Appendix : Solved Paper CS Final (New Syllabus) - Advanced Tax Laws & Practice - June 2015 CA. Yogendra Bangar & CA.

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1 Appendix : Solved Paper CS Final (New Syllabus) - Advanced Tax Laws & Practice - June 2015 Ap.-1 Question 1 : APPENDIX SOLVED PAPER CS Final (New Syllabus) - Advanced Tax Laws & Practice - June 2015 [ PART A ] (a) Amar, an individual, resident of India, receives the following payments after TDS during the previous year : ` Professional fees on ,40,000 Professional fees on ,60,000 Both the above services were rendered in Pakistan on which TDS of ` 50,000 and ` 30,000 respectively has been deducted. He had incurred an expenditure of ` 2,40,000 for earning both these receipts/income. His income from other sources in India is ` 3,00,000 and he has made payment of ` 70,000 towards LIC. Compute the tax liability of Amar and also the relief under section 91, if any, for assessment year (5 Marks, June 2015-NS) Ans: Computation of total income, tax payable and relief under section 91 (amounts in `) : Foreign Income : Professional fees on (Gross) [` 2,40,000 + ` 50,000] 2,90,000 Professional fees on (Gross) [` 1,60,000 + ` 30,000] 1,90,000 Gross Income 4,80,000 Less: Expenditure incurred to earn such income 2,40,000 2,40,000 Indian Income : 3,00,000 Gross Total Income 5,40,000 Less: Deductions under Section 80C [LIC payment] 70,000 Total Income 4,70,000 Income Tax on total income (after rebate under Section 87A) 20,000 Add: Education Cess and 3% 600 Total Tax 20,600 Indian rate of tax (Average Rate of Tax) [` 20, ` 4,70,000] 4.38% Foreign rate of tax [` 80,000 ` 4,80,000] 16.67% Doubly taxed income 2,40,000 Less: Relief under section 91 to the extent of the lower of (a) Doubly taxed income Indian rate of tax [` 2,40, %] 10,519 (b) Doubly taxed income Foreign rate of tax [` 2,40, %] 40,000 10,519 Tax payable (rounded off to nearest ` 10) 10,080 (b) Apple Industries Ltd. provides the following information for the financial year : (` in lakhs) Net profit as per statement of profit and loss after debiting/crediting the following : 120 Proposed dividend 30 Profit from unit established in SEZ 20 Provision for income-tax 18 Provision for deferred tax 10 Provision for permanent diminution in value of investments 3 Depreciation debited to statement of profit and loss ` 10 lakh includes depreciation on revaluation of 1 assets to the tune of Brought forward losses and unabsorbed depreciation as per book of the company are as follows : Previous Year Brought Forward Losses Unabsorbed Depreciation Compute the book profit of the company as per section 115JB for the assessment year (5 Marks, June 2015-NS)

2 Ap.-2 Appendix : Solved Paper CS Final (New Syllabus) - Advanced Tax Laws & Practice June 2015 Ans: Computation of book profit of ABP Ltd. under section 115JB (` in lakhs) - Net profit as per profit and loss account 120 Add: Net profit to be increased by following amounts as per Explanation 1 to Section 115JB Provision for income tax 18 Provision for deferred tax 10 Proposed dividend 30 Depreciation 10 Provision for diminution in value of investment Less : Net profit to be reduced by following amounts as per Explanation 1 to Section 115JB Depreciation (excluding depreciation on revaluation of assets) [` 10 lakhs ` 1 lakhs = ` 9lakhs] -9 Lower of brought forward loss ( = ` 12 lakhs) unabsorbed depreciation ( = ` 10 lakhs), as per books of account -10 Book Profits 172 (c) Explain whether the benefit of exemption under section 54EC would be available in the case of 'capital gains arising on transfer of depreciable asset'. (5 Mark, June 2015-NS) Ans: It is important to note that, according to Section 2(29A) of the Income-tax Act, the capital assets held for more than 36 months (other than specified assets) are long term capital assets. Sections 48 and 49 of the Act, provide for computation of capital gains and Section 50 carves out an exception in respect of depreciable asset providing that for purposes of Sections 48 and 49, the gains arising on transfer of depreciable assets shall be treated as gains arising from transfer of short term capital asset. Considering the above provisions, it can be said that the deeming fiction created in Section 50 is restricted only to the computation of capital gains under sections 48 and 49, it does not deem an asset as short term capital asset. Section 