Question 1

Explain the manner in which Service tax is payable by an aggregator.

Accepted Answer

**Service Tax Payment Mechanism for Aggregators under GST**

**Registration and Applicability**: Aggregators (ride-sharing, food delivery, logistics platforms) are taxable persons under the CGST Act, 2017 and SGST Act, 2017. They must register under GST if their aggregate turnover exceeds ₹40 lakh (or ₹20 lakh for specified north-eastern and hilly states). Upon registration, they become liable to pay GST on services supplied.

**Assessment of Tax Liability**: The aggregator must assess their tax liability based on: (i) value of services supplied during the tax period, (ii) applicable GST rate (5% for most aggregator services like ride-sharing and food delivery; 18% for certain other intermediary services), and (iii) input tax credit available on eligible inputs.

**Filing and Payment Procedure**: The aggregator must file GSTR-1 (return of outward supplies) within 11 days of the end of each month, and GSTR-3B (monthly/quarterly self-assessment return) within 20 days of the month-end. The net GST liability (SGST + CGST or IGST as applicable) is calculated and paid along with or before filing the GSTR-3B return. Payment is made through electronic modes (NEFT/RTGS/Cheque) via the GST Common Portal.

**Tax Periods and Due Dates**: For monthly filers, tax is payable within the same tax period (calendar month). For aggregators opting quarterly filing, payment is made monthly or quarterly as per their election under the GST law.

**Input Tax Credit**: Aggregators can claim ITC on inp…

Question 2

Mr. Abhishek, a taxable service provider, filed his Service Tax return for the half year ended 30th September 2015 on 01-12-2015. He seeks your advice on the following issues:

Accepted Answer

**Part (i): Late Fee Liability**

Yes, Mr. Abhishek is liable for late fee under **Section 70 of the Finance Act, 1994**. The half-yearly Service Tax return for the period ended 30th September 2015 was due on 25th October 2015 (within 25 days of the end of the half year). By filing on 01st December 2015, he delayed filing by approximately 67 days.

Under Section 70, a person who files a return after the due date is liable to pay late fee of **10% of the tax payable (if any), subject to a minimum of ₹100 and a maximum of ₹1,000**. Since the question does not specify the tax payable, the late fee would be the maximum of **₹1,000** (unless tax payable is lower, in which case 10% of that amount subject to minimum ₹100). The late fee is applicable as long as the return is filed within one year from the end of the month in which the due date falls, which is satisfied here.

**Part (ii): Revision of Belated Return**

Yes, Mr. Abhishek can file a revised Service Tax return. Even though the original return was filed late, the law permits filing a revised return. Under the Service Tax rules, a revised return can be filed within **two years from the end of the month in which the original return was filed**.

Since the belated return was filed on 01st December 2015 (in the month of December), the last date for filing the revised return would be **31st December 2017**. However, it is advisable to note that in some cases, the Commissioner's written approval may be required for revision of …

Question 3

Decide with reasons whether the following places can be treated as a 'Place of Removal' in terms of Rule 2(g) of CENVAT Credit Rules, 2004:

Accepted Answer

**Rule 2(g) of the CENVAT Credit Rules, 2004** defines **'place of removal'** as the place from where an excisable article is removed by the manufacturer. The fundamental principle is that removal occurs when goods leave the factory premises after excise duty becomes payable.

**Sub-part (i): Warehouse without posting of duty**

**Answer: NO** — Such a warehouse cannot be treated as the place of removal.

A warehouse where excisable goods are deposited without posting of duty typically refers to an **authorized warehouse** under the CENVAT framework. Under the CENVAT Credit Rules, goods removed to an authorized warehouse are NOT deemed removed in the excise sense because duty has not become payable at that point. The warehouse merely serves as a temporary storage facility. When goods are subsequently taken out of such a warehouse for sale, use, or further processing, that point becomes the actual place of removal where excise duty is payable. Therefore, the warehouse itself is a place of storage, not removal. The place of removal remains the original factory from where goods are first sent to the warehouse, or alternatively, the point from which goods exit the warehouse to enter commerce.

**Sub-part (ii): Customs Port for direct exports**

**Answer: Generally NO** — The customs port cannot normally be treated as the place of removal.

Even though goods are directly exported from the customs port to the foreign buyer, the **place of removal** as per Rule 2(g) is where the goo…

Question 4

Examine the validity of the following statements under the provisions of Customs Act, 1962:

Accepted Answer

**Statement (i): VALID.** Goods jettisoned from a vessel to save it from sinking do not attract customs duty. This is because goods jettisoned at sea and lost do not constitute imported goods in the sense contemplated by the Customs Act, 1962. The concept of 'import' under Section 2(23) of the Act requires goods to be brought into India. When goods are jettisoned overboard and lost at sea before reaching Indian territory or before being brought under customs control, they are neither imported into nor appropriated for use in India. They are destroyed or lost at sea and hence fall outside the scope of the charging provision. Duty is levied on goods imported for consumption; goods lost at sea never enter the consumption stream. Therefore, no duty attaches to such goods.

Question 5

Mr. Raghuveer, a resident individual aged 35 years, furnished the following information from his Profit and Loss Account for the year ended 31st March 2016:

(i) The net profit was ₹ 6,50,000.

(ii) The following incomes were credited in the Profit & Loss Account:
(a) Interest on government securities ₹ 25,000
(b) Dividend from a foreign company ₹ 15,000
(c) Gold coins worth ₹ 55,000 received as gift from his father.

(iii) Depreciation debited in the books of account was ₹ 85,000. Depreciation allowed as per Income-tax Act, 1961 was ₹ 96,000.

(iv) Interest on loan amounting to ₹ 68,000 was paid in respect of capital borrowed for the purchase of the new asset which has not been put to use till 31st March 2016.

