Question 1

State (Yes/No) whether the following transactions can be treated as income chargeable to income tax or arise in India:
(1) Hire charges paid outside India for the use of machinery situated in India.
(2) Income of a non-resident and non-citizen of India from the shooting of cinematograph film in India.
(3) Capital gain arising through a transfer of a house property situated in India, the place of registration and the place of payment of consideration being outside India.
(4) Allowances paid by the Government to a citizen of India for the services rendered outside India.
(5) Past period foreign unearned income brought to India during the previous year.
(6) Gift received by a non-resident on the occasion of his wedding in India.

Accepted Answer

Under the Income Tax Act 1961, income is chargeable to income tax in India if it either arises in India (Section 9) or accrues to a resident of India (even if foreign-sourced). Income arises in India based on the location of the source, not where payment is made or received.

**(1) YES** — Hire charges for machinery in India, paid outside India. The machinery (source of income) is situated in India. Per Section 9(1)(i), income from property situated in India arises in India regardless of where payment is made. The situs of the asset, not the place of payment, determines the source.

**(2) YES** — Income of non-resident from film shooting in India. Services are rendered in India (source in India). Per Section 9(1)(iii), income from professional services and business activities conducted in India constitutes Indian source income. Non-residents are taxable on Indian source income, and this film shooting constitutes a business activity in India.

**(3) YES** — Capital gain on house property in India, registration and payment outside India. The immovable property is situated in India, which is the determining factor. Per Section 9(1)(vi), capital gains on transfer of immovable property situated in India arise in India regardless of where the transfer is registered or consideration paid. The location of the asset governs, not the place of transaction formalities.

**(4) YES** — Allowances to citizen for services rendered outside India, paid by Government. The source of income is th…

Question 2

Mr. Sanjay has following incomes during the previous year 2022-23:
(1) Interest on England Development Bonds (₹ 60,000)
(2) Interest received from a non-resident ₹ 5,000 against a loan given to run a business in India.
(3) Royalty received from a resident for technical services given to run a business outside India ₹ 20,000
(4) Income from business in Sri Lanka ₹ 25,000 out of which ₹ 15,000 were received in India. The business is controlled from India.
Compute taxable income of Mr. Sanjay for the assessment year 2023-24 if he is a:
(i) Non-resident
(ii) Non-resident individual proprietor

Accepted Answer

**Computation of Taxable Income of Mr. Sanjay for A.Y. 2023-24**

For a **Non-Resident (NR)**, only the following income is chargeable under Section 5(2) of the Income Tax Act, 1961:
- Income received or deemed to be received in India, and
- Income accruing or arising, or deemed to accrue or arise, in India (Section 9).

**Analysis of Each Income:**

**(1) Interest on England Development Bonds — ₹60,000:** This income accrues outside India (English Government bonds) and is presumed to be received outside India. It does not fall under any deeming provision of **Section 9**. Hence, **NIL** for a Non-Resident.

**(2) Interest from Non-Resident — ₹5,000:** Under **Section 9(1)(v)**, interest paid by a non-resident is deemed to accrue in India **if** the money borrowed is used for the purposes of a business or profession carried on **in India**. Since the borrower (non-resident) used the loan to run a business in India, this interest is deemed to accrue in India. **Taxable: ₹5,000.**

**(3) Royalty from Resident — ₹20,000:** Under **Section 9(1)(vi)**, royalty paid by a resident is normally deemed to accrue in India. However, an **exception** applies: it is NOT deemed to accrue in India if the royalty is payable in respect of any right, property, or information used for the purposes of a business or profession carried on **outside India**. Here, the technical services/royalty is for a business run outside India. Hence, **NIL.**

**(4) Business Income from Sri Lanka — ₹25,000 (₹15,…

Question 3

Discuss the liability of tax deduction at source under the Income Tax Act 1961 in respect of the following cases with reference to AY 2023-24 (Give applicable provision and give brief reason for your answer, wherever applicable):
(i) XYZ, a resident partnership firm is in retail business buying fabric material directly from ABC, a resident proprietorship firm. Details of transactions during FY 2022-23 are as given:
Particulars: Advance payment (1.4.2022, ₹ 40,00,000), Payment for supplies (2.7.2022, ₹ 20,00,000), Advance payment (4.8.2022, ₹ 12,00,000)
XYZ achieved gross turnover of ₹ 12 crore from the business during the financial year 2021-22 and the gross business turnover of ABC for the financial year 2021-22 was ₹ 6 crores.