54F is an independent section which provides for exemption on fulfillment of certain conditions. It does not make any distinction between the depreciable and non-depreciable assets and therefore, the benefit of exemption under this section cannot be denied merely on account of fiction created by Section 50. In a similar case of CIT v. Rajiv Shukla [2011] 334 ITR 138 (Del.), it was held that, since the capital asset transferred is long term capital asset (as used for more than 36 months), and the capital gains arising therefrom having been deposited in the Capital Gains Deposit Scheme as required by that section, therefore the exemption under section 54F shall be available to the assessee. Question 2 : (a) What are the 'specified domestic transactions' which are subject to transfer pricing provisions? (5 Marks, June 2015-NS) Ans: Refer Q. No. 6 in Chapter 7 of this book. (b) Comment on the following in the context of provisions contained in the Income-tax Act, 1961 : (c) The provisions of section 115JB are applicable in case of foreign companies. (2 Marks, June 2015-NS) The provisions of dividend distribution tax are applicable to an undertaking or enterprise engaged in developing, operating and maintaining a special economic zone (SEZ). (3 Marks, June 2015-NS) Ans: Refer Q. No. 7 in Chapter 4 of this book. Yes, the provisions of dividend distribution tax are applicable to an undertaking or enterprise engaged in developing, operating and maintaining a special economic zone (SEZ). Amendments were made by Finance Act, 2011 to provide for levy of DDT to an undertaking or enterprise engaged in developing, operating and maintaining a special economic zone (SEZ). According to Section 115O, a domestic company shall in addition to the income-tax chargeable in respect of the total income be liable to pay tax on distributed 15% (plus 10% surcharge and EC & 3%) i.e % of any amount declared, distributed or paid by such company by way of dividends (whether interim or otherwise) (other than dividends referred under section 2(22)(e)) whether out of current or accumulated profits. Explain the meaning of 'eligible expenses' for the purposes of claiming benefit under section 35D. Also enumerate these eligible expenses. (5 Marks, June 2015-NS) Ans: Refer Q. No. 91 in Chapter 1 of this book.

3 Appendix : Solved Paper CS Final (New Syllabus) - Advanced Tax Laws & Practice - June 2015 Ap.-3 Question 2A : (a) Tinoo Ltd. is eligible to claim deduction of ` 2 crore under section 80-IA. It has filed its return of income after the due date as specified in section 139(1). Discuss the allowability of deduction u/s 80-IA. (2 Marks, June 2015-NS) Ans: Refer Q. No. 26 in Chapter 2 of this book. (b) Sahil sold a residential house on 15 th March, 2015 to Neeraj for ` 30 lakh of which value applied by stamp valuation authority was ` 38 lakh. Sahil purchased this house in March, 2004 for ` 12 lakh but the stamp duty value of the same was ` 15 lakh. In the context of these transactions, compute the following - (c) Income out of this transaction, if any, in the hands of Neeraj. Cost of acquisition to Neeraj. (2 Marks, June 2015-NS) Ans: In case immovable property is purchased for inadequate consideration than the difference between the stamp duty value and the consideration paid shall be chargeable to tax as Income from other Sources under Section 56(2) (vii). Hence, ` 8,00,000 shall be chargeable to tax in hands Neeraj as Income from other Sources. The cost of acquisition of such property in hands of Neeraj will be the stamp duty value so taken into consideration for computing Income from other Sources i.e. ` 38,00,000. An HUF, resident in India, has a gross total income of ` 5,40,000 for the assessment year It made a payment of ` 50,000 for life insurance premium of one of its members. Whether the HUF is entitled to claim the rebate as per section 87A? (1 Marks, June 2015-NS) Ans: Tax rebate under Section 87A is admissible only to resident individual and not to HUF. Thus, even if Total Income of HUF does not exceed ` 5,00,000 it will not be eligible to claim rebate under Section 87A. In the context of transfer pricing provisions in relation to international transactions, what are the factors to be considered while selecting the most appropriate method? (5 Marks, June 2015-NS) Ans: Rule 10C deals with the determination of the most appropriate method. Under this