Question 1

Compute Service tax liability of Mr. Dominic, a selling agent of lottery for the month of July 2014, using the following details:
(i) Lucky Star-a Jackpot organized for Kerala Government where guaranteed Prize payout is > 80%. Aggregate face value of lottery tickets sold: ₹ 37,00,000
(ii) Magic Winner - Another Jackpot organized for Kerala Government where guaranteed Prize payout is < 80%. Aggregate face value of lottery tickets sold: ₹ 55,00,000
(iii) Commission received from the sale of above tickets, was 10% of aggregate face value of lottery tickets sold.

Accepted Answer

**Service Tax Liability of Mr. Dominic — Lottery Selling Agent (July 2014)**

**Part (i) to (iii): Computation at Normal Rate**

Under normal provisions, service tax is levied on the **commission received** by the lottery selling agent, which constitutes the taxable value of the service. The applicable rate for July 2014 is **12.36%** (Service Tax 12% + Education Cess 2% on ST + Secondary & Higher Education Cess 1% on ST).

Commission received (10% of aggregate face value):
- Lucky Star (Kerala Govt. lottery): 10% × ₹37,00,000 = ₹3,70,000
- Magic Winner (Kerala Govt. lottery): 10% × ₹55,00,000 = ₹5,50,000
- **Total Commission = ₹9,20,000**

Service Tax @ 12.36% on ₹9,20,000 = **₹1,13,712**

---

**Part (iv): Under Special Provision — Rule 6(7A) of Service Tax Rules, 1994**

Rule 6(7A) of the Service Tax Rules, 1994 provides an **optional special scheme** for lottery distributors and selling agents. Instead of paying tax on commission, the agent may pay a **fixed amount per ₹10 lakh (or part thereof)** of aggregate face value of lottery tickets sold:
- Where guaranteed prize payout is **≥ 80%**: ₹7,000 per ₹10 lakh (or part thereof)
- Where guaranteed prize payout is **< 80%**: ₹11,000 per ₹10 lakh (or part thereof)

**Lucky Star** (prize payout > 80%): Face value ₹37,00,000
- Units = ₹37,00,000 ÷ ₹10,00,000 = 3.7 → **4 units** (part thereof rounded up)
- Service Tax = 4 × ₹7,000 = ₹28,000

**Magic Winner** (prize payout < 80%): Face value ₹55,00,000
- Units = ₹55,00,000 ÷ ₹10…

Question 2

The total CST sales of 'X' Ltd. for the Financial Year 2014-15 are ₹ 75 lakhs. Company provides the following additional information:
(i) Goods sold to Mr. A for ₹ 1,00,000 on 16-04-2014, were returned by him on 10-07-2014.
(ii) A buyer Mr. B, to whom goods worth ₹ 50,000 were dispatched on 12-05-2014 rejected such goods. The said goods were received back on 15-11-2014.
(iii) Goods sold to Mr. C for ₹ 5,00,000 on 16-06-2014 were returned by him on 12-03-2015.

Accepted Answer

**Computation of Taxable Turnover of X Ltd. for F.Y. 2014-15**

Under **Section 8A of the Central Sales Tax Act, 1956**, sales returns are deductible from the gross turnover only if the goods are returned by the buyer **within 6 months** from the date of the sale/dispatch. If goods are returned after 6 months, no deduction is permissible.

Applying this rule to each transaction:

**(i) Mr. A — Sold on 16-04-2014, returned on 10-07-2014:** The return took place within 6 months (6 months from 16-04-2014 = 16-10-2014). Since 10-07-2014 is before 16-10-2014, the return is **within 6 months → Deductible: ₹1,00,000**.

**(ii) Mr. B — Dispatched on 12-05-2014, received back on 15-11-2014:** 6 months from 12-05-2014 = 12-11-2014. The goods were received back on 15-11-2014, which is **after 12-11-2014 → NOT deductible: ₹50,000**.

**(iii) Mr. C — Sold on 16-06-2014, returned on 12-03-2015:** 6 months from 16-06-2014 = 16-12-2014. The goods were returned on 12-03-2015, which is well **after 16-12-2014 → NOT deductible: ₹5,00,000**.

**Taxable Turnover = ₹75,00,000 − ₹1,00,000 = ₹74,00,000**

Question 3

Mrs. Ann provides the following information for the Financial year ending 31-3-2015. Compute her total income and tax payable thereon for AY 2015-2016 as per Income Tax Act 1961.

Accepted Answer

**Computation of Total Income of Mrs. Ann for AY 2015-16 (FY 2014-15)**

**A. Income from Salary**

Basic Salary (₹60,000 × 12 months): ₹7,20,000

**HRA:** Mrs. Ann receives HRA of ₹15,000 p.m. = ₹1,80,000 per annum. Exemption under **Section 10(13A) of the Income Tax Act, 1961** requires 'rent actually paid' data, which is not provided. Hence, the entire HRA of ₹1,80,000 is taken as taxable.

**Educational Allowance:** ₹1,500 per month for all three children = ₹18,000 p.a. Exemption under **Section 10(14)**: ₹100 per month per child for maximum 2 children = ₹100 × 2 × 12 = ₹2,400. Taxable portion = ₹18,000 − ₹2,400 = ₹15,600.