(v) General expenses included:
(a) An expenditure of ₹ 20,500 which was paid b…

Accepted Answer

**Computation of Total Income of Mr. Raghuveer for AY 2016-17**

Mr. Raghuveer's total income is computed as follows:

**Income from Business:**
Starting with the net profit of ₹6,50,000 per Profit & Loss Account, the following adjustments are made:

First, items credited in the P&L that are not part of business income are excluded: interest on government securities (₹25,000) is exempt under Section 10(15)(iv), dividend from foreign company (₹15,000) is income from other sources, and gold coins received as gift from father (₹55,000) are not taxable under the gift provisions of Section 56(2)(vi) as gifts from specified relatives are exempt.

Next, the difference in depreciation is adjusted. As per Section 36, book depreciation of ₹85,000 is reversed and Income-tax Act depreciation of ₹96,000 is allowed, resulting in a net add-back of ₹11,000.

Interest on capital borrowed for acquisition of a capital asset not put to use (₹68,000) cannot be deducted under Section 36(1)(xi) and must be capitalized. This is added back to profit.

The expenditure of ₹20,500 paid by bearer cheque violates Section 40A(3), which disallows cash payments (including bearer cheques) exceeding ₹10,000 in a single transaction. This entire amount is added back.

The compensation of ₹4,500 paid for employee termination is a deductible business expense under Section 37 and requires no adjustment.

**Profit from Business: ₹6,54,500**

**Income from Other Sources:**
Dividend from foreign company: ₹15,000

**Gr…

Question 6

Purve Sainik Security Service Ltd. providing the security services, entered into a contract with Women Welfare Mandal, for exhibition of jewellery held between 22nd August 2015 to 26th August 2015. Contract period on 5th August 2015 and company received an advance of ₹5,00,000 by account payee cheque on signing date. On 22nd Aug 2015, the company received ₹6,00,000 by credit card and on 26th August 2015, ₹4,00,000 by pay order.

Determine the value of taxable service and the service tax liability payable by Purve Sainik Security Service Ltd. Assuming the above company is not eligible for SSP exemption and service tax has been charged separately @ 14.5%.

Accepted Answer

**Applicable Law:** Finance Act, 1994 (Service Tax) and Point of Taxation Rules, 2011.

**Nature of Service:** Security services provided by Purve Sainik Security Service Ltd. (a body corporate) to Women Welfare Mandal are taxable under the Finance Act, 1994. Since the service provider itself is a body corporate, the entire service tax liability is on the service provider under **forward charge** (reverse charge on security services applies only when the provider is an individual/firm/HUF/AOP, not a body corporate).

**Computation of Value of Taxable Service:**

All three receipts — advance by account payee cheque, payment by credit card, and payment by pay order — are valid modes of payment and form part of the gross amount charged for the service.

| Receipt | Date | Mode | Amount (₹) |
|---|---|---|---|
| Advance | 5th August 2015 | Account payee cheque | 5,00,000 |
| During service | 22nd August 2015 | Credit card | 6,00,000 |
| On completion | 26th August 2015 | Pay order | 4,00,000 |
| **Total Value of Taxable Service** | | | **15,00,000** |

Since service tax is **charged separately** (i.e., not included in the contract value), the value of taxable service is ₹15,00,000 and service tax is computed on this gross amount.

**Service Tax Liability = ₹15,00,000 × 14.5% = ₹2,17,500**

**Point of Taxation** under Rule 3 of the Point of Taxation Rules, 2011: The point of taxation is the earliest of the date of invoice or date of receipt of payment. Here, each payment triggers …

Question 7

ET Bank Ltd. furnishes the following information relating to the services provided and the gross amount received. Compute the value of taxable services and service tax liability.

Sale and purchase of forward contract: ₹25 lakhs
Commission charged on debit collection services: ₹18 lakhs
Margin earned on reverse repo transactions: ₹5 lakhs
Administrative charges collected for extending home loans: ₹12 lakhs

Assume: ET Bank Ltd. is not eligible for small service provider exemption.
Service tax is not included in the above amounts and is to be charged separately @ 14.5%.

Accepted Answer

**Computation of Value of Taxable Services and Service Tax Liability of ET Bank Ltd.**

Under the **negative list regime** of Service Tax (Chapter V of the Finance Act, 1994), not all receipts of a bank are liable to service tax. The treatment of each item is analysed below:

**1. Sale and purchase of forward contracts — ₹25 lakhs:** Forward contracts are derivative instruments. The amount of ₹25 lakhs represents charges/commission received by the bank for dealing in forward contracts on behalf of customers. This is a fee-based service and is **taxable**.

**2. Commission charged on debit collection services — ₹18 lakhs:** Commission charged for collection of bills/cheques (debit collection) is a fee-based banking service. It is **taxable**.

**3. Margin earned on reverse repo transactions — ₹5 lakhs:** In a reverse repo transaction, the bank lends money and earns margin (interest). Under **Section 66D(n) of the Finance Act, 1994**, services by way of extending deposits, loans or advances, where the consideration is represented by way of interest or discount, are covered under the **negative list** and hence **not taxable**.

**4. Administrative charges collected for extending home loans — ₹12 lakhs:** The exemption under Section 66D(n) applies only to the interest component of home loans. Administrative/processing charges are a separate consideration for services rendered and are **taxable**.

**Summary Table:**

| Particulars | Amount (₹ lakhs) | Taxability |
|---|---|---|
…

Question 8

Determine the value of taxable services and service tax liability thereon @ 14.5%. Assume, Mr. Dhingra is not eligible for small service provider exemption and the above mentioned amounts are exclusive of service tax.

Accepted Answer

**Determination of Taxable Services and Service Tax Liability of Mr. Dhingra**

Under the **Finance Act, 1994**, service tax is levied on taxable services. Certain services are covered under the **Negative List [Section 66D]** or exempted via **Mega Exemption Notification No. 25/2012-ST** and are not subject to service tax.