Rule, the method which is best suited to the facts and circumstances of each particular international transaction, and which provides the most reliable measure of an arm's length price in relation to the international transaction will be considered as the most appropriate method. For the purpose of selecting the most appropriate method, the following factors should be taken into account - the nature and class of the international transaction; the class or classes of associated enterprises entering into the transaction and the functions performed by them taking into account assets employed or to be employed and risks assumed by such enterprises; (iii) the availability, coverage and reliability of data necessary for application of the method; (iv) the degree of comparability existing between the international transaction and the uncontrolled transaction and between the enterprises entering into such transactions; (v) the extent to which reliable and accurate adjustments can be made to account for differences, if any, between the international transaction and the comparable uncontrolled transaction or between the enterprises entering into such transactions; (vi) the nature, extent and reliability of assumptions required to be made in application of a method. (iii) Vijay is employed with Sunder Ltd., at a monthly salary of ` 45,000. He also receives ` 15,000 per month as house rent allowance. He deposited ` 40,000 in the PPF account. He also pays ` 30,000 as tuition fees of his two children. Vijay's wife, Isha is employed with Chander Ltd., at a monthly salary of ` 25,000, where Vijay holds 21% of the shares of the company. Isha is not adequately qualified for the post held by her in Chander Ltd. Isha owns a house used as self occupied house by the family. Municipal value of the house is ` 3,60,000. It was constructed with borrowed funds in Interest on loan is ` 1,80,000 p.a. Isha insured the house and paid insurance premium of ` 8,000 to United India Insurance Company. She also paid ` 20,000 as municipal taxes. Suggest a scheme of tax planning for both Vijay and Isha to minimise their tax liability during the financial year (5 Marks, June 2015-NS) Ans : The relevant provisions are discussed as under Salary Income : Particulars Mr. Vijay (`) Basic salary (` 45,000 12) 5,40,000 House Rent allowance (Fully taxable, since no rent is paid by Mr. Vijay ) (` 15,000 12) 1,80,000 Salary of spouse from a concern in which individual has substantial interest to be clubbed in hands of Vijay as per Section 64(1) (` 25,000 12) Mrs. Isha (`) 3,00,000 -

4 Ap.-4 Appendix : Solved Paper CS Final (New Syllabus) - Advanced Tax Laws & Practice June 2015 Income from House Property : Annual value -Nil less interest on borrowed capital ` 1,80,000-1,80,000 Gross Total Income 10,20,000-1,80,000 Less: Deductions under Section 80C (PPF contribution ` 40,000 + Tuition fees ` 30,000) 70,000 Total Income 9,50,000 NIL Tax on total income 1,15,000 NIL Add: Education 2% + 1% 3,450 NIL Tax payable 1,18,450 NIL Total tax payable 1,18,450 To reduce tax liability Mr, Vijay must reduce his holding in the company so that he does not have substantial interest in the company. If his voting power is less than 20%, the remuneration received by spouse will not be clubbed in his hand and the tax liability shall be computed as under : Salary Income : Basic salary (` 45,000 12) 5,40,000 3,00,000 House Rent allowance (Fully taxable, since no rent is paid by Mr. Vijay ) (` 15,000 12) 1,80,000 Income from House Property : Annual value - Nil less interest on borrowed capital ` 1,80,000-1,80,000 Gross Total Income 7,20,000 1,20,000 Less: Deductions under Section 80C (PPF contribution ` 40,000 + Tuition fees ` 30,000) 70,000 Total Income 6,50,000 NIL Tax on total income 55,000 NIL Add: Education 2% + 1% 1,650 NIL Tax payable 56,650 NIL Total tax payable 56,650 Vijay and Isha may request to their respective employers to restructure their salaries, as follows : (a) Restructure salaries to break up the monthly salary into basic pay, conveyance allowance/ car facility, leave travel facility, medical reimbursement and telephone reimbursement etc. This will reduce to amount of taxable salary. (b) There are several employees' welfare schemes such as recognised provident fund, approved superannuation fund, gratuity fund. Payments received from such funds by the employees are totally exempt