Answers to Unsolved Practical Examples in ‘Indirect Taxes'

Question 1 A dealer effected following sales during January-March, 1997 quarter - (i) Invoice No. 65 dated 10th January, 1997 for Rs. 1,76,800.00 (inclusive of tax) (ii) Invoice No. 66 dated 21st January, 1997 for Rs. 1,25,000.00 plus tax @ 4% (iii) Invoice No. 67 dated 5th February, 1997 for Rs. 40,000.00 plus C.S.T. @ 4% - Rs. 1,600.00. Goods worth Rs. 10,400.00 (inclusive of taxes) were returned within 6 months. Calculate the turnover and sales tax payable, if rate of tax is 4%. (ICWA Inter - June 1997)

Answer 1 - Aggregate sale price (which is inclusive of CST) is total of three invoices less sales return within six months. Hence, aggregate sale price is (i) Rs 1,76,800 + (ii) Rs 1,30,000 + (iii) Rs 41,600 Less (iv) Sale Return Rs 10,400. Hence, aggregate sale price is Rs 3,38,000.

If aggregate of sale price is ‘S’ and rate of tax is ‘R’; ‘turnover’ and ‘tax payable’ will be as follows :

Now, S = 3,38,000 and R = 4

Check that 4% of turnover i.e. Rs 3,25,000 is Rs 13,000. Aggregate sale price is Rs 3,38,000 [3,25,000 + 13,000].

Question 2 How would you arrive at taxable turnover under the Central Sales Tax Act, 1956 from the following particulars : (i) Gross sales as per accounts : Rs. 10,00,000. (ii) Gross sales include : (a) Rs. 50,000 being trade discount allowed to wholesale dealers in terms of agreement. (b) Rs. 20,000 being quantity discount allowed to buyers on the basis of off-take in a specified period. (c) Rs. 70,000 being excise duty paid on goods but recovered from customers by charging the same in invoices. (iii) No sales tax is included in gross sales. (iv) Gross sales figures are net of sales returns detailed below : (a) Goods worth Rs. 25,000 received back after the expiry of six months from the date of sale as the customer rejected the goods not found in accordance with the order. (b) Goods worth Rs. 40,000 returned by the buyers after six months because of inability to the price. (v) A sum of Rs. 75,000 has been recovered from the customers towards freight which has been separately charged in the invoices. The amount of freight is not included in gross sales. (ICSI Final Dec. 1991)

Answer 2 – Allowability of each head is as follows - (a) Trade discount of Rs 50,000 is allowed as deduction. (b) Quantity discount of Rs 20,000 is allowable as deduction. (c) Excise duty is not allowed as deduction, i.e. sales tax is payable on excise duty amount. (d) Rejection is allowable as deduction even if received after six months. Hence, that amount is not addible. (e) Goods returned after six months are not allowable as deduction. Hence, Rs 40,000 will have to be added back. (f) If freight is separately charged, it is not includible in gross turnover.

Hence, taxable turnover is Rs 10,0000 – Rs 50,000 (trade discount) – Rs 20,000 quantity discount + Rs 40,000 (Goods returned after 6 months added back) i.e. Rs 9,70,000/-.

Question 3 A dealer effected the following sales during the first quarter of 1997-98 (April to June) - (i) Invoice No 1171 dt 2.4.97 for Rs 26,000 plus tax @ 4%. (ii) Invoice No 1172 dt 19.4.97 for Rs 70,000 plus tax @ 4%. (iii) Invoice No 1173 dt 2.5.97 for Rs 52,000 (inclusive of tax). (iv) Invoice No 1174 dt 4.6.97 for Rs 12,200 plus tax @ 4%. (v) Invoice No 1175 dt 25.6.97 for Rs 20,000 plus tax @ 4%. (vi) Goods worth Rs 6,100 (exclusive of tax) against invoice No 1174 were returned on 28.6.1997 (vii) Goods worth Rs 5,200 (inclusive of tax) sold on 25.12.1996 were returned on 30.6.1997. All the goods were made in the course of inter state trade. Calculate the turnover and sales tax payable if the rate of tax is 4%. (ICWA - Inter- June, 1998).

Answer 3 - Aggregate sale price (which is inclusive of CST) is total of five invoices less sales return within six months. Hence, aggregate sale price is (i) Rs 27,040 + (ii) Rs 72,800 + (iii) Rs 52,000 (iv) Rs 12,688 (v) 20,800 Less (vi) Sale Return Rs 6,344. Hence, aggregate sale price is Rs 1,78,984.

If aggregate of sale price is ‘S’ and rate of tax is ‘R’; ‘turnover’ and ‘tax payable’ will be as follows :

Now, S = 1,78,984 and R = 4

Check that 4% of turnover i.e. Rs 1,72,100 is Rs 6,884. Aggregate sale price is Rs 1,78,984 [1,72,100 + 6,884].

