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Q1.(a) Divine Ltd. manufactures product K which is a notified product under Section 4A of the Central Excise Act, 1944. The output for the month of October, 2015 was 8,000 units out of which 6,000 units were consumed captively. Abatement permissible under Section 4A of Central Excise Act is 20%.

From the following information provided by Divine Ltd. for the month of October 2015. Calculate the excise duty payable. (5 marks)

Cost of direct materials (includes Central Excise 18,800 duty Rs. 1,800*)
Direct wages and salaries 11,000
Administrative Cost
Production related Rs.5,000
Corporate office expenses Rs.1,500
Sale of By-products Rs.1,000
Research and development cost Rs.8,000
Abnormal and non-recurring cost Rs.10,000
Retail sale price printed on the package of the product per unit Rs.10

*Note: CENVAT credit of the excise duty so paid is available.

Divine Ltd. is not eligible for SSI exemption under Notification No.8/2003 CE dated 01-03-2003. There were no opening or closing inventory for the month.

Central Excise duty payable is 12.5%. Advalorem. Education cess need not be calculated.

Ans.1(a) Computation of cost of product K

Cost of Direct Material

(-) Duty paid

18,800

1,800

Direct Wages….

17,000

11,000

Administrative Cost production related

Research & Development Cost

5,000

8,000

Less: Sale of By product

41,000

1,000

Cost of 8000 units

40,000

Cost of 6,000 units = 40,000 x 6,000 / 8,000
Assessable Value 110% of cost = Rs. 33,000
Duty @12.5% = Rs. 4,125
Less: cenvat credit = 1,800
Net duty payable = 2,325

  Working notes:

(1) Since the goods are captively consumed value has been computed as per CAS-4
(2) As per CAS-4, abnormal & non-recurring costs are not part of the cost.
(3) Corporate office expenses, being not related to production, have been ignored.

Comment: This type of question appeared in the exam for the first time. Alternative solution is to ignore the cost data and find out value at 80% of the MRP. Then assessable value would be Rs.48,000 which would be very harsh on the assessee. I have found no precedent to that effect.

(b) Mr. Navab, a performing artist, provides the following information relating to August, 2015 Receipts from: (5 marks)

Performing classical dance  Rs.98,000
Performing in television serial  Rs. 2,80,000
Services as brand ambassador  Rs. 12,00,000
Coaching in recreational activities relating to arts  Rs. 2,10,000
Activities in sculpture making Rs.3,10,000
Performing western dance  Rs.90,000

Determine the value of taxable services and service tax payable by Mr. Navab for August. 2015. Service Tax @ 14% has been charged separately, wherever applicable. Mr. Navab has paid service tax of 4,00,000 during the preceding financial year.

Ans.1(b) Computation of Value and Service Tax of Mr. Navab, for August, 2015.

Activity

Amount received

Taxable value

Remarks

Performing classical dance

98,000

..................................

Exempt under entry No.16

Performing in television serial

2,80,000

2,80,000

taxable

Services as brand ambassador

12,00,000

12,00,000

taxable

Coaching in recreational activities relating to arts

2,10,000

......................

Exempt under entry No.8

Activities in sculpture making

3,10,000

3,10,000

Taxable, only coaching / training is exempt.

Performing western dance

90,000

90,000

taxable

Total taxable value

...................

18,80,000

 

Tax @ 14% on 1880,000= Rs.263,200

Working Notes:

(1) Activities in sculpture making are taxable, only coaching / training in sculpture is exempt u/ Entry No. 8
(2) Mr. Navab is not eligible for SSP exemption.

Comment: This is an easy question

(c) Monogram Ltd. is engaged in providing several services to the customers/clients. It has started its business (except construction of mall completed earlier but consideration received in August. 2015) for the first time, in a taxable territory, on 1st August 2015 and transactions undertaken until 31st August. 2015 are as follows: (5 marks)

Particulars

Amount ₹

Services provided in its own brand name of ‘Monogram’

2,85,000

Services provided in the brand name of ‘Tonogram’ belonging to one of its suppliers

6,40,000

Consideration on transfer of Mall for which completion certificate has been obtained in June 2015

63,00,000

Full advance received towards construction of residential unit of carpet area of 1200 sq. ft. in a complex

30,00,000

Gross amount charged for transportation of goods in a single goods carriage

1,280

Freight charges paid to goods transport agency

46,000

Monogram Ltd. intends to make use of all exemptions and abatements. Compute its service tax liability @ 14% with appropriate notes where required.

Ans.1(c) Computation of Value and Service Tax of Monogram Ltd. for August, 2015.

Activity

Amount received

Taxable value

Remarks

Services provided in its own brand name of ‘Monogram’

2,85,000

2,85,000

Taxable

Services provided in the brand name of ‘Tonogram’ belonging to one of its suppliers

6,40,000

............

Taxable separately

Consideration on transfer of Mall for which completion certificate has been obtained in June 2015

63,00,000

.............

Non taxable activity

Full advance received towards construction of residential unit of carpet area of 1200 sq. ft. in a complex

30,00,000

7,50,000

Taxable, at 75% abatement. Only 25% taxable

Gross amount charged for transportation of goods in a single goods carriage

1,280

...........

Exempt upto Rs. 1500

Freight charges paid to goods transport agency

46,000

..........

Taxable separately @ 30%

Total value of services upto August 2015

10,35,000

Less exemption limit

10,00,000

Taxable value: Rs. 35,000
GTA Service value under reverse charge Rs. 13,800
46,000x 30%)
Services under others brand: Rs.6,40,000
Total value 6,88,800
Service tax @ 14% = Rs.96,432

Working Notes:

(1) Construction of mall is not a taxable service as the amount was received after the work certified.

(2) Construction of residential unit attracts 75% abatement as the carpet area is below 2000 Sft and the value is below 1 crore.

(3) Gross amount charged for transport in a single carriage below 1500 is exempt.

(4) Freight charges paid to GTA are subject to reverse charge not eligible for small service providers exemption.

(5) Services in others brand name are taxable separately.

(6) Monogram Ltd is eligible for SSP exemption in the first year of operation.

Comment: This question is based on SSP Exemption requiring a little understanding of declared services and abatement scheme.

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