CA Inter Taxation — Question Paper — May 2023

QRMP Scheme – Conditions, Restrictions and Exercise of Option

A) CONDITIONS AND RESTRICTIONS OF QRMP SCHEME:

Eligibility Condition: The QRMP (Quarterly Return Monthly Payment) scheme is available to registered dealers whose aggregate turnover (including exempt supplies) in a financial year does not exceed ₹5 crores. This is the primary eligibility criterion, and once the turnover exceeds this limit, the dealer loses the right to continue with QRMP.

Key Restrictions:

1. No switching back within FY: Once a dealer exercises the option to opt for QRMP, they cannot revert to normal monthly return filing (GSTR-3B) in the same financial year. The option remains valid throughout the FY in which it is exercised.

2. Continuation requirement: The dealer must file quarterly returns (once every 3 months) for the entire financial year. Partial exercise is not permitted.

3. Turnover breach: If at any point during the FY the aggregate turnover exceeds ₹5 crores, the dealer must immediately switch to normal return filing and loses the QRMP option.

4. Monthly tax payment: Despite filing quarterly returns, the dealer must pay tax on a monthly basis (as per GST liability).

5. No re-option in same FY: If a dealer withdraws from QRMP or loses eligibility during a FY, they cannot re-exercise the option in the same financial year.

B) MANNER OF EXERCISING OPTION OF QRMP SCHEME:

Method of Exercise: The dealer exercises the QRMP option by filing the first return under QRMP for the applicable quarter. The option is deemed to be exercised from the date of filing the first quarterly return.

For Mr. Sumit's Specific Situation:

1. Outstanding returns: Sumit should file returns for May and June (which he has not filed). These can be filed even after the due date, though applicable interest and late fees may be applicable under GST provisions.

2. Timing of option: After filing May-June returns, Sumit can exercise the QRMP option by filing his first quarterly return (typically for the quarter April-June or July-September, depending on when he makes the filing).

3. Exercise formality: The option requires no separate application. It is exercised simply by filing the quarterly return instead of monthly returns. The return filing itself constitutes exercise of the option.

4. Continuance: Once the option is exercised, it remains valid for the rest of the financial year automatically, and Sumit must continue filing quarterly returns (GSTR-3B once every 3 months) and making monthly tax payments.

5. Withdrawal: Sumit can voluntarily withdraw from QRMP by giving notice and reverting to normal monthly return filing, but cannot re-exercise the option in the same FY.

The statement is VALID. When goods are transferred by a principal to a job worker, no entry bill is required under GST laws.

Legal Basis: Rule 45 of the CGST Rules, 2017 governs the transfer of goods to job workers. The rule does not mandate the issuance of an entry bill. Instead, it specifies the documentary requirements and procedures.

Key Requirements Under GST Law: (1) The principal must furnish a declaration to the job worker identifying the goods and providing job work details. (2) The job worker must issue a receipt acknowledging receipt of goods. (3) A challan or consignment note accompanying the goods serves as the transfer document.

Distinction from Entry Bill: An entry bill is a document issued when goods are received in a warehouse or storage facility for customs/excise purposes. Job work involves execution of manufacturing or processing operations on goods, not their storage or receipt in the traditional sense. Since the principal retains ownership throughout the job work process and goods are sent for processing (not custody or storage), an entry bill is not applicable.

Position Under Rule 45A: When goods are sent to a job worker without payment of IGST, the principal need only maintain: (a) declaration in prescribed form, (b) supporting documents like purchase invoice or previous challan, and (c) records of goods sent. No entry bill is mentioned as a requirement. The job worker issues a receipt, and an invoice is raised only when the processed goods are received back by the principal.

Conclusion: The absence of entry bill requirement reflects the legal nature of job work—goods remain the principal's property, and only processing occurs. The required documentation (declaration and receipt) serves to track movement and protect tax revenue, making entry bills redundant.

Computation of Total Income of Mr. Bhasin — Assessment Year 2023-24 (Previous Year 2022-23)

A. Income from Profession (Section 28 of the Income Tax Act, 1961)

Net Profit as per Income & Expenditure Account: ₹36,97,500

Less: Non-professional incomes incorrectly credited to I&E Account (to be assessed under respective heads):
- Interest on Savings Bank Account: ₹25,000
- Winnings from Lottery: ₹99,500
- Rent Received: ₹2,40,000
Total deductions: ₹3,64,500

Adjusted Professional Profit = ₹33,33,000

Add: Book Depreciation on Computers (disallowed — to be substituted with Income Tax depreciation): ₹1,20,000
Less: Depreciation allowable under Section 32 on Computers @ 40% on WDV of ₹3,00,000 = ₹1,20,000 (Net effect: NIL)

Income from Profession = ₹33,33,000

All other expenses — Employees Remuneration, Office & Administrative Expenses, Rates & Taxes, Interest Expenses, Office Rent, Insurance Premium, and Professional Fees — are wholly and exclusively incurred for the profession and are allowable under Section 37(1). Since gross receipts (₹60,00,000) exceed the ₹50,00,000 threshold applicable for AY 2023-24, Section 44ADA (Presumptive Taxation for Professionals) does not apply, and tax audit is mandatory under Section 44AB(b).

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B. Income from House Property (Section 22 of the Income Tax Act, 1961)

Gross Annual Value (Rent Received): ₹2,40,000
Less: Municipal Taxes paid by owner: NIL (not stated)
Net Annual Value (NAV): ₹2,40,000
Less: Standard Deduction under Section 24(a) @ 30% of NAV: ₹72,000

Income from House Property = ₹1,68,000

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C. Income from Other Sources (Section 56 of the Income Tax Act, 1961)

Interest on Savings Bank Account: ₹25,000
Winnings from Lottery [Section 115BB]: ₹99,500

Income from Other Sources = ₹1,24,500

Lottery winnings are taxable at a flat rate of 30% under Section 115BB. No deduction of any expenditure or allowance is permitted against such income, and the benefit of the basic exemption slab is not available against it.

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Computation of Gross Total Income and Total Income:

Income from Profession: ₹33,33,000
Income from House Property: ₹1,68,000
Income from Other Sources: ₹1,24,500
Gross Total Income (GTI): ₹36,25,500

Less: Deduction under Section 80TTA — Interest on Savings Bank Account (Mr. Bhasin is 52 years, not a senior citizen; limit = ₹10,000): ₹10,000

Total Income = ₹36,15,500

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Computation of Tax Liability (Old Tax Regime, AY 2023-24):

Lottery winnings (₹99,500) are taxed @ 30% separately u/s 115BB = ₹29,850

Balance income (₹36,15,500 − ₹99,500 = ₹35,16,000) taxed at slab rates:
- Up to ₹2,50,000 → NIL
- ₹2,50,001 to ₹5,00,000 → 5% on ₹2,50,000 = ₹12,500
- ₹5,00,001 to ₹10,00,000 → 20% on ₹5,00,000 = ₹1,00,000
- ₹10,00,001 to ₹35,16,000 → 30% on ₹25,16,000 = ₹7,54,800
Tax on regular income = ₹8,67,300

Total Tax before Cess = ₹8,67,300 + ₹29,850 = ₹8,97,150
Add: Health and Education Cess @ 4% = ₹35,886

Total Tax Liability = ₹9,33,036

No surcharge is levied as total income is below ₹50,00,000. Rebate under Section 87A is not applicable as total income exceeds ₹5,00,000.

Determination of Residential Status of Mr. Jal Chand for F.Y. 2022-23 (A.Y. 2023-24)

Mr. Jal Chand is an Indian citizen who left India on 5th June, 2014 for employment in Country X. Since FY 2014-15 onwards, he has stayed only 60 days in each previous year. In FY 2022-23, his stay in India = 0 days.

Step 1: Apply Basic Conditions under Section 6(1) of the Income Tax Act, 1961

Condition 1: Stay ≥ 182 days in the relevant previous year → Not satisfied (0 days).

Condition 2: Stay ≥ 60 days in the relevant PY AND ≥ 365 days in the 4 immediately preceding PYs. However, for an Indian citizen leaving India for employment outside India, the 60-day threshold under the second condition is substituted by 182 days [Explanation 1 to Section 6(1)]. Since his stay = 0 days in FY 2022-23, this condition is also not satisfied.

Conclusion under normal rules: Mr. Jal Chand is a Non-Resident (NR) for F.Y. 2022-23.

Step 2: Check Deemed Residency under Section 6(1A) [inserted by Finance Act 2020, applicable from A.Y. 2021-22]

An Indian citizen shall be deemed to be resident in India if he is not liable to tax in any other country or territory by reason of his domicile, residence, or any other similar criteria. If Mr. Jal Chand is taxable in Country X (on account of employment income), Section 6(1A) does not apply, and he remains a Non-Resident. If Country X does not tax him, he becomes a Deemed Resident treated as Not Ordinarily Resident (NOR).

Assuming he is taxable in Country X: Status = Non-Resident.

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Classification of Income Heads (applicable regardless of the exact figures)

(a) Commercial Building in Delhi let out:
This constitutes Income from House Property under Section 22 of the Income Tax Act, 1961. The property is situated in India; hence it is taxable in India irrespective of residential status. Annual Value shall be determined under Section 23, and deductions under Section 24 (30% standard deduction and interest on borrowed capital, if any) shall be allowed.

(b) Retail Store in India controlled by his brother:
The retail store is set up in India and is operated and managed from India by his brother. This constitutes Profits and Gains of Business or Profession under Section 28 of the Act. Since the business is located and controlled in India, the income accrues or arises in India and is accordingly taxable in India for a non-resident.

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Scope of Total Income for a Non-Resident [Section 5(2)]:
For a Non-Resident, only the following incomes are chargeable to tax in India:
1. Income received or deemed to be received in India.
2. Income accruing or arising in India or deemed to accrue or arise in India.

Both the house property income (property in Delhi) and the retail store income (business situated in India) accrue or arise in India and are therefore included in his total income. Any income earned abroad (e.g., salary from Country X) will not be taxable in India given his Non-Resident status.

Final Answer: Mr. Jal Chand's residential status for F.Y. 2022-23 is Non-Resident. His income from the Delhi commercial building is taxable as House Property Income under Section 22, and income from the Indian retail store is taxable as Business Income under Section 28, both being Indian-sourced incomes chargeable under Section 5(2).

Statement of Minimum GST Payable in Cash by Jino Enterprises for October 2022

Transaction (i): Intra-state supply of Air Conditioners with Freight

The supply of Air Conditioners along with freight charges for doorstep delivery constitutes a composite supply under Section 2(30) of the CGST Act 2017, as these are naturally bundled in the ordinary course of business. The principal supply is the Air Conditioner. Under Section 8(a) of the CGST Act 2017, a composite supply is taxed at the rate applicable to the principal supply (CGST 6% + SGST 6%). Even though freight is separately charged in the invoice, the legal character of the supply does not change. Total taxable value = ₹40,000 + ₹1,00,000 = ₹1,40,000. CGST = ₹8,400; SGST = ₹8,400.

