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email@example.com Tollfree number: 1800 120 0560 Website: www.calearning.in IPC
, TAXATION Indirect Taxes - Suggested Answers for
May, 2016 Exam
Q1.(b) Dharmendra Ltd. gives the following particulars relating to the services provided by it to its
various clients for the month of January, 2016:
(i) Total bills raised for ₹17,50,000, out of which bill for ₹1,50,000 was raised on a SEZ unit for
services rendered in the said unit and payment for bills for ₹ 2,00,000 were not received
until 31- 01-2016. Service tax is separately charged on the bills raised, wherever applicable.
(ii) Amount of ₹1,14,5 00 (including service tax) was received as an advance from Ramotar Ltd.
on 25- 01-2016 to whom the services were provided in March, 2016.
(i) Value of taxable service.
(ii) Amount of service tax payable.
(iii) Last date for service tax payment.
Assume that service tax is separately charged in the bills as well as for advance payment,
wherever applicable. Assesse is not a small service provider. (6 marks)
Answer 1.(b) Computational value and service tax of Dharmendra Ltd.
Value of bills raised 17,50,000
Less: Value of bills Raised against SEZ (- )
(ii) Value of Advance received for services 16,00,000 114500
100000 1,00,000 =
ST @ 14.5% = `
(i) Value of taxable services = `
(ii) Amount of service tax @ 14.5% = `
(iii) Last date for payment is 6 th
Working notes: (i) Service Tax has been calculated at 14.5% including SB Cess
(ii) Since the service provider is a limited company service tax is payable monthly, i.e. by Feb 2016.
(iii) Service provided to SEZ are exempt on the assumption that the service provider has availed exemption.
(iv) Bills for ₹2,00,000 have been included as tax which is not dependent on a ctual receipts.
The question was framed on the basis of service tax at 14.5% whereas the applicable rate for
May, 2016 is 14%. This has caused a lot of confusion to the examinees who entered the exam hall
with a mind set of 14%
Q1.(c) Compute net VAT liability of Rohan from the following information for the month of
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firstname.lastname@example.org Tollfree number: 1800 120 0560 Website: www.calearning.in
Particulars ₹ ₹
Raw material from foreign market
(including duty paid on imports @ 20%) 1,50,000
Raw material purchased from local market:
Cost of raw material 3,00,000
Add: Excise duty @ 12.5% 37,500
Add: VAT @4% 13,500 3,51,000
Raw Material purchased from
neighbouring state (Including CST @2%) 51,000
Storage and Transportation costs 11,000
Manufacturing expenses 25,000
Rohan sold goods to Arya and earned profit @12% on the cost of production. VAT rate on
sale of such goods is 4%.
There were no opening and closing stocks. (4 marks)
Answer to Question No.1 (c) Computation of Sale price of Rohan
Raw material 1,
Loc al material cost 3, 37,500
Inter State Purchase 51,000
Storage, Transport Costs
11,000 Manufacturing costs
25,000 Total Cost: 5,
12% Profit margin 68,940 PBT 6,
VAT @ 4%
Customs duty and CST are part of cost and hence not deducted.
This is a simple question with plain language.
Q2.(b) Mandi & Co. is providing taxable information technology software service. The firm
furnishes the following information relating to the services rendered, bills raised, amount
received pertaining to the services, for the quarter ending 31- 03-2016 as under:
Partic ulars Amount
Amount received being 10% of the assignment fees on 31 - 03 - 2016 for
the upgradation and enhancement of the software services (including
service tax) 7,00,000
Services provided to UNICEF, an international organization in Delhi, for
design and programming of IT services. 4,00,000
Services provided to A Ltd. for IT services. Service Tax was not
received from the client due to some dispute. 3,00,000
Services provided to B Ltd. for providing software services. However, 25 , 738
Less ITC 13 , 500
Net VAT Payable 12 , 238 25,738
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email@example.com Tollfree number: 1800 120 0560 Website: www.calearning.in Mandi & Co. failed to r ecover the service tax amount from B Ltd. due to
insolvency of client. Summary of the bills (all issued in January, 2016) is
Charges for Software service 5,00,000
Services tax @ 14.50% 72,500 5,72,500
Amount received from other clients during January to March, 2016
including service tax 70,00,000
Compute the value of total taxable services and service tax payable thereon for the quarter
ending 31- 03-2016 by Mandi & Co.