or exempt upto significant amounts. For example, gratuity received by the employee from private sector is exempt upto ` 10 lakh. So, Vijay may request his employer to include these welfare schemes. (c) Payment of premium by the employer on behalf of the employee will not be treated as a perquisite in the case of accident insurance policies. (d) The employer may be requested to ensure that dearness allowance and dearness pay should form part of salary. This will increase the amount of exemption in case of certain allowances and retirement benefits also. (iii) Currently Isha is treating the house as self occupied by the family; she may rent out this to Vijay against a rent receipt. This will enable Vijay in claiming deduction for House Rent Allowance. (iv) Isha may claim the deduction for the principal amount and the interest amount paid for the funds borrowed for construction of house. For principal amount, deduction, could be claimed for upto ` 1,50,000 and for interest amount deduction could be claimed upto ` 2,00,000. Question 3 : [ Part - B] (a) AB Pipe Ltd. is engaged in the manufacture of water pipes. From the following details for the month of May, 2014, compute the amount of CENVAT credit available to them under the CENVAT Credit Rules, 2004 : CENVAT paid on purchases is detailed below - ` Raw steel 42,000 Water pipe making machine 16,000 Spare parts for the above machine 9,000

5 Appendix : Solved Paper CS Final (New Syllabus) - Advanced Tax Laws & Practice - June 2015 Ap.-5 Grease & oil 3,000 Office equipment 42,560 Diesel 12,980 Provide explanation for treatment of various items. (5 Marks, June 2015-NS) Ans: Computation of CENVAT Credit available to XYZ Co. (amounts in `) - Raw steel (Eligible as input ) 42,000 Water pipe making machine (Eligible as capital goods (50% credit will be admissible in the year of acquisition) 8,000 Spare parts for the above machine (Eligible as capital goods) 4,500 Grease and oil (Eligible as input ) 3,000 Equipments used in the office (Not eligible) NIL Diesel (Not eligible) NIL Total CENVAT credit available 57,500 (b) Gold Ltd. is having a manufacturing unit at Ghaziabad. During the financial year , the value of total clearances from the unit was ` 880 lakh as per the following details : (` in lakh) Clearances to 100% EOU 80 Clearances exempted vide Notification No. 214/86-C.E. Dated 25 th March, (iii) Exports to USA 125 (iv) Exports to Nepal 50 (v) Clearance as loan licensee of goods carrying the brand name of another upon full payment 180 (vi) Balance clearance of goods in the normal course 320 Find out whether the unit is entitled to benefit of exemption under Notification No. 8/2003-CE, dated 1 st March, 2003 as amended for the financial year Explain with reasons. (5 marks, June 2015-NS) Ans: The SSI exemption is available only if the total value of clearances of excisable goods for home consumption does not exceed ` 400 lakhs during the preceding financial year. For determining the value of clearances, the following shall be adjusted Export Clearances to USA would be excluded, while the export to Nepal would be included. Clearances without payment of duty to a 100% EOU would be excluded. (iii) Clearances of as a loan licensee of goods carrying the brand name of another on payment of duty would not be included. (iv) Clearances exempt under Notification No. 214/86 would be excluded. Thus, the total value of clearances shall be calculated as follows (` in lakhs) Gross value of clearances 880 Less: Exports to USA -125 Less: Clearance to 100% EOU without payment of duty -80 Less: Clearances as loan licensee of goods carrying the brand name of another upon full payment of duty -180 Less: Clearances exempted vide Job-work Notification No. 214/86-CE -125 Value of clearances 370 Conclusion : Since the total value of clearances doesn t exceed ` 400 lakhs, hence, the unit is eligible for SSI-exemption under Notification No. 8/2003 during the financial year (c) Chandu Industries Ltd. imported some goods from USA. The details of the transactions are as under : CIF value of goods US $ 1,44,000 Rate of basic duty 10% Rate of education cess 2% Rate of secondary & higher education cess 1% If similar goods were manufactured in India, excise duty payable as per tariff plan would be 12%. You are required to calculate the assessable value and total duty payable thereon as per provisions of customs law.