Deductions under **Section 16**: Standard deduction was not available for AY 2015-16; no professional tax mentioned. Deduction = NIL.

**Income from Salary = ₹9,15,600**

**B. Income from Business (Truck Hire)**

Mrs. Ann purchased the truck on 01-08-2014; business operates for 8 months (August 2014 to March 2015). She does not maintain books of account and declares net income of ₹11,000 p.m. Interest on bank loan for truck purchase (₹1,000 p.m.) is separately listed as an expense and is allowable as a deduction under **Section 36(1)(iii)**.

Net income declared: ₹11,000 × 8 = ₹88,000. Less: Interest on loan: ₹1,000 × 8 = ₹8,000.

**Income from Business = ₹80,000**

**C. Income from Other Sources**

**Post Office Savings Bank Interest:** ₹8,500 received. Under **Section 10(15)(i)**, interest on Post Office Savings Bank account is exempt up to ₹3,500 (i…

Question 4

Mr. Soham, an Indian Citizen left India on 20-04-2012 for the first time to setup a software firm in Singapore. On 10-04-2014, he entered into an agreement with LK Limited, an Indian Company for the transfer of technical documents and designs to setup an automobile factory in Faridabad. He reached India along with his team to render the requisite services on 15-05-2014 and was able to complete his assignment on 20-08-2014. He left for Singapore on 21-08-2014. He charged ₹ 50 Lakhs for his services from LK Limited.

Accepted Answer

**Part (a): Residential Status of Mr. Soham for AY 2015-2016 (Previous Year 2014-2015)**

**Step 1 – Count days present in India during PY 2014-15**

Mr. Soham was in India from **15-05-2014 to 21-08-2014**. He left India for the first time on 20-04-2012, so on 01-04-2014 he was already outside India. His only stay in PY 2014-15 is this assignment period.

Total days in India during PY 2014-15 = **99 days** (see working notes).

**Step 2 – Apply conditions under Section 6(1) of the Income Tax Act, 1961**

*Condition (a):* An individual is resident if he is in India for **182 days or more** during the previous year.
Mr. Soham was present for only 99 days. **Condition (a) is NOT satisfied.**

*Condition (b):* An individual is resident if he is in India for **60 days or more** in the previous year AND **365 days or more** during the 4 preceding previous years (PY 2010-11 to 2013-14).

However, the **Explanation to Section 6(1)** provides that in the case of a **citizen of India who, being outside India, comes on a visit to India** in any previous year, the threshold of 60 days in condition (b) is substituted by **182 days**.

Mr. Soham is a citizen of India; he was residing in Singapore (outside India) and came to India temporarily to render services. This constitutes "coming on a visit to India" and the Explanation applies squarely to him. Accordingly, condition (b) requires him to be present in India for **182 days or more**.

Since he was present for only 99 days, **Condition…

Question 5

D & Company is engaged in the sales of spaces for advertisements in different medias. It furnishes the following information for the quarter ending 31-12-2014:
(i) Sales of space for advertisement in Zee TV: ₹ 25,00,000
(ii) Sale of space for advertisement in various websites: ₹ 12,00,000
(iii) Sale of space for advertisement in DNA Newspaper: ₹ 5,50,000
(iv) Sales of space for advertisement in various multiplexes: ₹ 32,00,000

D & Company also assist it's clients in the preparation of advertisement for which it earned ₹ 8,50,000 during the said quarter.

Invoices were issued within 30 days of completion of service and the payment was received in the month of January, 2015.

Accepted Answer

**Computation of Service Tax Liability for the Quarter Ending 31-12-2014**

Under Chapter V of the Finance Act 1994, service tax is levied on all services except those covered under the **negative list (Section 66D)** or exempt under **Mega Exemption Notification No. 25/2012**.

**Item-wise analysis:**

**(i) Advertisement on Zee TV — ₹25,00,000 — TAXABLE**
Section 66D(g) places 'sale of space or time slots for advertisements **other than** those broadcast by radio or television' in the negative list. Since Zee TV is a television broadcast, this is NOT covered by the negative list and is fully **taxable**.

**(ii) Advertisement on Websites — ₹12,00,000 — TAXABLE**
The **Finance Act 2014** amended Section 66D(g) to exclude **online advertisements** from the negative list, effective 01-10-2014. Since the quarter covers October–December 2014, website advertisements are **taxable**.

**(iii) Advertisement in DNA Newspaper — ₹5,50,000 — EXEMPT (NIL)**
Sale of space for advertisement in **print media** (newspapers, periodicals) is specifically covered under the negative list under Section 66D(g) — it is neither radio nor television broadcast, and is not excluded from the negative list. Hence, **no service tax** is payable.

**(iv) Advertisement in Multiplexes — ₹32,00,000 — TAXABLE**
Multiplex screen advertisements are not covered by any exemption under the negative list or Notification No. 25/2012. They are **taxable**.

