Answers to Unsolved Practical Examples in ‘Indirect Taxes'

Question 1 M/s Roy Brothers, Kolkata, West Bengal, are dealing in two products namely X and Y. The gross Inter State Sales are Rs. 8 lakhs and Rs. 10 lakhs respectively during 95-96. CST was not charged in the Invoice. If the products X and Y are sold within State of West Bengal, the sales tax rate is 8% and 4% respectively. Other information in respect of the year is as follows :

(a) Product X is not manufactured in India. It is imported. Product ‘Y’ is ‘declared goods’, included under section 14 of CST Act.

(b) Out of sale of product X, goods worth Rs. 2.50 lakhs were rejected by customer. The goods were despatched in December 95 and returned by customer in October 96 as these were not to the specification.

(c) In case of sale of Rs. 2 lakhs of X, goods were imported by Roy Brothers. These were unloaded in Kolkata port. Before goods were cleared from customs, they were sold by transfer of documents to a buyer in UP. Customs duty was paid by the buyer from UP.

(d) D form was received in respect of balance sales of ‘X’. The sales price is inclusive of packing charges of Rs. 10,000, shown separately in Invoice.

(e) Out of total sales of Y, sales of Rs. 6 lakhs were inclusive of packing charges of Rs. 15,000, transport charges of Rs. 12,000 and transit insurance charges of Rs. 6,000. These charges were separately shown in Invoice. C form was received in respect of the sales. These goods were purchased by Roy Brothers from a manufacturer in West Bengal for Rs. 4,57,600, which included West Bengal State sales tax of Rs. 17,600.

(f) Balance sale of ‘Y’ was to unregistered dealers. A cash discount of Rs. 20,000 was given to buyers in respect of the sale. Roy Brothers had introduced a scheme of additional discount to those who effect sales more than 10% of their sales of previous year. Such additional discount amounted to Rs. 25,000 during the year on these sales. The sale of Rs. 4 lakhs is without considering these discounts of Rs. 20,000 and Rs. 25,000. These goods were purchased by Roy Brothers from a manufacturer in West Bengal for Rs. 2,99,200, which included local sales tax of Rs. 11,800.

You are required to (a) find the turnover and the CST liability of Roy Brothers for 95-96. (b) Will Roy Brothers be able to obtain any refund of tax paid on their purchases ? If so, how much ?

Answer 1 – (a) In case of ‘X’, the position is as follows – (i) Time limit of 6 months is not applicable to rejected goods. Hence, deduction of Rs 2.50 lakhs is permissible. (b) If the goods are sold before crossing of customs barrier, it will be a sale during import and hence no sales tax is payable. Thus, aggregate sale price of ‘X’ for tax purposes is Rs 3.50 lakhs (out of total sale of Rs 8 lakhs). Since D form is received, CST @ 4% is payable. Hence, turnover is Rs 3,36,538.46 and CST payable is Rs. 13,461.54 [Students, please use formula and check].

(b) In case of sale of ‘Y’ of Rs 6 lakhs, deduction of transport charges of Rs 12,000 and transit insurance charges of Rs 6,000 is permissible. Thus, aggregate sale price of ‘Y’ for tax purposes is Rs 5,82,000 (out of total sale of Rs 6 lakhs). Since C form is received, CST @ 4% is payable. Hence, turnover is Rs 5,59,615.38 and CST payable is Rs. 22,384.62 [Students, please use formula and check].

(c) In case of sale of ‘Y’ of Rs 4 lakhs, deduction of cash discount of Rs 20,000 is permissible but deduction of bonus discount is not permissible. Thus, aggregate sale price of ‘Y’ for tax purposes is Rs 3.80 lakhs (out of total sale of Rs 8 lakhs). Since sale is to unregistered dealer and ‘Y’ is ‘declared goods’, CST @ 8% is payable. Hence, turnover is Rs 3,51,851.85 and CST payable is Rs. 28,148.15 [Students, please use formula and check].

(d) Thus, total aggregate sale price (total of a, b and c above) is Rs 13,12,000, turnover is Rs 12,48,005.69 and CST is 63,994.31

(e) If declared goods are sold inter-state, refund of local tax paid on purchases is permissible. Hence, Roy Brothers are entitled to get refund of Rs 29,400/-