Transaction (ii): Intra-state Repair Services with Parts/Spares

The supply of repairing services along with spare parts constitutes a composite supply under Section 2(30) of the CGST Act 2017, as spare parts are naturally bundled with repair services. The principal supply is the repair service. Under Section 8(a), the entire composite supply is taxed at the service rate (CGST 9% + SGST 9%). Separate mention of service and parts in the invoice does not alter the composite nature. Total taxable value = ₹3,00,000 + ₹50,000 = ₹3,50,000. CGST = ₹31,500; SGST = ₹31,500.

Transaction (iii): Inter-state Supply of Combo Offer (AC + Stabilizer)

The combo of Air Conditioner and Stabilizer offered at a single price constitutes a mixed supply under Section 2(74) of the CGST Act 2017, since both products can be and are sold independently (separately priced ₹22,000 and ₹8,000). They are not naturally bundled. Under Section 8(b), a mixed supply is taxed at the rate applicable to that particular supply which attracts the highest rate of tax. AC attracts IGST 12%; Stabilizer attracts IGST 18%. Since Stabilizer has the higher rate, the entire mixed supply is taxed at IGST 18%. Since it is an inter-state supply, only IGST applies. Total value = 10 × ₹20,000 = ₹2,00,000. IGST = ₹36,000.

Transaction (iv): Intra-state Business Class Air Tickets — ITC Eligibility

Air tickets purchased for executive employees for intra-state business travel (Guwahati to Dibrugarh) are for the purpose of the business concern. ITC on such tickets is not blocked under Section 17(5) of the CGST Act 2017 — Section 17(5)(b)(i) blocks ITC on *leasing, renting or hiring* of aircraft (i.e., charters), not on purchase of passenger air tickets; Section 17(5)(b)(iii) blocks ITC on travel benefits extended to employees *on vacation*, which does not apply to business travel. Therefore, ITC is available: CGST = ₹1,000; SGST = ₹1,000.

Additional Information (b): ITC on FY 2021-22 Invoices — Time-Barred

Under Section 16(4) of the CGST Act 2017, ITC in respect of any invoice or debit note for a financial year cannot be availed after the due date of furnishing the return under Section 39 for the month of September following the end of that financial year, or furnishing of the annual return, whichever is earlier. For FY 2021-22, the last eligible return is GSTR-3B for September 2022, due by 20th October 2022. The current return is GSTR-3B for October 2022, which is filed in November 2022 — after the cut-off date. Accordingly, ITC of CGST ₹20,000, SGST ₹20,000, and IGST ₹80,000 cannot be availed — it is time-barred.

Minimum GST Payable in Cash:

| | CGST (₹) | SGST (₹) | IGST (₹) |
|---|---|---|---|
| Transaction (i) | 8,400 | 8,400 | — |
| Transaction (ii) | 31,500 | 31,500 | — |
| Transaction (iii) | — | — | 36,000 |
| Total Output Tax | 39,900 | 39,900 | 36,000 |
| Less: ITC — Air Tickets | (1,000) | (1,000) | — |
| Less: ITC — FY 2021-22 | NIL | NIL | NIL |
| Net Tax Payable (Cash) | 38,900 | 38,900 | 36,000 |

Total minimum GST payable in cash = ₹38,900 (CGST) + ₹38,900 (SGST) + ₹36,000 (IGST) = ₹1,13,800

Economic Batch Quantity (EBQ) for Product 'X':

The Economic Batch Quantity (EBQ) is the optimal batch size that minimises the total of set-up costs and inventory holding costs. When no separate production rate is provided (implying instantaneous replenishment within the batch context), the EBQ is calculated using the standard formula:

EBQ = √(2DS / H)

Where:
- D = Annual demand = 1,35,000 units
- S = Set-up cost per batch = ₹3,375
- H = Holding cost per unit per annum = ₹5

Substituting the values:

EBQ = √(2 × 1,35,000 × 3,375 / 5)

EBQ = √(9,11,25,000 / 5)

EBQ = √(1,82,25,000)

EBQ = 13,500 units

Conclusion: TSK Limited should manufacture Product 'X' in batches of 13,500 units each. This batch size minimises the combined cost of set-up and inventory holding for the year.

Given Data:
Normal working hours per week = 48 hours; Rate = ₹150 per hour; Actual output = 100 toys; Standard time for 10 toys = 7.5 hours.

Standard Time for 100 toys = (7.5 ÷ 10) × 100 = 75 hours
Actual Time Worked = 48 hours
Time Saved = 75 − 48 = 27 hours

(i) Weekly Earnings under Existing Time Rate:
Earnings = Actual Hours Worked × Rate per Hour
= 48 × ₹150 = ₹7,200

(ii) Weekly Earnings under Rowan Premium Plan:
Under the Rowan Premium Plan, the premium is calculated as a proportion of time saved to standard time, applied to the actual time wages.

Premium = (Time Saved ÷ Standard Time) × Actual Time × Rate per Hour
= (27 ÷ 75) × 48 × ₹150
= 0.36 × ₹7,200 = ₹2,592

Total Earnings = Basic Wages + Premium = ₹7,200 + ₹2,592 = ₹9,792

(iii) Weekly Earnings under Halsey Premium Plan (30%):
Under the Halsey Premium Plan, the worker receives a fixed percentage (here 30%) of the wages for time saved.

Premium = 30% × Time Saved × Rate per Hour
= 30% × 27 × ₹150
= 0.30 × ₹4,050 = ₹1,215

Total Earnings = Basic Wages + Premium = ₹7,200 + ₹1,215 = ₹8,415

Summary of Weekly Earnings:
(i) Time Rate = ₹7,200 | (ii) Rowan Premium Plan = ₹9,792 | (iii) Halsey Premium Plan (30%) = ₹8,415

(i) Contract Account — Without Escalation Clause

Year 1 Contract Account

| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Materials | 12,30,000 | By Work Certified | 32,00,000 |
| To Wages | 12,50,000 | By Work Uncertified c/d | 2,19,000 |
| To Direct Expenses | 4,20,000 | | |
| To Indirect Expenses | 2,70,000 | | |
| To Depreciation on Plant | 85,000 | | |
| To Notional Profit c/d | 1,64,000 | | |
| Total | 34,19,000 | Total | 34,19,000 |

Notional Profit Disposition — Year 1:
Degree of completion = 32,00,000 ÷ 70,00,000 = 45.71% (between 25% and 50%).
Proportion transferred to P&L = 1/3 of Notional Profit.
- To P&L A/c (1/3 × 1,64,000): ₹54,667
- To Reserve (2/3 × 1,64,000): ₹1,09,333

Year 2 Contract Account (incremental work certified = 70,00,000 − 32,00,000 = ₹38,00,000; contract complete)

| Dr | ₹ | Cr | ₹ |
|---|---|---|---|
| To Work Uncertified b/d | 2,19,000 | By Work Certified | 38,00,000 |
| To Materials | 13,65,000 | | |
| To Wages | 11,44,000 | | |
| To Direct Expenses | 3,80,000 | | |
| To Indirect Expenses | 2,60,000 | | |
| To Depreciation on Plant | 85,000 | | |
| To Notional Profit c/d | 3,47,000 | | |
| Total | 38,00,000 | Total | 38,00,000 |

Year 2 Profit to P&L:
Since the contract is now 100% complete, the entire notional profit plus the Year 1 reserve is transferred:
- Notional Profit (Year 2): ₹3,47,000
- Reserve b/d (from Year 1): ₹1,09,333
- Total P&L (Year 2): ₹4,56,333

Cumulative Profit = ₹54,667 + ₹4,56,333 = ₹5,11,000 (= 70,00,000 − 64,89,000 total costs ✓)

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(ii) Total Contract Value with Escalation Clause

The escalation clause applies only to Year 2, compensating for increases in material rate and wage rate over standard rates, applied to the standard quantities/hours.

- Material escalation = (₹105 − ₹90) × 12,000 units = ₹15 × 12,000 = ₹1,80,000
- Wage escalation = (₹130 − ₹120) × 9,000 hours = ₹10 × 9,000 = ₹90,000
- Total Escalation = ₹2,70,000

Revised Contract Value = ₹70,00,000 + ₹2,70,000 = ₹72,70,000

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(iii) Total Increase in Cost of Material and Wages — Both Years

Material Cost:

| | Year 1 | Year 2 |
|---|---|---|
| Standard (12,000 units × ₹90) | 10,80,000 | 10,80,000 |
| Actual | 12,50,000 | 13,65,000 |
| Increase | 1,70,000 | 2,85,000 |

Total Material Increase = ₹1,70,000 + ₹2,85,000 = ₹4,55,000

Wage Cost:

| | Year 1 | Year 2 |
|---|---|---|
| Standard (10,000 hrs × ₹120 / 9,000 hrs × ₹120) | 12,00,000 | 10,80,000 |
| Actual (10,000 × ₹125 / 8,900 × ₹130) | 12,50,000 | 11,57,000 |
| Increase | 50,000 | 77,000 |

Total Wage Increase = ₹50,000 + ₹77,000 = ₹1,27,000

Total Increase in Material + Wages = ₹4,55,000 + ₹1,27,000 = ₹5,82,000

*Note: Year 2 actual wages per the rate/hour data = 8,900 × ₹130 = ₹11,57,000 (a minor discrepancy of ₹13,000 exists vs the ₹11,44,000 shown in the data table; the detailed figures are used here as they are provided for this specific computation.)*

Given Data: P/V Ratio = 30%; Margin of Safety (MoS) as % of Sales = 25%; Fixed Cost = ₹12,60,000.

(i) Break-Even Sales Value:
Using the formula: BEP Sales = Fixed Cost ÷ P/V Ratio
BEP Sales = ₹12,60,000 ÷ 0.30 = ₹42,00,000

(ii) Total Sales Value at Present:
Since MoS is 25% of Total Sales, BEP Sales must be 75% of Total Sales.
Therefore: Total Sales = BEP Sales ÷ 75% = ₹42,00,000 ÷ 0.75 = ₹56,00,000
(Verification: MoS = ₹56,00,000 – ₹42,00,000 = ₹14,00,000 = 25% of ₹56,00,000 ✓)

(iii) Proposed Sales if Present Profit is Maintained After 10% Reduction in Fixed Cost:
First, compute Present Profit = MoS × P/V Ratio = ₹14,00,000 × 30% = ₹4,20,000.
New Fixed Cost = ₹12,60,000 × 90% = ₹11,34,000.
Required Sales = (New Fixed Cost + Desired Profit) ÷ P/V Ratio = (₹11,34,000 + ₹4,20,000) ÷ 0.30 = ₹15,54,000 ÷ 0.30 = ₹51,80,000

(iv) Sales to Earn Profit of 20% on Sales (Fixed Cost Unchanged):
Let Sales = S. Contribution = Fixed Cost + Profit → P/V Ratio × S = Fixed Cost + 0.20S
0.30S = ₹12,60,000 + 0.20S → 0.10S = ₹12,60,000 → S = ₹1,26,00,000

(v) New Margin of Safety if Present Sales Decrease by 12.5%:
New Sales = ₹56,00,000 × (1 – 12.5%) = ₹56,00,000 × 0.875 = ₹49,00,000.
BEP Sales remains ₹42,00,000 (Fixed Cost unchanged).
New MoS (Absolute) = ₹49,00,000 – ₹42,00,000 = ₹7,00,000
New MoS (%) = ₹7,00,000 ÷ ₹49,00,000 × 100 = 14.29%

Note on Selling Price: The selling price of Product X as stated (₹12) is inconsistent with its direct material cost alone of ₹20 per unit. Based on the mathematical relationships and exam context, the selling price of Product X is taken as ₹120 per unit (likely a transcription error).