6 Ap.-6 Appendix : Solved Paper CS Final (New Syllabus) - Advanced Tax Laws & Practice June 2015 Note : Rate of exchange is as follows : As per CBEC 1 US $ = ` 63 As per RBI 1 US $ = ` 60 (5 Marks, June 2015-NS) Ans: The solution is as follows CIF Value $ 1,44,000 Exchange rate to be applied is 1 $ (Dollar) = ` 63, as notified by CBEC ` 63 Total CIF Value in Indian ` ` 90,72, Add: Landing of CIF value ` 90, Total Assessable value ` 91,62, Add: Basic Customs 10% [1] ` 9,16, Total for Additional duty of Customs leviable under section 3(1) ` 1,00,78, Add: Additional duty of Customs u/s 12% (EC & SHEC exempt) [2] ` 12,09, Add: EC and 3% of [1] + [2] [3] ` 63, Total imported cost (rounded off) ` 1,13,52, Total customs duty payable = [1] + [2] + [3] + [4] (rounded off) ` 21,89,524 (d) Chikoo Constructions Ltd. is running real estate business. Following information relates to the services provided by them from January to March, 2014 : Construction of residential complex meant for use of Members of Parliament 40,00,000 Repair and maintenance of a railway station 25,00,000 Repair services provided to State Government relating to plan for sewerage treatment 16,00,000 Construction of roads in a factory 15,00,000 Construction services provided to International Labour Organisation 6,00,000 ` Assuming that Chikoo Constructions Ltd. has taxable services of ` 1.50 crore during financial year , compute the value of taxable services and the service tax liability for the quarter ending March, Give working notes also. (5 Marks, June 2015-NS) Ans: Computation of value of taxable service and service tax liability of ASB Ltd. - Particulars ` Construction of residential complex meant for use of member of parliament [WN-1] Nil Repair and maintenance of Railway Station [WN-2] 25,00,000 Repair service provided to Government relating to plant for sewerage treatment [WN-3] Nil Construction of roads in a factory [WN-4] 15,00,000 Construction services provided to International Labour Organisation [WN-5] Nil Value of taxable service 40,00,000 Service 12% [` 40,00,000 12%] 4,80,000 Add: EC & 3% [` 4,80,000 3%] 14,400 Service tax liability 4,94,400 Working Notes : (1) Construction of residential complex meant for use of member of parliament is exempt vide mega exemption notification. (2) Services by way of construction, erection, or installation of original works pertaining to railway is exempt vide mega exemption notification. However, Repair, maintenance of railways would be liable to service tax. (3) Repair service provided to Government relating to plant for sewerage treatment is exempt vide mega exemption notification. (4) Service provided by way of construction of roads for use by general public is exempt vide mega exemption notification. However, Construction of roads in a factory would be taxable as it is not for general public. (5) Services provided to the specified international organisation are exempt vide mega exemption notification. [Notification No. 25/2012-ST, dated ] (6) Services by way of renting or residential dwelling for use as residence are included in the negative list and hence are not taxable.