**(i) Land let out to Jumbo Circus – ₹1,50,000:** Renting of land for commercial/entertainment use is not covered under the Negative List or any exemption notification. This is a **taxable service**.

**(ii) Building let out to Singhania Classes for coaching CA students – ₹5,00,000:** Coaching institutes/tutorial classes are **not recognised educational institutions** for service tax purposes. The exemption under Notification No. 25/2012-ST for educational services applies only to specified recognised institutions. Hence, renting to a coaching class is a **taxable service**.

**(iii) Vacant land used for horticulture – ₹3,00,000:** As per **Section 66D(d)(iv) of the Finance Act, 1994**, renting or leasing of vacant land with or without a structure incidental to its use, for agricultural purposes (which includes horticulture), is in the **Negative List**. This is **exempt from service tax**.

**(iv) Building let out to EXIM Ltd. for corporate office – ₹8,00,000:** Renting of immovable property for commercial use is a **taxable service** — no exemption applies.

**Summary of Taxable Value and Service Tax Liability:**

| Particulars | Amount (₹) | Taxable? |…

Question 9

Nagarjuna Ltd. of Tamil Nadu provides the following information for the month of December 2015:

Purchase of raw materials from the local market (excluding VAT @ 4%): ₹45,00,000
Raw materials purchased from the above raw materials were exported at a sale price of ₹2,50,000. Remaining goods were given on lease to M/s X of Karnataka at a deemed sale price of ₹35,00,000 (excluding VAT @ 12.50%).

You may assume that exports are subject to Zero rate of tax and input tax credit of the raw material used in the manufacture of leased goods is available immediately. Compute the amount of net VAT payable/refund and input tax credit for the month of December 2015.

Accepted Answer

**Computation of Net VAT Payable/Refund for Nagarjuna Ltd. (Tamil Nadu) — December 2015**

**Input Tax Credit (ITC) on Purchases:**
Nagarjuna Ltd. purchased raw materials worth ₹45,00,000 (excluding VAT) from the local market, paying VAT @ 4%. Total **ITC available = ₹1,80,000** (i.e., 4% × ₹45,00,000).

**Apportionment of ITC:**
The raw materials were used to manufacture two categories of goods — exported goods (sale price ₹2,50,000) and leased goods (deemed sale price ₹35,00,000). Since both come from the same pool of raw materials, ITC is apportioned based on the ratio of output values.

Total output value = ₹2,50,000 + ₹35,00,000 = **₹37,50,000**

- ITC attributable to exported goods = (2,50,000 ÷ 37,50,000) × 1,80,000 = **₹12,000**
- ITC attributable to leased goods = (35,00,000 ÷ 37,50,000) × 1,80,000 = **₹1,68,000**

**Output VAT Computation:**
- Exports are subject to **zero rate of tax** → Output VAT = ₹0. The ITC of ₹12,000 attributable to exports is **eligible for refund**.
- Lease of goods to M/s X of Karnataka is a **deemed sale** under VAT law, taxable @ 12.50%.
  Output VAT on lease = 12.50% × ₹35,00,000 = **₹4,37,500**

**Net VAT Payable:**
Output VAT on lease: ₹4,37,500
Less: ITC on leased goods (available immediately): ₹1,68,000
**Net VAT Payable = ₹2,69,500**

**ITC Refund on account of Exports = ₹12,000**

**Summary:** Net VAT payable for December 2015 is **₹2,69,500** and an input tax credit of **₹12,000** is available as refund on account of zero-rated e…

Question 10

Total sales during the financial year 2015-16 were ₹25,00,000 inclusive of CST. The sales do not include the following: (i) Goods worth ₹50,000 provided as free samples to Mr. C of Ludhiana. (ii) Sale of goods amounting to ₹1,50,000 to Mr. Sam, a foreign tourist. (iii) Despatch of goods worth ₹2,00,000 to Mr. Saket's branch located in another State. (iv) Hypothecation of the goods worth ₹12,00,000 for a working capital loan from SBI amounting to ₹10,00,000. Compute the taxable turnover and the tax liability of M/B. Saket under CST Act, assuming that the VAT rate within the state is 4%.

Accepted Answer

**Computation of Taxable Turnover and CST Liability of M/B Saket for F.Y. 2015-16**

The given total sales of ₹25,00,000 are **inclusive of CST** and represent inter-state sales. Each excluded item must be tested for taxability under the **Central Sales Tax Act, 1956**.

**(i) Free samples ₹50,000 to Mr. C, Ludhiana:** Free samples involve no consideration. Under CST Act, a **"sale"** requires transfer of property for a price. Since there is no consideration, this does not constitute a sale and is **excluded** from taxable turnover.

**(ii) Sale of ₹1,50,000 to Mr. Sam, foreign tourist:** A sale occasioning export or in the course of export is **exempt under Section 5(1) of the CST Act, 1956**. Sale to a foreign tourist who takes the goods out of India is treated as a sale in the course of export. Hence, this is **excluded** from CST taxable turnover.

**(iii) Despatch of goods worth ₹2,00,000 to branch in another State:** Under **Section 6A of the CST Act, 1956**, despatch of goods to a consignee (own branch) in another state is not treated as a sale; it is a **stock transfer** and is outside the scope of CST. This is **excluded**.

**(iv) Hypothecation of goods worth ₹12,00,000:** Hypothecation is a pledge of goods as security for a loan. There is **no transfer of property**, hence it does not constitute a sale. This is **excluded** from taxable turnover.

Since none of the four excluded items qualify as taxable inter-state sales, the taxable turnover is derived entirely fr…

Question 11

Compute The Gross Total Income of Mr. Rajesh for the Assessment year 2016-17.