Step 1 – Determine Selling Prices of All Products

Selling Price of Product X = ₹120 per unit (given/corrected)

Product X is 1.25 times Product Z → SP of Z = 120 ÷ 1.25 = ₹96 per unit

Product Y is double the price of Product Z → SP of Y = 2 × 96 = ₹192 per unit

Step 2 – Compute Labour Hours per Unit

Direct wages are paid at ₹4 per labour hour:
- Product X: ₹16 ÷ ₹4 = 4 labour hours per unit
- Product Y: ₹24 ÷ ₹4 = 6 labour hours per unit
- Product Z: ₹16 ÷ ₹4 = 4 labour hours per unit

Step 3 – Determine Variable Overhead Rate Using Product Z

Product Z is sold at a profit of 20% on its marginal cost (MC):

SP of Z = MC of Z × 1.20
96 = MC of Z × 1.20
MC of Z = ₹80 per unit

MC of Z = Direct Material + Direct Wages + Variable Overhead
80 = 20 + 16 + Variable Overhead (Z)
Variable Overhead for Z = 80 − 36 = ₹44 per unit

Variable Overhead Rate = ₹44 ÷ 4 hours = ₹11 per labour hour

Step 4 – Marginal Cost Statement (per unit)

| Particulars | Product X (₹) | Product Y (₹) | Product Z (₹) |
|---|---|---|---|
| Direct Material | 20 | 20 | 20 |
| Direct Wages | 16 | 24 | 16 |
| Variable Overhead (@ ₹11/hr) | 44 | 66 | 44 |
| Marginal Cost | 80 | 110 | 80 |
| Selling Price | 120 | 192 | 96 |
| Contribution per unit | 40 | 82 | 16 |

Step 5 – Statement of Total Contribution

| Product | Units | Contribution/unit (₹) | Total Contribution (₹) |
|---|---|---|---|
| X | 2,50,000 | 40 | 1,00,00,000 |
| Y | 2,80,000 | 82 | 2,29,60,000 |
| Z | 3,20,000 | 16 | 51,20,000 |
| Total | | | 3,80,80,000 |

Step 6 – P/V Ratio and Contribution per Labour Hour (for ranking)

| Product | P/V Ratio | Contribution per Labour Hour |
|---|---|---|
| X | 40/120 = 33.33% | 40/4 = ₹10 |
| Y | 82/192 = 42.71% | 82/6 = ₹13.67 |
| Z | 16/96 = 16.67% | 16/4 = ₹4 |

Ranking (if labour hours are the limiting factor): Product Y > Product X > Product Z

Conclusion: Total contribution of PQR Limited = ₹3,80,80,000. Product Y is the most profitable product both in terms of P/V ratio and contribution per labour hour.

Part (i): Month-wise Raw Material Consumption (in kgs)

Production (units) is computed as Working Days × Units per Working Day:
- January: 25 × 50 = 1,250 units
- February: 24 × 55 = 1,320 units
- March: 26 × 60 = 1,560 units
- April: 25 × 52 = 1,300 units
- Total Production: 5,430 units

Since each unit requires 4 kg of raw material, consumption is:
- January: 1,250 × 4 = 5,000 kg
- February: 1,320 × 4 = 5,280 kg
- March: 1,560 × 4 = 6,240 kg
- April: 1,300 × 4 = 5,200 kg
- Total Consumption: 21,720 kg

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Part (ii): Month-wise Quantity and Value of Raw Materials Purchased

First, determine total purchases using the inventory equation:
Total Purchases = Consumption + Closing Stock − Opening Stock
Total Purchases = 21,720 + 5,100 − 6,020 = 20,800 kg

Applying the given percentage split and purchase prices:

| Month | % | Quantity (kg) | Rate (₹/kg) | Value (₹) |
|-------|---|--------------|------------|----------|
| January | 21% | 4,368 | 16 | 69,888 |
| February | 26% | 5,408 | 12 | 64,896 |
| March | 30% | 6,240 | 13 | 81,120 |
| April | 23% | 4,784 | 11 | 52,624 |
| Total | 100% | 20,800 | — | 2,68,528 |

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Part (iii): Priced Stores Ledger using FIFO Method

Opening stock rate = ₹63,210 ÷ 6,020 kg = ₹10.50 per kg
Purchases are made at the start of each month; issues are on FIFO basis.

JANUARY:
Receipts: Opening 6,020 kg @ ₹10.50 + Purchase 4,368 kg @ ₹16
Issues: 5,000 kg — all from opening stock @ ₹10.50 = ₹52,500
Closing Balance: 1,020 kg @ ₹10.50 (₹10,710) + 4,368 kg @ ₹16 (₹69,888) = ₹80,598

FEBRUARY:
Receipts: 5,408 kg @ ₹12
Issues: 5,280 kg — first 1,020 kg @ ₹10.50 (₹10,710) then 4,260 kg @ ₹16 (₹68,160) = ₹78,870
Closing Balance: 108 kg @ ₹16 (₹1,728) + 5,408 kg @ ₹12 (₹64,896) = ₹66,624

MARCH:
Receipts: 6,240 kg @ ₹13
Issues: 6,240 kg — first 108 kg @ ₹16 (₹1,728), then 5,408 kg @ ₹12 (₹64,896), then 724 kg @ ₹13 (₹9,412) = ₹76,036
Closing Balance: 5,516 kg @ ₹13 = ₹71,708

APRIL:
Receipts: 4,784 kg @ ₹11
Issues: 5,200 kg — from March stock @ ₹13 = ₹67,600
Closing Balance: 316 kg @ ₹13 (₹4,108) + 4,784 kg @ ₹11 (₹52,624) = ₹56,732

Verification: Closing stock = 316 + 4,784 = 5,100 kg ✓ (matches given closing stock)
Total Consumption Value: ₹52,500 + ₹78,870 + ₹76,036 + ₹67,600 = ₹2,75,006

Note on Completeness: The case scenario as presented provides the *notes/additional information* typically accompanying an Income & Expenditure Account. A complete numerical answer requires (a) Net Profit as per I&E Account and (b) the total interest on house property loan debited in the accounts. The complete methodology, all adjustments, and all computable figures are shown below.

COMPUTATION OF TOTAL INCOME OF MR. BHASIN — A.Y. 2023-24

HEAD I: INCOME FROM PROFESSION (PGBP)

Starting point: Net Profit as per Income & Expenditure Account = ₹ ___

Add Back — Disallowed Expenses:

(i) Notional Rent of Unit-2 (Add: ₹2,40,000): Mr. Bhasin is the *owner* of Unit-2 used as residence-cum-office. No actual rent is payable to himself. A notional/hypothetical charge is not a permissible deduction under any provision of the Income Tax Act, 1961. The entire ₹2,40,000 must be added back.

(ii) Health Insurance Premium (Add: ₹72,000): This is a personal expense, not a professional expenditure. The full ₹72,000 is added back from professional income. A proportionate amount will be claimed under Section 80D as computed separately.

(iii) Professional Fees to Mr. Bhasin (Add: ₹1,00,000): Payment described as fees 'for acting as a partner from a new source' is capital/arrangement payment and not revenue expenditure incurred wholly and exclusively for the purposes of profession. It is not deductible.

(iv) Interest on House Property Loan (Add: ₹___): If the interest expense has been debited in the I&E Account, it must be added back entirely, as interest on capital borrowed for house property is deductible only under Section 24(b) of the ITA under the head 'Income from House Property' — not as a professional expense.

Items Correctly Charged — No Adjustment:

(i) Salary to Wife Mrs. Beena (₹3,00,000 — ALLOWED): Under Section 40A(2) of the ITA, payments to relatives (including spouse) are disallowed only to the extent they are *excessive or unreasonable* relative to fair market value. The salary is paid at market rates for similar work. Lack of technical qualification does not cause disallowance if remuneration is market-consistent. Entire ₹3,00,000 is allowable.

(ii) Depreciation on Computers (₹1,20,000 — ALLOWED): The block of computers (₹2,00,000) came into existence on 2nd April 2022. Assets were in use for more than 180 days in FY 2022-23, so full-year depreciation applies. Rate for computers = 60% under Income Tax Rules, 1962. Allowable depreciation = ₹2,00,000 × 60% = ₹1,20,000. This amount has already been debited in the I&E Account (under Repairs & Expenditure A/c). The incorrect account classification does not affect deductibility. No further adjustment required.

Income from Profession = Net Profit (per I&E) + ₹2,40,000 + ₹72,000 + ₹1,00,000 + Interest on house loan (if debited)

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HEAD II: INCOME FROM HOUSE PROPERTY

The house has 2 independent units, each comprising 50% of the floor area.

UNIT-1 — LET OUT FOR RESIDENTIAL PURPOSES (50% Share):

Municipal Value (50%) = ₹3,60,000 × 50% = ₹1,80,000; Fair Rent (50%) = ₹4,20,000 × 50% = ₹2,10,000; Standard Rent (50%) = ₹4,00,000 × 50% = ₹2,00,000.
Expected Rent = Min [Higher of MV & FR, Standard Rent] = Min(₹2,10,000, ₹2,00,000) = ₹2,00,000.
Actual Rent = ₹20,000 × 12 = ₹2,40,000.
Gross Annual Value (GAV) = Max(₹2,00,000, ₹2,40,000) = ₹2,40,000 [Actual Rent exceeds Expected Rent].
Less: Municipal Taxes paid (50% of ₹10,000) = ₹5,000.
Net Annual Value (NAV) = ₹2,35,000.
Less: Standard Deduction u/s 24(a) — 30% of NAV = ₹70,500.
Less: Interest u/s 24(b) — 50% of total interest [no ceiling for let-out property; deductible on accrual basis even if unpaid] = ₹___.
Income from Unit-1 = ₹1,64,500 − 50% of interest on loan.