7 Appendix : Solved Paper CS Final (New Syllabus) - Advanced Tax Laws & Practice - June 2015 Ap.-7 (7) Since Chikoo Constructions Ltd. has provided taxable services of ` 1.50 crore during financial year , it will not be entitled for Small Service provider Exemption. (e) Following information relates to purchases and sales of Kapil Ltd. for the month of September, 2014 : ` Purchases for resale within the State 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 do 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, 2014 was ` 50,00,000 on which 4% was payable. Assuming all purchases given above are exclusive of 12.5%, calculate - The amount of input tax credit available for the month of September, VAT payable for the month of September, (iii) Input tax credit carried forward. Assume that the input VAT credit on eligible capital goods is available in 24 equal monthly installments. Also make suitable assumptions wherever required and show the workings. (5 Marks, June 2015-NS) Ans: The relevant computations are shown herein below (amount in `) Computation of Input Tax Credit Available for September : Purchases for resale within the State [` 8,00, %] [WN-1] 1,00,000 Purchases from registered dealers who opted for composition scheme [WN-2] NIL Purchases to be used as consumable stores for manufacture of taxable goods [`6,00, %] [WN-3] 75,000 Purchases of goods where invoices do not show the amount of taxes separately [WN-4] NIL Purchases of goods for personal consumption [WN-5] NIL Purchases of capital goods not eligible for input credit Purchases of capital goods eligible for input credit [WN-6] 3,000 NIL Total Input Credit available 1,78,000 VAT payable = ` 50,00,000 4% 2,00,000 (iii) Net VAT payable in cash (iv) VAT credit carried forward to the next month in respect of capital goods[rs. 72,000 -Rs 3,000] 69,000 Working Notes : (1) Purchases of goods for resale within the state are eligible for input tax credit. (2) Purchases from registered dealers who opted for composition scheme are not eligible for input tax credit. (3) Purchases to be used as consumable stores for manufacture of taxable goods are eligible for input tax credit. (4) Purchases of goods where invoices do not show the amount of taxes separately are not eligible for input tax credit. (5) Purchases of goods for personal consumption are not eligible for input tax credit. (6) Total credit allowable in respect of capital goods = ` 5,76, % = ` 72,000, available in 24 monthly instalments. Hence, credit available for the month of September = ` 72, = ` 3,000.The balance credit of Rs 69,000 shall be carried forward to the next month. Question 4 : (a) Baba Ltd. is a small scale unit manufacturing plastic name plates for motor vehicles as per specifications provided to them by their customers, who are vehicle manufactures. For the purpose of classification under First Schedule to the Central Excise Tariff Act, 1985, the assessee has claimed that plastic name plates are 'parts and accessories of motor vehicles'. The Central Excise Department has proposed classification as 'other plastic products' in respect of these plastic name plates. The Department's view is that motor vehicle is complete without affixation of name plates and name plate cannot be treated as part of the motor vehicle. Whether the stand taken by the Department is legally correct? Briefly discuss with reference to relevant case law. (5 Marks, June 2015-NS)

8 Ap.-8 Appendix : Solved Paper CS Final (New Syllabus) - Advanced Tax Laws & Practice June 2015 Ans: No, the stand taken by the Department is not valid in law. The plastic nameplates should be classified as parts and accessories of motor vehicles on following grounds: name plates are solely and exclusively used for motor vehicles. classification as parts and accessories of motor vehicles is more specific while the classification as other plastic products is residuary and more general in nature. The Department has examined only whether the name plates can be considered parts of motor vehicles, it has not at all considered whether these name plates can be considered accessories of motor vehicle An accessory by its very definition is something supplementary or subordinate in nature and need not be essential for the actual functioning of the product. In a similar case of Pragati Silicons Pvt. Ltd. v. CCEx. Delhi [2007] 211 ELT 534 (SC), the Apex Court has held that name plates add to convenient use of motor vehicle and give an identity to it. They add effectiveness and value to vehicle and are at very least accessories of vehicles. Thus, even if there was any difficulty in the inclusion of the name plates as parts of the motor vehicles, they would most certainly have been covered by the broader term accessory as car seat covers and upholstery etc. Thus, name plates cannot be classified as other plastic products as proposed by the department but the same will be classified as accessory of motor vehicles. (b) In a search conducted in the office premises of Zebra Ltd., large quantity of rough diamonds was recovered. It was