Question Papers of Indirect Taxes – CMA (ICWA) Inter

September 16th, 2012

ICWA Intermediate New Syllabus effective from December 2008
One paper of 100 marks on Applied Indirect Taxation

Inter CMA June 2015 Indirect Taxes

Indirect Taxation Intermediate Examination

June 2015

Time allowed – three hours                                                                 Full marks – 100


The figures in the margin on the right side indicate full marks.

All questions are compulsory. In question No. 1, all sub-questions are compulsory. In question numbers 2 to 8, student may answer any two of the three sub-questions (a), (b) and (c).


Question 1 Answer the following questions with suitable reasons   (1 x 20 = 20 marks)

Question 1(a) – A State Government prescribed Vat rate on a product as follows – (a) Goods manufactured within State – 5% (b) Goods brought from outside State and sold within State – 12.5%. State constitutional validity of the provision.

Question 1(b) – State when invoice is required to be issued if goods are manufactured and captively consumed within factory.

Question 1(c) – In Central Excise Tariff, how many digits are used to indicate a Tariff Item?

Question 1(d) – A manufacturer took Cenvat credit of service tax paid by him on consultancy services of Rs 10,000 on 20-5-2014, on basis of invoice of the consultant dated 15-5-2014. He made payment of the bill to the consultant on 27-12-2014. Advisable the manufacturer if any action is required on the part of manufacturer.

Question 1(e) – Assessee was claiming classification of his goods under chapter heading 84. However, CESTAT (Tribunal) had passed order classifying the goods under another chapter heading. Assessee intends to file appeal against decision of Tribunal. Advise where he should file appeal.

Question 1(f) – State distinction between Indian Customs Water and Territorial Waters, so far as coverage of area is concerned.

Question 1(g) – A vessel M V Jayadeep sailing from Australia to USA via India was carrying various goods. Name A, B and C. Goods A and B were unloaded at Kolkata port while goods C were carried further without unloading. Whether goods C are imported goods, export goods, transit goods or transhipped goods?

Question 1(h) – An importer kept imported goods in customs bonded warehouse on 15-7-2014 and cleared the goods from customs on 13-12-2014 on payment of customs duty. Is he liable to pay interest? State reason.

Question 1(i) – An importer imported some inputs free of duty under Advance Authorisation. He exported the final product and fulfilled export obligation. Even after that, he has some excess stock of imported inputs. Can he sale the same?

Question 1(j) An importer intends to import raw material valued at Rs one lakh under ‘Duty Free Import Authorisation’ (DFIA). He wishes to know what is the minimum FOB value of exports he is required to achieve by exporting products made out of the imported raw material. Advise him.

Question 1(k) – A tax consultant in India provided consultancy service in India to a foreign diplomat in his personal capacity. The consultancy was in respect of his personal income tax issues. Is the service taxable?

Question 1(l) – AB Ltd. Is liable to pay service tax of Rs 50,000 on 6th August, 2014. However, he paid duty on 16th August, 2014 on his own with interest, without any show cause notice. How much penalty is payable?

Question 1(m) – A newspaper company charged Rs 1,00,000 for an advertisement received by it through Advertisement Agent. The newspaper paid Rs 15,000 as commission to the Advertisement Agent. Calculate service tax payable by newspaper company.

Question 1(n) – A telephone company issued invoice for month of December 2014 for net amount of Rs 1,500, excluding service tax. Invoice was issued on 15-1-2015. How much service tax the telephone company should charge in the invoice.

Answer 1(n) Service tax @ 12.36% of Rs 1,500 is Rs 185.40.

Question 1(o) – Name two services covered under definition of ‘continuous supply of service’

Question 1(p) – Who is required to issue F form under Central Sales Tax Act and to whom?

Question 1(q) At what frequency C form is required to be issued.

Question 1(r) – A manufacturer purchased 1,000 Kg of inputs @ Rs 100 per Kg. Vat rate was 5%. During transit 50 Kg were stolen and the manufacturer received 950 Kg in his factory. Calculate the input tax credit available to the manufacturer.

Question 1(s) – In an international transaction with group company, Actual transaction value was 10,000 US Dollars. The average of arms length price determined by Income Tax Officer was 10,250 US dollars. The Income Tax Officer proposes to add the difference to the profit of Indian company. Advise the company.

Question 1(t) In certain circumstances, the Income Tax Officer is required to accept the transaction price without requiring the assessee to submit detailed data for calculating arm’s length price. Where these circumstances are specified in law?

Question 2 – Answer any two of the three sub-questions (a), (b) and (c). [2 x 2 = 4 marks]

Question 2(a) – Service tax cannot be imposed on a transaction which is covered entirely within powers of State Government. Is it correct? State your view giving reasons (2 marks)

Question 2(b) – Why direct taxes are termed as ‘progressive’ and indirect taxes are termed as ‘regressive’? (2 marks)

Question 2(c) – State the purpose of constituting ‘Large Taxpayer Unit’ (LTU)? (2 marks)

Question 3 – Answer any two of the three sub-questions (a), (b) and (c). [8 x 2 = 16 marks]

Question 3(a)(i) State situations where a manufacturer can claim remission of excise duty on manufactured goods. Whether such remission is admissible before goods are removed from the factory or after removal of goods from the factory or in both the cases? [3 marks]

Question 3(a)(ii) A manufacturing unit has effected clearances of goods of the value of Rs. 610 lacs during the Financial Year 2014-15. The said clearances include the following: (i) Clearance of excisable goods without payment of excise duty to a EOU unit – Rs. 130 lacs (ii) Job work in terms of notification no. 214/86-CE – Rs. 80 lacs (iii) Export to Bhutan – Rs. 70 lacs (iv) Export to USA – Rs 30 lakhs (v) Goods manufactured in rural area with the brand name of the others – Rs. 90 lacs. Is the unit eligible for excise exemption during 2015-16? [1 x 5 = 5 marks]

Question 3(b)(i) – A Ltd. manufactured dutiable goods of Rs 10 lakhs and exempted goods of Rs 5 lakhs (excluding taxes and duties). The total Cenvat credit available to him on input goods and input services is Rs 25,750. A Ltd. is not in position to bifurcate this credit between dutiable goods and exempted goods. Advise A Ltd. on best course of action.[3 marks]

Question 3(b)(ii) – Compute assessable value of excisable goods for levy of Central Excise and excise duty payable, on basis of following information [5 marks]

  • Gross Price excluding Vat of Rs 2,500, but including applicable excise duty – Rs 25,000
  • Packing cost (charged separately in invoice but included in aforesaid gross price) – Rs 2,500
  • Cost of Durable and returnable packing used for transporting goods upto destination (not charged in invoice) – Rs 3,000
  • Outward freight arranged at request of customer and charged separately in invoice (included in aforesaid gross price) – 2,250
  • Trade discount (given as deduction from aforesaid gross price) – Rs 1,500
  • Rate of excised duty – 12.50% (ignore education cess)

Question 3(c)(i) – Are goods manufactured in Special Economic Zone (SEZ) excisable goods’? Is supply made by DTA unit to SEZ unit ‘export’ for purpose of Central Excise? [2+1 = 3 marks]

Question 3(c)(i) – Deepika Auto Components (manufacturer) cleared manufactured products, during March, 2014. Duty payable was as follows – Basic excise duty – Rs 56,000, National Calamity Contingent Duty (NCCD) – Rs 2,000, Education Cess – Rs 1,160 and SAH Education cess – Rs 580. The manufacturer received inputs on which duty paid was as follows – Basic duty – Rs 50,000, education cess Rs 1,000 and SAHE cess Rs 500. He also received various input services, on which tax paid was as follows – service tax – 10,000. Education cess – Rs 200 and SAH Education cess – Rs 100.There was no opening balance in his Personal Ledger Account. State the duty payable by him for March 2014. What is the due date of payment of duty. What the manufacturer can do with that excess Cenvat credit? [3+1+1 = 5 marks]

Question 4 – Answer any two of the three sub-questions (a), (b) and (c). [6 x 2 = 12 marks]

Question 4(a)(i) – What is ‘high seas sale’? State the basis on which goods imported are to be valued for customs duty purposes. [2 marks]

Question 4(a)(ii) – Calculate customs duty payable on basis of following information – (a) Assessable value of goods as per section 14 of Customs Act – Rs 1,00,000 (b) Basic customs duty – 10% (c) Excise duty rate 12.50% (d) education cess and secondary higher education cess on excise duty is exempt by way of notification (e) The product is covered under MRP valuation provisions. The imported goods contained 1,000 packages. MRP printed on each package is Rs 200. The abatement available on MRP is 40%. [4 marks]

Question 4(b)(i) – Name the methods of valuation of export goods. [2 marks]

Question 4(b)(ii) – State purpose of levying additional duty (special additional duty) under section 3(5) of Customs Tariff Act [2 marks]

Question 4(b)(iii)– State distinction between section 74 and section 75 of Customs Act in relation to duty drawback. [2 marks]

Question 4(c)(i)– Bill of Entry for clearance for home consumption was presented on 3rd May, 2015. The ship was granted entry inwards on 15th May 2015, Customs duty was assessed on 17th May, 2015. Customs duty was paid on 20th May 2015 and goods were cleared from customs on 22nd May, 2015. Which is date relevant for rate of customs duty and valuation. [2 marks]

Question 4(c)(ii) – Mrs Latika and Mr Suraj Prakash, Indian residents, after visiting Paris for seven days, returned to India on 5-2-2015. They brought following goods – (a) personal effects like cloths, etc. – Rs 1,39,000 (b) Two laptop computers valued at Rs 89,000 and 84,000 (c) One personal computer – Rs 36,000 (d) two litres of liquor – Rs 3,200 (e) one specialised new camera with invoice in name of Mrs Latika Prakash– Rs 97.400. Compute the customs duty payable [4 marks]