The assessee had rendered taxable services of `110 lacs during the year ended 31-03-
2015. (4 marks)
Answer No. 2(b) Computation of taxable value and service tax
Upgradation and enhancement services 7,
Services to A Ltd. 3, 00,000
Services to B Ltd. 5, 72,500
Others 70,00 ,000
Value including tax 85,72 ,500 Value =
85,72,500 X 100
74 ,86, 900 ST
= 85, 72,500 X 14
10 ,85, 600
1. Services provided to UNICEF are exempt under exemption Notification 25/2012 – v
Entry No. 1.
2. Services provided to A Ltd. are subject to service tax though service tax was not received
due to dispute. Hence the amount of 300000 has been taken as inclusive of service tax as
per S67(2) of Finance Act, 1994
3. Service tax is payable on services provided to B Ltd.; the insolvency of service receiver not
Mandi & Co. is not eligible for paying service tax on cash basis as its previous years turnover
was above ₹ 50 lac.
Marks should be awarded to those who have taken 85,00,000 as inclusive of tax.
Q2.(c) Madhav Enterprises imported some goods from USA. The assessable value of the
imported goods is `
20,00,000. Compute the custom duty payable from the following
Date of Bill of entry 30 - 09 - 2015 (Rate of BCD is 10%)
Date of entry inward 25 - 09 - 2015 (Rate of BCD is 8%)
C.V.D. is payable @12.5%
Answer No. 2 (c) Computation of customs duties from Madhav Enterprises
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firstname.lastname@example.org Tollfree number: 1800 120 0560 Website: www.calearning.in Value Duty
Assessable value 20,00,000
Add: BCD @10% 2,00,000 2,00,000
Add: CVD @12.5% 2,75,000 2,75,000
Add : C ess at 3% on 4,75,000 = 14250 14 , 250
24, 89 , 25 0 4 , 89 , 250
Add Spl. CVD @ 4% on 24 , 89 , 250 = 99 , 570 99 , 570
Total 25,88,820 5,88,820
(i) Rate of duty is 10% as per section 15(1) of Customs Act.
(ii) Education Cess @ 3% has been added on customs duty before S Cap. CVD
Simple and easy question
Q3.(b) Yahoo Pvt. Ltd. a manufacturer furnishes the following information: (4 marks) Bill No. Particulars Date of Bill Excise duty/Service
Tax Paid ( ` )
801 Input Goods “A” 15 - 01 - 2015 15,000
802 Input Goods “B” 15 - 05 - 2015 24,000
810 Input Goods “C” 12 - 03 - 2016 30,000
757 Machinery, (eligible capital goods
under Chapter 82) 11 - 03 - 2015 2,00,000
All the input goods and the machinery were received on the dates of Bills. Bill No.810 is
Yahoo Pvt. Ltd. is not a SSI unit. Determine the CENVAT credit that can be availed by
Yahoo Pvt. Ltd. during the month of March, 2016. (4 marks)
Answer No. 3(b) Computation of Cenvat Credit for the F.Y. ending March 2016
. . . . . . . (relates to F.Y. 2014-15)
Input C. . . . . . . . (not eligible since invoice is missing)
Capital goods 50 % 1,00 ,000 (50% was supposedly taken in previous financial year)
1. This question has drafting error. If we take the literal meaning of the last two lines of the
question, the answer is ‘nil’ because “during the month of March, 2016”. There was only one
transaction, for which the invoice is missing, hence no credit.
