is the date of submission of the list by
the Post-Master or the date of arrival of the vessel, whichever is later.
(2) The rate of duty and tariff value applicable to any goods exported by post or courier shall be the rate and
valuation in force on the date on which the exporter delivers such goods to the postal authorities or the
authorized courier for exportation.

8. Explain the obligation cast on person-in-charge on arrival of vessels or aircrafts in India under section 29
of the Customs Act, 1962.

ANSWER:

Vessel / aircraft must call or land only at a notified customs port or airport, unless otherwise permitted, and
except in an emergency.

ARRIVAL OF VESSELS AND AIRCRAFTS IN INDIA [SECTION 29]

This section provides that the person-in-charge of a vessel or an aircraft entering India from any place outside
India shall not cause or permit the vessel or aircraft to call or land -

(a) for the first time after arrival in India; or

(b) at any time while it is carrying passengers or cargo brought in that vessel or aircraft;
at any place other than a customs port or a customs airport, as the case may be, unless permitted by the
Board.

In other words, vessels or aircrafts entering India from outside India can only call or land at a customs port or a
customs airport. However, the Central Board of Indirect taxes and Customs can permit calling/landing of
vessels and aircrafts at any place other than customs port or customs airport. Any contravention of this
provision will operate as a presumption against the person-in-charge of conveyance or beneficial owner to
have an intention to illegally import goods into India. So, entry of (or attempt to enter) any goods originating
from outside India into any place other than customs airport or customs seaport, is barred.

9. Explain briefly the meaning of entry inwards and entry outwards with reference to the customs law.

Answer: 572

Entry inwards is permission to begin unloading of the imported goods, and entry outwards is permission to
begin loading of export goods. Section 31(2) provides that Entry Inwards shall not be given until the arrival
manifest or import manifest has been delivered or the proper officer is satisfied that a valid reason is given for
not delivering it within prescribed time. Grant of Entry Inwards is an acknowledgement of the fact that
Customs Department is ready to supervise the unloading of the cargo, and is prepared to assess the goods to
duty. It is not given if there is no berth for the ship to dock [Bharat Surfactants Pvt Ltd v Union of India, 1989
(43) ELT 189 (SC)]; or if customs supervision is not possible for other reasons [SRS Engineering Industries v
Secretary, Ministry of Finance 2009 (245) ELT 143 (Del)].
Section 39 stipulates that export goods are not to be loaded on vessel until entry outwards is granted. The
master of the vessel shall not begin the loading of any export goods, other than baggage and mail bags, until
an order has been given by the proper officer granting entry-outwards to such vessel. This restriction is for
vessels and not for aircraft and vehicles.

In sum, for loading of goods for export, the following requirements are to be fulfilled:
(i) ‘Entry outwards’ to be granted under section 39 (in case of vessel).
(ii) ‘Shipping bill/Bill of export/Bill of Transhipment’ under section 50.
(iii) ‘Let-export’ order under section 51.
(iv) ‘Boat note’ under section 35 in case the vessel is anchored away from the wharf and the goods are carried
in a boat to the vessel.

10. Which class of importers is required to pay customs duty electronically? Name the dedicated payment
gateway set up by the Board (CBIC) to use e-payment facility easily by an importer.

Answer:

Authorised economic operators and those importers who are paying Rs. 10,000 or more per bill of entry. They
will pay through ICEGATE. MANDATORY ELECTRONIC PAYMENT OF DUTY
The Central Government has notified the following classes of importers who have to pay customs duty
electronically, namely:-

(i) Importers registered under Authorized Economic Operator;

(ii) Importers paying customs duty of Rs.10,000or more per bill of entry

The Board has set up a dedicated payment gateway called, ‘ICEGATE' through which the payments are to be
made.
The importer need not produce any proof of payment for the clearance of goods in case of e-payment.

573
Note: Integrated Declaration

11. Mr. Anil and his wife (non-tourist Indian passengers) are returning from Dubai to India after staying
there for a period of two years. They wish to bring gold jewellery purchased from Dubai. Please enumerate
provisions of customs laws for jewellery allowance in their case.
Answer:
As per rule 5 of the Baggage Rules, 2016, a passenger who has been residing abroad for more than one year
and returns to India shall be allowed duty free clearance of jewellery in bona fide baggage as under:

• Jewellery upto a weight of 20 grams with a value cap of Rs. 50,000 for a gentlemen passenger

• Jewellery upto a weight of 40 grams with a value cap of Rs. 1,00,000 for a lady passenger

Thus, in the given case, Mr. Anil would be allowed duty free jewellery upto a weight of 20 grams with a value
cap of Rs. 50,000 and his wife would be allowed duty free jewellery upto a weight of 40 grams with a value cap
of Rs.1,00,000.

Further, in addition to the jewellery allowance, Mr. Anil and his wife would also be allowed duty free clearance
of jewellery worth Rs.1,00,000 (Rs.50,000 per person) as part of free baggage allowance.

12. Can the customs audit cover a person who is not an exporter or importer?

Answer:
Yes, persons dealing with the goods can also be audited.

CUSTOMS AUDIT [SECTION 99A]

In supersession of On-site Post Clearance Audit at Premises of Importer and Exporter Regulations, 2011,
Government has notified Customs Audit Regulations, 2018. For this reason, a separate section 99A is
introduced authorizing the proper officer to audit the assessment that has already been conducted at the time
of customs clearance. Such audit is permitted to the carried out swiftly either at the premises of the auditee or
at the office of the proper officer.
It may be noted that ‘auditee’ is defined in this section to include not only the principal (importer or exporter)
but also persons concerning themselves dealing with goods attracting section 12 of Customs Act.
In the 2018 Regulations, ‘auditee’ is defined in 2(c) to mean “a person who is subject to an audit under section
99A of the Act and includes an importer or exporter or custodian approved under section 45 or licensee of a
warehouse and any other person concerned directly or indirectly in clearing, forwarding, stocking, carrying,
selling or purchasing of imported goods or export goods or dutiable goods”

Salient feature of this audit procedure are as follows: 574

(i) Auditee is to preserve records for conduct of this audit for a period of five years

(ii) Risk based assessment will identify persons to be audited

(iii) Audit will be conducted at the premises of the auditee by the authorized officers who will intimate fifteen
days in advance of their schedule visit
(iv) Based on the findings, auditee may accept the liabilities and voluntarily discharge the duty, interest and
penalty, as applicable

(v) Assistance of experts can be availed for conducting this audit such as CA, CWA or IT professionals with
permission of Principal Commissioner/ Commissioner of Customs

(vi) Contravention of these Regulations attracts penalty of Rs. 50,000

13. A fishing trawler is operating 10 nautical miles from the baseline. Is it entitled to duty-free stores?
Answer;

Foreign going vessel or aircraft: [Section 2(21)] means any vessel or aircraft for the time being engaged in the
carriage of goods or passengers between any port or airport in India and any port or airport outside India,
whether touching any intermediate port or airport in India or not
includes-

- any naval vessel of any foreign Government taking part in any naval exercise;
- any vessel engaged in fishing or any other operations outside the territorial waters of India;
- any vessel or aircraft proceeding to a place outside India for any purpose whatsoever.

Hence, the definition consists of two limbs:-

(a) The first limb applies to the vessel/aircraft for the time being engaged in the carriage of passengers/goods
between any port/airport in India and any port/airport outside India.

(b) The second limb covers other vessels which are which are proceeding to a place outside India or engaged
in activities outside the territorial waters of India or which are foreign naval vessels taking part in a naval
exercise.

14. What are the circumstances under which assessment is done provisionally under section 18?

575
Answer;

PROVISIONAL ASSESSMENT OF DUTY [SECTION 18]

Provisional assessment can be resorted to in the following circumstances:

(a) where the importer or exporter is unable to make self-assessment under sub-section (1) of section 17 and
makes a request in writing to the proper officer for assessment; or
(b) where the proper officer deems it necessary to subject any imported goods or export goods to any
chemical or other test; or

(c) where the importer or exporter has produced all the necessary documents and furnished full information,
but the proper officer deems it necessary to make further enquiry; or

(d) where necessary documents have not been produced or information has not been furnished and the
proper officer deems it necessary to make further enquiry.

In any of the above cases, the proper officer may direct that the duty leviable on such goods be assessed
provisionally if the importer or the exporter, as the case may be, furnishes such security as the proper officer
deems fit for the payment of the deficiency, if any, between the duty as may be finally assessed or re-assessed
as the case may be, and the duty provisionally assessed[Sub-section(1)].

15. State the provisions of transhipment of goods without payment of duty under section 54 of the Customs
Act, 1962.

Answer:

TRANSHIPMENT OF GOODS WITHOUT PAYMENT OF DUTY [SECTION 54]

(1) Where any goods imported into a customs station are intended for transhipment, a bill of transhipment
shall be presented to the proper officer in the prescribed form. Where the goods are being transferred under
an international treaty or bilateral agreement between the Government of India and Government of a foreign
country, a declaration for transhipment instead of a bill of transhipment shall be presented to the proper
officer in the prescribed form.

(2) Subject to the provisions of sections 11 (power to prohibit import or export of goods), where any goods
imported into a customs station are mentioned in the arrival manifest or import manifest or the import
report, as the case may be, as for transhipment to anyplace outside India, such goods may be allowed to be so
transhipped without payment of duty.

576
(3) Where any goods imported into a customs station are mentioned in the arrival manifest or import manifest
or the import report, as the case may be, as for transhipment:-

(a) to any major port as defined in the Indian Ports Act, 1908 (15 of 1908), or the customs airport at Mumbai,
Calcutta, Delhi, or Chennai or any other custom port or customs airport which the board may, by notification
in the Official Gazette, specify in this behalf, or
(b) to any other customs station and the proper officer is satisfied that the goods bonafide intended for
transhipment to such customs station,
the proper officer may allow the goods to be transhipped without payment of duty, subject to such conditions
as may be prescribed for the due arrival of such goods at the customs station to which transshipment is
allowed.

16. Explain the procedure prescribed in Customs Act, 1962 in case of goods not cleared, warehoused or
transhipped within 30 days after unloading.

Answer;

PROCEDURE FOR DISPOSAL OF GOODS NOT CLEARED [SECTION 48]

If there are any goods imported from a place outside India, which are not cleared either for home
consumption or for warehouse within 30 days or within such further time as the proper officer may allow or if
the title to any imported goods is relinquished (Section 23), the custodian of the goods is permitted, with the
approval of the customs department and after giving notice to the importer, to sell the goods by auction.
CBIC has clarified vide Circular No. 49/2018-Cus dated 03.12.2018 that after the successful bidder has been
informed about the result of the auction, a consolidated bill of entry, buyer-wise will be filed with the Customs
in the prescribed format by the concerned custodian for clearance of the goods as per section 46 of the
customs Act, 1962 read with Un-Cleared Goods (Bill of Entry) Regulations, 1972 (Regulation 2 & 3).

(a) The proper officer of Customs shall assess the goods to duty in accordance with the extant law within 15
days of filing of Bill of Entry and after assessment inform the amount of duty payable to the concerned
custodian.

(b) The auctioned goods shall be handed over to the successful bidder after assessment and out-of-charge
orders given by the proper officer, on payment of dues.
In the case of sensitive goods like animals, foodstuffs and hazardous goods etc. the custodian with the
approval of the proper officer can sell the goods even before the expiry of the 30 days limit. Similarly, in the
case of arms or ammunition, which cannot be sold in public auction, the disposal is regulated by the rules
made in this regard.

577
17. Write short notes on:

(a) Export general manifest

(b) Boat note (or restriction on goods being water borne)

Answer;

(a) It consists of a general declaration of particulars of the vessel, its crew and passengers, its date and port of
departure; a list of ship’s stores; a list of crew’s personal effects; and a cargo declaration which is a complete
list of the goods shipped from the port, goods transshipped at the port, goods lying in the vessel but not
landed or transshipped (“same bottom cargo”), and dutiable goods, including arms and ammunition, forming
part of the equipment of the vessel.

Section 41(1) of the Customs Act, 1962 provides that the person-in-charge of a conveyance carrying export
goods or imported goods or any other person as may be specified by the Central Government, by notification,
shall, before departure of the conveyance from a Customs station, deliver to the proper officer in the case of a
vessel or aircraft, a departure manifest or an export manifest by presenting electronically, and in the case of a
vehicle, an export report, in such form and manner as may be prescribed and in case, such person-in-charge or
other person fails to deliver the departure manifest or export manifest or the export report or any part
thereof within such time, and the proper officer is satisfied that there is no sufficient cause for such delay,
such person-in-charge or other person shall be liable to pay penalty not exceeding fifty thousand rupees.

(b) Section 35 of the Customs Act stipulates that no imported goods shall be water borne for being loaded in
any vessel, and no export goods which are not accompanied by a shipping bill, shall be water borne for being
shipped unless the goods are accompanied by a boat note in the prescribed form. The Boat Notes Regulations
1976 prescribe the form and manner of issue of boat notes.
However, the board may, by notification give general permission and the proper officer may in any particular
case, give special permission, for any goods or any class of goods to be water borne without being
accompanied by a boat-note.

18. Discuss briefly:

(a) Temporary detention of baggage

(b) Relevant date for rate of duty and tariff valuation in respect of goods imported and exported by post

Answer:

(a) TEMPORARY DETENTION OF BAGGAGE [SECTION 80] 578

It may so happen that a passenger has brought with him an article, which is prohibited. The passenger may
not insist on taking it into the Indian Territory. On the contrary, he may opt to re-export it or take it with him
when he leaves the country.
Similarly, a passenger may not unnecessarily pay duty on an article, which he can conveniently avoid taking
into the town, if the duty is heavy. In such case also, he may opt to take the article with him when he leaves
the country.
In both the cases, he will have to deposit the article with the customs authorities and take it back at the port
of his departure.
“Where the baggage of a passenger contains any article which is dutiable or the import of which is prohibited
and in respect of which a true declaration has been made under section 77, the proper officer may, at the
request of the passenger, detain such article for the purpose of being returned to him on his leaving India and
if for any reason, the passenger is not able to collect the article at the time of his leaving India the article may
be returned to him through any other passenger authorised by him and leaving India or as cargo consigned in
his name”.

Declaration – the essence: The declaration of the goods brought in is an absolute necessity. If the goods are
not declared under section 77, the passenger cannot subsequently claim the benefit under section 80 and the
goods are liable for confiscation.

(b) Relevant date for Rate of duty and tariff valuation in respect of goods imported or exported by post
[Section 83]

(1) The rate of duty and tariff value, if any, applicable to any goods imported by post or courier shall be the
rate and valuation in force on the date on which postal authorities or the authorized courier present to the
proper officer a list containing the particulars of such goods for the purposes of assessing the duty thereon.
However, where the postal goods arrive on a vessel, and the list containing the particulars is available and is
filed by the Post Master, before the arrival of the vessel, the list shall be deemed to have been filed on the
date of arrival of the vessel.
The effect of this proviso is that the relevant date for imports by post is the date of submission of the list by
the Post-Master or the date of arrival of the vessel, whichever is later.

(2) The rate of duty and tariff value applicable to any goods exported by post or courier shall be the rate and
valuation in force on the date on which the exporter delivers such goods to the postal authorities or the
authorized courier for exportation.

19. What is the permissible time limit with respect to the following- :

(i) for filing a bill of entry

(ii) for paying the assessed duty 579

(iii) for delivery of arrival manifest or import manifest/report and departure manifest or export
manifest/report

Answer:
(i) 30 days prior to arrival, & not later than the day after the day of arrival. According to section 46(3), the
importer shall present the bill of entry before the end of the next day following the day (excluding holidays) on
which the aircraft/vessel/vehicle carrying the goods arrives at a customs station at which such goods are to be
cleared for home consumption or warehousing.
The proviso to section 46(3) provides that a bill of entry may be presented at any time not exceeding thirty
days prior to the expected arrival of the aircraft/vessel/vehicle by which the goods have been shipped for
importation into India.
However, where the bill of entry is not presented within the time so specified and the proper officer is
satisfied that there was no sufficient cause for such delay, the importer shall pay prescribed charges for late
presentation of the bill of entry.

(ii) Time limit for payment of import duty: The importer shall pay the import duty—

(a) on the date of presentation of the bill of entry in the case of self-assessment; or

(b) within one day (excluding holidays) from the date on which the bill of entry is returned to him by the
proper officer for payment of duty in the case of assessment, reassessment or provisional assessment; or

(c) in the case of deferred payment, from such due date as may be specified by rules made in this behalf, and
if he fails to pay the duty either in full or in part within the time so specified, he shall pay interest on the duty
not paid or short-paid till the date of its payment.

The rate of interest shall be not below 10% and not exceeding 36% per annum and shall be fixed by the central
government. However, the interest may be waived by the CBIC in public interest. [Section 47(2)]

(iii)
Particulars Import Document Time limit for Mode of
presentation of presentation
IM/IR
Where the Arrival manifest or Any time prior to Electronic filing*
imported goods import manifest the arrival of the
are brought in a vessel

580
vessel
Where the Arrival manifest or Any time prior to Electronic filing*
imported goods import manifest the arrival of the
are brought in an aircraft
aircraft
Where the Import Report Within twelve Manual filing
imported goods hours after its
are brought in a arrival in the
vehicle customs station
20. State in brief the provisions of the Customs Act, 1962 relating to filing of “Arrival manifest or import
manifest/ Report”.