Accepted Answer

**Applicable Provisions and TDS Liability under Section 194Q of the Income Tax Act, 1961**

**Preliminary Check — Section 194O:** Section 194O casts TDS obligation on **e-commerce operators** facilitating sale of goods/services through their digital platform. Since XYZ is directly purchasing fabric from ABC without any e-commerce intermediary, Section 194O has **no application** here.

**Applicability of Section 194Q (TDS on Purchase of Goods):** Section 194Q, effective from 1 July 2021, requires a **buyer** to deduct TDS @ **0.1%** on purchase of goods from a resident seller if:
(a) the aggregate purchase value from that seller exceeds **₹50 lakh** in the financial year, AND
(b) the buyer's gross turnover from business exceeds **₹10 crore** in the **immediately preceding financial year**.

**XYZ's position:** Gross turnover of XYZ in FY 2021-22 = **₹12 crore > ₹10 crore** → XYZ qualifies as a buyer liable to deduct TDS under Section 194Q for FY 2022-23.

**ABC's position (check for Section 206C(1H) overlap):** ABC's turnover in FY 2021-22 = ₹6 crore < ₹10 crore, so ABC is **not liable to collect TCS** under Section 206C(1H). Since Section 194Q specifically excludes transactions already subject to TDS/TCS under any other provision, and no other provision is triggered, Section 194Q fully governs.

**Threshold and Deduction:** Total payments to ABC during FY 2022-23 = ₹40,00,000 + ₹20,00,000 + ₹12,00,000 = **₹72,00,000** (₹72 lakh). This exceeds ₹50 lakh; TDS is deductible on t…

Question 4

Calculate the taxable leave salary and gratuity.

Accepted Answer

**Computation of Taxable Leave Salary and Gratuity for Ms. Neelima for A.Y. 2023-24**

Ms. Neelima is a non-government employee who retired from CD (P) Ltd. on December 31, 2022. The exemptions are governed by **Section 10(10AA)** of the Income Tax Act, 1961 (leave salary) and **Section 10(10)** (gratuity).

**Note on Duration of Service:** Working backward from the given data — Leave at credit = 45 days × years – 90 days availed = 540 days (18 months). This gives 45y = 630, so **y = 14 completed years** of service at CD (P) Ltd.

**Average Salary (last 10 months):** The last 10 months before December 31, 2022 are March 2022 to December 2022. Salary throughout = ₹22,600 p.m. Average monthly salary = **₹22,600**.

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**I. Taxable Leave Salary [Section 10(10AA)(ii)]**

For a non-government employee, exemption is the **least** of:
- (a) Actual leave salary received = ₹4,14,000
- (b) 10 months' average salary = 10 × ₹22,600 = ₹2,26,000
- (c) Cash equivalent of leave at credit (restricted to 30 days per completed year): (₹22,600 ÷ 30) × (30 × 14) = ₹753.33 × 420 = ₹3,16,400
- (d) Statutory ceiling (₹3,00,000 for FY 2022-23) **less** exemption already claimed from LMN Ltd. (₹59,000) = ₹2,41,000

Least of (a), (b), (c), (d) = **₹2,26,000** ← Exemption

**Taxable Leave Salary = ₹4,14,000 – ₹2,26,000 = ₹1,88,000**

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**II. Taxable Gratuity [Section 10(10)(iii)]**

Ms. Neelima is **not covered** by the Payment of Gratuity Act, 1972. Exemption is the **least** of:
- (a) Actual grat…

Question 5

From the following calculate the taxable amount under the proper head of income for the Financial Year 2022-23 of Mr. L, who is resident and 56 years old. The reasons should form part of your answer: Dividend of ₹50,000 received in April 2022. The dividend was declared by the company- LSMN Limited at its annual general meeting held in October 2021.

Accepted Answer

**Head of Income: Income from Other Sources under Section 56(2)(i) of the Income Tax Act, 1961**

**Taxable Amount for FY 2022-23: NIL (₹0)**

**Reason and Analysis:**

With effect from FY 2020-21, the **Dividend Distribution Tax (DDT)** regime was abolished by the Finance Act 2020. Accordingly, dividends received from domestic companies are no longer exempt under Section 10(34) and are now **taxable in the hands of the shareholder** under the head 'Income from Other Sources' as per **Section 56(2)(i) of the Income Tax Act, 1961**.