Question 5 – Answer any two of the three sub-questions (a), (b) and (c). [4 x 2 = 8 marks]

Question 5(a) – State provisions relating to import and export of gift articles in Foreign Trade Policy [2 x 2 = 4 marks]

Question 5(b)(i) – What is RCMC? [1 mark]

Question 5(b)(ii) – An exporter has got good export orders. He requires an imported machinery to fulfil those export orders. He seeks your advise in the matter. Advise him about a scheme suitable to him and its conditions relating to exports[1+2 = 3 marks]

Question 5(c) – State purpose of SION. Which authority fixes SION (Standard Input Output Norms). What are the conditions to obtain Advance Authorisation even if SION is not fixed for his product. [2+1+1 = 4 marks]

Question 6 – Answer any two of the three sub-questions (a), (b) and (c). [10 x 2 = 20 marks]

Question 6(a)(i) – A service provider filed his half yearly return for the period April 2014 to September 2014 on 20th October, 2014. Later he realised that there was mistake in the return. Upto what date he can file revised return? What would be your answer if he had filed original return on 5th December, 2014? [2+1 = 3 marks]

Question 6(a)(ii) – A service provider commenced provision of service. The details are – (a) Date of commencement of business – 1-4-2014 (b) Achieved turnover of Rs 5 lakhs – 1-7-2014 (c) Achieved turnover of Rs 9 lakhs – 1-9-2014 (d) Achieved turnover of Rs 10 lakhs – 1-10-2014 (e) Achieved turnover of Rs 20 lakhs – 31-3-2015. State the last date on which he is required to apply for registration under service tax. What is maximum penalty imposable for late registration? [2 +1= 3 marks]

Question 6(a)(iii) – Grand Security Services, a proprietorship firm, provided security services to JES Fabricators Ltd. The bill for services provided during 2014-15 was as follows – (a) Salary of security guards – Rs 20,00.000 (b) ESI paid on wages of security guards – 50,000 (c) Provident paid on wages of security guards – Rs 1,00,000 (d) Supervision charges – Rs 3,00.000. Calculate the service tax payable by Grand Security Services. [4 marks]

Question 6(b)(i) – An Indian company provided services to a Dubai firm, in relation to organisation of IPL in Dubai. Advise whether the service is subject to service tax. Give reasons for your view. [3 marks]

Question 6(b)(ii) – Value of services provided by M/s Clean and Clean (a proprietary firm) during 2013-14 was Rs 55 lakhs. For the quarter ending June, 2014, the service tax payable was Rs 20 lakhs. It was actually paid on 9th October, 2014. Calculate the interest payable by the assessee. [3 marks]

Question 6(b)(iii) – Deepak Constructions Ltd. (contractor) obtained contract for construction of a factory building of Jeevan Food Processors [a partnership firm]. The contract was with material for total value of Rs 20 lakhs. However, the customer was required to supply steel required for construction free of cost. Accordingly, the customer supplied steel valued at Rs two lakhs to the contractor. Calculate service tax payable by the contractor. [4 marks]

Question 6(c)(i) When can a Central Excise Officer make best judgment assessment of service tax liability of a person? [2 marks]

Question 6(c)(ii) – ‘Refrain from act or Tolerating an act or situation’ is a ‘declared service’. Name any four activities which can be subjected to service tax under this ‘declared service’ [2 marks]

Question 6(c)(iii) – A hotel provided following services. Calculate service tax liability in each case – (a) Hotel room with daily rent – Rs 1,500 (availed eligible Cenvat credit) (b) Hotel room with daily rent – Rs 900 (did not avail Cenvat credit) (c) Renting of motor vehicle with driver – Rs 1,800 (did not avail any Cenvat credit) (d) Renting of hall for marriage with food – Rs 10,000 (availed eligible Cenvat credit) [1.5 x 4 = 6 marks]

Question 7 – Answer any two of the three sub-questions (a), (b) and (c). [6 x 2 = 12 marks]

Question 7(a)(i) XYZ Ltd. made an inter-state sale of Rs 10 lakhs plus CST @ 2% on 16-7-2014. State Vat rate on those goods is 13.5%. The goods were returned by customer on 12-2-2015 as non-saleable. Calculate how much CST would be payable. [3 marks]

Question 7(a)(ii) Small dealers are eligible for composition scheme under Vat. However, some dealers are not eligible for composition scheme of Vat, even if they are not small dealers [3 marks]

Question 7(b)(i) – Bims Traders, a registered dealer in Haryana made total interstate sale of Rs 16,00,000 (including CST @ 2%) during 2014-15, as per invoices issued. These include installation charges of Rs 25,000 charged separately and outward freight and insurance charges incurred as request of buyer and charged separately in invoice Rs 60,000. The total sale value also included excise duty of Rs 80,000. The dealer had given trade discount of Rs 48,000 by way of a credit note. Goods worth Rs 40,000 were sold on 6-6-2014 and returned on 1-12-2014. The buyers had issued C form for all invoices. Calculate CST payable. [4 marks]

Question 7(b)(ii) – A borrower had taken loan from Bank on basis of pledge of gold. The borrower failed to repay loan and interest. Hence, gold was sold by bank to recover the loan amount. Vat department is demanding Vat on this sale. Bank states that it is not business of bank to sale gold. Advise Bank. [2 marks]

Question 7(c)(i) A dealer purchased goods from a manufacturer on payment of Rs 11,50,000. It was including Vat. He fixed selling price considering margin of 20% on net purchase price. VAT rate on both purchases and sales is 15% . Calculate his selling price and net Vat payable by him in cash [4 marks]

Question 7(c)(ii) What is TIN in Vat? [2 marks]

Question 8 – Answer any two of the three sub-questions (a), (b) and (c). [4 x 2 = 8 marks]

Question 8(a) State relevance of ‘arm’s length price’ in international transactions between associated companies. [4 marks]

Question 8(b) AMF Electronics Ltd. an Indian company, declared income of Rs 9 lakhs for the AY 2014-15. While scrutinising the records, it was found by Income Tax Officer that the Indian company had sold 100 electronic gadgets to its foreign parent company PFM Inc. @ 60 dollars per piece. 70 pieces of similar gadgets were sold to another unrelated company in USA @ 100 dollars per piece. Compute the taxable income of AMF Electronics Ltd., explaining the method you will apply. Exchange rate of dollars may be taken as one dollar = Rs 60 [4 marks]

Question 8(c) (i) In case of royalty paid by an Indian company to a company in USA for technical services, what the rate of tax to be deducted at source? (ii) An Indian company is required to pay Rs 1,00,000 to a German company for technical knowhow. It deduced Rs 10,000 as income tax at source and paid Rs 90,000 to the German company. On what amount the Indian company will be liable to pay service tax under reverse charge? [2+2 = 4 marks]


Suggested Answers to Question Paper December 2014

ICWA Indirect Taxation Syllabus 2012

Time allowed – three hours                                                                 Full marks – 100


All questions are compulsory. In question No. 1, all sub-questions are compulsory. In question numbers 2 to 8, student may answer any two of the three sub-questions (a), (b) and (c).

Question 1 Answer the following questions with suitable reasons   (1 x 20 = 20 marks)

Q 1(a) Normally, if tax is levied by law of Parliament, it is administered by Central Government. However, there is one tax which is levied by law of Parliament, but administered by State Government. Which is that tax?

Answer 1(a) – Central Sales Tax Act is passed by Parliament but administered by State Government.

Q 1(b) CESTAT (Tribunal) has passed an order on issue relating to classification of goods. An assessee is aggrieved with the order. Where he should file appeal?

Answer 1(b) – He should file appeal before Supreme Court.

Q1(c) A manufacturer in India is exporting goods to Nepal. He is getting payment from the Nepalese customer in Indian Rupees. Value of goods is Rs 1,00,000. The excise duty rate is 12%. Education cess is as applicable. How much excise duty is payable by the manufacturer?

Answer 1(c) – No excise duty is payable if goods are exported to Nepal, even if payment is received in Indian rupees.

Q 1(d) In which form and at what periodicity an SSI unit registered under Central Excise is required to file return in respect of manufacture and clearance of excisable goods and excise duty payable?

Answer 1(d) The SSI unit is required to file return in form ER-3 on quarterly basis within 10 days of end of quarter.

Q 1(e) A manufacturer utilized 1,000 Kg of inputs on which excise duty of Rs 1,00,000 was paid to supplier of those goods. He manufactured 950 Kg of final product out of input goods used and balance 50 Kg was process loss. How much Cenvat credit can be availed by the manufacturer?

Answer 1(e) – He can utilize entire Rs 1,00,000 as Cenvat credit.

Q 1((f) Is currency ‘goods’ for purpose of Customs Act?

Ans Q 1(f) Yes – currency has been specifically included in definition of ‘goods’ under Section   2(22) of Customs Act.

Q 1(g) Shipping Bill was presented electronically on 26-2-2014, when foreign exchange rate was Rs 59 = One US Dollar. Let Export Order was passed by Customs Officer on 3-3-2014, when exchange rate was Rs 59.50 = One US dollar. The ship crossed territorial waters of India on 10-3-2014 when exchange rate was Rs 59.75 = One US dollar. Which exchange rate should be considered for valuation of export goods?

Ans 1(g) – The relevant exchange rate is Rs 59 = One US Dollar, as per third proviso to section 14(1) of Customs Act.

Q 1(h) – Excise duty payable on an article is 12% as per Central Excise Tariff. However, as per an exemption notification, the excise duty payable is 6%. If such goods are imported, at what rate additional customs duty will be payable under section 3(1) of Customs Tariff Act?

Ans 1(h) – The additional customs duty (CVD) will be payable @ 6%.

Q 1(i) There is difference of opinion about interpretation of a provision in Foreign Trade Policy among following authorities – (a) Principal Chief Commissioner of Customs (b) Director General of Foreign Trade (c) Revenue Secretary, Ministry of Finance (d) Chairman, Central Board of Excise and Customs (CBE&C). Whose interpretation will be held as final and binding?