**(v) Preparation/Assistance in Advertisement — ₹8,50,000 — …

Question 6

Mr. Martin sold his residential house property on 08-06-2014 for 70 lakhs which was purchased by him for 20 lakhs on 05-05-2005. He paid ₹ 1 lakh as brokerage for the sale of said property. The stamp duty valuation assessed by sub registrar was ₹ 80 lakhs. He bought another house property on 25-12-2014 for 15 lakhs. He deposited 10 lakhs on 10-11-2014 in the capital gain bond of National Highway Authority of India (NHAI). He deposited another 10 lakhs on 10-07-2015 in the capital gain deposit scheme with SBI for construction of additional floor of house property. Compute income under the head "Capital Gains "for A.Y. 2015-2016 as per Income Tax Act 1961 and also Income tax payable on the assumption that he has no other income chargeable to tax. Cost inflation index for Financial Year 2005-…

Accepted Answer

**Computation of Income under the head 'Capital Gains' for A.Y. 2015-16**

**Nature of Capital Gain:** The property was purchased on 05-05-2005 and sold on 08-06-2014, giving a holding period of over 9 years (more than 36 months). Therefore, it is a **Long Term Capital Asset** and the gain is a **Long Term Capital Gain (LTCG)**.

**Full Value of Consideration — Section 50C of the Income Tax Act, 1961:** The actual sale consideration is ₹70 lakhs, but the stamp duty valuation by the Sub-Registrar is ₹80 lakhs. Since the stamp duty value exceeds the actual consideration, Section 50C deems the stamp duty value of **₹80,00,000** as the full value of consideration.

**Computation of LTCG:**

Full Value of Consideration (Section 50C): ₹80,00,000
Less: Brokerage (Cost of transfer): ₹1,00,000
Less: Indexed Cost of Acquisition [₹20,00,000 × 1024/497]: ₹41,20,724
**Long Term Capital Gain: ₹37,79,276**

**Exemptions Available:**

**Section 54 — Purchase/Construction of New Residential House:**
(i) New house purchased on 25-12-2014 for ₹15,00,000 — purchased within 2 years of sale date (08-06-2014) ✓
(ii) ₹10,00,000 deposited on 10-07-2015 in Capital Gain Deposit Account Scheme (CGDAS) with SBI for construction of additional floor — deposited before due date of filing return for A.Y. 2015-16 (31-07-2015) ✓
Total Section 54 Exemption: **₹25,00,000**

**Section 54EC — Investment in Specified Bonds:**
₹10,00,000 invested in NHAI Capital Gain Bonds on 10-11-2014 — within 6 months of date of …

Question 7

Seethe Granites Ltd. purchased a machine for ₹ 20,00,000 on 1-9-2013. The excise duty rate charged on the said machine was 16% plus education cess 2% plus secondary and higher education cess 1%. It was sold on 30-09-2014 for ₹10,00,000, as second hand machine at the same rate of excise duty. Calculate the amount of CENVAT to be reversed at the time of disposal of the machinery in the year 2014-15 towards 100% CENVAT credit utilized and exhausted by the month of April 2014.

Accepted Answer

**Rule 3(5A) of CENVAT Credit Rules, 2004** governs the reversal of CENVAT credit when capital goods (on which credit has been taken) are removed after being used. The amount to be reversed is the CENVAT credit taken **reduced by 2.5% per quarter (or part thereof)** from the date of taking credit, subject to the condition that the amount shall not be less than the excise duty leviable on the transaction value of sale.

**Step 1 – CENVAT Credit originally availed on purchase of machine:**

Purchase price of machine = ₹20,00,000
Basic Excise Duty @ 16% = ₹3,20,000
Education Cess @ 2% on BED = ₹6,400
SHE Cess @ 1% on BED = ₹3,200
**Total CENVAT credit availed = ₹3,29,600** (100% utilised by April 2014 as stated)

**Step 2 – Number of quarters from date of availing credit to date of sale:**

Date of taking CENVAT credit: 1-9-2013
Date of sale: 30-9-2014
Period = 13 months → 4 complete quarters + 1 month (part of quarter counts as full quarter)
**Total quarters = 5**

**Step 3 – Permissible reduction:**

Reduction = 5 quarters × 2.5% = 12.5%
Amount of reduction = 12.5% × ₹3,29,600 = ₹41,200
**Net CENVAT to be reversed [Method A] = ₹3,29,600 − ₹41,200 = ₹2,88,400**

**Step 4 – Excise duty on transaction value of sale (proviso check):**

Sale price = ₹10,00,000 (second-hand)
BED @ 16% = ₹1,60,000; EC @ 2% = ₹3,200; SHEC @ 1% = ₹1,600
**Duty on transaction value [Method B] = ₹1,64,800**

**Step 5 – Amount to be reversed = Higher of Method A and Method B**

₹2,88,400 > ₹1,64,800

**CE…

Question 8

Mr. Arnab Ghosh, a manufacturer, furnished the following particulars: Price of machine excluding tax and duties ₹ 2,00,000, Transit insurance ₹ 10,000, Packing charges ₹ 10,000, Extra charges for designing the machine ₹ 25,000, Outward freight beyond the place of removal ₹ 15,000, Cash discount allowed to customer for full payment made in advance 2%, VAT 5%, Excise Duty 12%. Calculate the excise duty payable by Mr. Arnab Ghosh, stating the reason for inclusion or exclusion for duty.

Accepted Answer

**Computation of Excise Duty Payable by Mr. Arnab Ghosh**

Under **Section 4 of the Central Excise Act, 1944**, excise duty is levied on the **transaction value** (assessable value) of the goods. Transaction value includes all amounts charged by the manufacturer but excludes certain specified items.