found that these were imported without a license. After adjudication, penalty was imposed on Zebra Ltd. and goods were confiscated. An option was given to the company to redeem goods on payment of redemption fine and customs duty at appropriate rate. During the relevant period, there was an exemption notification in respect of these goods. Zebra Ltd. claimed benefit of the exemption notification for payment of customs duty. Discuss in the light of a decided case, whether Zebra Ltd.'s contention is correct. (5 Marks, June 2015-NS) Ans: No, the contention of Zebra Ltd. is not correct. The benefit of the exemption notification meant for 'imported goods' could not be extended to "smuggled goods". The Supreme Court in the case of CC v. M. Ambalal & Co. [2010] 260 E.LT 487 (SC) has held that had smuggled goods and imported goods were to treated as one, Customs Act, 1962 would not have provided for two different definitions for the two. Considering that curbing the ills of smuggling in the economy is one of the principal functions of the Customs Act, the purpose of exemption notifications would be defeated if the benefit meant for imported goods is given to smuggled goods. (c) Neem Infotech, while retaining the copyright with it, is selling information technology software as : Shrink wrap software Multiple user/paper license; and (iii) Internet download. In terms of end user license agreement (EULA), the contract is given for customised development of software, delivered online or downloaded on the internet. The assessee is of the view that since it was been settled by the Supreme Court ruling in TCS case [2004] 178 ELT 22 (SC) that software (branded as well as unbranded) is 'goods', there is no element of service and hence service tax cannot be levied in this case. Discuss, in the light of case law, if any, the following questions - Whether the transaction may be called as 'sale' or 'deemed sale'? Whether the transaction is liable to service tax? If yes, state the category of the service also. (5 Marks, June 2015-NS) Ans: The above question can be answered in light of judgment of Madras High Court in Infotech Software Dealers Association (ISODA) v. UOI [2010] 20 STR 289 (Mad.). No. The transaction cannot be called as sale or deemed sale. The High Court, in above case, observed that there may be the cases of exclusive sale or exclusive service or where the element of sales and service both are involved, the nature of transaction and the dominant intention of parties are significant for determining the levy of tax i.e whether sales tax or service tax. Since the developer retained the copyright of each software, the dominant intention was to transfer, to the subscribers or the members, only the right to use with copyright protection. However, the transactions in the instant case could not be treated as deemed sale as that requires a transfer of right to use any goods but in the instant case, the goods as such were not transferred.

9 Appendix : Solved Paper CS Final (New Syllabus) - Advanced Tax Laws & Practice - June 2015 Ap.-9 Yes. The transaction is liable to service tax. Here, the dominant intention of parties is indicated by the terms of EULA where the developer retains the copyright of software while the right to use was given to the subscribers or the members. The software as such was not sold by developer as per EULA, but only the contents of the data stored in the software were sold which would amounts to service only. Transfer of right to use goods is necessary for deemed sale as per Article 366(29A)(d) of Constitution and when goods not transferred as such, question of deeming sale of goods does not arise. As per Section 66E(d), development, design, programming, customization, adaptation, up-gradation, enhancement, implementation of information technology software is a declared service. Question 4A : (a) Mention the time-limit within which the CENVAT credit of duty paid on inputs and service tax paid on input services can be availed under the CENVAT Credit Rules, (3 Marks, June 2015-NS) Ans: Refer Q. No. 31 & 32 in Chapter 13 of this book. (b) Mention the circumstances under which a price less than the manufacturing cost and profit of excisable goods can be deemed to be the transaction value under section 4 of the Central Excise Act, (3 Marks, June 2015-NS) Ans: Refer Q. No. 16 in Chapter 12 of this book. (a) Mention the rates of interest payable on delayed payment of service tax under section 75 of the Finance Act, (3 Marks, June 2015-NS) Ans: Refer Q. No. 21 in Chapter 32 of this book. (b) Discuss whether service tax is leviable on the monthly contribution collected from members to be used by residents welfare association for the purpose of making payments to the third parties in respect of commonly used services or goods? (3 Marks, June 2015-NS) Ans: Refer Service No. 9 Chapter 31 of this book. (iii) Mention the amount which is required to be deposited mandatorily before filing an appeal before the Commissioner (Appeals) and CESTAT under the Customs Act, (3 Marks, June 2015-NS) Ans:Refer