However, the critical issue here is the **year of taxability** of such dividend income.

**Section 8 of the Income Tax Act, 1961** provides that for the purposes of inclusion in total income, any dividend declared, distributed, or paid by a company shall be deemed to be the income of the **previous year in which it is so declared, distributed, or paid — whichever is earliest**.

In the given case:
- **Date of Declaration:** The dividend was declared at the Annual General Meeting (AGM) of LSMN Limited held in **October 2021**, which falls in **FY 2021-22**.
- **Date of Receipt:** The dividend was actually received by Mr. L in **April 2022**, which falls in **FY 2022-23**.

Applying Section 8, since the dividend was **declared in October 2021 (FY 2021-22)**, which is earlier than the date of receipt (April 2022, FY 2022-23), the dividend of ₹50,000 is deemed to be the income of **FY 2021-22 (AY 2022-23)** — NOT of FY 2022-23.

**Conclusion:** The ta…

Question 6

Mr. Jai, a resident individual furnishes the following particulars of his income and other details for the previous year 2022-23. Income from the activity of owning and maintaining race horses: 40,000; Income from crossword puzzle solving: 30,000; Income from Agricultural land in Haryana: 25,000; Dividend income from domestic company (gross): 12,000; Income from cycling business: 1,50,000; Loss from warehousing facility for storage of edible oils: 1,00,000; Share of loss from FP associates: 23,000; Brought forward loss from house property: 1,00,000; Loss from the activity of owning and maintaining race horses: 37,000; Loss from gambling: 10,000; Unabsorbed depreciation: 15,000; Speculation Loss: 20,000. Mrs. Jai (wife of Mr Jai) got a salary of 1,20,000 from PR associates during the year 2…

Accepted Answer

**Computation of Gross Total Income of Mr. Jai for Assessment Year 2023-24**

**Income from Salaries (Clubbed u/s 64(1)(ii) of the Income Tax Act, 1961):**
Mrs. Jai's salary from PR Associates is clubbed in Mr. Jai's hands assuming Mr. Jai holds substantial interest (≥20% profits) in PR Associates. Salary: ₹1,20,000; Less: Standard deduction u/s 16(ia): ₹50,000. **Net Salary: ₹70,000**

**Income from House Property:** NIL. The **brought forward loss of ₹1,00,000** from house property can only be set off against income from house property u/s 71B. Since there is no house property income this year, it is **carried forward** to subsequent years.

**Profits and Gains of Business or Profession (PGBP):**
Income from cycling business: ₹1,50,000. The loss from warehousing facility (₹1,00,000) is a regular business loss and is set off against cycling business income (intra-head, u/s 70). Net PGBP before depreciation: ₹50,000. Unabsorbed depreciation of ₹15,000 u/s 32(2) is then deducted. **Net PGBP: ₹35,000**

The **share of loss from FP Associates (₹23,000)** is not deductible — since a partner's share of profit from a firm is exempt u/s 10(2A), the corresponding share of loss cannot be set off (Section 67A principle).

The **speculation loss of ₹20,000** can only be set off against speculation profits u/s 73. Since there is no speculation income, it is **carried forward** for up to 4 years.

**Income from Other Sources:**
Income from owning and maintaining race horses: ₹40,000; Loss…

Question 7

Mr. Sural, an Indian citizen, gives the following details of his income and expenses during the year 2022-23: Income from profession: 11,70,000; Winnings from lottery: 70,000; Contribution to ULIPs 1971 plan for spouse: 70,000; Cheque donation to National Defence Fund: 60,000; Cheque donation to Government for promoting family planning: 35,000; Cheque donation to approved public charitable institute: 1,20,000. Compute the deduction under section 80G allowable to him for the assessment year 2023-24.

Accepted Answer

**Computation of Deduction under Section 80G of the Income Tax Act, 1961 for A.Y. 2023-24**

**Step 1: Computation of Gross Total Income (GTI)**

Income from profession: ₹11,70,000; Winnings from lottery: ₹70,000. **GTI = ₹12,40,000**.

**Step 2: Computation of Adjusted Gross Total Income (AGTI)**

AGTI = GTI − Special rate incomes − Deductions under Chapter VI-A (other than Section 80G).

Lottery winnings are taxable at special rate u/s 115BB, hence excluded from AGTI. Contribution to ULIP for spouse qualifies as deduction u/s 80C: ₹70,000.