**Reasons for Inclusion / Exclusion:**

**Price of machine (₹2,00,000) – Included:** This is the basic price of the excisable goods and forms the core of the transaction value.

**Transit insurance (₹10,000) – Included:** Transit insurance incurred up to and including the place of removal is part of the transaction value and hence includible in the assessable value.

**Packing charges (₹10,000) – Included:** Packing is necessary for making the goods marketable and for sale. Packing charges are expressly includible in the assessable value.

**Extra charges for designing the machine (₹25,000) – Included:** Any amount charged by the manufacturer in relation to the manufacture/design of the goods is part of the transaction value and is includible.

**Outward freight beyond the place of removal (₹15,000) – Excluded:** Freight charges incurred **beyond the place of removal** are not includible in the assessable value, as the value of goods is determined at the place of removal.

**Cash discount @ 2% – Deducted:** Cash discount actually allowed and known at the time of removal is deductible from the transaction value, as per the principles under Section 4. It reduces the amount actually…

Question 9

M/s. Packard Industries (not an SSI Unit) are in production of corrugated paper cartons. It provides the following details for the month of June 2014: It sold waste and scrap generated in the course of manufacture. Besides it also manufactured prohibited goods and sold.

Accepted Answer

**Part (A): Liability to Excise Duty**

**(i) Waste — ₹1,50,000:** Under the **Central Excise Act, 1944**, excise duty is levied on the manufacture of 'excisable goods' as defined under **Section 2(d)**. Waste and scrap generated during manufacture are treated as goods manufactured and are excisable if they are listed in the **Central Excise Tariff Act (CETA), 1985** and are marketable. Paper/paperboard waste and scrap falls under **Chapter 47 of CETA**. Since M/s. Packard Industries is selling the waste, it is clearly marketable. Therefore, **excise duty IS payable** on waste of ₹1,50,000.

**(ii) Scrap Sale — ₹11,50,000:** Same reasoning applies as above. Scrap generated in the course of manufacture of corrugated paper cartons is excisable under Chapter 47 of CETA and is marketable (being sold). Therefore, **excise duty IS payable** on scrap of ₹11,50,000.

**(iii) Manufacture of Prohibited Goods — ₹2,50,000:** Under the Central Excise Act, excise duty is attracted the moment dutiable goods are manufactured, regardless of their legal status. The fact that goods are prohibited does not exempt them from central excise levy. Therefore, **excise duty IS payable** on prohibited goods worth ₹2,50,000 as well.

**Part (B): Payment and Return of Excise Duty**

**(i) Payment of Excise Duty:** As per **Rule 8 of the Central Excise Rules, 2002**, for assessees other than SSI units (like M/s. Packard Industries), excise duty for all clearances made during a calendar month is to be paid…

Question 10

Mr. Venus provides the following details for the previous year ending 31-3-2015: (i) Salary from HNL Ltd ₹ 50,000 per month, (ii) Interest on FD with SBI for Financial Year 2014-15 ₹ 72,000 (Net of TDS), (iii) Determined long term capital loss of AY 2013-14 (to be carried forward) ₹ 96,000, (iv) Long term Capital gain ₹ 75,000, (v) Loss of minor son ₹ 90,000 computed in accordance with the provisions of Income tax Act. Mr. Venus transferred his own house to his minor son without adequate consideration few years back and minor son let it out and suffered loss. (vi) Loss of his wife's business ₹(2,00,000). She carried business with funds which Mr. Venus gifted to her. You are required to compute taxable income of Mr. Venus for the AY 2015-16.

Accepted Answer

**Computation of Taxable Income of Mr. Venus for AY 2015-16** (Previous Year ending 31-3-2015)

**Income from Salary:**
Salary from HNL Ltd @ ₹50,000 p.m. × 12 = **₹6,00,000**. No standard deduction is available for AY 2015-16 (re-introduced only from AY 2019-20). No entertainment allowance or professional tax mentioned.

**Income from House Property (Clubbed — Minor Son):**
Mr. Venus transferred his house to his minor son without adequate consideration. The minor son let it out and suffered a loss of ₹90,000. Under **Section 64(1A) of the Income Tax Act, 1961**, all income (including loss) of a minor child is clubbed with the parent having the higher total income. Accordingly, the **house property loss of ₹90,000** is clubbed with Mr. Venus. Under **Section 71**, this loss is set off against salary income in the current year. Note: The ₹2,00,000 cap on HP loss set-off against other heads (introduced by Finance Act 2017) is not applicable for AY 2015-16.

**Profits and Gains of Business or Profession (Clubbed — Wife):**
Mr. Venus gifted funds to his wife, who used them to carry on business. Under **Section 64(1)(iv)**, income (including loss) arising to the spouse from assets transferred without adequate consideration is clubbed with the transferor's income. Accordingly, the **business loss of ₹2,00,000** is clubbed with Mr. Venus. Under **Section 71**, this business loss is set off against other income (salary/other sources).

**Capital Gains:**
Long-term capital gain of ₹75…

Question 11

Mr. Atmaram who was the Recipient of services, provides the following data with Invoice dates 15-10-2014 and 20-10-2014, and corresponding Payment dates 10-11-2014 and 15-02-2015. He requests you to explain the (i) Point of taxation and (ii) Due date of payment of service tax as per the Service Tax Law and procedures.

