Question Papers on Indirect Taxes – CA Final
CA Final May 2015
Question No. 1 is compulsory. Candidates are also required to answer any five questions from the remaining six questions.
Q1 (a) Arvin Ltd. (not availing small scale exemption benefits) sold a machine to Isha Ltd. for Rs 4,00,000 (excluding taxes and duties). A cash discount of 3% was allowed since Isha Ltd., had made full payment in advance. The following additional details are given below (1) Expenses pertaining to installation and erection of the machine at Isha Ltd.’s premises (Machine was permanently fixed to earth) – Rs 20,000 (2) Cost of durable and returnable packing (such cost has been amortised and included in the cost of the machine) – Rs 5,000 (3) Actual freight and insurance from factory to buyer’s premises – 25,000. – – Determine the total amount of excise duty payable on the machine. Assume transaction is on principal to principal basis. Assume excise duty at 12.50% and show working notes.
Q1(b) From the following information compute the value of taxable service provided by Ganga Limited assuming that it is not, eligible for small service providers’ exemption under Notification No. 33/2012-ST dated 20-06-2012. (a) Construction services provided to International Labour Organization – Rs 7,00,000 (b) Construction of Private Clinic for Dr. Ramesh Garg – Rs 15,00,000 (c) Renovation service provided to Government relating to plant for sewerage treatment – Rs 30,00,000 (d) Construction of roads in a factory – Rs 25,00,000 (e) Construction of residential complex meant for use of Members of Parliament- Rs 1,20,00,000 (f) Renting of residential dwelling for use as residence – Rs 22,00,000 (g) Repair and maintenance of Railway Station – Rs 13,00,000. Provide brief notes and explanations for your answer.
Q 1(c) Compute independently in each of the following cases the taxable value of services provided by an authorized dealer in foreign exchange to its customers. Show working notes as may be required (i) 2,500 US $ are sold by Mr. Adani to the ‘Sewak Cook’, an authorized dealer @ Rs 62.50 per US $. The RBI reference rate is Rs 63.00 for that day. (ii) Rs 80,00,000 is changed into Canadian $ and the exchange rate offered is Rs 50 per Canadian $. RBI reference rate for conversion of INR into Canadian $ is not available (iii) On 01-05-2015 Mr. Exchange gets 1,00,000 Euro converted into 5,00,000 Dirham. As on 01-05-2015 RBI reference rate is 1 Euro = Rs 70, 1 Dirham = Rs 16.
Q 1(d) Vishal Industries imported goods from U.S.A. CIF value bearing US $ 2,600. Air freight 500 US $, insurance cost 100 US $, landing charges are not ascertainable. Date of bill of entry is 25-09-2014 and basic custom duty on this date is 10% and exchange rate notified by Central Board of Excise and Customs is US $ 1 = Rs 62. Date of entry inward is 21-10-2014. Basic customs duty on this date is 20% and exchange rate notified by Central Board of Excise and Customs is US $ 1 = Rs 60. Additional duty payable u/s 3(1) of the Customs Tariff Act is 12.50%. Additional duty payable u/s 3(5) of the Customs Tariff Act is exempt. Compute the assessable value and amount of total customs duty payable under the Customs Act, 1962. Make suitable assumptions, where required. Working notes should form part of your answer.
Q2(a) Dev Ltd., a manufacturer, has furnished the following information regarding inputs received in the factory and input service used for manufacture (1) Raw material – Invoice dated 14-03-2014 – Excise duty paid Rs 31,500 (2) Grease and Oil – Invoice dated 10-04-2015 – Excise duty paid Rs 5,000 (3) Input Service – Invoice dated 22-10-2014 – Service tax paid Rs 19,500 (4) Office Equipment Invoice dated 25-11-2014 – Excise duty paid Rs 7,250 (5) Light Diesel Oil – Invoice dated 02-04-2015 – Excise duty paid Rs 22,000 (6) Paints – Invoice is missing – Excise duty paid Rs 3,000. – – Determine the total CENVAT Credit that can be availed during the month of April, 2015. Show working notes with suitable assumptions as may be required. The company is not entitled to SSI exemption under Notification No. 8/2003 CE dated 01-03-2003.
Q2(b)(i) Bombay Media Agency provided the following services during the quarter ended 31-03-2015 – (a) Advertising through mobile SMS and e-mails – Rs 10,00,000 (b) Sale of space for advertisement in newspaper – Rs 6,50,000 (c) Sale of space for advertisement in Doon Yellow Pages (including Rs 40,000 for advertisement in business directories) – Rs 90,000 (d) Advertisement by means of banner at public places – Rs 75,000 (e) Advertisement on cover and back pages of ‘Books’ – Rs 1,20,000. Compute the service tax liability for the quarter ended on 31-03-2015 assuming that the agency is not eligible for small services providers’ exemption and service tax at 14%. Assume – (1) Point of taxation for all the aforesaid cases falls during the quarter ended on 31-03-2015 (2) All the charges stated above are exclusive of service tax. Provide suitable notes to your answer.
Q 2b(ii) Mark Agro Products Ltd. furnishes the following details of various services provided by it in the month of August, 2014 – (1) Rearing of silkworm and horticulture – Rs 2,50,000 (2) Plantation of tea and coffee – Rs 2,00,000 (3) Renting of vacant land for performing marriage ceremony – Rs 4,50,000 (4) Sale of wheat on commission basis – Rs 50,000 (5) Sale of rice on commission basis – Rs 2,00,000. Compute the value of taxable services and the service tax liability of Mark Agio Products Ltd. for the month of August, 2014. Assume that point of taxation in respect of all activities mentioned above falls in the month of August 2014 itself. Company has paid Rs 4,00,000 as service tax during the financial year 2013-14. Service tax has been charged separately where applicable. Rate of service tax 14%%. Give reasons by way of short notes to your answer.
Q2(c) Answer the following with reference to the provisions of the Customs Act, 1962 and rules made thereunder : (1) Mr. A filed a claim for payment of duty drawback amounting to Rs 50,000 on 30-07-2014. But the amount was received on 28-10-2014. You are required to calculate the amount of interest payable to Mr. A on die amount of duty drawback claimed (2) Mr. X was erroneously refunded a sum of Rs 20,000 in excess of actual drawback on 20-06-2014. The same was returned to the department on 20-10-2014. You are required to calculate the amount of interest chargeable from Mr. X. Provide brief reasons for your answer.
Q3(a) Skincure Ltd., manufactured a cream which was prescribed by doctors for treating dry skin conditions. The said product was also available in pharmacies without prescription of a medical doctor. The composition of the cream included urea (10%), lactic acid (10%) and propylene glycol (10%). The assessee Skincure Ltd. claimed classification as a medicament under Central Excise Tariff Heading (CETH) 30.03 while the excise department was of the view mat the same should fall under CETH 33.04 as cosmetic or toilet preparations (preparations for care of skin other than medicaments). Briefly explain four key tests laid down by the Apex Court in this regard to decide whether a given product should be classified as a medicament or a cosmetic or toilet preparation (preparations for care of skin other than medicaments).
Q3(b)(i) Fifty persons, each contributing Rs 2,000 per month, have come together to organize a chit for a period of 50 months. At the end of each month, an amount of Rs 1,00,000 (2,000 x 50) is available in the kitty of the Chit Fund. Rs 1,00,000 is put to auction and subscribers who are interested in drawing the money early because of their needs may participate in the auction. The auction is organized by a ‘Key Member’ who manages and conducts the proceedings. The successful bidder who is normally the person who offers the highest discount is given the chit amount. From this discount amount, after deducting a fixed amount representing the commission payable to the ‘Key Member’, balance becomes the dividend which is distributed among all the subscribers. The auction is repeated in the subsequent months and the same procedure is followed. The subscriber who delays the bidding or does not bid at all stands to gain the maximum discount. The department vide Notification No. 26/2012-ST dated 20-06-2012, grants an abatement of 30% to such services. Explain briefly based on decided case law if service tax could be levied on the services rendered in connection with the Chit Fund Business.
Q3(ii) Whether expenditure like travel, hotel stay, transportation and the like incurred by the service provider in the course of providing taxable service may be treated as consideration for taxable service and included in value for charging Service Tax ? Explain briefly with reference to decided case law.
Q3(c) The assessee was dealing in smuggled goods though no smuggled goods were seized from the assessee. Duty was demanded from the assessee u/s 28 and 125(2) of the Customs Act. The tribunal in this case held that duty can be demanded u/s 28 only from the person who is the importer u/s 2(26) of the Act. Further duty u/s 125(2) of the Act can be demanded only if the smuggled goods are seized, confiscated and an option to pay fine is given to the person from whose possession the goods were seized or to the owner of the goods. Based on case law, if any, explain whether department’s contention to demand duty u/s 28 and 125(2) of the Customs Act is justifiable.
Q4(a) AK & Co. deposits the required amount of Rs 1,00,000 as pre-deposit on 30-09-2014 and files an appeal before the CESTAT. The said appeal is decided in favour of AK & Co. on 30-11-2014. AK & Co. forwards a letter seeking refund of pre-deposit on 7-12-2014 and the same was refunded on 15-12-2014. Based on the amendments made by the Finance (No. 2) Act, 2014 explain whether AK & Co. is entitled to payment of interest and compute the amount of interest payable on refund of such pre deposit,
Q4(b) With reference to recent amendments made by the Finance (No. 2) Act, 2014 and budget notifications briefly explain the following : (i) “Intermediary Services” under the Place of Provision of Service Rules, 2012. (ii) Manner of determination of rate of exchange for purpose of payment of service tax.
Q4(c) With reference to the changes made in the Finance (No. 2) Act, 2014 and budget notifications briefly explain : (i) Point of taxation under reverse charge with respect to payment date (ii) Place of provision of service of hiring of all means of transport.
Q4(d)(i) Briefly explain with reference to the provisions of the Customs Act the relevant date for determination of rate of duty and tariff valuation for imports through a vehicle where bill of entry is filed prior to the arrival of the vehicle,
Q4(d)(ii) Write a short note on the applicability of safeguard duty under the Customs Tariff Act, 1975 on articles imported by EOU/SEZ unit and cleared as such into domestic tariff area (DTA).
Q5(a) KPG Ltd., are manufacturers of machinery for paper plant and parts thereof which are liable to excise duty under Central Excise Act, 1944. KPG Ltd., entered into a contract for setting-up of a paper mill in Cambodia. KPG Ltd. manufactured certain machines in its own factory and also purchased certain other machinery from other dealers. Both the machineries (manufactured and bought-out) were then put into a container and transported to Cambodia for setting-up the paper plant. The assessee availed CENVAT credit on bought-out machinery describing them as eligible capital goods. The Department, however, contends that the bought-out machinery is not eligible Capital Goods as the same had not been used by the assessee in its factory premises. Write a brief note on whether the stand taken by the department is correct in law.
Q5(b)(1) Discuss, in brief, whether the following payments constitute a consideration for provision of service – (1) Imposition of fine or penalty for breaking of law (2) Advance forfeited for cancellation of an agreement to provide a service (3) Security deposits forfeited for damages caused by service receiver in the course of receiving a service (4) Demurrages payable for use of service beyond the period initially agreed upon : e.g. retention of containers beyond the normal period.
Q5(b)(ii) Surbhi Limited entered into a contract with Meena Limited for construction of a new budding to be used primarily for the purpose of commerce or industry for a total consideration of * 500 lakh on October 01, 2014. The said services fall within the purview of ‘works contract services’. The initial booking amount of Rs 100 lakh was billed and received on the date of contract itself. It was further agreed that Rs 170 lakh, Rs 140 lakh, Rs 90 lakh respectively would be received on completion of 50%, 75% and 100% of the construction work of the building. Determine the point of taxation in respect of each of following stages of completion with the help of relevant details furnished as under :
|Stage||% of completion of the building||Date of completion||Date of issuance of invoice||Date of stipulated amount|
|I||50%||November 20, 2014||November 30, 2014||January 25, 2015|
|II||75%||December 30, 2014||February 25, 2015||January 30, 2015|
|III||100%||February 25, 2015||March 03, 2015||March 01, 2015|
A certificate from Chartered Engineer registered with Institution of Engineers has been obtained for each stage of completion of the building. Give brief reasons for your answer,
Q 5(c) Explain briefly with respect to the provisions of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 the chief reasons for which the proper officer could raise doubts on the truth or accuracy of the declared value.
Q6(a) State briefly the amounts that are credited to the Consumer Welfare Fund set up under Section 12C of the Central Excise Act, 1944.
Q6 [alternate] (i) Who is required to submit quarterly return under Rule 9(8) of CENVAT Credit Rules, 2004? Explain briefly, (ii) M/s. Enterprises Pvt. Ltd. paid excise duty of Rs 90,000 in the financial year 2013-14. Its excise duty liability for the month of October 2014 is Rs 25,000. M/s. Enterprises has availed SSI exemption under Notification No. 8/2003-CE dated 1-3-2003 in the financial year 2013-14 and 2014-15. What is the due date for payment of Excise Duty? Briefly state with reasons.
Q6(b)(i) Harman Enterprises fails to pay service tax of Rs 5,000 payable on 6th October, 2013. It actually deposited the same on 6th October, 2014. Compute the amount of penalty under section 76 of the Finance Act, 1994 that can be imposed on Harman Enterprises in this case.
Q6(b)(ii) What is the maximum penalty leviable under the Finance Act, 1994 and Rules in the following cases – (a) Failure to make e-payment (b) Issue of invoice with incorrect or incomplete details (c) Failure to account for an invoice in the books of accounts (d) Failure to keep, maintain or retain books of accounts and other documents as required as per the provisions of law. – – Briefly explain with reference to the provisions of law.
Q6(c) An assessee collected Rs crore as service tax during the period between financial year 2011-12 to 2013-14 but deposited only Rs 20 lakhs with the government till 10-05-2013. He was arrested on 22-02-2014 on the ground that he had not deposited service tax exceeding 150 lakhs within a period of 6 months from the date on which payment became due. The assessee did not dispute the liability to pay the service tax to the Govt, but he submitted that only the amount collected between 10-05-2013 and 21-08-2013 i.e. (6 months prior to his arrest) should be considered while calculating the amount of Rs 50 lakhs for applying the penal provisions u/s 89(l)(ii). But revenue contended that since failure to deposit service tax with Central Govt after collecting it from the customers was a continuing offence, entire amount of arrears of service tax was required to be taken as liable to be deposited. – – Discuss with the help of a decided case law (if any) whether the contention of assessee is maintainable
Q6(d) Briefly explain the salient features of the duty free import authorization scheme under Foreign Trade Policy.
Q7(a) State briefly with reasons whether registration under the Central Excise Act, 1944 and Rules made thereunder is required in the following cases : (i) Importer who issues an invoice (ii) Godown or Duty free outlet of Duty free shop (iii) Mine engaged in production of specified goods (iv) Premises used for affixing prices on pharmaceutical products.
Q7(b)(i) Determine the place of provision of services as well as their taxability in each of the following cases with brief reasons : (a) XY Ltd. agrees to provide ‘technical inspection and certification service’ in respect of a newly developed product of an overseas firm (for a newly launched motorbike which has to meet emission standards in different states or countries). The overseas firm has provided its newly developed product to XY Ltd. for the purpose of testing. The testing is carried out in Delhi (15%), Assam (35%) and Sweden (50%).
Q7(b)(i)(b) A movie on demand is provided as on-board entertainment during the Kolkata-Delhi leg of a Bangkok-Kolkata-Delhi Flight
Q7(b)(ii) With reference to the Finance Act, 1994 and the Rules made thereunder state whether registration is required in the following cases and if so the date by which registration ought to be obtained under the Rules – (a) Mr. Sureshot was carrying on the business in providing services under an unregistered brand name of another person from 1-7-2014. The services during the period 1-7-2014 to 30-9-2014 were not taxable. However from 1-10-2014 the said services were brought within the tax net. For the year ended 31-03-2015 the taxable value of services has exceeded Rs 9,00,000 (b) An input service distributor with branches located on pan-India basis having commenced business from 01-10-2014.
Q7(c) State briefly – Which reward scheme provided under foreign trade policy aims at compensating high transport cost and offset other disadvantages in the export of specified agriculture products ? Who are eligible exporters under the scheme and what is the rate of entitlement under this scheme? How can the duty scrip’s issued under this scheme be utilized?
CA Final, November, 2014
Question No. 1 is compulsory. Candidates are also required to answer any five questions from the remaining six questions. Wherever appropriate, suitable assumption(s) should be made and indicated in the answer by the candidate. Working notes should form part of the answer.
Q1(a) From the following particulars for the financial year 2013-14, find out whether M/s. Smart Manufacturing Co. is eligible for small scale exemption under Notification No. 8/2003-C.E., dated 01-03-2003 for the financial year 2014-15 – (1).Clearance of excisable goods exempted from payment under a Notification other than 8/2003-C.E. – Rs 100 lakhs (2) Clearance of account books bearing brand name of another person, falling under Heading 4820 of First Schedule to the Central Excise Tariff.- Rs 100 lakhs (3) Clearance of goods to United Nations exempted under Notification No. 108/95-C.E. – Rs 50 lakhs (4) Total Exports [including export to Bhutan Rs. 50 Lakh]. Other exports are to USA & UK – Rs 250 lakhs (5) Clearance of goods (duty paid based on annual capacity of production under section 3A of the Central Excise Act, 1944) – Rs 190 lakhs. – – Show your calculations, workings and explanations clearly, wherever required (5 Marks)
Answer 1(a) For computing limit of Rs 400 lakhs for SSI exemption for the financial year 2014-15, following are to be included – (1) Rs 100 lakhs (2) These are eligible for SSI exemption. Hence, these are to be considered – Rs 100 lakhs (3) Not to be considered (4) Only Rs 50 lakhs is to be considered (5) Rs 190 lakhs is to be considered. Thus, total turnover (for purpose of calculating SSI exemption) is Rs 440 lakhs. Since the turnover is more than 400 lakhs in 2013-14, M/s Smart Manufacturing Co. is not eligible for SSI exemption in 2014-15.
Q1(b) Hemang Ltd. carried out following works, all of which are liable to State Sales-tax/VAT as transfer of property is involved in the execution of works contract (the amount charged given below are exclusive of all taxes) – (i) New constructions : Rs. 60 Lakh (ii) Additions and alterations to damaged structures on land to make them workable : Rs. 40 Lakh (iii) Maintenance and servicing of goods : Rs. 20 Lakh (iv) Maintenance and repairs of immovable property : Rs. 25 Lakh (v). Glazing and plastering of an immovable property : Rs. 30 Lakh. – – Compute the taxable value of services involved in the execution of works-contract (5 Marks)
Answer 1(b) – Taxable value for purpose of service tax – (i) Rs 24 lakhs (40% of Rs 60 lakhs) (ii) Rs 16 lakhs (40% of Rs 40 lakhs) (iii) 14 lakhs (70% of Rs 20 lakhs) (iv) 17.5 lakhs (70% of Rs 25 lakhs) (v) – 21 lakhs (70% of Rs 30 lakhs) [Note – Upto 1-10-2014, the percentage applicable for (iv) and (v) was 60%. However, after 1-10-2014, the percentage applicable is 70% and hence that has been considered]. Total taxable – Rs 92.5 lakhs, Service tax @ 12.36% = Rs 11,43,300.
Q1(c) Heena Ltd. is engaged in providing taxable services. It received following amounts in the month of September, 2014. Compute the value of taxable services and the service tax payable by it – (i) Advances from clients for which no service has been rendered so far.- Rs 10,00,000 (ii) Demurrage charges recovered from the provision of services beyond the agreed period.- Rs 25,000 (iii) Security deposits forfeited for damages done by service receiver owing to his negligence in the course of receiving a service (Not due to unforeseen actions) – Rs 35,000 (iv) Payment received from a client (including Rs. 25,000 paid extra by mistake). However, Heena Ltd. refused to return the excess payment received.- 2,00,000. – – Note : Heena Ltd. is not eligible for small service provider’s exemption under Notification No. 33/2012-S.T., dated 21.06.2012 and service tax has not been charged separately. Rate of service tax is 12.36% (including cess) (5 Marks)
Answer 1(c) (i) taxable Rs 10,00,000 (ii) Taxable (tolerating an act or situation, which is a declared service) – Rs 25,000 (iii) Taxable (tolerating an act or situation, which is a declared service) – Rs 35,000 (iv) Rs 2,00,000 [Really, Rs 25,000 is not value of service as there is no ‘consideration’. However, as per para 2.3.2(7) of CBE&C Education Guide, if excess payment is not received, it should be treated as part of consideration] – Rs 12,60,000. Service tax @ 12.36% – Rs 1,55,736.