UNIT-2 — SELF-OCCUPIED / RESIDENCE-CUM-OFFICE (50% Share):

For Income from House Property, Unit-2 is treated as self-occupied. Under Section 23(2), the Annual Value of a self-occupied property = NIL. Professional use does not alter this characterisation for HP purposes.
Less: Interest u/s 24(b) — 50% of total interest, subject to maximum ₹2,00,000 [construction completed in FY 2010-11, i.e., after 01.04.1999; loan from nationalized bank for construction; deductible on accrual basis].
Income from Unit-2 = (−) [50% of interest, max ₹2,00,000] — a loss.

*The interest was not paid till FY 2022-23, but this does not affect deductibility — interest is deductible on accrual basis under Section 24(b) for both let-out and self-occupied properties.*

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GROSS TOTAL INCOME = Income from Profession + Income from House Property

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DEDUCTIONS UNDER CHAPTER VI-A

Section 80D — Health Insurance Premium:
Premium of ₹72,000 paid for 3 years (01.07.2022 to 30.06.2025). For multi-year policies, deduction is proportionate to the period falling in the relevant previous year. FY 2022-23 coverage = 01.07.2022 to 31.03.2023 = 9 months. Proportionate deduction = ₹72,000 × 9/36 = ₹18,000. Maximum permissible for self, spouse and dependent children (below 60 years) = ₹25,000. Premium paid by account payee cheque — valid mode. Deduction = ₹18,000.

Section 80E — Interest on Education Loan:
Interest of ₹46,000 paid on loan taken from a nationalized bank for son's higher education. Section 80E allows deduction for interest (not principal) with no upper limit, for a maximum of 8 years or until interest is repaid, whichever is earlier. The principal repayment of ₹75,000 is not deductible. Deduction = ₹46,000.

Total Deductions = ₹18,000 + ₹46,000 = ₹64,000

TOTAL INCOME = Gross Total Income − ₹64,000

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TAX COMPUTATION (Old Regime — Section 115BAC not opted, Individual below 60 years):

Applicable tax slabs for AY 2023-24:
Up to ₹2,50,000 → Nil; ₹2,50,001–₹5,00,000 → 5%; ₹5,00,001–₹10,00,000 → 20%; Above ₹10,00,000 → 30%.

Tax on Total Income = [as per slabs above]
Add: Surcharge (10% if Total Income > ₹50 lakhs; 15% if > ₹1 crore; 25% if > ₹2 crore; 37% if > ₹5 crore)
Add: Health and Education Cess = 4% of (Income Tax + Surcharge)
Less: Rebate u/s 87A — If Total Income does not exceed ₹5,00,000, rebate = lower of tax payable or ₹12,500.
Tax Payable = Tax after Rebate + Health & Education Cess

Note: The question as provided contains only the selling & distribution expense rate (20 paise per unit) and the profit margin (20% on sales), but the supporting data (raw material stocks, purchases, direct wages, factory overheads, WIP stocks, finished goods stocks, and units produced/sold) appears to be missing from the question. The solution below demonstrates the complete methodology and format required, with placeholder references to standard data items.

COST SHEET FOR THE MONTH ENDED APRIL 30, 2023

I. Raw Material Consumed
Opening Stock of Raw Materials: ₹ XXX
Add: Purchases of Raw Materials: ₹ XXX
Less: Closing Stock of Raw Materials: (₹ XXX)
Raw Material Consumed = ₹ A

II. Prime Cost
Raw Material Consumed: ₹ A
Add: Direct Wages (Labour): ₹ XXX
Add: Direct Expenses (if any): ₹ XXX
Prime Cost = ₹ B

III. Factory / Works Cost
Prime Cost: ₹ B
Add: Factory Overhead (indirect wages, power, depreciation of plant, etc.): ₹ XXX
Add: Opening Work-in-Progress: ₹ XXX
Less: Closing Work-in-Progress: (₹ XXX)
Factory Cost (Gross Works Cost) = ₹ C

IV. Cost of Production
Factory Cost: ₹ C
Add: Administration / Office Overhead: ₹ XXX
Cost of Production = ₹ D (for units produced during the month)

V. Cost of Goods Sold (Cost of Production of Goods Sold)
Opening Stock of Finished Goods (units × cost per unit): ₹ XXX
Add: Cost of Production: ₹ D
Less: Closing Stock of Finished Goods (units × cost per unit): (₹ XXX)
Cost of Goods Sold = ₹ E

VI. Cost of Sales (Total Cost)
Cost of Goods Sold: ₹ E
Add: Selling & Distribution Expenses (Units Sold × ₹ 0.20): ₹ XXX
Cost of Sales = ₹ F

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(ii) Selling Price per Unit

Given: Profit = 20% on Sales
This means: Cost of Sales = 80% of Sales Price

Formula: Selling Price per unit = (Cost of Sales per unit) ÷ 0.80

Or equivalently: Selling Price per unit = Cost of Sales per unit × (100/80)

Example: If Cost of Sales per unit = ₹ 4.00 (hypothetical)
Selling Price = 4.00 × 100/80 = ₹ 5.00 per unit
Profit per unit = ₹ 5.00 × 20% = ₹ 1.00 per unit ✓

KEY POINT: When profit is 20% on sales, cost is 80% of sales, so the multiplier is 100/80 (not 100/80 applied on cost). This is distinct from 20% on cost where the multiplier would be 120/100.

Once the full data set is provided, substitute the actual Cost of Sales per unit into the formula above to arrive at the final selling price.

Step 1: SEZ Unit Income Computation (Section 10AA)

The SEZ unit qualifies for exemption under Section 10AA of the Income-tax Act, 1961, which provides exemption on export profits derived from the SEZ unit. The exemption is computed on a proportionate basis:

Total sales = Export sales (₹75 lakhs) + Domestic sales (₹25 lakhs) = ₹100 lakhs

Profit eligible for exemption under Section 10AA = (Export sales / Total sales) × Total profit = (₹75 lakhs / ₹100 lakhs) × ₹36 lakhs = ₹27 lakhs (exempt)

Domestic profit (taxable) = (₹25 lakhs / ₹100 lakhs) × ₹36 lakhs = ₹9 lakhs

Step 2: Hospital Income Computation (Section 35AD)

Section 35AD of the Income-tax Act, 1961 allows a deduction equal to the capital expenditure incurred on the acquisition of a new building used for hospital operations. Land cost is excluded from the deductible amount.

Capital expenditure on building (eligible for deduction) = ₹65 lakhs - ₹15 lakhs (land, not eligible) = ₹50 lakhs

Hospital taxable income = Hospital profit - Section 35AD deduction = ₹90 lakhs - ₹50 lakhs = ₹40 lakhs

Step 3: Total Taxable Income

SEZ unit domestic profit = ₹9 lakhs

Hospital profit (after Section 35AD deduction) = ₹40 lakhs

Total taxable income = ₹49 lakhs

Step 4: Income Tax Computation (AY 2023-24, FY 2022-23)

Mr. Bhagat is 50 years old, therefore standard individual tax slabs apply (not senior citizen rates):

On first ₹2.5 lakhs @ 0% = ₹0

On ₹2.5 lakhs (₹2.5 lakhs to ₹5 lakhs) @ 5% = ₹12,500

On ₹5 lakhs (₹5 lakhs to ₹10 lakhs) @ 20% = ₹1,00,000

On ₹39 lakhs (₹10 lakhs to ₹49 lakhs) @ 30% = ₹11,70,000

Total income tax = ₹12,82,500

Step 5: Health and Education Cess

Cess @ 4% on income tax = ₹12,82,500 × 4% = ₹51,300

Step 6: AMT Consideration (Section 115C and Section 115JEE)

Alternate Minimum Tax under Section 115C of the Income-tax Act, 1961 applies only to companies, not to individuals. Therefore, AMT provisions are not applicable to Mr. Bhagat. No AMT computation or AMT credit under Section 115JEE is required.

Final Income Tax Payable = ₹12,82,500 + ₹51,300 = ₹13,33,800

Computation of Taxable Salary of Mr. Rohan for A.Y. 2023-24 (P.Y. 2022-23)

Particulars | ₹
---|---
Basic Salary (₹25,000 × 12) | 3,00,000
Dearness Allowance (50% of ₹25,000 × 12) | 1,50,000
Perquisite – Motor Car for personal use [Note 3] | 2,00,000
Gratuity – Taxable portion [Note 1] | 3,46,154
Leave Encashment – Taxable portion [Note 2] | 1,50,000
Crockery set (exempt – gift in kind ≤ ₹5,000 under Rule 3(7)(iv) of IT Rules) | Nil
Gross Salary | 11,46,154
Less: Standard Deduction u/s 16(ia) of the Income Tax Act, 1961 | (50,000)
Net Taxable Salary | 10,96,154

Note 1 – Gratuity u/s 10(10)(ii) of the Income Tax Act, 1961:
Mr. Rohan is covered under the Payment of Gratuity Act, 1972, so the exemption is the least of: (a) Actual gratuity = ₹7,50,000; (b) 15/26 × Last drawn salary × Completed years = 15/26 × ₹25,000 × 28 = ₹4,03,846; (c) Statutory ceiling = ₹20,00,000. Since DA does not form part of retirement benefits, it is excluded from salary for this computation. Least = ₹4,03,846. Taxable gratuity = ₹7,50,000 − ₹4,03,846 = ₹3,46,154.

Note 2 – Leave Encashment u/s 10(10AA)(ii) of the Income Tax Act, 1961:
For a private sector employee, exemption is the least of: (a) Actual amount = ₹3,25,000; (b) 10 months' average salary = 10 × ₹25,000 = ₹2,50,000; (c) Leave salary for leave not availed = (₹25,000/30) × 210 days = ₹1,75,000 [leave balance 210 days does not exceed the ceiling of 30 × 28 = 840 days]; (d) Statutory limit = ₹3,00,000 (enhanced limit of ₹25,00,000 is effective from 1.4.2023 i.e., P.Y. 2023-24, not applicable here). Least = ₹1,75,000. Taxable leave encashment = ₹3,25,000 − ₹1,75,000 = ₹1,50,000.

Note 3 – Motor Car Perquisite [Rule 3(2) of the Income Tax Rules, 1962]:
Car (>1600 cc) used solely for personal purposes; fuel and repairs borne by employee; only driver's salary and wear-and-tear borne by employer. Perquisite value = Normal wear & tear (10% of actual cost) + Driver's salary = 10% × ₹8,00,000 + ₹10,000 × 12 = ₹80,000 + ₹1,20,000 = ₹2,00,000. No amount is recovered from Mr. Rohan, hence full ₹2,00,000 is taxable.

Net Taxable Salary of Mr. Rohan for A.Y. 2023-24 = ₹10,96,154.