Accepted Answer

**(i) Point of Taxation:**

Point of Taxation (PoT) is the moment when the taxable event occurs and the liability to pay service tax arises. Under the Finance Act and Service Tax Law, the Point of Taxation is determined as the **date when the invoice is issued OR the date when payment is received, whichever is earlier**.

**Application to the given invoices:**
- **Invoice dated 15-10-2014** with payment on 10-11-2014 → PoT is **15-10-2014** (invoice date is earlier than payment date)
- **Invoice dated 20-10-2014** with payment on 15-02-2015 → PoT is **20-10-2014** (invoice date is earlier than payment date)

In both cases, the invoice is issued before the respective payment is made, so the Point of Taxation is established on the invoice date itself.

**(ii) Due Date of Payment of Service Tax:**

Service tax becomes due for payment as per the statutory due date prescribed under the Service Tax Law and procedures. The **due date for payment is the 5th of the calendar month following the month in which the Point of Taxation occurs**.

**Application:**
Since both invoices are dated in October 2014 with Points of Taxation on 15-10-2014 and 20-10-2014 respectively, the **due date for payment of service tax is 5th November 2014** for both invoices.

As Mr. Atmaram is the recipient of services, he is liable under the **reverse charge mechanism** to pay service tax on behalf of the service provider. The service tax liability must be discharged by filing the monthly service tax return …

Question 12

The following information is provided:
(iv) The total turnover of the year includes Dharmada ₹ 30,000.
(v) All the amounts mentioned are inclusive of tax.

Determine the amount of taxable turnover and tax liability of 'X' Ltd. under CST Act, assuming all transactions were covered by valid C forms and VAT rate within the state is 5%.

Accepted Answer

**ISSUE**: The question appears incomplete—it specifies Dharmada of ₹30,000 and VAT rate of 5%, but does not provide the total turnover figure necessary to calculate taxable turnover and tax liability. Based on the incomplete information, the methodology is as follows:

**Treatment of Dharmada**: Under Section 6-A of the CST Act, 1956, contributions towards charitable/welfare institutions (Dharmada) are excluded from taxable turnover if they meet statutory requirements. Thus, Dharmada of ₹30,000 must be deducted from gross turnover.

**Calculation Framework**: 
1. Gross Turnover (not provided) = ? 
2. Less: Dharmada (excluded from taxable turnover) = ₹30,000 
3. Subtotal = Gross Turnover - ₹30,000

**Segregation of Tax**: Since all amounts are stated inclusive of VAT at 5%, the net turnover must be extracted. If an inclusive amount is X, the net turnover = X ÷ 1.05, and tax component = X - (X ÷ 1.05).

**Tax Liability**: 
- For intra-state sales (covered by C forms): Subject to VAT at 5% under state law 
- For inter-state sales: Subject to CST under the CST Act

**Final Answer Cannot Be Determined**: The taxable turnover and tax liability cannot be computed without the total turnover figure. The student should refer to the complete question for the missing turnover amount and any breakdown between inter-state and intra-state sales.

Question 13

State with reasons, the allowability of the following expenses incurred by MN Limited, a wholesale dealer of commodities, under the Income Tax Act, 1961 while computing Profit & Gains from business or profession for the Assessment Year 2015-2016.

Accepted Answer

**Assessment Year: 2015-16 | Assessee: MN Limited (Wholesale Dealer of Commodities)**

**(i) Construction of school building under CSR activities — ₹5,60,000**

**Not Allowable.** As per **Explanation 2 to Section 37(1) of the Income Tax Act, 1961**, inserted by the Finance (No. 2) Act, 2014 with effect from AY 2015-16, any expenditure incurred by an assessee on activities relating to **Corporate Social Responsibility (CSR)** as referred to in **Section 135 of the Companies Act, 2013** shall **not be deemed** to be an expenditure incurred for the purposes of business or profession. The construction of a school building in compliance with CSR obligations falls squarely within this Explanation. The entire ₹5,60,000 is **disallowed**.

**(ii) Purchase of building for warehousing facility for storage of food grains — ₹4,50,000**

**Allowable under Section 35AD.** Setting up and operating a **warehousing facility for storage of agricultural produce** is a **specified business** under Section 35AD of the Income Tax Act, 1961. Food grains constitute agricultural produce. A deduction of **100% of capital expenditure** (excluding expenditure on land, goodwill, and financial instruments) incurred wholly and exclusively for the specified business is allowed under Section 35AD(1). The purchase of a building for such facility qualifies as capital expenditure of a capital nature. Accordingly, **₹4,50,000 is fully deductible** under Section 35AD. Note: Once Section 35AD is claimed, no depre…

Question 14

Discuss whether the following services are chargeable to service tax or not?

Accepted Answer

**Understanding Service Tax Chargeability**

Service Tax was levied on specified services under the Finance Act, 1994. Chargeability depended on whether a service fell within the defined scope or benefited from exemptions listed in the Negative List (Schedule II).

**(i) Paddy milled into rice on job work basis - NOT CHARGEABLE**

Job work services refer to processing of goods/materials for another on a contractual basis. Under Service Tax, job work services were specifically **exempt** under the Negative List. The rationale is that job work constitutes manufacturing or processing activity rather than a distinct service. Therefore, when paddy is milled into rice on a job work basis, this activity is NOT chargeable to Service Tax.