Q1(d) A machine was originally imported from Japan at Rs. 250 lakh in August, 2013 on payment of all duties of customs. The said machine was exported (sent-back) to supplier for repairs in January, 2014 and re-imported without any re-manufacturing or re-processing in October, 2014 after repairs. Since the machine was under warranty period, the repairs were carried out free of cost. However, the fair cost of repairs carried out (including cost of material Rs. 6 lakh) would have been Rs. 9 lakh. Actual insurance and freight charges (to and fro) were Rs. 3 lakh. The rate of basic customs duty is 10% and rate of excise duty in India on like article is 12% Additional duty of customs under section 3(5) of the Customs Tariff Act, 1975 is Nil. Compute the amount of customs duty payable (if any) on re-import of the machine after repairs. The ownership of the machine has not been changed during the period (5 Marks)
Ans 1(d) As per customs notification No. 94/1996-Cus dated 16-12-1996, if goods are sent abroad for repairs, duty will be payable on re-imports on value of re-imported goods after repairs were made up of (a) fair cost of repairs including cost of materials used in repairs (whether such costs are actually incurred or not) and (b) insurance and freight charges, both ways. Hence, value for purpose of customs duty is 12 lakhs.
|Calculation of customs duty payable is as follows –|
|Seq.||Duty Description||Duty %||Amount||Total Duty|
|(A)||Assessable Value Rs||12,00,000|
|(B)||Basic Customs Duty||10||1,20,000.00||1,20,000.00|
|(C)||Sub-Total for calculating CVD ‘(A+B)’||13,20,000.00|
|(D)||CVD ‘C’ x excise duty rate||12||1,58,400.00||1,58,400.00|
|(E)||Sub-total for edu cess on customs ‘B+D’||2,78,400.00|
|(F)||Edu Cess of Customs – 2% of ‘E’||2||5,568.00||5,568.00|
|(G)||SAH Education Cess of Customs – 1% of ‘E’||1||2,784.00||2,784.00|
|(H)||Sub-total for Spl CVD ‘C+D+F+G||14,86,752.00|
|(I)||Special CVD u/s 3(5) – 0% of ‘H’||0||0.00||0.00|
|(M)||Total duty rounded to||Rs.||2,86,752|
Q2(a) Happy Ltd. sold 1,000 units of excisable goods manufactured by it @ Rs. 1,200 per unit. It had received interest-free advance of Rs. 5,00,000 from the buyer against delivery for the whole of the year. Compute the assessable value of 1,000 units sold in following independent cases (i) The normal price charged from other buyers is Rs. 1,150 per unit (ii) The normal price charged from other buyers is Rs. 1,280 per unit. The normal rate of interest is 12% per annum (4 Marks)
Answer 2(a) – (i) The advance has not influenced the selling price, Hence, assessable value = 1,200 x 1,000 = 12,00,000 (ii) Here, the interest free advance has clearly influenced the selling price (assuming that quantity of 1,000 is not large enough to offer quantity discount). Nootional interest is to be considered as additional consideration. Interest on Rs 5,00,000 for whole financial year @ 12% is Rs 60,000. Since 1,000 units are sold, additional consideration is Rs 60 per unit. Hence, assessable value = 1,200 + 60 = 1,260. Total Assessable Value = 1,260 x 1,000 = 12,60,000 [Alternate answer – As per rule 11 of Excise Valuation Rules, valuation can be done on reasonable basis if value is not ascertainable. Hence, as per rule 4 of Central Excise Rules, valuation can be done on basis of price of similar goods. Thus, valuation considering price of similar goods i.e. Rs 1,280 is permissible, if additional consideration is not ascertainable]
Q2(b) M/s. Hatim Ltd., having SEZ unit/s as well as DTA unit/s, furnishes the following data for the quarter, July to September. It has opted for refund route under Notification No. 12/2013-ST, dated 01-07-2013. Determine the amount of refund under the said notification – (i) Service tax paid on services exclusively used for authorized operations within SEZ : Rs. 8 Lakh (ii) Service tax paid on services exclusively used for operations within DTA (domestic Tariff Area) : Rs. 4 Lakhs (iii) Service tax paid on services commonly used for SEZ and DTA units : Rs. 16 lakh. (the turnover of SEZ units is Rs. 400 lakh, while that of DTA units is Rs. 1200 lakh.) (4 Marks)
Answer 2(b) – (i) 8 lakhs ((ii) Nil (iii) 4 lakhs [(16 x 400)/1600]. Hence, refund admissible – Rs 12 lakhs.
Q2(c) Service Tax of Rs. 4,000 for the month of March, 2014 was paid on 24th April, 2014 by an HUF. The value of taxable services provided by it during the proceeding financial year was Rs. 12 lakh. Determine the amount of interest and penalty payable under section 75 and 76 respectively of the Finance Act, 1994 (4 Marks)
Answer 2(c) – Service tax was payable on 31-3-2014. Delay is of 24 days. Interest rate is 15%, as value of taxable service did not exceed Rs 60 lakhs in previous financial year. Hence, interest under section 75 of Finance Act, 1994 is (4,000 x 0.15 x 24)/365 = 39.45.
As regards penalty under section 76 of Finance Act, 1994, really, as per section 73(4) of Finance Act, 1994, no penalty is payable if service tax with interest is paid before show cause notice. Further, penalty can be reduced or waived under section 80 of Finance Act, 1994 for sufficient reasons. However, since question specifically asks for penalty, it is assumed that interest was paid after receipt of show cause notice and penalty has not been waived by adjudicating authority. Hence, penalty is payable of higher of the following two – (a) @1% per month is (0.01 x 4,000 x 24)/30 = Rs 32 (b) Rs 100 per day i.e Rs 2,400. Thus, penalty payable is higher of the two i.e. Rs 2,400. However, penalty cannot exceed 50% of service tax payable. Hence, penalty payable is Rs 2,000 [50% of Rs 4,000].
Q2(d) Calculate the amount of duty drawback (if any) allowable under the Customs act, 1962 and the rules made thereunder in the following independent cases – (i) Hema Ltd. has exported goods worth Rs. 80,000 (FOB value). Rate of duty drawback on such export of goods is 0.8% (ii) High Value Ltd. exported 1,000 Kgs. of goods of FOB value of Rs. 1,50,000. Rate of duty drawback on such export is 50 per kg. Market price of goods is Rs. 48,000 (in wholesale market) (4 Marks)
Ans 2(d) – (i) Duty drawback – Rs 640 [0.8% of Rs 80,000] [as per para 14 of Duty Drawback Notification, where specific rates are provided, drawback will not be paid if it is less than 1% of FOB Value of the product, unless drawback claim per shipment is over Rs. 500. This para is not applicable as the rate is not specific and amount is more than Rs 500] (b) Duty drawback @ 50 per Kg = 50,000. 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, no duty drawback is allowable.
Q3(a) M/s. Surbhi Textile Ltd. (the assessee) is manufacturer of synthetic yarn and is availing benefit of Sales Tax Incentive Scheme of State Government wherein it is allowed to retain 75% of sales tax amount collected from its customers and pay balance 25% to the State Government. The Central Excise department has demanded inclusion of 75% portion of sales tax collected from customers and retained by the assessee, in transaction value of the goods. Whereas the assessee is contending that 75% portion of sales tax amount is an incentive to promote the industries and it has nothing to do with ‘Transaction value’. Examine with the help of a case law (if any), whether M/s. Surbhi Textile ltd. is liable to include 75% amount of sales tax in transaction value of the goods (4 Marks)
Answer 3(a) In CCE v. Super Synotex (India) Ltd. (2014) 43 taxmann.com 140 = 44 GST 240 = 301 ELT 273 = 69 VST 1 (SC), the position was that as per Sales Tax Incentive Scheme of the State, assessee was allowed to charge full sales tax in his invoice However, he was required to pay only 25% of the sales tax to Government. Balance he was allowed to retain as industrial incentive. The tax ‘actually paid’ was only 25%. Hence, it was held that assessee can claim deduction of only 25% of sales tax from the transaction value. Balance 75% will not be allowable as deduction from transaction value i.e. the assessee is liable to pay excise duty on this 75% of sales tax retained by him [earlier, in Super Synotex v. CCE 2003(160) ELT 859 (CESTAT), it was held that full 100% sales tax will be allowable as deduction. Now, this decision stands reversed]
This decision has been brought to notice of excise officers vide CBE&C Instruction No. 6/8/2014-CX.1 dated 17-9-2014.
Thus, the 75% portion of sales tax not paid is to be included in assessable value.
[This is classic example of distinction between ‘literal interpretation of statute’ and ‘purposive interpretation of statute’. The aforesaid decision may be correct as per literal interpretation. However, if principle of purposive construction was applied, quite possibly, different result would have emerged. Further, the words used in definition of transaction value in section 4(3)(d) of Central Excise Act are ‘sales tax actually paid or actually payable on such goods’. Thus, sales tax actually payable (though not paid) should be allowable as deduction as the word used is ‘or’ and not ‘and’].
Q3(b)(i) M/s. Paper Ltd. manufactures paper and paper boards in a remote area and the nearest town with a railway station is at a distance of 35 kms. As the factory works round the clock, M/s. Paper Ltd. has provided residential accommodation to its employees in the vicinity of the factory. Discuss with the help of a decided case law (if any), whether M/s. Paper Ltd. is eligible to avail of CENVAT credit of service tax paid on the input services pertaining to maintenance of staff colony (4 Marks)
Answer 3(b)(i) – Services used primarily for personal use or consumption of any employee are not eligible for Cenvat credit w.e.f. 1-4-2011 as per exclusion clause (C) of rule 2(i) of Cenvat Credit rules, which defines ‘input service’ . Hence, the service is residential colony is not eligible for Cenvat credit as it is primarily for personal use or consumption of employee.
For period prior to 1-4-2011, in ITC Ltd. v. CCE (2009) 22 STT 282 (CESTAT), assessee was under obligation to maintain colony for its employees (engaged in plantation of soft wood trees which was input for manufacture of paper) since there was prohibition in acquiring plot/flat in that area as it was a ‘Scheduled Area’. It was held that all services received in maintaining such colony would be ‘input service’ as it has nexus with manufacturing activity – view confirmed in CCE v. ITC Ltd. (2013) 39 STT 654 = 32 taxmann.com 334 (AP HC DB).
Validity of this decision for period after 1-4-2011 is highly doubtful.
Q3(b)(ii) Suraksha Services, a proprietorship firm was engaged in providing security services to its customers, A show cause notice for demanding service tax was issued to the firm and the demand was confirmed. The order was challenged in appeal before the Commissioner. Central Excise (Appeals). The Commissioner (Appeals) denied the raising of the following three additional legal grounds by Suraksha Services during the course of personal hearing : (i) Being a proprietary firm, it cannot be considered as Security Agency (ii) Issue involved being interpretation of law, penalty is not imposable; and (iii) As per decisions, staff salary is to be excluded from the gross amount received for security services – – Discuss with the help of a decided case law (if any), whether the Commissioner (Appeals) was justified in not allowing the raising of the additional grounds (4 Marks)
Answer 3(b)(ii) As a general rule, additional evidence is not allowed at appellate stage. However, question of law can be raised for first time at appellate stage.
Question of law can be raised at first time in appeal even if it was not included in appeal memo – Sankeshwar Printers v. Dy CIT (2013) 218 taxman 360 = 38 taxmann.com 210 (Karn HC DB).
Thus, Commissioner (Appeals) is not justified is not allowing additional legal grounds.
Q3(c) M/s. Duplicate Photocopier Ltd. imported old and used main frames of digital copy printers assembles. The Commissioner assessed the goods and imposed penalty and redemption fine. The importer got the goods released by depositing the amount of duty, fine and penalty with a view to save cost of detention and demurrage as also to save goods from deterioration in value and quality. – – The CESTAT dismissed the appeal, filed by the importer for reducing the quantum of fine and penalty, on the ground that the importer had already got the goods released on payment of redemption fine and penalty. – – Discuss, whether the CESTAT was justified in dismissing the appeal with the help of a decided case law (if any) (4 Marks)
Answer 3(c) The issue is similar to case decided in BE Office Automation Products v. CCE (2013) 42 GST 322 = 40 taxmann.com 60 (P&H HC DB), where it was held that If assessee paid redemption fine and duty to avoid demurrage, he can still challenge order of confiscation and redemption fine.
Thus, CESTAT is not justified in dismissing appeal.
Q4(a) Mention the facilities which may be withdrawn and restrictions which may be imposed on a manufacturer of excisable goods under Rule 12CCC of the Central Excise Rules, 2002 and Rule 12AAA of the CENVAT Credit Rules, 2004 (4 Marks)
Answer 4(a) Following restrictions can be placed and facilities can be withdrawn for a period to be specified in the order issued by Commissioner –
Payment of duty before clearance instead of monthly payment – Facility of monthly payment of duties can be withdrawn for a specified period. Assessee shall be required to pay excise duty for each consignment at the time of removal (i.e. duty is to be debited to PLA before clearance from the factory) [As per explanation (ii) to para 2 of the notification, this restriction can be imposed only if the offence is done second time or subsequently and not for first time]
Restriction on utilization of Cenvat Credit – Utilisation of Cenvat credit can be prohibited. Assessee will be asked to pay duty by cash through PLA only during the specified period [As per explanation (ii) to para 2 of the notification, this restriction can be imposed only if the offence is done second time or subsequently and not for first time]
As per Explanation (i) to para 2 of Notification No. 16/2014-CE(NT) dated 21-3-2014, assessee can take Cenvat credit during that period but cannot utilise the same.
Keeping records of principal inputs on which Cenvat not taken – Assessee may be required to keep record of receipt, disposal, consumption and inventory of principal inputs on which Cenvat credit is not taken (Principal Input means input used in manufacture of final product which constitutes at least 10% of total cost of raw materials for manufacture of unit quantity of that product).
Intimation about receipt of principal inputs – Assessee may be required to intimate within prescribed period to the Superintendent about receipt of principal inputs on which Cenvat credit is not taken (Principal Input means input used in manufacture of final product which constitutes at least 10% of total cost of raw materials for manufacture of unit quantity of that product).
Counter-signature of excise officer on invoice for second and subsequent offence – In case of second or subsequent offence, in addition to aforesaid restrictions, the invoice shall be countersigned by Inspector or Superintendent during the specified period (This is similar to physical clearance of goods that was existing in good old days).
Sealing of export consignments by excise officer in case of offence by merchant exporters – If a merchant exporter is found to be knowingly involved in offence specified in para 1(f) of Notification (i.e. claiming of refund or rebate based on the excise duty paid invoice or other documents which a person has reason to believe that they are not genuine), the facility of self sealing of export containers will be withdrawn. Thus, export consignments will be examined and sealed by jurisdictional Central Excise Officer.
Suspension of registration of dealer – Registration of a dealer can be suspended for a specified period. During that period, he can continue with his business and issue sales invoices without showing duty of excise in his invoice. However, he cannot issue Cenvatable Invoice, i.e. during that specified period, he cannot show excise duty in his invoice.
Withdrawal of other facilities in case of manufacturer or registered dealer – If a manufacturer, first stage dealer or second stage dealer is found to be knowingly involved in offence specified in para 1(f) of Notification (i.e. claiming of refund or rebate based on the excise duty paid invoice or other documents which a person has reason to believe that they are not genuine), any other facility available to him may be withdrawn. (Thus, any procedural relaxation which has been given under rules or notification cannot be withdrawn).
Q4(b)(i) M/s. A One Restaurant is having air-conditioned as well as non-air-conditioned restaurants in a single complex. The food is sourced from the common kitchen. Discuss, whether the service tax will be leviable in respect of service provided in the non-air-conditioned restaurant. Explain briefly with reasons (4 Marks)
Answer 4(b)(i) – CBE&C, vide circular No. 173/8/2013-ST dated 7-10-2013 has confirmed if there is more than one restaurant in a complex, which are clearly demarcated and separately named but food is sourced from a common kitchen, only the service provided in AC/Centrally heated restaurant will be liable to service tax. Service provided in a non air-conditioned or non-centrally heated restaurant will not be liable to service tax. This will be treated as exempted service and Cenvat credit provisions (rule 6) will apply.
This can also be justified on the basis of purposive rule of interpretation, as intention of legislature is to tax only higher end of restaurants and exclude ordinary restaurants (meant for common man) from provisions of service tax.
Q4(b)(ii) Mention the output services for which refund of unutilised CENVAT credit shall be allowed under Rule 5B of the CENVAT Credit Rules, 2004 (4 Marks)
Answer 4(b)(ii) – In case of reverse charge, the service provider is either not liable to pay service tax or liable to pay service tax at reduced rates. In such cases, it is possible that he may have excess Cenvat Credit on his inputs and input services, which is not utilizable. In such case, the service provider can claim refund of excess Cenvat credit with him, which he is unable to utilise, as per procedure as may be prescribed by CBE&C – Rule 5B of Cenvat Credit Rules as inserted w.e.f. 1-7-2012.
The procedure has been prescribed vide Notification No. 12/2014-CE(NT) dated 3-3-2014.
Only service providers of following four services are eligible to claim refund under these provisions –
(i) Renting of motor vehicle designed to carry passengers when service tax is paid on full value (i.e. non abated value) to any person who is not engaged in a similar business [Thus, the refund is possible only when service tax is paid by service provider on 50% of value – as balance 50% is payable by service receiver).
(ii) Supply of manpower service
(iii) security service
(iv) Service portion in the execution of works contract
Q4(c)(i) Mr. Anil and his wife (non-tourist Indian passengers) are returning from Dubai to India after staying there for a period of two years. They wish to bring gold jewellery purchased from Dubai. Pl. enumerate provisions of Customs Laws for jewellery allowance in their case (2 Marks)
Answer 4(c)(i) For bringing jewellery as a baggage, following provisions apply – (a) General Free Allowance of Rs 45,000 each to Anil and his wife (b) A person transferring his residence to India after stay abroad for two years and who has not availed this concession in preceding three years is eligible for bringing jewellery upto Rs 50,000 in case of male passenger and Rs 1,00,000 in case of female passenger.
Further, if Mr Anil and his wife had taken jewellery fro India and had taken ‘Export Certificate’ while taking out jewellery, they could have brought the jewellery without payment of customs duty. However, here they have purchased jewelley in Dubai and hence the question does not arise.
Q4(c)(ii) Mention the new nomenclature of Customs House Agent and the need for such change (2 Marks)
Ans 4(c)(ii) – The new nomenclature is Customs Broker. The change in nomenclature seems to be to follow international practice.
Q5(a) Specify the persons liable to pay excise duty in case of readymade garments and made up articles of textiles manufactured on job work basis under the provisions of Central Excise Rules, 2002. Explain the provisions in brief (4 Marks)
Answer 5(a) At present, this question is not much relevant as now (w.e.f. 1-3-2013) exemption can be availed from payment of excise duty on readymade garments, subject to non-availment of Cenvat credit. Most of manufacturers are availing this exemption.
Following discussions are relevant only if the brand owner opts to pay excise duty.
Basically, duty liability is of the actual manufacturer manufacturing the garments. However, if a person is manufacturing readymade garments on job work basis for a brand name owner, the brand owner will be liable to pay excise duty as if he is manufacturer of such goods – Rule 4(1A) of Central Excise Rules, inserted w.e.f. 1-3-2011.
Since the brand name is liable for payment of duty, the job worker will be exempt from excise duty vide Notification No. 13/2011-CE dated 1-3-2011.
As per Notification No. 20/2001-CE(NT) dated 30-4-2001, excise duty on readymade garments is payable @ 30% of retail price printed on the package e.g. if MRP printed on package is ` 1,000, excise duty will be payable @ 12.36% on ` 300. This is Tariff Value notified under section 3(2) of Central Excise Act.