AGTI = ₹12,40,000 − ₹70,000 (lottery) − ₹70,000 (80C deduction) = **₹11,00,000**.

The **Qualifying Limit** (10% of AGTI) = 10% × ₹11,00,000 = **₹1,10,000**.

**Step 3: Categorisation and Computation of 80G Deduction**

All donations are by cheque, thus eligible. Section 80G provides deductions in four categories based on the rate and applicability of the qualifying ceiling.

(i) **Cheque donation to National Defence Fund: ₹60,000** — Covered under Section 80G(2)(a)(i). Rate: **100% without qualifying limit**. Deduction = **₹60,000**.

(ii) **Cheque donation to Government for promoting family planning: ₹35,000** — Covered under Section 80G. Rate: **100% subject to qualifying limit**. Qualifying amount = Min(₹35,000, ₹1,10,000) = ₹35,000. Deduction = 100% × ₹35,000 = **₹35,000**.

(iii) **Cheque donation to approved public charitable institution: ₹1,20,000** — Covered under Section 80G(5). Rate: **50% subject to qualifying limit**. Qualif…

Question 8

Explain the provisions of Tax Collection at source for overseas remittance by an authorized dealer. Also enumerate the rate of tax to be collected and the amount on which no tax is to be collected. OR In the context of Tax Return Preparer scheme, 2006, explain the following: (i) Eligible Persons (ii) Educational Qualifications of Tax Return Preparer (iii) Persons not entitled to act as return preparer

Accepted Answer

**Tax Collection at Source on Overseas Remittance by Authorized Dealer**

**Provisions under Section 194O:**

**Section 194O of the Income Tax Act, 1961** (introduced by Finance Act, 2020) provides for Tax Collection at Source (TCS) on remittance of money outside India by an authorized dealer in foreign exchange. An **authorized dealer** means a person authorized by the Reserve Bank of India to deal in or with foreign exchange. TCS applies when an authorized dealer remits money on behalf of any person to a resident outside India.

**Rate of Tax Collection:**

The standard rate of TCS is **0.5%** of the amount remitted. However, the rate is **5%** for remittance by way of purchase of foreign currency in cash for travel to such countries or territories as notified by the Central Government as high-risk jurisdictions.

**Amounts and Transactions where No Tax is Collected:**

**1. Export Remittances:** TCS is not collected on remittances on account of export of goods or services from India.

**2. Authorized Person Remittances:** No TCS is levied when the authorized dealer remits in its own name or on behalf of any other authorized person recognized by RBI.

**3. Notified Exemptions:** Remittances to countries, territories, or for purposes notified by the Central Government are exempt from TCS collection.

**4. Monetary Thresholds:** Remittances below monetary limits notified by the Central Government are exempt. For instance, cash remittance for travel purposes up to ₹7 lakh per …

Question 9

Miss Nitya proprietor of M/s. Honest Enterprise, a registered supplier of taxable goods and services in the state of West Bengal, pays GST under regular scheme. It is not eligible for any threshold exemption. It provided the following information for the month of December 2022. Compute the net minimum GST payable in cash by M/s. Honest Enterprise for the month of December 2022.

Accepted Answer

**Computation of Net Minimum GST Payable in Cash by M/s. Honest Enterprise for December 2022**

**Treatment of Outward Supplies:**

**I. Intra-state supply of goods — ₹7,00,000:** Taxable under forward charge. CGST @ 2.5% = ₹17,500; SGST @ 2.5% = ₹17,500.

**II. Inter-state transfer to branch (same GSTIN) — ₹1,00,000:** As per **Schedule I of the CGST Act, 2017**, supply between distinct persons (different GSTINs) is taxable even without consideration. However, since both places are registered under the **same GSTIN**, they are NOT distinct persons and this transfer is **NOT a supply** — no GST liability.

**III. Sponsorship services to NGC List, Chennai — ₹80,000:** Under **Notification No. 13/2017-CT(Rate) (Reverse Charge Mechanism)**, services by way of sponsorship supplied by **any person** to a **body corporate or partnership firm** attract RCM. The **recipient (NGC List)** is liable to pay GST. Miss Nitya has **no output tax liability** on this transaction.

**IV. Advance received for management consultancy — ₹40,000:** This is an advance received for future supply of services (intra-state). Under **Section 13(2) of the CGST Act, 2017**, time of supply is the earlier of date of payment or date of invoice — hence taxable in December 2022. CGST @ 9% = ₹3,600; SGST @ 9% = ₹3,600.