Accepted Answer

**Determination of Residential Status of Mr. Rajesh for P.Y. 2015-16 (A.Y. 2016-17):**

Mr. Rajesh is a citizen of India who left India for the purposes of employment outside India (Government deputation to High Commission of Australia). As per **Explanation 1 to Section 6(1) of the Income Tax Act, 1961**, for a citizen of India who leaves India for the purpose of employment outside India, the '60 days' in Section 6(1)(b) is substituted by '182 days'.

Since Mr. Rajesh was **not present in India at all** during P.Y. 2015-16 (0 days), he satisfies neither:
- Section 6(1)(a): 182 or more days in India — **Not satisfied**
- Section 6(1)(b): 182 days (as modified) in India — **Not satisfied**

Therefore, Mr. Rajesh is a **Non-Resident (NR)** for P.Y. 2015-16.

For a Non-Resident, only income received in India or accruing/arising in India (or deemed to do so) is taxable under Section 5(2).

**Computation of Gross Total Income:**

**Income from Salaries:**
Salary from Government of India ₹7,20,000 is taxable. As per **Section 9(1)(iii)**, salary payable by the Government of India to a citizen of India for service rendered **outside India** is deemed to accrue or arise in India — hence fully taxable.

Foreign Allowances of ₹6,00,000 are **exempt** under **Section 10(7)**, which exempts allowances/perquisites paid by the Government to a citizen of India for rendering services outside India.

**Income from House Property:**
Rent of ₹3,00,000 from house in London, received in London, i…

Question 12

Mr. Rakesh has 15% share holding in RSL (P) Ltd and also 50% share in Rakesh & Sons, a partnership firm. The accumulated profit of RSL(P) Ltd. is 20 Lakh. Rakesh & Sons had taken a loan of ₹2.5 Lakh, from RSL (P) Ltd. Explain, whether the above loan is treated as dividend, as per the provision of Income Tax Act, 1961.

Accepted Answer

The loan of ₹2.5 Lakh made by RSL (P) Ltd to Rakesh & Sons is **treated as deemed dividend** under Section 2(22)(e) of the Income Tax Act, 1961.

**Applicable Provision: Section 2(22)(e), Income Tax Act, 1961**

This section provides that any amount by way of advance or loan made by a company to a shareholder or to a concern in which a shareholder has a **substantial interest** (as defined in Section 120A), if made out of **free reserves**, constitutes deemed dividend in the hands of the shareholder.

**Analysis of the Given Situation:**

**1. Company Making the Loan:** RSL (P) Ltd is a registered company, satisfying the basic requirement.

**2. Loan to a Concern where Shareholder has Substantial Interest:**
- Mr. Rakesh is a shareholder in RSL (P) Ltd with 15% shareholding
- Rakesh & Sons is a partnership firm in which Rakesh holds 50% share
- Section 120A defines "substantial interest" as ownership of not less than 20% of the profits or capital of any concern
- Rakesh's 50% stake in Rakesh & Sons clearly constitutes substantial interest (exceeds 20% threshold)
- Therefore, the loan is made to a concern where the shareholder has substantial interest ✓

**3. Loan from Free Reserves:**
- RSL (P) Ltd has accumulated profit of ₹20 Lakh
- The loan amount is ₹2.5 Lakh (well within accumulated profit)
- Accumulated profit constitutes free reserves
- Therefore, the loan is clearly from free reserves ✓

**Conclusion:**

Since all three conditions are satisfied, **the loan of ₹2.5 Lak…

Question 13

State with reasons whether the following receipts are taxable or not under the provisions of Income-tax Act, 1961 ? (1) Mr. Suri received a sum of ₹ 5,00,000 as compensation, from 'Yatra Foundation', towards the loss of property on account of Flood Disaster at Chennai during December 2015. (2) Mr. Suman received an advance of ₹ 3,00,000 on 06-06-2015 to transfer his residential house property. Since the transfer was not effected during the previous year due to failure in negotiations, he deducted the advance money forfeited from the cost of acquisition of the property. (3) Mr. Federer, a non-resident residing in Sweden, has received rent from Mr. Nadal, also a non-resident residing in France in respect of a property taken on lease at Mumbai. Since this income is received outside India from…

Accepted Answer

**(1) Compensation of ₹5,00,000 received by Mr. Suri from Yatra Foundation for loss of property due to Flood Disaster:**

**NOT TAXABLE.** The compensation received is a **capital receipt** since it is received for the loss/destruction of a **capital asset** (property) on account of a natural calamity. A capital receipt is not income within the meaning of Section 2(24) of the Income-tax Act, 1961. Since the property was destroyed and not transferred, the provisions of capital gains under Section 45 are not attracted. The amount received as relief/compensation for loss of a capital asset is a capital receipt and hence not chargeable to tax.

**(2) Advance of ₹3,00,000 forfeited by Mr. Suman on failure of negotiations:**

**TAXABLE.** The advance of ₹3,00,000 was received on 06-06-2015 in the course of negotiations for transfer of a residential house property. Since the transfer was not effected and the amount was forfeited, it is chargeable to tax under the head **"Income from Other Sources"** as per **Section 56(2)(ix)** of the Income-tax Act, 1961 (inserted by the Finance (No. 2) Act, 2014, effective A.Y. 2015-16). Mr. Suman's treatment of deducting the forfeited advance from the **cost of acquisition** is **incorrect**. As per the amended **Section 51**, where Section 56(2)(ix) applies, the forfeited advance shall NOT be deducted from the cost of acquisition. Thus, ₹3,00,000 is fully taxable as Income from Other Sources.

**(3) Rent received by Mr. Federer (non-resident) fo…

Question 14

Compute the CENVAT credit available to M/s. Shine Enterprises Ltd. in respect of the following services availed by it in the month of October 2015; duly mentioning why CENVAT credit is available ? Services: (a) Market Research Services - ₹ 2,00,000 Service Tax paid; (b) Service of General Insurance taken for motor vehicles which are not capital goods - ₹ 52,000 Service Tax paid; (c) Credit Rating Services - ₹ 1,09,000 Service Tax paid; (d) Health & Fitness Centre service for the personal use of the Managing Director of the Company - ₹ 72,000 Service Tax paid; (e) Repairs & Renovation services for office premises - ₹ 1,40,000 Service Tax paid

Accepted Answer

**Computation of CENVAT Credit available to M/s. Shine Enterprises Ltd. for October 2015**

The eligibility of CENVAT credit on input services is governed by **Rule 2(l) of the CENVAT Credit Rules, 2004**, which defines 'input service' broadly to include any service used by a manufacturer or service provider in relation to their business activities, subject to specific exclusions.

**(a) Market Research Services — ₹ 2,00,000:** CENVAT credit is **available**. Rule 2(l) of the CENVAT Credit Rules, 2004 explicitly includes 'market research' as an activity relating to business within the definition of input service.

**(b) General Insurance on Motor Vehicles (not capital goods) — ₹ 52,000:** CENVAT credit is **NOT available**. Rule 2(l) specifically excludes services of general insurance, repair, and maintenance in so far as they relate to motor vehicles that do not qualify as 'capital goods' under Rule 2(a). Since the motor vehicles here are not capital goods, insurance services thereon are outside the definition of input service.

**(c) Credit Rating Services — ₹ 1,09,000:** CENVAT credit is **available**. Rule 2(l) explicitly lists 'credit rating' as an activity relating to business that qualifies as an input service.

**(d) Health & Fitness Centre Service for personal use of Managing Director — ₹ 72,000:** CENVAT credit is **NOT available**. Rule 2(l) contains a specific exclusion for services used primarily for the personal use or consumption of any employee. Services avail…

Question 15

Examine the validity of the following statements under Central Excise Act, 1944 and under Central Excise Rules, 2002 : (i) Goods subjected to NIL rate duty are not excisable goods. (ii) XYZ Ltd., a manufacturer of Khandasari Molasses, claims that it is not liable to pay excise duty on the sugar imported in the manufacturing process on the balance (60%) paddy.

Accepted Answer

**Statement (i): INVALID/INCORRECT**

Under Section 2(d) of the Central Excise Act, 1944, **excisable goods** are defined as goods specified in the First Schedule or those on which excise duty is levied under the Act. The classification of goods as 'excisable' is determined by their tariff classification and specification in the Central Excise Tariff, **not by the rate of duty levied on them**.

Goods subjected to **NIL rate duty remain excisable goods**. The rate of duty—whether 0% (NIL), positive, or zero—is irrelevant to the question of excisability. For example, certain goods like specified exports, goods for use in manufacturing processes, or goods qualifying for exemption may be subjected to NIL rate duty under Central Excise Rules, 2002, yet they continue to be classified as excisable goods. The liability to pay duty may be extinguished by the NIL rate, but excisability itself is not affected.

**Statement (ii): VALID/CORRECT**

Under the Central Excise Act, 1944, **excise duty is levied on goods manufactured in India**. The key principle is that Central Excise applies to domestically manufactured goods, whereas goods **imported into India are governed by the Customs Act, 1962, not the Central Excise Act**.

In the case of XYZ Ltd., the liability to pay Central Excise duty arises on the manufacture of **Khandasari Molasses** (the final product). If the sugar is imported and subsequently used as an input/raw material in the manufacturing process, **it does not attract C…

Question 16

Mr. Kamal grows paddy and uses the same for the purpose of manufacturing of rice in his own Rice Mill. The cost of cultivation of 40% of paddy produce is ₹ 7,00,000, which is sold for ₹ 15,00,000, and the cost of cultivation of balance 60% of paddy is ₹ 12,00,000 and the market value of such paddy is ₹ 24,00,000. To manufacture rice, he incurred ₹ 2,00,000 in the manufacturing process on the balance (60%) paddy. The rice was sold for ₹ 30,00,000. Compute the Business income and Agriculture Income of Mr. Kamal.

Accepted Answer

**Computation of Business Income and Agricultural Income of Mr. Kamal**

When an assessee grows agricultural produce and uses it as raw material in his own manufacturing process, the income requires bifurcation under **Rule 7 of the Income Tax Rules, 1962** read with **Section 2(1A) of the Income Tax Act, 1961**. The market value of the agricultural produce at the point it enters the manufacturing process is taken as the notional sale price to determine agricultural income, and the surplus of actual sale proceeds of the finished product over that market value (less manufacturing costs) is treated as business income.

**Part A – 40% Paddy Sold Directly**

This portion is sold as paddy without any processing. The entire surplus is **agricultural income**.

Agricultural Income = Sale proceeds – Cost of cultivation = ₹15,00,000 – ₹7,00,000 = **₹8,00,000**

**Part B – 60% Paddy Converted into Rice**

For the paddy used in the Rice Mill, the income is split as follows:

**Agricultural Income component** = Market value of paddy – Cost of cultivation of such paddy = ₹24,00,000 – ₹12,00,000 = **₹12,00,000**

**Business Income component** = Sale proceeds of rice – Market value of paddy – Manufacturing expenses = ₹30,00,000 – ₹24,00,000 – ₹2,00,000 = **₹4,00,000**

**Summary**

Total **Agricultural Income** = ₹8,00,000 + ₹12,00,000 = **₹20,00,000**

Total **Business Income** = **₹4,00,000**

Agricultural income is exempt from income tax under Section 10(1) of the Income Tax Act, 1961, b…

Question 17

Discuss the provision under Income Tax Act for Payment of Advance Tax in case of Capital Gain.

Accepted Answer

**Advance Tax on Capital Gains** is governed by **Section 207** and **Section 208** of the Income Tax Act, 1961.

**When Advance Tax is Due:** A person is required to pay advance tax if the estimated tax liability for the financial year exceeds ₹10,000. This includes tax on capital gains. If a person expects to earn capital gains during the financial year, they must pay advance tax on such gains as per the provisions.

**Installment Schedule:** Advance tax on capital gains is payable in four installments:
- **1st Installment (15% by 15th June)**
- **2nd Installment (45% by 15th September)**
- **3rd Installment (75% by 15th December)**
- **Final Installment (100% by 15th March)**

These percentages are calculated on the assessed tax liability of the immediately preceding assessment year or estimated tax liability for the current year, whichever is higher.

**Special Provision for Last Quarter Capital Gains:** Under the **proviso to Section 208**, if the capital gain arises only in the last quarter of the financial year (January to March), the entire amount of advance tax can be paid by **15th March without interest**. This exemption recognizes that taxpayers may not anticipate capital gains throughout the year and provides relief.

**Consequences of Default:** Failure to pay advance tax in installments on time attracts interest at the prescribed rate under **Section 234C** of the Income Tax Act. Interest is charged on the shortfall of advance tax payment.

**Computation Method…

Question 18

Specify the persons who are authorized to verify u/s 160, the income filed u/s 139 of the Income Tax Act, 1961 in case of a company.

Accepted Answer

**Section 160** of the Income Tax Act, 1961 requires verification of any return of income or claim for refund filed under **Section 139**. For a **company**, the following persons are authorized to verify the return:

1. **Principal Officer of the Company** – Typically the Managing Director or Director responsible for the overall affairs of the company. The principal officer may authorize other eligible persons to verify on behalf of the company.

2. **Company Secretary** – If the company has a company secretary duly appointed, they can verify the return.

3. **Chartered Accountant (CA)** – Any qualified chartered accountant authorized by the company to verify the return. They are commonly engaged for this purpose due to their expertise in financial matters.

4. **Cost Accountant (CMA)** – Any qualified cost accountant as per the **Chartered Accountants Act, 1949** can verify the return when duly authorized.

5. **Any Other Officer of the Company** – Any officer of the company authorized by the **Board of Directors** specifically for the purpose of verification under Section 160.

The verifying person must have personal knowledge of the facts and circumstances relating to the company's income, deductions, and other particulars stated in the return. The verification is a solemn attestation that the return contains correct and true particulars to the best of their knowledge and belief. The authorized person must sign and affix their seal/stamp as per the prescribed format.

Question 19

Mr. Satya is a manufacturer of goods in a factory located in Navi Mumbai. On 1st April 2015, there were 120 workmen engaged in the factory. Now, to increase in demand of his products, he employed 140 new-workmen during the previous year 2015-16 which included:
(a) 15 casual workmen
(b) 25 contract labourers
(c) 40 workmen employed on 20th April, 2015
(d) 35 workmen employed on 1st May, 2015
(e) 25 workmen employed on 5th August, 2015

Accepted Answer

**Section 80JJAA of the Income Tax Act, 1961** provides a deduction of 30% of additional wages paid to **new regular workmen** employed during the previous year. To determine the eligible new workmen, three categories are **excluded**: (i) casual workmen, (ii) contract labourers, and (iii) workmen who have not worked for at least **300 days** during the previous year.

**Classification of 140 new workmen employed during P.Y. 2015-16:**

**(a) 15 casual workmen** — Excluded, as casual workmen are specifically ineligible under Section 80JJAA.

**(b) 25 contract labourers** — Excluded, as contract labour is not treated as regular workmen under this section.

**(c) 40 workmen employed on 20th April 2015** — Days worked = 11 (April) + 31+30+31+31+30+31+30+31+31+29+31 = **347 days** > 300 days. **Included.**

**(d) 35 workmen employed on 1st May 2015** — Days worked = 31 (May) + 30+31+31+30+31+30+31+31+29+31 = **336 days** > 300 days. **Included.**

**(e) 25 workmen employed on 5th August 2015** — Days worked = 27 (August) + 30+31+30+31+31+29+31 = **240 days** < 300 days. **Excluded.**

**Number of new regular workmen = 40 + 35 = 75**

Additional check: Existing workmen on 1st April 2015 = 120. 10% of 120 = 12. Since 75 > 12, the condition regarding minimum threshold is satisfied and the deduction under Section 80JJAA is available on wages paid to **75 new regular workmen**.

Question 20

Answer any two of the following of three sub divisions:

Accepted Answer

**ANSWER TO SUB-PARTS (i) AND (ii):**

**(i) Premature Withdrawal from Employees Provident Fund for AY 2016-17**

Partial withdrawal from Employees Provident Fund (EPF) is permitted under specified conditions for AY 2016-17:

**Eligibility Conditions:** A member must have completed at least 7 years of continuous membership in the EPF scheme to be eligible for partial withdrawal, except in cases of medical emergency where shorter tenure may be allowed.

**Withdrawal Limits:** The maximum amount withdrawable is the **lower of (a) 50% of the balance to the credit of the member, or (b) wages earned for 12 months immediately preceding the date of application.** This ensures protection of the retirement corpus.

**Permitted Purposes:** Partial withdrawal is allowed for specific purposes including (1) purchase or construction of a residential house, (2) medical treatment of serious illnesses, (3) higher education, (4) marriage expenses, and (5) other emergencies as specified by EPFO. Medical withdrawal does not require the 7-year condition.

**Documentation Required:** Member must submit withdrawal application with supporting documents such as purchase agreement, medical certificates, education admission letters, marriage invitation, or other relevant proof depending on the purpose claimed.

**Full Withdrawal:** Upon termination of employment, the entire EPF balance is released along with accrued interest regardless of tenure.

**(ii) Return Revision for AY 2014-15 – Can Mr. Kamal R…

Question 21

Shanti Ltd. imported an equipment in the month of July 2015 whose assessable value was US$ 18,000. From the following additional information, compute the duty payable:
(a) Date of Entry inward was 09-05-2015. Basic custom duty on that date was 20% and Exchange rate notified by Central Board of Excise & Customs was US$ 1 = Rs. 65.
(b) Date of Bill of Entry was 13-05-2015. Basic custom duty on that date was 10% and Exchange rate notified by Central Board of Excise & Customs was US$ 1 = Rs. 64.
(c) Additional Duty payable under section 3(1) of the Customs Tariff Act, 1975 was 12.5%.
(d) Additional Duty payable under section 3(5) of the Customs Tariff Act, 1975 was 4%.
(e) Education Cess was 2% and Secondary & Higher Education Cess was 1%.
(ii) How much CENVAT credit can Shanti Ltd. avail?

Accepted Answer

**Determination of Applicable Rate and Exchange Rate:**

As per Section 15 of the Customs Act, 1962, the rate of duty applicable is that prevailing on the date of presentation of Bill of Entry or the date of Entry Inward, **whichever is later**.

- Date of Entry Inward: 09-05-2015 (BCD = 20%, Rate = Rs. 65)
- Date of Bill of Entry: 13-05-2015 (BCD = 10%, Rate = Rs. 64)
- **Later date = 13-05-2015 → BCD applicable = 10%; Exchange Rate = Rs. 64 per US$**

**Computation of Customs Duty Payable on Import by Shanti Ltd.:**

**Assessable Value (AV):** US$ 18,000 × Rs. 64 = **Rs. 11,52,000**

**Basic Customs Duty (BCD)** @ 10% on AV = **Rs. 1,15,200**

**Value for CVD** = AV + BCD = 11,52,000 + 1,15,200 = Rs. 12,67,200

**Additional Duty u/s 3(1) of the Customs Tariff Act, 1975 (CVD)** @ 12.5% on Rs. 12,67,200 = **Rs. 1,58,400**

**Education Cess (EC)** @ 2% on (BCD + CVD) = 2% × (1,15,200 + 1,58,400) = 2% × 2,73,600 = **Rs. 5,472**

**Secondary & Higher Education Cess (SHEC)** @ 1% on (BCD + CVD) = 1% × 2,73,600 = **Rs. 2,736**

**Value for SAD** = AV + BCD + CVD + EC + SHEC = 11,52,000 + 1,15,200 + 1,58,400 + 5,472 + 2,736 = Rs. 14,33,808

**Additional Duty u/s 3(5) of the Customs Tariff Act, 1975 (SAD)** @ 4% on Rs. 14,33,808 = **Rs. 57,352**

**Total Customs Duty Payable = BCD + CVD + EC + SHEC + SAD = 1,15,200 + 1,58,400 + 5,472 + 2,736 + 57,352 = Rs. 3,39,160**

**CENVAT Credit Availability:**

Under Rule 3 of the CENVAT Credit Rules, 2004, Shanti Ltd. can avail CENVAT credit …

Question 22

Compute the amount of LTC Exemption in the following cases with reference to the provision under Income Tax Act, 1961:
(a) Mr. Suresh went on a holiday on 09/09/2015 with his wife and 3 children – one daughter born on 02/02/2009 and twin sons born on 05/05/2011. The total cost of travel was ₹ 80,000. The ticket cost for Mr. Suresh and his wife was ₹ 50,000 and for all three children was ₹ 30,000. The employer reimbursed total ticket cost ₹ 80,000.
(b) In another case if a person has 3 children born on 02/02/2009 and the daughter was born on 05/05/2011, what shall be the exemption?

Accepted Answer

**PART (A):**

Under Section 10(5D) of the Income Tax Act, 1961, LTC exemption is available for the employee, spouse, and **not more than 2 dependent children**.

**Eligible members:**
• Mr. Suresh - eligible
• Wife - eligible
• Daughter (born 02/02/2009, age 6 years) - eligible (1st child)
• Twin son 1 (born 05/05/2011, age 4 years) - eligible (2nd child)
• Twin son 2 (born 05/05/2011, age 4 years) - **NOT eligible (3rd child exceeds 2-child limit)**

**Cost allocation and exemption:**
Ticket cost for Suresh & wife = ₹50,000 for 2 persons = ₹25,000 per person
Ticket cost for 3 children = ₹30,000 for 3 persons = ₹10,000 per person

**LTC Exemption calculation:**
• Mr. Suresh: ₹25,000
• Wife: ₹25,000
• Daughter (eligible): ₹10,000
• Twin son 1 (eligible): ₹10,000
• Twin son 2 (ineligible): ₹0

**Total LTC Exemption = ₹70,000**

Taxable amount = ₹80,000 - ₹70,000 = **₹10,000** (reimbursement for 3rd child)

**PART (B):**

Assuming the person has 3 children with the specified birth dates, under Section 10(5D), LTC exemption is restricted to **not more than 2 dependent children**.

Without specific travel costs provided, the exemption principle states that exemption is available for:
• The assessee (full reimbursement)
• The spouse, if traveled (full reimbursement) - if applicable
• Maximum 2 children (full reimbursement for 2 only)

**The 3rd child's travel reimbursement would be fully taxable income** as the exemption limit is capped at 2 children regardless of the number of d…

Question 23

Maruti Ltd., a manufacturer of Cars sold a car to S.K. Enterprises Ltd. at a price of ₹ 4,20,000 excluding taxes and duties. It also charged the following additional amounts for providing extra benefits:
(i) Assembly of Music System - ₹ 15,000
(ii) Design and Engineering charges - ₹ 25,000
(iii) Outward Freight and handling charges from factory to depot - ₹ 2,500
(iv) Special Accessories to beautify the car - ₹ 18,000
Determine the total amount of Central Excise Duty payable as per Central Excise Act, 1944, with explanation and reason.

Accepted Answer

**Determination of Assessable Value and Central Excise Duty under Section 4 of the Central Excise Act, 1944**

Under **Section 4 of the Central Excise Act, 1944**, excise duty is levied on the **transaction value** of excisable goods at the time and place of removal. The transaction value includes all amounts paid or payable to the assessee in connection with the sale, but excludes post-removal expenses like freight shown separately.

**Analysis of each component:**

**(i) Assembly of Music System — ₹15,000 — INCLUDIBLE:** The music system is assembled as part of the car before removal from the factory. It forms an integral part of the excisable goods and is therefore included in the assessable value.

**(ii) Design and Engineering Charges — ₹25,000 — INCLUDIBLE:** These charges represent value added to the car prior to removal and are directly relatable to the manufacture of the goods. They are includible in the transaction value as held under various tribunal decisions.

**(iii) Outward Freight and Handling Charges from Factory to Depot — ₹2,500 — EXCLUDIBLE:** As per **Section 4(3)(d) of the Central Excise Act, 1944**, the transaction value excludes the cost of transportation from the place of removal. Since the factory is the place of removal and this freight is charged post-removal to the depot, it is excluded from the assessable value.

**(iv) Special Accessories to Beautify the Car — ₹18,000 — INCLUDIBLE:** Accessories supplied along with the goods at the time of remov…

Question 24

Compute the Deduction under Section 80JAA, if available to Mr. Satya for Assessment year 2016-17, if wages are paid to each worker @ ₹ 3,000 per month. His profit from the manufacture of goods for Assessment year 2016-17 is ₹ 5.50 lakhs.

Accepted Answer

**Section 80JAA of the Income Tax Act, 1961** provides a deduction in respect of employment of new regular workmen. However, this deduction is available **exclusively to an Indian company** deriving profits from the manufacture of goods in a factory registered under Chapter V or VI-A of the Factories Act, 1948.

**Mr. Satya is an individual**, not an Indian company. Therefore, he does **not satisfy the fundamental eligibility condition** under Section 80JAA.

**Conclusion:** The deduction under Section 80JAA is **NOT available** to Mr. Satya for Assessment Year 2016-17. The deduction is **Nil**.

Note: Even if Mr. Satya were an Indian company, additional conditions would need to be verified — namely, that the number of new regular workmen employed during the previous year exceeds **50**, and each workman is employed for **not less than 300 days** in the year (240 days in the year of first employment). The deduction, had it been available, would have been **30% of the additional wages paid** to new regular workmen, subject to a ceiling of **30% of profits** from such manufacturing business.

Question 25

Mr. Ajai, a super senior citizen, has reported a Gross Total Income ₹ 5,60,000 and the deductions eligible under Chapter VI-A amounting to ₹ 70,000 for the Assessment year 2015-16. Is he liable to file his return of income u/s 139(1) for the Assessment year 2016-17? If so Why?

Accepted Answer

**Answer: NO, Mr. Ajai is not liable to file return of income under Section 139(1).**

Mr. Ajai's filing obligation is determined by comparing his Net Total Income with the basic exemption limit applicable to super senior citizens.

**Calculation:**
Net Total Income = Gross Total Income − Deductions under Chapter VI-A
NTI = ₹5,60,000 − ₹70,000 = **₹4,90,000**

**Applicable Basic Exemption Limit (AY 2015-16 or 2016-17):**
For a super senior citizen (age 80 years and above): **₹5,00,000**

**Filing Obligation Analysis:**
Section 139(1) of the Income Tax Act, 1961 requires every person whose income exceeds the maximum amount not chargeable to tax (i.e., basic exemption limit) to file a return of income. Since Mr. Ajai's NTI of ₹4,90,000 is **less than the applicable basic exemption limit of ₹5,00,000**, he does not satisfy the primary condition for mandatory filing under Section 139(1).

**Why No Filing is Required:**
The filing obligation arises only when income exceeds the exemption threshold. In this case, the income falls within the exemption limit, therefore no return filing is mandatory. However, Mr. Ajai may file a return voluntarily if he has overpaid taxes or wishes to claim any refund.

Question 26

Mr. Baran provides you the following information and requests you to determine the taxable income for the financial year 2015-16. Estimated tax liability for the financial year 2015-16: ₹ 65,000. Tax deducted at source for this year: ₹ 5,000

Accepted Answer

Based on the information provided, we need to work backwards from the tax liability to determine the taxable income. For the financial year 2015-16, the income tax slabs for individuals (below 60 years) were: Nil up to ₹2,50,000; 10% on income between ₹2,50,001 to ₹5,00,000; 20% on income between ₹5,00,001 to ₹10,00,000; and 30% above ₹10,00,000. Given an estimated tax liability of ₹65,000, we can determine the taxable income by applying these slabs. If taxable income falls in the ₹5,00,001 to ₹10,00,000 bracket, the tax would be calculated as: ₹25,000 + 20% of (taxable income - ₹5,00,000) = ₹65,000. Solving: 20% of (taxable income - ₹5,00,000) = ₹40,000, therefore taxable income - ₹5,00,000 = ₹2,00,000. **Taxable Income = ₹7,00,000**. The TDS of ₹5,000 represents tax already deducted at source, which would be adjusted against the total tax liability to arrive at the tax payable of ₹60,000 (₹65,000 - ₹5,000). Note: The question appears to have incomplete information as no gross income or deductions are provided; this solution assumes the ₹65,000 represents the actual computed tax on the assessed income.

CA Inter Cost & Mgmt

Drill 5 questions from this paper — instant grading

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2Examiner-rewarded phrases

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Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap

Worked Solution

Write it like this

1The skeleton

2Examiner-rewarded phrases

3Common trap