Q5(b)(i) Define “Governmental Authority” in relation to Mega Exemption Notification No. 25/2012-S.T. dated 20.06.2012 (4 Marks)
Ans 5(b)(i) – “Governmental authority’’ means an authority or board or any other body – (i) set up by an Act of the Parliament or a State Legislature or (ii) established by Government – – with 90% or more participation by way of equity or control, to carry out any function entrusted to a municipality under article 243W of the Constitution – Definition clause 2(s) of Notification No. 25/2012-ST dated 20-6-2012 effective from 30-1-2014.
Functions entrusted to municipality under Article 243W of Constitution of India have been listed in Para 7.3.2 of CBE&C’s ‘Taxation of Services : An Education Guide’ published on 20-6-2012. These cover services like urban planning, regulation of land use, roads and bridges, water supply, public health, fire services, slum improvement, public amenities, functions entrusted to them by Government etc.
Q5(b)(ii) Discuss whether an option is available to an air travel agent to not to pay service tax @12%, but a lower rate? If yes, mention the rates of services tax in such case (4 marks)
Ans 5(b)(ii) – As per rule 6(7) of Service Tax Rules, person liable to pay service tax in relation to services of booking of tickets for travel by air has option to pay service tax @ 0.60% of basic fare in case of domestic booking and @ 1.20% of the basic fare in case of international bookings, of passage for travel by air, during any calendar month, instead of paying service tax at the rate prescribed in section 66. [The percentage was 0.5% and 1% respectively upto 30-4-2006]. In addition, education cess @ 2% and SAH education cess @ 1% will be payable.
There is no restriction on availment of Cenvat credit.
Once the option is exercised, the option shall apply uniformly in respect of all bookings of passage for air travel, and the option cannot be changed during financial year under any circumstances. For the purpose of this option, ‘basic fare’ means that part of air fare on which commission is normally paid by airline to the air travel agent. [Rule 6(7) of Service Tax Rules].
Q5(c)(1) Explain briefly the following with reference to the provisions of the Customs Act, 1962 – Conveyance (2 Marks)
Ans 5(c)(1) – Conveyance – ‘Conveyance includes a vessel, an aircraft and a vehicle [section 2(9) of Customs Act]. This is an inclusive definition and any other conveyance can get covered in this definition. e.g. railways can get covered in this definition. The significance of the definition is that person in charge of conveyance carrying imported goods or export goods is required to make various declarations. The conveyance is liable to confiscation in various penal provisions.
Q5(c)(2) Explain briefly the following with reference to the provisions of the Customs Act, 1962 – India (2 Marks)
Ans 5(c)(ii) – ‘India’ includes the territorial waters of India [section 2(27) of Customs Act,, 1962].
Section 3 of the ‘Territorial Waters, Continental Shelf, Exclusive Economic Zone and other Maritime Zone Act, 1976′ specifies that territorial water extend upto 12 nautical miles from the base line on the coast of India and include any bay, gulf, harbour, creek or tidal river.
Goods become liable to import duty or export duty when there is ‘import into, or export from India‘.
Q6(a) Please specify the circumstances in which clearances of two or more units shall be clubbed under the Central Excise Law (4 Marks)
Ans 6(a) One manufacturer having more than one units – If the manufacturer has more than one factories (even at different places), the turnover of all factories (belonging to same manufacturer) have to be clubbed together for calculating the SSI exemption limits of Rs 150 or Rs. 400 lakhs.
One manufacturer for part of year and other for balance part of year in same factory – Sometimes, a manufacturer may use the factory for part of the year and then another manufacturer may use the same factory for remaining part of the year. In such cases, the turnover of different manufacturers has to be clubbed for calculating the SSI exemption limits of 150 or Rs. 400 lakhs, if it is from the same factory.
More than one manufacturers in same factory – It is possible that more than one manufacturers may clear the goods from the same factory e.g. part of factory may be used by one manufacturer and another part of same factory may be used by another manufacturer. In such cases, all clearances from the factory has to be considered even if the clearance is of different manufacturers for calculating the SSI exemption limits of 150 or 400 lakhs.
Bogus or sham units – Clubbing is also possible if two units are sham or bogus or if there is unity of interest and practically they are one. The most important tests are – mutuality of interest and financial flow back
Q6(a) (Alternative question) – Mention the exporters who are eligible to have the facility of export warehousing under the Central Excise law (4 Marks)
Ans 6(a) Even if an exporter has no ready orders for export, he may like to keep goods in stock, so that goods can be exported from warehouse as soon as export order is received. The goods can be kept in a warehouse without payment of duty and exported therefrom. The warehouse should be registered with Central Excise.
This facility is useful when the name of exporter is not known at the time of removal from the factory.
This facility is permitted only at specified places in India.
Only exporters who are recognised as ‘status holders’ and foreign departmental stores of repute and automobile manufactures who have signed MOU with DGFT are eligible under the scheme.
Q6(b)(i) Mention the procedure for obtaining electronic rebate of service tax paid on specified services used in the export of goods, through ICES system (4 Marks)
Ans 6(b)(i) – Exporters were facing many difficulties in getting refund of input services used for export of goods. Hence, an optional scheme has been introduced to make service tax refund (STR) to exporters through Indian Customs EDI system (ICES).
This is provided in para 2 of Notification No. 41/2012-ST dated 29-6-2012.
The refund will be on basis of ‘schedule of rates’. The exporter should make application giving details prescribed in form ‘Annexure-A’ of CBE&C circular No. 149/18/211-ST dated 16-12-2011. They should inform their bank and branch details, bank account number and IFSC (Indian Financial Service Code) to customs. The payment of refund will be made electronically directly in bank account of the exporter through NEFT/RTGS.
Those exporters who want to claim refund as per scheduled rates should express his option by mentioning in the shipping bill, chapter/sub-heading number at first two or four digit levels specified in the schedule of rates, as applicable to export goods. The refund will be directly credited in the Bank account of exporter.
The rates of refund of service tax on input services, procedures and conditions have been specified in notification No. 41/2012-ST dated 29-6-2012.
Q6(b)(ii) Specify the circumstances under which the Commissioner of Central Excise may order special audit under Section 72A of the Finance Act, 1962 (4 Marks)
Ans 6(b)(ii) – Section 72A of Finance Act, 1994 make provision for special audit by practicing Chartered/Cost Accountant.
Special audit of can be ordered by Principal Commissioner/Commissioner of Central Excise.
Such audit can be ordered if the Principal Commissioner/Commissioner of Central Excise has reason to believe that that any person liable to pay service tax –
(i) has failed to declare or determine the value of a taxable service correctly; or
(ii) has availed and utilised credit of duty or tax paid – (a) which is not within the normal limits having regard to the nature of taxable service provided, the extent of capital goods used or the type of inputs or input services used, or any other relevant factors as he may deem appropriate; or (b) by means of fraud, collusion, or any wilful misstatement or suppression of facts; or
(iii) has operations spread out in multiple locations and it is not possible or practicable to obtain a true and complete picture of his accounts from the registered premises falling under the jurisdiction of the Principal Commissioner/Commissioner [section 72A(1) of Finance Act, 1994].
In such cases, the Principal Commissioner/Commissioner may direct such person to get his accounts audited by a chartered accountant or cost accountant nominated by him, to the extent and for the period as may be specified by the Principal Commissioner/Commissioner [section 72A(2) of Finance Act, 1994]
The provisions of special audit apply even if audit was conducted under some other law [section 72A(3) of Finance Act, 1994]
Q6(c)(i) Define ‘Activity’ in respect of advance ruling as per Section 28E (a) of the Customs Act, 1962 (2 Marks)
Ans 6(c)(i) – Application for Advance Ruling can be made in respect of ‘proposed activity’. New business of existing assessee can also be a ‘proposed activity’. ‘Activity’ means production or manufacture of goods and includes any new business of production or manufacture proposed to be undertaken by the existing producer or manufacturer [section 23A(a) of Central Excise Act] Application for advance ruling can be made only for ‘proposed activity’ and not existing activity.
Q6(c)(ii) Mr. Hasmukh is eligible for reward under ‘Served From India Scheme’ (SFIS). He has earned foreign exchange (net) of Rs. 6 lakh during the financial year 2013-14. Discuss the limit of his duty credit scrip entitlement (2 Marks)
Ans 6(c)(ii) – 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. Thus, Mr. Hasmukh is eligible under the scheme.
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. Duty credit scheme can also be utilized for payment of excise duty.
Thus, Mr. Hasmukh can get duty credit scrip of Rs 60,000.
Q7(a) M/s. Cold Beverages Ltd. has removed the aerated water bottles without declaring the retail sale price under section 4A of the Central Excise Act 1944. Discuss briefly how the retail sale price of these goods shall be ascertained (4 Marks)
Ans 7(a) If (a) assessee clears goods without declaring the retail sale price on the packages of such goods; or (c) by declaring the retail sale price, which is not the retail sale price as required to be declared under the provisions of the Legal Metrology Act or rules made thereunder or any other law for the time being in force ; or (c) by declaring the retail sale price but obliterates the same after their removal from the place of manufacture, the MRP will be determined as per Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008.
AS PER THE RULES, MRP will be determined on following basis –
MRP of identical goods cleared within one month – If the manufacturer has manufactured and removed identical goods, within a period of one month, before or after removal of such goods, by declaring the retail sale price, then, the said declared retail sale price shall be taken as the retail sale price of such goods [Rule 4(i)]
MRP on basis of retail market price in market of such goods – If the retail sale price cannot be ascertained on above basis, the retail sale price of such goods shall be ascertained by conducting the enquiries in the retail market where such goods have normally been sold at or about the same time of the removal of such goods from the place of manufacture: The enquiry will be conducted on sample basis [Rule 4(ii)]
If more than one retail price is ascertained – If more than one retail sale price is ascertained on any of above basis, the highest of the retail sale price, so ascertained, shall be taken as the retail sale price of all such goods.
If MRP cannot be ascertained on above basis – If the retail sale price of any excisable goods cannot be ascertained under these rules, the retail sale price shall be ascertained in accordance with the principles and the provisions of section 4A of the Act and the rules [Rule 6]
Q7(b)(i) M/s. Pure Drugs Ltd. manufactures medicines which are liable to excise duty only under the Medicinal and Toilet Preparations (Excise Duty) Act, 1955. The Assistant Commissioner of Central Excise has directed it to pay the service tax as it is not covered by Negative List [Section 66D(f) of the Finance Act, 1994] since the Central Excise duty under Section 3 of the Central Excise Act, 1944 is not payable on the medicines manufactured by it. Examine whether M/s. Pure Drugs ltd. is liable to pay service tax for the year 2014-15. Give reasons in support of your answer (4 Marks)
Ans 7(b)(i) It seems that Pure Drugs Ltd. are manufacturing medicines on job work basis.
Any process amounting to manufacture or production of goods is not taxable service – Clause (f) of Negative List of services as per section 66D of Finance Act, 1994 introduced w.e.f. 1-7-2012.
“Process amounting to manufacture or production of goods” means a process on which duties of excise are leviable under section 3 of the Central Excise Act, 1944 (1 of 1944) or the Medical and Toilet Preparations (Excise Duties) Act, 1955 or any process amounting to manufacture of alcoholic liquors for human consumption, opium, Indian hemp and other narcotic drugs and narcotics on which duties of excise are leviable under any State Act for the time being in force – section 65B(40) of Finance Act, 1994
Thus, this activity is exempt from service tax.
Q7(b)(ii) Mentioned the services specified in Rule 9 of the Place of Provision of Service Rules, 2012 in respect of which, the place of provision shall be location of the service provider (4 Marks)
Ans 7(b)(ii) The place of provision of following services shall be the location of the service provider (a) Services provided by a banking company, or a financial institution, or a non-banking financial company, to account holders (b) Online information and database access or retrieval services (c) Intermediary services (d) Service consisting of hiring of all means of transport other than (i) aircrafts and (ii) vessels except yachts, upto a period of one month [Rule 9 of Place of Provision of Service Rules].
Q7(c) What is the basis difference between ‘Duty Exemption Schemes’ and ‘Duty Remission Schemes’ under Foreign Trade Policy (FTP) ? Name the schemes available under these two schemes for FTP 2009-14 (4 Marks)
Ans 7(c) Customs Duty Exemption schemes – Under duty exemption schemes, inputs can be imported duty free for export production. The schemes are – (a) Advance Authorisation (b) Duty Free Import Authorisation (DFIA) (c) Export Oriented Undertaking (d) Unit in Special Economic Zone
Customs Duty Remission scheme – Under duty remission scheme, duty on inputs used in export product is either replenished or remitted. The scheme is – Duty Drawback Scheme (under duty drawback scheme, replenishment is of excise duty, service tax and customs duty on inputs/input services).
CA Final, May 2014 Examination
Question No. 1 is compulsory. Candidates are also required to answer any five questions from remaining six questions. Wherever appropriate, suitable assumption(s) should be made and indicated in the answer by the candidate.
Q1(a) M/s. Veena Ltd. has two factories A and B, and supplies you the following information – (i) Assessable value of clearances upto 31-12-2013 – Factory A Rs 90 lakhs – Factory B – Rs 60 lakhs (ii) Assessable value of clearances from 1-1-2014 to 31-03-2014 – – Factory A Rs 60 lakhs – Factory B – Rs 40 lakhs (iii) Inputs purchased during the year 2013-14 (including excise duty) – Factory A – Rs 112.36 lakhs Factory B – Rs 55.15 lakhs (iv) Capital goods purchased on 14-09-2013 (including excise duty) – Factory A – Nil Factory B – Rs 11.03 lakhs (v) Effective rate of excise duty on inputs and capital goods purchased and output sold – Factory A 12.36% – Factory B – 10.30%. – – M/s. Veena Ltd. is availing SSI exemption under Notification No. 8/2003-C.E. and inputs are used evenly throughout the year. There is neither any processing loss nor any inventory of input and output. You are required to calculate the amount of excise duty payable by M/s. Veena Ltd. in cash, if any, for the Financial Year 2013-14 (5 marks)
Q1(b) M/s, Vipin Ltd. purchased raw material ‘A’ 10,000 kg @ Rs 80 per kg plus excise duty. The said raw material was used to manufacture intermediate product ‘P’. The said intermediate product was captively used for the manufacture of finished product ‘Z’, which was exempt from excise duty. The other informations are as under : (i) Processing loss : 2% of inputs in manufacture of ‘P’ (ii) Assessable value of ‘P’ : Rs 100 per kg.(iii)) Assessable value of ‘Z’: Rs 20 lac (for total output) (iv) Other material ‘M’ used in the manufacture of ‘Z’ : Rs 2 lac plus excise duty (v) Duty on capital goods imported during the period and used in the manufacture of ‘P’: Basic customs duty Rs 20,000, Additional duty of customs under section 3(1) of the Customs Tariff Act, 1975 Rs 10,000; and Additional duty of customs under section 3(5) of the Customs Tariff Act, 1975 Rs 4,000 (vi) Rate of Central excise duty on ‘A’, ‘M’ and ‘P’ : 12.36% (including education cess as applicable). M/s. Vipin Ltd. is not eligible for SSI exemption under Notification No. 8/2003-C.E. Compute : (i) Amount of CENVAT credit available, and (ii) Central excise duty payable by M/s. Vipin Ltd (5 marks)
Q1(c) Reliable Agro Industries famishes the details of its activities undertaken in the month of May, 2013 as under: – (1). Supply of farm labour – Rs 55,000 (2). Warehousing of refined vegetable oil Rs 1,25,000 (3) Sale of wheat on commission basis 60,000 (4) Hiring of trucks for transport of minerals 2,50,000 (5) Leasing of vacant land to a stud farm 30,000 (6) Renting of farmhouse for marriage and birthday 45,000 parties (7) Dehusking of paddy in rice mill 32,000. – – Compute the service tax liability of company for the month of May, 2013. Assume that the point of taxation in respect of all the activities falls in the month of May, 2013 itself. Company had paid service tax of Rs 3,18,000 during the Financial Year 2012-13. Give working notes as may be suitable. (Rate of service tax is 12% + education cess as applicable). (5 marks)
Q1(d) M/s. Virat Productions is manufacturing two products – ‘R’ and “T and provides you the following particulars : (i) Cost of raw material purchased (including VAT @ 12.5%) – Rs 2,25,000 (iia) Intra-State purchases (including VAT @ 12.5%) – Rs 45,000 (iib) Inter-State purchases (including CST @ 2%) – Rs 81,600 (iii) Wages and other manufacturing expenses (for product ‘R’ and ‘T’ in ratio 3:1) – Rs 78,400 (iv) Profit margin on sales value 20%. – – M/s. Virat Productions utilized inputs and manufactured 75% of production as ‘R’ and 25% of production as ‘T’. While ‘R’ is subject to 12.5% VAT, ‘T’ is exempt from VAT. All the materials were used in production and there was no opening or closing stock of any material. Compute the invoice value of sales and net VAT liability, if all the sales were made within the State (5 marks)
Q1 (e) Vipul imported certain goods in December, 2013. An ‘into Bond’ bill of entry was presented on 14th December, 2013 and goods were cleared from the port for warehousing. Assessable value on that date was US $ 1,00,000. The order permitting the deposit of goods in warehouse for four months was issued on 21st December, 2013. Vipul deposited the goods in warehouse on the same day but did not clear me imported goods even after the warehousing period got over on 20th April, 2014. A notice was issued under section 72 of the Customs Act, 1962, demanding duty, interest and other charges. Vipul cleared the goods on 14″1 May, 2014. Compute the amount of duty and interest payable by Vipul while removing the goods on the basis of following information : (i) Rate of exchange per US $ (as notified by Central Board of Excise & Customs) On 14-12-2013 Rs 65.20 On 20-04-2014 Rs 65.40 on 14-05-2014 – Rs 65.50 (ii) Basic Customs Duty- On 14-12-2013 – 15% On 20-04-2014 – 10% on 14-05-2014 – 12%. – – No other customs duty is payable except basic customs duty (5 marks)
Q 2(a) (i) What are the powers of the Tribunal (CESTAT) to grant extension of stay under section 35 C (2A) of the Central Excise Act, 1944 ? (3 marks) (ii) How can a decision, order, summon or notice be served to the intended person under section 37C(l)(a) of the Central Excise Act, 1944 ? (3 marks)
Q2 (b) Discuss the liability under service tax in the following cases during the month of July, 2013: (i) Transport facility provided by a School to its students through a fleet of buses owned by the School (ii) Service provided by a private transport operator to a School in relation to transportation of students to and from the School (iii) Exhibiting movies on television channels. (2 x 3 = 6 marks)
Q 2(c)(i) What is interest free period allowed under section 47(2) of the Customs Act, 1962 for payment of duty ? (ii) What is the maximum period of storage allowed for warehousing without warehousing under section 49 of the Customs Act, 1962 ? (iii) What is the minimum monetary limit prescribed in the Customs law below which no refund shall be granted ? (1 x 3 = 3 marks)
Q3.(a) (i) M/s. Healthcare Ltd. is manufacturer of patent and proprietary medicines. Physician samples were distributed to medical practitioners as free samples. The Central Excise Department raised the demand of excise duty on such samples. – – The assessee contended that since the sale of the physician samples was prohibited under the Drugs and Cosmetics Act, 1940 and the rules made thereunder, the same could not be considered to be marketable and hence were not liable to excise duty. Examine with the help of a decided case law whether the contention of the assessee is valid in law (3 marks) (ii) M/s. A Ltd. was a manufacturer of two products ‘X’ & ‘ Y’, falling under Chapter heading 32 and 84 of the first schedule to the Central Excise Tariff Act, 1985, respectively. The goods ‘X’ were dutiable but the goods ‘Y’ falling under Chapter heading 84 were fully exempt from duty vide an exemption notification, but the manufacturer, M/s. A Ltd., paid the excise duty on ‘Y’ by mistake and did not even claim refund of the same. For goods ‘X’ falling under Chapter heading 32, being eligible for SSI exemption, the manufacturer wished to claim the same. – – For the purpose of computing the value of clearances for SSI exemption, the manufacturer excluded the turnover of goods ‘Y’ which was exempt although duty was paid mistakenly on them. However, the department contended that the clearance of such goods should be included while computing the value of clearance for SSI exemption purposes. With reference to a decided case law, you are required to find out whether the contention of the department is correct or not (3 marks)
Q3(b)(i) The petitioner, a charitable society is engaged in running internationally renowned schools. It allowed other schools to use its name, logo and motto and as a consideration thereof received collaboration fees from such schools which comprised of a nonrefundable amount and annual fee. The schools were required to observe certain obligations / terms and un-impeachable confidentiality. Department contended that the petitioner was engaged in providing franchise service and accordingly issued show cause notice proposing to recover service tax along with interest and penalty. Examine the validity of the departmental action with reference to a decided case if any (3 marks) (ii) The assessee received some taxable services from Ramesh. A formal contract was entered into between them. As per the terms of the contract, Ramesh had to bear all the taxes, duties and other liabilities in connection with discharge of his obligations. Subsequently, liability to pay service tax in case of such taxable services was shifted from service provider to service receiver retrospectively, owing to an amendment in law. Therefore, the assessee deducted service tax in the bills raised by Ramesh. Ramesh refused to accept the said deduction saying that the contractual clause could not alter the liability placed on the service recipient (i.e. the assessee) by law. Discuss, whether the contention of Ramesh stands to reason, with help of a decided case law, if any (3 marks)
Q3 (c) The assessee, an importer, filed a refund application under section 27 of the Customs Act, 1962. In support of the refund claim, the assessee submitted a Chartered Accountant’s certificate giving the various facts ruling out unjust enrichment under the Customs Act. The department denied the refund on the grounds being insufficient evidence. Examine the validity of departmental action citing a decided case, if any (3 marks)
Q4(a)(i) M/s. Vinay Industries is engaged in manufacture of a product’B’ 3 which is obtained by certain process. The adjudicating authority concluding that the process amounts to manufacture, levied excise duty on it. Aggrieved by the order, the assessee carried an appeal before the Commissioner (Appeals), who accepted the assessee’s stand and held that the above process did not amount to manufacture. Department did not appeal against it and the above order of the appellate authority attained finality. For subsequent period, the assessee took the same stand but the department issued demand notice to the assessee to pay the duty, but for a time period different from the period covered in the said appeal. Discuss with the help of a decided case law, whether the Revenue could contend this issue further on the same grounds when the appellate order for earlier period was not challenged by me department ? (3 marks) (ii) The respondent assessee was carrying on construction of metro 3 railway. He manufactured pre-fabricated components of metro rail at one site to be used at different inter-connected metro construction sites. The assessee claimed exemption under Notification No. 1/2011-C.E.(N.T.) dated 17-2-2011 which exempts the goods covered under specified chapter headings for a specified period, manufactured at the site of construction for use in construction work at such site. Department contended that the assessee was not entitled to exemption as he did not fulfil the condition of manufacture at the site of the construction. Examine the validity of the departmental contention citing a decided case, if any (3 marks)
Q 4(b) A co-operative society rendered rent-a-cab service to M/s. JITO. The members of the society were essentially agriculturists who formed the society after they lost their land when JITO plant was being set up and the society was operating without any profit model. When the society started rendering the service to JITO, there was no service tax levy on rent-a-cab service. However, service tax was imposed on it subsequently. A show cause notice was issued to the society proposing to recover service tax with applicable penalty. The society paid the entire disputed amount of service tax and thereafter regularly paid the service tax but did not pay the penalty contending that it was a case of new levy and also, there were divergent views of different Benches of Tribunal, which had added to the confusion. The issue was debated also with JITO, the service receiver, who denied to pay the amount of tax first. Decide, with the help of a case law, whether the contention of the assessee is acceptable in law. Discuss in brief the various observations, which can be made on the issue (6 marks)
Q4 (c) M/s. Vijay Exports, an EOU, is purchasing electricity generated by the captive power plant of its sister unit. The furnace oil required for running the captive power plant was imported by the assessee (M/s. Vijay Exports) and supplied to sister unit for generation of electricity. The assessee also claimed exemption on import of furnace oil under a relevant exemption notification. However, the assessee sought a clarification from the Development Commissioner seeking as to whether import of furnace oil and receipt of electricity would be liable to duty. The Development Commissioner replied in favour of the assessee and thereafter, the assessee claimed the exemption. A show cause notice demanding duty was issued on the assessee invoking extended period of limitation of 5 years on grounds that the entitlement of duty free import of fuel for its captive power plant lies with the owner of the captive power plant, and not the consumer of electricity, generated from that power plant. Is the action of the department justified in light of the provisions of the Customs Act, 1962 ? Discuss with the help of a decided case law (3 marks)
Q5 (a) In Central Excise Law briefly explain the following terms : (i) Specific duty (ii) Tariff value (iii) Ad-hoc exemption (2 x 3 = 6 marks) (b) (i) With reference to the Finance Act, 1994, discuss the taxability of following activities relating to a bank – (a) Bank extended housing loan of f 50 lac to Mr. A (b) Bank received Rs 50,000 as loan processing fee from Mr. A (c) Bank received Rs 6 lac as interest on loan from Mr. A (3 marks) (b)(ii) Explain briefly whether VAT is leviable on sale of leased asset 3 after lease period ? If yes, in which State, it will be exigible to tax? (c) Write a short note on applicability of penal provisions in Customs Law on attempt of improper exportation of goods (3 marks)
Q6(a) An assessee is barred from making an application for settlement of cases under section 32E of Central Excise Act, 1944 in certain circumstances. Briefly enumerate these circumstances. OR Briefly explain the procedure to be followed by the Authority for Advance Rulings on receipt of application for Advance Ruling under the Central Excise Act. 1944 (6 marks) (b)(i) What is the time limit for issuance of show cause notice for demand of service tax under section 73 of the Finance Act, 1994 ? (3 marks) (b)(ii) What is VAT invoice ? What are the mandatory provisions to be complied with while issuing a VAT invoice by a registered dealer ? (3 marks) (c) What is the relevant date for determining the rate of duty and tariff valuation in respect of goods imported or exported by post ? (3 marks)
Q7 (a) Which are the different types of bonds in vogue and executed for various purposes under Central Excise Act, 1944 ? (6 marks)
Q7(b)(i) On the basis of following information, determine the ‘Point of Taxation’ as per Rule 3 of Point of Taxation Rules, 2011 – (1) Commencement of providing of service on 05 -06-2013 (2) Completion of service on 10-10-2013 (c3) Invoice issued on 20-10-2013 (4) Payment received by cheque and entered in the books on 15-10-2013 (5) Amount credited in Bank A/c on 25-10-2013 (6) Service became taxable for the first time on 01-07-2013 (3 marks) (b)(ii) Explain how do sales tax incentives cause problems for VAT system (3 marks)
Q7(c) Explain briefly the meaning of Entry Inward and Entry Outward in the Customs Law (3 marks)
CA Final November 2013
Question – M/s. Dental Care Ltd. has introduced a new product ‘CLOVE’ toothpaste, notified under Section 4A of the Central Excise Act, 1944, with a notified abatement of 30% . Determine the central excise duty payable if rate of duty is 12%, education cess is 2% and secondary and higher education cess is 1% – (i) 1,000 pieces having retail sale price (RSP) Rs 70 per piece are sold in retail packages to wholesale dealer at Rs 50 per piece (ii) 2,500 pieces having RSP Rs 70 per piece are sold in retail packages, but buyer is charged for 2,400 pieces only at Rs 50 per piece (100 pieces have been given free as quantity discount) (iii) 50 pieces were given away as free samples, without any RSP on the pack (iv) 200 multi-packs were cleared at Rs 90 per pack, each containing two toothpaste tubes and one tooth-brush free (without any RSP on it). Each tooth paste tube was having RSP Rs 70, which was scored out and each multi-pack had RSP of Rs 130 (Make suitable assumptions wherever required and show the calculations with appropriate notes.) (CA Final November 2013)
Answer – (i) 70% of Rs 70 is Rs 49.00. Assessable value of 1,000 pieces – 49,000 (1,000 x 49). Excise duty @ 12.36% – Rs 6,056.40 (ii) Duty payable on all 2,500 pieces. Assessable value – Rs 1,22,500 (25,000 x 49). Excise duty @ 12.36% – Rs 15,141.00 (iii) Assessable value 2,450 (50 Nos x Rs 49). Excise duty @ 12.36% – Rs 302.82 (iv) Assessable value per piece – Rs 91 (70% of 130). Total assessable value – 18,200 (200 Nos x Rs 91) Excise duty @ 12.36% – Rs 2,249.52. Total excise duty payable – Rs 23,749.74
Question – M/s. Honest Manufacturer furnishes the following information for the monthof October, 2013 – (i) Assessable value of goods ‘X’ cleared (effective rate of duty 12.36%) – Rs 150 Lakh (ii) Assessable value of goods ‘Y’ cleared (effective rate of duty 2.06% under Notification No. 1/2011-CE dated 1-3-2011) – Rs 50 Lakh (iii) CENVAT credit of input ‘P’ (used only in manufacture of goods ‘X’) – Rs 10 Lakh (iv) CENVAT credit of input ‘R’ (used in manufacture of goods ‘X’ and ‘ Y’ both) – Rs 6 Lakh. The assessee does not maintain separate accounts for input ‘P’ and ‘R’. Calculate the central excise duty payable by him. Also calculate the amount payable, if any, under Rule 6(3)(i) of CENVAT Credit Rules, 2004. Duty payable by availing CENVAT credit and by GAR-7 challan, if any, should be shown separately (Show the workings with explanation wherever required.) (CA Final November 2013)
Answer – Duty payable on X – 18,54,000 [12.36% of Rs 150 lakhs]. Duty payable on Y – Rs 6,18,000 [12.36% of Rs 50 lakhs] – – Cenvat credit is not available when duty is paid under Notification No. 1/2011-CE. Cenvat credit of Rs 10 lakhs (input P solely used for product X is available) As regards excise duty of Rs 6 lakhs paid on input ‘R’, Cenvat credit is available only in respect of inputs used for X and not in respect of inputs used for Y [as when duty is paid under Notification No. 1/2011-CE dated 1—2-2011, Cenvat Credit is not available]. – – Since separate records are not available, the only option is to calculate on proportionate basis on basis of assessable value [Though really, as per rules, such calculations should be on basis of technical estimate. Proportionate Cenvat credit on basis of Assessable Value is permitted only in respect of input services – not in respect of input goods]. – – Total turnover – Rs 200 lakhs [150 of X + 50 of Y]. Cenvat Credit available in respect of input R (out of total Cenvat credit of Rs 6 lakhs) – (150/200) x 6 i.e. Rs 4.50 lakhs. Total Cenvat Credit on input available – Rs 14.50 lakhs [P – Rs 10 lakhs and R– Rs 4.50 lakhs]. – – Net Excise duty payable on X = Rs 4,04,000 Total duty on X – 18,54,000 – Cenvat Credit Available Rs 14,50,000]. – – Net excise duty payable on Y – Rs 6,18,000 – – Total excise duty payable by GAR7 challan = 10,22,000 [X – 4,04,000 + Y – 6,18,000].
Question – Sudarshan Ltd. commenced its business on 21st June, 2012 in Kolkata. It has provided/availed following services upto 31st March, 2013. Determine its service tax liability for the Financial Year 2012-13 – (i) Taxable services provided under its own brand name : Rs 9,00,000 (ii) Declared services (Sum charged Rs 4 lakh, but value determined as per valuation rules is 60% i.e. Rs 2,40,000) (iii) Services wholly exempt under Notification No. 25/2012-ST dated 20-06-2012 – Rs 6,00,000 (iv) Services provided under brand-name of other person – Rs 3,60,000 (fully taxable) (v) Availed services of goods transport agency and paid freight of Rs 2,00,000. – – The assessee is ready to opt any exemption available to it under Service Tax Law (Make suitable assumptions wherever required and show workings.) (CA Final November 2013)
Answer – (i) entire 9 lakhs Exempted as first turnover upto 10 lakhs is exempted as per Notification No. 33/2012-ST dated 20-6-2012 (ii) Actually when abatement is available, the ‘value of service’ is not reduced i.e. value continues to be full 4 lakhs and hence really exemption of only first one lakh should be available and balance 3 lakhs should be taxable i.e. service tax should be payable on Rs 1.80 lakhs (60% of Rs 3 lakhs). However, in the question it is stated that value of taxable service itself is reduced to 2.40 lakhs If so, first one lakh should be exempted and service tax would be payable on Rs 1.40 lakhs (iii) No service tax payable, The turnover of Rs 6 lakhs is not required to be considered for calculating exemption limit of Rs 10 lakhs, as the notification 33/2012-ST dated 20-6-2012 states that ‘aggregate value’ shall not include value charged on invoices towards services which are exempt from service tax under any other notification . Thus entire 9 lakhs under (i) above and one lakh under (ii) above would be exempt from service tax (iv) Service tax payable on Rs 3,60,000. [This turnover is not required to be considered for calculating exemption limit of Rs 10 lakhs, as the notification 33/2012-ST dated 20-6-2012 states that nothing in this notification shall apply taxable services provided under brand name of another person] (v) In this service, service tax is payable on 25% of value under reverse charge basis – – Hence, service tax is payable as follows – (A) On Rs 5 lakhs @ 12.36% [1.40 lakhs of (ii) above and 3.60 lakhs of (iv) above] – Rs 61,800 (B) On Rs 2 lakhs @ 3.09% – 6,180. Total duty payable – Rs 67,980.
Question – A manufacturer purchased raw material for Rs 2,25,000 (inclusive of 12.5% VAT – Value Added Tax) and capital equipment for Rs 8,32,000 (inclusive of 4% VAT). Other cash expenses of manufacture (excluding depreciation) are Rs 4,00,000. He sells the final product at 50% mark-up above cost. VAT on sales is 12.5%. The capital equipment is to be depreciated @ 25% straight line. Ascertain the amount of VAT payable in cash as per income variant (Make suitable assumptions wherever required and show the workings.) (CA Final November 2013)
Answer – The question is somewhat confusing. In income variant, Vat is really not charged separately as Vat is payable on gross income excluding purchases and depreciation. However, in the example, Vat on inputs, capital goods and on sales is indicated separately. Really, Calculations as per income variant would be as follows – Depreciation on capital goods at 25% of Rs 8,32,000 – Rs 2,08,000 [Vat is not deducted as in income variant, deduction of Vat is not available separately]. Hence, total cost – Material 2,25,000 + deprecation – 2,08,000 + Cash expenses of manufacture Rs 4,00,000 = 8,33,000. Mark up 50% i.e. 4,16,500. Hence, selling price – 12,49,500. Deduction of material cost 2,25,000 and depreciation of Rs 2,08,000 is available. Hence, Vat is payable on Rs 8,16,500 @ 12.5% ie. Rs 1,02,062.50 – – However, the way question is drafted, it seems vat has to be calculated as per normal invoice method.
Calculations as per normal method (consumption variant) would be as follows – Net purchase cost of raw material (by back calculations) – Rs 2,00,000 [Vat @ 12.50% on Rs 2,00,000 is Rs 25,000. This Vat is not required to be considered in cost, as its Vat credit is available. – – Vat on capital equipment is Rs 32,000 (by making back calculations). Depreciation is available @ 25% on Rs 8,00,000 (and not on Vat as its input tax credit is available). Thus, depreciation available is Rs 2,00,000. – – Hence, total cost is Rs 8,00,000 [Material Rs 2,00,000 + Cash Expenses of manufacture 4,00,000 + Depreciation Rs 2,00,000]. Mark up – 50% of Rs 8,00,000 i.e. Rs 4,00,000. Hence, selling price – Rs 12,00,000. Vat @ 12.50% on sale of Rs 12,00,000 is Rs . 1,50,000. Vat credit available is Rs 53,000 [Vat on material – Rs 25,000. Vat on capital goods – Rs 32,000 (Assuming Vat credit on capital goods is available in first year itself). Hence Vat credit available is Rs 57,000]. Thus, net vat payable is 93,000 [1,50,000 – 57,000]
Question – Compute export duty from the following data (i) FOB price of goods: US $ 1,00,000 (ii) Shipping bill presented electronically on 26-02-2013 (iii) Proper officer passed order permitting clearance and loading of goods for export on 04-03-2013 (iv) Rate of exchange and rate of export duty are as under: * On 26-2-2013 – Rate of Exchange 1 US $ = Rs 55 and Rate of Export Duty – 10% * On 4-3-2013 – Rate of Exchange 1 US $ = Rs 56 and Rate of Export Duty – 8%. (v) Rate of exchange is notified for export by Central Board of Excise and Customs (Make suitable assumptions wherever required and show the workings.) (CA Final November 2013)
Answer – For purposes of determining rate of export duty, the relevant date is date on which clearance is permitted by customs officer i.e. on 4-3-2013, which was 8%. For purpose of exchange rate, relevant date is date on which shipping bill was presented i.e. on 26-2-2013 i.e. 1 US $ = Rs 55. Hence, assessable value is Rs 55,00,000 and export duty payable @ 8% will be Rs 4,40,000.
CA Final May 2013
Question No. 1 is compulsory.
Q1(a) KSP Ltd purchased a Pollution Control Equipment for Rs 15,14,240 which is inclusive excise duty at 16% plus education cess 2% plus secondary and higher education cess 1%. The equipment was purchased on 1-9-2010 and was disposed of as second hand equipment on 10-10-2012 for a price of Rs 12,00,000. The excise duty rate on the date of disposal was 12% plus education cess @ 2% plus secondary and higher education cess 1%. (i) You are required to calculate the amount of CENVAT credit allowable for the financial year 2010-11 and 2011 -12. (ii) What is the amount payable towards CENVAT credit already availed at the time of disposal of the equipment in the financial year 2012-13 ? (Make suitable assumptions where required and show the working and explanation wherever required) (5 marks)
Q1(b) MNO & Co. is the small scale unit located in a rural area and is availing the benefit of small scale exemption under Notification No. 8/2003-CE during the year 2011-12. You are required to determine the value of the first clearance of the unit and duty liability on the basis of particulars given below : (i) Total value of clearances of goods with own brand name: Rs 50,00,000 (ii) Total value of clearances of goods with brand name of other parties – Rs 100,00,000 (iii) Clearances of goods which are totally exempt under another notification (other than an exemption based on quantity or value of clearances) – Rs 45,00,000 (iv) Rate of excise duty – 12% plus education cesses as applicable, (v) Assume that the unit is eligible for exemption under Notification No. 8/2003. (Make suitable assumptions where required and show the calculations with appropriate notes) (5 marks)
Q1(c) Robinson Bank Ltd furnishes the following information relating to services provided and the gross amount received during the month of December, 2012. Compute the value of taxable service and service tax payable (Rs lakhs) (i) Amount of commission received for debt collection service – 10 (ii) Discount earned on bills discounted – 4.5 (iii) Dealing in sale and purchase of forward contract – 5.7 (iv) Charges received on credit card and debit card facilities extended – 3.8 (v) Penal interest recovered from the customers for the delay in repayment of loan – 2.6 (vi) Commission received for service rendered to Government for tax collection 6.0 (vii) Interest earned on reverse repo transaction – 25.0 (Show the workings with explanation wherever required) (5 marks)
Q1(d) The following information relates to purchases and sales of K.K.Ltd. for the month of September 2012 : (In Rs) * Purchases for resale within the State – Rs 8,00,000 * Purchases from registered dealers who opted for composition scheme – 4,00,000 * Purchases to be used as consumable stores for manufacture of taxable goods – 6,00,000 * Purchases of goods where invoices does not show the amount of taxes separately – 5,00,000 * Purchases of goods for personal consumption – 2,00,000 * Purchases of capital goods (not eligible for input credit) – 5,50,000 * Purchases of capital goods (eligible for input credit) – 5,76,000 * Sales made within the State during the month of September 2012 was Rs 50,00,000 on which VAT @ 4% was payable. Assuming that all purchases given above are exclusive of VAT @ 12.5%, calculate: (i) The amount of input tax credit available for the month of September 2012 (ii) VAT payable for the month of September 2012 (iii) Input tax credit carried forward. Note: The input VAT credit on eligible capital goods is available in 24 equal monthly installments (Make suitable assumptions where required and show the workings) (5 marks)
Q1(e) BSA & Company Ltd have imported a machine from U.K. From the following particulars furnished by them, arrive at the assessable value for the purpose of customs duty payable – (i) F.O.B. cost of the machine – 10,000 U.K. Pounds (ii) Freight (air) – 3,000 U.K. Pounds (iii) Engineering and design charges paid to a Pounds firm in U.K. – 500 U.K. (iv) License fee relating to imported goods payable by the buyer as a condition of sale – 20%.of F.O.B. cost (v) Materials and components supplied by the buyer free of cost valued Rs 20,000 (vi) Insurance paid to the insurer in India – Rs 6,000 (vii) Buying commission paid by the buyer to his agent in U.K. – 100 U.K. Pounds. Other particulars: (i) Inter-bank exchange rate as arrived by the authorized dealer : Rs 72.50 per U.K. Pound (ii) CBEC had notified for purpose of Section 14 of the Customs Act, 1944, exchange rate of Rs 70.25 per U.K. Pound (iii) Importer paid Rs 5,000 towards demurrage charges for delay in clearing the machine from the Airport (Make suitable assumptions wherever required and show workings with explanations) (5 marks)
Q2(a) Discuss the validity of the following statements with reference to Central Excise Rules, 2002, as amended – (i) The procedures prescribed for export under claim for rebate and export without payment of duty under bond does not apply to Nepal (ii) In respect of goods received at concessional rate of duty, return is required to be filed on a monthly basis (iii) Submission of Annual Financial Information Statement in FORM-ER4 is compulsory on all assessees (6 marks)
Q2(b)(i) Apte & Apte Ltd is located in India and holding 51% of shares of Wilson Ltd, a USA based company. Wilson Ltd provides Business Auxiliary Services to Apte & Apte Ltd. From the following details, determine the Point of Taxation of Apte & Apte Ltd – Agreed consideration – US$ 1,00,000. Date on which services are provided by Wilson Ltd – 16-9-2012. Date on which invoice is sent by Wilson Ltd – 19-9-2012. Date of debit in the books of account of Apte & Apte Ltd – 31-9-2012. Date on which payment is made by Apte & Apte Ltd – 23-12-2012 Q2(b)(ii) What is the objective of bringing certain services under “Declared Services”? Mention any three services which fall within the scope of “Declared Services” (6 marks)
Q2(c) Examine the validity of the following statements with reference to the Customs Act, 1962: (i) Service charges paid to canalyzing agent are not includible in the assessable value of imports (ii) Inspection charges are not includible in the assessable value of the imported goods if contract does not specify for certification by an independent agency (3 marks)
Q3(a) Assessees are the manufacturer of motor cars. They were selling the cars much below the cost price continuously for five years and the reasons attributed was for the purpose of ‘penetration of market’ and to compete with other manufacturers of similar cars, actually incurring loss. The department after due verification as per Section 14A of Central Excise Act, 1944, refused to accept the assessable value declared by the assessees and contended that the ‘wholesale’ price declared by the assessees cannot be considered as ‘normal price’ under Section 4(1)(a) of the Act for the purpose of quantification of assessable value. Further the department opined that the ‘penetration price’ is to be considered as an extra consideration and therefore the concept of ‘price is the sole consideration’ as argued by the assessees, cannot be accepted. In that view, assessing authority found justice in invoking Section 4(1)(b) of the Act and resorted to best judgment assessment. You are required to answer the following questions relevant to the above problem by analyzing the provisions of law and also referring to decided case law, if any: (i) Whether the selling price which is below the cost price can be accepted or rejected? (ii) Does the ‘penetration price’ be considered as an extra commercial consideration ? (6 marks)
Q3(b)(i) Naveen Construction was a construction company rendering services under category of “construction of residential complex service” and were paying the service tax in accordance with Finance Act, 1994. They undertook certain construction work on behalf of a trust and paid service tax accordingly. However, later they filed refund claim for the service tax so paid contending that they were not actually liable to pay service tax as it was exempt. The Department rejected the refund claim on the ground that the refund application filed by Naveen Construction was beyond the limitation period as stated in Section 11B of Central Excise Act. Department did not dispute the fact that service tax was exempted in the instant case. Is the Department correct in rejecting the refund claim? Substantiate your answer with the help of a decided case law, if any (3 marks)
Q3(b)(ii) Appellant was engaged in the manufacture of steel products and pig-iron for sale in the domestic and export markets. The appellant appointed X & Co., a partnership firm as the “handling contractor” for clearance of Iron and Steel materials from their stockyard. A formal contract was entered into and accordingly, the contractor shall bear all the taxes, duties and other liabilities in connection with discharge of his obligations. In the year 2000, liability to pay service tax in case of “clearing and forwarding agent’s” service was shifted from service provider to service receiver and therefore, the appellant deducted tax on the bills of the contractor. The contractor refused to accept the deductions saying that the contractual clause cannot alter the liability placed on the recipient (appellant) by Law. Discuss whether the contention, of the contractor stands to reason, with the help of case law, if any (3 marks)
Q3 (c) Sun Synthetic Fibres was an importer. It had imported one unit of the equipment which was declared as “High Speed Draw Warping Machine with 1536 ends along with essential spares”. The importer claimed that these goods are covered under an exemption notification. Under said notification, exemption was available in respect of the High Speed Warping Machine with yarn tensioning, pneumatic suction devices and accessories. Undisputedly, the assessee had imported High Speed Warping Machine, but it had drawing unit and not the pneumatic suction device. The textile commissioner, who was well conversant with these machines, had stated that the goods imported by the assessee were covered under the exemption notification. He further stated that drawing unit was just an essential accessory to the machines imported by assessee and, therefore, was covered under said notification. The opinion so furnished is taken note of by the Tribunal while granting relief to the assessee. Revenue contended that the machine imported by the assessee was not in consonance with the exemption notification and, therefore, the benefit of exemption should not be available under the notification to the assessee. Discuss whether the contention of the Revenue is sustainable in law, with the help of decided case law, if any (3 marks)
Q4(a) The assessee is engaged in the manufacture of various types of packaging machines known as F & S machine. The machines are made to order according to the specification of individual customers and such machines, before dispatch, are to be tested at the customer’s premises for their satisfaction. On being satisfied by the customer, assessee makes entry in the RG-1 register (DSA) declaring the machine is manufactured and ready for clearance. For the proper testing, assessee procures flexible laminated plastic fill in roll form and poly paper (termed as inputs) which are excisable, and were used for testing, turning and adjusting various parts of F & S machine. Assessee filed a declaration and availed the benefit of Cenvat credit for the duty paid on the said inputs. Department contented that the said materials were used only for testing and as such, they cannot be treated as inputs for manufacturing final product. Further, the department opined that testing takes place only after manufacturing of final product and any goods used in the process subsequent to manufacture cannot be termed as inputs under Rule 2(k) of Cenvat Credit Rules, 2004. Assessee’s contention is that the manufacturing process would be completed only after testing and such inputs are used in or in relation to manufacturing and that the inputs need not be present in the final product and therefore, they have the right to claim Cenvat credit. Discuss whether the contention of the department in denying the Cenvat credit is justified. You may refer to decided case law, if any, in support of your decision (6 marks)
Q4(b)(i) ABC Ltd. had paid both the service tax and interest for delayed 3 payment before issue of show cause notice under the Act. Section 73(3) of the Finance Act, 1994 categorically stated that if the payment of service tax and interest has been intimated to the authorities in writing, the authorities should not serve any notice for the amount so paid. But to the above, the authorities issued SCN to the appellant for delay in payment of service tax. Discuss with the help of decided case whether the issue of show cause notice is justified (3 marks)
Q4(b)(ii) Dwarakanath Devasthanams, Dwaraka was running guest houses for the pilgrims. The department issued S.C.N, stating that the assessees were liable to get service tax registration under “short term accommodation service” and thus liable to pay service tax. The assessees, on the other hand submitted that they were not club or any other association and thus, were not liable to get registered under service tax. The Assessees contested that since they were running guest houses without any profit motive, they were not liable to pay service tax. You are required to examine whether the show cause notice issued by the department is valid or not, by referring to case law, if any (3 marks)
Q4(c) The importer entered into contract for supply of crude sunflower seed oil @ 2 U.S. $ 435 CI.F./Metric ton. Under the contract, the consignment was to be shipped in the month of July, 2011. The period was extended by mutual agreement and goods were shipped on 5th August, 2011 at old agreed prices. In the meanwhile, the international prices had gone up due to volatibility in market and other imports during August, 2011 were at higher prices. Department sought to increase the assessable value on the basis of the higher prices as contemporaneous imports. Decide whether the contention of the department is correct. You may refer to decided case law, if any, for your decision (3 marks)
Q5(a)(i) Bring out the conditions under which MRP valuation shall apply under Central Excise Act, 1944 (ii) In relation to export of excisable goods under Rule 18 of the Central Excise Rule, 2002, what are the duties of excise eligible for rebate? (6 marks)
Q5(b)(i) Discuss the following terms under Section 65B of the Finance Act, 1994, as amended with effect from 1-7-2012 – (i) Works contract (ii) Bundled service (ii) Explain briefly whether VAT is leviable on each of the following lease transaction: (i) Inter-state leasing (ii) Maintenance of leased asset (6 marks)
Q5(c) Enumerate the penalties in respect of improper exportation of goods under Section 114 of the Customs Act (3 marks)
Q6(a)(i) Differential between compounded levy scheme and duty based on annual production capacity under Central Excise (ii) Bring out the difference between short levy and short payment (4 marks) OR Q 6(a)(i) Enumerate the safeguards, conditions and limitations subject to which the refund of Cenvat credit shall be allowed under rule 5 of Cenvat Credit Rules, 2004 (4 marks)
Q6(b)(i) Mention the place of provision of services in respect of the following services under the Place of Provision of Service Rules, 2012 – (i) services relating to immovable property (ii) Services provided at more than one location (iii) Services in respect of Passenger Transportation Q6(b)(ii)Discuss any three merits of VAT (3+3 = 6 marks)
Q6(c) Briefly explain the provisions of section 28BA of Customs Act, 1962 regarding property that may be attached provisionally to protect the interest of revenue in certain cases [3 marks]
Q7(a)(i) State the situations in which duty can be remitted under Rule 21 of Central Excise Rules. Also discuss whether remission of duty shall be granted or not in the following cases, with reason: (i) Finished goods are destroyed in fire during the process of fire due to spontaneous combustion, (ii) Finished goods (fully manufactured) were lost before removal from the factory and the assessee has received a claim from the insurance company, (ii) Discuss briefly the residual penalty under Rule 27 of the Central Excise Rules, 2002 (6 marks)
Q7(b)(i) Briefly explain the provisions in the Service Tax Rules, 1994 relating to furnishing of list of records at the time of filing of return for the first time, (ii) What are the objectives with which filing of return procedures under VAT Laws are designed? (6 marks)
Q7(c) Briefly state the rights of the owner of warehoused goods under the Customs Act, 1962 (3 marks)
CA FINAL – November 2012
Answe Q No. 1 which is compulsory and any five other questions
Q1(a) Machine India Ltd. is engaged in the manufacture of machines. It has supplied one machine to M/s Z & Co. with the following details. Determine the total amount of Central Excise Duty and Cess payable thereon – (i) Price of machines excluding taxes and duties – 8,50,000 (ii) Installation and erection expenses – 30,000 (iii) Packing charges – 12,500 (iv) Design and engineering charges – 4,000 i(v) Cost of material supplies free of charge by buyer – 10,000 (vi) Pre-delivery inspection charges – 1,000. – – Other necessary information is as under: (i) Cash discount @ ` 2% on price of machinery is allowed as per term of contract because buyer made full payment in advance (ii) Bought out accessories worth `. 8,000 supplied with machine (iii) The rate of Central Excise Duty is 10%, Education Cess 2% and Secondary and Higher Education Cess is 1% (5 marks)
Q1(b) Robust Engineers Ltd. removed goods from their factory at Delhi on 20-02-2010 for sale from depot at Mumbai. On that date, the normal transaction value of goods at Delhi factory was ` 20,000 and the rate of duty was 8% Ad-valorem. The said goods were sold from Mumbai depot on 15-03-2010. On that date the normal transaction value at Mumbai depot was ` 22,000 and rate of duty was 10%. – -The normal transaction value at Mumbai depot on 20-02-2010 was ` 19,000 and the rate of duty was 8%. – – M/s. Robust Engineers Ltd. paid the duty on ` 20,000 at the rate of 8%. The Central Excise Department claimed Central Excise Duty @ 10% on the value of ` 22,000. Examine whether department is correct (5 marks)
Answer – Really, duty was payable @ 8% on ` 19,000 which was price prevailing on the date of removal from Delhi factory. The company has already paid higher duty. No further excise duty is payable if goods are sold from Mumbai at higher price.
Q1(c) (i) Mr. Singleton, an output service provider, deposited the service tax amounting to ` 20 lakh on 09-06-2011 for the quarter ending December, 2010. Compute the amount of interest payable by Mr. Singleton assuming he deposits service tax electronically and his value of taxable service in 2009-10 was `. 80 lakh (c)(ii) Explain whether there would be any difference in the rate of interest if his value of taxable services was as follows: 2009-10 `. 59 lakhs, 2010-11 `. 48 lakhs, 2011-12 `. 54 lakhs (5 marks)
Answer – The duty should have been paid on 6-1-2011, while it was paid on 9-6-2011. The interest rate was 13% upto 31-3-2011 and 18% w.e.f. 1-4-2011. Hence, for 84 days (January – 25 days, February – 28 days and March 31 days) and for 70 days (April 30, May 31 and June 9), interest rate was 18%.
For period Jan to March 2011, interest will be (20,00,000 x .13 x 84)/365 i.e. ` 59,835.62. For April-June 2011, interest would be (20,00,000 x 0.15 x 70)/365 i.e. 57,534.25. Thus, total interest payable was ` 1,17,369.87.
If value of taxable service was less than ` 60 lakhs in previous year and current year, the interest rate would be as follows – 7-1-2011 to 31-3-2011 – 13%, 1-4-2011 to 7-4-2011 – 18%. 8-4-2011 to 9-6-2011 – 15%.
Q1(d) M/s Evergreen Distributors have submitted the following particulars: (i) Inputs worth `. 1,00,000 were purchased within the State. (ii) Finished goods worth ` 2,00,000 were sold within the state and finished goods worth `. 1,00,000 were sold in the course of inter-state trade. (iii) VAT @ 12.5% was paid on procurement of capital goods during the month. – – The input and output tax rate in the State is 12.5% and 4% respectively. The Central Sales Tax Rate is 2%. Calculate the VAT liability for the month (5 marks)
Q1(e) M.s Foreign Trade International Ltd. have imported one machine from England. They have given the following particulars – (i) F.O.B. value of Machine – £ 8,000 (ii) Air freight paid – £ 2,500 (iii) Design and development charges paid in England – £ 500 (iv) Commission @ 2% of F.O.B. value paid to local agent in Indian Currency (v) Date of Bill of Entry is 24-10-2011 (rate of basic Customs Duty is 20%. Exchange rate as notified by C.B.E.C. is `. 68 per Sterling Pound) (vi) Date of arrival of aircraft is 20-10-2011 when rate of basic Customs Duty was 18%, exchange rate as notified by C.B.E.C. was ` 70 per Sterling Pound (viii) CVD rate is 10% plus Education Cess 2% and Secondary and Higher Education Cess is 1% (viii) Rate of Special additional duty is 4% (ix) Insurance charges, though actually paid, details are not available. – – Compute the assessable value and determine the Customs Duty payable by M/s Foreign Trade International Ltd. Give brief notes also wherever necessary (5 marks)
Q2 (a) With reference to amendments effected recently in Cenvat Credit Rules, 2004, explain the following – (i) Manner of distribution of Cenvat Credit by input service distributor. (ii) The amount payable in respect of capital goods, on which Cenvat credit has been availed and is removed as scrap or waste (6 marks)
Q2(b) Explain the following in relation of service tax: (i) Date of payment under Rule 2A of the Point of Taxation Rules, 2011 (ii) Maximum time limit specified in Rules 4A(1) of the Service Tax Rules,1994 for issuing an invoice by the person providing taxable service. (iii) Conditions specified under Sub-Rule (4B) of Rule 6 of the Service Tax Rules 1994 for adjustment of excess amount paid, under Sub-Rule (4A) of Rule 6 (6 marks)
Q2(c) Mention whether Education Cess and Secondary and Higher Education Cess is leviable on the goods imported into India under sub-section (1) of Section 3 of the Customs Tariff Act, 1975 (3 marks)
Q3(a) (i) M/s Future Ltd. classified the goods manufactured by them under a particular tariff heading of Central Excise Tariff which attracts ‘NIL’ rate of duty. The said heading of the Central Excise tariff is not aligned with H.S.N. The Department, relying upon the H.S.N. for classification of the goods, has demanded Central Excise Duty. – – Is the demand of duty by the department justified? Discuss with the help of decided case (ii) Discuss with the help of decided case, whether the re-appreciation of evidence on a debatable point by the Customs, Excise and Service Tax Appellate Tribunal can be considered as rectification of mistake apparent on record under section 35C (2) of Central Excise Act (6 marks)
Q3(b) (i) Discuss briefly whether a person who is not liable to pay service tax and has collected an amount representing service tax, is liable to pay the amount to department. (ii) Mention the questions on which the advance ruling may be sought in relation to service tax from Authority for Advance Ruling (6 marks)
Q3(c) `. 50 Lakh drawback was paid to M/s Sun Export Ltd. Subsequently the Commissioner of Customs issued a show cause notice for recovery of the erroneously paid drawback. M/s Sun Export Ltd. filed an application for settlement of case before the Settlement Commission. The Commissioner disputed the jurisdiction of the Settlement Commission by contending that recovery of drawback did not involve levy, assessment and collection of Customs Duty as envisaged under Section 127A(b) of the Customs Act. Discuss with the help of decided case whether the stand taken by the Commissioner is correct (6 marks)
Q4(a) M/s Export & Sons filed a claim for rebate of Central Excise Duty between April and May, 2003. The Assistant Commissioner, Vide Order dated 23-06-2004 rejected the claim. On appeal, the Commissioner (Appeals) allowed the rebate claims vide order dated 30-09-2004. The rebate claims were sanctioned to M/s Export & Sons within three months of receipt of order of the Commissioner (Appeals). The Assistant Commissioner, relying upon the Explanation to section 11BB of the Central Excise Act, rejected the claim for interest filed by M/s Export & Sons. Examine with the help of decided case whether the rejection of interest for delayed sanction of rebate claims is justified (6 marks)
Q4(b) M/s Infrastructure Ltd. has entered into a works contract for a turnkey project. They paid the service tax to the department at the rate specified in section 66 of the Finance Act, 1994. Subsequently, they approached the department to allow them to pay the service tax under the Compositions Scheme. – – Discuss with the help of decided case whether M/s Infrastructure Ltd. are likely to be given the permission to pay the service tax under the Compositions Scheme (6 marks)
Q4(c) M/s Fast Exporters Ltd. had setup a unit in export processing zone. They imported machine without payment of duty under exemption notification. The company did not run properly and went into liquidation. A show cause notice has been issued to the Managing Director, besides the company, for imposition of penalty under Section 112 (a)(ii) of the Customs Act. Discuss whether the show cause notice for imposition of penalty on Managing Director is sustainable in law, with the help of decided case law (6 marks)
Q5(a)(i) Mention briefly the provisions relating to non-reversal of Cenvat credit under section 5B of the Central Excise Act. (ii) Does the principle of “Latter the Batter” applies in classifying the excisable goods? (6 marks)
Q5(b) (i) Mention the persons who are excluded from availing the general exemption available to small service provider under Notification No. 6/2005-S.T., dated 01-03-2005, as amended. (ii) Explain briefly the Addition Method for computation of VAT (6 marks)
Q5(c) Mention briefly the option available to an importer or exporter or their agent or employee under sub-section (5) of section 28 of the Customs Act (6 marks)
Q6(a) Mention the circumstances where the goods are liable for confiscation under the provisions of Central Excise Rules, 2002 OR (a) Briefly answer the following questions relating to export of excisable goods without payment of duty except to Nepal and Bhutan: (i) What is the type of bond required to be executed? (ii) Who is exempted from execution of such Bond? (iii) What is the document prescribed for clearance of goods for export? (iv) How many copies are required to be prepared of such document? (v) Is it necessary to prepare an Invoice? (vi) What will be the duty payable, if excisable goods are not exported within six months from the date of clearance? (6 marks)
Q6(b)(i) Under what circumstances the premises of an assessee may be searched and by whom under the Finance Act, 1994 relating to service tax? (ii) Mention briefly the different types of audit prescribed under VAT provisions (6 marks)
Q6(c) Mention briefly the provisions relating to remission of duty in case of volatile goods under the Customs Act (3 marks)
Q7(a) (i) Briefly mention the categories of persons who are required to take registration under the Central Excise law. (ii) Mention the power of Settlement Commission to grant immunity from prosecution and penalty (6 marks)
Q7(b) (i) Mention the circumstances under which a Central Excise Officer may resort to “Best Judgment Assessment” under section 72 of the Finance Act, 1994. (ii) Explain briefly the Compulsory Registration and Voluntary Registration under the VAT Act (6 marks)
Q7(c) Mention the relevant date in the following cases of goods warehoused under Bond under the Customs Act: (i) Rate of exchange, when goods are removed for home consumption. (ii) Rate of duty when goods are removed from warehouse for home consumption. (iii) Rate of duty if goods are not removed from warehouse within the permissible limit (3 marks)
CA Final, May 2012
Question No. 1 is compulsory. Answer any five questions from the remaining six questions.
Q 1(a) Dharma Manufacturers, engaged in the manufacture of machines (and not availing small-scale concession) sold a machine to Asha Ltd., The cum-duty sale price of the machine excluding VAT is Rs 5,80,000. Rate of excise duty is 10%, EC is 2% and SHEC is 1%. Sale price includes the following charges (figures in rupees) -(i) Warranty charges – 28,000 (ii) Secondary packing – 6,000 (iii) Trade discount actually allowed – 24,000 (iv) Design and development charges of machine – 20,000 (v) Primary packing – 10,000 (vi) Cost of Return Fare of vehicles – 4,500 (vii) Advertisement and publicity charges borne by Asha Ltd. – 1,16,000 (viii) Pre-delivery inspection charges – 22,000 (ix) After sales service charges – 18,000. Determine the assessable value of the machine for purpose of Central Excise duty. Provide notes in respect of the treatment for each of the items listed at (i) to (ix) above (5 marks)
Q1(b) Choti Ltd., which is engaged in the manufacture of excisable goods started its business in May, 2011. It availed Small Scale Exemption in terms of Notification No. 8/2003 for the Financial Year 2011-2012. The following details are provided – * 15,000 kg of inputs purchased @ Rs 992.70 per kg. Rs 1,48,90,500 (inclusive of central excise) * Capital goods purchased on 28-6-2011 Rs 44,12,000 (inclusive of excise duty at 10.3%) * Finished goods sold (at uniform transaction 2,50,00,000 value throughout the year). – – Calculate the amount of excise duty payable by M/s. Choti Ltd., in cash, if any, during the year 2011-12. Rate of duty on finished goods sold may be taken at 10.3% for the year and you may assume that the selling price is exclusive of central excise duty. There is neither any processing loss nor any inventory of input and output. Show your workings and notes with suitable assumptions as required (5 marks)
Q1(c) Justice & Co. (partnership) is a law firm engaged in providing LEGAL CONSULTANCY SERVICES. Compute the ST payable by Justice & Co. in respect of the following amounts received in the month of March, 2012 (figures in Rupees) – (i) Consultancy in relation to incorporation of XYZ Co. Ltd. 10,00,000 (ii) Advance towards assistance in filing service tax return of PQR. Ltd. For the half year ending March, 2012 – 2,00,000 (iii) Advice to MNO & Co. in July, 2011 with regard to compliance under Point of Taxation Rules, 2011 – 3,75,000 (iv) Appearance before labour court on behalf of Mr. Worker (an individual) in the month of October, 2011 – 25,000. – – Note : * All receipts are exclusive of service tax * Justice & Co. is not eligible for small scale service provider’s exemption under Notification No. 6/2005-ST in the financial year 2011-12. – – Show working notes with assumptions as may be required. (5 marks)
Q1(d) PQR Industries Ltd. has imported certain equipment from Japan at an FOB cost of 2,00,000 yen (Japanese). The other expenses incurred by it in this connection are as follows: (i) Freight from Japan to Indian Port – 20,000 yen (ii) Insurance paid to insurer in India (for the importation of the machine) – ` 10,000 (iii) Designing charges paid to consultancy in Japan – 30,000 yen (iv) M/s. PQR Industries Ltd. had expended Rs 1,00,000 in India for certain developmental activities with respect to the imported machine (v) PQR Industries Ltd, had incurred road transport cost from Mumbai Port to their factory in Karnataka – ` 30,000 (vi) CBEC had notified for purposes of Sec. 14 of the Customs Act, 1962 exchange rate of 1 Yen = Rs 0.3948. The interbank exchange rate as announced by the authorized dealer was 1 Yen = ` 0.40 (vii) M/s. PQR Industries Ltd. had effected payment based on exchange rate 1 yen = ` 0.4150 (viii) The commission payable to the agent in India was 5% of the FOB cost of the equipment in Indian rupees. Arrive at the ASSESSABLE VALUE for purpose of valuation under the Customs Act, 1962 with brief notes wherever necessary for each of the adjustments at (i) to (viii) above. (5 marks)
Q1(e) Strong Constructions undertakes WORKS CONTACTS and maintains sufficient records to quantify the labour and other service charges. From the details given below, calculate the TAXABLE TURNOVER, INPUT TAX CREDIT and NET VAT PAYABLE under the State VAT Law – (i) Total contract price (excluding VAT) ` 1,80,00,000 (ii) (ii) Materials purchased and used for the contract taxable at 12.5% VAT (inclusive of VAT) ` 33,75,000 (iii) Labour charges paid for execution of the contract ` 40,00,000 (iv) Other service charges paid for the execution of the contract ` 20,00,000 (v) Cost of consumables used not involving transfer of property in goods ` 10,00,000. – – Strong Constructions also purchased a plant for use in the contract for Rs 20,80,000 (inclusive of VAT). In the VAT invoice relating to the same, VAT was charged at 4% separately. Assume 100% input tax credit is available on capital goods immediately. Make suitable assumptions where required and show the workings (5 marks)
Q2 (a) With reference to the amendments effected by Finance Act, 2011, briefly explain the following – (i) State the three conditions upon fulfillment of which penalty under Sec. 11-A of the Central Excise Act, 1944 may be halved and the extended period of limitation of five years may be invoked (ii) State the three conditions upon fulfillment of which no interest would become payable under Sec. 11AA of the Central Excise Act, 1944 (iii) Briefly explain the conditions when accessories and goods used for providing free warranty are eligible as ‘input’ under Rule 2 (k) of the Cenvat Credit Rules, 2004 (2 x 3 = 6 marks)
Q2(b) Answer the following with brief reasons and reference to the Finance Act, 1994 as amended relating to applicability of service tax – (i) Delayed payment charges collected by stock brokers. (ii) Practicing Charted Accountant representing a client before Income Tax Officer in assessment proceedings (iii) Personal liability of director or other officer of a company for offences under the Finance Act, 1994 relating to service tax (2 x 3 = 6 marks)
Q2(c) Discuss briefly the provisions relating to manner of computation of LIMITATION PERIOD of 1 year in three situations contemplated under Sec. 27B of the Customs Act, 1962 for purpose of refund of duty (3 marks)
Q3(a) Happy Ltd., cleared certain goods to P. Ltd., paying higher rate of excise duty in the month of March, although the rate of duty on the said goods had been reduced in the Budget of the same financial year. However, P. Ltd., refused to pay the higher duty which Happy Ltd., had paid by mistake P. Ltd., raised a debit note in the month of June of the same year. Happy Ltd., applied for refund of the excess excise duty paid in August. The department rejected the claim on the ground that the incidence of duty has been passed by Happy Ltd., to P. Ltd.
While claiming refund Happy Ltd., relied on the debit note raised by P. Ltd., in the month of June to demonstrate that its customer P. Ltd., had not paid the excess duty to Happy Ltd. The department contended that since the debit note was issued in the month of June and not March it could not be the basis for refund. With a brief note : (i) Examine with the help of decided case law whether the contention of the department is correct in law. (ii) State whether in the above case assuming that the issue is decided in favour of Happy Ltd., by the Commissioner of Central Excise (Appeals) and the duty involved is ` 4,80,000 the revenue could file an appeal before the CESTAT against such an order (6 marks)
Q3(b) Briefly explain with reasons whether in the following cases service tax would be applicable besides Value Added Tax (VAT) or Excise duty on the same transaction as indicated herein below with reference to decided case law : (i) SIM card supplied as part of mobile telecommunication services could be subjected to service tax and VAT (ii) Manufacture and sale of products where the sale price is inclusive of erection installation and commissioning services could be subjected to Excise Duty and Service Tax on the services involved (6 marks).
Q3(c) Write a brief note on the following with reference to decided case law and the provisions of the Customs Act, 1962 – (i) Whether it is mandatory for the revenue officer to make available copies of seized documents to the person from whom they are seized? (ii) Whether benefit of exemption notification meant for ‘imported goods’ could be extended in the case of “SMUGGLED GOODS” (3 marks)
Q4(a) Gaseous Ltd., purchased helium gas in BULK from the open market and its quality control officer had conducted various tests and issued test reports stating the results of the tests. The bulk purchase was packed and filled in cylinders of various sizes and certificates were issued along with quantities. The purchases from the open market were of generic description and after test and analysis were sold to different customers based on their specific requirements with a profit margin of 40 to 60%. The Central Excise Department claimed that duty had to be paid on the sale price as there was “deemed manufacture” in terms of Note 9 to Chapter 28 of CETA, 1985 which reads as follows : “In relation to products of this chapter labeling or relabeling of containers OR repacking from bulk packs to retail packs OR adoption of any other treatment to render the product marketable to the consumer shall amount to manufacturer.” (i) The process of filing the bulk gas into cylinders of smaller quantities after tests and quality process with distinct grades would amount to ‘treatment’ as per the said chapter note. (ii) Whether it could be said that the helium gas purchased in bulk is already marketable and hence the Chapter Note will not be attracted in this case (2+4 = 6 marks).
Q4 (b) PQR & Co. was involved in the services of unloading of coal from wagon tripping system, stacking/reclaiming of coal to stacker reclaimer system and feeding of coal to boiler bunkers through conveyor system. The department had taken a view that the charges received by PQR & Co. for such activity were taxable under the category of ‘Cargo Handling Services’. However PQR & Co. claimed that the services rendered by them cannot be brought under ‘Cargo handling services’ as it is engaged only in the handling of coal from railway wagons to the required destination of the thermal power station wherein machines are used with the aid of some man power. Briefly explain (i) With reference to relevant provisions and case law, if any, whether the stand taken by the department is correct in law; (ii) Whether in the above matter, against an adverse order passed by the Commissioner of Central Excise in adjudication proceedings against PQR & Co. and thereafter confirmed by the CESTAT, PQR & Co. could file an appeal against the order of the CESTAT before the High Court under Sec. 35-G of the Central Excise Act, 1944 (6 marks)
Q4(c) Explain with reference to decided case law whether clearances from Domestic Tariff Area (DTA) to Special Economic Zone is chargeable to EXPORT DUTY under the SEZ Act, 2005 or the Customs Act, 1962 (3 marks)
Q5(a) (i) Explain briefly whether “assembly” would tantamount to ‘manufacture’ under the Central Excise Act, 1944 (ii) Briefly explain the situations whether TRANSACTION VALUE under Sec. 4 of the Central Excise Act, 1944 does not apply. (3 x 2 = 6 marks)
Q 5(b) (i) Major Ltd., imports BUSINESS SUPPORT SERVICES from Wilfred Ltd., of USA on 18-8-2011. The relevant invoice for $1,50,000 is raised by Wilfred Ltd., on 20-9-2011. Assuming that Major Ltd. Makes the above mentioned payment on the dates as indicated in the following table, determine the point of taxation under the Point of Taxation Rules, 2011 in each case giving reasons for your answer : Case I 10-12-2011. Case II 15-04-2012 (4 marks) (ii) Write a brief note on Tax Payer’s Identification Number (TIN) for purpose VAT (2 marks)
Q5(c) What is the purpose of the INTERPRETATION RULES regarding CUSTOMS TARIFF? Do they form part of the tariff schedule ? Briefly explain Akin rule of interpretation (3 marks)
Q6(a) Briefly explain the procedure to be followed by the AUTHORITY FOR ADVANCE RULINGS on receipt of application for Advance Ruling under the Central Excise Act, 1944 OR (i) Briefly specify under what circumstances it may be beneficial to pay duty and claim REBATE under Rule 18 of the Central Excise Rules, 2002 (ii) Can the department file an appeal in respect of the same assessee if in respect of some years no appeal was filed in matters involving identical dispute. Write a brief note with reference to the Central Excise Act, 1944 (6 marks)
Q6(b) (i) Dwarka Ltd. is engaged in providing TAXABLE SERVICES under the Finance Act, 1994. For the half year ending on 30-9-2011, it furnished the return on 24-12-2011. On the basis of information provided answer the following (i) Specify the due date and form for filing the return. (1 mark) (ii) Compute the amount of LATE FEE payable by Dwarka Ltd., under the Finance Act, 1994 and Rules made there under. (2 marks) (iii) Explain the system of cross-checking under VAT Laws. (3 marks)
Q6(c) Write a brief note on SELF ASSESSMENT in customs under the Customs Act, 1962 (3 marks)
Q7(a) (i) Briefly explain the provisions in respect of waiver of PHYSICAL WAREHOUSING in case of exigency in respect of EXPORT GOODS under the Central Excise Act, 1944. (ii) Under Excise Audit 2000, the selection of the unit is based on “risk factors”. Explain in brief the expression ‘risk factors’ giving any two examples (3 x 2 = 6 marks)
Q7(b)(i) KPL Ltd., did not pay its service tax dues of Rs 30 lakhs for the period ending 30-9-2011. Can the department create FIRST CHARGE on the property of KPL Ltd.? If the answer is in the affirmative, whether there are any limitations in respect of creation of such first charge? Briefly explain with reference to the Finance Act, 1994 (ii) Who are not eligible for COMPOSITION SCHEME under the VAT regime Write a brief note (3×2=6).
Q7(c) What are the ways that would constitute circumvention of ANTI-DUMPING DUTY imposed on an article that may warrant action by the Central Government based on inquiry as it may consider necessary for purpose of Sec 9A-(1A) of the Customs Tariff Act, 1975 (3 marks).
Indirect Taxes – CA Final November 2011
Question No. 1 is compulsory. Attempt any five from the remaining six questions (Wherever appropriate, suitable assumption/s should be made and indicated in the answer by the candidate)
Q1(a) MNO Ltd. is in the manufacture of both excisable and non-excisable goods in their factory building rented by them from October 1, 2010 and have been occupying the same as a tenant. From the following particulars for the period Oct. 1, 2010 to March 31, 2011 state briefly with suitable explanations whether MNO Ltd. could claim the benefit of exemption in terms of Notification No. 8/2003- CE dated 1-3-2003 tor the financial year 2011-12 (figures in ` lakhs) – (i) Clearances of branded goods – 60 (ii) Export Sales to Nepal – 80 (iii) Export Sales to USA and Canada – 120 (iv) Clearances of goods (duty paid based on Annual capacity of production under Sec. 3A of the Central Excise Act, 1944) – 70 (v) Clearances of goods subject to valuation based on retail sale price under Section 4A of the Central Excise Act, 1944 (said goods are eligible for 30% abatement) – 200 (vi) Job work under Notification No. 214/86-CE dated 25-3-86 – 60. During the period April 1, 2010 to Sept 30, 2010 the previous tenant of the building presently occupied by MNO Ltd. had cleared excisable goods of the aggregate value of ` 120 lakhs. (5 marks)
Q1(b) The following information is provided in respect of manufacture of a product “X” for the purpose of captive consumption in the same factory. You are required to determine the value for purpose of duty of excise in terms of Rule 8 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 (Figure in ` ) (i) Cost of direct materials (includes central excise duty 1,545) – 16,545 (ii) Cost of direct employees – 12,300 (iii) Works overheads 8,400 (iv) Quality control cost 4,300 (v) Research & development cost – 2,700 (v) Administrative cost – Production related 3,000 (vi) Administrative cost – Others – 1,500 (vi) Selling and distribution cost – 3,600 (vii) Scrap value realised – 1,500. Make assumptions if required and provide suitable explanations. (5 marks)
Q1(c) Raj & Co. provide the following details in respect of the services provided and the payments thereagainst received by them for the month of March 2011. Compute the value of taxable service under ‘Business Auxiliary Service’ falling under Sec. 65(105)(zzb) of the Finance Act, 1994 and the service tax payable thereon (figures in ` lakhs) (i) Commission for procurement of services for their client M/s Shraddha & Co.- 10 (ii) Commission on distribution of UTI Mutual Fund products – 16 (iii) Customer care service provided on behalf of M/s Sweta & Co. Ltd. – 8 (iv) Commission on purchase and sale of food grains – 20 (v) Commission on procurement of advertisements for publications company (No other service is provided) – 4 (vi) Charges for processing parts and accessories in the manufacture of cycles for use by the client (client has supplied inputs valued at ` 2 lakhs) – 10. Make assumptions where required and provide suitable explanations. (5 marks)
Q1(d) From the following information provided by M/s RA Ltd., registered under the VAT law in the State of Gujarat as dealer in consumer goods, compute the amount of VAT payable for the month of July 2011. (A) : Purchase of raw material (within the State) – (i) Goods ‘X’ – ` 7,50,000, VAT rate – Exempt (ii) Goods ‘Y’ – ` 25,00,000 VAT rate – 1% (iii) Goods ‘Z’ – ` 35,00,000, VAT rate – 12.5% (B) Sales – Particulars of finished goods sold – (i) Produced from goods ‘X’ – sold in Gujarat – ` 5,00,000, VAT rate 12.5% (ia) Produced from goods ‘X’ – Interstate sales to Maharashtra – ` 6,00,000, CST rate 2% (ii) Produced from goods ‘Y’ – sold in Gujarat – ` 30,00,000 – Exempt from VAT (iii) Produced from goods ‘Z’ – sold in Gujarat – ` 40,00,000. VAT Rate 4%. – – Raw materials at ` 5 lakhs of goods ‘Z’ have been transferred to the branch in Madhya Pradesh during the month. Assume 2% reduction in input credit on account of such transfer. Make assumptions where required and provide suitable explanations. (5 marks)
Q1 (e) Determine the assessable value for the purpose of Customs Act, 1962 from the following information in respect of import of a machine from UK : (i) FOB Value UK £ 6,000 (ii) Air Freight UK £ 1,500 (iii) Design and development charges paid in UK £ 500 (iv) Design and development charges paid in India – ` 10,000 (v) Commission paid to local agents 1% of FOB Value (vi) Date of Bill of Entry 10-4-2011 (Exchange rate notified by CBEC UK £ 1 = ` 70) (vii) Date of entry Inward 20-4-11 (Exchange rate notified by CBEC £ 1 = ` 65). Insurance charges are not ascertainable. Make assumptions where required and provide suitable explanations. (5 marks)
Q2(a) Discuss with a brief note the validity of the following statements with reference to the Cenvat Credit Rules, 2004 (i) Credit of input services used in the repairs or renovation of factory or office is not available (ii) Credit of capital goods can be availed where such capital goods are exclusively used in the manufacture of dutiable goods with respect to which benefit under Notification No. 1/2011-CE dated 1-3-2011 is availed, (iii) Cenvat Credit of duty paid on capital goods used outside the factory of manufacture for generation of electricity for captive use within the factory is allowed. (2 x 3 = 6 marks)
Q2(b) With reference to the provisions of the Finance Act, 1994 relating to service tax write a brief note on the following : (i) Vacant land given on lease or license for construction of a building or temporary structure at a later stage to be used for furtherance of business or commerce, (ii) Activities relating to promotion of a brand of goods, events, business entity, (iii) Air transport of crew members on board the air craft. (2 x 3 = 6 marks).
Q2(c) Write a brief note with reference to the provisions of the Customs Act, 1962 on the assessment of “Packaged Software” where affixation of Retail Sale Price (RSP) is : (i) mandatory and (ii) not required under the Standards of Weights and Measures Act, 1976. (3 marks)
Q3(a) M/s. XYZ Co. Ltd. is engaged in the manufacture and sale of machine parts for sugar machinery. The goods were sold at certain prices on the basis of which excise duty was paid at the rime of removal from the factory. Following certain negotiations with the customers the price of goods already cleared were retrospectively revised upward. Consequently M/s. XYZ, Co. Ltd. issued supplementary invoices to its customers and realized the differential price as per the said invoices. Differential excise duty consequent upon the said revision in prices was also calculated and remitted to the Government account. A show cause notice has been issued on M/s XYZ Co. Ltd. by the excise department demanding interest on delayed payment of duty under Sec. 11AB of the Central Excise Act, 1944. Discuss with a brief note whether the stand taken by the central excise department is correct in law. You may refer to decided case law if any in support of your answer. (5 marks)
Q3(b) “Efficient Collections” (EC) entered into a license agreement with the Airport Authority in terms of which EC were granted the right to collect entrance fee from visitors to the airport. The central excise department has issued a show cause notice on EC claiming service tax on the collections made by EC on the ground that these are services provided to a customer in the Airport and hence taxable under the Finance Act, 1994. Discuss with reference to decided case law if any whether the stand taken by the central excise department is correct in law. (6 marks)
Q3(c) PQR Ltd. imported certain machine parts and filed a Bill of Entry in the usual course. The said machine parts are entitled for concessional rate in terms of a notification. The assessee PQR Ltd. omitted to claim the benefit of the aforesaid notification at the time of filing and assessment of the Bill of Entry. Later when PQR Ltd., discovered about the benefit under the notification as aforesaid they filed a refund claim for the excess amount paid as customs duty under Sec. 27 of the Customs Act, 1962. There was no assessment order since the duty was paid on the basis of the Bill of Entry filed in the usual course. The refund claim was rejected on the ground that Sec 27 of the Customs Act, 1962 could be invoked only if an assessment order has been passed and duty payment made pursuant thereto. Discuss with a brief note and decided case law if any whether the stand of the department is correct in law. (5 marks)
Q4(a) The assessee M/s. T& Co. Ltd. were engaged in the manufacture of ‘tarpaulin made ups’. This was nothing but tarpaulin cloth prepared by making a solution of wax, Aluminium stearate and pigments that were mixed. The solution was heated in a vessel and was transferred to a tank. Grey cotton canvas fabric was then dipped into the solution and passed through two rollers, whereafter the canvas was dried by exposure to sun. The tarpaulin made ups were prepared by cutting the cloth into various sizes and stitched and eyelets were fitted. The central excise department has issued a show cause notice to M/s. T & Co. Ltd. that the tarpaulin made ups prepared by means of cutting, stitching and fixing eyelets amounts to manufacture under the Central Excise Act, 1944. Write a brief note with reference to decided case law if any whether the department’s view in the matter is legally sustainable. (6 marks)
Q4(b) M/s. Sure shot are in the business of providing photography services. These services involved besides shooting photographs activities such as developing and printing the exposed films. M/s Sure shot availed the benefit of Notification No. 12/2003-ST dated 20-6-2003 which provides exemption for materials that are sold by the service provider to the extent of the value of such materials from the value of taxable services. The department has issued a show cause notice that the value of materials actually consumed during the processing of exposed films cannot be excluded from the gross value of the services. M/s. Sure shot had paid VAT on the materials consumed in providing the photography services to its customers. Discuss with a brief note and decided case law if any whether the stand taken by the department is correct in law for purposes of levy of service tax in terms of the Finance Act, 1994. (6 marks)
Q4(c) M/s. SRT Ltd. had imported certain goods and got them cleared for home consumption. Later the customs department found that the goods have been improperly imported and are liable for confiscation under Sec. 111 of the Customs Act, 1962 even though the same are cleared and not available for seizure. Consequently the goods were confiscated under Sec. 111(d) of the Customs Act, 1962 and a penalty under Sec. 112(a) was levied. The authority has also imposed redemption fine under Sec. 125 of the Customs Act, 1962. Discuss with a brief note whether the penal action and redemption fine can be legally upheld in the facts of the case. (3 marks)
Q5(a) (i) Write a brief note on who could be considered as a “related person” under Sec. 4(3)(b) of the Central Excise Act, 1944 (ii) Briefly explain the following expression under the Central Excise Act, 1944 – ‘Place of removal’ (3 x 2 = 6 marks)
Q5(b) (i) State briefly the provision regarding rejection of value and determination of value by central excise officer under Rule 4 of the Service Tax (Determination of Value) Rules, 2006 (ii) Explain briefly the invoice method for computation of VAT (3 x 2 = 6 marks)
Q5(c) Explain with a brief note with reference to the Customs Act, 1962 how duty ought to be determined where the imported goods consist of articles liable to different rates of duty and imported as a “set of articles” (3 marks)
Q6.(a) Write a brief note with reference to the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 on the provisions relating to the following cases : (i) Consequence of goods not being used for intended purposes (ii) Defective, damaged, unsuitable, surplus goods returned to manufacturer (iii) Goods lost or destroyed by natural causes or unavoidable accident and not used for intended purpose (6 marks)
Q6(a) (i) Write a brief note under the Central Excise Act, 1944 in the context of provisions relating to ‘payment of duty under protest’. (ii) Briefly state the provisions under the Central Excise Rules, 2002 with respect to filing of ‘Annual Installed Capacity Statement’ (6 marks)
Q6(b) (i) Briefly explain whether the provisions of ‘deemed registration’ under rule 4(5) of the Service Tax Rules, 1994 are applicable in case of centralized registration (ii) What are the circumstances under which VAT registration could be cancelled ? Write a brief note (3 x 2 = 6 marks)
Q6(c) Explain briefly the powers of review to the Commissioner of Customs under Sec. 129D(2) of the Customs Act, 1962 in respect of decisions taken by adjudicating authority subordinate to him (3 marks)
Q7(a) (i) Write a brief note on the classification of incomplete/unfinished articles with reference to Rule 2(a) of the Interpretative Rules .to the First Schedule of the Central Excise tariff. (ii) Write a brief note on the matters with respect to which an appeal does not lie before the Customs Excise Service Tax Appellate Tribunal against any order passed by Commissioner (Appeals) under Sec. 35B of the Central Excise Act, 1944 (3×2 = 6 marks)
Q7(b) (i) Briefly state the charges/services that are specifically excluded from the category of special services provided by builder to the prospective buyer of a residential/commercial complex under Sec. 65(105) (zzzu) of the Finance Act, 1994 (ii) State briefly the key principles adopted by the States under the VAT laws with regard to incentive schemes (3×2 = 6 marks)
Q7(c) Explain briefly how the terms ‘warehouse’, ‘warehoused goods’ and ‘ ‘warehousing station’ are defined in the Customs Act, 1962 (3 marks)
CA Final May 2011
Q 1(a) ABC Co. Ltd. Procured the following inputs during the month of Jan 2011. Determine the amount of CENVAT Credit available with necessary explanation for the treatment of various items on which excise duty paid was as follows – (i) Raw Materials – Rs. 52,000 (ii) Manufacturing machine – 1,00,000 (iii) Light Diesel Oil – 40,000 (iv) Greases – 10,000 (v) Office Equipment – 20,000 (vi) Paints 5,000 (NOTE:-M/s . ABC Co. Ltd is not eligible to avail exemption under a notification based on value of clearances in a Financial Year)
Q 1(b) SSI & Co. is eligible for exemption in terms of Notification No. 8/2003-CE for the YEAR 2010-11 and provide the following particulars with regard to the clearances of goods effected during the said year. Determine the duty payable in respect of the year 2010-11 (Figures Aggregate in Rs lakhs) – (i) Value of domestic clearance of goods with own brand name – 120 (ii)Value of clearance of goods with the brand name of others – 100 (including Rs. 30 Lakhs in respect of goods manufactured in a rural area) (iii) Value of clearances for exports – 50 (iv)Value of clearances for captive consumption – 40 (v) Value of clearances of exempted goods – 20
Q 1(c) M/s. Commercial Goods Services, a Goods Transport Agency(GTA)furnishes the following information in respect of services provided for the year ending March 31, 2011. Determine the value of taxable services AND tax thereon under ‘transport of goods by road’ falling under sec 65(105)(zzp) of the finance act, 1994 (i)Service provided to M/s. XYZ Co. Ltd. 30,00,000 (ii) Freight for transport of FOOD GRAINS & PULSES 1,50,000 (iii) Service to an unregistered firm 6,00,000 (iv) Service provided as a ‘Clearing And Forwarding Agent’ 2,00,000(v) Composite service provided which include packing/unpacking Loading, unloading in the course of transportation by road – 2,00,000 (vi) Service tax paid on input services used for providing GTA Services – 72,000(Provide suitable explanations where required)
Q 1(d) From the following particulars compute net VAT payable by M/s. TAB & Co. for the period ending March 31, 2011.(A) Input procured : Rs.Rs (i) Raw material at Nil VAT 10,00,000 (ii) Raw material at 4% VAT 40,00,000 (iii) Raw Material at 12% VAT 20,00,000 (B) Output – (i)Intra state sale of finished goods at 4% VAT (these goods 15,00,000 were produced entirely from raw material at Nil VAT rate Procured as inputs)(ii) Exempted sales (these goods were produced from raw material 20,00,000 procured at 4% VAT to the extent of 50%)(iii) Sale of finished goods intrastate at 12% VAT 20,00,000 (iv) Intrastate sale of raw material purchased at 4% – 10,00,000 (v) 50% of raw material procured at 12% VAT has been utilized to produce capital goods for the manufacturing process in TAB & Co. factory (Market Value) 15,00,000. Provide necessary explanations where required.
Q1(e) Compute the assessable value of the machine imported by M/s. Exports India Pvt. Ltd., under the Custom Act, 1962 (Figures in US Dollars)(i) FOB price of the machine 10,000 (ii) Air freight paid 2,500 (iii) Insurance for transit of machine Not Ascertainable (iv) Cost of development work in India Rs. 40,000 (v) Local agent’s commission Rs. 10,000 (vi) Cost of local transport Rs. 5,000 (vii) Exchange rate applicable US $ 1 = Rs. 45. Provide explanation for your answer.
Q 2(a) Briefly explain whether the following statements are correct with reference to the Central Excise Act, 1944 and the changes effected by the Finance Act, 2010 (i) Penalty can be imposed u/s 11-A(2B) in case where the assessee pays duty and interest voluntarily before issue of Show Cause Notice (ii) Time limit for passing of the settlement order in terms of Sec 32-F(6) is nine months from the last day of the month in which the application was made and no extension of this period is permissible (iii) An assessee cannot apply for settlement more than once u/s 32-0.
Q 2(b) Explain briefly the correctness of the following statements with reference to the Finance Act, 1994 relating to Service Tax and the changes effected by the Finance Act, 2010 (i)With regard to the RESIDENTIAL COMPLEX SERVICE(Sec 65(105)(zzzh) unless the entire payment for the property is paid by the buyer after completion of construction, the activity of construction would be deemed to be a taxable service (ii) The Application of the rules in respect of classification of services under Sec 65A have been excluded in the case of specific taxable services.
Q2(c) Explain briefly with reference to the changes effected by the Finance Act, 2010 to the Customs Tariff Act, 1975 how ADDITIONAL CUSTOMS DUTY (CVD)has to be determined in respect of goods imported requiring MRP based assessment under the Medicinal And Toilet Preparations (Excise Duties) Act, 1955.
Q3(a) PQR & Co. is engaged in the business of fabrication and erection of structures of various types contract basis. They entered into a contract with M/s. XYZ Co. for fabrication, assembly and erection on turn key basis of WASTE WATER TREATMENT PLANT. This activity involved procurement, supply, fabrication, transportation of various duty paid components and finally putting up a civil construction and erection of the wastewater treatment plant and commissioning the same. The entire fabrication is done at site. The pressure testing was carried out as such until it was wholly built. The Excise department has issued a SCN that the fabrication at site amounted to manufacture of excisable goods since the plant came into existence in an unassembled form as per drawings and designs approved by the client M/s. XYZ Co. before the fabrication activity was under taken. Therefore according to the department excise duty was payable on the value of the plant excluding the value of the civil work. Briefly discuss with reference to case law whether the SCN is sustainable in law.
Q3(b) Sweet Sugar Mills is engaged in the manufacture of sugar. Government of India has issued directions under the sugar control order for sugar companies to maintain buffer stock of sugar of certain quantity for a specified period. In order to compensate the sugar mill the Government has extended the buffer stock subsidy towards storage, interest and insurance charges in respect of the buffer stock of sugar actually held by the sugar mill. The department has issued a SCN to the assessee raising a demand of service tax on the ground that the amount received by the sugar mill as buffer subsidy is covered under the taxable service of ‘STORAGE AND WAREHOUSING’. Discuss briefly with reference to decided case law whether the action of the department is sustainable in law.
Q 3(c) The Customs authorities had confiscated the gold carried by Mr. Lovegold from Bahrain. Mr. Lovegold informed the customs authorities that he was filing an appeal against the order of confiscation. The Customs authorities informed Mr. Lovegold that the confiscated goods had been handed over to the warehouse of the customs house for disposal and consequently auctioned the confiscated goods. Discuss briefly the validity of the action taken by the customs authorities with the help of decided case law. Also discuss the validity of the claim of Mr. Lovegold in seeking market value of the confiscated goods and whether he is liable to pay the duty, fine and penalty imposed by the original authority.
Q4 (a) C & C Co. Ltd., manufactured non-alcoholic beverage basis known as CONCENTRATES. These were sold to bottling companies who in turn sold the aerated beverages manufactured from the concentrates to distributors. These were then sold to retailers and thereafter to the ultimate customers. The advertisement and market research activities were undertaken by M/s. C & C Co. Ltd. Input credit of service tax paid on the advertising service used for marketing of soft drinks removed by bottlers was claimed by M/s. C & C Co. Ltd. This credit was denied on the ground that advertisement did not relate to the concentrates manufactured by M/s. C & C. Co. Ltd. Discuss briefly with reference to decided case law whether M/s. C & C Co. Ltd. are eligible to avail Cenvat credit paid on advertising services which were utilized towards payment of excise duty on concentrates
Q4(b) ‘Smartphone’ is in the business of providing mobile telephone service. The assessee sells “SIMCARDS” to its mobile telephone subscribers for a price. ‘Smartphone’ pay service tax on the activation and other charges. On the ‘SIMCARDS’ sold to the customers VAT under the applicable state law is paid. The department’s view is that the “SIMCARD” is used for provision of mobile services and is a part of the service and therefore the value of the “SIMCARD” has to be included in the category of ‘telecommunication services’ for purpose of service tax. Explain with a brief note and reference to decided case law whether the view taken by the department is correct in law.
Q4(c) ABC Company Ltd., has imported BRINE SHRIMP EGGS. This was classified as “PRAWN FEED” for custom duty purposes under Chapter Heading No. 2309 of the Customs Tariff Schedule, which include use as animal feed. The department’s view was that this should be classified under Chapter Heading No. 05 11 as NON-EDIBLE ANIMAL PRODUCTS UNFIT FOR HUMAN CONSUMPTION. M/s. ABC Company provided literature to support their contention that the imported material contained little organisms/embryos which later became larva that were fed to the prawns. Therefore according to the importer the nature and character of the product was not changed or altered by nurturing or incubation. Hence the classification should be as prawn feed under Chapter Heading No. 2309. Decide with the help of case law if any whether the condition of the assessee, M/s. ABC Co. is correct in law.
Q5(a) (i) Write a short note with reference to the Central Excise Act, 1944 and Cenvat Credit Rules 2004 on “GOODs” and “EXEMPTED GOODS” (ii) Explain Briefly the significance of “TRADE PARLANCE TEST” with respect to classification of excisable goods under the Central Excise Act, 1944.
Q5(b) (i) Explain with a brief note with reference to the Finance Act, 1994 whether the Business Auxiliary Service provided by a SUB-BROKER to a stock-broker in relation to sale or purchase of securities listed on a listed stock exchange is liable to service tax (ii) Briefly explain the policy contained in the “WHITE PAPER” on introduction of VAT with regard to availment of input credit on CAPITAL GOODS.
Q5(c) Explain briefly with reference to the Customs Act, 1962 the significance of “INDIAN CUSTOMS WATERS”.
Q6 (a) Write a brief note on the WAREHOUSING PROCEDURE for goods removed from the factory under the Central Excise Act, 1944 and Rules made there under OR (i) Explain briefly “Annual Financial Information Statement” under the Central Excise Rules 2002 (ii) State briefly the procedure for adducing ADDITIONAL EVIDENCE in appeal proceedings before the Commissioner (Appeals) under Sec 35 of the Central Excise Act, 1944.
Q6(b(i) Explain briefly the three VARIANTS OF VAT (ii) Briefly write a short note on the due dates for monthly and quarterly payment of service tax in respect of various classes of assessees.
Q6(c) State briefly the provisions under the Customs Act, 1962 relating to duty drawback on re-export of goods.
Q7 (a)(i) State briefly the circumstances under which a refund claim could be admitted under the provision to Sec 11 B(2) of the Central Excise Act, 1944 (ii) Explain briefly the significance of Rule 10-A of the Central Excise Valuation Rules, 2000 relating to goods produced or manufactured by a JOB WORKER.
Q7(b(i) Briefly explain the provisions relating to export of services under the Export of Service Rules,2005 (ii) Explain briefly the mandatory provisions under VAT with respect to the RECORDS to be maintained by the assessee.
Q7(c) Briefly explain “Prohibited goods” under the Customs Act, 1962.
CA Final New Syllabus November 2010
Answer Q No. 1 and 5 out of remaining six questions.
Q1(a) Determine the assessable value for purpose of excise duty under the Central Excise Act, 1944 in the following cases: (i) An assessee sells his excisable goods for Rs. 120 per piece and does not charge any duty of excise in his invoice. Subsequently it was found that the goods were not exempted from excise duty but were liable at 20% ad valorem. (ii) Certain excisable goods were sold for Rs. 120 per piece and 20% ad valorem is the rate of excise duty. Subsequently it was found that the price cum duty was in fact Rs. 140 per piece as the assessee had collected Rs. 20 per piece separately. (iii) The cum duty price per piece was Rs. 120 and the assessee had paid duty at 20% ad valorem. Subsequently it was found that the rate of duty was 30% ad valorem and the assessee had not collected anything over and above Rs.120 per piece (5 marks)
Q1(b) T Ltd. imported some goods from LMP Inc. of United States by air freight. You are required to compute the value for purposes of customs duty under the Customs Act, 1962 from the following particulars: CIF value – US $ 6,000, Freight paid – US $ 2,000, Insurance cost – US $ 700. The bank had received payment from the importer at the exchange rate of US $ 1 = Rs. 46 while the CBEC notified exchange rate on the relevant date was US $ 1 = Rs. 45.50 (Make suitable assumptions where required and provide brief explanations to your answer.) (5 marks)
Q1(c) From the following particulars arrive at the VAT liability for the month of January 2010 and also determine the amount of input tax credit to be carried forward for the next month: (i) Input tax rate 5% and output tax rate is 15% in the State. (ii) Inputs purchased in the month from within the State- Rs. 48,00,000. (iii) Output sold to buyers within the State during the month – Rs 15,00,000. (iv) Output sold during the month to buyers as interstate sales – Rs. 3,00,000. (CST rate 2% against C Form) (v) Inputs purchased from other States as interstate purchases against C Form @2% – Rs. 2,00,000. (Provide suitable explanations where required with appropriate assumptions if necessary.) (5 marks)
Q1(d) X Bank Ltd., furnishes the following information relating to services provided and the gross amount received : (Figures in Rs lakhs) * Merchant Banking Services 8 * Asset Management (including portfolio management) 3 * Service charges for services to the Government of India 1.5 * Interest on overdraft and cash credits 2 * Banker to the issue 5 * Locker rent 2. Repayment of financial lease made by the customer to the bank Rs. 80 lakhs which includes a principal amount of Rs. 50 lakhs. Compute the value of taxable service under “Banking and other financial services” under the Finance Act, 1994 and the service tax liability of X Bank Ltd., considering the rate of service tax at 10.3% (5 marks)
Q2(a) XYZ Co. engaged in the service of over burden removal in mines had acquired some tipper trucks and taken CENVAT credit to the extent of the excise duty paid on the said trucks acquired by them. Subsequently on becoming aware that the said trucks do not qualify as capital goods or inputs under the CENVAT Credit Rules, 2004, the said XYZ Co. reversed the credit taken, all of which had remained unutilized. The Department has issued a show cause notice that interest under Section 11AB on the amount of credit taken but not utilized should be paid. Write a note whether the action of the Department is correct in law (2 marks)
Q2(b) “Pure & Lovely” are manufacturers of ‘hair oil’ falling under Chapter 33 of the Central Excise Tariff (CET). Disputes arose in respect of two other categories ‘edible oil’ or ‘coconut oil’. The Department contends that the coconut oil falling under these two categories are meant for sale as hair oil and should be classified under Chapter 33 of CET. The manufacturers contend that they are not printing the specific use of such oil as ‘hair oil’ and this should be classified as vegetable oil under Chapter 15 of the CET irrespective of its use by the consumer. Chapter Note 2 of Chapter 33 prescribes a condition that Heading No. 3305 (which covers hair oil) applies to products put up in packing of a kind sold by retail for such use. Section Note 2 to Section VI provides that goods falling in Heading 3305 by reason of being put up for retail sales are to be classified in the said Heading. Briefly discuss whether coconut oil packed in larger packs generally used by consumers for edible purposes would merit classification under Chapter 15 (4 marks)
Q2(c) Sona Ltd. purchased a lathe machine at a cum-duty price of Rs. 18,63,680. The excise duty rate charged on the said machine was 16% plus education cess 2% plus secondary and higher education cess 1%. The machine was purchased on 1-7-2007 and was disposed of on 30-09-2009 for a price of Rs. 10,00,000 in working condition as second hand machine. Calculate the amount of CENVAT credit allowable for the financial years 2007-08 and 2008-09 and also specify the amount payable towards CENVAT credit already taken at the time of disposal of the machinery in the year 2009-10 (5 marks).
Q2(d) Y Ltd. (raw material supplier) supplies raw material to a job worker (manufacturer) Z Ltd. The job worker after completion of the job delivers 5,000 packets of finished goods to Y Ltd. In all these packets retail sale price (maximum) of Rs. 30 per packet is marked. The product in packaged form is subject to excise duty on the basis of MRP under Section 4A of the Central Excise Act, 1944 and in respect of the same 30% abatement has been prescribed. Determine the assessable value for purpose of excise duty after considering the following particulars : Cost of raw material supplied Rs. 45,000, Job charges including profit Rs. 15,000, Transport charges for dispatch to job worker Rs. 4,000, Transport Charges for return of finished product Rs. 4,000 (Provide brief explanation and make assumptions where required) (5 marks)
Q3(a) Write a brief note on whether input tax credit of the VAT paid on purchases of goods that are stock transferred is available (2 marks)
Q3(b) X Ltd. is having a manufacturing unit at Faridabad. In the financial year 2008-09 the value of total clearances from the unit was Rs. 850 lakhs as per the following details: (i) Exports to USA : Rs. 100 lakhs; to Nepal: Rs. 50 Lakhs (ii) Clearances to a 100% export oriented unit : Rs. 75 lakhs (iii) Clearances as loan licensee of goods carrying the brand name of another upon full payment of duty: Rs. 200 lakhs (iv) Clearances exempted vide Notification No. 214/86-C.E. dated 25-3-86 : Rs. 125 lakhs. (v) Balance clearances of goods in the normal course: Rs. 300 lakhs. You are required to state with reasons whether the unit is entitled to the benefit of exemption under Notification No.8/2003-C.E.dated 1-3-2003 as amended for the financial year 2009-10 (4 marks)
Q3(c) Briefly explain the documents required for filing claim of rebate of duty on export of goods under Rule 18 of the Central Excise Rules, 2002 (5 marks)
Q3(d) An assessee had cleared goods without payment of excise duty. However on coming to know from his sources that a show cause notice demanding duty on such clearances is likely to be issued but before actual issue of such notice the assessee made full payment of excise duty with interest. A show cause notice was issued subsequently as to why the assessee should not be subject to mandatory penalty equal to the excise duty sought to be evaded under Section 11AC of the Central Excise Act, 1944. Briefly examine with a note the conditions for levy of penalty under Section 11AC and state whether there is any discretion to reduce such penalty (5 marks)
Q4(a) D & Co. is engaged in the services of site preparation and clearance, excavation earth moving and demolition services. The gross amount received during the quarter ended 30-06-2009 for the services provided by them are given below : (Figures in Rs) – Core extraction services for construction 1,80,000, Land reclamation work 80,000, Services in relation to agriculture 2,00,000, Renovating or restoring water sources 3,50,000, Horizontal drilling of passage of cables or drain pipes 1,00,000, Soil stabilization 90,000, Construction of transport terminals 55,000. Calculate the value of taxable services under “Site preparation and clearance, excavation, earth moving and demolition services’ under the Finance Act, 1994 and the service tax payable at 10.3%. (Provide brief explanations where required.) (4 marks)
Q4(b) State with reference to the provisions of the Finance Act, 1994 whether service tax is leviable in the following cases: (i) Taxable services rendered in the Special Economic Zone and consumed therein. (ii) Services provided in the Continental Shelf of India and Exclusive Economic Zone of India (4 marks)
Q4(c) Write a brief note with reference to the Service Tax Rules, 1994 in the following cases : (i) Advance payment of service tax . (ii) Time limit for preservation of records (4 marks)
Q4(d) S Ltd. provides management consultancy services that are subject to service tax under the Finance Act, 1994. In respect of the services rendered during the month of December, 2009 the service tax of Rs. 15 lakhs was remitted to Government treasury on January 20, 2010. Arrive at the penalty under Section 76 of the Finance Act, 1994 which is leviable in this case (4 marks)
Q5(a) Write a brief note on the deficiencies of the VAT system (4 marks)
Q5(b) A private agency has built a canal system on build-own-operate-transfer basis under a contract with the State Government. User charges at commercial rates are levied by the private agency and the revenue so generated is utilized for servicing and repayment of the capital investment. Briefly write a note with reference to ‘commercial or industrial construction service’ under the Finance Act, 1994 whether the user charges collected by the private agency is liable to service tax (4 marks)
Q5(c) Briefly explain the provisions under the Service Tax Rules, 1994 regarding late fee for delayed filing of returns (4 marks)
Q5(d) State briefly with reference to Section 66A of the Finance Act, 1994 who is liable to pay service tax for services provided from outside India (4 marks)
Q6 Answer any four of the following :
Q6(a) Discuss with a brief note the provisions of Section 129E of the Customs Act, 1962 regarding deposit of duty and interest or penalty levied pending appeal (4 marks)
Q6(b) Write a brief note on sanctioning of refund of customs duty under Section 27(2) of the Customs Act, 1962 under which refunds will not be credited to the consumer welfare fund (4 marks)
Q6(c) Write a brief note with specific reference to Rule 1 of the Rules of Interpretation of the First Schedule to Customs Tariff Act, 1975 (4 marks)
Q6(d) Certain goods were brought to the export shed on 5-10-2009. The goods were examined and ‘let export order’ was issued on the same day by noting of the shipping bill. Computer processed shipping bill was issued on 6-10-2009. DEPB rate was lowered on 6-10-09 and the Department allowed DEPB at the rate prevailing on 6-10-2009. The goods were permitted for clearance and loading on 5-10-2009. It is assessee’s case that under the Customs Act, 1962 they are entitled for the higher rate of DEPB prevailing on 5-10-2009. Write a brief note whether the assessee’s stand is correct in law (4 marks)
Q6(e) Briefly explain the provisions relating to transshipment of goods without payment of duty under Section 54 of the Customs Act, 1962 (4 marks)
Q7(a) UPT Ltd., are manufacturers of electrical transformers, switch gears falling under Chapter Heading 85042200 and Chapter Heading 85352121 of the Central Excise Tariff. The manufacturers cleared excisable goods valued at Rs. 30 lakhs against Served from India Scheme Certificate (SFIS) at nil rate of duty availing the exemption by way of debit to SFIS under Notification No. 34/2006-CE dated 14-06-2006. As separate accounts for purpose of sub-rule (3) of Rule 6 of the Cenvat Credit Rules, 2004 were not maintained by the assessee (M/s UPT Ltd.) they were required to pay 5% of the value of the exempted goods of Rs. 1.5 lakhs (Rs. 30 lakhs @ 5%) on the basis that the goods cleared under SFIS scheme are to be treated as exempted goods. Discuss with reference to the definition of exempted goods under Rule 2(d) of the Cenvat Credit Rules, whether the stand taken by the Department is correct. (Assume that debit to SFIS is a method of payment of appropriate duty.) (4 marks)
Q7(b) Briefly state the provisions of the Central Excise Rules, 2002 relating to electronic payment of excise duty and electronic filing of returns (4 marks)
Q7(c) Hand blender manufactured by the assessee was cleared as gift along with each unit of juicer, mixer and grinder (JMG). The MRP of Rs. 750 though printed on the ‘hand blender box’ contains clear indication that it is supplied free of cost. The package of JMG also shows this. The hand blender is not sold separately. The Department has issued a show cause notice that duty should be paid on the hand blender. Write a brief note with reference to Section 4A of the Central Excise Act, 1944 whether the notice is sustainable in law (4 marks)
Q7(d) State briefly with reference to the provisions of the Finance Act, 1994 whether the following services are liable to tax: (i) Permanent transfer of intellectual property rights. (ii) Services provided in relation to handling storage and warehousing of empty containers under storage and warehousing service (4 marks)
CA Final New syllabus May 2010
SECTION – A
Q1(a) Compute the assessable value and amount of excise duty payable under the Central Excise Act, 1944 and rules made there under from the following information (i) Goods transferred from factory to depot on 8th February – 1,000 Nos. On that day, price at factory was Rs 200 per unit and price at depot was Rs 220 per unit. Rate of duty was 10% ad valorem (ii) Goods actually sold at depot on 18th February -750 Nos. On that day, price at factory was Rs 225 per unit and price at depot was Rs 250 per unit. Rate of duty was 8% ad valorem. (5 marks)
Q1(b) M/s Royal Industries started its production activities on 15th March, 2010. In the month of March, 2010, 1,000 units of raw material were purchased at Rs. 150 per unit, paying excise duty @ 8%. 800 units of raw material were consumed in manufacturing process and finished output was sold for Rs. 1,40,000 (excluding excise duty @ 8%). For simplification, you may ignore the conversion cost and assume the rates of excise duty to be inclusive of education cess. Pass the Journal entries in the books of the assessee and show the balances in Balance Sheet as on 31.3.2010 (5 marks).
Q1(c) Mahesh Ltd., which is engaged in manufacturing of excisable goods started its business on 1st June, 2009. It availed SSI exemption during the financial year 2009-10. The following are the details available to you : (i) 12,500 kg of inputs purchased @ Rs. 1,190.64 per kg (inclusive of Central excise duty @ 8.24%) – Rs 1,48,83,000 (ii) Capital goods purchased on 31-5-2009 (inclusive of Excise duty @ 14.42%) – Rs 80,09,400 (iii) Finished goods sold (at uniform transaction value throughout the year) – Rs 3,00,00,000. – – You are required to calculate the amount of excise duty payable by M/s Mahesh Ltd. in cash, if any, during the year 2009-10. Rate of duty on finished goods sold may be taken @12.36% for the year and you may assume the selling price exclusive of central excise duty. There is neither any processing loss nor any inventory of input and output. Output input ratio may be taken as 2 : 1 (5 marks).
Q2.(a) An assessee classified his product as per Central Excise Tariff subject to nil rate of duty. The Department contended that when the entries in the Harmonised System of Nomenclature (HSN) and the Central Excise Tariff are not aligned, reliance should be placed upon HSN for the purpose of classification of goods under the said Tariff. Relying upon the HSN for the purpose of classification of the impugned product, the Department classified it under another heading attracting 8% duty. Do you think that Department’s plea is valid in law? Discuss briefly, with reference to a decided case law, if any (5 marks).
Q2(b) M/s Evasions Unlimited, manufacturing excisable goods, paid the differential duty, suo motu, to the Department as the prices of the said goods were revised with retrospective effect. The Revenue took the view that the assessee was liable to pay interest on differential duty under Section 11AB of the Central Excise Act, 1944 and penalty thereof. The assessee replied that there was no question of charging interest and penalty as the payment of differential duty was made by it at the time of issuing supplementary invoices to the customers. Discuss, with reference to a decided case law, if any, whether the view taken by the Revenue is justifiable (5 marks).
Q2(c) An assessee made an application under Section 32E of the Central Excise Act, 1944 to the Settlement Commission. The settlement commission was not satisfied saying that the applicant had not made a true and full disclosure of his duty liability and the manner in which same was arrived at was also not correct and rejected the application. The assessee contended that obligation to make truthful disclosure of duty liability would arise only after the application was admitted and not before that. Is plea taken by the assessee acceptable in law? Explain in brief, with the help of a decided case law, if any (5 marks).
Q3(a) Differentiate between “non-excisable goods” and “non-dutiable goods” (3 marks).
Q3(b) Under Excise Audit, 2000, the selection of unit for audit is based on ‘risk factors’. Explain in brief the term ‘risk factors’ giving any two examples (3 marks).
Q3(c) Explain the validity of the following statements with reference to Central Excise Laws, as amended :(i) Records seized by department during investigation but not relied upon in the show cause notice should be returned within 30 days of issue of show cause notice (ii) Special audit under Section 14A and 14AA can be done by a cost accountant only (iii) Authority of Advance Ruling under the Income-tax Act, 1961 will be authority for purposes of Central excise also (iv) High Court is empowered to condone delay in filing appeal and cross objection filed under Sections 35G and 35H of the Central Excise Act, 1944, beyond the prescribed period (4 marks).
SECTION – B
Q4(a) Mr. Happy, a service provider, has provided services of Rs. 1,00,00,000. Out of this, Rs. 70,00,000 are taxable output services and Rs. 30,00,000 are exempt output services. Mr. Happy has opted not to maintain separate inventory and accounts and pay prescribed amount on value of exempt output services. Service tax paid on his input services, excluding education cess and secondary and higher education cess (EC & SAHEC) is Rs. 6,00,000 which do not include any service specified in rule 6(5) of the CENVAT Credit Rules, 2004. Rate of service tax, excluding. EC and SAHEC, is 10%. Calculate the total amount payable including Service tax, EC and SAHEC by Mr. Happy by GAR-7 challan (5 marks).
Q4(b) The particulars regarding sale, purchase etc. of Shubham Udyog for the last quarter of the year 2009-10 are as under : (1) Purchases of raw material within the state – (i) taxable @ 1% – Rs 40,00,000 (ii) taxable @ 4% – Rs 60,00,000 (iii) taxable @ 12.5% – Rs 10,00,000 (2) Sale of goods manufactured from raw material purchased @ 4% tax rate (i) Taxable sale within the State (tax rate 4%) – Rs 20,00,000 (ii) Exempted sale within the state – Rs 10,00,000 (iii) Sale in the course of Inter-State trade or Commerce (tax rate 4%) – Rs 10,00,000 (3) Sale of raw material purchased @ 1% tax rate – Rs 44,00,000 (4) Goods manufactured from the raw material purchased @ 12.5% tax rate were given on lease. The deemed sale Price of such goods is Rs. 12,00,000, taxable @ 12.5%. – – You may assume that input tax credit of tax on raw material used in manufacture of leased goods is available immediately. Compute the amount of Value Added Tax (VAT) payable by M/s Shubham Udyog for the relevant quarter. There was no opening or closing inventory. How can he utilise the balance of input tax credit available, if any? (5 marks).
Q5(a) The term ‘business auxiliary service’ was inserted by Finance Act, 2003 which came into force on 1.7.2003. The Parliament by Finance Act, 2008 inserted an explanation in the relevant sub-clause (ii) Section 65(19) stating that for the purpose of this sub-clause – “Service in relation to promotion or marketing of service provided by the client includes any service provided in relation to marketing of games of chance, organised, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo.” Discuss, whether the explanation appended to sub-clause (ii) of Section 65(19) is clarifactory in nature so as to be construed having retrospective effect and retroactive operation. You may take help of a decided case law, if any (5 marks).
Q5(b) Mr. Yes is the owner of a collection centre with facilities and trained employees for collection of human blood, urine and stool samples for biological testing. He sends the samples collected to its principal lab for actual test to be done. The assessee received 25% of the price charged by the principal lab. as commission for work of collection etc. The Revenue wants to charge service tax on such collection service as it amounts to promotion or marketing of services provided by its principal lab. Mr. Yes seeks your advise in this regard with reference to a decided case law, if any (5 marks).
Q6(a) State, with reasons in brief, whether the following services are taxable, under the provisions of the Finance Act, 1994 relating to Service Tax : (i) Services in relation to production of alcoholic liquor on job work basis (ii) Service of transport of goods in container by Government Railway (4 marks).
Q6(b) Whether the value of material supplied by the contractee to the contractor for use in the execution of the works contract shall be included in the value of works contract for payment of Service tax under the composition scheme? What is the present rate of service tax under this scheme? Can the service provider avail CENVAT credit also? (4 marks).
Q6(c) What is the general exemption available to small service providers? Who are the persons excluded from this exemption? (4 marks).
Q6(d) Explain in brief the disadvantages of composition scheme available for small dealers under VAT system (4 marks).
Q6(e) What is VAT invoice ? What are the mandatory provisions to be complied with white issuing a VAT invoice by a registered dealer? (4 marks).
SECTION – C
Q7(a) Miss Priya imported certain goods weighing 1,000 kgs. with CIF value US $ 40,000. Exchange rate was 1 US $ = Rs. 45 on the date of presentation of bill of entry. Basic customs duty is chargeable @ 10% and education cess as applicable. There is no excise duty payable on these goods, if manufactured in India. As per Notification issued by the Government of India, anti-dumping duty has been imposed on these goods. The anti-dumping duty will be equal to difference between amount calculated @ US $ 60 per kg. and ‘landed value’ of goods. You are required to compute custom duty and anti-dumping duty payable by Miss Priya (5 marks).
Q7(b) M/s Marwar Industries imported finishing agents, dye-carriers, printing paste etc. to be used for manufacture of textile articles. The importer claimed exemption for Additional duty of customs (CVD) leviable under Section 3 of the Customs Tariff Act, 1975, on the ground that there was an exemption for excise duty in respect of said goods used in the ‘same factory’ for manufacture of textile articles. The Department contended that CVD is payable on the ground that the goods which were to be used must also be manufactured in the ‘same factory’. You are requested to comment upon the contention of Department, with reference to a decided case law, if any (5 marks).
Q8(a) Explain in brief the duty exemption to baggage under Section 79(1) of the Customs Act, 1962 (3 marks).
Q8(b) Can an application be withdrawn in the following cases ? If yes, state the time limit for withdrawal of such application – (i) application for advance ruling (ii) application for settlement (3 marks).
Q8(c) Clearly mention the relevant date in the following cases of goods warehoused under bond – (i) Rate of exchange, when goods are removed for home consumption (ii) Rate of duty, when goods are removed for home consumption (iii) Rate of duty if the goods are not removed from warehouse within the permissible period (4 marks).