**(ii) Hockey player receiving fees from Indian Hockey Federation - CHARGEABLE**

This represents **sports services**, which are explicitly covered under Service Tax. When a sports professional provides sports services (participation in events), the remuneration received is taxable. While exemptions existed for services provided by sports federations in organizing events, these do not apply when the federation pays for services received from an athlete. The federation is the recipient of the athlete's sports services, not the service provider. Therefore, this is CHARGEABLE to Service Tax.

**(iii) Celebrity brand ambassador receiving ₹15,00,000 for advertising - CHARGEABLE**

**Advertising services** are explicitly covered under Service Tax. When a …

Question 15

Mr. Raphael constructed a shopping complex. He had taken a loan of ₹ 25 lakhs for construction of the said property on 01-08-2012 from SBI @ 10% for 5 years. The construction was completed on 30-06-2013. Rental income received from shopping complex ₹ 30,000 per month-let out for the whole year. Municipal Taxes paid for shopping complex ₹ 8,000. Arrears of rent received from shopping complex ₹ 1,20,000. Interest paid on loan taken from SBI for purchase of house for use as own residence for the the period 2014-2015, ₹ 3 lakhs. You are required to compute Income from House property of Mr. Raphael for AY 2015-2016 as per Income Tax Act, 1961.

Accepted Answer

**Computation of Income from House Property of Mr. Raphael for AY 2015-2016 (PY 2014-2015)**

Under the **Income Tax Act, 1961**, income from house property is computed under **Section 22** read with **Section 23 and Section 24**. Mr. Raphael has two properties: a let-out shopping complex and a self-occupied house. Arrears of rent are dealt with separately under **Section 25A**.

**Property 1 – Shopping Complex (Let-out Property)**

The **Gross Annual Value (GAV)** is the actual rent received since the property is let out for the whole year: ₹30,000 × 12 = ₹3,60,000. As per **Section 23(1)**, the GAV is taken as actual rent when no vacancy or unrealised rent situation arises.

**Net Annual Value (NAV)** = GAV − Municipal Taxes paid = ₹3,60,000 − ₹8,000 = ₹3,52,000.

Deductions under **Section 24**:
- **(a) Standard Deduction** @ 30% of NAV = ₹1,05,600.
- **(b) Interest on loan for construction**: The loan of ₹25,00,000 was taken on 01-08-2012 at 10% p.a.
  - **Pre-construction interest**: Pre-construction period runs from 01-08-2012 to 31-03-2013 (8 months, being the period up to 31st March of the year preceding the year of completion i.e., FY 2013-14). Pre-construction interest = ₹25,00,000 × 10% × 8/12 = ₹1,66,667. This is deductible in **5 equal instalments** from the year of completion (AY 2014-15 onwards). Instalment for AY 2015-16 = ₹1,66,667 ÷ 5 = ₹33,333.
  - **Current year interest** (FY 2014-15): The 5-year loan runs till 31-07-2017, so the full loan is outstanding …

Question 16

Answer any two of the following three sub-divisions

Accepted Answer

**Note:** Any two of the three sub-divisions are to be answered. All three are solved below for reference.

**(i) Advance Tax on Capital Gains and Casual Income**

Under **Section 234C of the Income Tax Act, 1961**, interest is levied for deferment of advance tax instalments. However, **special relaxation** is provided for capital gains and casual income (winnings from lotteries, crossword puzzles, races, card games, etc.) since such income is unpredictable in nature.

**General instalment schedule under Section 211:** 15% by 15th June, 45% by 15th September, 75% by 15th December, and 100% by 15th March of the financial year.

**Special provisions:** If capital gains or casual income arise **after the due date of any instalment**, the assessee is required to include such income in the **immediately following instalment(s)** in equal proportions. No interest under Section 234C is charged for non-inclusion in earlier instalments.

For example, if capital gains arise after 15th December, the entire tax on such gains must be included in the last instalment (by 15th March). If such income arises **after 15th March**, it must be paid by **31st March** of the financial year — and no interest under Section 234C is levied in such a case.

This provision acknowledges that capital gains and casual receipts are inherently irregular and cannot be anticipated at the time of paying earlier instalments.

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**(ii) Consequences of Failure to Deduct or Pay Tax — Section 201**

Under **Sectio…

Question 17

Mr. Mahesh of Kolkata purchased goods from Mr. Suresh of Assam amounting to ₹ 8,55,000 including VAT @ 12.50% in the month of January, 2015. He incurred ₹ 2,50,000 as manufacturing & other expenses and added @ 25% profit on cost. Mr. Mahesh sold 80% of the goods to Mr. Nayan of Kolkata and charged VAT @ 12.50% on 02-02-2015. Remaining 20% of the goods were transferred to his branch in Manipur on 05-02-2015. Compute the net VAT payable and input tax credit, if any for the month of February 2015.

Accepted Answer

**Computation of Net VAT Payable and Input Tax Credit for February 2015**

**Step 1 — Purchase Price (Excluding VAT)**

Mr. Mahesh purchased goods from Mr. Suresh of Assam (inter-state purchase) at ₹8,55,000 inclusive of VAT @ 12.50%. The **Input Tax Credit (ITC)** available on purchases = ₹8,55,000 × 12.50/112.50 = **₹95,000**. Cost of goods (excluding VAT) = ₹8,55,000 − ₹95,000 = **₹7,60,000**.