STATEMENT OF JOINT COST APPORTIONMENT (Sales Value Method at Split-Off Point)

Determination of Output Quantities

Product X (final output): 14,500 kg
By-product Z (at split-off): (20/80) × 14,500 = 3,625 kg
Total output at Process T (split-off): 18,125 kg

Working backwards with 10% process loss:
Process T input = 18,125 ÷ 0.90 = 20,139 kg
Process S input = 20,139 ÷ 0.90 = 22,377 kg
Process R input = 22,377 ÷ 0.90 = 24,863 kg

Joint Costs of All Three Processes

| Process | Variable Cost | Fixed Cost | Total Cost |
|---------|---------------|------------|------------|
| R | 24,863 × ₹5.00 = ₹124,315 | ₹42,000 | ₹166,315 |
| S | 22,377 × ₹4.50 = ₹100,697 | ₹5,000 | ₹105,697 |
| T | 20,139 × ₹3.40 = ₹68,473 | ₹4,800 | ₹73,273 |
| Total Joint Cost | | | ₹345,285 |

Sales Value at Split-Off Point

| Product | Quantity (kg) | Selling Price (₹/kg) | Sales Value (₹) |
|---------|--------------|---------------------|------------------|
| X | 14,500 | 60 | 870,000 |
| Z | 3,625 | 30 | 108,750 |
| Total | 18,125 | — | 978,750 |

Apportionment of Joint Costs

Product X: (₹870,000 ÷ ₹978,750) × ₹345,285 = 88.89% × ₹345,285 = ₹307,031
By-product Z: (₹108,750 ÷ ₹978,750) × ₹345,285 = 11.11% × ₹345,285 = ₹38,254
Total allocated: ₹345,285

PROFITABILITY STATEMENT

| Particulars | Product X (₹) | By-product Z (₹) | Combined (₹) |
|-------------|----------------|------------------|---------------|
| Sales Revenue | 870,000 | 108,750 | 978,750 |
| Less: Joint Cost Allocated | 307,031 | 38,254 | 345,285 |
| Profit | 562,969 | 70,496 | 633,465 |
| Profit per kg (₹) | 38.83 | 19.45 | — |
| Profit Margin (%) | 64.71% | 64.79% | 64.72% |

Conclusion: Using the Net Realizable Value (Sales Value) method, the company allocates ₹307,031 (88.89%) of joint costs to Product X and ₹38,254 (11.11%) to by-product Z. This method ensures equitable cost apportionment based on revenue-generating capacity. Both products exhibit comparable profit margins (~64.7%), validating the apportionment approach. Product X contributes the majority of profit (₹562,969 or 88.8%), while by-product Z adds ₹70,496.

The question appears incomplete — the setup is provided but numerical data required for ABC calculation is missing. To solve this ABC problem, the following information is needed:

Required Data:
1. Total overhead costs or overhead breakdown by activity
2. Direct labour hours (DLH) for each product A, B, C
3. Cost drivers for each activity (e.g., number of setups, machine hours, material movements, quality inspections, purchase orders)
4. Quantity of each cost driver for each product

ABC Methodology Steps (Framework):

Step 1: Identify Activities — Classify overheads by activities (Setup, Machine operation, Material handling, Quality control, etc.)

Step 2: Group Costs to Cost Pools — Allocate overhead costs to identified activities

Step 3: Determine Cost Drivers — Select appropriate cost drivers for each activity (e.g., setups for Setup activity, machine hours for Machine operation)

Step 4: Calculate Activity Rates — Rate per cost driver = Total activity cost ÷ Total quantity of cost driver

Step 5: Allocate Overhead to Products — Overhead per product = Activity rate × Quantity of cost driver used by product

Step 6: Calculate Total Cost & Per-Unit Cost — Add allocated overhead to direct material and direct labour to determine total cost and per-unit cost for products A, B, C.

Example Calculation Format: If Setup costs ₹50,000 and total setups = 100, then Setup rate = ₹500 per setup. If Product A requires 20 setups, ABC allocation for this activity = ₹500 × 20 = ₹10,000.

Please provide the detailed cost and activity data to complete the numerical solution.

Part (i): Toll Rates without Return Journey Concession

Given Information:
- Monthly operating and maintenance cost: ₹59,09,000
- Required profit: 10% of total cost
- Total revenue required: ₹59,09,000 + (10% of ₹59,09,000) = ₹64,99,000
- Toll rate relationship: Light weight = X, Medium weight = 2.5X, Heavy weight = 5X
- Monthly traffic: Medium weight = 24,000 vehicles (12,000 + 12,000), Heavy weight = 20,000 vehicles (10,000 + 10,000)
- Light weight vehicles exemption: 10% of light weight vehicles are exempt

Assumption: Light weight vehicles = 10,000 per direction = 20,000 per month (not explicitly stated in the problem; assumed to maintain consistency with problem structure).

Calculation:
Let X = toll rate for light weight vehicles

Payable light weight vehicles = 20,000 − (10% of 20,000) = 18,000 vehicles

Total revenue equation:
- Revenue from light weight = 18,000X
- Revenue from medium weight = 24,000 × 2.5X = 60,000X
- Revenue from heavy weight = 20,000 × 5X = 100,000X
- Total = 18,000X + 60,000X + 100,000X = 178,000X

178,000X = ₹64,99,000
X = ₹36.51 (rounded to nearest paisa)

Toll Rates for Part (i):
- Light weight vehicles: ₹36.51
- Medium weight vehicles: 2.5 × ₹36.51 = ₹91.28
- Heavy weight vehicles: 5 × ₹36.51 = ₹182.55

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Part (ii): Toll Rate for Light Weight Vehicles with Return Journey Concession

Conditions in Part (ii):
- Return journey concession: 25% reduction for vehicles returning within 24 hours
- 50% of chargeable light weight vehicles on return journey return within 24 hours
- Revenue from light weight vehicles must equal that in Part (i)
- 10% exemption still applies

Structure of Light Weight Vehicle Journey:
Total light weight vehicles = 20,000
Exempt vehicles (10%) = 2,000
Chargeable vehicles = 18,000 (divided as 9,000 outward + 9,000 return)

Of the 9,000 return journey vehicles:
- 50% (4,500 vehicles) return within 24 hours and pay 75% of toll (25% discount)
- 50% (4,500 vehicles) pay full toll

Calculation:
Revenue required from light weight = 18,000 × ₹36.51 = ₹6,57,180 (same as Part i)

Let Y = new toll rate for light weight vehicles

Total revenue from light weight in Part (ii):
- Outward journey: 9,000 × Y
- Return journey (with discount): 4,500 × 0.75Y
- Return journey (without discount): 4,500 × Y
- Total = 9,000Y + 3,375Y + 4,500Y = 16,875Y

16,875Y = ₹6,57,180
Y = ₹38.95 (rounded to nearest paisa)

Toll Rate for Light Weight Vehicles in Part (ii): ₹38.95

Note: The toll rates for medium and heavy weight vehicles remain unchanged at ₹91.28 and ₹182.55 respectively, ensuring the company maintains its overall revenue target while compensating for the concession offered to light weight vehicles.

Part (i): Determination of Residential Status for AY 2023-24

Under Section 6 of the Income Tax Act, 1961, an individual's residential status is determined based on their physical presence in India during the relevant financial year and preceding years. The question does not explicitly state the number of days Mr. Jai Chand was present in India during FY 2022-23; however, based on the facts that he derives income from a commercial building in Delhi and operates a retail store, it is reasonable to infer regular presence in India for managing these assets.

As per Section 6, an individual is classified as Resident if:
1. He was present in India for 182 days or more during the relevant financial year, OR
2. He was present in India for at least 60 days during the relevant financial year AND was present for 365 days or more during the 4 immediately preceding financial years.

Assuming Mr. Jai Chand was present in India for at least 182 days during FY 2022-23 (a reasonable inference from his Indian business activities), he would be classified as a Resident of India for AY 2023-24.

Further classification into Resident and Ordinarily Resident (ROR) or Resident but Not Ordinarily Resident (RNOR) would require information about his residential status in 2 or more of the 10 immediately preceding financial years. If he has been resident during 2 or more such years, his status would be ROR; otherwise, he would be RNOR. Without this historical data, the most accurate answer is that he is a Resident, with the specific sub-classification dependent on his prior years' residential status.

Part (ii): Effect of Citizenship of Country X

No, the answer would not change if Mr. Jai Chand is a citizen of Country X. Under Indian tax law, residential status is determined solely by physical presence in India and has nothing to do with nationality or citizenship. Section 6 makes no reference to citizenship as a determining factor. An individual can be:
- A resident of India for tax purposes despite being a citizen of another country
- A non-resident of India despite being a citizen of India (if living abroad and not meeting the presence criteria)

The fact that Country X has no personal income-tax regime is also irrelevant to determining his residential status under Indian law. His status under Section 6 depends exclusively on the number of days he spends in India, not on his citizenship, domicile in another country, or the tax treatment he receives elsewhere.

Therefore, whether Mr. Jai Chand is an Indian citizen or a citizen of Country X, his residential status for AY 2023-24 would be determined by the same criteria outlined in Part (i), and the classification would remain Resident (or ROR/RNOR as applicable based on prior years).

Residential Status of Mr. Prashant:

Mr. Prashant is an Australian citizen (non-citizen of India). Under Section 6(1) of the Income Tax Act, 1961, a non-citizen is a resident in India if present in India for 182 days or more in that previous year, OR present for 60 days or more in that year and 365 days or more in the 4 preceding years.

For FY 2022-23, Mr. Prashant was in India for 200 days, which exceeds the 182-day threshold. Therefore, Mr. Prashant is a RESIDENT IN INDIA for AY 2023-24.

Computation of Total Income for AY 2023-24:

For a resident individual, taxable income includes: (i) all income from sources in India, and (ii) all income from foreign sources that is brought to India or accrued in India during the previous year.

(A) Income from business in Australia controlled from Australia – ₹20,00,000
This is foreign source income. The income is earned and received in Australia and is not stated to be brought to India. Under the "brought to India" doctrine, foreign source income is taxable only if actually brought to India (physically, credited to Indian account, or used for purposes in India). Since it is not brought to India: NOT TAXABLE – ₹0

(B) Income from business in Sri Lanka controlled from Chennai – ₹16,00,000
Although the business is located in Sri Lanka (foreign source), it is controlled and managed from Chennai (India). Income from foreign business controlled from India is deemed to accrue in India and is therefore taxable for a resident: TAXABLE – ₹16,00,000

(C) Short-term capital gains on sale of shares of Indian company – ₹50,000
Capital gains are sourced at the location of the asset. The shares are of an Indian company, making the source of income India. Income-sourced in India is taxable for all residents. Additionally, the question specifies the shares are received in Australia but were sold online, and the source asset is in India: TAXABLE – ₹50,000

(D) Income from agricultural land in Australia, brought to India – ₹2,00,000
This is foreign source income, but the question explicitly states it was "brought to India." Since it is brought to India, it becomes taxable for a resident: TAXABLE – ₹2,00,000

Total Income for AY 2023-24 = ₹16,00,000 + ₹50,000 + ₹2,00,000 = ₹18,50,000

Part (a)(i): Standard Price and Standard Quantity

From Material Price Variance: MPV = (SP – AP) × Quantity Purchased

Actual Price (AP) = ₹3,12,500 ÷ 25,000 kg = ₹12.50 per kg

₹12,500 (F) = (SP – ₹12.50) × 25,000
SP – ₹12.50 = ₹0.50
Standard Price per kg = ₹13.00

From Material Cost Variance: MCV = MPV + Material Usage Variance (MUV)
–₹1,600 = ₹12,500 + MUV
MUV = –₹14,100 (Adverse)

MUV = (SQ – AQ) × SP
–₹14,100 = (SQ – 25,000) × ₹13
SQ – 25,000 = –1,084.62 kg
Standard Quantity = 23,915.38 kg ≈ 23,915 kg (or 191,320 units at 8 units/kg)

This indicates 25,000 kg was purchased and used, but standard efficiency would require only 23,915 kg, reflecting material wastage/excess usage of 1,085 kg.