2. It was therefore, logically presumed that the intention of the examiner was to find out the
CENVAT credit exclusively for the year ending March, 2016
Q3.(c) Determine the transaction value and the Central Excise Duty payable of M/s. Rajiv
Enterprise from the following particulars: (4 marks)
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email@example.com Tollfree number: 1800 120 0560 Website: www.calearning.in Particulars `
1. Price of machinery, excluding taxes and duties 6,00,000
2. Installation and erection expenses (Machinery has been
fixed to the earth) 35,000
3. Packing charges (Primary and secondary) 12,000
4. Design and engineering charges 4,500
Cash discount @2% on price of machinery (not considered in 1 above) was allowed as
per terms of contract, since full payment was received within 15 days of the dispatch of
Bought out accessories valued at `7,000. The accessories are optional and provide
ease of use of the machinery.
Central Excise Duty @12.5%.
Brief note is to be appended for treatment of each item.
Answer No. 3 (c) Determination of value and excise duty of M/s. Rajiv Enterprises
Price excluding taxes and duties 6,00,000
2% 12,000 5,
12,000 Design & Engg.
4,500 Assessable value 6,
Duty @ 12.5% 75,562.5
75, 563 (Rounded off)
Working Notes: (i) Installation & erection charges are not in connection with sale, hence not included.
(ii) Bought out accessories cost not included as they are not essential parts of the product.
This is simple and easy question. Similar question was asked in CA Final, 2009. But the paper
er has been very considerate and sensitive enough to adapt this question to the understanding
levels of an IPC student.
Q4.(b) When can an assesse avail the benefit of Small Service Provider (SSP) exemption for the
purpose of service tax? Name two situations in which such SSP exemption is not available.
Answer No. 4(b)
When the aggregate value of services from one or more of the premises in the PY was not above
10 lac, the service provider is eligible to claim exemption upto 10 lac turnover in current year.
However, in the following two situations SSP exemption is not available
(i) Service tax paid under reverse charge
(ii) Service provided by using the brand name or trade name of others
Aggregate value of services has been defined under/notification No.33/2012
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firstname.lastname@example.org Tollfree number: 1800 120 0560 Website: www.calearning.in Q4.(c)
State with reason, whether the following transactions are true or false, as per the provisions
of the Central Sales Tax Act, 1956: (4 marks)
(i) CST is not leviable on inter-state sale of electrical energy.
(ii) Cost of freight, though not separately shown in the invoice, will not form part of sale price.
Answer to Question No. 4(c)
(i) The statement is true. Electrical energy is goods but as per S 6, which is a charging section, CST is
not leviable on electrical energy.
(ii) False. Cost of freight forms part of value if it is not shown separately S 2(h) of CST Act, 1956.
Q5.(b) Briefly explain the concessional /composition rates of service tax applicable to Air travel
agents. (4 marks)
Answer to Question No. 5(b)
As per Rule 6(7) of Service Tax Rules, 1994. Service on domestic Air Tickets is 0.7% and on
international travels its 1.4%. This is calculated on basic air fare.
Basic fare has been explained as that part of the air fare on which commission is normally paid to
the air travel agent by the a irline. The rates have been revised recently with effect from 1 st
2015. Earlier they were 0.6 and 1.2% respectively.
The answer can be as precise as given above. The student may add more information but it
should be relevant.
Q5.(c) Discuss whether the following services are charegeable to service tax or not; in March
2016: (4 marks)
(i) An Indian tour operator provided the service to Mr. Yuhan, a Japanese national, for a
tour in Sri Lanka.
(ii) Mr. Amit, an organizer, provided services to Mr. Kumar in respect of a business
exhibition held in Patna.
(iii) Mr. Chandra Bhusan provided the services by conducting religious rites at the birth
ceremony of a child.
(iv) Sunita provided consultancy services to Government directly connected with solid waste
Answer No. 5(c)
(i) Service tax is chargeable but exempt under Entry No 42 of Mega exemption Notification No. 25/2012
(ii) Taxable as both service provider and service receiver are in India and service was also provided in India. Moreover, it is not covered under mega exemption.
