CERTIFICATE COURSE ON INDIRECT TAXES

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA Indirect Taxes Committee CERTIFICATE COURSE ON INDIRECT TAXES SUGGESTED ANSWERS OF THE ASSESSMENT TEST HELD ON 25 TH AUGUST, 2012 PART A Write the correct alternative in the answer column Q. No. Question Answer 1. Which of the statement is correct? Service tax law extends to structures/ installations/ vessels located in Exclusive Economic Zone of India (EEZI) and Continental Shelf of India (CSI). Service tax law extends to structures/ installations/ vessels located in Exclusive Economic Zone of India (EEZI) and Continental Shelf of India (CSI), constructed for prospecting of mineral oil. Service tax law extends to structures/ installations/ vessels located in Exclusive Economic Zone of India (EEZI) and Continental Shelf of India (CSI), constructed for oceanic studies. None of the above 2. If the final service tax liability is more than the provisional service tax liability, assessee has to pay interest at : 18% from the first day of the month succeeding the month in which provisional assessment was made. 18% from the first day of the month succeeding the month for which provisional assessment was made 1

Q. No. Question Answer 15% from the first day of the month succeeding the month for which provisional assessment was made 15% from the first day of the month succeeding the month in which provisional assessment was made. 3. Which of the following order is appealable to CESTAT? Order of Commissioner of Central Excise issued for recovery of service tax erroneously refunded Order of Commissioner of Service Tax imposing penalty for evading service tax Order of Commissioner of Central Excise (Appeals) issued for recovery of service tax short paid All of the above 4. Time limit for filing revised service tax returns is : 90 days 60 days 30 days 45 days 5. Which of the following activities are not liable to service tax? Transport of fruits and vegetables in a truck by a goods transport agency Medical consultation given to patients by an MBBS Doctor. Education services provided by pre schools All of the above 6. Which of the following activities are liable to service tax? Services provided to Reserve Bank of India Services provided by an agent for procurement of inputs for a client Specialized cleaning services provided to WHO 2

Q. No. Question Answer None of the above 7. Application for centralized registration can be made by : service provider rendering services from more than one premises service receiver receiving service in more than one premises service provider rendering services from more than one premises and having centralized accounting system all of the above 8. XYZ Ltd. files service tax return for the half year ended 30 th September, 2011 on 30 th June, 2012. The late fee payable by him is : Rs.20,000 Rs.22,700 Rs.25,000 Rs.22,472 9. Date of completion of service = 12.10.2011 Date of Invoice = 17.10.2011 Date of receipt of payment = 01.11.2011 The point of taxation is 01.11.2011 12.10.2011 17.10.2011 05.11.2011 10. Billing for a service transaction is done as under : Service charges Rs.10,000 Dharmada (Charity) Rs.100 Total Rs.10,100 The assessable value of the service on which service tax will be levied 3

Q. No. Question Answer is Rs.10,000 Rs.9,900 Rs.10,100 Rs.10,200 11. On 28th February, at the time of presentation of budget, the Finance Minister announces hike in the excise duty from 10% to 12%. The hike is effective from 1st March (Next day) 1st April (Next financial year) 10th May (Date of enactment of the Finance Bill) Midnight of 28 th February 12. Penalty payable under section 11AC of the Central Excise Act, 1944 would be of the original penalty if the duty is short paid on account of a fraud unearthed during the course of an audit. The specified records, however, do not have any details relating to such fraud. 25% 100% 50% 0% 13. Which return is to be filed in respect of goods exempted under Notification No. 1/2011 CE dated 01.03.2011? Monthly Quarterly Annual None of the above 4

Q. No. Question Answer 14. Which of the following item of cost is not includible in the transaction value of the excisable goods? Installation and commissioning expenses Outward handling expenses Warranty charges Packing charges 15. Which of the following would be eligible for SSI exemption even when the goods bear the brand name of another person? Goods manufactured for Khadi Board Goods manufactured in rural area Manufacturer of components of a machinery for use as original equipment All of the above 16. Charging section under Customs Act, 1962 is : Section 12 Section 14 Section 15 Section 3 17. Customs duty becomes payable when : goods enter the territorial waters of India goods reach the customs barrier and bill of entry for home consumption is filed goods enter the Indian Customs Waters None of the above 18. An application for seeking an Advance Ruling in respect of customs duty cannot be made by : Non resident applicant setting up a Joint Venture in India 5

Q. No. Question Answer Resident applicant setting up a company outside India Wholly owned subsidiary Indian company, of which the holding company is a foreign company Joint venture in India 19. Customs duty can be remitted under section 23 of the Customs Act, 1962 if : imported goods have been pilfered before clearance for home consumption imported goods have been pilfered after clearance for home consumption imported goods have been destroyed by fire before clearance for home consumption imported goods have been destroyed by fire after clearance for home consumption 20. Rate of exchange to be used for converting the currency for the purpose of customs valuation is : Rate of exchange notified by Central Board of Excise and Customs Rate of exchange notified by Foreign Exchange Dealers Association of India Rate of exchange notified by Foreign Ministry Rate of exchange notified by RBI 21. The basic VAT rates provided by the White Paper on VAT released by the Central Government in April, 2005 are: 4%, 12.5%, 1% and 0% 12.5%, 4%, 2% and 0% 4%, 12%, 1% and 0% 4%, 12.5%, 0% and 2% 6

Q. No. Question Answer 22. Which of the following dealer is eligible for composition scheme? Dealers who import the goods and then sell in India Dealers who stock transfer the goods outside India Dealers who export the goods None of the above 23. Which of the following statement is not correct? Central sales tax is payable on outward insurance if property in goods passes to buyer at the time of despatch. Central sales tax is payable on outward freight not charged separately. Central sales tax is payable on goods returned beyond six months. Central sales tax is payable on excise duty and education cesses. 24. Input tax credit can be claimed in respect of purchases made for sale within the State sale in the course of export out of India being used in the State as capital goods All of the above 25. From the following details of a works contractor who maintains sufficient records to quantify the labour charges, determine the net VAT payable: Particulars Rs. in lakh (i) Total contract price (excluding VAT) 100 (ii) Labour charges paid for execution of the contract 35 (iii) Cost of consumables used not involving transfer 5 7

Q. No. Question Answer of property in goods (iv) (v) Material purchased and used for the contract taxable at 12.5% VAT (VAT included) Plant purchased for use in the contract taxable at 4% VAT (VAT included). The State VAT laws allow 100% input tax credit on capital goods. 45 10.4 Output VAT rate 12.5%: Rs.2,72,500 Rs.2,50,000 Rs.7,72,500 Rs.2,10,000 8

PART B [10 questions carrying 5 marks each] 1. Tax and fee are nothing but two different names given to one levy. Discuss the validity or otherwise of the statement. The statement is invalid. As per the definition of tax given by Latham C.J of Australian High Court a tax is a compulsory exaction of money by public authority for public purpose enforceable by law and is not payment for service rendered. However, a fee is generally defined to be a charge for a special service rendered to individuals by some Government agency. The amount of fee is usually based on the expenses incurred by the state in rendering the specific service although the cost may be arbitrarily assessed. Fees are uniform and ordinarily no account is taken of the varying ability of different recipient to pay the same. The distinction between Tax and Fee is tabulated as under: Tax Is levied as a part of common burden It is based on principle of ability or capacity to pay Tax can be progressive Fee Is a payment for special benefit or privilege. It is secondary to the primary motive Based on principles of equivalence Fee has to be proportional and not progressive 2. Briefly discuss the provisions relating to exclusion of time in legal proceedings as provided under section 12 of the Limitation Act, 1963. As per section 12 of the Limitation Act, 1963, (i) (ii) in computing the period of limitation for any suit, appeal or application, the day from which such period is to be reckoned, is to be excluded. in computing the period of limitation for an appeal or an application for leave to appeal or for revision or for review of a judgment, the day on 9

which the judgment complained of was pronounced and the time requisite for obtaining a copy of the decree, sentence or order appealed from or sought to be revised or reviewed is to be excluded. (iii) where a decree or order is appealed from or sought to be revised or reviewed, or where an application is made for leave to appeal from a decree or order, the time requisite for obtaining a copy of the judgment on which the decree or order is founded is also to be excluded. (iv) in computing the period of limitation for an application to set aside an award, the time requisite for obtaining a copy of the award is to be excluded. Any time taken by the court to prepare the decree or order before an application for a copy thereof is not to be excluded in computing the time requisite for obtaining a copy of a decree or an order. 3. Can a process not resulting into any new commodity amount to manufacture? Discuss. Manufacture as defined by various Courts is a process which results into a new and different article having a distinctive name, character and use. However, the central excise law also has a concept of deemed manufacture by virtue of which the processes which are not manufacture per se are deemed to be manufacture. As per section 2(f) of the Central Excise Act, 1944 ʺmanufactureʺ includes any process (i) incidental or ancillary to the completion of a manufactured product; and (ii) which is specified in relation to any goods in the Section or Chapter Notes of the First Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture, or (iii) which, in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or re Iabelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer, and the word ʺmanufacturerʺ shall be construed accordingly and shall include not only a person who employs hired labour in the production or manufacture of excisable goods, but also any person who engages in their production or manufacture on his own account. 10

The processes that qualify to be manufacture as per clause (ii) and (iii) of section 2(f) are termed as deemed manufacture. Thus, if any process which is specified in the Section or Chapter Notes of the First Schedule to the Central Excise Tariff Act, 1985 as amounting to manufacture is carried out, goods will be deemed as manufactured. For instance, Note 2 of Chapter 9 provides that in case of tea, or tea waste, blending, sorting, packing or re packing into smaller containers shall amount to manufacture. Similarly, if any of specified processes (like re packing, relabelling, alteration of retail sale price etc.) is being carried out on goods covered in Third Schedule to the Central Excise Act, 1944, the process will be deemed to be as that of manufacture. 4. Discuss the concept of redemption fine as imposed under section 125 of the Customs Act, 1962 in lieu of confiscation. Section 125 of the Custom Act, 1962 provides that whenever confiscation of goods is ordered, the adjudicating officer may give an option to the owner of the goods to pay fine in lieu of confiscation, if the importation or exportation of goods was prohibited under the Act or any other law for the time being in force. This is called redemption fine. However, if importation or exportation of goods was not prohibited, the option to pay redemption fine shall be given to owner of the goods. After payment of redemption fine, the goods are returned to the owner of goods. 5. Can a Central Excise Officer question the valuation of a taxable service? Explain. As per Rule 4 of Service Tax (Determination of Value) Rules 2006, the Central Excise Officer can question the valuation of a taxable service if he is satisfied that the value has not been determined in accordance with the provisions of this Act or the Rules. The Central Excise Officer can issue a Show Cause Notice to the assessee to show cause as to why the value should not be as per amount stated in such notice. The assessee is to be given reasonable opportunity of being heard before the Officer can proceed with the task of determining the value in accordance with the provisions of the Act and the Rules. 11

6. Explain briefly the provisions of the exemption scheme available to small service providers. As per the exemption scheme (hereinafter referred to as the ʹsaid exemptionʹ) for small service providers, where the aggregate value of taxable services provided does not exceed Rs. 10 lakhs in the previous financial year, the concerned service provider would not be required to pay service tax upto receipts of Rs. 10 lakhs in the current financial year. With effect from 1st April, 2012, service provider is not required to pay service tax up to invoices raised up to Rs.10 lakh as against the earlier provision of receipts up to Rs. 10 lakhs. The service provider should however satisfy certain conditions in order to avail the benefit of this exemption. The main conditions are (i) (ii) (iii) (iv) (v) Taxable services provided by a person under a brand name or a trade name (whether registered or not) of another person are not eligible for this exemption. Once an option is exercised in regard to this exemption during a financial year, it cannot be changed in the same financial year. No CENVAT credit can be availed on inputs or input services or capital goods used in providing such output service for which exemption is being claimed. The exemption applies in respect of the aggregate value of all taxable services provided by the service provider (even if from more than one premises) and not individually. Exempted services are outside the purview of the exemption of this notification. 7. List the contents of a valid service tax invoice. A service tax invoice should be serially numbered and contain the following information: The name, address and registration number of the service provider. The name and address of the service receiver Date of raising of invoice Details of the customer s/client s work order/purchase order Description, classification and value of taxable service provided. 12

The amount of service tax, education cess and secondary and higher education cess charged on such service tax Breakup of the amount charged towards the service / goods. Details as to exemption being claimed with reference to the concerned notification 8. A service provider has collected Rs.5,000 as service tax from one of his clients even though the actual service tax liability computed as per the provisions of service tax law is only Rs.4,000. Examine the situation and offer your comments if such person deposits only Rs.4,000 to the Government. Section 73A of the Finance Act, 1994 provides that any amount collected by a person as service tax from any person, if it was not permissible in terms of service tax law, is required to be deposited with the Central government. In other words, no amount collected as service tax shall be retained by the person who has collected such amount. Any delay in depositing such amount will attract simple interest @ 18% from the first day of the month succeeding the month in which the amount was due for payment till the sate of payment of such amount. In the event of non payment of tax collected as explained above, the Central Excise Officer will serve a show cause notice on the person liable to pay such amount mentioned in the show cause notice. The Central Excise Officer, after considering any representation made, will determine the amount due from such person which shall be paid by such person. Such excess amount paid to the Central Government will be adjusted against the service tax payable by the person on finalization of assessment. If any surplus is left after adjustment, such amount will either be credited to Consumer Welfare Fund or refunded to the person who has borne the incidence of such amount. A refund claim can be filed within six months from the date of notice to be issued by the Central Excise Officer for the refund of such surplus amount. 9. Discuss the role/roles that a chartered accountant will have to play during the GST regime. The Chartered Accountants will have to play a vital role during the GST regime on account of the following reasons 13

(i) whole system of GST will largely depend on information technology and without professional assistance, complying with the procedural aspects of GST will not be possible. (ii) number of registered dealers will increase manifold under GST regime. (iii) audit provisions are also expected to be part of GST regime. (iv) preparation of returns will also require professional services Hence, GST regime will certainly enhance the professional opportunities for CAs. Maintenance of GST records, tax planning, departmental audit, external audit of GST records, systems audit, certification of tax audits and further assisting the Central and State Government in implementation of GST will be the few among the many new fields having immense professional opportunities for Chartered Accountants. The Chartered Accountants will be able to cope up with the new challenges on account of their strong knowledge base in the area of law, taxation and accounting. 10. With reference to the provisions of Foreign Trade Policy, write a short note on inter unit transfer in case of EOU/EHTP/STP/BTP. Inter unit transfer between one EOU/EHTP/STP/BTP unit to another EOU/EHTP/STP/BTP Transfer of manufactured goods from one EOU/EHTP/STP/BTP unit to another EOU/EHTP/STP/BTP unit is allowed with prior intimation to concerned DC and Customs authorities, following procedure of in bond movement of goods. Transfer of manufactured goods shall also be allowed from EOU/EHTP/STP/BTP unit to a SEZ developer or unit following procedure prescribed in SEZ Rules, 2006. Capital goods may be transferred or given on loan to other EOU/EHTP/STP/BTP/SEZ units, with prior intimation to concerned DC and Customs authorities. Goods supplied by one unit of EOU/EHTP/STP/BTP to another unit shall be treated as imported goods for second unit for payment of duty, on DTA sale by second unit. 14