Ans 1(i) Interpretation of Director General of Foreign Trade (DGFT) will be final and binding.

Q 1(j) Jeevan Exporters exported 1,000 Kg of metal of FOB value of Rs two lakhs. The rate of duty drawback on such exports is Rs 120 per Kg. Market price of the goods is Rs 80,000. Calculate the duty draw back receivable by Jeevan Exports.

Ans 1(j) – Duty drawback eligible is Rs 1,20,000 (1,000 Kg x 120 per Kg). However, as per section 76(1)(b) of Customs Act, Duty drawback shall not be allowed in respect of any goods, the market price of which is less than the amount of drawback due thereon. Hence, the exporter is not entitled to get any duty drawback.

Q 1(k) Kamal has entered into franchise agreement with a leading franchisor for providing service under the brand name of franchisor. The details of business of Kamal are as follows – (a) started business on 1-5-2014 (b) Reached value of service provided Rs 5 lakhs on 1-7-2014 (c) Reached value of service provided Rs 9 lakhs on 1-8-2014 (d) Reached value of service provided Rs 10 lakhs on 1-9-2014. Advise Kamal when he should apply for registration under service tax .

Ans 1(k) – Exemption of 10 lakhs which is available to small service provider is not available when service is provided under brand name of other person. Thus, service tax is payable from first day itself. Hence, application for registration is to be made within 30 days i.e. before 31-5-2014.

Q 1(l) ABC Co. Ltd. filed half yearly service tax return on 24th April 2014. Later, during internal audit, it was discovered that there was short payment of Rs one lakh. The mistake came to notice on 2nd July 2014. Advise ABC Co. Ltd. about the course of action.

Ans 1(l) ABC Co. Ltd. should pay amount of service tax with interest and file revised return as revised return can be filed within 90 days. from the date of submission of the return under rule 7 of the Service Tax Rules, 1994.

Q 1(m) A service provider is required to pay service tax for month of March, 2014 before 31-3-2014. He is not able to correctly calculate service tax payable. Advise him course of action to be adopted to avoid interest liability.

Ans 1(m) The service provider can estimate his probable liability and pay the estimated liability some additional amount before 31-3-2014. Whatever amount has been paid in excess can be adjusted in subsequent months as per rule 6(4A) of Service Tax Rules.

Q 1(n) An auditor has provided auditing services to a company. He has issued invoice and charged service tax. Can the company avail the Cenvat credit of service tax charged by the auditors?

Ans 1(n) Auditing service have been specifically included in the definition of input service and hence company can avail the Cenvat credit.

Q 1(o) Hotel Greenview is having a non-air conditioned restaurant serving food. The value of food provided in the restaurant during April 2014 to June 2014 was Rs 60 lakhs. Calculate service tax payable by Hotel Greenview.

Ans 1(o) There is no service tax if the restaurant is not air conditioned.

Q 1(p) A manufactured goods within State of Odisha. The Vat paid on inputs was Rs 1,30,000. The goods were sold in inter-state for Rs 20 lakhs by charging Central Sales Tax 2%. How much Input Tax Credit can be availed by the manufacturer?

Ans 1(p) Entire input tax credit of Rs 1,30,000 is available.

Q 1(q) As per definition of Central Sales Tax Act, the ‘turnover’ is inclusive of Central Sales Tax or exclusive of Central Sales Tax?

Ans 1(q) ‘Turnover’ is exclusive of Central Sales Tax.

Q 1(r) What is the maximum rate at which State Vat can be imposed on ‘declared goods’?

Ans 1(r) The maximum Rate for State Vat on declared goods is 5%.

Q 1(s) What is the maximum period allowable for Advance Pricing Agreement (APA) can be got approved from CBDT in International transactions.

Answer 1(s) – Maximum period permissible for APA is five years.

Question 1(t) If the difference between actual transaction value and the average of arms length price determined by most appropriate method is below specified limit, the actual transaction value is accepted for income tax purposes without any adjustment. What is the limit?

Answer 1(t) – If the difference between the price of actual transaction and average of the arm’s length price determined is within the range of three percent (plus or minus), the transaction price shall be accepted without any adjustment [The limit was five percent (plus or minus) upto 1-4-2013].


Question 2 – Answer any two of the following sub-questions (a) (b) and (c)

(a) State any two transactions which are both ‘deemed sale of goods’ for purpose of levy of State Vat and ‘declared service’ for levy of service tax (2 marks)

(b) Can State Government impose sales tax on sale of newspapers? Answer with relevant provision in Constitution of India (2 marks)

(c) What is ‘taxable event’ for purpose of levy of Central Excise Duty? (2 marks)

Answer 2(a) (i) Works Contract (ii) Hire purchase and financial leasing (iii) Supply and service of food or any other article of human consumption or any drink (whether or not intoxicating).

Answer 2(b) Entry 54 of List II of Seventh Schedule to Constitution of India reads as follows – ‘Tax on sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I.

Thus, Constitution of India prohibits levy of sales tax on sale of newspapers by State Government.

Answer 2(c) Manufacture or production of excisable goods in India is the taxable event for levy of Central Excise Duty, as per entry 84 of List I of Seventh Schedule to Constitution of India.

Question 3 – Answer any two of the following sub-questions (a) (b) and (c)

(a)(i) A manufacturer had sent his inputs for job work under rule 4(5)(a) of Cenvat Credit Rules. What is the time limit within which the goods should be returned to factory after job work? Explain the consequences if goods are not returned with the specified period [3 marks] (ii) A manufacturer sold the goods on 6th July 2014 for Rs one lakh, on which he charged excise duty @ 12.36%. Later, after negotiations, the customer agreed to give price rise of 5%. The manufacturer raised supplementary invoice on 25th October, 2014 charging differential price. How much excise duty and interest is payable by the manufacturer? Assume that assessee paid excise duty electronically in both the cases on due dates. (3 marks) (iii) An assessee received a show cause notice. The demand of excise duty was confirmed against him by Commissioner (Appeals) He feels that his case is not very strong and hence he is in two minds whether to approach Settlement Commission or file appeal before CESTAT. Advise him (2 marks)

Answer 3(a)(i) The inputs must be returned to factory after job work, within 180 days. If the inputs are not so returned, the manufacturer is required to reverse the Cenvat credit on those inputs. Late, when the inputs are returned after job work, he can take back the Cenvat credit which he had reversed.

Answer 3(a)(ii) The excise duty payable on Rs 5,000 @ 12.36% is Rs 618. As per section 11AA of Central Excise Act, interest is payable @ 18% from due date on which the duty became due till actual payment of excised duty. The amount was due on 6-8-2014 but he paid the duty on 6-11-2014. Thus, he is liable to pay interest for three months i.e. Rs 27.81 (618 x 18 x 3)/(100 x 12)

Answer 3(a)(iii) An assessee can approach Settlement Commission only when case is pending before original adjudicating authority. In this case, after issue of order, no case is pending. Hence, assessee cannot approach Settlement Commission. Thus, he has no option but to file appeal before Tribunal.

Question 3(b)(i) A manufacturer produced 2,500 pieces of excisable goods during October 2014. All the pieces were in packed condition. The MRP as printed on package is Rs 400 (inclusive of all taxes and duties). The product is covered under MRP valuation provisions under section 4A of the Central Excise Act and abatement available under the relevant notification is 40% on MRP. The excise duty rate is 12% plus education cess as applicable. The Sale of manufacturer was as follows – (i) 500 pieces to wholesalers at Rs 200 per piece in the same package (excluding taxes and duties) (ii) 1,000 pieces to semi-wholesalers at Rs 220 per piece in the same package (excluding taxes and duties) (iii) 600 pieces at Rs 360 in retail sale (inclusive of all taxes and duties) in the same package (iv) 50 pieces were distributed as free samples. Balance 350 pieces were in stock at the month end. How much excise duty is payable for the month of October, 2014? [4 marks] (ii) State briefly treatment of each of the following items below in arising at cost of production as per CAS-4, for valuation under rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 – 1 Central Excise duty on direct material charged by the supplier-manufacturer of the raw material 2 Research and Development Costs 3 Administrative costs relating to office management 4 Sale of scrap and value realized from sale of such scrap 5 Cost incurred on major break down of machinery 6 Interest and finance charges [4 marks]

Answer 3(b)(i) Since the product is covered under MRP valuation, excise duty is payable on MRP valuation basis on all the packages, as MRP valuation provisions are overriding provisions Thus, value for purpose of excise duty is 240 per piece (60% of 400). Excise duty payable per piece @ 12.36% is Rs 29.664. Hence, excise duty payable on 2,150 pieces is Rs 63,777.60. On 350 pieces in stock, no excise duty is payable as duty will be payable only when goods are cleared from the factory.

Answer 3(b)(ii) (1) Not includible (2) Includible (3) Not includible (4) To be deduced from the cost (5) Not includible as it is abnormal cost (6) Not includible

Question 3(c)(i) An EOU unit is selling goods to Indian customer. He is using wholly indigenous raw materials for manufacturing those goods. He is selling the goods at Rs 200 per piece. Customs duty rate is 10% and excise duty rate is 12%. Education cess is as applicable. How much duty is payable by the EOU unit? [3 marks] (ii) Excise duty is normally payable by manufacturer, but there are some exceptions. State the exceptions (3 marks) (iii) Explain admissibility of remission of excise duty in following cases – (a) Finished Goods stored in store room were found to be stolen (b) Finished Goods were cleared from factory by preparing excise invoice and during transit to place of customer, the goods were damaged due to road accident [2 marks]

Answer 3(c)(i) – Normal excise duty is payable if goods are manufactured wholly with indigenous raw materials. Hence, excise duty payable @ 12.36% is Rs 24.72 per piece

Answer 3(c)(ii) – There are only three exceptions to basic provision that duty liability is of manufacturer – (a) In case of goods stored in ware house under rule 20, duty liability is of person who stores the goods (b) The procurer is liable in case of molasses produced in khandsari sugar factory (c) In case of job work under Notification No. 214/86-CE, the raw material supplier undertakes liability of duty.