(iii) Services by way of conduct of any religious ceremony is exempt under Entry No. 5(b) of Mega Exemption. Hence religious rites at the birth ceremony is governed by the exemption
(iv) Services by way of solid waste management are exempt under Entry No. 25(a). But the service is a Consultancy service and hence chargeable to service tax.
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email@example.com Tollfree number: 1800 120 0560 Website: www.calearning.in Q6.(b)
Briefly touch upon the provisions relating to interest payable for delayed payment of service
tax. (4 marks)
Answer No. 6(b)
Interest payable on delayed payments is governed by section 75 of Finance Act, 1994.
S75 enables the Central Govt. to determine the rates of interest between 10% and 36%.
3% concession is available to service providers whose turnover during notice period or previous
financial year doesn’t exceed ₹60 lakh.
The interest rates are as given below:
Normal Concessional Rate
For the first 6 months 18% 15%
After 6 months upto 1 year 24% 21%
Beyond 1 year 30% 27%
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Not e: For IPC & CA Final students appearing in 2017, May onwards – the interest rates applicable
are as follows: 1. Service Tax collected but not paid – 24%
2. Other Cases – 15%
Concessional rates will be 21% and 12% respectively.
Notification No. 13/2016 Dt. 1-3-2016 effective from the date the Finance Act, 2016 became
Q6.(c) What are the due dates for filing of service tax returns? Is there any late fee payable for
any delay in filing of service tax returns? (4 marks)
Answer to Question No. 6(c)
As per Rule 7 of STR, 1944, service tax Return in ST-3 form has to be filed half yearly by 25 th
the close of half year. Thus, it has to be filed yearly twice by 25 th
April and 25 th
October every year.
Rule 7(c) prescribes late fee for late submission of returns as given below:
Delay Late Fees
Upto 15 days
After 15 days upto 1 month
After one month
`1000 + `
100 per day subject to maximum of `20,000
Late fee can be waived partially or totally in case of nil return and the assessee has sufficient
Q7.(b) How is the value of taxable service, whose value is not ascertainable determined?
Answer to Question No. 7(b)
Rules 2A, 2B & 2C and Rule 3 of Service Tax (determination of Value) Rules, 2006 in which value
etermined where value is not ascertained under Section 67.
Rules 2A, 2B & 2C deal with specific situations – works contract service, money changing services
and service portion involved in supply of food or any other article of human consumption etc. ,
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firstname.lastname@example.org Tollfree number: 1800 120 0560 Website: www.calearning.in Rule 3 deals with general cases
Under Rule 3, where value is not ascertainable, value of the similar service provided to other
persons shall be taken
If no such similar service is provided, the assessee has to self-determine the value which, in any
case, shall not be less than the cost of providing such service.
A manufacturer wishing to avail CENVAT credit in respect of certain eligible inputs, wants
to store them outside the factory where he carries on manufacture. Briefly state the relevant
provisions concerned for storage of inputs outside the factory. (4 marks)
Answer No. 7(c)
As per Rule 8 of Cenvat Credit Rules, 2004, a manufacturer is allowed to store inputs outside the
factory to meet the exigency. This is permitted only in special circumstances by AC/DC of Central
Excise with conditions where the inputs are not used as per the provisions under the Rules, the
Manufacturer is liable to pay the amount equal to the CENVAT Credit taken on such inputs.
author is Shri S.P. Rao Tax Consultant and Visiting Faculty of ICAI and ICSI,
New Delhi. He is also faculty at Chandiok’s AddApptive Learning Solutions (CALS).
He can be reached at email: email@example.com / firstname.lastname@example.org
and Mobile No. : 9811537205
Students may note that these solutions have been prepared by
the author to guide and assist the students of IPC. This
represents the personal view and opinion of the author and he
is not responsible for any inconsistency or variation in the
solution given by ICAI or any other source. Students are
welcome to share their feedba ck.
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