Answer:

Particulars Import Document Time limit for Mode of

presentation of presentation
IM/IR
Where the Arrival manifest or Any time prior to Electronic filing*
imported goods import manifest the arrival of the
are brought in a vessel
vessel
Where the Arrival manifest or Any time prior to Electronic filing*
imported goods import manifest the arrival of the
are brought in an aircraft
aircraft
Where the Import Report Within twelve Manual filing
imported goods hours after its
are brought in a arrival in the
vehicle customs station

21. Write a brief note on the declaration made by the owner of baggage.

Answer;
ENTRY OF BAGGAGE BY OWNER [SECTION 77]
Under this section, the owner of the baggage has to make a declaration of its contents to the proper officer of
customs, for the purpose of clearing it. This is known as Baggage Declaration Form.
Declaring packing list is sufficient declaration.

REGULATIONS IN RESPECT OF BAGGAGE [SECTION 81]

Since the provisions in respect of baggage are a complete code by themselves, it is desirable to supplement
detailed procedures wherever necessary with the rule making powers. Section 81 therefore provides that the

581
Board may make regulations in the following matters:
(a) providing for the manner of declaring the contents of any baggage;
(b) providing for the custody, examination, assessment to duty and clearance of baggage;
(c) providing for transit or transhipment of baggage from one customs station to another or to a place outside
India.

Baggage declaration form: In exercise of these powers, the form of the baggage declaration has been
prescribed and standardized. Transit or transhipment of baggage from one customs station to another
becomes a necessity for convenient clearance of unaccompanied baggage.
In the Customs Baggage Declaration Regulations, 2013, the baggage declaration will have to be filed only by
those passengers who come to India and carry dutiable or prohibited goods or have anything to declare.

Note: CBIC vide Circular No. 08/2016 Cus. dated 08.03.2016 has clarified that the domestic passengers who
board international flights in the domestic leg are not required to file the Customs Baggage Declaration Form.

22. State and summarise the provisions and procedure in the Customs Act, 1962 governing preparation and
filing of a bill of entry.

Answer;
FILING OF IMPORT BILL OF ENTRY [SECTION 46]
Filing of Import Bill of Entry is not required for goods intended for transit or transhipment.
It is the duty of the importer of any goods to make an application electronically on the customs automated
system to the proper officer for clearance of the goods. The importer is required to make an electronic
integrated declaration to the Customs Computer Systems through network facility. The Bill of Entry (Electronic
Integrated Declaration and Paperless Processing) Regulations, 2018 provides the detailed provisions in this
regard.

Bill of Entry is a document of assessment and when assessed becomes an assessment order.

The Principal Commissioner/Commissioner of Customs may, in cases where it is not feasible to make entry by
presenting electronically on the customs automated system, allow an entry to be presented in the prescribed
manner and form. Hence, manual submission of Bill of Entry is allowable in cases where electronic submission
is not feasible. The form of the bill of entry is governed by Bill of Entry (Forms Regulations, 1976).

The goods may be cleared for home consumption or for deposit in a warehouse or for transit or transhipment.
Therefore, there are three types of Bills of Entries prescribed for these three different purposes.
Form I (White) – for home consumption.
Form II (Yellow) – for warehousing (into bond).
Form III (Green) – for clearance of warehoused goods for home consumption (ex-bond).

When Bill of Entry is filed electronically, it is in four copies:

(a) Original, meant for the customs authorities for assessment and collection of duty; 582

(b) Duplicate, intended as an authority to the custodian of the cargo to release cargo to the importer from his
custody;

(c) Triplicate, as a copy for record for the importer; and

(d) Quadruplicate, as a copy to be presented to the bank or Reserve Bank of India for the purposes of making
remittance for the imported goods. The importer is required to declare in the Bill of Entry amongst other
things the particulars of packages, the descriptions of the goods, in terms of the description given in the
Customs Tariff to enable proper classification of the goods and the correct value of the goods for the
determining the amount of duty.
The Bill of Entry shall be supported with invoice and such other documents as may be prescribed.

The importer who presents a bill of entry shall ensure the following, namely:—

(a) the accuracy and completeness of the information given therein;

(b) the authenticity and validity of any document supporting it; and

(c) compliance with the restriction or prohibition, if any, relating to the goods under this Act or under any
other law for the time being in force.

Importer unable to furnish details: If for any reason the importer is unable to furnish these details, he may
request the customs officials to examine the goods in his presence to enable him to ascertain the necessary
details for making a proper declaration in the bill of entry. Alternatively, he can seek permission to deposit the
goods in a public bonded warehouse appointed under section 57 pending receipt of the necessary information
and the supporting documents under section 49. This is also called warehousing without warehousing.
Such goods shall not be deemed to be warehoused goods for the purpose of the Act and accordingly
warehousing provisions shall not apply to such goods.
Bill of entry shall include all the goods mentioned in the bill of lading or other similar document.

Time limit for filing: According to section 46(3), the importer shall present the bill of entry before the end of
the next day following the day (excluding holidays) on which the aircraft/vessel/vehicle carrying the goods
arrives at a customs station at which such goods are to be cleared for home consumption or warehousing.
The proviso to section 46(3) provides that a bill of entry may be presented at any time not exceeding thirty
days prior to the expected arrival of the aircraft/vessel/vehicle by which the goods have been shipped for
importation into India.

583
However, where the bill of entry is not presented within the time so specified and the proper officer is
satisfied that there was no sufficient cause for such delay, the importer shall pay prescribed charges for late
presentation of the bill of entry.
23. Under what situations the amount of duty and interest refundable under section 18 of the Customs Act,
1962 shall be paid to the importer/exporter instead of being credited to the Consumer Welfare Fund?

Answer;

The refund of duty and interest thereon is subject to the principle of unjust enrichment
and shall be paid to the importer or the exporter, as the case may be, only if such amount is relatable to:

(a) the duty and interest, if any, paid on such duty paid by the importer, or the exporter, as the case may be, if
he had not passed on the incidence of such duty and interest, if any, paid on such duty to any other person;

(b) the duty and interest, if any, paid on such duty on imports made by an individual for his personal use;

(c) the duty and interest, if any, paid on such duty borne by the buyer, if he had not passed on the incidence of
such duty and interest, if any, paid on such duty to any other person;

(d) the export duty as specified in section 26;

(e) drawback of duty payable under sections 74 and 75.

In all other cases, the amount of such refund and interest shall be credited to the Consumer Welfare Fund
[Sub-section 5].

24. State the procedure for clearance of goods imported by post.

Answer;

Procedure for goods imported or to be exported by postor courier [Section 84]

This section empowers the Board to make regulations providing

(a) the form and manner in which an entry may be made in respect of goods imported or to be exported by
post or courier

(b) the examination, assessment to duty, and clearance of goods imported or to be exported by post or courier

(c) the transhipment or transit or goods imported by post or courier from one Customs station to another or 584
to a place outside India.

25. Briefly explain the following with reference to the provisions of the Customs Act, 1962:
(i) Bill of export

Bill of export [Section 2(5)]: means a bill of export referred to in section 50to be filed when goods are
exported vialand route.
(ii) Import report

[Section 2(24)]: means the report required to be delivered under section 30. It may be noted that import
report is required only when goods are imported via land route.

(iii) Imported goods

Imported Goods: [Section 2(25)] means any goods brought into India from a place outside India but does not
include goods, which have been cleared for home consumption.

(iv) Entry

Entry [Section 2(16)]:in relation to goods means an entry made in a bill of entry, shipping bill or bill of export
and includes the entry made under the regulations made under section 84.

(v) Prohibited goods

Prohibited goods [Section 2(33)]: means any goods the import or export of which is subject to any prohibition
under the Customs Act or any other law for the time being in force but does not include any such goods in
respect of which the conditions subject to which the goods are permitted to be imported or exported have
been complied with.

(vi) Customs port

Customs port [Section 2(12)]: means any port appointed under clause (a) of section 7 to be a customs port
and includes a place appointed under clause (aa) of that section to be an inland container depot.

(vii) Goods

Goods: [Section 2(22)] “Goods” includes

(a) vessels, aircrafts and vehicles
(b) stores
(c) baggage

585
(d) currency and negotiable instruments and
(e) any other kind of movable property.

(viii) Stores

Stores [Section 2(38)]: means goods for use in a vessel or aircraft and includes fuel and spare parts and other
articles of equipment, whether or not for immediate fitting.
The definition does not cover goods for use in a vehicle.
(ix) Conveyance

Conveyance [Section 2(9)]: includes a vessel, an aircraft and a vehicle.

(x) Dutiable goods

Dutiable goods: [Section 2(14)] means any goods:-

(a) which are chargeable to duty and
(b) on which duty has not been paid.
In order to be dutiable, any article must first satisfy both the following conditions:-
(i) The article should fall within the ambit of the word goods [defined under sec 2(22)].
(ii) The article should find a mention in the Customs Tariff.

(xi) Customs area

Customs area [Section 2(11)]:“customs area” means the area of a customs station or a warehouse and
includes any area in which imported goods or export goods are ordinarily kept before clearance by customs
authorities.

(xii) Adjudicating Authority

Adjudicating authority [Section 2(1)]:means any authority competent to pass any order or decision under this
Act, but does not include the Board, Commissioner (Appeals) or Appellate Tribunal. The adjudicating authority
can adjudicate demand of customs duty, confiscation and penalties under Customs Act.

(xiii) Foreign going vessel or aircraft

Foreign going vessel or aircraft: [Section 2(21)] means any vessel or aircraft for the time being engaged in the
carriage of goods or passengers between any port or airport in India and any port or airport outside India,
whether touching any intermediate port or airport in India or not
includes-
- any naval vessel of any foreign Government taking part in any naval exercise;
- any vessel engaged in fishing or any other operations outside the territorial waters of India;

586
- any vessel or aircraft proceeding to a place outside India for any purpose whatsoever.
Hence, the definition consists of two limbs:-
(a) The first limb applies to the vessel/aircraft for the time being engaged in the carriage of passengers/goods
between any port/airport in India and any port/airport outside India.
(b) The second limb covers other vessels which are which are proceeding to a place outside India or engaged
in activities outside the territorial waters of India or which are foreign naval vessels taking part in a naval
exercise.
(xiv) Assessment

Assessment [Section 2(2)]:“Assessment”means determination of the dutiability of any goods and the amount
of duty, tax, cess or any other
sum so payable, if any, under this Act or under the Customs Tariff Act, 1975 (hereinafter referred to as the
Customs Tariff Act) or under any other law for the time being in force, with reference to —

(a) the tariff classification of such goods as determined in accordance with the provisions of the Customs Tariff
Act;

(b) the value of such goods as determined in accordance with the provisions of this Act and the Customs Tariff
Act;

(c) exemption or concession of duty, tax, cess or any other sum, consequent upon any notification issued
therefor under this Act or under the Customs Tariff Act or under any other law for the time being in force;

(d) the quantity, weight, volume, measurement or other specifics where such duty, tax, cess or any other sum
is leviable on the basis of the quantity, weight, volume, measurement or other specifics of such goods;

(e) the origin of such goods determined in accordance with the provisions of the Customs Tariff Act or the
rules made thereunder, if the amount of duty, tax, cess or any other sum is affected by the origin of such
goods;

(f) any other specific factor which affects the duty, tax, cess or any other sum payable on such goods,
and includes provisional assessment, self-assessment, reassessment and any assessment in which the duty
assessed is nil.

26. With reference to the facility, ‘Clear first-Pay later’ extended to importers under the customs law,
answer the following questions:

587
(i) What is the objective of the facility?

(ii) Who is eligible to avail this scheme?

(iii) What are the due dates for payment of duty under this facility?

(iv) What are the circumstances when the deferred payment facility will not be available?

Answer;
(i) ‘Clear first-Pay later’ i.e., deferred duty payment is a mechanism for delinking duty payment and customs
clearance. The aim is to have a seamless wharf to warehouse transit in order to facilitate just-in-time
manufacturing.

(ii) Central Government has permitted importers certified under Authorized Economic Operator programme
as AEO (Tier-Two) and AEO (Tier-Three) to make deferred payment of import duty (eligible importers).
As a part of the ease of doing business focus of the Government of India, the CBEC has rolled out the AEO
(Authorized Economic Operator) programme.
It is a trade facilitation move wherein benefits are extended to the entities who have demonstrated strong
internal control systems and willingness to comply with the laws administered by the CBEC.

(iii) The due dates for payment of deferred duty are –

S. Goods corresponding to bill of Due date of payment of duty, inclusive of
No. entry returned for payment the period (excluding holidays) as
from mentioned in section 47(2)
1. 1st day to 15th day of any month 16th day of that month
2. 16th day till the last day of any 1st day of the following month
month other than
March
3. 16th day till the 31st day of 31st March
March

(iv) If there is default in payment of duty by due date more than once in three consecutive months, the facility
of deferred payment will not be allowed unless the duty with interest has been paid in full.
The benefit of deferred payment of duty will not be available in respect of the goods which have not been
assessed or not declared by the importer in the bill of entry.

27. Gregory Peg of foreign origin has come on travel visa, to tour in India. He carries with him, as part of
baggage, the following:
Particulars Value in Rs.
Travel Souvenir 85,000
Other articles carried on in person 1,50,000

588
120 sticks of cigarettes of Rs.100 each 12,000
Fire arm with 100 cartridges (value includes the value of cartridges at @ Rs. 500 per 1,00,000
cartridge).

Determine customs duty payable, if the effective rate of customs duty is 38.50% inclusive of social welfare
surcharge, with short explanations where required.
Answer:

As per rule 3 of Baggage Rules, 2016, tourist of foreign origin, excluding infant, is allowed duty free clearance
of
(i) travel souvenirs; and
(ii) Articles up to the value of Rs. 15,000 (excluding inter alia fire arms, cartridges of fire arms exceeding 50 and
cigarettes exceeding 100 sticks), if carried on in person.

Computation of customs duty payable Rs.

Travel souvenir Nil
Articles carried on in person 1,50,000
Cigarettes [100 sticks can be accommodated in General Free 10,000
Allowance (GFA)]
Fire arms cartridge (50 cartridges can be accommodated in 25,000
GFA)
Baggage than can be accommodated in GFA 1,85,000
Less: GFA 15,000
Baggage on which duty is payable 1,70,000
Duty payable @ 38.50% (including 10% Social welfare 65,450
surcharge)

Note: Fire arms, cartridges of firearms exceeding 50 and cigarettes exceeding 100 sticks are not chargeable to
rate applicable to baggage [Notification No. 26/2016 Cus. dated 31.03.2016]. These items are charged @ 100%
applicable to baggage under Heading 9803 of the Customs Tariff.

28 An importer filed a bill of entry after 60 days of filing Import General Manifest. The Deputy
Commissioner of Customs imposed a penalty of Rs. 10,000 for late filing of the bill of entry. Since, importer
wanted to clear the goods urgently, he paid the penalty. Can penalty be imposed for late filing of the bill of
entry? Can bill of entry be filed in advance? Examine the issue regarding period available for filing bill of
entry in the light of relevant statutory provisions? (PAST EXAM MAY 2018)

589
Answer:

Yes, charges are payable for late filing of bill of entry if an importer fails to present the bill of entry before the
end of the next day following the day (excluding holidays) on which the aircraft/vessel/vehicle carrying the
goods arrives at a customs station at which such goods are to be cleared for home consumption or
warehousing, and the proper officer is satisfied that there was no sufficient cause for such delay [Section 46(3)
of the Customs Act, 1962].
Yes, a bill of entry can be filed in advance. It can be presented within 30 days of the expected arrival of the
aircraft/vessel/vehicle by which the goods have been shipped for importation into India vide proviso to
section 46(3) of the Customs Act, 1962.

In the given case also, the time period as described above will be available - with reference to the date of
arrival of vessel/aircraft - for filing the bill of entry.

29. Laxmi Company imported goods valued at Rs. 10,00,000 vide a Bill of Entry presented before the proper
officer on 15thDecember, 2019, on which date the rate of customs duty was 20%. The proper officer
decided that the goods should be subject to chemical or other test and therefore, the same were
provisionally assessed at a value of Rs. 10,00,000 and Laxmi company paid provisional duty of Rs. 2,00,000
on the same date. Laxmi Company wants to voluntarily pay duty of Rs. 1,50,000 on 20th January, 2020.

(1) Can Laxmi Company provisionally pay the duty and what are the conditions which are to be complied
before such payment is made?

(2) Determine the amount of interest payable, if any, under section 18 of the Customs Act, 1962 assuming
that the payment of Rs. 1,50,000 as stated above is made on 20th January, 2020 and that the final duty is
assessed on 31st January, 2020 at Rs. 4,00,000 and the balance duty is paid on the same day.

Answer:

(1) Provisional assessment of duty is permitted in case where the proper officer deems it necessary to subject
any imported goods or export goods to any chemical or other test [Section 18 of the Customs Act, 1962]. Thus,
Laxmi Company can pay the duty on provisional basis.
Before, the provisional assessment of duty, the importer must furnish such security as the proper officer
deems fit for the payment of the deficiency, if any, between the duty finally assessed/re-assessed and the duty
provisionally assessed.

(2) Section 18 of the Customs Act, 1962 further stipulates that the importer is liable to pay interest, on any
amount payable consequent to the final assessment order @ 15% p.a. from the first day of the month in which
the duty is provisionally assessed till the date of payment thereof.
Accordingly, amount of interest payable will be

590
= [Rs. 1,50,000 x 15% x 51/365] + [Rs. 50,000 x 15% x 62/365]
= Rs. 3,144 + Rs. 1,274
= Rs. 4,418

30. After visiting USA for a month, Mrs. and Mr. Iyer (Indian residents aged 35 and 40 years respectively)
brought to India a laptop computer valued at Rs. 70,000, used personal effects valued Rs. 1,40,000 and a
personal computer for Rs. 58,000.
Calculate the custom duty payable by Mrs. & Mr. Iyer, if any. (MTP- NOV 2021)
Answer:

(1) As per the Baggage Rules, 2016, an Indian resident arriving from a country other than Nepal, Bhutan, or
Myanmar,is allowed duty free clearance of-
(i) Used personal effects and travel souvenirs without any value limit.
(ii) Articles [other than certain specified articles] up to a value of Rs. 50,000 carried as accompanied baggage
[General duty free baggage allowance].
(iii) Further, such general duty free baggage allowance of a passenger cannot be pooled with the general duty
free baggage allowance of any other passenger.