Ans 3(c)(iii) – (a) Remission not eligible as goods must have been used somewhere else (b) Once goods are cleared from factory, there is no provision to obtain remission of excise duty.

Question 4 – Answer any two of the following sub-questions (a) (b) and (c)

(a) (i) An importer submitted Bill of Entry electronically on 22-8-2014. Bill of Entry was returned from customs on 29-8-2014 for payment of customs duty of Rs 1,00,000. Customs office was closed on 30-8-2014, 31-8-2014 and 1-9-2014 due to Saturday, Sunday and holiday. The importer paid customs duty on 10-9-2014. He cleared the goods from customs on 13-9-2014 after obtaining ‘Out of customs charge’ Order from customs authorities. How much interest is payable by the importer? [4 marks] (ii) State the various purposes for which goods warehoused in customs warehouse [2 marks]

Ans 4(a)(i) – The importer is required to pay customs duty within two working days after Bill of Entry is returned to him. Thus, he was required to pay customs duty before 3-9-2014. Since he paid customs duty on 10-9-2014, he is required to pay interest @ 15% for seven days. Hence, interest payable = (1,00,000 x 7 x 15)/(365 x 100) = Rs 287.67.

Ans 4(a)(ii) – Section 71 of Customs Act allows clearance of goods from customs warehouse for following purposes – (a) home consumption, (b) re-exportation or (c) removal to another warehouse.

(b)(i) State definition of ‘margin of dumping’ [2 mark] (ii) Compute the Assessable Value of a machine imported from USA by PQR Pvt Ltd., under Customs Act, 1962 – (a) FOB Value of Machine – 15,000 US dollars (b) Air freight paid – 4,000 US dollars (c) Insurance for transit of machine – not ascertainable (d) Cost of design work of the machine done in India – Rs 45,000 (e) Indian Local Agent’s Commission – Rs 15,000 (f) Cost of transport of goods from port to factory in India – Rs 5,000. Exchange rate is One US dollar = Rs 60 [4 marks]

Ans 4(b)(i) ‘Margin of dumping‘ means the difference between normal value and export price (i.e. the price at which these goods are exported). [section 9A(1)(a) of Customs Tariff Act].


Ans 4(b)(ii)

FOB Value of Machine                                              15,000 US Dollars

Add Insurance @ 1.125% of FOB value                   169 US Dollars

Air freight (restricted to 20% of FOB value) 3,000 US Dollars

Total value                                                      18,169 US Dollars

Value in Indian Rupees                                              Rs 10,90,140

Add – Local Agent’s Commission                             Rs 15,000

CIF Value in Rupees                                      Rs 11,05,140

Add Landing charges @ 1%                          Rs 11,051

Assessable value for customs purposes                       Rs 11,16,191

Q4(c)(I) State any five circumstances under which export goods are liable to confiscation under section 113 of Customs Act, 1962 [3 marks] (ii) A trader has imported goods. After imports, he approached a customer who was manufacturer in India for sale of 60% of imported goods. The price quoted by trader was agreeable to the Indian manufacturer. However, the manufacturer in India stated that he will purchase the imported goods from the trader only if he (i.e. Indian manufacturer) can avail Cenvat credit of import duties paid by the trader. Advise the trader whether and how this can be done and which duties are eligible for Cenvat credit by the Indian manufacturer.[3 marks]

Ans 4(c)(i) As per section 113 of Customs Act, following export goods are liable to confiscation. These are ‘goods attempted to be improperly exported’:

   Goods attempted to be exported by sea or air from place other than customs port or customs airport [section 113(a)].

   Goods attempted to be exported by land or inland water through unspecified route [section 113(b)].

   Goods brought near land frontier or coast of India or near any bay, gulf, creek or tidal river for exporting from place other than customs port or customs station [section 113(c)].

   Goods attempted to be exported contrary to prohibition under Customs Act or any other law [like FEMA etc.] [section 113(d)].

   Goods concealed in any conveyance brought within limits of customs area for exportation [section 113(e)].

   Goods loaded or attempted to be loaded for eventual export out of India, without permission of proper officer, in contravention of sections 33 and 34. [section 113(f)].

   Goods stored at un-approved place or loaded without supervision of Customs Officer. [section 113(g)].

   Goods not mentioned or found excess of those mentioned in Shipping Bill or declaration in respect of baggage [section 113(h)].

   Any goods entered for exportation not corresponding in respect of value or any other particular in Shipping Bill or declaration of contents of Baggage [section 113(i)].

   Goods entered for export under claim for duty drawback which do not correspond in any material particulars with any information provided for fixation of duty drawback [section 113(ii)].

   Goods imported without duty but being re-exported under claim for duty drawback [section 113(j)].

   Goods cleared for exportation which are not loaded on account of wilful act, negligence or default, or goods unloaded after loading for exportation, without permission [section 113(k)].

   Provisions in respect of ‘Specified Goods’ are contravened. [section 113(l)].

In brief, attempting to export goods in violation of law, mis-declaring goods, export under false claim of duty drawback or violating rules regarding movement, storage or loading of export goods will make them liable for confiscation under section 113. This is all covered in the definition of ‘smuggling’.

Ans 4(c)(ii) The trader is required to register with Central Excise as importer. Then he can issue Invoice giving details of CVD and Special CVD paid on imported goods on proportionate basis. The Indian manufacturer can avail Cenvat credit on basis of this invoice.

Question 5 – Answer any two of the following sub-questions (a) (b) and (c)

Q 5(a)(i) A regular exporter of goods intends to apply for Advance Authorisation for annual requirements. What is the maximum value for which he is entitled to get Annual Advance Authorisation? (2 marks) (ii) When an exporter can apply for Special Brand Rate of duty drawback? (2 marks)

Ans 5a(i) – Annual Advance Authorisation will be granted upto 300% of FOB value of physical exports in preceding financial year and/or FOB value of deemed exports in preceding year or Rs one crore whichever is higher.

Ans 5a(ii) The conditions of eligibility are (a) the All Industry Rate fixed should be less than 80% of the duties paid by him (b) rate should not be less than 1% of FOB value of product except when amount of drawback per shipment is more than Rs. 500 (c) export value is not less than the value of imported material used in them – i.e. there should not be ‘negative value addition’.

Q5(b) Explain salient features of Served from India scheme (4 marks)

Ans 5(b) Object of the Served from India scheme is to accelerate growth in export of services.

All service providers including healthcare and educational service providers as well as EPO (Engineering Process Outsourcing) and KPO (Knowledge Process Outsourcing) service providers are eligible.

Indian Service providers who have foreign exchange earnings of at least Rs 10 lakhs are eligible for duty credit scheme. For individual service provider, minimum free foreign exchange earning would be Rs 5 lakhs. Only services listed in Appendix 41 of HBP Vol. 1 are eligible.

Duty credit will be 10% of net free foreign exchange earned during the current financial year.

Duty credit entitlement can be used for import of capital goods, spares, furniture, office equipment, professional equipment, office furniture and consumables that are otherwise freely importable and restricted items under ITC (HS) classification. In case of hotels, clubs with residential facility of minimum 30 rooms, and stand-alone restaurants, duty credit entitlement can be utilised for import of food items and alcoholic beverages.

The goods imported are not transferable, except within group company and managed hotels.

Q 5(c) Enumerate various supplies which are eligible as ‘deemed exports’ for purpose of certain benefits (4 marks)

Ans 5(c) Following supplies are treated as ‘deemed exports’

As per para 8.2 of FTP 2009-14, following are treated as deemed exports :

  • Supply of goods against Advance Authorisation or Advance Authorisation for Annual Requirement/DFRC/DFIA [para 8.2(a) of FTP 2009-14]
  • Supply of goods to units located in EOU, STP, BTP or EHTP
  • Scheme or supply of capital goods to holder of authorisation under EPCG scheme
  • Supply of goods to projects or turnkey contracts financed by multilateral or bilateral agencies notified by Department of Economic Affairs (DEA), against International Competitive Bidding..
  • Supply of capital goods to fertilizer plants against International Competitive Bidding.
  • Supply of goods to any project where import is permitted at zero customs duty as per customs notification No. 21/2002-Cus dated 1-3-2002 and supply is made against International Competitive Bidding
  • Supply of goods to power projects and refineries against International Competitive Bidding (even if customs duty is not zero).
  • Supply of marine freight containers by EOU if the containers are exported within 6 month
  • Supply to goods funded by UN Agencies.
  • Supply of goods to nuclear projects through competitive bidding (need not be international competitive bidding)

Question 6 – Answer any two of the following sub-questions (a) (b) and (c)

(a)(i) ABC Co. Ltd. provided various services during 2014-15. Out of the services provided, services of Rs 30,00,000 were subject to service tax @ 12.36% and services of Rs 15,00,000 were exempt. Services of Rs 5,00,000 were eligible as export of service. If the service was provided in India, service tax rate was 12.36%. The company had received input services on which service tax charged by service providers was Rs 1,00,000. The company utilized the Cenvat credit of service tax paid on these input services. The input services are common to both taxable and exempt services. ABC Co. Ltd. had not intimated any option to department under rule 6 of Cenvat Credit Rules. Calculate the total amount payable by ABC Co. Ltd. to Government. Which option was available to ABC Co Ltd. to reduce the amount payable? (5 marks) (ii) Deepak Global Tours organize tours all over the world. They arranged a tour to Singapore. Mr Jairam, from Mumbai participated in the tour. Mr. Jairam is of the view that no service tax is chargeable by the Tour Operator as the tour is outside India. Is the contention of Mr. Jairam correct? State with reasons (3 marks) (iii) A recognized educational institution is providing bus services to its students for which separate charges are recovered. Is the school liable to pay service tax? State with reasons (2 marks)

Ans 6(a)(i) Since assessee has not intimated his option under rule 6 of Cenvat Credit Rules, he is required to pay an amount equal to 6% of value of exempted services. Thus, ABC Co. Ltd. is required to pay an ‘amount’ of Rs 90,000 [6% of Rs 15,00,000], as per Rule 6(3)(i) of Cenvat Credit Rules.

If ABC Co Ltd. had exercised its option to pay ‘amount’ on proportionate basis as per Rule 6(3)(ii) of Cenvat Credit Rules and intimated the same to department, ABC Co. Ltd. was required to pay an amount in the ration of (15,000/50,000) i.e. 30% of Rs 1,00,000 i.e. only Rs 30,000.

Note that if service is exported, any payment of ‘amount’ or proportionate reversal is not required.

Ans 6(a)(ii) – Since location of both service provider and service receiver is ‘Taxable territory’ (i.e. India), place of provision of service is taxable territory (i.e. India) as per rule 8 of Place of Provisions of Service Rules. Hence, service tax will be payable even if service is actually performed outside India.

Ans 6(a)(iii) The service is a naturally bundled service of education. Hence, it is not taxable even if separate charge is made.

Q 6(b) (i) Distinguish between ‘negative list of service’ and ‘exempted service’ (3 marks) (ii) Name any two services where the service provider will be considered as ‘intermediary’ for purpose of Rule 9(c) of Place of Provision of Service Rules (2 marks) (iii) Mrs Paramita has provided interior decoration service including material to design jewellery shop owned by Bob Jewellers P Ltd. The breakup of value of material and value of services is not available. M/s Bob Jewellers paid Rs 11,00,000 to Mrs Paramita for the work. In addition, in appreciation of good work done by Mrs Paramita, Bob Jewellers P Ltd. presented a necklace to Mrs Paramita values at Rs 1,00,000. Calculate service tax payable by Mrs Paramita. She is not eligible for exemption available to a small service provider. Service tax is to be charged extra (5 marks)

Ans 6(b)(i) Negative List of services are specified in section 66D of Finance Act, 1994. Service tax is not payable on these services. Exempted services are specified in Notification No. Notification No. 25/2012-ST dated 20-6-2012, effective from 1-7-2012.

Distinction between negative list and exempt service is that services in negative list are not taxable at all as they have been excluded from the charging section 66B of Finance Act, 1994 itself, while exempted services are taxable but are exempted by Central Government by issue of a notification issued under powers delegated vide section 93(1) of Finance Act, 1994.

Change in negative list will require Parliamentary approval, while change in list of exempted services can be effected by Central Government by simply issuing a notification in gazette.

Ans 6(b)(ii) Service of travel agent, recovery agent, commission agent arranging services of Principal will be ‘intermediary’ for the purpose of rule 9(c) of Place of Provision of Service Rules.

Ans 6(b)(iii) Service tax is payable on 60% of Rs 12,00,000 i.e. on Rs 7,20,000 @ 12.36%. Thus, service tax payable is Rs 88,992. Since service provider is individual and service receiver is company, the service provider is liable to pay 50% of service tax. Thus, Mrs Paramita is required to pay service tax of Rs 44,496 and balance Rs 44,496 is payable by Bob Jewellers Pvt Ltd. under reverse charge.

Q6(c)(i) A service was provided by Deepa Traders, a partnership firm. on 15-6-2014 when service tax rate was 10%. Invoice was raised on 10-7-2014 when service tax rate was 12%. Payment for the invoice was received on 15-10-2014 when service tax rate was 11%. State the rate at which the service provider would be liable to pay service tax, if the value of services provided by him in previous financial year was Rs 45 lakhs? What would be due date for payment of service tax? (3 marks) (ii) A whole-time director of a company is receiving salary of Rs twenty two lakhs from a private limited company. Is service tax payable? If payable, who is liable to pay service tax? (2 marks) (iii) State the provisions regarding payment of service tax by service receiver in case of service of security agency (3 marks) (iv) A service provider has provided service on 10-4-2014 and issued invoice on 5-5-2014. The service receiver made payment to service provider on 20-3-2015. State how and when the service receiver can avail Cenvat credit (2 marks).

Ans 6(c)(i) The service tax is payable @ 10%, since as per section 67A of Finance Act, 1994, the date on which service is provided is relevant to determine rate of service tax. The due date of payment is 6-1-2015, as electronic payment is mandatory.

Ans 6c(ii) When there is employer employee relation, the transaction is outside the definition of ‘service’ itself, as per section 65B(44) of Finance Act, 1994. Hence, no service tax is payable. Since no service tax is payable, there is no reverse charge.

Ans 6c(iii) In case of security service, if the service provider is Individual, HUF, proprietary or partnership firm, AOP located in taxable territory and service receiver is Business entity registered as body corporate located in the taxable territory, 25% of the service tax is payable by service provider and balance 75% service tax is payable by the service receiver – Sr No. 8 of Notification No. 30/2012-ST dated 20-6-2012 inserted w.e.f. 7-8-2012.

If security service is provided by CISF or Police, 100% service tax is payable by service receiver.

Answer 6(c)(iv) The service receiver can avail Cenvat credit on 5-5-2014 on receipt of invoice. However, if payment is not made within three months i.e. before 5-8-2014, he is required to pay ‘amount’ equal to Cenvat credit. Later, when he makes payment to service provider on 20-3-2015, he can again take back Cenvat credit of the amount he had reversed on 5-8-2014.

Question 7 – Answer any two of the following sub-questions (a) (b) and (c)

Q 7(a)(i) State various purposes for which goods can be purchased at concessional rate under Central Sales Tax Act, by issuing C form (2 marks) (ii) Compute Vat payable on works contract when the dealer does not intend to pay Vat under any composition scheme – Contract Price (excluding Vat) – Rs 1,00,000, Input materials used in contract including Vat @ 14.5% – Rs 11,450, Cost of labour in execution of the works contract – Rs 25,000. Cost of other services in the execution of works contract – Rs 10,000, Consumables used in the works contract – Rs 5,000, Plant and machinery purchased including Vat @ 4% – Rs 26,000, Vat rate on output – 14.5%. Assume that 100% input tax credit on capital goods is available (4 marks)

Ans 7(a)(i) As per section 8(3) of CST Act, goods (i) intended for resale, (ii) for use in manufacture or processing for sale (iii) for use in telecommunications network (iv) for use in mining (v) for use in power generation/distribution, or (vi) containers and packing materials are only eligible for concessional rate of CST.

Ans 7(a)(ii) Vat can be paid after deducting value of services and consumables Thus, deduction of Rs 40,000 is available [Rs 25,000 + 10,000 + 5,000]. Hence Vat is payable on Rs 60,000 @ 14.5%. Thus, Vat payable on the contract is Rs 8,700.

Input tax credit available – (a) On input material – Rs 1,450 [(11,450 x 14.5)/114.5] (b) On plant and machinery – Rs 1,000 [(26,000 x 4)/104]. Thus, total Vat credit available = Rs 2,450.

Hence, net Vat payable by cash = 8,700 – 2,450 = Rs 6,250

Q 7(b)(i) A sold goods to B in inter-state sales. A is registered under Central Sales Tax Act but B is not registered. What will be the rate of central sales tax if (A) State Vat rate for Goods sold within the State is 1% (B) State Vat rate for Goods sold within the State is 15%. (2 marks) (ii) Mr X, a dealer located in the State of Maharashtra, dealing in machinery used is rolling mills furnishes following information for the financial year 2013-14 – (i) Total Inter-state Sales during in the financial year (CST not shown separately) – Rs 2,29,50,000 (ii) Trade Commission for which credit notes have been issued separately – Rs 5,78,125 (iii) Freight and Transportation charges charged separately in invoice – Rs 4,00,000 (iv) Freight charges included in value but not shown separately – Rs 2,00,000 (v) Insurance for transport of machinery upto destination – Rs 75,000 (vi) Installation and commissioning charges levied separately in invoice – Rs 1,00,000 (vii) The buyers have issued C forms in respect of machinery bought by them from Mr X. Compute the tax liability under CST Act (4 marks)

Answer 7(b)(i) (A) 1% (B) 15%.

Answer 7(b)(ii)–

Gross Sales Turnover (including CST)                                               Rs 2,29,50,000

Less –

  • Trade Commission Rs 5,78,125
  • Freight charged separately Rs 4,00,000
  • Installation and Commissioning Rs 1,00,000

Aggregate Sale Price for CST                                                 Rs 2,18,71,875

Less – CST payable – (2,18,71,875 x 2)/102                           Rs 4,28,860

Turnover for year 2013-14                                                      Rs 2,14,43,015

Q 7(c)(i) Distinguish between ‘zero rated sale’ and ‘exempted sale’ [3 marks] (ii) A is selling goods to B in inter state sales. Later, B is exporting the goods. State conditions subject to which the sale made by A to B is exempt from Central Sales Tax (3 marks).

Ans 7(c)(i) Certain sales are ‘zero rated’ i.e. tax is not payable on final product in certain specified circumstances. In such cases, credit will be available on the inputs i.e. credit will not have to be reversed. Distinction between ‘zero rated sale’ and ‘exempt sale’ is that in case of ‘zero rated sale’, credit is available on tax paid on inputs, while in case of exempt goods, credit of tax paid on inputs is not available.

Exports are zero rated. Inter-state sales will be zero rated when CST is brought down from present 2% to Nil or when GST is introduced.

Ans 7(c)(ii)

Export is often effected through specialised agencies like Export Houses etc., termed as ‘Merchant Exporters’ under Foreign Trade Policy. Such indirect exports also need exemption from taxes to make the products competitive. Hence, such penultimate sale, i.e. sale preceding the sale occasioning export is also deemed to be in the course of export under section 5(3) of CST Act and is exempt from tax.

Exemption to penultimate sale is subject to the condition that the penultimate sale (i.e. last but one sale) is

  • for purpose of complying with agreement or order in relation to export, and
  • such sale is made after the agreement or order in relation to export, and
  • same goods which are sold in penultimate sale should be exported, though may not be in same form

The buyer i.e. B is required to issue H form to A under CST Act

Question 8 – Answer any two of the following sub-questions (a) (b) and (c)

Q 8 (a) (i) An Indian company had placed purchase order for import of cement machinery from Germany. The contract envisaged that two engineers from Germany will be deputed to India for erection, commissioning and commissioning of the equipment in India. The German company will charge separately for such services. Advise whether the amount paid to foreign company will be considered as ‘fees for technical services’ (ii) Flip Laboratories Ltd. is 100% subsidiary of a US Company The parent company sales its products to unrelated buyers at US dollars 150 per unit. Compute the Arms Length Price (ALP) in following two situations – (a) The product is sold to Indian subsidiary at 120 USD per piece (b) The product is sold to Indian subsidiary at USD 180 per unit. [2 +2 = 4 marks]

Answer 8(a)(i) – This transaction is directly linked with the installation of machinery supplied by the same manufacturer from outside India. It is not a separate transaction. Hence, this will not be considered as ‘fees for technical services’.

Answer 8(a)(ii) – (a) The price is accepted as with the price, profit of Indian subsidiary will be higher (b) In this case, the price taken for computing income of Indian subsidiary is US dollars 150 per unit, as accepting price of 180 US dollars means the profit of Indian subsidiary will be lower.

Q8(b) India has entered into Double Taxation Avoidance Agreement (DTA) with . In case of a particular transaction, income tax is found to be payable as per provisions of Income Tax Act but that transaction is exempt under Double Taxation Avoidance Agreement (DTAA) with USA. The Income Tax Officer (ITO) is of the view that since income Tax Act is passed by Parliament, it overrides provisions of DTA, as DTA is not approved by Parliament. State whether the view taken by ITO is correct. You may take support of case law decided on this issue [4 marks]

Answer 8(b) – DTAA are signed under sovereign powers of Government conferred under Entry 14 Schedule seven List I of Union List. Hence, DTAA have overriding powers.

Provisions of DTAA prevail over provisions of Income Tax Act – CBDT circular No. 333 dated 2-4-1982.

This view has been confirmed in UOI v. Azadi Bachao Andolan (2004) 10 SCC 1 = 132 Taxman 373 = 263 ITR 706 (SC).

Q 8(c) What is the significance of ‘safe harbor rule’ while considering arm’s length price. Explain with one illustration [4 marks]

Answer8(c) – Determination of Transfer price requires many details. Transfer Pricing Audit is required and issue of determination of transfer price usually leads to disputes between income tax department and assessee, which leads to litigation. To reduce such disputes, provision of ‘safe harbour’ has been made in section 92CB of Income Tax Act. ‘Safe Harbour’ means circumstances in which Income Tax Authorities shall accept transfer price declared by assessee without requiring him to submit all data for determination of transfer price.

Rules relating to ‘Safe Harbour’ were inserted w.e.f. 18-9-2013 in Income Tax Rules.

For example, in case of international transactions of software development exceeding Rs 500 crores in a financial year, if the operating margin as declared by assessee is 22% or more, the transfer price as declared by assessee will be accepted.




ICWA Inter June 2014

Indirect Taxation Syllabus 2012

Group A

Answer Question No. 1 which is compulsory.


Q 1 Answer the following questions with suitable reasons   (2 x 10 = 20 marks)

(i) ‘Ownership of raw material is not relevant to determine excise duty liability’. Explain with reference to the conditions for levy of excise duty’.

Ans 1(i) – Excise duty is payable even if goods are manufactured by a job worker on job work basis, even if the raw material does not belong to him. The job worker is liable to pay excise duty on value including the value of raw material. That is why it is said that ‘Ownership of raw material is not relevant to determine excise duty liability’


(ii) State significance of single dash and double dash in classification of goods under Central Excise Tariff.

Ans 2(ii) Single dash (-) at the beginning of description of any article in Tariff indicates a group, while two dashes (- -) at the beginning indicate a sub-group. The single dash (-) indicates primary classification of article covered by the heading, while double dash (- – ) is the sub-classification of the preceding article which has single dash (-) i.e. it is a sub-classification of primary classification.


(iii) An assessee is selling 20% of his production through related persons and 80% is being sold to unrelated persons. How the goods sold to related persons should be assessed?

Ans 1(iii) – In case of 20% goods sold through related person, excise duty will be payable on the basis of price at which the related person is making sale to unrelated buyers.


(iv) A unit in Special Economic Zone (SEZ) has manufactured and supplied some goods to Indian customer. Which duty will be payable on such supplies?

Ans 1(iv) – The duty payable is customs duty as if it is import by the DTA unit (i.e. unit in Domestic Tariff Area). The DTA unit is required to file Bill of Entry and pay normal customs duty.


(v) Explain briefly when pilferage should have occurred for purpose of eligibility for remission from duty of customs under section 13 of the Customs Act, 1962.

Ans 1(v) – Section 13 of Customs Act provides that duty on pilfered goods is not payable if the imported goods are pilfered before order of clearance is made.


(vi) A non-executive director of a company is receiving sitting fees and commission of Rs three lakhs from a private limited company. Is service tax payable? Under which head? Who is liable to pay service tax?

Ans 1(vi) – Service tax is payable under ‘Other Taxable Services’ @ 12.36%. The company which is receiving the service of director is liable to pay service tax under reverse charge mechanism [RCM].


(vii) A service was provided on 15th April 2014. What would be point of taxation in each case, if invoice was raised on (a) 15th April 2014 (b) 14th May 2014 (c) 30th June 2014 ?

Ans 1(vii) – (a) 15th April 2014 (b) 14th May 2014 (c) 15th April 2014


(viii) State (a) restrictions on State Governments on imposing sales tax on ‘goods of special importance’ (b) Provision if goods of special importance are purchased within the State and sold inter-state.

Ans 1(viii) – (a) State Government cannot impose sales tax exceeding 5% (b) If declared goods are sold inter-State, tax paid within the State is reimbursed to seller. Goods should be sold inter-state in same form.

(ix) List the goods which have been kept outside Vat provisions as per White Paper released on Vat.

Ans 1(ix) Petroleum products, tobacco products, lottery ticket and alcoholic liquor will be outside the GST chain.


(x) Which entry in Seventh Schedule to Constitution of India is relevant for purpose of imposition of service tax.

Ans 1(x) Entry 97 i.e. Residual Entry in List I of Seventh Schedule, which reads as follows – ‘Any other matter not included in List II or List III including any tax not mentioned in list II or list III’.


Group B

Answer any eight questions out of the ten questions given


Q 2(a) Cost of a machine manufactured by a manufacturer was Rs 10 lakhs. It was high due to some factors beyond his control. Some of his competitors were selling the similar machine for Rs 7 lakhs. Hence, the manufacturer decided to sale the machine at a loss to penetrate the market. Excise department contended that excise duty should be payable on basis of cost of production, even if the machine is sold at lower price. Advise the manufacturer about the correct legal position. (4 marks)

Answer 2(a)The facts of the case are similar to decision of Supreme Court. In CCE v. Fiat India P Ltd. (2012) 534 = 283 ELT 161 (SC), it has been held that if goods are sold below the cost of production, the price would not be ‘normal price’. The price charged would not be ‘sole consideration’. Intention to penetrate the market or meet the competition would be the additional consideration. In that case, excise duty will be payable on the basis of cost of production plus profit and not on basis of transaction value (selling price).

However, in this case, such sale was continuing for more than five years and not for temporary period. Hence, CBE&C has clarified that the decision of Fiat will apply when the facts are similar. In other words, if such sale is for temporary period for some reasons, the Fiat judgment will not apply and excise duty will be payable on basis of transaction value.


(b) Explain difference between duty drawback under section 74 of Customs Act and section 75 of Customs Act (3 marks)

Ans 2(b) – Section 74 is applicable when imported goods are re-exported as it is and article is easily identifiable, while section 75 is applicable when imported materials are used in the manufacture of goods which are then exported

(c) A dealer claims that he has sent some goods out of State on sock transfer basis. What evidence he is required to produce before sales tax officer to prove the stock transfer? If he is unable to produce that evidence, what are the consequences? (3 marks)

Ans 2(c) – The dealer has to produce F form which is to be issued by the branch or depot which has received the goods despatched by dealer. If the dealer is unable to produce F form, the sale will be treated as sale within the State of dealer and will be liable to State Vat at applicable rate. Interest will also become payable for delayed payment.


Q 3 (a) ‘Narima Business Services’, a proprietary firm, is a labour contractor supplying manpower to Garmil Interiors Pvt Ltd (Principal Employer). During October 2014, the wages paid to the labour by Narima Business Services were Rs 1,40,000. They had paid employer’s provident fund contribution of Rs 12,000 and ESIC contribution of Rs 6,500. They also charged Rs 14,000 as their service charges. Calculate the service tax to be changed and payable by Narima Business Services (5 marks).

Answer 3(a) Service tax is payable on total amount i.e. inclusive of wages Rs 1,40,000, PF Rs 12,000, ESIC contribution Rs 6,500 and service charges of Rs 14,000. Thus, service tax is payable on Rs 1,72,500. Service tax @ 12.36% is Rs 21,321. The service provider is proprietary firm and service receiver is company. Hence, reverse charge is applicable. Narima Business Services will be liable to pay 25% of service tax i.e. 5,330.25. Balance 75% service tax will be payable by service receiver i.e. Garmil Interiors Pvt Ltd.


(b) XYZ Ltd, a small scale manufacturer, purchased machine on 1-7-2010 for Rs 10,00,000 on which excise duty paid @ 10.30% was Rs 103,000. He availed the Cenvat credit and utilised the capital goods. On 2-10-2014 he sold the machinery as second hand goods for Rs 7,00,000. At the time of sale, the excise duty payable was 12.36%. State what steps he is required to take to comply with statutory provisions (5 marks)

Answer 3(b) – Since the manufacturer is SSI unit, it can avail entire 100% Cenvat credit in the first year. Hence, it can avail Cenvat credit of Rs 1,03,000. The capital goods have been utilised by XYZ Ltd. for following quarters – Year 2010 – 2, Year 2011 – 4, Year 2012 – 4, Year 2013 – 4, Year 2014 – 4. Total 18 quarters. Thus, it can keep Cenvat credit @ 2.5% per quarter i.e. 45%. Thus, it can retain Cenvat credit of 46,350 and is required to reverse balance Cenvat credit of Rs 56,650.

The capital goods were sold for Rs 7,00,000. Excise duty payable on the transaction value is Rs 86,520.

XYZ Ltd. is required to pay ‘amount’ equal to higher of the above. Thus, they are required to pay ‘amount’ of Rs 86,520 under rule 3(5A) of Cenvat Credit Rules.

He should prepare invoice giving details of ‘amount’ paid under rule 3(5A) of Cenvat Credit Rules.



Q 4 (a) Determine liability of Vat of X Ltd. for the month of December 2013, using invoice method of computation, from the following data – (a) Purchase price of goods acquired from local market (including State VAT @ 4%) – Rs 104 lakhs (b) Manufacturing cost including transportation, insurance, handling and warehousing cost incurred by X Ltd – Rs 8,50,000 (c) Goods sold at a profit margin of 14% of cost (d) Vat rate on sale of goods – 12.50% (4 marks)

Q 4(a) The purchase price includes Vat @ 4%. Hence, net purchase price is Rs 100 lakhs. The Vat of 4 lakhs is not to be considered as cost as Vat credit is available.

The total cost of production is Rs 108,50,000. Profit margin @ 14% is Rs 15,19,000. Hence, selling price will be Rs 1,23,69,000. Vat @ 12.50% on selling price will be Rs 15,46,125.

X Ltd. has Vat credit of Rs 4,00,000. Hence, net sales tax payable is Rs 11,46,125.


(b) State salient features of EPCG scheme under foreign Trade Policy (3 marks)

Answer 4(b) – Export Promotion Capital Goods (EPCG) scheme enables an Indian manufacturer to obtain capital goods at Nil rate of customs duty against commitment of export obligation.

Importer will be issued ‘EPCG Authorisation’ for this purpose.

EPCG scheme allows import of capital goods (including CKD/SKD thereof as well as computer software systems) for pre-production, production and post-production at zero Customs duty, subject to an export obligation equivalent to 6 times of duty saved on capital goods imported under EPCG scheme, to be fulfilled in 6 years reckoned from Authorization issue-date [para 5.1(a) of FTP w.e.f. 18-4-2013]

Import of capital goods shall be subject to Actual User condition till export obligation is completed

(c) Discuss relevance of customs valuation in transfer pricing mechanism (3 marks)

Answer 4(c) – Concept of transfer pricing is mainly for taxation of international transaction. Sections 92 to 92F of Income Tax Act provide a statutory framework for computation of reasonable, fair and equitable profit and tax in India so that the profits chargeable to tax in India do not get diverted elsewhere by altering the prices charged and paid in intra-group transactions. Any income arising from an international transaction shall be computed having regard to arm’s length price.

International transaction is subjected to the arm’s length price only in case of transaction between two entities called associate enterprises.

One of the mechanism that can be adopted is that the goods are supplied by foreign associated enterprise at higher rates (if they want to reduce profit of Indian associated enterprise) or at lower price (if they want to reduce profit of the foreign enterprise. Same thing can happen if Indian associated enterprise exports the goods to foreign associated enterprise.

Customs Valuations make provisions for valuation n case of related party transactions. Customs also have data for this purpose. These provisions will be very helpful in determining that the transfer of goods is taking place at arm’s length prices.



Q 5 (a) Explain the method of to be adopted for distribution of Cenvat credit by Input Service Distributor (ISD) under Cenvat Credit Rules (4 marks)

Answer 5(a) – Rule 7 of Cenvat Credit Rules has been revamped w.e.f. 1-4-2012.

As per revised rule 7 of Cenvat Credit Rules, the distribution should be as follows –

(a) Credit distributed should not be more than credit of input service tax available.

(b) Credit of service tax attributable to services used in a unit exclusively engaged in manufacture of exempted goods or providing exempted services shall not be distributed.

(c) Credit of service tax attributable to service used wholly in a unit shall be distributed only to that unit.

(d) credit of service tax attributable to service used in more than one unit shall be distributed pro-rata on the basis of turnover during the relevant period of the concerned unit to the sum total of turnover of all the units to which the service relates, during the same period [i.e. on the basis of turnover ratio during the ‘relevant period’].

‘Relevant Period’ means (a) the month previous to the month during which Cenvat credit is distributed. (b) In case if any of its unit pays tax or duty on quarterly basis as provided in rule 6 of Service Tax Rules, 1994 or rule 8 of Central Excise Rules, 2002 then the relevant period shall be the quarter previous to the quarter during which the CENVAT credit is distributed (c) In case of an assessee who does not have any total turnover in the said period, the input service distributor shall distribute any credit only after the end of such relevant period wherein the total turnover of its units is available – Explanation 3 to rule 7 of Cenvat Credit Rules inserted w.e.f. 1-7-2012..

Thus, if Cenvat Credit for July 2012 is distributed in August 2012, the turnover for July 2012 should be considered


(b) What is meant by ‘Indian customs water’ under section 2(28) of Customs Act, 1962. (3 marks)

Ans 5(b) – As per section 2(28) of Customs Act, ‘Indian Customs Waters’ means the waters extending into the sea up to the limit of contiguous zone of India under section 5 of the Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976, and includes any bay, gulf, harbour, creek or tidal river.

As per provisions of that Act, contiguous zone of India comes immediately after territorial waters. The outer limit of contiguous zone is 24 nautical miles from the nearest point of base line. Thus, area beyond 12 nautical miles and upto 24 nautical miles is ‘contiguous zone of India‘.

Thus, ‘Indian Customs Waters’ extend upto 12 nautical miles beyond territorial waters.

The significance of the definition is that powers of customs officers extend upto 12 nautical miles beyond territorial waters.


(c) State the time limit for filing appeal before Commissioner (Appeals) in service tax. Can he condone delay in filing appeal? How much? If appeal is find even beyond that limit, which authority can grant further condonation of delay in filing appeal? (3 marks)

Q 5(c) The time limit for filing appeal before Commissioner (Appeals) is two months from date of receipt of order of adjudicating authority, as per section 85(3A) of Finance Act, 1994. The Commissioner (Appeals) can condone delay upto one month. This limit cannot be further increased and further condonation cannot be garnted by any other authority also.



Q 6 (a) ‘3C’ is a firm of consulting engineers. The value of services provided by them during 2012-13 was Rs forty five lakhs. They raised a bill dated January 25, 2014 for Rs 1,12,360 (inclusive of service tax at 12.36%). The client made part payment of Rs 56,180 on 4th February, 2014. How much service tax should be paid by ‘3C’. what would be the due date of payment of service tax? Will there be any change in your answer if value of services provided by them during 2012-13 was Rs 60 lakhs? (5 marks)


Ans 6(a) – Since turnover of 3C was less than 50 lakhs in 2012-13, they can pay service tax on receipt basis. They received an amount of Rs 56,180 on 4-2-2014. By making back calculations, the service tax amount is Rs 6,180. [ 56,180 x 12.36/112.26] The amount is payable on 31-3-2014.

If their turnover during 2012-13 was Rs 60 lakhs, they are liable to pay service tax on accrual basis i.e. billing basis. Hence, they are liable to pay service tax on 12,360 [1,12,360 x 12.36/112.26]. This service tax is payable before 3-3-2014. Since s3C is a partnership firm, they are required to pay service tax on quarterly basis.



(b) Which dealers are not eligible to opt for composition scheme under Vat regime (5 marks)

Answer 6(b) Small dealers having gross turnover exceeding Rs five lakhs but less than Rs 50 lakhs have option of composition scheme. They will have to pay a small percentage of gross turnover. They will not be entitled to any input tax credit

Following dealers are not eligible for composition scheme –

(a) Dealers who make inter-state purchases

(b) Dealers who make inter-state sales

(c) Dealers who import the goods and then sale in India

(d) Dealers who stock transfer goods outside the State

(e) Dealers who export the goods

(f) Dealers who want to show Vat in their Invoice.

(g) Dealers whose turnover exceeds Rs 50 lakhs.


Q 7 (a) Compute assessable value and excise duty payable under Central Excise Act, 1944 in respect of following transactions during March 2014 – (a) Opening stock – Nil. Production – 2,000 units in March, 2014 (b) Quantity sold – 450 units @ Rs 200 per unit on 5-3-2004 and 650 units @ Rs 190 per unit on 15-3-2014 (exclusive of excise duty and Vat) (c) Free Samples cleared on 17-3-2014 – 50 units (d) Balance in stock on 31-3-2014 – 850 units (e) Cost of production – Rs 100 per unit. General rate of excise duty is applicable without any exemption. What is due date of payment of excise duty? (4 marks)

Answer 7(a) – In case of samples, excise duty is payable on the basis of price of similar goods. As per rule 4 of Central Excise Valuation Rules, value of such goods sold by assessee at any other time nearest to the time of removal is required to be considered. Hence, samples have to be valued @ Rs 190 per unit. Cost of production is not relevant.

Hence, total value is as follows – (a) 450 units x Rs 200 = 90, 000 (b) 650 units x Rs 190 = 1,23,500 (c) 50 units x 190 = 9,500. Total value – Rs 2,23,000. General excise duty rate is 12.36%. Hence, total excise duty payable is Rs 27,562.80. The due date of payment of duty is 31-3-2014


(b) In what circumstances safeguard duty can be imposed by Central Government? (3 marks)


Answer 7(b) Central Government is empowered to impose ‘safeguard duty’ on specified imported goods if Central Government is satisfied that the goods are being imported in large quantities and under such conditions that they are causing or threatening to cause serious injury to domestic industry. Such duty is permissible under WTO agreement. The only condition under WTO is that it should not discriminate between imports from different countries having Most Favoured Nation (MFN) status.

Safeguard duty is a step in providing a need based protection to domestic industry for a limited period, with ultimate objective of restoring free and fair competition. Safeguard duty is targeted at remedying or preventing serious injury to domestic industry with a view to making it competitive and to enable it to stand on its own.

Government has to conduct an enquiry and then issue a notification.


(c) Briefly explain provisions relating to ‘educational service’ covered under the negative list of services (3 marks)

Answer 7(c) Following service is in negative list – Services by way of— (i) pre-school education and education up to higher secondary school or equivalent (ii) education as a part of a curriculum for obtaining a qualification recognised by any law for the time being in force (iii) education as a part of an approved vocational education course.

“Approved vocational education course” means,— (i) a course run by an industrial training institute or an industrial training centre affiliated to the National Council for Vocational Training or State Council for Vocational Training offering courses in designated trades notified under the Apprentices Act, 1961 (52 of 1961); or (ii) a Modular Employable Skill Course, approved by the National Council of Vocational Training run by a person registered with the Directorate General of Employment and Training, Union Ministry of Labour and Employment .


Q 8 (a) A dealer purchased goods within Maharashtra for Rs 10,00,000 during 2013-14. He paid State Vat @ 5%. The dealer sold the goods in inter-state sale for Rs 12,50,000 against C form. Can the dealer claim any refund? How much? What is the condition? (3 marks)

Answer 8(a) – The tax paid on purchases is Rs 50,000 (5% of Rs 10,00,000). This is input tax credit available to the dealer. CST paid on inter-state sale is Rs 25,000. Thus, he has excess Vat credit of Rs 25,000. He can claim refund of this amount, if he cannot utilise the excess credit for his sale within the State.


(b) Explain provisions relating to service tax on restaurant service (4 marks)

Service tax provisions apply to restaurants air conditioned or having central air-heating in any part of establishment.

The restaurants with AC/central heating and bar are required to pay service tax on 40% amount. They can avail Cenvat credit of input services, capital goods and input goods other than food items.

However, services provided in relation to serving of food or beverages by a canteen maintained in factory covered under Factories Act having facility of air conditioning or central air heating at any time during the year is exempt from service tax.

(c) What is meant by export of service? (3 marks)

Rule 6A of Service Tax Rules, as inserted w.e.f. 1-7-2012 states as follows –

The provision of any service provided or agreed to be provided shall be treated as export of service when,-

(a) the provider of service is located in the taxable territory ,

(b) the recipient of service is located outside India,

(c) the service is not a service specified in the section 66D of the Act,

(d) the place of provision of the service is outside India,

(e) the payment for such service has been received by the provider of service in convertible foreign exchange, and

(f) the provider of service and recipient of service are not merely establishments of a distinct person in accordance with item (b) of Explanation 2 of clause (44) of section 65B of the Act

Q 9 (a) Assessee imported certain items from USA and the CIF value is Rs 70,000. The imported items are in a package containing 500 individual packages with RSP (Retail Sale Price) of Rs 200 per package. The items of import are subject to valuation under section 4A of Central Excise Act, 1944 based on RSP with an abatement of 30% on the RSP for purpose of duty. The rate of excise duty is 12% ad valorem and education cess as applicable. The items are subject to basic customs duty at 10%. Calculate the additional duty of customs (CVD) under section 3(a) of the Customs tariff Act, 1975 (4 marks)

Ans 9(a) – If the product is covered under MRP valuation provisions, CVD is payable on basis of RSP (MRP). In this case, MRP is Rs 200 and abatement of 30% is available. Hence, assessable value is Rs 140 (70% of Rs 200). CVD @ 12% of Rs 140 = Rs 16.80 per unit. Education cess and SAHE cess on CVD has been exempted. Hence, education cess is not payable.


(b) P Ltd. of Mumbai has provided service of beautification of a flat located in Mumbai. The flat belongs to a person who is resident of Kashmir. What is the place of provision of service? Whether service tax will be payable by P Ltd.? Explain with reference to Place of Provision of Service Rules (3 marks)

Ans 9(b) – Even if the service recipient is located in Kashmir, the immovable property is located in taxable territory (i.e. India excluding J&K). Hence, as per rule 5 of Place of Provision of Service Rules, the place of provision of service is taxable territory. Hence, P Ltd. will be liable to pay service tax @ 12.36%.


(c) Enumerate transactions which are defined as ‘deemed sale of goods’ under Constitutional provisions (3 marks)

Answer 9(c) – As per Article 366(29A) of Constitution of India, ‘following are deemed sale of goods –

(a)   a tax on the transfer, otherwise than in pursuance of a contract, of property in any goods for cash, deferred payment or other valuable consideration

(b)   a tax on the transfer of property in goods (whether as goods or in some other form) involved in the execution of a works contract

(c)   a tax on the delivery of goods on hire-purchase or any system of payment by instalments

(d)   a tax on the transfer of the right to use any goods for any purpose (whether or not for a specified period) for cash, deferred payment or other valuable consideration

(e)   a tax on supply of goods by any un-incorporated association or body of persons to a member thereof for cash, deferred payment or other valuable consideration

(f)   a tax on supply, by way of or as part of any service or in any manner whatsoever, of goods, being food or any other article for human consumption or any drink (whether or not intoxicating), where such supply or service, is for cash, deferred payment or other valuable consideration



Q 10 (a) State whether Cenvat credit can be availed on the following input services – (a) works contract service relating to construction of factory building (b) Goods transport service for inputs (c) Sales promotion expenses (d) Rent-a-cab service utilised to carry employees from home to factory and back (3 marks)

Answer 10(a) – The eligibility of Cenvat is as follows – (a) Not eligible as excluded from definition of input service (b) Eligible as specified in definition of input service (c) Eligible as specified in definition of input service (d) (a) Not eligible as excluded from definition of input service

(b) Following particulars are available in respect of certain goods imported into India by air – FOB Price – US $ 30,000. Exchange rate notified by RBI 1 USD = Rs 60.70. Exchange rate notified by CBE&C – 1 USD = Rs 60.90. Computer the assessable value of goods as per Customs Act, 1962. The importer is unable to give details of freight and insurance expenses (4 marks)

Ans 10(b) If air freight is not available, it should be taken as 20% of FOB value i.e. 6,000 US dollars. Insurance is to be taken as 1.125% of FOB price i.e. 375 US dollars. Hence, CIF price is USD 36,375. Add landing charges @ 1% of CIF i.e. 36.375. Hence, assessable value is USD 36,411.375

The relevant exchange rate is 1 USD = Rs 60.90. Hence assessable value is Rs ,22,17,452.74 rounded to Rs 22,17,453.

(c) Write a note on ‘penultimate sale’ under Central Sales tax Act (3 marks)

Ans 10(c) In some cases, a manufacturer supplies goods to final exporter (termed as merchant exporter), who then actually exports the goods. This is indirect export by the manufacturer. The sale made by manufacturer to the exporter is termed as penultimate sale.

Such penultimate sale, i.e. sale preceding the sale occasioning export is also deemed to be in the course of export under section 5(3) of CST Act and is exempt from sales tax.

The merchant exporter is required to issue H form to the manufacturer to establish that the sale is in the course of export and is exempt.



Q 11 (a) Speedway Works Ltd. have carried out following work which are liable to sales tax as it is works contract involving transfer of property in goods during the course of performance of work. You are required to calculate value of the service and the service tax payable from the following particulars – (i) New construction of work – Rs 5 lakhs (ii) Supply, erection and commissioning of new plant and machinery – Rs 150 lakhs (iii) Repairs and maintenance of immovable property – Rs 3 lakhs. These amounts are excluding service tax and Vat (4 marks)

Answer 11(a) The service tax will be payable on following value

(i) New construction work on 40% of Rs 5 lakhs – Rs 2,00,000

(ii) Supply, erection and commissioning of new plant and machinery on 40% of Rs 150 lakhs – Rs 60,00,000

(iii) Repairs and maintenance of immovable property on 60% of Rs 3 lakhs – Ra 1,80,000.

Hence total value (i) + (ii) + (iii) = 63,80,000.

Service tax @ 12.36% of Rs 63,80,000 = 7,88,568.


(b) Explain purpose of Advance Authorisation under Foreign Trade Policy (4 marks)

Ans 11(b) Inputs required to manufacture export products can be imported without payment of customs duty under Advance Authorisation.

Advance Authorisation can be granted to merchant exporter or manufacturer exporter to import inputs, fuel, oil and catalysts. Since the raw materials can be imported before exports of final products, the authorisation issued for this purpose is called ‘advance Authorisation

The imports of raw materials is on the basis of standard input–output norms (SION). The SION are finalised and quantity allowed to be imported will be based on quantity exported.

(c) Distinguish between yellow bill of entry and green bill of entry under Customs Act (2 marks)

Ans 11(c) Yellow Bill of Entry is for warehousing. It is also termed as ‘into bond Bill of Entry’ as bond is executed. Duty is not paid and imported goods are transferred to warehouse where these are stored.

Green Bill of Entry is for clearance from warehouse on payment of customs duty. It is for ex-bond clearance.




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