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Part (a)(ii): Material Usage Variance, Labour Cost Variance, and Labour Efficiency Variance

Material Usage Variance = (SQ – AQ) × SP
= (23,915 – 25,000) × ₹13
= –₹14,100 (Adverse)

Labour Calculations:

Actual output from 25,000 kg = 25,000 × 8 units = 200,000 units
Alternatively, based on standard: 23,915 kg × 8 = 191,320 units

Assuming actual production = 191,320 units (derived from material efficiency):
Standard hours (SH) = 191,320 units × 0.025 hours/unit = 4,783 hours
Actual hours (AH) = 125 workers × 40 hours/week = 5,000 hours

Actual Wage Bill:
Skilled workers: 75 × 40 × ₹50 = ₹1,50,000
Semi-skilled workers: 50 × 40 × ₹40 = ₹80,000
Total Actual Cost = ₹2,30,000

Standard Cost = 4,783 hours × ₹50 = ₹2,39,150

Labour Efficiency Variance = (SH – AH) × Standard Rate
= (4,783 – 5,000) × ₹50
= –₹10,850 (Adverse)

Labour Rate Variance = For skilled: (₹50 – ₹50) × 3,000 = ₹0
For semi-skilled: (₹50 – ₹40) × 2,000 = ₹20,000 (Favourable)

Labour Cost Variance = (SH × SR) – Actual Wage Bill
= ₹2,39,150 – ₹2,30,000
= ₹9,150 (Favourable)

[Verification: LEV + LRV = –₹10,850 + ₹20,000 = ₹9,150 ✓]

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Part (a)(iii): Fixed Overhead Variances

Monthly budgeted FO = ₹76,480
Weekly budgeted FO = ₹76,480 ÷ 4 = ₹19,120
Actual FO for the week = ₹17,600

Budgeted labour hours per month = 125 workers × 40 hours × 4 weeks = 20,000 hours
Budgeted FO absorption rate = ₹76,480 ÷ 20,000 hours = ₹3.824 per hour

Fixed Overhead Expenditure Variance = Budgeted FO – Actual FO
= ₹19,120 – ₹17,600
= ₹1,520 (Favourable)

Fixed Overhead Volume Variance = (SH – Budgeted Hours) × Absorption Rate
= (4,783 – 5,000) × ₹3.824
= –₹830 (Adverse)

Fixed Overhead Cost Variance (Total) = Expenditure Variance + Volume Variance
= ₹1,520 + (–₹830)
= ₹690 (Favourable)

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Part (b): Under-Recovery and Over-Recovery of Overheads

Factory Overhead: Financial ₹94,750 vs Cost Accounting ₹90,000 → Under-recovery of ₹4,750

Administrative Overhead: Financial ₹60,000 vs Cost Accounting ₹57,000 → Under-recovery of ₹3,000

Selling Overhead: Financial ₹55,000 vs Cost Accounting ₹61,500 → Over-recovery of ₹6,500

Effect on Cost Accounting Profit:
Total under-recovery of factory and administrative overheads (₹7,750) reduces cost accounting profit.
Over-recovery of selling overhead (₹6,500) increases cost accounting profit.
Net effect: Reduction of ₹1,250 in cost accounting profit.

Differences in stock valuations (opening ₹5,000 higher, closing ₹2,500 higher in cost accounting) indicate different costing methods; the net increase in stock value by ₹2,500 marginally increases profit in cost accounting.

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Part (c): Impact of High Employee Turnover on Production Cost

High employee turnover increases production cost through:

1. Recruitment and Training Costs: Expenses for advertising, recruitment agencies, interviewing, and training new employees. Training period reduces productive capacity.

2. Reduced Productivity and Efficiency: New employees lack experience and work at lower productivity levels initially, increasing labour hours per unit of output.

3. Quality Defects and Wastage: Inexperienced workers commit errors, leading to material wastage, defective production, and rework costs, increasing raw material and labour requirements.

4. Overtime Costs: During transition periods when new staff are being trained, existing employees often work overtime, increasing labour cost per unit.

5. Loss of Institutional Knowledge: Experienced workers departing take their knowledge of cost-saving techniques and efficient processes, reducing operational efficiency.

6. Indirect Administrative Costs: HR administration for separation, documentation, and new hire processing adds overhead costs.

7. Reduced Morale and Absenteeism: High turnover demotivates remaining staff, increasing absenteeism and further reducing output per available hour.

8. Supervision and Management Costs: Additional managerial effort required to manage high turnover situations.

Cumulatively, these factors result in higher labour cost per unit, material wastage, increased overhead absorption, and reduced operational efficiency, significantly increasing total cost of production.

The following persons are NOT eligible to opt for the composition scheme for goods under GST:

1. Persons engaged in supply of services: The composition scheme is exclusively for persons engaged in supply of goods. Any person whose business involves supply of services (or supplies of both goods and services where services are significant) cannot opt for this scheme.

2. Persons with turnover exceeding the threshold limit: A person whose aggregate turnover in a financial year exceeds ₹1.5 crore (or ₹50 lakhs for manufacturers in certain states, as notified) is not eligible for the composition scheme. This is the primary eligibility criterion based on business size.

3. Persons engaged in inter-state supplies (subject to conditions): Persons making inter-state supplies of goods may be excluded from the composition scheme depending on notification and the proportion of inter-state versus intra-state supplies.

4. Persons supplying alcohol for human consumption: Supply of alcoholic beverages for human consumption is specifically excluded from the composition scheme, irrespective of other criteria.

5. Persons supplying motor vehicles: Supply of motor vehicles (as defined in the notification) is not eligible for composition scheme, as these attract special tax treatment.

6. Persons supplying goods attracting tax rate exceeding 5%: If a person supplies goods which attract GST at a rate above 5%, they cannot opt for composition scheme. The scheme generally applies to goods attracting lower tax rates.

7. Persons engaged in works contract: Supply of goods which form part of a works contract is excluded from the composition scheme.

8. Persons engaged in supply of goods as specifically notified: The Central Government and State Governments from time to time notify certain goods and categories of suppliers who cannot opt for the composition scheme.

9. Persons required to collect TDS or TCS: If a person is required to collect Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) under GST law, they cannot avail the composition scheme.

10. Persons engaging in any activity of supplying goods outside the territory of India: International supplies generally fall outside the purview of the composition scheme.

Part 1: GTA Services Exemption - Validity Discussion

The statement is PARTIALLY INCORRECT and requires modification. GTA (Goods Transport Agency) services are exempt from GST, but NOT when provided to an unregistered person.

Correct Position:
GTA services are exempt under Notification No. 12/2017-Central Tax (as amended), read with Section 11(1) of the CGST Act, 2017. However, this exemption is available ONLY when:
1. Services are provided to a registered person (including registered casual taxable person)
2. The services relate to transportation of goods

Critical Distinction: The exemption is NOT available for services provided to an unregistered person or an unregistered casual taxable person. When GTA services are provided to such persons, GST at applicable rates (5% or 12% depending on nature of service) is chargeable.

Validity of Statement: The statement omits the essential condition that the recipient must be a registered person. Therefore, it is invalid as stated and should read: "GTA services provided to a registered person are exempt from GST by virtue of Notification No. 12/2017-Central Tax."

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Part 2 (Alternative): Activities Under Schedule III - Non-Supplies

As per applicable GST provisions, the following are activities/transactions NOT treated as supplies of goods or services:

1. Permanent transfer of business assets - Transfer of business assets without continuity of supply does not constitute a supply
2. Services by an employee to employer - Employment services under employer-employee relationship
3. Transfer of a going concern - Transfer of complete business undertaking as a unit
4. Non-business activities - Activities outside the scope of business or profession (e.g., personal use activities)
5. Betting, gambling, and lottery activities - Excluded from definition of supply under Section 7 of the Act

Rule 86A of the COST Rules, 2017 empowers the Commissioner to deny the debit of credit from the electronic credit ledger when there exists a reasonable belief that the credit is not admissible or has been fraudulently claimed. The grounds on which such reasonable belief must be formed, as guided by CBIC, are:

1. Fraudulent Availing of Credit - Where there is reason to believe that the input tax credit has been fraudulently availed. This includes cases involving forged invoices, fictitious transactions, or collusive arrangements between supplier and recipient.

2. Ineligibility of Credit Under Law - Where the credit does not satisfy the admissibility conditions prescribed under Section 16 of the CGST Act, 2017, or corresponding provisions of SGST Act, IGST Act, or UTGST Act. This includes credit on goods/services not used for business purposes or those specifically barred from credit.

3. Non-Receipt or Disputed Receipt of Goods/Services - Where there is reason to believe that the goods or services for which credit is claimed have not been physically received by the claimant or have not been received as per the specifications mentioned in the invoice.

4. Unverifiable or Suspicious Supplier Details - Where the supplier cannot be traced, identified, or verified through normal channels, or where supplier details appear suspicious, non-existent, or dubious. This includes cases where the supplier is not found in GST records or has been deactivated.

5. Discrepancies in Documentation - Where there are material discrepancies or inconsistencies between the invoice claimed and actual goods received, documents, or records of the supplier. This includes mismatches in descriptions, quantities, values, or HSN codes.

6. Blocked or Restricted Credit - Where credit blocks or restrictions have been issued or proposed against the particular transaction or supplier under GST law or other regulatory provisions.

7. Violation of Conditions of Eligibility - Where the credit has been availed in violation of conditions specified in the CGST Act or Rules, such as credit on deemed supply or supplies not intended for business purposes.

The Commissioner must form the reasonable belief on the basis of material available on record, such as departmental records, information from other tax authorities, intelligence reports, or discrepancies noticed during audit or scrutiny. The belief must be based on objective criteria and not mere suspicion.

The applicable provision in the Income-tax Act regarding deduction of tax at source in respect of such transaction is primarily Section 194O of the Income-tax Act, 1961.

Applicability of Section 194O:
Section 194O, effective from 1st October 2020, requires any resident person carrying on business or profession to deduct tax at source when making any payment as consideration for promoting or advertising any goods or services to a resident individual. The provision defines 'consideration' broadly to include any money, gift, voucher, token, stamp, or any other financial benefit.

Application to the given case:
All conditions for applicability are satisfied: (1) XYZ Ltd., an Indian company manufacturing electronic cars, is a person carrying on business; (2) Tara is a resident individual; (3) the car of ₹6,00,000 FMV is given specifically to promote electronic cars through review videos, constituting consideration for advertising services; (4) the amount far exceeds the ₹20,000 threshold in the financial year.

Treatment of 'Gift':
Although the car is referred to as a 'gift,' in the context of Section 194O, since it is given with the specific objective of advertising goods, it constitutes 'consideration' for promotional services. Gifts given for promotional purposes are expressly covered under the broad definition of 'consideration' in Section 194O.

Rate of TDS and Calculation:
The rate of TDS under Section 194O is 10%. On the consideration of ₹6,00,000 (fair market value of the car), the TDS to be deducted is: ₹6,00,000 × 10% = ₹60,000

Time of Deduction:
As per Section 204, TDS shall be deducted at the time of credit to the account of the payee or at the time of payment, whichever is earlier. Here, TDS should be deducted on 1st December 2022, when the car is transferred to Tara.

Related Provisions:
Section 206AB provides that if TDS was not deducted as required in the immediately preceding financial year, deduction in the current year shall be at the higher rate of 20%. Section 56(2)(x) makes such consideration taxable as income from other sources in the recipient's hands. PAN of the payee must be obtained; if unavailable, deduction is at the prescribed higher rate. Rule 37BA prescribes the procedure for deduction and issuance of TDS certificate.

Compliance:
XYZ Ltd. must deposit the TDS within specified due dates, issue a TDS certificate to Tara, and report information in quarterly TDS statements and annual returns. The subsequent return of the car does not affect the TDS deduction at the time of receipt.

Conclusion:
Under Section 194O, XYZ Ltd. is required to deduct TDS of ₹60,000 at 10% on the consideration of ₹6,00,000 given to Tara.

Note: The first payment amount on 10th August 2022 appears incomplete in the question. Based on common exam versions of this question, it is assumed as ₹ 20,000 on 10th August 2022 and ₹ 30,000 on 23rd November 2022 (total ₹ 50,000). The analysis below stands regardless of this amount, as the key issue is the payer's status.

Part (ii): TDS obligation for Mr. Arma (CEO — Individual)

Under Section 194C of the Income Tax Act, 1961, tax must be deducted at source on payments made to a contractor for carrying out any work (including supply of labour). However, the obligation to deduct TDS under Section 194C applies only to "specified persons". An individual or HUF is treated as a specified person *only if* their accounts were required to be audited under Section 44AB in the immediately preceding financial year.

Mr. Arma is an individual (CEO). The payments are made for supply of personal household staff (gardener, chef, drivers — not for any business purpose). As a salaried individual/CEO, Mr. Arma's accounts are not required to be audited under Section 44AB. Therefore, Mr. Arma does not qualify as a "specified person" under Section 194C.

Conclusion: Mr. Arma is not required to deduct any TDS on payments made to Mr. Suresh, irrespective of the amounts paid.

Part (ii)(a): Would the answer differ for Ms. Anina (Businesswoman — books NOT audited)?

Ms. Anina is an individual businesswoman who makes payments to Mr. Suresh for business purposes. However, the critical condition is that her books of accounts were NOT audited under Section 44AB in the immediately preceding financial year.

Since her accounts were not subject to tax audit, Ms. Anina also does not qualify as a "specified person" under Section 194C — even though the payments are for business purposes. The exemption from the TDS obligation is based on the audit status of the payer, not on whether the payment is personal or commercial.

Conclusion: The answer would not be different. Ms. Anina is also not required to deduct TDS on payments made to Mr. Suresh, as her books were not audited under Section 44AB in the preceding financial year.

Key Distinction to Remember: If Ms. Anina's books *were* audited in the preceding year, she would become a specified person, and TDS under Section 194C would apply @ 1% on payments to Mr. Suresh (an individual), subject to the threshold limits (single payment > ₹ 30,000 or aggregate > ₹ 1,00,000 in the year).

The transaction involves provision of catering services by Ms ABC Pvt Ltd. to the Nationalized Bank, making Section 194J of the Income Tax Act, 1961 the relevant provision for TDS implications. Catering services are specifically listed as specified services under Section 194J, and the payment of ₹60,000 per month exceeds the threshold limit of ₹5,000 for a single transaction, triggering mandatory TDS applicability.

Rate and Amount of TDS: The applicable rate of TDS under Section 194J for catering services is 10%. Thus, the bank must deduct TDS at ₹6,000 per month (₹60,000 × 10%), amounting to ₹72,000 annually. This TDS must be deducted at the time of credit to the account of the payee or payment, whichever is earlier.

Obligations of the Payer (Nationalized Bank): The bank, as the payer making the specified payment, is the mandatory TDS deductor. It must: (i) Deduct TDS at 10% from each monthly payment of ₹60,000; (ii) Deposit the TDS with the Government within 7 days of the end of the month in which deduction is made; (iii) File quarterly TDS returns in Form 24G; (iv) Issue TDS certificate in Form 16A to Ms ABC Pvt Ltd. within the prescribed time; (v) Possess a valid PAN as required under Section 203 of the Income Tax Act to deduct TDS.

Implications for the Payee (Ms ABC Pvt Ltd.): The catering company will receive the net payment of ₹54,000 per month after TDS deduction. It must report the gross income of ₹60,000 per month in its financial statements and income tax return. The company can claim credit of TDS paid (₹6,000 per month) against its income tax liability. If the company believes it should be deducted at a lower rate, it can submit a declaration under Section 197 to obtain a certificate for lower TDS deduction, which the bank should honor.

Non-Compliance Consequences: If the bank fails to deduct TDS, it becomes liable to: (i) Pay interest under Section 201 on the TDS amount not deducted; (ii) Face penalty under Section 271C of up to 200% of the tax short-deducted; (iii) Face prosecution under Section 272A for willful non-compliance. These provisions ensure strict adherence to TDS obligations on catering service payments.

Section 49(5) of the CGST Act, 2017 prescribes the order of discharge of GST liability when payments are made. The provision mandates that when a person makes payment towards tax, interest, or penalty, such payment shall be credited in the following statutory order of priority, unless the person directs otherwise in writing:

(1) First – Towards tax due
(2) Second – Towards interest due on such tax
(3) Third – Towards any penalty imposed

Critical Exception – Right to Written Direction:
The phrase "unless the person directs otherwise in writing" grants flexibility to taxpayers. A registered person can deviate from the statutory order by furnishing a written direction to the Proper Officer specifying how the payment should be credited among different liabilities.

Application to Mr. Manik's Situation:

Mr. Manik's liabilities comprise:
- Tax due (May): ₹25,000; Interest (May): ₹2,000; Penalty (May): ₹3,000
- Tax due (June): ₹35,000
- Demand notice tax (U/s 73): ₹48,000

Without Written Direction: Payment would be credited sequentially to May tax, May interest, May penalty, June tax, and finally to demand notice liability—not achieving Mr. Manik's objective.

With Written Direction: Mr. Manik must submit a dated, signed, written direction to the Proper Officer explicitly specifying that payment be credited first to the demand notice tax. Upon receipt of such direction, the Proper Officer is statutorily bound to credit the payment accordingly. Remaining amounts would then follow the statutory order (tax → interest → penalty).

Key Principles:
The right to direct payment crediting belongs exclusively to the taxpayer, not the tax authority. Section 49(5) provides that the statutory order is merely default; it is not mandatory if the person directs otherwise in writing. The direction must be explicit, clear in intent, and clearly identify the liability head to which payment is being credited.

Advice to Mr. Manik:

1. Immediate Action: Submit a formal written direction to the Proper Officer stating: "I direct that payment towards my GST liabilities be credited first to the tax liability arising from demand notice U/s 73 (₹48,000), and thereafter to other outstanding liabilities in the order of priority prescribed under Section 49(5)."

2. Documentation: Ensure the direction is dated, signed, and attached to the payment memo or filed separately with a clear reference to the payment.

3. Strategic Reason: Clearing demand notice liability first reduces ongoing interest accrual on disputed amounts and demonstrates compliance intent, potentially mitigating additional penalties.

4. Binding Effect: The Proper Officer must honor the written direction; failure to do so would be a violation of statutory duty.

Conclusion:
The statutory order prescribed under Section 49(5) of CGST Act is not absolute. Mr. Manik has the explicit right to direct the order of discharge through a written instruction. By exercising this right, he can ensure the demand notice liability is cleared first, achieving his objective while remaining fully compliant with the law.

IMPORTANT NOTE: This question appears to be incomplete as it lacks critical data typically provided in the question stem or as appendices (current year units sold for each product, selling price per unit, variable cost per unit, and labour hours). The answer below provides the complete framework and methodology for solving such questions.

BUDGETING FRAMEWORK FOR NEXT YEAR

The question requires preparation of a comparative budget showing current position and next year's position with product-wise contribution and profit analysis.

STEP 1: CLASSIFY OVERHEAD COSTS
Total overhead = ₹52,50,000
Variable overhead = ₹1 per labour hour
Fixed overhead = ₹52,50,000 - (Total labour hours × ₹1)

Since total overhead remains unchanged at ₹52,50,000 in the next year, fixed overhead will be the same amount (as the problem states total overhead cost remains unchanged). The variable component may change based on labour hours required for the new sales volumes.

STEP 2: IDENTIFY VOLUME CHANGES FOR NEXT YEAR
Product X: Current year units × 1.12 (12% increase)
Product Y: Current year units × 0.95 (5% decline)
Product Z: Current year units × 1.15 (15% increase)

STEP 3: PREPARATION OF BUDGETS

The budget should be prepared in the following format:

CURRENT YEAR POSITION

Particulars | Product X | Product Y | Product Z | Total
---|---|---|---|---
Units Sold (units) | [Data needed] | [Data needed] | [Data needed] | [Data needed]
Selling Price per unit (₹) | [Data needed] | [Data needed] | [Data needed] | —
Sales Value (₹) | — | — | — | —
Less: Variable Cost of Production (₹) | — | — | — | —
Contribution (₹) | — | — | — | —
Less: Fixed Overhead (₹) | — | — | — | ₹52,50,000
Profit (₹) | — | — | — | —

NEXT YEAR POSITION

Particulars | Product X | Product Y | Product Z | Total
---|---|---|---|---
Units Sold (units) | [Current × 1.12] | [Current × 0.95] | [Current × 1.15] | —
Selling Price per unit (₹) | Unchanged | Unchanged | Unchanged | —
Sales Value (₹) | — | — | — | —
Less: Variable Cost of Production (₹) | — | — | — | —
Contribution (₹) | — | — | — | —
Less: Fixed Overhead (₹) | — | — | — | ₹52,50,000
Profit (₹) | — | — | — | —

STEP 4: KEY CALCULATION PRINCIPLES

Variable Cost of Production = Units Sold × Variable Cost per Unit
Contribution per Unit = Selling Price per Unit - Variable Cost per Unit
Total Contribution = Contribution per Unit × Units Sold
Profit = Total Contribution - Fixed Overhead

The overhead allocation to products should be based on labour hours if that is the cost driver. Since variable overhead is ₹1 per labour hour, the labour hours required for each product in the current year and next year would be crucial for determining the exact overhead allocation.

STEP 5: ANALYSIS OF CHANGES

The next year's profit will be affected by:
1. Change in unit volumes (Product X +12%, Y -5%, Z +15%)
2. Corresponding change in variable costs based on new volumes
3. Fixed overhead remaining constant at ₹52,50,000
4. The net effect on total contribution due to mixed volume changes across products

The comparison will show how contribution and profit change despite fixed overhead remaining constant.

Statement of Cost of Production — SN Manufacturing Limited (April 2023)

Step 1: Raw Materials Consumed
Opening stock of raw materials: ₹42,500, add purchases: ₹6,95,000, add carriage inward: ₹3,650, less closing stock: ₹38,600 → Raw Materials Consumed = ₹7,02,550

Step 2: Prime Cost
Raw materials consumed ₹7,02,550 + Direct wages ₹3,22,800 + Royalty for production ₹15,800 → Prime Cost = ₹10,41,150

Note: Royalty paid for production is a direct expense and forms part of prime cost.

Step 3: Factory Overheads
- Amortisation of special designs, moulds and patterns: ₹1,53,600 ÷ 12 = ₹12,800
- Power, fuel and haulage (factory): ₹70,600
- R&D costs for improving production process (amortised portion): ₹31,680
- Primary packing cost (to maintain quality — production cost, not selling cost): ₹6,920
- Salary of supervisors and foremen: ₹28,000
→ Factory Overhead = ₹1,50,000

Step 4: Works Cost
Prime Cost ₹10,41,150 + Factory Overhead ₹1,50,000 → Works Cost = ₹11,91,150

Step 5: Adjust for Work-in-Progress
Add: Opening WIP ₹42,500; Less: Closing WIP ₹42,800; Net WIP increase = ₹300 (deducted)
→ Factory Cost of Production = ₹11,90,850

Step 6: Add Administrative Overhead
Administrative Overhead: ₹46,765
→ Total Cost of Production = ₹12,37,615

Step 7: Cost of Production Per Unit
Units produced = 1,52,000
Cost per unit = ₹12,37,615 ÷ 1,52,000 = ₹8.1422 per unit

Step 8: Closing Stock of Finished Goods — Units
Opening stock: 2,500 units + Production: 1,52,000 units = Total available: 1,54,500 units
Less: Sales: 1,52,600 units → Closing stock = 1,900 units

Step 9: Valuation of Closing Stock (FIFO)
Under FIFO method, goods sold first come from opening stock (2,500 units), then from current production. Since total sales (1,52,600) exceed opening stock (2,500), all opening stock is exhausted and 1,50,100 units from current production are also sold. The remaining 1,900 units in closing stock belong entirely to April 2023 production.

Closing stock value = 1,900 units × ₹8.1422 = ₹15,470 (approx.)

Final Answer: Closing Stock of Finished Goods = 1,900 units valued at ₹15,470

(i) Overhead Rate per Labour Hour under Absorption Costing

Under Absorption Costing, all overheads are pooled together and absorbed using a single blanket rate based on Direct Labour Hours.

Total Overhead = ₹33,75,000

Total Direct Labour Hours:
Product A: 7,500 + Product B: 7,200 + Product C: 7,800 = 22,500 hours

Overhead Absorption Rate = Total Overhead ÷ Total Direct Labour Hours
= ₹33,75,000 ÷ 22,500 hours
= ₹150 per Direct Labour Hour

Overhead absorbed by each product:
Product A: 7,500 × ₹150 = ₹11,25,000
Product B: 7,200 × ₹150 = ₹10,80,000
Product C: 7,800 × ₹150 = ₹11,70,000

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(ii) Cost Statement – Overhead Allocation under Activity Based Costing (ABC)

Under ABC, each overhead is assigned to products using the most appropriate cost driver that best reflects the cause of that cost:

- Rent & Taxes → Cost Driver: Floor Space Occupied (Sq. Ft.)
- Electricity Expenses → Cost Driver: Power Consumption (%)
- Indirect Labour → Cost Driver: Direct Labour Hours
- Repair & Maintenance → Cost Driver: Direct Machine Hours

Activity Rates:

Rent & Taxes: Total Floor Space = 5,000 + 4,500 + 6,200 = 15,700 Sq. Ft.
Rate = ₹8,63,500 ÷ 15,700 = ₹55 per Sq. Ft.

Indirect Labour: Total DLH = 22,500 hours
Rate = ₹13,16,250 ÷ 22,500 = ₹58.50 per DLH

Repair & Maintenance: Total Machine Hours = 6,000 + 4,500 + 4,650 = 15,150 hours
Rate = ₹1,28,775 ÷ 15,150 = ₹8.50 per Machine Hour

Cost Statement – Overhead Allocated per Product under ABC (₹)

| Overhead | Basis | Product A | Product B | Product C | Total |
|---|---|---|---|---|---|
| Rent & Taxes | Floor Space | 2,75,000 | 2,47,500 | 3,41,000 | 8,63,500 |
| Electricity | Power % | 3,41,272 | 2,98,613 | 4,26,590 | 10,66,475 |
| Indirect Labour | DLH | 4,38,750 | 4,21,200 | 4,56,300 | 13,16,250 |
| Repair & Maint. | Machine Hrs | 51,000 | 38,250 | 39,525 | 1,28,775 |
| Total Overhead | | 11,06,022 | 10,05,563 | 12,63,415 | 33,75,000 |

Note: Since production quantity data is not provided, overhead cost is presented as total per product. Per-unit cost = Total Product Overhead ÷ Units Produced (once production data is available).

Determining the Optimal Product Mix:

The constraint is machine hours (55,000 hours available). Step 1: Identify the machine hours per unit using the allocation rate of ₹4 per machine hour:

Product A: Variable factory overhead per unit = ₹40, so machine hours = 40÷4 = 10 hours per unit
Product B: Variable factory overhead per unit = ₹20, so machine hours = 20÷4 = 5 hours per unit

Step 2: Calculate contribution per unit:

Product A: Contribution = 180 − (55+35+40) = ₹50 per unit
Product B: Contribution = 175 − (60+45+20) = ₹50 per unit

Step 3: Calculate contribution per machine hour (the limiting factor):

Product A: ₹50 ÷ 10 hours = ₹5 per machine hour
Product B: ₹50 ÷ 5 hours = ₹10 per machine hour

Product B yields higher contribution per machine hour, so prioritize Product B.

Step 4: Determine optimal allocation:

Allocate full demand to Product B: 6,000 units × 5 hours = 30,000 machine hours
Remaining machine hours: 55,000 − 30,000 = 25,000 hours
Allocate remaining to Product A: 25,000 ÷ 10 = 2,500 units (demand is 5,000, so 2,500 units cannot be produced)

Optimal Product Mix: Produce 2,500 units of A and 6,000 units of B.

Step 5: Calculate maximum profit:

Total Contribution = (2,500 × ₹50) + (6,000 × ₹50) = ₹1,25,000 + ₹3,00,000 = ₹4,25,000
Less: Fixed Expenses = ₹1,40,000
Maximum Profit = ₹2,85,000

Recommendation: The company should produce 6,000 units of Product B and only 2,500 units of Product A (2,500 units of A will remain unmet due to the machine hour constraint). This will generate a profit of ₹2,85,000 for the month.

Gross Value of Supplies on which GST to be paid by Mr. Jayesh: ₹2,34,500

Analysis of Each Transaction:

1. Commission from NBFC (₹60,000): Commission received for services as a recovery agent constitutes a supply of service under GST. Services are taxable. This amount is included.

2. Actionable Claim from Business Debtors (₹10,50,000): Receipt of an actionable claim from normal business debtors represents a recovery of outstanding dues/debts, not a supply of goods or services. Under Section 2(6) of CGST Act, mere receipt of money as debt recovery is not a taxable supply. This amount is excluded.

3. Amount for Performance of Classical Dance (₹1,74,500): Performance of entertainment services is a supply of service and is taxable under GST. This amount is included.

4. Business Assets (Old Computers) Given Free of Cost (₹51,000): Although goods are supplied without consideration, Section 18(2) of CGST Act 2017 provides that where goods held for business use are given away and no input tax credit has been availed, the supplier is not required to pay tax on such supply. Since no ITC was availed on these computers, this amount is excluded from taxable supplies.

5. Rent from Registered Individual for Residential Dwelling (₹15,200): Renting of residential dwellings for use as residence is exempt under Schedule II, Part B of CGST Act 2017. This amount is excluded.

6. Payment to Unregistered Transport Agency (₹15,100): This represents an outgoing/expense paid by Mr. Jayesh to a transport operator, not a supply made by him. This is not included in supplies made by Mr. Jayesh.

Calculation:
Taxable Supplies = Commission (₹60,000) + Dance Performance Services (₹1,74,500) = ₹2,34,500

Healthcare services in India are exempt from GST under Schedule III of the CGST Act, 2017. The exemption covers services provided by hospitals and medical practitioners for care, treatment, diagnosis, and prevention of disease. Each charge should be analyzed as follows:

Room rent (₹7,000 per day for 2 days):
No GST is leviable. Hospital accommodation is expressly exempt from GST under Schedule III of the CGST Act, 2017. Room rent charged by a hospital for patient inpatient care is an integral healthcare service and falls directly within the exemption for hospital services.

Operation theatre charges (₹5,000):
No GST is leviable. Operation theatre charges represent facility costs incurred by the hospital for performing surgical procedures. These charges are component services of the hospital's main healthcare supply (surgical treatment) and are covered under the exemption for services provided by hospitals. They are not separately taxable.

Doctor's Consultation Charges (₹8,000):
No GST is leviable. Services provided by medical practitioners (doctors) are explicitly exempt from GST under Schedule III of the CGST Act, 2017. This exemption covers all services of doctors for diagnosis, treatment, cure, and mitigation of disease, including consultation and surgical services, irrespective of whether the doctor is employed by the hospital or engaged on contract.

Other services (₹4,000):
The GST treatment depends on the specific nature of these services. If they are healthcare-related and integral to the treatment provided (such as nursing services, laboratory tests, diagnostic imaging, pathology, physiotherapy), they are exempt from GST as they constitute hospital healthcare services. However, if they are non-medical in nature (such as meals for attendants, parking charges, laundry services, or telephone bills), GST at the applicable rate should be levied. Services billed as part of the hospital treatment package and directly related to patient care are typically treated as exempt healthcare supplies.

Conclusion:
Suraksha Hospital should not levy GST on room rent, operation theatre charges, and doctor's consultation charges. For "other services," GST applicability depends on their character—healthcare-related services are exempt, while non-healthcare services are taxable.