Q. No. 15 in Chapter 34 of this book. Question 5 : (a) Discuss the validity of the following statements with reference to the Central Excise Rules, 2002, as amended : The general procedures prescribed for export under claim for rebate and export without payment of duty under bond do not apply to Nepal. In respect of goods received at concessional rate of duty, return is required to be filed on monthly basis. (iii) Submission of annual financial information statement in From ER 4 is compulsory for all assessees. Ans: The validity of the following statements is as follows (2 Marks, Each, June, 2015-NS) Invalid : With effect from vide Notifications No. 24 to 29/2011-CE (NT), dated , the export procedures for Nepal has been amended. The procedures prescribed for export under claim for rebate (Rule 18 of Central Excise Rules, 2002) vide Notification No. 19/2004-CE (NT) dated and export without payment of duty under bond (Rule 19 of Central Excise Rules, 2002) vide Notifications No. 42 to 44/2001-CE (NT) all dated would apply to Nepal as well. This has been done in view of the revised treaty between India and Nepal. Invalid : The said statement is not vaild. Rule 5 of the Central Excise (Removal of goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 has been amended vide Notification No. 13/2012-CE (NT) to, inter alia, provide that the manufacturer, receiving goods at concessional rate of duty, has to submit a quarterly return instead of a monthly return. (iii) Invalid : Every assessee shall submit to the Superintendent of Central Excise, an annual financial information statement for preceding financial year by 30 th day of November of the succeeding year in E.R.-4 Form. The following assessees are exempt from furnishing such information Statement - (a) (b) the assessee who paid duty of excise less than ` 100 lakh, in aggregate, through account curent or by utilising CENVAT credit or by both during the financial year to which the Statement relates ; and Indian ordnance factories, Department of defence production. (b) Earth Ltd. is located in India and holding 51% of shares of Sun Ltd. Sun Ltd. provides business auxiliary services to Earth Ltd.

10 Ap.-10 Appendix : Solved Paper CS Final (New Syllabus) - Advanced Tax Laws & Practice June 2015 From the following details, determine the point of taxation of Earth Ltd : Agreed consideration US $ 1,00,000 Date on which services were provided by Sun Ltd. 16 th September, 2014 Date on which invoice is sent by Sun Ltd. 19 th September, 2014 Date of debit in the books of account of Earth Ltd. 30 th September, 2014 Date on which payment is made by Earth Ltd. 23 rd December, 2014 (3 Marks, June 2015-NS) Ans: Earth Ltd. of India and Sun Ltd (assumed to be outside India) are "associated enterprises" as per Section 92A of Income Tax Act, 1961, since Indian Company holds 51% shareholding of US based company. As per Rule 7 of Point of Taxation Rules, 2011, in case of 'Associated Enterprises' where the person providing service is located outside India, point of taxation shall be date of debit in the books of account of the person receiving service (i.e ); or date of making the payment (i.e ), whichever is earlier. Therefore, the point of taxation will be (c) Explain how sales tax incentives cause problems for VAT system. (3 Marks, June-2015-NS) Ans: Traditionally, all the State Governments have been using sales-tax incentives as an important developmental tool particularly for industrial development of an area of the state which is either undeveloped or underdeveloped and where no one would like to set up an industry because of several disadvantages such as lack of proper infrastructure, remoteness of the market, unwillingness of the workers to work in the remote and isolated areas etc. The basic philosophy of the incentive schemes is that even if the State does not get revenue from sales tax, the taxpayer will contribute towards the development of the underdeveloped area of the State and get rewarded out of more realization. Any fiscal exemption from tax or subsidy is against the principles of VAT as it breaks the VAT chain. VAT system works on the basis of tax credit passed at each stage of production and distribution through issuance of tax invoices. Dealers effecting exempted sales are not allowed to avail input tax credit and they cannot pass on the credit. (d) Is the transaction value under the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007, acceptable even if goods are sold to related person? Give reasons. (2 Marks, June 2015-NS) Ans: Refer Q. No. 5 in Chapter 18 of this book. Question 6 : (a) (b) (c) Mention the broad rates under the existing VAT regime. (5 Marks, June 2015-NS) Ans: Refer Q. No. 3 in Chapter 37 of this book. Briefly explain the concept of goods and services tax (GST). (5 Marks, Dec NS) Ans: Refer Q. No. 1 in Chapter 38 of this book. What do you understand by 'continuous supply of service'? Also mention the point of taxation in case of continuous supply of service. (5 Marks, June 2015-NS) Ans: Refer Q. No. 6 in Chapter 25 of this book.