**Treatment of Inward Supplies:**

**I. Purchase of taxable goods — ₹8,00,000:** ITC available as per **Section 16 of the CGST Act, 2017**. CGST ITC = ₹20,000; SGST ITC = ₹20,000.

**II. Works co…

Question 10

Mr. Dhanwan, an individual registered supplier of Ahmedabad (Gujarat), receives the following amount towards rendering of the intra-state supply of various services in the month of January 2021. You are required to compute the value of supply on which GST is to be paid by Mr. Dhanwan for the month of January 2021. All the amount stated above are exclusive of GST, wherever applicable. Suitable notes should form part of the answer.

Accepted Answer

**Computation of Value of Supply on which GST is to be paid by Mr. Dhanwan for January 2021**

| Sr. | Particulars | Amount (₹) | Taxable Value (₹) |
|-----|-------------|-------------|-------------------|
| I | Security & housekeeping services to Rishi Foundation (outside premises) | 60,000 | 60,000 |
| II | Honorarium for guest anchor on Arpan TV | 2,25,000 | 2,25,000 |
| III | Hiring charges for non-AC contract carriage to M/s. Shisely Pvt. Ltd. | 1,50,000 | Nil |
| IV | Training in recreation activities of music | 90,000 | 90,000 |
| V | Renting of residential flat for personal residence | 30,000 | Nil |
| | **Total Value of Taxable Supply (GST payable by Mr. Dhanwan)** | **5,55,000** | **3,75,000** |

**The value of supply on which GST is to be paid by Mr. Dhanwan is ₹3,75,000.**

**Notes:**

**Item I — ₹60,000 (TAXABLE):** Under Entry 66 of Notification No. 12/2017-Central Tax (Rate), security or housekeeping services provided TO an educational institution are exempt only when such services are **performed in such educational institution**. Here, the annual day function is held **outside the school premises**, so the condition of being performed 'in' the institution is not satisfied. The exemption does not apply and ₹60,000 is fully taxable.

**Item II — ₹2,25,000 (TAXABLE):** Receipt of honorarium by Mr. Dhanwan for appearing as a guest anchor on Arpan TV constitutes a taxable supply of service. No specific exemption is available under Notification No. 12/2017-CT(Rate)…

Question 11

Examine whether the following activities would be treated as supply under GST law?

Accepted Answer

**Supply under GST – Analysis of Both Activities**

**(i) Water Cooler Donation by Mr. Sonu:**

Under **Section 7 of the CGST Act, 2017**, supply is defined as provision of goods or services for consideration by a taxable person in the course or furtherance of business.

In this case, there are two distinct transactions:

**First Transaction (Mallverns Bros to Sonu):** This **IS a supply under GST**. Mallverns Bros, being a registered person, is providing a water cooler to Sonu for a consideration of ₹25,000. The engraving service, being customization done as part of fulfilling the sales contract, forms part of the same supply. Malverns Bros is acting in the course of business, consideration is paid, and all elements of supply are satisfied.

**Second Transaction (Sonu to Temple):** This **IS NOT a supply under GST**. When Sonu donates the water cooler to the temple, there is no consideration involved. The donation is a voluntary, gratuitous transfer of goods. Under Section 7(1), the absence of consideration is fatal to supply. Even though Section 7(2)(d) treats free supply of goods as supply, that section applies only when a taxable person gives goods for free in the course of business; Sonu (an individual donor) is not a taxable person engaged in business of donating.

**Conclusion:** The purchase from Mallverns Bros is a taxable supply. The subsequent donation is not a supply under GST law.

**(ii) Management Consultancy Services Received Free of Cost:**

This **IS NOT a s…

Question 12

Mr. Veneram proprietor of M/s. Lalit Kirana Stores is registered as a composition dealer in the Jodhpur district of Rajasthan. He has not submitted the statement for payment of self-assessment tax in the form GST CMP-08 for two consecutive quarters. He placed an order for purchase of taxable goods worth ₹ 2,50,000 with M/s. Bob & Sons (a partnership firm), a registered dealer in the Bikaner district of Rajasthan. M/s. Bob & Sons has been regularly paying the GST returns. M/s. Bob & Sons wants to generate E-way bill with respect to intra-state supply to be made to M/s. Lalit Kirana Stores. Is M/s. Bob & Sons allowed to generate E-way bill as per the provisions of CGST Act, 2017? Answer with proper reasoning.