**Step 2 — Total Cost and Selling Price**

Total cost = ₹7,60,000 + ₹2,50,000 (manufacturing & other expenses) = ₹10,10,000. Profit @ 25% on cost = ₹2,52,500. **Selling price (total, ex-VAT)** = ₹10,10,000 + ₹2,52,500 = **₹12,62,500**.

**Step 3 — Sale to Mr. Nayan (80%)**

Value of 80% goods sold = ₹12,62,500 × 80% = ₹10,10,000. **Output VAT charged @ 12.50%** = ₹10,10,000 × 12.50% = **₹1,26,250**.

**Step 4 — Branch Transfer to Manipur (20%)**

The remaining 20% transferred to a branch in Manipur is an **inter-state stock transfer** and does not attract VAT (no sale occurs). However, under state VAT laws, **ITC attributable to goods used in non-sale transfers (branch transfers to another state) is NOT available** and must be reversed.

ITC on goods transferred to branch = ₹95,000 × 20% = **₹19,000** — **not available / to be reversed**.

**Step 5 — Net VAT Payable**

ITC eligible (on 80% taxable sales) = ₹95,000 × 80% = **₹76,000**.

Net VAT Payable = Output VAT − Eligible ITC = ₹1,26,250 − ₹76,000 = **₹50,250**.

**Conclusion:** Net VAT payable for February 2015 is **₹50,250**. E…

Question 18

Ms. Madhavi, a practicing chartered accountant in Jammu & Kashmir provides the following information for the half year ended 30th September, 2014: (i) Audit fees received from Jammu and Kashmir Bank, Jammu - ₹5,50,000 (ii) Audit fees received from Punjab National Bank, Delhi - ₹8,50,000 (iii) Audit fees received from other clients in Jammu & Kashmir - ₹2,00,000 (iv) Consultancy charges for services rendered outside Jammu & Kashmir - ₹2,90,000 (v) Fees received as part time lecturer in a local college - ₹1,30,000. Compute the amount of service tax payable @ 12.36% by Ms. Madhavi for the half year ended 30th September 2014. Assume Ms. Madhavi is not eligible for small service provider. All the above amounts are exclusive of service tax.

Accepted Answer

**Service Tax Computation for Ms. Madhavi (Half Year ended 30th September 2014)**

Service tax under the **Finance Act, 1994** does not extend to the state of **Jammu & Kashmir (J&K)**. Therefore, only services whose place of provision falls outside J&K are liable to service tax. Under the **Place of Provision of Services Rules, 2012**, for professional/consultancy services, the place of provision is generally the location of the service recipient.

**Analysis of each income:**

**(i) Audit fees from J&K Bank, Jammu – ₹5,50,000:** The recipient (J&K Bank, Jammu branch) is located within J&K. Place of provision is J&K → **NOT taxable** (Finance Act 1994 does not apply to J&K).

**(ii) Audit fees from Punjab National Bank, Delhi – ₹8,50,000:** The recipient (PNB) is located in Delhi, which is outside J&K. Place of provision is Delhi → **TAXABLE**.

**(iii) Audit fees from other clients in J&K – ₹2,00,000:** Recipients are within J&K → **NOT taxable**.

**(iv) Consultancy charges for services rendered outside J&K – ₹2,90,000:** Services are rendered outside J&K, so the Finance Act 1994 applies → **TAXABLE**.

**(v) Fees as part-time lecturer in local college – ₹1,30,000:** Services rendered in J&K (local college within J&K) → **NOT taxable**. Additionally, educational services of this nature may fall under the negative list under Section 66D of the Finance Act, 1994.

**Service Tax Payable:**

Total taxable value = ₹8,50,000 + ₹2,90,000 = **₹11,40,000**

Service tax @ 12.36% = ₹…

Question 19

Explain the provisions with regard to filling of CENVAT credit returns as explained in sub rule (7) to (11) of CENVAT Rules.

Accepted Answer

**Filing of CENVAT Credit Returns – Provisions under Sub-rules (7) to (11)**

**Manner and Form of Filing (Sub-rule 7):** CENVAT credit returns must be filed in the prescribed form and manner as specified by the Commissioner. The return should contain details of input tax credit claimed, including cost of inputs, capital goods, and services. Returns may be filed through electronic mode or in physical form as per instructions issued by the department. The return should be accompanied by necessary documents and supporting records to substantiate the credit claimed.

**Time Limit for Filing (Sub-rule 8):** Returns must be filed within the prescribed period from the end of the relevant period (usually monthly or quarterly as per the turnover slab). The time limit is typically 30 days from the end of the relevant month or quarter. Returns filed after the due date but within a specified extended period may be accepted with late fees. Returns filed beyond the extended period may result in forfeiture of credit for that period.

**Information and Particulars to be Furnished (Sub-rule 9):** The return must include (i) opening balance of credit brought forward, (ii) credit earned during the period on inputs and capital goods, (iii) credit availed on services, (iv) total credit available, (v) credit utilized for payment of duty, (vi) credit transferred to other units, (vii) closing balance. Supporting documents such as invoices, challans, and credit notes must be maintained and produced …

Question 20

Justify the following statements with reference to the provisions of VAT.