(2) One laptop computer when imported into India by a passenger of the age of 18 years or above (other than
member of crew) is exempt from whole of the customs duty [Notification No. 11/2004 Cus. dated 08.01.2004].

(3) (i) Accordingly, there will be no customs duty on used personal effects(worth Rs. 1,40,000) of Mrs. and Mr.
Iyer and laptop computer brought by them will be exempt from duty.
(ii) Duty payable on personal computer after exhausting the duty free baggage allowance will be Rs.58,000 –
Rs. 50,000 = Rs. 8,000.
(iii) Effective rate of duty for baggage =38.50% [including Social Welfare Surcharge]
(iv) Therefore, total customs duty = Rs. 3,080.

31. Mrs. X, an Indian resident who was on a visit to China, returned after months. She was carrying with her
the following items:
(i) Personal effects Rs. 75,000
(ii) Laptop computer Rs.60,000
(iii) Jewellery - 25 grams (purchased in China) Rs. 75,000
(iv) Music system Rs. 50,000
Compute the customs duty payable by Mrs. X with reference to the Baggage Rules, 2016. (PAST EXAM NOV
2019) (MTP- NOV 2021)
ANSWER;

591
Computation of customs duty payable by Mrs. X
Particulars Rs.
Personal effects Nil
[Duty free clearance is allowed]
Laptop computer Nil
[One laptop computer is exempt when imported into India by a
passenger ≥ 18 years of age]
Jewellery 75,000
[Duty free jewellery allowance is not available to Mrs. X since
she did not reside abroad for more than 1 year]
 Music system 50,000
Total value 1,25,000
Less: General duty free baggage allowance of Rs. 50,000 50,000
Value of baggage liable to customs duty 75,000
Rate of Duty 38.50%
Customs duty @ 38.50% (including social welfare surcharge) 28,875

32. Mr. Samuel, a US resident aged 35 years, has come to India on a tourist visa for a month-long vacation.
He carries with him, as part of baggage, the following:

With reference to the Baggage Rules, 2016, determine whether Mr. Samuel will be required to pay any
customs duty? (RTP MAY 2020)

Answer

As per rule 3 of Baggage Rules, 2016, tourist of foreign origin, excluding infant, is allowed duty free
clearance of
(i) travel souvenirs; and
(ii) Articles up to value of ₹ 15,000 (excluding, inter alia, cigarettes exceeding 100 sticks, cartridges of

592
fire arms exceeding 50 and alcoholic liquor or wines in excess of two litres), if carried on in person.

Further, any article the value of which exceeds the duty free allowance admissible to such passenger or
member under the Baggage Rules, 2016, is chargeable to customs duty @ 35% [Notification No. 26/2016
Cus. dated 31.03.2016]. The effective rate of duty becomes 38.5% after including social welfare surcharge
@ 10% on customs duty.

Accordingly, the customs duty payable by Mr. Samuel will be calculated as under:
33. State the salient features of "Deferred duty payment facility" with reference to Customs Act, 1962 and
rules thereunder. (PAST EXAM MAY 2018)

Answer

The salient features of “Deferred duty payment facility” are as under:

- Under section 47 of the Customs Act, 1962, the Central Government has permitted importers certified
under Authorized Economic Operator programme as Authorized Economic Operator –

AEO (Tier-Two) and AEO (Tier-Three) to make deferred payment of import duty. AEO means Authorized
Economic Operator certified by the Directorate General of Performance Management under CBEC.

593
-An eligible importer intending to avail the benefit of deferred payment shall intimate to the Principal
Commissioner/Commissioner of Customs, having jurisdiction over the port of clearance, his intention to avail
the said benefit who on being satisfied with the eligibility of the importer will allow him to pay the duty by due
dates.
- Due dates for deferred payment of import duty-

The eligible importer shall pay the duty electronically except where Assistant/Deputy Commissioner of
Customs
allow payment by any other mode for reasons to be recorded in writing.

- If there is default in payment of duty in full by due date more than once in 3 consecutive months, deferred
duty
payment facility will not be allowed unless the duty with interest has been paid in full.

- The benefit of deferred payment of duty will not be available in respect of the goods which have not been
assessed or not declared by the importer in the Bill of Entry.

34. Mr. X has imported some items from abroad. Since he was unable to make a self-assessment, he has
sought for provisional assessment pending technical testing on 29.04.2022. The technical report was
received on 05.05.2022. Discuss about the time limit available to the officer for finalizing the provisional
assessment as per law and guide Mr. X as to when his provisional assessment will be finalized. (PAST EXAM
NOV 2020)

Answer
The proper officer can finalize the provisional assessment within 2 months of receipt of a chemical or
other test report, where the provisional assessment is ordered for that reason. The Commissioner of Customs
may allow a further time period of 3 months in case the proper officer is not able to finalize the provisional
assessment within the period of 2 months.

594
Thus, in the given case, provisional assessment will be finalized by 05.07.2022 [within 2 months of receipt of
test report (05.05.2022)]. However, if the proper officer is not able to finalize the provisional assessment by
5.07.2022, the Commissioner may allow a further period of 3 months, i.e., till 05.10.2022 to the proper officer
to finalize the provisional assessment.
 CHAPTER-6 WAREHOUSING
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY
MAT

PAST
EXAMS NEW CHAPTER ADDED
MTP

RTP

EXAMPLES

(1) Mr. A needs 50 tonnes of rice at any given point of time. He has to import the same from Mr. B. However,
in case the supplier – Mr. B does not agree to sell that much quantity or the freight is not economical, Mr. A -
the importer, in these circumstances, is forced to place an order for 200 tonnes. As soon as the goods are
imported, duty has to be assessed on them. Therefore, instead of clearing the whole consignment, Mr. A
wishes to clear the consignment in convenient lots after paying appropriate duty only on that particular
portion that is cleared. During the intervening period, the goods can be held in custody in a place called
warehouse.

(2) Let us take the case of cutlery manufactured out of imported high-speed cutting steel strips. Locally
procured plastic is used for providing handles to the cutlery i.e. knife, fork, etc. In a batch process 200 kg
imported steel strips and 100 kg plastic is issued for the manufacture of the cutlery items. 400 gross knives are
manufactured and they are cleared for home consumption. The steel strip content in the above knives is 178

595
kg. The weight of the plastic handles is 85 kg. The waste is in the form of shaving etc. The total weight of the
waste is [(200+100)-(178+85)=37kg]. The steel content of the waste is 22 kg. So import duty of customs at the
rate applicable to steel strips should be collected on the waste.
The other alternative is where the finished goods are exported out of the country. Take the same example. In
this case the manufacturer has two options. He can destroy the waste. Then he will not be required to pay
duty on the steel strip content in the waste. If he does not choose to destroy the waste, then he has to pay
duty on the steel strip content in the waste. Remission of duty on the imported material content in the waste
or refuse is allowed only when the final product concerned is exported out of India and the waste is
destroyed.
(3) Let us now take an example where the final products are both exported and cleared for home
consumption. The question of appropriating the waste will have to be decided first. The imported raw material
is rubber. The end product is motor vehicle tyre.
The additional materials used are
(1) beading wire,
(2) tyre cord warp sheet
(3) chemicals and
(4) mineral oil.

Total quantity of rubber issued 1500kg

Weight of beadwire used 10kg
Weight of tyre chord warp sheet used 180kg
Weight of chemical used 4kg
Weight of mineral oil used 16kg
Total weight of raw materials issued 1710kg
Total no. of tyres manufactured 100pcs
Weight per tyre 16.5kg
Thus total weight 100 tyres 1650kg
Wastage 60kg
Total no. of tyres cleared for home consumption 25pcs
Total no. of tyres exported 75pcs.
Wastage relatable to tyres exported 60kg = 45 kg
Imported rubber content in the waste relatable to the exported tyres
= 45 x 1500 /1710 = 39.5 kg(appx)
Import duty leviable on the import rubber content in the waste can be remitted if 45 kgs of the waste are
destroyed.
Weight of waste relatable to tyres cleared for home consumption = 15 kg
Imported rubber content in the waste = 13.2 kg
Import duty is compulsorily leviable on this quantity of import rubber.

ILLUSTRATION 1
‘X’, an importer, (other than 100% EOU, STP unit, EHTP unit) imported some goods and deposited them in
the warehouse on 12th April. These goods were re-exported without payment of duty on 15th August. With
reference to the Customs Act, 1962, discuss whether any interest under section 61 of the Customs Act, 1962

596
is payable by ‘X’?

ANSWER
As per section 61(2) of the Customs Act, 1962, if goods (belonging to importer other than 100% EOU, STP unit,
EHTP unit) remain in a warehouse beyond a period of 90 days from the date on which the order under section
60(1) is made, interest is payable @ 15% on the amount of duty payable at the time of clearance of the goods,
for the period from the expiry of the said 90 days till the date of payment of duty on the warehoused goods.
In Pratibha Processors v. UOI 1996 (88) ELT 12 (SC), the Apex Court has held that when goods at the time of
removal from warehouse are wholly exempted from payment of duty, the liability to pay interest cannot be
saddled on a non-existing duty. Liability to pay interest under section 61(2) of the Customs Act is solely
dependant upon the exigibility or actual liability to pay duty. In case the liability to pay duty is nil, then, the
interest will also be nil.
Therefore, since in this case the goods have been re-exported without payment of duty, no interest is payable
by ‘X’.

ILLUSTRATION 2
Comment on the validity of the following statements:

(a) Goods, other than capital goods, intended for use in any hundred per cent export-oriented undertaking,
can be warehoused only till the expiry of five years.

(b) Interest free period of ninety (90) days under section 61(2) in respect of warehoused goods (not
intended for being used in 100% EOU) commences from the date on which an into-bond bill of entry in
respect of such goods is presented.

ANSWER

(a) Invalid. Goods, other than capital goods, intended to be used in a 100% EOU/ STP unit/ EHTP unit can be
warehoused till the consumption or clearance of such goods from the warehouse. Further, capital goods
intended to be used in a 100% EOU can also be warehoused till the clearance of such goods from the
warehouse.

(b) Invalid. As per section 61, if goods (not intended for being used in 100% EOU, STP unit, EHTP unit) remain
in a warehouse beyond a period of 90 days from the date on which the order permitting deposit of goods in a
warehouse under section 60(1) is made, interest is payable @ 15% on the amount of duty payable at the time
of clearance of the goods, for the period from the expiry of the said 90 days till the date of payment of duty on
the warehoused goods.
In other words, the relevant date for determining the commencement of the period of 90 days is the date of
order made under section 60 permitting removal of goods from the customs station for deposit in a
warehouse, and not the date on which into-bond bill of entry in respect of such goods is presented.

ILLUSTRATION 3

597
“If manufacturing operations are carried out on warehoused goods and finished products are cleared for
home consumption, then appropriate duty of customs should be levied on the quantity of the warehoused
goods contained in the waste or refuse arising out of such manufacturing process.”
Examine the validity of the said statement in the context of section 65 of the Customs Act, 1962 dealing
with manufacture and other operations in relation to warehoused goods.

ANSWER

The said statement is valid.

Section 65 lays down that if the finished products arising as a result of operations carried out in the warehouse
are cleared for home consumption, import duty would be charged on the quantity of the warehoused goods
contained in the waste or refuse arising from such operations.

ILLUSTRATION 4
Enumerate the circumstances under which goods are considered to have been removed improperly from a
warehouse under the Customs Act.

ANSWER
Section 72 provides that in any of the following circumstances the goods shall be considered to have been
removed improperly from a warehouse–

(a) where any warehoused goods are removed from a warehouse in contravention of section 71 of the
Customs Act;

(b) where any warehoused goods have not been removed from a warehouse at the expiration of the period
during which such goods are permitted under section 61 to remain in a warehouse;

(c) where any goods in respect of which a bond has been executed under section 59 and which have not been
cleared for home consumption or export are not duly accounted for to the satisfaction of the proper officer.

Questions

1. Vipul imported certain goods in May. An ‘into bond’ bill of entry was presented on 14th May and goods
were cleared from the port for warehousing. Assessable value on that date was US $ 1,00,000. The order
permitting the deposit of goods in warehouse for 4 months was issued on 21st May. Vipul deposited the
goods in warehouse on the same day but did not clear the imported goods even after the warehousing
period got over on 21st September.

A notice was issued under section 72 of the Customs Act, 1962, demanding duty and interest. Vipul cleared
the goods on 14th October. Compute the amount of duty and interest payable by Vipul while removing the
goods on the basis of the following information: goods in warehouse on the same day but did not clear the
imported goods even after the warehousing period got over on 21st September.

A notice was issued under section 72 of the Customs Act, 1962, demanding duty and interest. Vipul cleared 598
the goods on 14th October. Compute the amount of duty and interest payable by Vipul while removing the
goods on the basis of the following information:
Particulars 14th May 21st September 14th October

Rate of exchange per US $ (as notified by Central Board of ₹ 65.20 ₹ 65.40 ₹ 65.50
Indirect taxes & Customs)
Basic customs duty 15% 10% 12%

Integrated Tax leviable under section 3(7) of the Customs Tariff Act is exempt. Ignore agriculture and
infrastructure development cess.

ANSWER
Computation of import duty payable by Vipul
Particulars Amount (US $)
Assessable value 1,00,000
Amount (₹)
Value in Indian currency (US $ 1,00,000 x ₹ 65.20) [Note 1] 65,20,000
Customs duty @ 10% [Note 2] 6,52,000
Add: Social welfare surcharge @ 10% on ₹ 6,52,000 65,200
Total customs duty payable 7,17,200

1. As per third proviso to section 14(1) of the Customs Act, 1962, assessable value has to be calculated with
reference to the rate of exchange prevalent on the date on which the into bond bill of entry is presented for
warehousing under section 46 of the Customs Act, 1962.

2. Goods which are not removed within the permissible period are deemed to be improperly removed in
terms of section 72 of the Customs Act, 1962 on the day they should have been removed [Kesoram Rayon v.
CC 1996 (86) ELT 464 (SC)]. The applicable rate of duty in such a case is the rate of duty prevalent on the last
date on which the goods should have been removed.
As per section 61 of the Customs Act, 1962, if goods (not meant for being used in an 100% EOU, STP unit, EHTP
unit) remain in a warehouse beyond a period of 90 days from the date on which the order permitting deposit
of goods in warehouse under section 60 is made, interest is payable @ 15% p.a.], on the amount of duty
payable at the time of clearance of the goods, for the period from the expiry of the said 90 days till the date of

599
payment of duty on the warehoused goods.
Therefore, interest payable will be computed as under:

Period of 90 days commencing from the date of order made under 60 expires on 19th August
No. of days for which interest shall be payable [12 days of August + 30 days of September + 14 56 days
days of October]
Interest payable = ₹7,17,200 X (15/100) X (56/365) (rounded off) ₹ 16,505
2. BL Ltd. imported Super Kerosene Oil (SKO) and stored it in a warehouse. An ex-bond bill of entry for home
consumption was filed and duty was paid as per the rate prevalent on the date of presentation of such bill
of entry; and the order for clearance for home consumption was passed.
On account of highly combustible nature of SKO, the importer made an application to permit the storage of
such kerosene oil in the same warehouse until actual clearance for sale/use. The application was allowed.
However, the rate of duty increased when the goods were actually removed from the warehouse.
The Department demanded the differential duty. The company challenged the demand. Whether it will
succeed? Discuss briefly taking support of decided case(s), if any.

ANSWER
Yes, the company will succeed. The facts of the given situation are similar to the case of CCus vs. Biecco Lawrie
Ltd. 2008 (223) ELT 3 (SC) wherein the Supreme Court has held that where duty on the warehoused goods is
paid and out of charge order for home consumption is made by the proper officer in compliance of the
provisions of section 68, the goods allowed to be retained for storage in the warehouse as permitted under
section 49 of the Customs Act are not treated as warehoused goods and importer would not be required to
pay anything more.
Section 49 of the Customs Act, 1962 inter alia also provides that imported goods entered for home
consumption if stored in a public warehouse, or in a private warehouse on the application of the importer and
if the same cannot be cleared within a reasonable time, shall not be deemed to be warehoused goods for the
purposes of this Act, and accordingly the provisions of Chapter IX shall not apply to such goods.

600
 CHAPTER-7 DUTY DRAWBACK
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY Illustrations – 2, 3
MAT QSTNS 1,2, 5, 6, 7,9,10, 13, 14

PAST NO QUES NO QUES NO Q-3 Q-15 NO QUES Q-16, 17 ------

EXAMS QUES

MTP NO QUES NO QUES ILL-1 NO NO QUES NO QUES Q-4,8

QUES

RTP NO QUES NO QUES NO Q-12 Q-11 NO QUES NO QUES

QUES

Illustration 1
Spatial Wireless Pvt. Ltd. imported five mainframe computer systems from Flexsonics Computers, USA on
31.01 paying customs duty of Rs. 30.45 lakhs. The computers worked for some time but in June some
technical faults developed in the systems resulting in complete closure of work. On being informed about
the problem, Flexsonics Computers sent his technicians from USA, to repair the systems in June itself.
However, since no solution was found, the Management of Spatial Wireless Pvt. Ltd re-shipped/returned
the goods to Flexsonics Computers, USA on 31.12.
You are the Financial Controller of the Spatial Wireless Pvt. Ltd. Board of Directors has approached you for
advising whether import duty paid can be taken back from the Central Government when goods are sent
back. Advise, in the light of the provisions of Customs Act, 1962. (MTP MAY 2019)

Answer

601
Yes, the import duty already paid can be claimed back on five mainframe computer systems imported by
Spatial Wireless Pvt. Ltd. in accordance with the provision of section 74 of Customs Act.