Accepted Answer

**Answer: YES, M/s. Bob & Sons is allowed to generate E-way bill.**

M/s. Bob & Sons can generate an E-way bill for the intra-state supply to M/s. Lalit Kirana Stores in accordance with Rule 46 of the CGST Rules, 2017.

**Reasoning:**

**1. E-way Bill Requirement:** According to Rule 46 of CGST Rules, 2017, an E-way bill is mandatory for movement of taxable goods having value exceeding ₹50,000 (for intra-state movement). The goods valued at ₹2,50,000 clearly exceed this threshold, making E-way bill generation compulsory.

**2. Default of Composition Dealer:** Although M/s. Lalit Kirana Stores has failed to submit GST CMP-08 (self-assessment tax statement) for two consecutive quarters, this makes them liable for **cancellation of registration under Section 29(2)(c) of CGST Act, 2017**. However, such cancellation is discretionary and initiated by the Commissioner—it does not automatically invalidate the existing registration at the time of placing the order.

**3. Supplier's Right to Generate E-way Bill:** E-way bill is a compliance mechanism for tracking movement of goods, not a privilege dependent on the recipient's registration status. The CGST Rules do not restrict registered suppliers from supplying to composition dealers in default, nor do they prohibit E-way bill generation in such transactions. M/s. Bob & Sons, being a registered dealer, retains the right and obligation to generate the E-way bill.

**4. No Legal Obstacle:** There is no provision in the CGST Act or CGST …

Question 13

Dream World Pvt. Ltd is registered under GST in the State of Haryana. During the Financial Year 2022-23 in annual aggregate turnover was ₹ 12 Crore. In the month of April 2023, it supplied goods worth ₹ 12 Lakh to Nightmare Ltd (a registered taxable person).

Accepted Answer

(i) **Whether e-invoice is mandatory for the transaction in April 2023:**

As per **Rule 48(4) of the CGST Rules, 2017**, every registered person whose **aggregate turnover in any preceding financial year exceeds the notified threshold** is required to prepare a tax invoice by uploading specified particulars on the Invoice Registration Portal (IRP) and obtain an Invoice Reference Number (IRN) — this process is known as **e-invoicing**.

As per **Notification No. 17/2022-Central Tax dated 01.08.2022** (effective from **1st October 2022**), e-invoicing became mandatory for registered persons having aggregate turnover **exceeding ₹10 Crore** in any preceding financial year.

In the given case, Dream World Pvt. Ltd had an **aggregate turnover of ₹12 Crore in FY 2022-23**, which **exceeds ₹10 Crore**. The supply in April 2023 is made to **Nightmare Ltd, a registered taxable person**, making it a **B2B (Business-to-Business) transaction**, which is squarely covered under the e-invoicing mandate.

**Conclusion (i):** E-invoice is **mandatory** for this transaction. Dream World Pvt. Ltd must generate the invoice through the IRP and obtain a valid IRN before or at the time of supply.

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(ii) **Whether e-invoice is mandatory if Nightmare Ltd is a SEZ unit:**

It is important to distinguish between the position of a **SEZ unit as a supplier** and as a **recipient**. As per **Notification No. 13/2020-Central Tax (as amended)**, **SEZ units acting as suppliers** are exempted from the r…

Question 14

Mr. Atul of Chennai is a registered dealer under GST. He has an opening balance of input tax credit of ₹ 1,20,000 (IGST) lying in the electronic credit ledger relating to the month of November, 2022. During the month, a legal proceeding has been initiated under the GST law which resulted in a tax liability of ₹ 80,000 (IGST), other than RCM liability. Mr. Atul agrees with the tax liability and wants to use the balance lying in the electronic credit ledger towards payment of the same. He seeks your opinion with regard to the provisions of GST laws as to whether he is allowed to use the amount lying in the electronic credit ledger for making the payment of tax liability, payable as a consequence of the proceeding?

Accepted Answer

Mr. Atul is **NOT allowed** to use the balance lying in the Electronic Credit Ledger to make payment of the tax liability payable as a consequence of the legal proceeding.

**Legal Position:**

Under **Section 49 of the CGST Act, 2017** and the corresponding provisions of the SGST Act, input tax credit available in the Electronic Credit Ledger can be utilized for payment of IGST, CGST, SGST, and other prescribed duties in the manner and order of priority specified. However, this right to utilize ITC is subject to certain restrictions and conditions.