Question 4 From the following details, compute the central sales-tax payable by a dealer carrying on business in New Delhi : Gross Turnover – Rs 16,00,000. Other details - i) Trade commission for which credit notes have to be issued separately - 48,000 ii) Installation charges - 25,000 iii) Excise duty - 80,000 iv) Freight, insurance and transport charges recovered separately in the invoices - 60,000 v) Goods returned by dealers within six months of sale, but after the end of financial year - 40,000 vi) Central Sales-tax. - Buyers have issued ‘C’ forms for all purchases. (CA Inter May 1998)

Answer 4 – Following deductions are permissible from Gross Turnover (GTO) of Rs 16 lakhs – (a) Trade Commission – Rs 48,000 (presumed that these are not included in GTO of Rs 16 lakhs) (b) Installation Charges – Rs 25,000 (Presumed to be included in GTO) (c) freight and insurance shown separately – Rs 60,000 (d) Goods returned within 6 months – Rs 40,000.

Thus, deductions of Rs 1,73,000 are permissible. Hence, GTO for purpose of tax will be Rs 14,27,000. CST @ 4% on GTO will be Rs 57,080/- [The term ‘Turnover’ for purpose of CST is net of sales tax. It is presumed that the term is used in the same sense in the question].

Question 5 Mr. Vishal is a dealer. His sales during the first quarter of 1997-98 (April to June) are as under - (i) Invoice No 103/FCA/01/97 dated 5.4.97 - Rs 10,000 plus tax @ 4% (ii) Invoice No 103/FCA/02/97 dt 12.4.97 - Rs 80,000 plus tax @ 4% (iii) Invoice No. 103/FCA/03/97 dated 5.5.1997 - Rs 62,400 (inclusive of tax) (iv) Invoice No 103/FCA/04/97 dated 6.6.97 - Rs 14,000 plus C.S.T. @ 4% (v) Invoice No 103/FCA/05/97 dated 27.6.97 - Rs 18,000 plus C.S.T. @ 4% - . - . - Goods worth Rs. 7,000 (exclusive of tax) against Invoice No. 103/FCA/04/97 were returned on 29/06/97. Goods worth Rs. 13,000 (inclusive of tax) sold on 26/12/96 were returned on 30/06/97. Goods worth Rs. 6,500 (inclusive of tax) sold on 27/12/96 were returned on 30/06/97. All the above sales were made in the course of interstate trade. Calculate the turnover and sales tax payable if the rate of tax is 4% (8 marks). (CA Inter December, 1998)

Answer 5 – Similar examples have already been solved above. Student should solve the example himself and check that ‘Turnover’ is Rs 1,75,000 and CST is Rs 7,000/-

Question 6 Inter State sales of ‘XYZ Co. Ltd., Trivandrum, Kerala’ was Rs. 12 lakhs during April 95 - March 96 of their product ‘Quest’. The sales are inclusive of sales tax charged in Invoice at appropriate rates. The goods were liable to tax @ 4% if sold within State of Kerala. Out of the goods sold, goods of Rs. 80,000 were returned. These were sold by XYZ Co. Ltd. in January 96 and returned by buyer in May 96 as the buyer could not pay for the same. Some goods of Rs. 20,000, despatched in October 95 were rejected by buyer and sent back in November 96. The aggregate sale price of Rs 12 lakhs is without considering these returns and rejections. Find the CST payable if (a) all buyers are registered dealers giving declaration in form C. (b) All dealers are unregistered, not giving any declaration.

Answer 6 – Deduction of Rs 80,000 is allowable as return was within 6 months. Deduction of Rs 20,000 is allowable as limit of Rs 6 months does not apply in case of rejections. Hence, ‘aggregate sale price’ is Rs 11,00,000. Student can calculate and check his answers as follows – (a) If Buyers have issued ‘C’ form – Turnover = Rs 10,57,692.31. CST – Rs 42,307.69 (b) If Buyers have not issued ‘C’ forms – Turnover – Rs 10,00,000/- CST – Rs 1,00,000/-

Question 7 Gross Inter State sales of Sunil Machinery Manufacturers, Jaipur, Rajasthan were Rs. 17,00,000 during 95-96 (April 95 - March 96). The product, if sold within the State would attract local sales tax @ 12%. The CST was not shown separately in Invoice. Other information is as follows.

(a) Sale of Rs. 7 lakhs are inclusive of erection expenses of Rs. 80,000, excise duty of Rs. 70,000, transit insurance of Rs. 7,000 and packing charges of Rs. 20,000. These charges were shown separately in Invoice. Sunil Machinery Manufacturers gave cash discount of Rs. 20,000 who paid within 15 days. This was given by issuing a Credit Note. The sale of Rs. 7 lakhs is without considering this cash discount. Buyers of these goods have issued form ‘C’ for these purchases.

(b) Balance sale of Rs. 10 lakhs are inclusive of excise duty of Rs. 80,000 and outward freight of Rs. 20,000. The quotation to buyers was on CIF basis and these charges were not shown separately in Invoice. Buyers of these goods have not issued any declaration under Central Sales Tax Act. Sunil Machinery Manufacturers had given additional discount of Rs. 30,000 to the buyers who purchased goods more than the target fixed for them. This was given at year end by way of credit note. The sale of Rs. 10 lakhs is without considering these credit notes.

Find ‘taxable turnover’ and CST payable.

Answer 7 – (a) In case of sale of Rs 7 lakhs, deduction of Rs 80,000 and Rs 7,00,000 is available. Since cash discount is allowable as deduction, it need not be added to sale price. Thus, aggregate sale price is Rs 5,93,000/-. Hence, turnover is Rs 5,70,192.31 and CST is Rs 22,807.69. [Students, please use formula and check]