Under this section, it is provided that when goods capable of being easily identified, which have been
imported into India and upon which duty has been paid on importation are entered for export and the proper
officer makes an order permitting clearance and loading of the goods for exportation, 98% of such duty shall
be paid back as drawback. However, the goods should be identified to the satisfaction of Assistant
Commissioner of Customs as the goods that were imported and the goods should have entered for export
within two years from the date of payment of duty on the importation thereof.

Further, it is provided in the section that 98% of drawback shall be allowed only in those cases where the
goods have not been used at all after the importation. Various percentages have been fixed by the
Government as the amount of drawback payable in respect of goods that are used after their importation.
In the instant case, all the conditions specified in provisions of section 74 are satisfied. The goods are
identifiable, import duty has been paid and they are scheduled to be exported within the prescribed time
limit.

However, the goods have been used for some time. Here, the period between the date of clearance for home
consumption and the date when the goods are placed under the customs control for export is more than 9
months, but not more than 12 months. Therefore, Spatial Wireless Pvt. Ltd will be eligible for the drawback
claim at the rate of 70% (rate notified by the Government in such case) of the import duty paid.

Illustration 2

Answer the following with reference to the provisions of the Customs Act, 1962 and rules made thereunder:

(1) Mr. A filed a claim for payment of duty drawback amounting to Rs.50,000 on 30.07. However, the
amount was received on 28.10. You are required to calculate the amount of interest payable to Mr. A on the
amount of duty drawback claimed. Rate of interest allowed on delay in payment of refund is 6% p.a.

(2) Mr. X was erroneously refunded a sum of Rs. 20,000 in excess of actual drawback on 20.06. A demand
for recovery of the same was issued by the Department on 28.08. Mr. X returned the erroneous refund to
the Department on 20.10. You are required to calculate the amount of interest chargeable from Mr. X.

Provide brief reasons for your answer. Interest rate applicable @ 15% under Section 28AA of Customs Act,
1962

Answer

(1) Computation of interest payable to Mr. A on duty drawback claimed

Particulars (Rs.) 602

Duty drawback claimed 50,000
No. of days of delay [31.08.2020 to 28.10.2020] 59 days
Rate of interest 6%
Quantum of interest (rounded off) [Rs. 50,000 x 59/365 x 6/100] 485

Note: Since the claim of duty drawback is not paid to claimant within 1 month from the date of filing such
claim, interest @ 6% per annum is payable from the date after the expiry of the said 1 month period till the
date of payment of such drawback [Section 75A(1) of the Customs Act, 1962].
(2) Computation of interest chargeable from Mr. X on excess duty drawback paid
Particulars
Duty drawback erroneously refunded Rs. 20,000
No. of days of delay [21.06.2020 to 20.10.2020] 122 days
Rate of interest 15%
Quantum of interest (rounded off) [Rs. 20,000 x 1,003
122/365 x 15/100]
Note: Interest is payable by the claimant on erroneous refund of duty drawback @ 15% per annum for the
period beginning from the date of payment of such drawback to the claimant, till the date of recovery of such
drawback [Section 75A(2)of the Customs Act, 1962].

Illustration 3

Ascertain whether the exporter is entitled to duty drawback in the following case and if yes, what is the
quantum of such duty drawback?
FOB value of 2,000 kg of goods exported isRs. 2,00,000. Rate of duty drawback on such export is Rs. 30 per
kg. Market price of goods isRs. 50,000 (in wholesale market).

Answer
Section 76(1)(b) of the Customs Act, 1962 inter alia provides that no drawback shall be allowed in respect of
any goods, the market price of which is less than the amount of drawback due thereon. In this case, the
market price of the goods is Rs. 50,000, which is less than the amount of duty drawback, i.e. 2,000 kgs x Rs. 30
= Rs. 60,000. Hence, no drawback shall be allowed.

QUESTIONS

1. Infinity Corporation has imported goods and the following particulars are available for claiming duty
drawback under sections 74 & 75 of Customs Act, 1962:

603
(a) Custom duty has been paid on goods imported for use Rs. 14,00,000
and have been out of customs control for 14 months
(b) Raghuveer exports manufactured goods having FOB 40%
value of Rs. 86,000. Rs. 96,000
Rate of duty drawback on FOB value of exports
Market value of the export product
Determine duty drawback with explanations in the above cases.

ANSWER:
(a) As per section 74(2) of Customs Act, 1962 read with Notification No. 19/65 Cus dated 06.02.1995 as
amended, 65% of import duty is to be paid as duty drawback if goods are used after importation and have
been out of customs control for export for a period of more than 12 months but not more than 15 months.
Therefore, amount of duty drawback = Rs. 14,00,000 x 65% = Rs. 9,10,000

(b) Amount of duty drawback = Rs. 86,000 x 40% = Rs. 34,400

However, the drawback amount should not exceed one third of the market price of the export product as per
rule 9 of Customs & Central Excise Duties Drawback Rules, 2017.
Thus, upper limit of drawback amount = Rs. 96,000/3 = Rs. 32,000
Thus, the amount of duty drawback in the present case will be restricted to Rs. 32,000

2. Abdul Overseas Pvt. Ltd. was erroneously refunded a sum of Rs. 30,000 in excess of actual drawback on
16-06. A demand for recovery of the same was issued by the Department on 24-08. Abdul Overseas Private
Limited returned the erroneous refund to the Department on 16-10. You are required to calculate the
amount of interest chargeable from Abdul Overseas Pvt. Ltd
Provide brief reasons for your answer.

ANSWER;

Computation of interest chargeable from Abdul Overseas Pvt. Ltd.

Particulars
Duty drawback erroneously refunded Rs. 30,000
No. of days of delay [17.06.2020 to 16.10.2020] (Refer Note) 122 days
Rate of interest (Refer Note) 15%
Quantum of interest (rounded off) [Rs. 30,000 x 122/365 x 15/100] 1,504

Note: Since the claim of duty drawback is not paid to claimant within 1 month from the date of filing such
claim, interest @ 6% per annum is payable from the date after the expiry of the said 1 month period till the
date of payment of such drawback [Section 75A(1) of the Customs Act, 1962].

604
3. M/s PQR has imported used wearing apparel from USA in April, 2020. After receipt, PQR is doubtful that
the apparel may not be saleable in India and want to re-export back to USA, without use, which the supplier
has accepted. Will PQR be eligible to take drawback of duty paid on imports? Also, list out the conditions for
duty drawback. (PAST EXAM NOV 2019)

ANSWER;
Duty drawback is allowed on re-export of imported wearing apparels only when the same has not been used
after import.
Since M/s. PQR has re-exported the imported apparels without using the same, it is eligible to take drawback
of duty paid on import of apparels provided the following conditions are satisfied:

(a) goods (apparels) are identified to the satisfaction of the proper officer as the goods which were imported
and

(b) the goods are entered for export within 2 years [period extendible on sufficient cause being shown]
from the date of payment of duty on import.

4. Write a short note on “prohibition and regulation of drawback” with reference to the provisions of
section 76 of the Customs Act, 1962. (MTP- NOV 2021)

ANSWER:
The provisions in respect of prohibition and regulation of drawback as contained in section 76 of the Customs
Act, 1962 are explained hereunder:

(1) No drawback is allowed in respect of any goods, the market price of which is less than the amount of
drawback due thereon. This provision has been made to prohibit export of cheap goods at inflated price to get
benefit of higher duty drawback. Further, drawback is also not allowed where the amount of drawback in
respect of any goods is less than Rs. 50.

(2) If the Central Government is of the opinion that goods of any specified description in respect of which
drawback is claimed are likely to be smuggled back into India, it may, not allow drawback in respect of such
goods or alternatively allow the drawback subject to certain restrictions and conditions.

5. Explain briefly the provisions relating to drawback allowable on re-export of duty paid imported goods
when:

(i) Duty paid imported goods are re-exported as such

(ii) Duty paid imported goods are used before being re-exported

605
ANSWER:

(i) Duty paid imported goods re-exported as such

When duty paid goods are re-exported as such, drawback is allowed under the provisions of section 74(1) of
the Customs Act, 1962. Sub-section (1) of section 74 of the Customs Act, 1962 provides that following
conditions need to be satisfied before claiming drawback:

(a) the goods should have been imported into India;

(b) the import duty should have been paid thereon;

(c) the goods should be capable of being easily identified as the goods, which were originally imported;

(d) the goods should have been entered for export either on a shipping bill through sea or air or on a bill of
export through land, or as baggage, or through post and the proper officer, after proper examination of the
goods and after ensuring that there is no prohibition or restriction on their export, should have permitted
clearance of such goods for export;

(e) the goods should have been identified to the satisfaction of the Assistant or Deputy Commissioner of
Customs as the goods, which were imported, and

(f) the goods should have been entered for export within two years - which can be extended further by Board
on sufficient cause being shown - from the date of payment of duty on the importation thereof.

Once these conditions are satisfied, then 98% of the import duty paid on such goods at the time of
importation shall be repaid as drawback.

(ii) Duty paid imported goods re-exported after being used

When duty paid imported goods are used before re-export, drawback is allowed under the provisions of
section 74(2) of the Customs Act, 1962. If the imported goods are used after importation, the drawback is
allowed at reduced rates as fixed by the Central Government having regard to the duration of use,
depreciation in value and other relevant circumstances prescribed by a Notification.

If the goods were in possession of the importer, they are treated as used by the importer. Following
percentages have been fixed vide Notification No. 19/65-Cus dated 6-2-1965 as amended as the rates at which
drawback of import duty shall be allowed in respect of goods which were used after their importation and
which have been out of Customs control:

Length of period between the date of clearance for home % of import duty to be
consumption and the date when the goods are placed paid as duty drawback
under customs control for export

606
Not more than three months 3 months 95%
More than three months but not more than six months 85%
More than six months but not more than nine months 75%
More than nine months but not more than twelve months 70%
More than twelve months but not more than fifteen months 65%
More than fifteen months but not more than eighteen 60%
months
More than eighteen months Nil
6. Can the rate of drawback be granted provisionally to the exporter where amount or rate of drawback has
not been determined? Briefly explain.

ANSWER:

The exporter may be granted provisional duty drawback when he executes a bond binding himself to repay
the entire or excess amount of drawback. Where an exporter desires that he may be granted drawback
provisionally, he may make an application in writing to the Principal Commissioner of Customs or
Commissioner of Customs, as the case may be, that a provisional amount be granted to him towards drawback
on the export of such goods pending determination of the final amount of drawback. The exporter may be
allowed provisional duty drawback of an amount not exceeding the amount claimed by him in respect of such
export.

However, it is to be noted that rate of drawback is determined provisionally only when exporter intends to get
Brand Rate of duty drawback for his exports. The provision has no applicability when exporter intends to get
duty drawback on the basis of All Industry Drawback Rates.

7. Write a short note on “interest on drawback” with reference to section 75A of the Customs Act, 1962.

ANSWER:
Section 75A of the Customs Act provides for payment of interest on delayed payment of drawback. Where any
drawback payable to a claimant under section 74 or 75 is not paid within a period of one month from the date
of filing a claim for payment of such drawback, interest @ 6% p.a. shall be paid along with the amount of
drawback. Such interest shall be paid from the date after the expiry of the said period of one month till the
date of payment of such drawback [Section 75A(1)].

Where any drawback has been paid to the claimant erroneously or it becomes otherwise recoverable under
the Customs Act or the rules made thereunder, the claimant shall, within a period of two months from the
date of demand, pay in addition to the said amount of drawback, interest at the rate fixed under section 28AA
[presently such interest has been fixed @ 15% p.a.] and the amount of interest shall be calculated for the

607
period beginning from the date of payment of such drawback to the claimant till the date of recovery of such
drawback. [Section 75A(2)].

8. What is the minimum and maximum rate or amount of duty drawback prescribed under the Customs
&Central Excise Duties Drawback Rules, 2017? Explain with a brief note. (MTP- NOV 2021)

ANSWER:
Minimum rate of duty drawback - Rule 8of Customs and Central Excise Duties Drawback Rules, 2017 provides
that no amount or rate of drawback shall be determined in respect of any goods or class of goods under rule 6
or rule 7, as the case may be, if the export value of each of such goods or class of goods in the bill of export or
shipping bill is less than the value of the imported materials used in the manufacture of such goods or class of
goods, or is not more than such percentage of the value of the imported materials used in the manufacture of
such goods or class of goods as the Central Government may, by notification in the Official Gazette, specify in
this behalf.

Maximum rate of duty drawback - Rule 9of Customs and Central Excise Duties Drawback Rules, 2017provides
that the drawback amount or rate shall not exceed one third of the market price of the export product. This
provision has been made to avoid over invoicing of export goods.

9. Your client loaded a machine on the vessel for export. He has paid import duty on the components used
in the manufacture. The vessel set sail from Mumbai, but runs into trouble and sinks in the Indian territorial
waters. The customs department refuses to grant duty drawback for the reason that the goods have not
reached their destination. Advise your client citing case law, if any.

ANSWER:
Rule 2(c) of the Customs and Central Excise Duties Drawback Rules, 2017inter alia provides that "export"
means "taking out of India to a place outside India". Section 2(27) of the Customs Act, 1962 provides that India
includes the territorial waters of India.

In case of CC v. Sun Industries 1988 (35) ELT (241), the Supreme Court held that the expression “taking out of
India to a place outside India” would also mean a place in high seas, if that place is beyond territorial waters of
India.

Therefore, the goods taken out to the high seas outside territorial waters of India would come within the
ambit of expression “taking out of India to a place outside India”. The emphasis in the aforementioned
judgment was on the movement of the goods outside the territorial waters of India. It is then that an export
may be said to have been taken place.

In the instant case, the vessel sunk within territorial waters of India and therefore, there is no export.

608
Accordingly, no duty drawback shall be available in this case. Similar decision was given by the Supreme Court
in the case of UOI v. Rajindra Dyeing & Printing Mills Ltd. 2005 (180) ELT 433 (SC).

In other words, if the goods cross the territorial waters, drawback will be available even if they do not reach
the destination or are destroyed provided the payment for the goods is received in convertible foreign
exchange.

Para 2.85.2 of HBP Vol. 1 2015-20 states that payment through insurance cover from General Insurance and
approved Insurance Companies would be treated as payment realised for exports under various export
promotion schemes.
10. M/s. RIL Ltd. claimed duty drawback in respect of its export products. Over 97% of the inputs by weight
of the product were procured indigenously and were not excisable. All Industry Rates under the Customs&
Central Excise Duties Drawback Rules, 2017were fixed taking into account the incidence of customs duty on
imported inputs.

Explain briefly with reference to clause (ii) of second proviso to rule 3 of the said rules whether the claim of
M/s. RIL will merit consideration by the authorities.

ANSWER:

Clause (ii) of second proviso to rule 3(c)of the Customs and Central Excise Duties Drawback Rules, 2017inter
alia provides that no drawback shall be allowed if the exported goods have been produced or manufactured
using imported materials or excisable materials in respect of which duties have not been paid.
In the given case, there was no duty incidence on 97% of the inputs of the export product except the duty
incidence on remaining 3% of the inputs, which was insignificant. All Industry Rates fixed for particular export
products are applicable to all exporters who export the same.

However, in a case where there is clear evidence, as in the present one, that the inputs of such export
products have not suffered any duty, no drawback can be claimed. Same view was expressed by the Tribunal
in the case of Rubfila International Ltd. v. CCus. Cochin 2005 (190) ELT 485 (Tri.-Bang.)[maintained in Rubfila
International Ltd. v. Commissioner - 2008 (224) E.L.T. A133 (S.C.)].

11. With reference to drawback on re-export of duty paid imported goods under section 74 of the Customs
Act, 1962, answer in brief the following questions: (RTP NOV 2020) (MTP NOV 2019)

(i) What is the time limit for re-exportation of goods as such?

(ii) What is the rate of duty drawback if the goods are exported without use?

(iii) Is duty drawback allowed on re-export of wearing apparel without use?

ANSWER: 609

(i) As per section 74 of the Customs Act, 1962, the duty paid imported goods are required to be entered for
export within two years from the date of payment of duty on the importation. This period can be extended by
CBIC if the importer shows sufficient reason for not exporting the goods within two years.

(ii)If duty paid imported goods are exported without use, then 98% ofsuch duty is re-paid as drawback.
(iii)Yes, duty drawback is allowed when wearing apparels are re-exportedwithout being used. However,
Notification No. 19/65 Cus dated06.02.1965 as amended provides that if wearing apparels have beenused
after their importation into India, drawback of import duty paidthereon shall not be allowed when they are
exported out of India.

12. With reference to the Customs & Central Excise Duties Drawback Rules, 2017, briefly state whether an
exporter who has already filed a duty draw back claim under All Industry Rates, can file an application for
fixation on special brand rate. (RTP NOV 2019)

ANSWER:
Rule 7 of the Customs and Central Excise Duties Drawback Rules, 2017 provides that application for Special
Brand Rate cannot be made where a claim for drawback under rule 3 or rule 4 has been made.In other words,
where the exporter has already filed a duty drawback claim under All Industry Rates (AIR) Schedule, he cannot
request for fixation of Special Brand Rate of drawback. Thus, the exporter should determine prior to export of
goods, whether to claim drawback under AIR or Special Brand Rate.

13. M/s Deepak Business Ltd., had imported goods during 2017. Custom duty has been paid for Rs.
20,00,000 at the time of import. These goods were used and later re-exported after 23 months of import. Is
M/s Deepak Business Ltd., eligible for refund of customs duty paid at the time of import. If so, how much?

ANSWER:
Reference to Section 74(2) of Customs Act, 1962 has to be made for examining the eligibility of drawback if
any on goods exported after usage. In the given instance, goods were exported after a period of 18 months,
where in the percentage of to be paid as drawback allowed is “NIL”. Accordingly, M/s Deepak Business Ltd.,
shall not be eligible to claim any amount of drawback on such re-export made

14. M/s Dynamic Exporters exported goods having FOB value of Rs. 10 lakhs. The All Industry duty drawback
on exports of these goods is 5%. Market price of the goods in India is Rs. 40,000. Calculate the duty draw
back receivable by M/s Dynamic Exporters.

ANSWER:
Duty drawback eligible under Section 75 of Customs Act, 1962 is Rs. 50,000 [Rs.10,00,000 x 5% = Rs. 50,000].

610
Market price of such goods is Rs. 40,000/-As per Section 76(1)(b) of Customs Act, duty drawback shall not be
allowed in respect of any goods, if the market price of such goods is less than the amount of drawback due
thereon. Hence, M/s Dynamic Exporters is not entitled to get any duty drawback.

15. Times Graphics Ltd. has imported a machine from its holding company in Japan on 12.01.2021 after
paying customs duty of ₹ 15,00,000 for use in its factory and is re-exported on 10.10.2021. You are
required to advise Times Graphics Limited regarding duty drawback that will be available to the company,
when it sends back the machinery to its holding company after completion of the project. (PAST EXAM NOV
2020)
Answer

Since in the given case, the imported goods have been used for more than 6 months but not more than 9
months before re-exportation, 75% of the import duty paid shall be allowed as duty drawback to Times
Graphics Ltd. Thus, amount of duty drawback available to Times Graphics Ltd. is:

= ₹ 15,00,000 x 75%
= ₹ 11,25,000

16. (PAST PAPER JULY 2021)

(i) Compute the interest payable to an exporter in the following case of delayed payment of drawback as per the
Customs Act, 1962.
The claim was made on 30th June, 2020 for ₹ 80,000 and was settled on 15th September 2020.

(ii) Compute the interest payable by the exporter under the Customs Act, 1962 in the case of recovery of
₹ 10,000 paid erroneously on 3rd July, 2020. Demand for recovery was issued on 5th September, 2020 and the
exporter paid back the amount on 3rd November, 2020.

ANSWER

(i)
Particulars
Duty drawback claimed ₹ 80,000
No. of days of delay [31.07.2020 to 15.09.2020] 47 days
Rate of interest 6%
Interest [₹ 80,000 × 47/365 × 6/100] (rounded off) ₹ 618

Note: Since the claim of duty drawback is not paid to exporter within 1 month from the date of filing such claim,
interest @ 6% per annum is payable from the date after the expiry of the said 1 month period till the date of
payment of such drawback.

611
(ii)

Particulars
Duty drawback paid erroneously ₹10,000
No. of days of delay [04.07.2020 to 03.11.2020] 123 days
Rate of interest 15%
Interest [₹10,000 x 123/365 x 15/100] (rounded off) ₹ 505
Note: Interest is payable by the exporter on duty drawback paid erroneously @ 15% per annum for the period beginning
from the date of payment of such drawback to the exporter, till the date of recovery of such drawback.

17. (PAST PAPER JULY 2021)

List the important aspects to be borne in mind in claiming drawback under section 75 of the Customs Act,
1962 on imported materials used in the manufacture of export goods.

ANSWER

The important aspects to be borne in mind in claiming drawback under section 75 of Customs Act, 1962 on
imported materials used in the manufacture of export goods are as under: -
(i) The goods exported are entirely different from the inputs.

(ii) The inputs are imported goods on which duty of customs has been paid.

(iii) The existence of the imported goods in the final product is not capable of easy verification at the point of
export.

(iv) The goods, namely the inputs might have undergone changes in physical shape, property etc.

(v) The quantity of inputs per piece of final product may not be uniform and may not also be capable of
verification at the time of exportation.

(vi) Duty drawback is not allowed if the export value of the finished goods is less than the value of the
imported material used in their manufacture/processing/carrying any other operations.

(vii) Duty drawback is not allowed if the export value is not more than notified percentage of the value of the
imported materials used in the manufacture/processing/carrying any other operations.

(viii) In case where sale proceeds in respect of any goods on which drawback has been allowed are not
received in India within the prescribed time, drawback shall be deemed never to have been allowed and it

612
shall be recovered from the exporter.
Note: Any five points may be mentioned.
 CHAPTER-8 REFUND
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY MAT Illustration- 1

QSTNS 2, 4, 5-7,11, 12

PAST ILL- 2 NO QUES NO QUES NO QUES Q-1, 13 NO ------

EXAMS QUES

MTP NO QUES NO QUES NO QUES NO QUES Q-8, 9 Q-3, 8 NO

QUES

RTP NO QUES Q-10 NO QUES NO QUES NO QUES NO Q-14

QUES

Illustration 1
State briefly with reference to the provisions of section 27 of the Customs Act, 1962 whether the principle
of “unjust enrichment” will apply in case of refund of excess duty paid on car imported for personal use?

Answer

The bar of unjust enrichment applies in case of refund of customs duty under section 27(2) of the Customs
Act, 1962.

The principle of unjust enrichment will not apply to refund of duty on car imported for personal use, as clause

613
(b) of the proviso to sub-section (2) of section 27 of the Customs Act, 1962 stipulates that in case of imports
made by an individual for his personal use, the refund should not be credited to consumer welfare fund, but
shall be paid to the applicant.

Illustration 2 (PAST EXAM MAY 2018)

State five cases where refundable amount shall be paid to the applicant, instead of being credited to
Consumer Welfare Fund under CGST Act, 2017. (5 marks) (MTP NOV 2018)

ANSWER
Section 54(8) of the CGST Act, 2017 provides that the refundable amount shall be paid to the applicant,
instead of being credited to the Consumer Welfare Fund, if such amount is relatable to —

(a) refund of tax paid on zero-rated supplies of goods and/or services or on inputs or input services used in
making such zero-rated supplies;

(b) refund of unutilized ITC in case of zero rated supplies made without payment of tax or accumulated ITC on
account of inverted duty structure;

(c) refund of tax paid on a supply which is not provided, either wholly or partially, and for which invoice has
not been issued, or where a refund voucher has been issued;

(d) refund of tax paid on a transaction treating it to be an intra-State supply, but which is subsequently held to
be an inter-State supply or vice-versa;

(e) the tax and interest, if any, or any other amount paid by the applicant, if he had not passed on the
incidence of such tax and interest to any other person; or

(f) the tax or interest borne by notified class of applicants.

[Note: Any of the above five points may be mentioned.]

QUESTIONS

1. Explain the provisions of Customs Act, 1962 relating to computation of limitation for submission of refund
application. (PAST EXAM JAN 2021)

ANSWER:
According to section 27(1) of the Customs Act, 1962, a refund claim should be lodged before the expiry of one
year from the date of payment of such duty or interest. The period of limitation of one year should be
computed in the following manner:

(a) If the refund claim is lodged by the importer, the time limit should be calculated from the date of payment 614
of duty.

(b) If the refund claim is lodged by the buyer of imported goods, the time limit should be calculated from the
date of purchase of goods.

(c) In case of goods which are exempt from payment of duty by an ad-hoc exemption, the limitation of one
year should be computed from the date of issue of such exemption order.
(d) Where any duty is paid provisionally, the time limit should be computed from the date of adjustment of
duty after the final assessment thereof or in case of re-assessment, from the date of such re-assessment.

(e) Where the refund arises as a result of any judgement/decree/order/direction of the Appellate Authority/
Appellate Tribunal/Court, the time limit should be calculated from the date of such
judgement/decree/order/direction.
The time limit of one year is not applicable if duty is paid under protest. Finally, it is worth mentioning that
above provisions regarding time limit are mandatory and customs authorities cannot grant a refund which is
filed beyond the maximum permissible period.

2. The assessee furnished bank guarantee to the department as required, and imported capital goods at
concessional rate of duty under an authorisation with export obligation, but failed to complete the export
obligation within the prescribed time. Consequently, the Department invoked the bank guarantee and
realized the amount of duty foregone. Subsequently the assessee fulfilled the export obligation and the
same was also accepted by the Department. The assessee filed a refund claim for the amount realized by
the Department under the bank guarantee. The Department rejected the refund claim on the ground that it
was time barred in terms of section 27 of the Customs Act, 1962.
Was the stand taken by the Department correct in law? Examine with the support of case law on the issue.

ANSWER:

In this case the bank guarantee was for the purpose of security for fulfilment of export obligation. It cannot be
construed as payment of ‘duty’. As section 27 applies only to refund of duty and not to refund of other
amounts, the time bar under the said section cannot be invoked to deny the refund.
The facts of given case are similar to the facts of CCus. (Exports) v. Jraj Exports (P) Ltd. 2007 (217) ELT 504
(Mad.). The High Court, in the instant case, held that furnishing of bank guarantee for export obligation could
not be regarded as payment of duty; therefore time-bar was not applicable for its return.

The High Court relied on the Supreme Court’s ruling in the case of Oswal Agro Mills Ltd. and Another v. Asstt.
Collector of Central Excise 1994 (70) ELT 48 (SC), wherein it was held that furnishing of bank guarantee
pursuant to an order of the Court would not be equivalent to payment of excise duty. The furnishing of bank

615
guarantee is only a security to safeguard the interest of the Revenue. Since section 27 governs the refund of
‘duty’, and the bank guarantee is not ‘duty’, the limitation prescribed therein for refund of duty would not
apply to refund of a bank guarantee.

Applying the principle laid down in the above said case, the High Court stated that the requirement to
establish that the duty incidence had not been passed on by the assessee to any other person would also not
get attracted since section 27 has no application to this case. Therefore, the stand of the Department is not
correct in law.
3. M/s. HIL imports copper concentrate from different suppliers. At the time of import, the seller issues a
provisional invoice and the goods are provisionally assessed under section 18 of the Customs Act, 1962
based on the invoice. When the final invoice is raised, based on the price prevalent in the London Metal
Exchange on a predetermined date as agreed in the contract between the buyer and seller, the assessments
are finalized on the basis of the price in such invoices.
M/s HIL has filed a refund claim arising out of the finalization of the bill of entry by the authorities. The
Department, however, has rejected the refund claim on the grounds of unjust enrichment. Discuss whether
the action of the department is correct in law? (MTP JULY 2021)

ANSWER:

Section 18 (dealing with provisional assessment) incorporates the principle of unjust enrichment in case of
refund arising out of finalization of provisional assessment. Sub-section (5) of section 18 of Customs Act, 1962
provides that if any amount is found to be refundable after finalisation of provisional assessment, such refund
will be subject to doctrine of unjust enrichment.
Further, section 28D places the onus on the person who has paid duty to prove that he has not passed on the
incidence of such duty. In the absence of any proof from such person, section 28D deems that the burden of
duty has been passed on to the buyer.

Therefore, in the given case, the Department’s action will be correct if M/s HIL does not produce any evidence
of bearing the burden of duty.

4. XYZ Ltd imported capital goods and used them in its factory to produce goods for sale. Upon discovery of
an error by which excess import duty had been paid on the said capital goods, it filed a claim for refund. As
regards unjust enrichment, it contended -
• that the capital goods were not sold and hence the principle of unjust enrichment will not apply to the
refund of import duty paid on capital goods; and
• that in any case the price of the finished goods manufactured in the factory remained the same before
and after the import and installation of the capital goods, which is sufficient proof to establish that duty
burden has not been passed on.
Examine the merits of these contentions, with the support of case law, if any.

ANSWER:

The incidence of duty can be passed directly or indirectly. Where the capital goods are used for manufacture, 616
the duty paid on their import will go into the costing of the goods manufactured and sold, and can thus be
passed on to the buyers. The Large Bench of the Tribunal in the case of SRF Ltd. v. CCus. Chennai 2006 (193)
ELT 186 (Tri. - LB) has held that the doctrine of unjust enrichment would be applicable in case of imported
capital goods used captively for manufacture of excisable goods.

As regards the relevance of the fact that price remained the same before and after the capital goods were
imported, the Larger Bench also clarified that uniformity in price before and after assessment does not lead to
inevitable conclusion that duty burden has not been passed, as such uniformity may be due to various
reasons. In view of this, the contentions of XYZ Ltd are liable to be rejected.

5. Section 26A of Customs Act, 1962 provides for refund of import duty paid if goods are found defective or
not as per specifications. Discuss the conditions governing such refund in brief.

ANSWER:

Often, goods imported are found to be defective or not according to specifications. In such cases, earlier, the
refund of customs duty paid at the time of import could be obtained only if the imported goods were
physically returned to foreign supplier. Generally, cost of return of the rejected goods is heavy and it is
economical to dispose of the goods in India itself. Realising this practical difficulty, section 26A of Customs Act
makes provision for refund of import duty paid if goods are found defective or not as per specifications. The
refund is admissible if goods are re-exported or relinquished and abandoned to the customs authorities or
destroyed. Thus, refund is possible even if goods are destroyed or relinquished in India without re-exporting
the same.
The section stipulates the following conditions for the refund:

(i) the goods are found to be defective or otherwise not in conformity with the specification agreed upon
between the importer and the supplier of goods;

(ii) the goods have not been worked, repaired or used after importation except where such use was
indispensable to discover the defects or non-conformity with the specifications;

(iii) the goods are identified to the satisfaction of Assistant/Deputy Commissioner of Customs as the goods
which were imported;

(iv) the importer does not claim drawback under any other provision of this Act; and

(v) the goods are exported or the importer relinquishes his title to the goods and abandons them to customs
or such goods are destroyed/rendered commercially valueless in the presence of proper officer in prescribed
manner within 30 days from the date on which the order of clearance of imported goods for home
consumption is made by the proper officer. This period of 30 days can be extended up to 3 months.

(vi) An application for refund of duty shall be made before the expiry of 6 months from the relevant date in 617
prescribed form and manner.

(vii) Imported goods should not be such regarding which an offence appears to have been committed under
this Act or any other law.

(viii) Imported goods should not be perishable goods and goods which have exceeded their shelf life or their
recommended storage before use period.
6. What is the minimum monetary limit prescribed in the Customs law below which no refund shall be
granted?
ANSWER;
As per third proviso to section 27(1) of the Customs Act, 1962, the minimum monetary limit below which
refund cannot be granted is Rs. 100.

7. Explain the doctrine of unjust enrichment with respect to refund of duty.

ANSWER:
Customs duty is a levy under Indirect taxation, which implies that the incidence of the customs duty paid is
generally passed on to the buyer of the goods.
When an importer imports goods, he has to pay the customs duty on such goods. Similarly, an exporter in case
of export goods, if the same are subject to export duty, the exporter pays the export duty. This duty is
recovered from the buyer when the goods are sold by the importer or exporter, as the case may be. In other
words, the incidence or burden of duty is passed on to the buyer, from whom the importer or exporter
collects the customs duty paid. Subsequently, if the importer or exporter makes a claim for refund of duty paid
(due to excess payment) and receives the refund from the Government, he would be called to have enriched
himself as he collected the duty from his customer also and also as refund from the Government. Such
enrichment is referred to as ‘unjust enrichment’.
Accordingly, the doctrine of ‘unjust enrichment’ implies that no person should enrich himself at the cost of
others.
Therefore, wherever there is excess payment of duty, the refund is to be given only to the person who has
borne the burden of such duty along with interest, if any. When the person who applies for refund is not the
person who has borne the burden of duty, the refund is paid into a fund called 'Consumer Welfare Fund'.
Section 28D provides that every person who has paid duty under the Customs Act, unless the contrary is
proved by him, shall be deemed to have passed the full incidence of such duty to the buyer; hence the
applicant for refund has to refute the presumption of passing on the incidence of duty.

8. Acme Sales’ imports were being provisionally assessed pending a verification that the department was
carrying out. Upon completion of the verification, the assessments were finalized, and Acme Sales was
asked to pay Rs. 12 lakhs, which it paid. After six months, upon detailed scrutiny of the verification report

618
and taking legal opinion on it, Acme Sales filed a claim for refund of Rs. 8 lakhs on the ground that the
differential amount should be Rs. 4 lakhs only and that there were factual errors in the verification report.
Was this the correct mode of redressal for Acme Sales? What will be likely outcome of the claim? Discuss on
the basis of case law on the subject. (MTP JULY 2021) (MTP MAY 2020)

ANSWER:
Acme Sales received an order finalizing provisional assessment on the basis of a verification report, and
requiring payment of Rs. 12 lakhs. They did not contest this order, but made the payment, and allowed the
appeal period of sixty days to lapse. After appeal became time-barred they filed a claim for refund in which
they challenged the order. This was a backdoor method of seeking relief against the order; it also asked an
officer of the same rank to review the order passed; and it sought to bypass the time limitation for appeal by
presenting the appeal as a claim for refund. The Supreme Court has held, in the case of Priya Blue Industries
Limited, 2004 (172) ELT 145 (SC), that such a refund claim is not permissible for all these reasons. A person
who is aggrieved with an assessment order cannot seek refund without filing an appeal against the
assessment order.

9. Mr. N has, over three consignments of 200, 400 and 400 units, imported a total of 1000 units of an article
"ZEP", which has been valued at Rs. 1,150 per unit. The customs duty on this article has been assessed Rs.
250 per unit. He adds his profit margin Rs. 350 per unit and sells the article for Rs. 1,750 per unit.
After one month of selling the entire consignment of article "ZEP", Mr. N found that there had been an error
in payment of amount of duty, in which duty for the consignment of 200 units was paid as if it was 400
units, resulting in excess payment of duty. Mr. N files an application for refund for Rs. 50,000 (200 X 250). Is
the bar of unjust enrichment attracted? (MTP NOV 2020)

ANSWER:
Mr. N’s invoices show that he collected duty of Rs. 250 per unit on 1,000 items. However, he paid duty on 200
items more. This payment, in the normal course, was made before the order permitting the clearance of the
goods. It would be evident from the bill of entry that the amount paid was more than the amount of duty
assessed. Thus Mr. N’s case falls within the exception to unjust enrichment listed at clause (g) of the first
proviso to section 27(2). He will be able to refute the charge of unjust enrichment. Furthermore, clause (a) of
the same sub-section provides that the doctrine of unjust enrichment will not apply to the refund of duty and
interest, if any, paid on such duty if such amount is relatable to the duty and interest paid by the
importer/exporter, if he had not passed on the incidence of such duty and interest to any other person. Mr.
N’s invoices will show how much duty he collected from his customers, hence he may be covered by this
clause also to escape the bar of unjust enrichment.

10. Explain the relevant dates as provided in section 26A(2) of the Customs Act, 1962 for purpose of refund
of duty under specified circumstances, namely: (RTP NOV 2018)

(i) goods exported out of India

(ii) relinquishment of title to goods

(iii) goods destroyed or rendered valueless. 619

ANSWER:

The relevant dates provided under Explanation to section 26A(2) of the Customs Act, 1962 for purpose of
refund of duty under specified circumstances are as follows:-
 Case Relevant date
(i) Goods exported out of India Date on which the proper officer makes an order
permitting clearance
and loading of goods for exportation
(ii) Relinquishment of title to the Date of such relinquishment
goods
(iii) Goods being destroyed or Date of such destruction or rendering of goods
rendered valueless commercially valueless

11. Explain whether refund of import duty is allowed in case of perishable goods?
ANSWER;
Refund is not allowed in case of perishable goods and goods which have exceeded their shelf life or their
recommended storage-before-use period in terms of section 26A(3) of the Customs Act, 1962.
However, the Board may, by notification in the Official Gazette, specify any other condition subject to which
the refund may be allowed under section 26A(4) of the Customs Act, 1962

12. Briefly explain whether interest is paid to the applicant in case of delayed refund by Customs
Authorities? If yes, also explain the period for computation of interest?
ANSWER:
Yes, interest is to be paid to the applicant in case any duty ordered to be refunded to an applicant is not
refunded within 3 months from the date of receipt of application for refund. The government is permitted to
fix such interest between 5% and 30%.
Currently, the rate of interest is 6% vide Notification No. 75/2003-Cus (NT) dated 12.09.2003.
The interest is to be paid for the period beginning from the date immediately after the expiry of 3 months
from the date of receipt of such application, till the date of refund of such duty. For the purpose of payment of
interest, the application is deemed to have been received on the date on which a complete application, as
acknowledged by the proper officer of Customs, has been made.

13. Would the period of limitation for claiming refund applicable to refund of amount paid on account of

620
duty paid twice under mistake? Briefly discuss with reference to legal provisions and case law. (PAST EXAM
JAN 2021)

Answer
The High Court, in Parimal Ray v. CCus. 2015 (318) ELT 379 (Cal.), has ruled that the law of limitation
under Customs Act is applicable to duty or interest paid under that Act.

However, any sum paid to the exchequer by mistake is not the duty or excess duty but is simply money
paid to the account of Government.
Hence, limitation of one year applicable to refunds of customs duty will not apply to refunds of amount
paid to the Government by mistake. In view of the same, the limitation period of one year will not apply
to the duty paid twice by mistake

14. Rishabh Traders is engaged in trading of cast iron moulds. It imported a total of 600 units of cast iron
moulds in two consignments of 200 and 400 units which has been valued at ₹ 1,500 per unit. The customs
duty on the imported moulds has been assessed at ₹ 250 per unit. Rishabh Traders sells the moulds for ₹
2,030 per unit after adding its profit margin of ₹ 280 per unit.
After one month of selling the entire consignment of cast iron moulds, Rishabh Traders found that there
had been an error in payment of amount of duty, in which duty for the consignment of 200 units was paid
as if it was 400 units, resulting in excess payment of duty. Rishabh Traders files an application for refund for
₹ 50,000 (200 X 250). You are required to determine whether the unjust enrichment is attracted in the given
case? (rtp- nov 2021)

ANSWER

As per section 27 of the Customs Act, 1962, the importer or his agent, or the buyer who has been charged the
duty by the importer, has to establish that he has not passed the burden of duty to another person, in order to
be given refund of duty. Otherwise, the refund amount is credited to the Consumer Welfare Fund.

First proviso to section 27(2) of the Customs Act, 1962, inter alia, provides that the amount of refund shall be
paid to the applicant instead of being credited to the fund in case where such amount is relatable to the duty
paid by the importer/exporter, if he had not passed on the incidence of such duty and interest to any other
person and in case where such amount is relatable to the duty paid in excess by the importer before an order
permitting clearance of goods for home consumption is made where such excess payment of duty is evident
from the bill of entry in the case of self-assessed bill of entry.

Rishabh Traders’ invoices establish that it collected ₹ 250 per unit (duty amount) on 600 moulds from the
buyer(s). However, it paid the extra import duty on 200 moulds. This payment, in the normal course, was
made before the order permitting the clearance of the goods and excess payment of duty on 200 units would

621
be evident from the bill of entry. Thus, Rishabh Traders’ case falls within the exceptions to unjust enrichment
as discussed above. Hence, it will be able to refute the charge of unjust enrichment.
 CHAPTER-9 FOREIGN TRADE POLICY
Attempts MAY NOV MAY NOV NOV JAN JULY NOV

Coverage 2018 2018 2019 2019 2020 2021 2021 2021

STUDY Illustration- 1 to 4, 6
MAT
QSTNS -1, 2, 3, 7, 8, 9, 10, 12, 13-20, 25

PAST Q-29 Q-24 Q-26, 27 NO Q-28 NO QUES NO QUES ------

EXAMS QUES

MTP ILL- 5 ILL- 5 Q-5 NO Q-6, 23 Q-4, 6 NO QUES

QUES

RTP NO QUES NO QUES Q-21 Q-11 Q-22 NO QUES NO QUES

Illustration 1
CD Corporation, a merchant exporter, procured order of goods from a customer in USA. It approached AB
Corporation, a manufacturer, for execution of the said order. The shipping bills relating to the consignment
bear the name of CD Corporation. Bank Realization Certificate, export order and invoice are also in the
name of CD Corporation. Comment whether AB Corporation would be deemed as the exporter under FTP.

Answer

The given scenario is a case of third-party exports.

Third-party exports means exports made by an exporter or manufacturer on behalf of another exporter(s). The
conditions for being allowed as third-party exports under FTP are:

622
(i) Export documents such as shipping bills shall indicate name of both manufacturing exporter/manufacturer
and third party exporter(s).

(ii) BRC, export order and invoice should be in the name of third party exporter.
In the above case, though BRC, export order and invoice are in the name of CD Corporation (third party
exporter), the shipping bill does not have the name of AB Corporation (manufacturer). Therefore, AB
Corporation will not be treated as the exporter in this case1
1 However, AB Corporation can supply goods without payment of GST under bond of Merchant Exporter.
Illustration 2

Examine whether benefit of Service Exports from India Scheme (SEIS) can be availed with respect to notified
services provided by service providers located in India in the current financial year in the following
independent cases:

(i) Net Foreign exchange earned by Mr. Aniket, a service provider, in the year of rendering service isUSD
3,000.

(ii) X and Y Brothers, a firm of service providers, has earned net foreign exchange to the tune of USD 16,500
in the year of rendering service.

(iii) Mr. Ishaan, a service provider, has earned net foreign exchange of USD 12,000 in the year of rendering
service. Out of this, USD 3,000has been paid to Mr. Ishaan through the credit card of the foreign client.
Note: All the above service providers have an active IEC at the time of rendering services.

Answer

In order to be eligible for duty credit scrip entitlement under SEIS:-

(a) Service provider must be located in India.

(b) It must provide only notified services in specified manner.

(c) It must have an active IEC at the time of rendering such services for which rewards are claimed.

(d) An individual service provider/Sole-proprietorship should have minimum net foreign exchange earnings of
USD 10,000 and a service provider other than individual/Sole-proprietorship should have minimum NFE of
USD 15,000, in the year of rendering service.

Free foreign exchange earned through International Credit Cards and other instruments as permitted by RBI
for rendering of service are also be taken into account for computation of NFE.
In the light of the above provisions, the cases are examined as under:

(i) Mr. Aniket is not eligible for SEIS Scheme as his net foreign exchange earnings are less than USD 10,000 623
(minimum limit for individuals).

(ii) X and Y Brothers are eligible for the Scheme as their net foreign exchange earnings exceed the limit of USD
15,000 (minimum limit for firms).

(iii) Foreign exchange earned through credit cards is counted for the purpose of computing the limit of
minimum net foreign exchange required for being eligible to SEIS Scheme. Thus, Mr. Ishaan is eligible for SEIS
Scheme.
Illustration 3

Two exporters namely, Red Sky Pvt. Ltd. and Black Night Pvt. Ltd. have achieved the status of Status Holders
(One Star Export House) in the current financial year. Both the exporters have been regularly exporting
goods (other than Gems and Jewellery) every year. What would have been the minimum export
performance of the two exporters to achieve such status?
Both the exporters want to establish export warehouses in accordance with the applicable guidelines. What
should be their export turnover to enable them to establish export warehouses?

Answer

Status Holders are business leaders who have excelled in international trade and have successfully contributed
to country’s foreign trade. All exporters of goods, services and technology having an import-export code (IEC)
number shall be eligible for recognition as a status holder. Status recognition depends upon export
performance**.

In order to be categorized as One Star Export House, an exporter needs to achieve the export performance of
3 million US $ million [FOB/ FOR (as converted)] during current and previous three financial years. Thus, export
performance of Red Sky Pvt. Ltd. and Black Night Pvt. Ltd. would have been at least 3 million US $ million
[FOB/ FOR (as converted)] during current and previous three financial years. For granting status, export
performance is necessary in at least 2 out of 4 years.

Further, Two Star Export Houses and above are permitted to establish export warehouses. Therefore, Red Sky
Pvt. Ltd. and Black Night Pvt. Ltd. can establish export warehouses in India only if they achieve the status of
Two Star Export House and above. In order to achieve said status, export performance of the exporters during
current and previous three financial years should be as indicated below:

Status Category Export Performance [FOB/FOR (as

converted value on us$ million
Two Star Export House 25
Three Star Export House 100
Four Star Export House 500
Five Star Export House 2,000

Illustration 4 624

Answer the following questions with reference to the provisions of Foreign Trade Policy:

(i) FIintex Manufacturers manufactures goods by using imported inputs and supplies the same under Aid
Programme of the United Nations. The payment for such supply is received in free foreign exchange. Can
FIintex Manufacturers seek Advance Authorization for the supplies made by it?
(ii) XYZ Ltd. has imported inputs without payment of duty under Advance Authorization. The CIF value of
such inputs is Rs. 10,00,000. The inputs are processed and the final product is exported. The exports made
by XYZ Ltd. are subject to general rate of value addition prescribed under Advance Authorization Scheme.
No other input is being used by XYZ Ltd. in the processing. What should be the minimum FOB value of the
exports made by the XYZ Ltd. as per the provisions of Advance Authorization?
(iii) ‘A’ has used some duty paid inputs in its export products. However, for the rest of the inputs, he wants
to apply for the Advance Authorization. Can he do so? Explain.

Answer

(i) Supply to goods to UN or international organisations for their official use or supplied to projects financed by
them are ‘deemed exports’. Advance Authorization can be issued for supplies made to such ‘deemed exports’.
Therefore, Flintex Manufacturers can seek an Advance Authorization for the supplies made by it.

(ii) Advance Authorization necessitates exports with a minimum of 15% value addition (VA).
VA = [(A – B)/B x 100]
A = FOB value of export realized, B = CIF value of inputs covered by authorization.
Therefore, the minimum FOB value of the exports made by XYZ Ltd. should be Rs. 11,50,000 to attain 15% VA.

(iii) Yes, ‘A’ can do so. In case of part duty free and part duty paid imports, both Advance Authorization and
drawback will be available. Drawback can be obtained for any duty paid material, whether imported or
indigenous, used in goods exported, as per drawback rate fixed by DoR, Ministry of Finance (Directorate of
Drawback). Advance Authorization can be used for importing duty free material. Details about duty paid
material must be mentioned in the application for Advance Authorization. In such case, All Industry Brand
Rates may not be applicable. The manufacturer has to get specific brand rate fixed from Commissioner for
these exported goods.

Illustration 5
Discuss the key similarities and differences between Advance Authorization and DFIA (Duty Free Import
Authorization) schemes. (MTP NOV 2018) (MTP MAY 2018)

Answer
In both DFIA and Advance Authorization schemes, import of inputs, oil and catalyst which are required for
export products are permitted without payment of customs duty.

625
Key differences between DFIA and Advance Authorisation schemes are as follows -

(i) ‘Advance Authorisation’ is not transferable. DFIA is transferable after export obligation is fulfilled.

(ii) Advance Authorisation scheme requires 15% value addition, while in case of DFIA, minimum 20% value
addition is required.

(iii) Advance Authorisation scheme is available to gem and jewellery sector but not DFIA.
(iv) DFIA cannot be issued where SION (Standard Input Output Norms) prescribes actual user condition [as the
material is transferable after fulfilment of export obligation].Advance Authorisation can be issued even if SION
for that product is not fixed. DFIA can be issued only if SION has been fixed for that product to be exported.

(v) IGST has been exempted on imports under Advance Authorisation scheme upto 31.03.2021,but there is no
such exemption available if imports are under DFIA scheme.

Illustration 6

XP Pvt. Ltd., a manufacturer, wants to import capital goods in CKD condition from a foreign country and
assemble the same in India. The import of the capital goods will be under notified Project Imports. The
capital goods will be used for pre-production processes. The final products of XP Pvt. Ltd. would be supplied
in SEZ unit. XP Pvt. Ltd. wishes to sell the capital goods imported by it as soon as the production process
starts.
XP Pvt. Ltd. seeks your advice whether it can avail the benefit of EPCG Scheme for importing the intended
capital goods.
Note – Base your opinion on the facts given above assuming that all other conditions required for being
eligible to the EPCG Scheme are fulfilled in the above case.

Answer

Export Promotion Capital Goods Scheme (EPCG) permits exporters to import capital goods at zero customs
duty or procure them indigenously without paying duty in prescribed manner.
In return, exporter is under an obligation to fulfill the export obligation. Export obligation means obligation to
export product(s) covered by Authorisation/permission in terms of quantity or value or both, as may be
prescribed/specified by Regional or competent authority. Exports to SEZ unit will be considered for discharge
of export obligation of EPCG Authorization, irrespective of currency, however, payment must be received from
the Foreign Currency Account.

The authorisation holder can either procure the capital goods (whether used for pre-production, production or
post-production) from global market or domestic market. The capital goods can also be imported in CKD/ SKD
to be assembled in India.

An EPCG Authorization can also be issued for import of capital goods under Scheme for Project Imports 626
notified by CBIC. Export obligation for such EPCG Authorizations would be 6 times of duty saved to be fulfilled
in 6 years.

However, import of capital goods is subject to ‘Actual User’ condition till export obligation is completed. Only
after completion of export obligation, capital goods can be sold or transferred.
Therefore, based on the above discussion, XP Pvt. Ltd. can import the capital goods under EPCG Scheme.
However, it has to make sure that it does not sell the capital goods till the export obligation is completed.
QUESTIONS

1. Monotype traders wants to enter into export contracts with various customers. It intends to understand
the currency denomination while entering into contract with them and seeks your advice as to how it
should ensure compliance.

ANSWER:

Monotype Traders can denominate all export contracts and invoices either in freely convertible currency or
Indian rupees but export proceeds sh1.ould be realised in freely convertible currency.
However, export proceeds against specific exports may also be realized in rupees, provided it is through a
freely convertible Vostro account of a non-resident bank situated in any country other than a member country
of Asian Clearing Union (ACU) or Nepal or Bhutan.
Additionally, rupee payment through Vostro account must be against payment in free foreign currency by
buyer in his non-resident bank account.
Contracts for which payments are received through ACU shall be denominated in ACU Dollar. Export contracts
and invoices can be denominated in Indian rupees against EXIM Bank/ Government of India line of credit.

2. Jigsaw Puzzle has imported inputs, having CIF value of Rs. 25,00,000 without payment of duty under
Advance Authorisation. Inputs are supplied free of cost valued at Rs. 5,00,000 to meet eventualities of
quality issues arising during manufacture. On manufacturing, the products are supplied to SEZ units and
realisation is in Indian currency through regular current account.
Jigsaw Puzzle wants to know whether it is entitled to Advance Authorisation scheme and what should be
the minimum value addition. And you are required to compute FOR value of supplies to SEZ.
Jigsaw Puzzle has manufactured and supplied goods against EPCG authorisation to their customer. Jigsaw
Corporation who are setting up a new unit for exports. The payment for such supply is received in Indian
currency. Can Advance Authorization be denied as payment has not been received in free foreign exchange?

ANSWER:
Advance authorisation (AA) can be issued for supplies made to SEZ units (as supplies made to SEZ units are
considered as equivalent to physical exports). The minimum value addition required to be achieved under AA
is 15%. The FOR value of supplies made to SEZ units is computed as under:

627
Value addition = (FOR value of supply received – CIF value of inputs/CIF value of inputs) x 100
Notional value of free of cost inputs supplied by foreign buyer needs to be added to the CIF value of imported
inputs to compute FOR value of the supplies made to SEZ units.
FOR value of supplies made to SEZ units (after adding minimum 15% value addition) = 30,00,000 x 115% = Rs.
34,50,000
Jigsaw Puzzles will, however, be not eligible for AA as the payment from SEZ unit is not realised from its
Foreign Currency Account.
Supply of goods to against EPCG Authorisation is a deemed export eligible for grant of AA. However in this
case, AA can also be issued when the payment for such deemed exports is realised in free foreign exchange.
3. From the following particulars, you are required to determine reward under Merchandise Exports from
India Scheme (MEIS) under Foreign Trade Policy 2015-2020:

(1) Exports of handloom products through notified courier using e-commerce platform with FOB value of Rs.
5,15,000 per consignment.

(2) Exports of goods which are subject to minimum export price with FOB value of Rs. 50,000.

(3) Exports of goods where FOB value declared in shipping bill is Rs. 8,00,000. FOB value realised with
exchange gain is Rs. 8,20,000.

(4) Exports of books through foreign post office using e-commerce platform with FOB value of Rs. 4,95,000
per consignment

(5) Biotechnology Park products exported through DTA units of Rs. 3,00,000

(6) Supplies made from DTA units to SEZ units of Rs. 2,00,000

(7) Rate of reward under MEIS is 7%.

ANSWER:
Computation of rewards under MEIS

Particulars Amount eligible

for reward (Rs.)
Export of handloom products through courier using e-commerce platform with FOB 5,00,000
value Rs. 5,15,000
[Export of handloom products of FOB value upto Rs. 5,00,000 per consignment is
entitled for reward under MEIS.]
Export of goods which are subject to minimum export price [Ineligible for MEIS] Nil
Export of goods where FOB value declared in shipping bill is Rs. 8,00,000 and FOB value 8,00,000
realized is Rs. 8,20,000
[FOB value declared in the shipping bill or the FOB value realized, whichever is lower is

628
considered for MEIS rewards]
Export of books through foreign post office using e-commerce platform with FOB value 4,95,000
of Rs. 4,95,000
[Export of books of FOB value upto Rs. 5,00,000 per consignment is entitled for reward
under MEIS.]
Biotechnology Park products exported through DTA units [Ineligible for MEIS] Nil
Supplies made from DTA units to SEZ units [Ineligible for MEIS] Nil
Total amount eligible for MEIS reward 17,95,000
MEIS reward @ 7% 1,25,650
4. What do you understand by the term ‘Foreign Trade Policy’ (FTP)? Which is the governing legislation for
FTP? Which Government authorities administer FTP in India? (MTP JULY 2021)

ANSWER:

Foreign Trade Policy is a set of guidelines or instructions issued by the Central Government in matters related
to import and export of goods in India viz., foreign trade. The FTP, in general, aims at developing export
potential, improving export performance, encouraging foreign trade and creating favorable balance of
payments position.
In India, Ministry of Commerce and Industry governs the affairs relating to the promotion and regulation of
foreign trade. The main legislation concerning foreign trade is the Foreign Trade (Development and
Regulation) Act, 1992 FT (D&R) Act.

In exercise of the powers conferred by the FT (D&R) Act, the Union Ministry of Commerce and Industry,
Government of India announces the integrated Foreign Trade Policy (FTP) in every five years with certain
underlined objectives. This policy is generally updated every year in April, in addition to changes that are made
throughout the year.

The FTP is formulated, controlled and supervised by the office of the Director General of Foreign Trade (DGFT),
an attached office of the Ministry of Commerce & Industry, Government of India. DGFT has several offices in
various parts of the country which work on the basis of the policy formed by the headquarters at Delhi.

Though the FTP is formulated by DGFT, it is administered in close coordination with other agencies. Other
important authorities dealing with FTP are:
(i) Central Board of Indirect Taxes and Customs (CBIC)
(ii) Reserve Bank of India (RBI)
(iii) State VAT Departments

5. Briefly explain as to how FTP is linked with customs laws. (MTP MAY 2019)

ANSWER:
The Foreign Trade Policy is closely knit with the Customs laws of India. However, the policy provisions per-se

629
do not override tax laws. The exemptions extended by FTP are given effect to by issue of notifications under
respective tax laws (e.g., IGST Act, CGST Act, SGST/UTGST Act, Customs Tariff Act, 1975, Central Excise Act,
1944, Customs Act, 1962 etc.). Thus, actual benefit of the exemption depends on the language of exemption
notifications issued by the CBIC.

In most of the cases the exemption notifications refer to policy provisions for detailed conditions. Ministry of
Finance/ Tax Authorities cannot question the decision of authorities under the Ministry of Commerce (so far
as the issue of authorization etc. is concerned).
Decision of Director General of Foreign Trade (DGFT) is final and binding in respect of (a) Interpretation of any
provision of foreign trade policy or provision of Handbook of Procedures, Appendices, AayatNiryat Forms (b)
Classification of any item in ITC(HS).

6. Enumerate the various matters in respect of which policies and regulations are framed under FTP.
(MTP JULY 2021) (MTP MAY 2020)

ANSWER:

Following issues are covered under FTP 2015-2020 -

♦ General provisions regarding import and export of goods – Chapter 2 of FTP 2015-2020.

♦ Export from India Scheme [MEIS and SEIS] to encourage exports of specified goods to specified countries and
also export of services – Chapter 3 of FTP 2015-2020.

♦ Duty Exemption and Remission Schemes [Advance Authorisation, DFIA and Duty Drawback Scheme and duty
remissions schemes under GST law] to enable exporters to import inputs without payment of customs duty –
Chapter 4 of FTP 2015-2020.

♦ Export Promotion Capital Goods (EPCG) scheme [to obtain capital goods without payment of customs duty]
– Chapter 5 of FTP 2015-2020.

♦ EOU/EHTP/STP and BTP schemes – Chapter 6 of FTP 2015-2020.

♦ Deemed Exports – Chapter 7 of FTP 2015-2020.

♦ Quality Complaints and Trade Disputes – Chapter 8 of FTP 2015-2020.

Policy in respect of Special Economic Zones [SEZ] is contained in SEZ Act, 2005 and Rules.

7. With reference to the provisions of FTP 2015-2020, discuss giving reasons whether the following

630
statements are true or false:

(i) If any doubt arises in respect of interpretation of any provision of FTP, the said doubt should be
forwarded to CBIC, whose decision thereon would be final and binding.

(ii) Authorization once claimed by an importer cannot be refused by DGFT.

(iii) IEC is a unique 12 digit PAN based alphanumeric code allotted to a person for undertaking any export/
import activities.
(iv) Waste generated during manufacture in an SEZ Unit can be freely disposed in DTA on payment of
applicable customs duty, without any authorization.

ANSWER:

(i) False. If any question or doubt arises in respect of interpretation of any provision of the FTP, said question
or doubt ought to be referred to DGFT whose decision thereon would be final and binding.

(ii) False. No person may claim an Authorization as a right and DGFT shall have power to refuse to grant or
renew the same in accordance with provisions of FT(D&R) Act, rules made thereunder and FTP.

(iii) False. IEC is a unique 10-digit code allotted to a person for undertaking export/ import activities.

(iv) True. Any waste or scrap or remnant including any form of metallic waste & scrap generated during
manufacturing or processing activities of an SEZ Unit/ Developer/ Co-developer are allowed to be disposed in
DTA freely, without any authorization, subject to payment of applicable customs duty.

8. Mr. A has brought a laptop from USA with him. Such laptop has been used by Mr. B - the seller for few
months there. Mr. A contends that he can freely import such laptop as baggage without any restriction/
authorization. Examine the correctness of Mr. A’s claim in the light of the provisions of FTP 2015-2020.
ANSWER:

Import of one laptop computer (notebook computer) as baggage is exempt from whole of the customs duty.
Further, Foreign Trade Policy 2015-2020 provides that import of second hand laptop requires authorization.
In view of above, Mr. A’s claim is not correct as second hand laptops can be imported only against an
authorization.

9.State in brief policy for import of samples.

ANSWER:

No authorisation is required for import of bona fide technical and trade samples. These are importable freely.
Samples upto Rs. 3,00,000 can be imported by all exporters without duty.

631
Authorisation for import of samples is required only in case of vegetable seeds, bees and new drugs. Samples
of tea upto Rs. 2,000 (CIF) per consignment will be allowed without authorization.

10.State salient aspects of Advance authorisation for annual requirements to exporters.

ANSWER:

Annual Advance authorisation would be issued to exporters having past export performance for at least two
financial years, to enable them to import the inputs required by them on annual basis.
Advance authorization for Annual Basis can be only on basis of prescribed manner and not on basis of ad hoc
norms.
Annual Advance Authorisation in terms of CIF value of imports will be granted upto 300% of FOB value of
physical exports in preceding financial year and/or FOR value of deemed exports in preceding year or Rs. 1
crore, whichever is higher.

11.Answer the following questions with reference to the provisions of Duty Credit Scrips under Export from
India Schemes under FTP 2015-2020.

(i)Rishita provides services eligible for SEIS Scheme. She wants to sell SEIS scrips earned by her. Can she do
so?

ii)Can a manufacturer, importing the inputs utilize the duty credit scrip for payment of entire customs duty,
social welfare surcharge and IGST?

(iii)An exporter was issued duty credit scrip dated 15.07.2020. What is the period within which he must
utilize the scrip?

(iv)An exporter exported leather footwears through courier using e-commerce of value of Rs. 24,000.
Can he apply for duty credit scrips under Merchandise Exports from India Scheme (MEIS)? (RTP NOV 2019)

ANSWER:

(i) Yes. The duty credit scrips and goods imported or domestically procured against them are freely
transferable.

(ii) No. Utilization of duty credit scrip is not permitted for payment of GST on imports or even domestic
procurements.

(iii) The duty credit scrip will be valid for 24 months from date of issue.

(iv) Yes. Exports of leather footwears through courier using e-commerce of FOB value of Rs.5,00,000 per
consignment are eligible for MEIS.

632
12.Mention the reward scheme provided under FTP which aims to promote the manufacture and export of
notified goods/ products. Discuss the basis of computation of reward under said scheme. How can the duty
scrips issued under the Scheme be utilized?
ANSWER:

The scheme is known as Merchandise Exports from India Scheme (MEIS). The objective of MEIS scheme is to
promote the manufacture and export of notified goods/ products.
Under MEIS, exports of notified goods/products to notified markets shall be eligible for reward at the specified
rate(s). Unless otherwise specified, the basis of calculation of reward would be:
(i) on realised FOB value of exports in free foreign exchange,
or
(ii) on FOB value of exports as given in the Shipping Bills in free foreign exchange,
whichever is less.
These scrips can be used for payment of customs duties on import of inputs/goods including notified capital
goods.

13.Explain salient features of post export EPCG scheme.

ANSWER:

In EPCG scheme, first capital goods are imported without payment of customs duty and then export obligation
is fulfilled.
In case of post export EPCG scheme, the capital goods are imported on full payment of applicable duties in
cash. Later, basic customs duty paid on Capital Goods shall be remitted in the form of freely transferable duty
credit scrips. Capital goods imported under EPCG Authorisation for physical exports are also exempt from
IGST and Compensation Cess upto 31.03.2021.

In case integrated tax and compensation cess are paid in cash on imports under EPCG, incidence of the said
integrated tax and compensation cess would not be taken for computation of net duty saved provided input
tax credit is not availed.

These Duty Credit Scrips can be used for payment of applicable custom duties for imports. All other provisions
of EPCG Scheme apply to post export EPCG scheme also.
Specific Export Obligation under this Scheme shall be 85% of the applicable specific EO [6 times of duties,
taxes and cess saved on capital goods imported under EPCG scheme to be fulfilled in 6 years reckoned from
authorization issue date]. Average EO remains unchanged.

Duty remission shall be in proportion to the Export Obligation fulfilled. 633

The advantage of the scheme is that the exporter does not have any specific export obligation when he
imports capital goods on payment of full customs duty. Later, he gets remission on the basis of exports made
by him.
14.With reference to the provisions relating to EOU, EHTP, STP, BTP & SEZ Schemes as contained in FTP,
answer the following questions:
(i)A unit intending to trade in handicrafts wants to set up an EOU. Is it allowed?
(ii)An EOU has started production after 4 years 10 months from the date of grant of Letter of Permission
(LoP)/ Letter of Intent (LoI). Is it correct?
(iii)A EOU wants to import a second hand capital goods which is prohibited under ITC (HS). Can it do so?

ANSWER:

i) No. Units undertaking to export their entire production of goods andservices (except permissible sales in
DTA), may be set up under the Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology Park
(EHTP) Scheme, Software Technology Park (STP) Scheme or Bio-Technology Park (BTP) Scheme for
manufacture of goods, including repair, re- making, reconditioning, re-engineering and rendering of services.
Trading units are not covered under these schemes.

(ii)No. EOU/ BTP/ EHTP/ STPs should start production within 2 yearsfrom the date of grant of Letter of
Permission (LoP)/ Letter of Intent(LoI). In other words, LoP/ LoI have an initial validity of 2 years, bywhich time
unit should have commenced production. Its validity maybe extended further up to 2 years by competent
authority. However,proposals for extension beyond four years shall be considered inexceptional
circumstances, on a case to case basis by BoA.

(iii)No. Though an EOU is permitted to import duty free second handcapital goods, without any age limit, it
cannot import capital goodsthat are prohibited items of import in the ITC(HS).

15.List some supplies which are ‘deemed exports’ for purpose of benefits under Foreign Trade Policy 2015-
2020.

ANSWER:
As per FTP 2015-2020, following are treated as deemed exports:

♦Supplies against Advance Authorisation/DFIA

634
♦Supplies to EOU/STP/EHTP/BTP

♦Supplies against EPCG authorization

♦Supply of marine freight containers by 100% EOU

♦Supplies to projects against International Competitive Bidding

♦Supplies to projects where imports permitted at zero customs duty

♦Supply to mega power projects

♦Supplies to UN or International
Organizations for their official use.
♦Supplies to nuclear projects

16 What are the key features of Advance Authorization Scheme? Enlist the items which can be and which
cannot be imported against Advance Authorization.
ANSWER:

*12 months from date of issue of advance authorisation, unless otherwise specifically provided or for deemed
exports which may be co-terminus with the project duration **18 months from date of issue of advance
authorisation, unless otherwise specifically provided

♦ Under advance authorization scheme,

INPUTS which are physically used/
incorporated in the export product can be imported without payment of customs duty. IGST and GST
Compensation Cess have been exempted upto 30.09.2021 on imports under Advance Authorisation for
physical exports (including exports to SEZ units) or deemed exports like supply of goods against Advance
Authorisation, capital goods against EPCG, supply of goods to EOU/STP/EHTP etc.

Items which can be imported duty free against advance authorization:

635
♦ Inputs, which are physically incorporated in export product (making normal allowance for wastage)

♦ Fuel, oil, catalysts which are consumed/utilised to obtain export product

♦ Mandatory spares which are required to be exported/supplied with resultant product permitted upto 10% of
CIF value of Authorization.

♦ Specified spices only when used for activities like crushing/ grinding /sterilization/ manufacture of oils or
oleoresins and not for simply cleaning, grading, re-packing etc.
However, items reserved for imports by STEs cannot be imported against advance authorization.
17.Discuss the benefits granted under FTP to Status Holders.

ANSWER:

Privileges of Status Holders: Status holders are granted certain benefits like:

(a) Authorisation and custom clearances for both imports and exports on self-declaration basis.

(b) Fixation of Input Output Norms (SION) on priority i.e. within 60 days by Norms Committee.

(c) Exemption from compulsory negotiation of documents through banks. The remittance/ receipts, however,
would continue to be received through banking channels.

(d) Exemption from furnishing of Bank Guarantee in Schemes under FTP.

(e) Two Star Export Houses and above are permitted to establish export warehouses.

(f) Manufacturers who are also status holders (Three Star/Four Star/Five Star) will be enabled to self-certify
their manufactured goods (as per their IEM/IL/LOI) as originating from India with a view to qualify for
preferential treatment under different preferential trading agreements (PTA), Free Trade Agreements (FTAs),
Comprehensive Economic Cooperation Agreements (CECA) and Comprehensive Economic Partnership
Agreements (CEPA).

(g) Status holders shall be entitled to export freely exportable items (excluding Gems and Jewellery, Articles of
Gold and precious metals) on free of cost basis for export promotion subject to a certain annual limit specified
for each sector separately.

18. Explain the significant features of EPCG Scheme. Which type of capital goods cannot be imported under
such Scheme?

ANSWER: 636

Export Promotion Capital Goods Scheme (EPCG) permits exporters to import capital goods for pre-production,
production and post-production at zero customs duty or procure them indigenously without paying duty in
the prescribed manner. In return, exporter is under an obligation to fulfill the export obligation.
* Authorisation shall be valid for import for 18 months from the date of issue of authorisation.
- Capital goods imported under EPCG Authorisation for physical exports are also exempt from IGST and
Compensation Cess upto 30.09.2021.

- Import under EPCG scheme shall be subject to an export obligation equivalent to 6 times of duties, taxes and
cess saved on capital goods to be fulfilled in 6 years reckoned from the date of issue of authorization.
Authorisation shall be valid for 18 months from the date of issue of Authorisation.

- Import of capital goods shall be subject to ‘Actual User’ condition till export obligation is completed. After
export obligation is completed, capital goods can be sold or transferred.

- In case integrated tax and compensation cess are paid in cash on imports under EPCG, incidence of the said
integrated tax and compensation cess would not be taken for computation of net duty saved provided, input
tax credit is not availed.

-Export proceeds shall be realized in freely convertible currency except for deemed exports supplies under
Chapter 7.Export to SEZ Units shall be taken into account for discharge of export obligation provided payment
is realised from Foreign Currency Account of the SEZ unit. Export to SEZ Developers / Co-developers can also
be taken into account for discharge of export obligation even if payment is realised in Indian Rupees.

Eligible capital goods:

- Capital Goods including capital goods in CKD/SKD condition
- Computer systems and software which are a part of the Capital Goods being imported
- Spares, moulds, dies, jigs, fixtures, tools & refractories

637
- Catalysts for initial charge plus one subsequent charge
- Capital goods for Project Imports notified by CBIC.
19. Write short notes on the following with reference to the provisions relating to EOU/EHTP/STP/BTP as
contained in the FTP:

(i) Entitlement for supplies from DTA

(ii) Inter-unit transfer

(iii) Sale of unutilized material

(iv) Replacement/repair of imported/indigenous goods

(v) Exit from EOU Scheme

ANSWER:

(i) Entitlements for supplies from DTA

• Supplies from DTA to EOU/ EHTP/ STP/ BTP units will be regarded as “deemed exports” and DTA supplier
shall be eligible for relevant entitlements for deemed exports, besides discharge of export obligation, if any,
on the supplier. The refund of GST paid on such supply would be available to the supplier subject to specified
conditions and documentations under GST law.

• In addition, EOU / EHTP / STP / BTP units shall be entitled to following:-

-Imported goods are exempt from basic customs duty. Further, IGST and GST compensation cess is exempt
upto 31.03.2021.
-Input Tax Credit of GST paid on inputs and capital goods.

(ii) Transfer of manufactured goods from one EOU / EHTP / STP / BTP unit to another EOU / EHTP / STP / BTP
unit is allowed on payment of applicable GST and compensation cess with prior intimation to concerned
Development Commissioners of the transferor and transferee units as well as concerned Customs authorities,
following the prescribed procedure.

Capital goods may be transferred or given on loan to other EOU/ EHTP/ STP/ BTP/ SEZ units, with prior

638
intimation to concerned DC and Customs authorities on payment of applicable GST and compensation cess.
Such transferred goods may also be returned by the second unit to the original unit in case of rejection or for
any reason on payment of applicable GST and compensation cess.

(iii) In case an EOU/ EHTP/ STP/ BTP unit is unable to utilize goods (including capital goods and spares that
have become obsolete/surplus) and services, imported or procured from DTA, it may be
transferred to another EOU/ EHTP/ STP/ BTP/ SEZ unit; or
-disposed off in DTA with intimation to Customs authorities on payment of applicable duties and/ or taxes and
compensation cess. Further, exemption of basic customs duties availed, if any, on the goods, at the time of
import will also be payable and submission of import Authorisation; or
exported.
Such transfer from EOU/ EHTP/ STP/ BTP unit to another such unit would be treated as import for receiving
unit.

-In case of capital goods, benefit of depreciation, as applicable, will be available in case of disposal in DTA only
when the unit has achieved positive NFE taking into consideration the depreciation allowed.
-No duty shall be payable other than the applicable taxes under GST laws in case capital goods, raw material,
consumables, spares, goods manufactured, processed or packaged, and scrap/ waste/ remnants/ rejects are
destroyed within unit after intimation to Customs
authorities or destroyed outside unit with permission of Customs authorities.
-Disposal of used packing material will be allowed on payment of duty on transaction value.

(iv)
-Such units may be set up for manufacture of goods, including repair, re-making, reconditioning, re-
engineering, rendering of services, development of software, agriculture.
-Trading units are not covered under these schemes.
-Only projects having a minimum investment of Rs. 1 crore in plant & machinery shall be considered for
establishment as EOUs. However, this shall not apply to units in EHTP/ STP/ BTP, EOUs in Handicrafts/
Agriculture/ Floriculture/ Aquaculture/ Animal Husbandry/ Information Technology Services, Brass Hardware
and Handmade jewellery sectors. Board of Approvals(BoA) may also allow establishment of EOUs with a lower
investment criteria.

(v) EXIT FROM EOU SCHEME

With approval of DC, an EOU may opt out of scheme. Such exit shall be subject to payment of applicable IGST/
CGST/ SGST/ UTGST and compensation cess, if any, and industrial policy in force. If unit has not achieved
obligations, it shall also be liable to penalty at the time of exit.

20. What is ‘deemed exports’? Which type of supplies are regarded as deemed exports?

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ANSWER:

Deemed Exports for the purpose of this FTP

It refers to those transactions in which goods supplied do not leave country, and payment for such supplies is
received either in Indian rupees or in free foreign exchange. Supply of goods as specified in FTP shall be
regarded as “Deemed Exports” provided goods are manufactured in India.

Deemed Exports for the purpose of GST

It would include only the supplies notified under section 147 of the CGST/SGST Act, on the recommendations
of the GST Council. The benefits of GST and conditions applicable for such benefits would be as specified by
the GST Council and as per relevant rules and notification.
We will restrict our discussion to ‘Deemed exports for the purpose for FTP’ in this chapter.

Deemed exports broadly cover three areas.

a. Supplies to domestic entities who can import their requirements duty free or at reduced rates of duty.
b. Supplies to projects/ purposes that involve international competitive bidding.
c. Supplies to infrastructure projects of national importance.

CATEGORIES OF SUPPLIES CONSIDERED AS ‘DEEMED EXPORT’

Supply by manufacturer Supply by main/sub-contractors(s)
Supply of goods against Advance Supply of goods to projects or turnkey contracts
Authorisation/Advance Authorisation for financed by multilateral or bilateral agencies/Funds
Annual Requirement/ DFIA notified by Department of Economic Affairs (DEA),
under International Competitive Bidding.
Supply of goods to units located in EOU/ Supply of goods to any project where import is
STP/BTP/EHTP permitted at zero customs duty as per customs
Notification No. 50/2017-Customs dated 30.6.2017,
provided supply is made against International
Competitive Bidding.
Supply of capital goods against EPCG Supply of goods to mega power projects against
authorisation International Competitive Bidding (even if customs
duty on imports made by such project is not zero).
The ICB procedures should be followed. Supplier is
eligible for benefits as specified. International
Competitive Bidding (ICB) is not mandatory for mega
power projects if requisite quantum of power has
been tied up through tariff based competitive
bidding or if project has been awarded through tariff
based competitive bidding.
Supply to goods to UN or international organisations

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for their official use or supplied to projects financed
by them.
Supply of goods to nuclear projects through
competitive bidding (need not be international
competitive bidding).

21. (i) A star export house wishes to import goods which are exempt from duty under Foreign Trade Policy
(FTP), subject to fulfilment of export obligation. However, Customs Notification giving effect
to the FTP is yet to be issued. Can the export house import the goods claiming exemption from duty
under FTP in the absence of Customs Notification?
(ii) Give examples of categories of exports/sectors which are ineligible for duty credit scrip entitlement
under MEIS. (RTP MAY 2019)

Answer

(i) No. The exemptions extended by Foreign Trade Policy can be taken only when the exemption notification is
issued under the relevant tax laws. The provisions of FTP cannot override tax laws.

(ii) Some of the categories of exports/sectors which are ineligible for duty credit scrip entitlement under MEIS
are listed below:

(a) Supplies made from DTA units to SEZ units

(b) Exports through trans-shipment, i.e. exports that are originating in third country but trans-shipped through
India

(c) Deemed Exports

(d) SEZ/EOU/EHTP/BPT/FTWZ products exported through DTA units

(e) Export products which are subject to Minimum export price or export duty

(f) Exports made by units in FTWZ.

22. Whether all types of exports categories/sectors are eligible for duty credit scrip entitlement under
Merchant Export from India Scheme (MEIS)? If your answer is no, give few examples of the export
categories/sectors which are ineligible for duty credit scrip entitlement under MEIS. Saksham exports a
consignment of handicraft items through courier using e-commerce of free on board (FOB) value of ₹
4,48,000. Determine whether the export consignment of Saksham is eligible for the MEIS benefit.
(RTP MAY 2020)

Answer 641

No, all types of exports categories/sectors are not eligible for duty credit scrip entitlement under Merchant
Export from India Scheme (MEIS).

A few of the ineligible exports categories/sectors under MEIS are listed below:

(i) Supplies made from domestic tariff area (DTA) units to special economic zone (SEZ) units
(ii) Exports through transshipment, i.e., exports that are originating in third country but transshipped through
India

(iii) Deemed exports

(iv) SEZ /export oriented undertaking (EOU) /electronic hardware technology park (EHTP) /bio technology park
(BTP) /free trade warehousing zone (FTWZ) products exported through domestic
tariff area units

(v) Export products which are subject to minimum export price or export duty

(vi) Exports made by units in FTWZ. Export of handicraft items through courier, using e-commerce, of free on
board (FOB) value up to ₹
5,00,000 per consignment is entitled for rewards under MEIS.

Therefore, the entire consignment of handicraft items exported by Saksham (FOB value ₹ 4,48,000) is
eligible for MEIS benefit.

23. What are the salient features of Duty-Free Import Authorization Scheme (DFIA)? Which duties are
exempted under this scheme? (MTP NOV 2020)

Answer

DFIA is issued to allow duty free import of inputs, oil and catalyst which are required for production of
export product. The goods imported are exempt ONLY from basic customs duty. DFIA shall be issued on post
export basis for products for which SION have been notified. Separate DFIA shall be issued for each SION and
each port.
No DFIA shall be issued for an export product where SION prescribes ‘Actual User’ condition for any input.

Holder of DFIA has an option to procure the materials/ inputs from indigenous manufacturer/STE in lieu
of direct import against Advance Release Order (ARO)/ Invalidation letter/ Back to Back Inland Letter of
Credit. However, DFIA holder may obtain supplies from EOU/EHTP/BTP/STP/SEZ units, without
obtaining ARO or Invalidation letter.

Drawback as per rate determined and fixed by Customs authority shall be available for duty paid inputs, 642
whether imported or indigenous, used in the export product.

DFIA or the inputs imported against it can be transferred after the fulfillment of the export obligation. A
minimum 20% value addition is required for issuance of DFIA except for items in gems and jewellery
sector.
24. Payal Company, a unit located in Agri Export Zone has made exports of machineries worth US $ 30 lakh
per annum (on an average) during the last three years and in the current year. It wants to export certain
goods for export promotion on free of cost basis, which are worth ₹ 25 lakh. 1 US $ = ₹ 50. Examine
whether Payal Company can export, export promotion goods on free of cost basis as proposed. (PAST EXAM
NOV 2018)

Answer
Status holders are entitled to export freely exportable items on free of cost basis for export promotion subject
to an annual limit of ₹ 1 crore or 2% of average annual export realization during preceding 3
licensing years, whichever is lower. All exporters of goods having an import-export code (IEC) number shall be
eligible for recognition as a
status holder. Payal Company, upon achieving export performance of US $ 12 million [₹ 30 lakh x 4] during
current and previous 3 financial years, is eligible for status recognition as One Star Export House.

Being a unit in Agri Export Zone, exports of Payal Company is eligible for grant of double weightage for
calculation of export performance for grant of status of One Star Export House. However, the same is not
relevant for Payal Company as it is already eligible for grant of One Star Export House on the basis of its
export performance without taking the benefit of double weightage.

Therefore, being a Status Holder, Payal Company is entitled to export freely exportable items on free of cost
basis for export promotion as under:

(i) ₹ 1 crore or
(ii) 2% of ₹ 1500 lakh [US $ 30 lakh2 x ₹ 50] which is ₹ 30 lakh whichever is lower.

Thus, Payal Company can export goods worth ₹ 25 lakh for export promotion on free of cost basis.

25.Which exporters are eligible for Export Promotion Capital Goods Scheme as per Foreign Trade Policy
2015-20? Also describe which capital goods are eligible for import under this scheme?

Answer

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Following exporters are eligible for Export Promotion Capital Goods Scheme (EPCG) as per Foreign Trade
Policy 2015-20:

(i) Manufacturer exporters with or without supporting manufacturer(s),

(ii) Merchant exporters tied to supporting manufacturer(s), and

(iii) Service providers including service providers designated as Common Service Provider (CSP) subject
to prescribed conditions.
Further, following capital goods are eligible for imports under this scheme:

(1) Capital goods including capital goods in CKD/SKD condition

(2) Computer systems and software which are a part of capital goods being imported

(3) Spares, moulds, dies, jigs, fixtures, tools & refractories

(4) Catalysts for initial charge plus one subsequent charge

(5) Capital goods for Project Imports notified by CBEC.

26. State export categories/sectors which are ineligible for duty credit scrip entitlement under Merchandise
Exports from India Scheme (MEIS) of Foreign Trade Policy. (PAST EXAM MAY 2019)

Answer
The following export categories /sectors are ineligible for duty credit scrip entitlement under MEIS:

(i) Supplies made from DTA units to SEZ units

(ii) Export of prescribed imported goods
(iii) Exports through trans-shipment, i.e., exports that are originating in third country but trans-shipped
through India;
(iv) Deemed Exports;
(v) SEZ/ EOU /EHTP/ BTP /FTWZ products exported through DTA units;
(vi) Export products which are subject to minimum export price or export duty.
(vii) Exports made by units in FTWZ.

27. Nirav Shah used some duty paid inputs for manufacture of the export products. However, for the rest of
the inputs, he wants to apply for advance authorization. Can he do so? Advise him with reference to the
Foreign Trade Policy 2015-2020. (PAST EXAM MAY 2019)

Answer

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Yes, he can do so. In case of part duty free and part duty paid imports, both advance authorization and
drawback are available. Drawback can be obtained for any duty paid material, whether imported or
indigenous, used in goods
exported, as per prescribed drawback rates. Advance authorization can be used for importing duty free
material.
Drawback allowed must be mentioned in the application for advance authorization. In such case, All Industry
Brand Rates are not applicable. The manufacturer has to get specific brand rate fixed from the
Commissioner for these exported goods.
28.List out the conditions for eligibility for duty credit scrip entitlement under Service Exports from India
Scheme (SEIS) and determine whether the following cases are eligible for benefit under SEIS.

(i) Mr. Raj has received USD 12,500 as consideration for services provided, during the year. He has also paid
USD 3,000 towards services received from abroad. He has also re
ceived USD 4,000 towards employment rendered abroad during the year.

(ii) Services Ltd. has received the USD 16,000 as foreign exchange during the year towards share capital.

(iii) Mrs. Anita has received USD 15,000 as consideration for services provided, during the year.

Assume that except for in case (iii) above, others have an active IEC. (PAST EXAM NOV 2020)

Answer

The conditions for eligibility for duty credit scrip entitlement under SEIS are as under: -

(1) Service provider must be located in India.

(2) It must provide notified services from India either to any other country or to service consumers of
any other country in India.

(3) It must have an active IEC at the time of rendering such services for which rewards are claimed.

(4) While an individual service provider/sole-proprietorship should have minimum net foreign exchange
earnings (NFE) of USD 10,000, other service providers should have minimum NFE of USD
15,000, in the year of rendering service.

In view of the aforesaid provisions, the eligibility of the given cases for the benefit under SEIS has been
determined as under:

(i) NFE = Gross earnings of foreign exchange minus Total expenses/ payment/ remittances of foreign
exchange by the IEC holder, relating to service sector in the financial year = USD 12,500 - USD 3,000 = USD
9,500

Receipt of USD 4,000 towards employment rendered abroad during the year is not related to service sector 645
and thus should not be considered for calculating NFE.

Therefore, Mr. Raj is not eligible for SEIS scheme as his NFE is less than USD 10,000 (minimum limit for
individuals).

(ii) Foreign exchange remittances which are earned for rendering of notified services are only considered for
calculating NFE. Thus, foreign exchange earned towards share capital cannot be taken into account for
calculation of SEIS entitlement.
Thus, Services Ltd. is not eligible for SEIS scheme.

(iii) Since Mrs. Anita does not have an active IEC, she is not eligible for SEIS scheme irrespective of her NFE.

Note: The above answer is based on the assumption that service provider (in all the three independent cases)
is located in India and provides notified services from India either to any other country or to
service consumers of any other country in India.

29. (PAST EXAM MAY 2018)

Indicate five benefits available to "Status Holders" under the reward scheme of Foreign Trade Policy 2015-
2020. There is no need to define the term "status holder". (5 Marks) (MTP NOV 2018)

ANSWER

The benefits available to Status holders are as under:

(a) Authorization and custom clearances for both imports and exports on self-declaration basis.

(b) Fixation of Input Output Norms (SION) on priority i.e. within 60 days.

(c) Exemption from compulsory negotiation of documents through banks. The remittance receipts, however,
would continue to be received through banking channels.

(d) Exemption from furnishing of Bank Guarantee for Schemes under FTP unless otherwise specified.

(e) Two Star Export Houses and above are permitted to establish export warehouses.

(f) Three Star and above Export House shall be entitled to get benefit of Accredited Clients Programme (ACP)
as per the guidelines of CBEC.

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[Note : Any of the above five points may be mentioned.]