**Key Restriction:**

A critical restriction under GST law is that the input tax credit lying in the Electronic Credit Ledger **cannot be used to pay tax liability, penalty, or interest that arises as a consequence of any legal proceeding, order passed by any adjudicating officer, or notice issued under GST law.** Such liabilities arising from disputes, legal proceedings, or enforcement actions must be paid through other modes of payment (cash, cheque, online transfer, etc.).

**Application to Present Case:**

In Mr. Atul's case, the tax liability of ₹80,000 (IGST) has arisen directly as a consequence of a legal proceeding initiated under GST law. This falls squarely within the category of liabilities that cannot be discharged using the Electronic Credit Ledger, even though the balance of ₹1,20,000 is sufficient to cover the liability.

**Conclusion:**

Mr. Atul must pay the tax liability of ₹80,000 through cash payment or other …

Question 15

Briefly explain the provisions relating to reversal of input tax credit in case of non-payment of tax by the supplier and recoupment thereof? OR Explain the procedure for revocation of cancellation of registration where the registration of a person is cancelled suo-motto by the proper officer as per the provisions of CGST Act, 2017.

Accepted Answer

**OPTION 1: Reversal of ITC in Case of Non-Payment of Tax by Supplier and Recoupment**

**Relevant Provision:** Section 16(2)(c) of the CGST Act, 2017 lays down that one of the conditions for availing **Input Tax Credit (ITC)** is that the tax charged in respect of such supply has been **actually paid** to the Government by the supplier. Rule 37A of the CGST Rules, 2017 operationalises this condition.

**Mechanism of Reversal:**

Where ITC has been availed by a registered recipient based on details appearing in **GSTR-2B**, but the supplier has not paid the corresponding tax (i.e., has not filed GSTR-3B or has filed GSTR-3B without discharging the tax liability), the ITC so availed becomes ineligible.

The recipient is required to **reverse such ITC** on or before the **30th November of the financial year** succeeding the financial year in which the ITC was availed, or the date of furnishing the **annual return**, whichever is earlier.

**Interest Liability:** The recipient shall be liable to pay **interest under Section 50** of the CGST Act, 2017 on the reversed amount, computed from the date of availing the ITC until the date of its reversal.

**Recoupment of Reversed ITC:** If the supplier subsequently pays the tax and files the return, the reversed ITC may be **re-availed (recouped)** by the recipient. Such re-availment can be done after the tax is reflected in the recipient's GSTR-2B. No interest is payable on re-availment.

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**OPTION 2: Procedure for Revocation of C…

Question 16

Mr. Sameer a registered person under GST, is unable to file GSTR-1, reason being shown that his payable under GSTR-1 which has been filed in respect of last tax period exceeds the tax payable under GSTR-3B which has been filed for the corresponding tax period. Explain the procedure to be followed by the department and Mr. Sameer for the same as per the provisions of Rule 86C of the CGST Rules 2017.

Accepted Answer

**Rule 86C of the CGST Rules, 2017** deals with the restriction on filing of GSTR-1 where a mismatch is detected between the tax liability declared in GSTR-1 and the tax actually paid through GSTR-3B for the corresponding tax period.

**Triggering Condition:** Where the tax payable declared by a registered person in GSTR-1 for a tax period **exceeds** the tax paid by such person as per GSTR-3B filed for the same corresponding tax period, the system flags such discrepancy. In Mr. Sameer's case, this excess has caused a system-level restriction preventing him from filing GSTR-1 for the subsequent tax period.

**Procedure to be followed by the Department (Proper Officer):**

(1) Upon detection of such discrepancy, the proper officer may, **after giving an opportunity of being heard** to Mr. Sameer, restrict him from filing GSTR-1 for the subsequent tax period on the common portal.

(2) An **intimation of the restriction** shall be communicated to Mr. Sameer electronically on the common portal, specifying the reason, i.e., the excess of tax liability in GSTR-1 over tax paid in GSTR-3B.

(3) The proper officer shall examine any representation made by Mr. Sameer explaining the reasons for such difference, and based on the explanation or payment, decide whether to lift the restriction.

**Procedure to be followed by Mr. Sameer:**

(1) **Option 1 – Payment of differential tax:** Mr. Sameer may pay the **differential amount** (i.e., tax payable as per GSTR-1 minus tax paid as per GSTR…

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