Accepted Answer

**Answer to VAT Provisions Justification**

**(i) Sub-lease can be taxed:** A sub-lease constitutes a taxable supply under VAT because the sub-lessor is supplying rights to use or occupy property to the sub-lessee for consideration. Even though the sub-lessor itself holds the property under lease, the act of granting use-rights to another person is an independent supply of service/goods. The sub-lessee becomes liable for tax on the amount received as sub-lease rent. The original lessor and sub-lessor are distinct suppliers in the chain, and each supply triggers VAT obligation. This supports the principle that VAT is levied at each stage of supply.

**(ii) Central Sales Tax is not vatable:** Central Sales Tax (CST) is a tax levied on inter-state sales of goods and operates under a different legislative framework (Central Sales Tax Act, 1956) than state VAT/Sales Tax. CST is not an input tax for VAT purposes because: (a) CST is a separate tax on the sale itself, not an additive tax on value; (b) CST paid on purchases cannot be claimed as input tax credit for VAT calculation; (c) CST and VAT are mutually exclusive taxes on inter-state vs. intra-state transactions. Therefore, while VAT is creditable, CST remains a non-recoverable tax.

**(iii) Sale of food in hotel is a deemed sales liable to VAT:** Food and beverages supplied by hotels are treated as sales of goods (not services) under VAT, despite being consumed on the premises. This is a **deemed sale** provision recognizing t…

Question 21

Mariam importers, imports a carton of goods from Japan on 10-11-2014 containing 5000 pieces valued ₹ 1,00,000. On the said product, Customs Duty – 10% and excise duty at 12% ad valorem is leviable. Similar products in India are assessable u/s 4A of Central Excise Act 1944, after allowing an abatement of 30%. MRP printed on package at the time of import is ₹ 30. Special CVD u/s 3(5) of customs tariff act 1975 is also applicable to the product. Determine the total duties payable under Customs Act.

Accepted Answer

**Computation of Total Customs Duties Payable by Mariam Importers**

Under the Customs Act 1962 read with the Customs Tariff Act 1975, the following duties are leviable on imported goods:

**Step 1 – Assessable Value (AV)**
The CIF value of ₹1,00,000 is taken as the transaction value. Landing charges at 1% of CIF are added as per Rule 10(2) of the Customs Valuation Rules 2007.
AV = ₹1,00,000 + 1% = **₹1,01,000**

**Step 2 – Basic Customs Duty (BCD) u/s 12 of Customs Act 1962**
BCD = 10% × ₹1,01,000 = **₹10,100**

**Step 3 – Countervailing Duty (CVD) u/s 3(1) of Customs Tariff Act 1975**
Since similar goods in India are assessable u/s 4A of the Central Excise Act 1944 (MRP-based valuation), CVD is computed on the MRP basis after allowing the prescribed abatement of 30%.

Total MRP = 5,000 pieces × ₹30 = ₹1,50,000
Value after abatement (70%) = ₹1,50,000 × 70% = ₹1,05,000
CVD = 12% × ₹1,05,000 = **₹12,600**

**Step 4 – Education Cess (EC)**
EC = 2% of (BCD + CVD) = 2% × ₹22,700 = **₹454**

**Step 5 – Secondary and Higher Education Cess (SHEC)**
SHEC = 1% × ₹22,700 = **₹227**

**Step 6 – Special CVD u/s 3(5) of Customs Tariff Act 1975 (4% Additional Duty)**
Special CVD is levied on the aggregate of AV + BCD + CVD + EC + SHEC.
Base = ₹1,01,000 + ₹10,100 + ₹12,600 + ₹454 + ₹227 = ₹1,24,381
Special CVD = 4% × ₹1,24,381 = **₹4,975** (rounded)

**Total Duties Payable = ₹28,356**

Question 22

Briefly explain whether CST will be applicable :-

Accepted Answer

**Central Sales Tax (CST) Applicability:**

**CST** is levied on sales of goods when there is a transfer of ownership in goods for consideration across state boundaries under the **Central Sales Tax Act, 1956**. CST applicability depends on whether a transaction constitutes a 'sale' as defined in the Act.

**(i) Stock Transfer to Own Branch Outside the State**

**CST is NOT applicable** when goods are sent by a dealer from one state to his own place of business in another state (branch transfer or stock transfer). This is because:

**Reason for Non-Applicability:** A stock transfer between branches of the same dealer does not constitute a 'sale' under the CST Act. A sale requires (a) transfer of ownership of goods, and (b) consideration. When a dealer merely transfers stock from one branch to another, there is no transfer of ownership to a third party and no external consideration. The goods remain the property of the same dealer. Such transfers are purely internal movements of inventory within the same business concern and are therefore outside the scope of CST. CST is designed to tax inter-state transactions between different dealers, not intra-business transfers.

**(ii) Stock Transfer with Purchase Order in Hand**

**CST is NOT applicable to the stock transfer itself**, even if the dealer has a purchase order from an external buyer at the time of transfer. However, **CST WILL apply on the final sale** to the external buyer (if the buyer is in a different state).

**Explan…

CA Inter Cost & Mgmt

Drill 5 questions from this paper — instant grading

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap