Roll No - students of ca and cs

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Roll No. ……………………. Total No. of Questions - 7. Total No. of Printed Pages - 29. Time Allowed – 3 .....
Roll No. ……………………. Total No. of Questions - 7

Total No. of Printed Pages - 29

Time Allowed – 3 Hours

Maximum Marks – 100

SOLUTION MKG Answers to questions are to be given only in English except in the case of candidates who have opted for Hindi medium. If a candidate who has not opted for Hindi medium, answers in Hindi, his answers in Hindi will not be valued. Question No.1 is compulsory Attempt any five questions from the remaining six questions. Wherever required, suitable assumptions may be made by the candidate. Working notes should form part of the answer. Question 1(a): Marks 4 Euro Bank Ltd. furnishes the following information relating to services provided and the gross amount received (excluding service tax): Particulars Interest on overdraft Interest on loans with a collateral security Interest on corporate deposits Administrative charges (over and above interest) on loans, advances and deposits

Amount (`) 5,00,000 6,00,000 10,00,000 6,00,000

Sale of foreign exchange to general public

15,00,000*

Service charges relating to issuance of Certificates of Deposit (CDs)

20,00,000

Compute the value of taxable service and the service tax liability of Euro Bank Ltd. considering the rate of service tax at 12% assuming that it is not eligible for small service providers’ exemption under Notification No. 33/2012 – ST dated 20.06.2012. Service tax has been charged separately, wherever applicable.

2 *It represents the value of taxable service computed as per rule 2B of the Service Tax Valuation Rules. Solution: Computation of value of taxable service and service tax liability of Euro Bank Ltd. Particulars Amount (`) Interest on overdraft (Note-1) Nil Interest on loans with a collateral security (Note-1)

Nil

Interest on corporate deposits (Note-1)

Nil

Administrative charges (over and above interest) on loans, advances and deposits (Note-2)

6,00,000

Sale of foreign exchange to general public (Note-3)

15,00,000

Service charges relating to issuance of CD (Note-4) Value of taxable service Service tax @ 12% [`41,00,000×12%] Education cess @ 2% [` 4,92,000×2%] Secondary and higher education cess @ 1% [` 4,92,000×1%] Service tax liability

20,00,000 41,00,000 4,92,000 9,840 4,920 5,06,760

Notes: 1. Following services provided are included in the negative list so far as the consideration is represented by way of interest and hence are not taxable:• Overdraft facility. • Loans with a collateral security. • Corporate deposits. 2. Administrative charges or amounts collected over and above the interest or discount amounts would not be part of the negative list and thus would represent taxable consideration. 3. Services by way of sale of foreign exchange between banks or by banks to authorized dealers of foreign exchange is included in the negative list. However, services provided by banks by way of sale of foreign exchange to general public is not so covered and hence taxable. 4. Since CDs are in the nature of promissory notes, transactions in CDs shall be considered as transaction in money. However, a related activity, for which a separate consideration is charged would not be treated as a transaction of money and would be taxable. Hence, service charges relating to issuance of CDs shall be chargeable to service tax. Question 1(b): Marks 4 The following particulars are provided by Mr. Maanu of Jaipur who is engaged in the manufacture of ABS pipes and PVC Pipes. He has purchased raw materials for manufacturing the same from Mr. Anki. The State VAT rate for raw materials and other materials was 12.5%.

1. 2.

Particulars Cost of raw materials purchased VAT paid by Mr. Anki

` 2,00,000 25,000

3 3.

4. 5. 6. 7.

Cost of other materials: Local Interstate purchases VAT paid on local materials purchased - 12.5% CST paid @ 2% Manufacturing expenses Profit margin (on sale value)

40,000 80,000 5,000 1,600 38,400 20%

Mr. Maanu utilized the raw materials and manufactured 75% of production as ABS pipes and 25% of production as PVC pipes. While ABS pipes are subject to 12.5% VAT, PVC pipes are exempt from VAT. All materials were used in the production and there was no closing stock of raw materials and other materials. What would be the invoice value of sales charged by Mr. Maanu if all the manufactured goods were sold within the State? What would be his VAT liability? Solution: Computation of invoice value of sales charged by Mr. Maanu Particulars ABS pipes (12.5% VAT) (`) (75%) Cost of raw materials purchased 1,50,000 VAT paid NIL (refer Note 2) Cost of other materials local 30,000 VAT paid NIL (refer Note 2) Interstate purchases 60,000 CST paid (Refer Note 4) 1,200 Manufacturing expenses 28,800 Cost of goods sold 2,70,000 Add: Profit is 20% on sales (i.e., 25% of cost) 67,500 Sale price 3,37,500 Add: VAT payable (rounded off to nearest rupee) 42,188 Invoice value 3,79,688 Computation of VAT liability for ABS pipes Particulars Output VAT Less: Input VAT = [(25,000 × 75%)+(5,000×75%)] refer Note 5 Net VAT liability

PVC Pipes (exempt) (`) (25%) 50,000 6,250 (refer Note 3) 10,000 1,250 (refer Note 3) 20,000 400 9,600 97,500 24,375 1,21,875 NIL 1,21,875

(`) 42,188 22,500 19,688

Notes:1. All the expenses have been apportioned in the ratio of 3:1 on pro-rata basis as 75% of production has been utilized and manufactured as ABS pipes and 25% of production as PVC pipes. 2. Since ABS pipes are taxable goods, VAT paid on raw materials is allowed as input tax credit and thus, the same will not form part of total cost. 3. Since PVC pipes are exempt goods, VAT paid on raw materials will not be allowed as input tax credit and thus, the same will form part of total cost.

4 4. Input tax credit is not available on CST. Therefore it will form part of total cost. 5. Input tax credit to the extent (75%) used in the production of taxable ABS pipes is allowed Question 1(c) Marks 4 Balwantpur Post Office provided the following services to persons other than Government during the quarter ended 30.06.2013:Services rendered Postal services Transfer of money through money orders Operation of saving accounts Postal life insurance services Distribution of passport applications Issuance of postal orders Collection of telephone and electricity bills Pension payment services Speed post services Express parcel post services

Amount (`) 2,25,000 4,75,000 1,30,000 1,50,000 4,50,000 4,40,000 2,00,000 69,000 6,00,000 3,00,000

Compute the service tax liability of Balwantpur Post Office for the quarter ended 30.06.2013. Notes: 1. Point of taxation for all the aforesaid cases fall during the quarter ended 30.06.2013. 2. All the service charges stated above are exclusive of service tax. 3. Small service providers’ exemption need not be taken into account while solving the aforesaid Problem. Solution: Services provided by the Government or a local authority are not chargeable to service tax as they are included in the negative list. However, following services provided to a person other than Government, by the Department of Posts are excluded from the negative list:(i) Speed post (ii) Express parcel post (iii) Postal Life Insurance (iii) Agency services which include distribution of passport applications, collection of telephone and electricity bills, etc. Hence, the aforesaid services are taxable. Thus, the amount of service tax payable by Balwantpur Post Office for the quarter ended 30.06.2013 would be as follows:Particulars Postal services Transfer of money through money orders Operation of saving accounts Postal life insurance services Distribution of passport applications Issuance of postal orders

Amount (`) Nil Nil Nil 1,50,000 4,50,000 Nil

5 Collection of telephone and electricity bills Pension payments Speed post services Express parcel post Value of taxable service Service tax @ 12% [17,00,000×12%] Education cess @ 2% [2,04,000×2%] Secondary and higher education cess @ 1% [2,04,000×1%] Service tax liability

2,00,000 Nil 6,00,000 3,00,000 17,00,000 2,04,000 4,080 2,040 2,10,120

Question 1(d) Marks 4 Lite Footwear is a leading manufacturer of shoes. Legal Metrology Act, 2009 requires declaration of retail sale price on the package of shoes and shoes are also notified under section 4A of Central Excise Act, 1944 (RSP based valuation provisions). Following information has been furnished by Lite Footwear: Abatement available on shoes 40% of retail sale price MRP marked on the package `4,000 per pair of shoes Price at which Lite Footwear sells the shoes to their wholesalers `3,000 per pair of shoes Price at which wholesalers sell the shoes to retail shop owners `3,500 per pair Price at which shoes are sold by retailers to final consumers `3,900 (`100 offered as discount on printed retail sale price Excise duty 12% Education cess 2% Secondary and Higher Education Cess 1% Calculate excise duty payable on a pair of shoes. Solution: Since Legal Metrology Act, 2009 requires declaration of retail sale price on the package of shoes and shoes are also notified under section 4A of Central Excise Act, 1944 (RSP based valuation provisions), excise duty will be payable on the basis of RSP less abatement. Particulars ` MRP marked on the package of a pair of shoes 4,000 Less: Abatement @ 40% of RSP [40% of `4,000] 1600 Value for purpose of excise duty 2,400 Excise duty @ 12% [12% of `2,400] 288 Education cess @ 2% [2% of ` 288] 5.76 Secondary and Higher Education Cess @ 1% [1% of `288] 2.88 Total excise duty payable (rounded off) 297 Question 1(e) Marks 4 Compute the duty payable under the Customs Act, 1962 for an imported equipment based on the following information: (i) Assessable value of the imported equipment US $ 10,100 (ii) Date of bill of entry is 25.4.2013. Basic customs duty on this date is 10% and exchange rate notified by the Central Board of Excise and Customs is US $ 1 = ` 65. (iii) Date of entry inwards is 21.4.2013. Basic customs duty on this date is 20% and exchange rate notified by the Central Board of Excise and Customs is US $ 1 = ` 60.

6 (iv) Additional duty payable under section 3(1) of the Customs Tariff Act, 1975: 12% (v) Additional duty under section 3(5) of the Customs Tariff Act, 1975: 4%. (vi) Educational cess @ 2% and secondary and higher educational cess @ 1%. Make suitable assumptions where required and show the relevant workings and round off your answer to the nearest rupee. Solution: Computation of custom duty payable Particulars Assessable value (10,100 x 65) Add: Basic custom duty @ 10% Total Add : CVD @ 12% Total Add : Education Cesses (65,650+86,658) x 3% Total Additional duty u/s 3(5) @ 4% Total custom duty payable (65,650+86,658+4,569.24+32,535.09) custom duty payable (rounded off to nearest rupee)

` 6,56,500 65,650 7,22,150 86,658 8,08,808 4,569.24 8,13,377.24 32,535.09 1,89,412.33 1,89,412

1. Rate of exchange notified by CBEC as prevalent on the date of filing of bill of entry would be the applicable rate [Proviso to section 14(1) of Customs Act,1962] 2. Rate of duty would be the rate as prevalent on the date of filing of bill of entry or entry inwards whichever is later. [Proviso to section 15 of the Customs Act, 1962]. Question 2(a) Marks 4 Tarun Enterprises, a dealer in Rajasthan dealing in consumer goods, submits the following information pertaining to the month of December, 2013: (i) Exempt goods 'X' purchased for ` 1,75,000 and sold for ` 3,50,000. (ii) Goods 'Y' purchased for ` 2,25,000 (including VAT) and sold at a margin of 20% profit on purchases (VAT rate for purchases and sales is 12.5%) (iii) Goods 'Z' purchased for ` 2,00,000 (excluding VAT) and sold for ` 2,50,000 (VAT rate for purchases and sales is 4%); (iv) His unutilized balance of input VAT credit on 1.12.2013 was ` 3,000. Compute the turnover, Input VAT, Output VAT and Net VAT payable by Tarun Enterprises. Solution: Goods

Purchases

[A] ` X 1,75,000 Y (See Note) 2,00,000 Z 2,00,000 Total 5,75,000

Input VAT rate [B] % 12.5 4

Input VAT credit [C] = [A] x [B] ` 25,000 8,000 33,000

Sales Output (Turnover) VAT rate [D] [E] ` % 3,50,000 2,40,000 12.5 2,50,000 4 8,40,000

Output VAT [F] = [D] x [E] ` 30,000 10,000 40,000

7 Computation of Net VAT payable by Tarun Enterprises ` 3,000 33,000 36,000 40,000 4,000

Opening balance of input VAT credit Add: Input VAT credit for December, 2013 [C] Total Input VAT credit available Less: Output VAT payable on taxable turnover [F] Net VAT payable Note:

` 2,25,000

Purchase value of goods ‘Y’ (including VAT) 12.5   Less: VAT included in above  2,25,000   112.5   Purchase price excluding VAT .

25,000 2,00,000

Question 2(b) (i) State the due dates for Payment of excise duty? (ii) State the due dates for Filing of Excise Returns? Solution: Type of Assessee

Periodicity

Assessee eligible for SSI exemption (An eligible unit is one whose aggregate value of clearances does not exceed ` 400 lakh in the preceding financial year) Other assessees

Marks 4

Due date for payment of duty In case of eOther than epayment payment Quarterly 6th day of the month 5th day of the month payment of duty following the relevant following the relevant quarter. quarter. For goods removed during the quarter ending in March, 31st day of March. Monthly 6th day of the month 5th day of the month payment of duty following the relevant following the relevant month. month. For goods removed during the month of March, 31st day of March.

Solution: A central excise assessee is required to file certain periodic returns, which relate to his tax liability and other transactions. Some significant returns to be filed by different categories of central excise assessees and their respective due dates are given in the following table: Form of Return ER-1

Category of assessee All assessees except SSI

Periodicity Monthly

Due date By 10th day of the month following the relevant month

8 Assessees eligible for SSI concession Quarterly (even if he does not avail the concession)

By 10th day of the month following the relevant quarter

Assessees paying duty of ` 1 crore or Annually ER-4 [Annual Financial more per annum either through PLA or CENVAT or both together Information Statement]

By 30th November of the succeeding year

ER-3

Note: All the above returns have to be filed electronically Question 2(c)

Marks 4

‘Rock Farmer Association’ is engaged in providing services relating to agriculture. It furnishes the following details with respect to the activities undertaken by them in the month of May, 2013: Sl. No. (i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x)

Particulars Cultivation of ornamental flowers Packing of tomato ketchup Warehousing of potato chips Sale of tea on commission basis Packaging of pulses in retail packs Training of farmers on use of scientific tools and agro machinery leasing of vacant land to a stud farm Grading of wheat according to its quality Testing of samples from plants for pest detection Rearing of silk worms

Amount (`) (exclusive of service tax) 42,000 54,000 1,65,000 68,000 42,000 10,000 1,63,000 42,000 1,21,500 83,500

Compute the service tax liability of ‘Rock Farmer Association’ for the month of May, 2013. Assume that the point of taxation in respect of all the activities mentioned above falls in the month of May, 2013 itself. ‘Rock Farmer Association’ has paid service tax of ` 7,14,000 during the Financial Year 2012-13. Solution: Computation of service tax payable by Rock Farmer Association for May, 2013 Sl. No. Particulars (i) Cultivation of ornamental flowers [Note 1] (ii) Packing of tomato ketchup [Note 3] (iii) Warehousing of potato chips [Note 3] (iv) Sale of tea on commission basis [Note 1] (v) Packaging of pulses in retail packs [Note 3] (vi) Training of farmers on use of scientific tools and agro machinery [Note 1] (vii) leasing of vacant land to a stud farm [Note 2] (viii) Grading of wheat according to its quality [Note 3] (ix) Testing of samples from plants for pest detection [Note 1] (x) Rearing of silk worms[Note 1] Total Service tax @ 12.36% (rounded off)

Amount (`) 54,000 1,65,000 42,000 1,63,000 Nil 4,24,000 52,406

9 Notes: (1) Clause (d) of negative list of services [section 66D] covers ‘services relating to agriculture or agricultural produce by way of inter alia – (i) services provided by a commission agent for sale or purchase of agricultural produce (ii) agricultural extension services. Agriculture extension means application of scientific research and knowledge to agricultural practices through farmer education or training. (iii) agricultural operations directly related to production of any agricultural produce including testing. Since testing is included in the negative list, hence testing of samples from plants for pest detection is not taxable. (2) Services relating to agriculture or agricultural produce by way of renting or leasing of vacant land are covered under clause (d) of section 66D. Agriculture means the cultivation of plants and rearing of all life-forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products. Thus, renting of vacant land to a stud farm will be outside the purview of negative list (3) Loading, unloading, packing, storage or warehousing of agricultural produce is covered under clause (d) of Section 66D. However, agricultural produce means any produce of agriculture on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market. Thus, warehousing of potato chips and Packing of tomato ketchup will be taxable as potato chips and tomato ketchup is not an agricultural produce. Packaging of pulses in retail packs would be taxable as only such processes are covered in the negative list which makes agricultural produce marketable in the primary market. (4) As Rock Farmer Association has paid service tax of ` 7,14,000 during the FY 2012- 13, it is not eligible to small service providers exemption provided under Notification No. 33/2012 ST dated 20.06.2012 in the FY 2013-14 Question 2(d) Answer the following with reference to CENVAT Credit Rules, 2004:

Marks 4

(a) ‘A’ manufactures a certain final product in which petrol is used among other inputs. Can he avail CENVAT credit on petrol? (b) ‘B’ is an outdoor caterer. He has purchased a lorry for carrying utensils, tables, groceries, vegetables etc. to the place of service. The lorry is registered in the name of ‘B’. Can ‘B’ avail credit of the excise duty paid by him on the purchase of the lorry? (c) Can a manufacturer located in Jammu utilize the credit of service tax availed on input services received in New Delhi for payment of excise duty on his final products cleared in Jammu? (d) Inputs are received in the factory of the manufacturer on 10.11.2013 but are issued for the production process on 10.12.2013. When should the manufacturer avail credit? Solution: (a) No. Petrol (motor spirit) is specifically excluded from the list of eligible inputs under rule 2(k). (b) Yes. As per rule 2(a)(B)(ii), motor vehicle designed for transportation of goods including their chassis registered in the name of the service provider, when used for transportation of inputs and capital goods used for providing an output service are treated as capital goods.

10

(c) No. CENVAT Credit Rules, 2004 in relation to availment and utilization of service tax credit are not applicable in the State of Jammu and Kashmir, as service tax law does not apply in Jammu and Kashmir. (d) Credit can be availed on 10.11.2013 immediately on receipt of the inputs in the factory of the manufacturer [Rule 4(1)]. Question 3(a) Marks 5 Mr. X is registered in Central Excise/Delhi VAT/CST and he is a manufacturer and he has purchased raw material R1 for `2,50,000 and has paid excise duty @ 7% plus education cess and secondary and higher education cess and Delhi VAT @ 10%. He purchased raw material R2 for `3,20,000 and paid excise duty @ 5% plus education cess and secondary and higher education cess and central sales tax @ 2% and raw material was purchased from other state. He has purchased raw material R3 for `5,50,000 and has paid excise duty @ 7% plus education cess and secondary and higher education cess and Delhi VAT @ 10%. Processing charges `4,00,000 plus profit `70,000. The manufacturer has taken input services in connection with manufacturing of the product and has paid `5,00,000 plus service tax of `60,000 plus education cess. Final product was sold and excise duty is 18% plus education cess and Delhi VAT @ 10%. Show the working for VAT/Cenvat credit and also Compute Net VAT/CENVAT payable. `

Solution: Raw material – R1 Assessable value Excise duty @ 7% EC @ 2% SHEC @ 1% Total Delhi VAT @ 10% - Input Tax Purchase Price

2,50,000 17,500 350 175 2,68,025 26,803 2,94,828

Raw material – R2 Assessable value Excise duty @ 5% EC @ 2% SHEC @ 1% Total Central Sales tax @ 2% - Input Tax Purchase Price

3,20,000 16,000 320 160 3,36,480 6,730 3,43,210

Raw material – R3 Assessable value Excise duty @ 7% EC @ 2%

5,50,000 38,500 770

11 SHEC @ 1% Total Delhi VAT @ 10% - Input Tax Purchase Price

385 5,89,655 58,966 6,48,621

Cost of Final Product Raw material - R1 Raw material - R2 (Purchase Price minus Excise Duty including EC & SHEC) Raw material - R3 Processing charges Payment for services Profit Assessable value (as per section 4 of Central Excise Act, 1944) Excise duty @ 18% EC @ 2% SHEC @ 1% Total Delhi VAT @ 10% - Output Tax Selling Price

(Invoice 1) Raw material – R1 (Invoice 2) Raw material – R2 (Invoice 3) Raw material – R3 Service tax Total Final product Output tax Less: VAT/CENVAT Credit Net tax payable

CENVAT /VAT ACCOUNT Excise Duty / Service Tax EC @ 2% ` ` 17,500.00 350.00 16,000.00 320.00 38,500.00 770.00 60,000.00 1,200.00 1,32,000.00 2,640.00 3,77,411.00 (1,32,000.00) 2,45,411.00

7,548.00 (2,640.00) 4,908.00

2,50,000 3,26,730 5,50,000 4,00,000 5,00,000 70,000 20,96,730 3,77,411 7,548 3,774 24,85,463 2,48,546 27,34,009

SHEC @ 1% ` 175.00 160.00 385.00 600.00 1,320.00

Delhi VAT ` 26,803.00 58,966.00

3,774.00 (1,320.00) 2,454.00

2,48,546.00 (85,769.00) 1,62,777.00

85,769.00

Question 3(b) Marks 3 XYZ Co. is engaged in the manufacture of water pipes. From the following details for the month of May, 2013, Compute the CENVAT credit admissible to XYZ Co. under the CENVAT Credit Rules, 2004: Duties (including the education cesses) paid on purchases are detailed below: Particulars Raw steel Water pipe making machine Spare parts for the above machine Grease and oil Office equipment Light Diesel Oil XYZ Co. is not eligible for SSI exemption. Provide explanation for treatment of various items.

Amount (`) 22,000 18,000 7,500 2,800 20,000 12,000

12 Solution: Computation of CENVAT credit available in the month of May, 2013 Particulars Raw Steel Water pipe making machine (` 18,000 × 50%) (Note-1) Grease and Oil Spare parts for the machinery (` 7,500 × 50%) (Note-1) CENVAT credit admissible

Amount (`) 22,000 9,000 2,800 3,750 37,550

Notes : In respect of:1. Water pipe making machine and spare parts, being capital goods, only 50% of CENVAT credit is available [Rule 4(2)(a) of the CENVAT Credit Rules, 2004]. 2. No credit is available on office equipment since the definition of capital goods under rule 2(a) of the CENVAT Credit Rules, 2004 specifically excludes any equipment/ appliance used in an office. 3. No credit is available on light diesel oil since the definition of input under rule 2(k) of the CENVAT Credit Rules, 2004 specifically excludes the same Question 3(c)

Marks 4

From the following details, compute the central sales-tax payable by a dealer carrying on business in New Delhi:

` Total turnover for the year which included

22,00,000

(i) Trade commission for which credit notes have to be issued separately (ii) Installation charges

38,000 12,000

(iii) Excise duty

75,000

(iv) Freight, insurance and transport charges recovered separately in the invoice (v) Goods returned by dealers within six months of sale, but after the end of the financial year (vi) Central Sales tax Buyers have issued ‘C’ forms for all purchases

21,000 41,000

Solution: ` Gross turnover Less :Trade commission

38,000

Installation charges

12,000

Freight, transport charges

21,000

Goods returned within 6 months Turnover including CST Central sales tax @ 2% `20,88,000 х 2 / 102 (rounded off)

41,000

Turnover

22,00,000

1,12,000 20,88,000 40,941 20,47,059

13 Question 3(d) Marks 4 With reference to the provisions of Finance Act, 1994, examine the validity of ANY FOUR from the following statements: (i) Health care services provided by a Municipality owned hospital are not covered under negative list of services. (ii) Postal services provided by Department of Posts to various State Governments are liable to service tax. (iii) Services provided to and by Reserve Bank of India are covered in negative list of services. (iv) Pisciculture (breeding of fish) is not liable to service tax as the same is covered under negative list of services. (v) Entry to a ‘Nukkad Natak’ is not covered in negative list as the performance is not held in a theatre. Solution: (i) Invalid. Services provided by Government and local authorities are covered in negative list of services with a few exceptions. Health care services are not covered in such exceptions and Municipality is a local authority. (ii) Invalid. Services provided by Government and local authorities are covered in negative list of services with a few exceptions. Services by Department of Posts provided to a person other than Government is one of such exceptions. Thus, Postal services provided to various State Governments will be covered in negative list of services and hence, would not be liable to service tax. (iii) Invalid. Only services provided by Reserve bank of India, and not to Reserve Bank of India are covered in negative list of services. (iv) Valid. Services relating to agriculture are covered in negative list of services. Agriculture means the cultivation of plants and rearing of all life-forms of animals, except the rearing of horses, for food, fibre, fuel, raw material or other similar products. Therefore, breeding of fish, being agriculture, would be covered under negative list of services and thus, be not liable to service tax. (v) Invalid. Entry to entertainment event is included in negative list of services. Entertainment event means an event or a performance which is intended to provide recreation, pastime, fun or enjoyment, by way of inter alia theatrical performances. Any cultural programme held in an open area and not in a theatre qualifies as an entertainment event as the words used in the definition are ‘theatrical performances’ and not ‘performances in theatres’. A ‘Nukkad Natak’ preformed in the open does not cease to be a theatrical performance provided it is performed in the manner it is performed in a theatre, i.e. before an audience. Question 4(a) Marks 4 State whether the following statements are true or false giving reasons to substantiate your answer: (i) The rate of service tax shall be rate in force on the date of receipt of payment for the taxable services. (ii) Services provided to RBI are not chargeable to service tax.

14 (iii) Provision of service by an employee to the employer in the course of employment is outside the ambit of service tax. (iv) Auxiliary services used for gambling events are not liable to service tax. Solution: (i) The statement is false. As per section 67A of the Finance Act, 1994 the rate of service tax will be the rate in force at the time when the taxable service has been provided or agreed to be provided. (ii) The statement is false. Services provided to RBI are chargeable to service tax as they are neither included in the negative list of services nor covered in any of the exemptions. (iii) The statement is true. Provision of service by an employee to the employer in the course of employment is outside the ambit of service tax because it has been specifically excluded from the definition of service. Hence, service tax cannot be levied on it. (iv) The statement is false. Negative list of services, inter alia, includes services of gambling. However, auxiliary services used for gambling events are not covered in the negative list of services. Hence, they are liable to service tax. Question 4(b) Marks 4 A dealer purchased 16,500 kgs of inputs on which VAT paid @ 4% was `6,000. He manufactured 15,000 Kgs of finished products from the inputs. 1,500 Kgs was the process loss. The final product was sold at a price of `10 per Kg, as follows: - Goods sold within State – 6,000 Kgs. - Finished products sold in inter-state sale against C form – 3,750 Kgs. - Goods sent on stock transfer to consignment agents outside the state – 3,000 Kgs. Goods sold to Government department outside the state – 2,250 Kgs. There was no opening or closing stock of inputs, WIP or finished product. The State VAT rate on the finished product of dealer is 12.5%. Discuss tax treatment and Compute VAT Payable. Solution: CST against C form is 2%. Sale to Government will be treated as sale to unregistered dealer and tax payable is 12.5%. Thus, the tax payable would be as followsOutput tax shall be as given below:

Description

Sale within State @ 12.5% Goods sent on stock transfer

Quantity sold Kg 6,000 3,000

Value of goods sold ` 60,000 30,000

CST payable `

State VAT payable ` 7,500

15 Goods sold against C form, tax rate 2% Goods sold to Government, tax rate 12.5% Total

3,750 2,250 15,000

37,500 22,500 1,50,000

750 2,813 3,563

7,500

Input tax credit shall be = 6,000 – 600* = 5,400 ` 7,500 5,400 2,100 3,563 5,663

(i) State VAT Less: VAT credit Net State VAT payable CST payable Total tax payable

Question 4(c) Marks 4 (i) Net value of clearances (excluding taxes and duties) of Gopal Manufacturers was `345 lakh during the year 2012-13. During the year 2013-14, their net value of clearances (excluding taxes and duties) was `365 lakh. Calculate excise duty payable by Gopal Manufacturers during 2013-14, if excise duty rate is 12.36%. (ii) Determine the excise duty payable in the following cases:Goods A B

Qty. (kg) 1,000 100

Value of goods (`) 20,00,000 10,00,000

Rate of duty ` 20 per kg 12%

Education cesses @ 3% are leviable separately. Solution: Units having turnover upto `400 lakh in the previous financial year and manufacturing goods specified in the SSI exemption notification are eligible for exemption from duty up to turnover of `150 lakh in the current financial year. Therefore, in the give case Gopal Manufacturers can avail SSI exemption of `150 lakh in 2013-14 as their turnover during 2012-13 was less than `400 lakh. It is presumed that goods manufactured by them are specified under SSI exemption notification. Hence, they have to pay excise duty @ 12.36% on balance value i.e. on `215 lakhs (`365 –`150). Thus, duty payable will be `26,57,400. Solution: Computation of excise duty payable Goods A: Since rate of duty is per kg, value of such goods is not relevant. Excise duty payable will be computed on the basis of the quantity of the goods produced. Therefore, excise duty payable will be: 1,000 kg x ` 20 per kg = ` 20,000 Add: 3% education cesses = ` 600 Total excise duty payable = ` 20,600

16 Goods B: Since, in this case the rate of duty is a percentage of the value of excisable goods, the quantity of the goods produced is not relevant. Excise duty payable will be computed on the basis of the value of the goods. Therefore, excise duty payable will be: ` 10,00,000 x 12% = ` 1,20,000 Add: 3% education cesses = ` 3,600 Total excise duty payable = ` 1,23,600 Question 4(d) Good Health Medical Centre, a clinical establishment, offers following services:

Marks 4

(i) Reiki healing treatments. Such therapy is not a recognized system of medicine in terms of section 2(h) of Clinical Establishments Act, 2010. (ii) Plastic surgeries. One such surgery was conducted to repair cleft lip of a new born baby. (iii) Air ambulance services to transport critically ill patients from distant locations to the Medical Centre. (iv) Palliative care for terminally ill patients. On request, such care is also provided to patients at their homes. (Palliative care is given to improve the quality of life of patients who have a serious or life-threatening disease but the goal of such care is not to cure the disease). (v) Alternative medical treatments by way of yoga. (vi) Good Health Medical Centre also operates a cord blood bank which provides services in relation to preservation of stem cells. Good Health Medical Centre is of the view that since it is a clinical establishment, all the service provided by it as well as all the services provided to it are exempt from payment of service tax. You are required to examine the situation in the light of relevant statutory provisions. Solution: Health care services provided by, inter alia, a clinical establishment in any recognized system of medicines in India is exempt from service tax vide Mega Exemption Notification No. 25/2012 ST dated 20.06.2012. In light of the said provision, eligibility to exemption in respect of each service offered by Good Health Medical Centre is examined below: (i) Not Exempt. Since reiki healing is not a recognized system of medicine in terms of section 2(h) of Clinical Establishments Act, 2010, it would not be exempt under mega exemption notification and thus, service tax would be payable thereon. (ii) Health care service does not include inter alia cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma. Therefore, plastic surgeries will not be entitled to the said exemption and thus, service tax would be payable thereon. However, plastic surgery conducted to repair a cleft lip will be eligible for exemption under the said notification as it reconstructs anatomy or functions of body affected due to congenital defects (cleft lip).

17 (iii) Exempt. Health care service includes services by way of transportation of the patient to and from a clinical establishment. Thus, air ambulance service to transport critically ill patients to Good Health Medical Centre would be eligible for exemption under the said notification. (iv) Exempt. Health care service means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicines in India. It is immaterial whether such service is provided at the clinical establishment or at the home of the patient or at any other place. . (v) Exempt. Since Yoga is a recognized system of medicine in terms of section 2(h) of Clinical Establishments Act, 2010, the same would be eligible for exemption under the said notification. (vi) With effect from 17.02.2014, services provided by cord blood banks by way of preservation of stem cells or any other service in relation to such preservation has been exempted by amending Mega exemption Notification No. 25/2012 ST dated 20.06.2012. Therefore, services provided in relation to preservation of stem cells by the cord blood bank operated by Good Health Medical Centre will be exempt from service tax. It is important to note that Mega Exemption Notification No. 25/2012 ST dated 20.06.2012 grants exemption to health care services provided BY a clinical establishment and not to services provided TO a clinical establishment. Therefore, Good Health Medical Centre’s contention that since it is a clinical establishment, all the services provided to it are also exempt from service tax is not correct in law. Question 5(a) Marks 4 Determine the amount of CENVAT credit available with Satnarayan Manufacturing Ltd. in respect of the following items procured by them in the month of November, 2013: Item (i) Raw materials

Excise Duty paid (including EC and SHEC) [`] 72,000

(ii) Capital goods used outside the factory for generation of electricity for captive use within the factory (iii) Goods used in the guest house primarily for personal use. (iv) Inputs used for making structures for support of capital goods

1,50,000 40,000 1,25,000

(v) Parts and components for use in the manufacture of final product

40,000

(vi) Goods for providing free warranty – The value of such free warranty provided by Satnarayan Manufacturing Ltd. is included in the price of the final product and is not charged separately from the customer.

10,000

(vii) Special purpose motor vehicle (falling under tariff heading 8705) for use in the factory of manufacturer

3,50,000

Note : The aggregate value of clearances of Satnarayan Manufacturing Ltd. for the financial year 2012-13 is ` 480 Lakhs. Solution:

18 Computation of CENVAT credit available with Satnarayan Manufacturing Ltd. in the month of November, 2013 Particulars Amount [[`] Raw materials 72,000 Capital goods used for generation of electricity for captive use within the factory [` 1,50,000×50%] [Note 1 & 2] 75,000 Goods used in the guest house primarily for personal use [Note 3] Nil Inputs used for making structures for support of capital goods [Note 3] Nil Parts and components for use in the manufacture of final product [Note 4] 40,000 Goods for providing free warranty [Note 5] 10,000 Special purpose motor vehicle (falling under tariff heading 8705) for use in the factory of manufacturer [` 3,50,000×50%] [Note 1 & 6] 1,75,000 Total CENVAT credit available 3,72,000 Notes: 1. Since its value of clearances in the financial year 2012-13 is ` 480 lakh, Satnarayan Manufacturing Ltd. is not eligible for SSI exemption in FY 2013-14. Hence, as per rule 4(2)(a) of the CENVAT Credit Rules, 2004, CENVAT credit of only upto 50% of the duty paid will be available in respect of the eligible capital goods in the year of purchase. 2. Capital goods used outside the factory for generation of electricity for captive use within the factory are capital goods eligible for CENVAT credit [Rule 2(a) of CCR, 2004]. 3. As per the definition of inputs under rule 2(k) of CCR, 2004, there is specific exclusion with regard to the following:(i) goods used in a guest house when the same are used primarily for personal use or consumption of any employee. (ii) goods used for making of structures for support of capital goods. Thus, CENVAT credit cannot be claimed in respect of the above goods. 4. Though definition of inputs under rule 2(k) specifically excludes capital goods, capital goods used as parts or components in the manufacture of a final product are included therein. Thus, CENVAT credit will be available on the same. 5. Since the value of the free warranty provided by Satnarayan Manufacturing Ltd. is included in the price of the final product and is not charged separately from the customer, the goods used for providing such free warranty will be inputs eligible for CENVAT credit [Rule 2(k) of the CCR, 2004]. 6. Capital goods as defined under rule 2(a) of the CCR, 2004 includes motor vehicles other than the ones falling under tariff headings 8702, 8703, 8704, 8711. Thus, special purpose motor vehicle falling under tariff heading 8705 will be capital goods eligible for CENVAT credit. Question 5(b) Mr. X, a first stage dealer of a machine in the State of U.P., furnishes the following data: S.No. Particulars (i)

Total inter-State sales during F.Y. 2013-14 (CST not shown separately)

(ii)

Above sales include: Dharmada Freight (`1,00,000 is not shown separately in invoices) Cost of corrugated boxes specially designed for packing of the machinery Installation and commissioning charges shown separately Design charges charged

Marks 4 ` 50,00,000

5,00,000 2,00,000 76,000 22,000 33,000

19 Determine CST payable assuming that all transactions were covered by valid ‘C’ Forms and sales tax rate within the State is 5%. Solution: Computation CST payable of Mr. X `

Particulars Total inter-state sales Less: Freight shown separately in the invoices [Note-2] Less: Installation and commissioning charges shown separately [Note-3] Turnover including CST 2 CST payable = 48,78,000  [Note-5] 102

1,00,000 22,000

` 50,00,000 1,22,000 48,78,000 95,647

Notes: 1. Dharmada and cost of packing material are includible while calculating turnover. 2. Freight charges of `1,00,000 are not deductible while calculating the turnover as they are not shown separately in invoices. Remaining amount of freight, shown separately in the invoices, is deductible. 3. Installation and commissioning charges are deductible while calculating the turnover since shown separately in the invoices. 4. Sale price includes Design charges. 5. The CST on transactions covered by valid ‘C’ Form is 2% or the sales tax rate within the State, whichever is lower. Since, in this case, the State sales-tax rate is higher than 2%, the rate of CST is taken as 2%. Question 5 (c) Marks 4 (i) Mr. Sinha has travelled by air from Delhi to Mumbai. The Airlines has charged `1,211.28 as service tax from Mr. Sinha. The Airlines does not avail CENVAT credit on inputs and capital goods used for providing the taxable service. Compute the value of taxable service provided by the airlines. (ii) Mr. Kapur has taken a package tour for Australia from Great Tours, a tour operator. Great Tours has raised a bill of `2,50,000 for the said package tour. The bill indicates that it is inclusive of service charges of Great Tours for arranging the said tour. Mr. Kapur intends to visit New Zealand after vacationing in Australia. However, he wants to explore New Zealand without any fixed itinerary and thus has asked Great Tours to arrange only for his accommodation in New Zealand. Great Tours has raised a bill of `1,00,000 for the said accommodation. The bill indicates that it includes the cost of such accommodation as well as the service charges of Great Tours for arranging the said accommodation. Great Tours does not avail CENVAT credit on inputs, capital goods and input services used for providing taxable service. Compute the total amount of service tax charged by Great Tours from Mr. Kapur.

20

Solution: (i) Notification No. 26/2012 ST dated 20.06.2012 provides that transport of passengers by air, with or without accompanied belongings is eligible for 60% abatement of the value of taxable service if CENVAT credit on inputs and capital goods, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. In other words, service tax is leviable on 40% of the value of taxable service in this case, thus making the effective rate of service tax as 4.944% [40 x 12.36%]. Since in the given case, the Airlines complies with the requisite condition for availing abatement, effective rate of service tax charged by it would be 4.944%. Thus, value of taxable service rendered by the Airlines is `24,500 [` 1,211.28 /4.944 x 100]. (ii) Notification No. 26/2012 ST dated 20.06.2012 provides that services by a tour operator in relation to a package tour is eligible for 75% abatement of the value of taxable service if(i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii) The bill issued for this purpose indicates that it is inclusive of charges for such a tour. In other words, service tax is leviable on 25% of the value of taxable service in this case, thus making the effective rate of service tax as 3.09% [25 x 12.36%]. Since in the given case, Great Tours provides a package tour and complies with the requisite conditions for availing abatement, effective rate of service tax charged by it would be 3.09%.Thus, service tax charged by Great Tours from Mr. Kapur on package tour to Australia is ` 7,725 [` 2,50,000 x 3.09%]. Further, the above-mentioned notification also provides that if the tour operator is providing services solely of arranging or booking accommodation for any person in relation to a tour, the eligible abatement is 90% of the value of taxable service if the following conditions are fulfilled: (i) CENVAT credit on inputs, capital goods and input services, used for providing the taxable service, has not been taken under the provisions of the CENVAT Credit Rules, 2004. (ii) The invoice, bill or challan issued indicates that it is towards the charges for such accommodation. Furthermore, this abatement is not available if the invoice, bill or challan issued by the tour operator, in relation to a tour, only includes the service charges for arranging or booking accommodation for any person and does not include the cost of such accommodation. In other words, service tax is leviable on 10% of the value of taxable service in this case, thus making the effective rate of service tax as 1.236% [10 x 12.36%]. Since in case of New Zealand tour, Great Tours has only booked the accommodation (not provided any other service) and also the requisite conditions for availing the abatement are fulfilled, effective rate of service tax charged by it would be 1.236%. Thus, service tax charged by Great Tours from Mr. Kapur for booking accommodation in respect of New Zealand tour is ` 1,236 [` 1,00,000 x 1.236%]. Therefore, total amount of service tax charged by Great Tours from Mr. Kapur is ` 8,961.

21 Question 5 (d) Marks 4 Dharma Manufacturers, engaged in the manufacture of machines, sold a machine to Asha Ltd. The cum-duty sale price of the machine (excluding VAT) is ` 5,80,000. Rate of excise duty is 12%, education cess is 2% and secondary and higher education cess is 1 %. Sale price includes the following charges: ` (i) Warranty charges 28,000 (ii) Secondary packing 6,000 (iii) Trade discount actually allowed from the aforesaid sale price 24,000 (iv) Design and engineering 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. 16,000 (viii) Pre-delivery inspection charges (charged by Dharma Manufacturers) 22,000 (ix) After sales service charges (charged by Dharma Manufacturers) 18,000 Determine the assessable value of the machine for purpose of central excise duty. Solution: Computation of assessable value of the machine Particulars ` ` Cum-duty sales price of the machine excluding VAT 5,80,000 Less: Trade discount [Note 3] 24,000 Cost of return fare of vehicles [Note 5] 4,500 28,500 Cum-duty price for excise duty purposes 5,51,500  5,51,500  Assessable value =  4,90,833 100   112.36  Notes: 1. As per the definition of the transaction value under section 4(3)(d) of the Central Excise Act, 1944, warranty charges are includible in the assessable value. 2. Amount charged from the buyer in relation to packing, irrespective of it being primary or secondary, is includible in the assessable value. 3. As the transaction value is the price actually paid or payable, trade discount is allowable as deduction. 4. Design and engineering charges of machine are included in the assessable value as such charges are ‘in connection with sale’. 5. Cost of return fare of vehicles is not included in the assessable value. 6. Advertisement and publicity expenses borne by the buyer are included in the assessable value. 7. Since the pre-delivery inspection charges and after sales service charges have been charged by the manufacturer, they are included in the assessable value. . Question 6(a) Marks 4 Compute the service tax liability of Mr. A, an air travel agent, for the quarter ended March 31, 2014 using the following details:Particulars Basic air fare collected for domestic booking of tickets Basic air fare collected for international booking of tickets Commission received from the airlines on the sale of domestic and international tickets

Amount (`) 50,00,000 80,00,000 5,00,000

22 In the above case, would the service tax liability of Mr. A be reduced if he opts for the special provision for payment of service tax as provided under rule 6 of the Service Tax Rules, 1994 instead of paying service tax @ 12%. Note: Mr. A is not eligible for the small service provider’s exemption under Notification No. 33/2012-ST dated 20.06.2012 and service tax has been charged separately. Solution: As per rule 6 of the Service Tax (Determination of Value) Rules, 2006, only the commission received by the air travel agent from the airline is included in the value of taxable service. The air fare collected by the air travel agent in respect of the service provided by him does not from part of the value of taxable service. Accordingly, the service tax liability of Mr. A would be computed as under: Particulars Basic air fare collected for domestic booking of tickets

` Nil

Basic air fare collected for international booking of tickets

Nil

Commission received from the airlines on the sale of domestic and international tickets Value of taxable service Service tax @ 12% [`5,00,000×12%] Education cess @ 2% [`60,000×2%] Secondary and higher education cess @ 1% [`60,000×1%] Service tax payable

5,00,000 5,00,000 60,000 1,200 600 61,800

However, if Mr. A opts for the special provision for payment of service tax as provided under rule 6 of the Service Tax Rules, 1994, service tax liability would be computed as under: Particulars 0.6% of the basic air fare collected for domestic booking of tickets [`50,00,000 × 0.6%] 1.2% of the basic air fare collected for international booking of tickets [`80,00,000× 1.2%] Service tax Add: Education cess @ 2% Add: Secondary and Higher Education cess @ 1% Service tax payable No, the service tax liability of Mr. A would not be reduced in the aforesaid option.

` 30,000

96,000 1,26,000 2,520 1,260 1,29,780

Question 6(b) Marks 4 Nitya provided interior decorator’s services in the half year ended on 30th September, 2013. The due date of filing the return for the said half year was 25th October, 2013. Compute the amount of late fee payable by her, if any, in each of the following independent cases: Date of filing of service tax return Case I 01.11.2013 Case II 22.11.2013 Case III 28.11.2013 Case IV 04.12.2013 Case V 14.12.2013 Case VI 03.05.2014

23 Case VII Case VIII

02.06.2014 22.06.2014

Solution: Rule 7C of the Service Tax Rules, 1994 provides that where service tax return is furnished after the due date, the person liable to furnish the said return shall pay to the credit of the Central Government, following amounts of late fee: S. No.

Period of delay

Late fee

(a) (b)

15 days from the date prescribed for submission of the return Beyond 15 days but not later than 30 days from the date prescribed for submission of the return Beyond 30 days from the date prescribed for submission of the return

` 500 ` 1,000

(c)

An amount of ` 1,000 plus ` 100 for every day from the 31st day till the date of furnishing the said return

However, section 70, inter alia, provides that the total late fee for delayed submission of return shall not exceed ` 20,000. In accordance with the aforesaid provisions the late fees payable by Nitya, in each of the following independent cases, will be as follows:Particulars Case I: Return has been filed with a delay of 7 days from the date prescribed for submission of return. Case II: Return has been filed with a delay of 28 days from the prescribed date. Case III: There is a delay of 34 days in filing return from the prescribed date. Case IV: There is a delay of 40 days in filing return from the prescribed date. Case V: There is a delay of 50 days in filing return from the prescribed date. Case VI: There is a delay of 190 days in filing return from the prescribed date. Case VII: There is a delay of 220 days in filing return from the prescribed date. Case VIII: There is a delay of 240 days in filing return from the prescribed date.

Amount of penalty under rule 7C `500/`1,000/= `1,000/- + (`100 × 4 days) = `1,400/= `1,000/- + (`100 × 10 days) = `2,000/= `1,000/- + (`100 × 20 days) = `3,000/= `1,000/- + (`100 × 160 days) = `17,000/= `1,000/- + (`100 × 190 days) = `20,000/Amount of penalty under rule 7C is:= `1,000/- + (`100 × 210 days) = `22,000/However, the total late fees payable shall not exceed ` 20,000. Thus, late fees payable in this case is `20,000.

Question 6(c) Marks 4 Mr. Rajesh, a registered dealer, sells his products to dealers in his State and in other States. Profit margin is 15% of cost of production and VAT rate is 12.5% of sales. Following further information is provided by Mr. Rajesh:

24 (i) Intra-State purchases of raw material `2,50,000/- (excluding VAT @ 4%) (ii) Purchases of raw materials from an unregistered dealer `80,000/-. (iii) High seas purchases of raw materials are `1,85,000/- (excluding custom duty @ 10%). (iv) Purchases of raw materials from other States (excluding CST @ 2%) `50,000/-. (v) Transportation charges, wages and other manufacturing expenses excluding tax `1,45,000/(vi) Interest paid on bank loan ` 70,000/-. Loan is taken to acquire a land for building a factory. All the afore-mentioned purchases have been sold by Mr. Rajesh. You are required to compute net tax liability and total sales value (invoice value) under value added tax. Solution: Computation of net VAT liability and total sales value Particulars Intra-State purchases of raw material (excluding VAT `10,000)

` 2,50,000

Purchases of raw materials from unregistered dealer

80,000

High seas purchases of raw materials [Refer Note 1]

2,03,500

Purchase of raw materials from other States [Refer Note 2]

51,000

Transportation charges, wages and manufacturing expenses Cost of production Add : Profit margin 15%

1,45,000 7,29,500 1,09,425 8,38,925 1,04,866 9,43,791

Add: VAT @ 12.5% Total sales value (invoice value) Computation of Net VAT liability VAT on above sales price @ 12.5% Less: Input tax credit on intra-State purchases [Refer Note 3] Net VAT payable

` 1,04,866 10,000 94,866

Notes: 1. Duty paid on high seas purchases i.e., imports is not a State VAT, so input tax credit is not available in respect of the same and it is a part of cost of production. 2. Input tax credit in respect of tax paid on inter-state purchases is not allowed. 3. Tax on intra-State purchases is `10,000. As credit of the same will be available, it is not included in the cost of production. 4. Interest on loan has been excluded for calculating the cost of production as the loan is availed for purposes other than working capital.

25

Question 6(d) Marks 4 (i) PS Ltd. has paid service tax of `90,000 during the financial year 2013-14.You are required to examine whether it is required to file service tax return electronically for the half year ended September 30, 2013. (ii)

S. Ltd. paid service tax of ` 80,000 during the preceding financial year and utilized CENVAT credit of ` 30,000. Whether he is required to deposit service tax electronically for the financial year 201314.

(iii)

Can a multiple service provider use a single challan for payment of service tax for various services rendered by it?

(iv)

Mr. Raju is a multiple service provider and files only a single return. State with reasons whether he can do so?

Solution: (i)

Service Tax Rules, 1994 have been amended to provide that every assessee will have to submit halfyearly service tax return electronically, irrespective of the amount of service tax paid by him in the preceding financial year. The amendment would be effective from October 1st, 2011. Hence, PS Ltd. has to file service tax return electronically for the half year ended September 30, 2013.

(ii) An assessee is required to deposit service tax electronically through internet banking if he has paid the total service tax of ` 1 lakh or more including the amount of service tax paid by utilization of CENVAT credit in the preceding financial year. As the total service tax paid (including CENVAT credit) by S. Ltd., in the preceding financial year is ` 1.1 lakhs on the presumption that service tax of `80,000 does not include service tax of `30,000 paid by utilizing CENVAT credit, it will be required to deposit service tax electronically for the financial year 20132014. (iii) Yes, a multiple service provider can use single GAR-7 challan for payment of service tax on different services. However, amounts attributable to each such service along with concerned accounting codes should be mentioned clearly in the column provided for this purpose in the GAR-7 challan (iv) Yes, Mr. Raju can file a single return though he is a multiple service provider. He has to furnish the details in each of the columns of the Form No.ST-3 separately for each of the taxable services rendered by him. Thus, instead of showing a lump sum figure for all the services together, service-wise details should be provided in the return. Question 7(a) Marks 4 A manufacturer has purchased raw material for `2,08,000 (inclusive of 4% VAT) and plant and machinery of `4,50,000 (inclusive of 12.5% VAT). The manufacturing and other expenses (excluding depreciation) are `6,00,000. He sells the resultant products at 50% above cost (VAT on sales is 4%).

26

The plant and machinery is to be depreciated at 50% straight line. (a) Compute the amount of VAT payable, as per the Gross Product Variant of VAT. (b) Compute VAT payable as per Income Variant of VAT. (c) Compute VAT payable as per Consumption Variant of VAT. Solution: Gross Product Variant Raw material net of VAT (2,08,000 x 100 ÷ 104) Depreciation of plant and machinery (50% of `4,50,000 – VAT credit not allowed) Manufacturing and other expenses Total cost Add: Profit 50% Sale price VAT on sales (4% of 15,37,500) Less: Input tax credit on raw material (2,08,000 x 4 ÷ 104) VAT payable Solution: Income Variant Raw material net of VAT (2,08,000 x 100 ÷ 104) Depreciation on plant and machinery (50% of `4,00,000 VAT credit allowed) Manufacturing and other expenses Total cost Add: Profit @ 50% Sale price VAT on sales (4% of 15,00,000) Less: Input tax credit as follows: Input tax credit on raw material (2,08,000 x 4 ÷ 104) Input tax credit on plant (50% of 50,000) VAT Payable

` 2,00,000 2,25,000 6,00,000 10,25,000 5,12,500 15,37,500 61,500 8,000 53,500 ` 2,00,000 2,00,000 6,00,000 10,00,000 5,00,000 15,00,000 60,000 8,000 25,000

33,000 27,000

Note: The VAT paid on plant and machinery has been allowed as credit only to the extent of depreciation i.e. 50%. The balance VAT credit of `25,000 can be set-off in subsequent year. Solution: Consumption Variant Raw material net of VAT (2,08,000 x 100 ÷ 104) Depreciation on plant and machinery (50% of `4,00,000 VAT credit is allowed) Manufacturing and other expenses Total cost Add: Profit 50% Sale price VAT on sales (4% of 15,00,000) Less: Input tax credit as follows: Input tax credit on raw material and components (2,08,000 x 4 ÷ 104) 8,000 Input tax credit on plant (100% of 50,000) 50,000

` 2,00,000 2,00,000 6,00,000 10,00,000 5,00,000 15,00,000 60,000

58,000

27 VAT Payable

2,000

Question 7(b) Marks 4 Examine the validity of the following statements:(i) The provisions of the CCR, 2004 in relation to availment and utilization of credit of service tax apply to whole of India including Jammu and Kashmir. (ii) Dumpers used in the factory of a manufacturer for carrying bulk raw material, are eligible capital goods for the purposes of claiming the CENVAT credit.

Briefly discuss, whether the following purchases are eligible for CENVAT credit as capital goods under rule 2(a) of the CCR, 2004:(iii) Cool Cab Services Ltd., engaged in providing the passenger transportation service, purchased 10 cabs (not registered in the name of Cool Cab Services Ltd.) for the purpose of providing said service. (iv) Samar Manufacturers, engaged in the manufacture of excisable goods, purchased two special purpose motor vehicles, falling under tariff heading 8705, for use in its factory. Solution: (i) The statement is not valid. The provisions of the CCR, 2004 in relation to availment and utilization of credit of service tax apply to whole of India except Jammu and Kashmir. The said provisions do not apply to Jammu and Kashmir as service tax law is not applicable to the State of Jammu & Kashmir. (ii) The statement is valid. As per the definition of the capital goods, dumpers used in the factory of the manufacturer of the final product are eligible as capital goods for the purposes of claiming the CENVAT credit. (iii) The cabs purchased by Cool Cab Services Ltd. are not eligible as capital goods as such cabs are not registered in the name of the service provider i.e. Cool Cab Services Ltd. (iv) The special purpose motor vehicles, falling under tariff heading 8705, are eligible as capital goods. As per the definition of capital goods, motor vehicles other than those falling under tariff headings 8702, 8703, 8704 and 8711 used in the factory of the manufacturer of the final products are eligible capital goods. Question 7(c) Marks 4 (i) M/s Future Gaming Solutions India Private Limited is a distributor of lottery organized by State of Sikkim provides following information: Particulars Diwali Bumper Diwali Dhamaka Total No of Tickets 2,50,000 2,50,000 Face Value of Tickets 100 100 Value of Guaranteed Prize Payout 51.11% 51.11% Actual Number of ticket sold 2,00,000 2,00,000 Mode of conducting the scheme Printed On line Compute Service tax payable under Rule 6(7C) of service tax Rules, 1994. (ii)

What are the due dates for payment of service tax?

Solution:

28 ` Printed Mode 2,50,000 x 100 x 11,000 = 10,00,000 Education Cess @ 3% On Line Mode 2,00,000 x 100 x 11,000 10,00,000 Education Cess @ 3%

2,75,000 8,250 2,83,250 2,20,000 6,600 2,26,600

Solution: The due date for payment of service tax on the service which is deemed to be provided (as per the Point of Taxation Rules, 2011) by an individual or a proprietary firm or a partnership firm:S. Particulars Due date for payment of service No. tax 1. If the service tax is paid electronically through internet 6th day of the following quarter banking 2. In any other case 5th day of the following quarter 3. In the case service is deemed to be provided in the 31st day of March quarter ending in March Due date for payment of service tax on the service which is deemed to be provided (as per the Point of Taxation Rules, 2011) in any other cases (company and HUF):S. No. Particulars Due date for payment of service Tax 1. If the service tax is paid electronically through 6th day of the following month internet banking 2. In any other case 5th day of the following month 3. In the case service is deemed to be provided in the 31st day of March month of March Question 7(d) Marks 4 A manufacturer of machinery sold a special machine. Following details are provided in relation to amounts charged: ` Price of machinery excluding taxes and duties 8,00,000 Installation charges

51,000

Packing charges

19,000

Extra charges for designing the machine

44,000

Outward freight beyond place of removal

22,000

Other information furnished is (a) Cash discount @ 2% on price of machinery was allowed as the customer paid the bill amount before dispatch.

29 (b) State VAT rate – 5% (c) Central excise duty rate 12% and education cesses as applicable. Calculate excise duty payable on the special machine. Solution: Computation of excise duty payable Particulars List price of machinery Add: Packing charges [Note 1(i)] Extra design charges [Note 1(i)] Total Less : 2% cash discount on price of machinery [`8,00,000 x 2%] [Note 1(iv)]) Assessable value Excise duty @ 12.36% [inclusive of 3% education cesses] Excise duty payable [rounded off]

` 8,00,000 19,000 44,000 8,63,000 16,000 8,47,000 1,04,689.20 1,04,689.00

Notes:1. While computing assessable value:(i) Packing charges and extra designing charges have been included as such payments are ‘in connection with sale’. (ii) Installation and erection expenses shall not be included. (iii) Outward freight has not been included as it is incurred for transporting the goods beyond the place of removal. (iv) Cash discount has been allowed as deduction as it has been passed on to the buyer. 2. State VAT does not affect excise duty payable.