CWA ICWA Question Papers Final Group III
Indirect and Direct Tax Management December 2009
This Paper has 40 answerable questions with 0 answered.
Time Allowed : 3 Hours Full Marks : 100
The figures in the margin on the right side indicate full marks.
Answer Question No. 1 which is compulsory and any five from the rest.
Wherever required, the candidates may take suitable assumptions and state
them clearly in the answer.
Working notes should form part of the answer.
1. (a) Fill up the blanks: 1×7
(i) Where any amount of deferred tax has been credited to the profit and loss account, while calculating book profits for MAT under section 115JB of the Income–tax Act, 1961, the said amount will _________ (be reduced/be increased/not be disturbed). (0)
(ii) Ownership of raw materials is _________ (relevant/not relevant) for excise duty. (0)
(iii) Customs duty is levied under section _________ of the Customs Act, 1962. (0)
(iv) Stock transfer to branch is not treated as inter–state sale when from _________ is submitted. (0)
(v) An authorized dealer in foreign exchange has the option to pay service tax at _________ % of the gross amount of currency exchange, instead of paying service tax at the usual rate. (0)
(vi) Duty drawback _________ (is/is not) available in respect of goods manufactured by EOU/SEZ unit. (0)
(vii) Application for IEC number must be made to _________. (0)
(b) State with reasons, whether the following statements are true or false (answer without any reasoning will not deserve any credit): 2×5
(i) Waste and scrap are always treated as excisable goods. (0)
(ii) Importers can store imported goods without payment of duty in public warehouse or private warehouse. (0)
(iii) Security demanded from dealer under the Central Sales Tax Act, 1956 can be satisfied in the form of surety bond. (0)
(iv) Presumption with respect to books of account, bullion, etc. found in the control of the concerned person is not presumed in the case of survey operations of the Income–tax Department. (0)
(v) Duty drawback rate is fixed by the Central Government in consultation with the Board. (0)
(c) Provide brief answers: 2×4
(i) On 18.06.2009 Mr. Sakti discovers a mistake in the service tax refund pertain up to the half year ended 31.03.2009, filed on 23.04.2009. Can he rectify the mistake? (0)
(ii) As per the White Paper on State–level VAT, is a trader eligible for refund if VAT credit of input tax available cannot be utilized for any reason. (0)
(iii) Enumerate any four matters covered by Foreign Trade Policy. (0)
(iv) Mention any four methods of computing Arm’s Length price as per Transfer Pricing provisions. (0)
2. (a) State the transactions which have been excluded from levy of central sales tax and those in respect of which central sales tax leviable is nil. 8 (0)
(b) You have been appointed as Cost Auditor to conduct special audit of Cenvat credit under section 14AA of Central Excise Act 1944. Discuss major areas where you will concentrate while conducting your audit. 5 (0)
(c) Is the expenditure incurred on buying MS Office software, a deductible business expenditure under the Income–tax Act 1961? 2 (0)
3. (a) State the basic principle of VAT. 6 (0)
(b) Examine the correctness of the statement that all types of land held by an assessee on the valuation date are treated as “Urban land” under the Wealth Tax Act, 1957. 6 (0)
(c) Mr. and Mrs. Bose visited Canada and brought following goods while returning to India on 9th February, 2009: (i) Their personal effects like cloths, etc., valued at Rs. 40,000/- (ii) A personal computer bought for Rs. 36,000/- (iii) A laptop computer bought for Rs. 98,000/- (iv) Two litres of liquor bought for Rs. 2,000/- (v) A new camera bought for Rs. 38,000/-.
What is the amount of customs duty payable by Mr. Bose. 3 (0)
4. (a) (i) Is ‘Duty Free Import Authorization (DFIA)’ transferable? 1 (0)
(ii) Is any value addition required for the same? 2 (0)
(iii) What are the conditions relating to issue of DFIA? 4 (0)
(b) State the provisions relating to best judgement assessment in the context of service tax. 4 (0)
(c) Examine the validity of the following statements with regard to service tax;
(i) The service provided by a consulting engineer engaged in providing consultancy in the discipline of computer software engineering shall be exempt under the category “Consulting engineer’s service”. 2 (0)
(ii) Some transporters undertake door–to–door transportation of goods or articles and they have made special arrangements for speedy transportation and timely delivery of such goods or articles. Such services are known as ‘Express Cargo Service’ with assurance of timely delivery. Such ‘Express Cargo Service’ is covered under ‘courier agency service’. 2 (0)
5. (a) Durga Steel Industries imported certain goods and kept them in warehouse. However, the goods were not removed from the warehouse at the expiration of the statutory time period during which such goods were permitted under section 61 to remain in a warehouse.
Durga Steel Industries sought to relinquish the title to such goods under the proviso to section 68 of the Customs Act, 1962. However, the Department contended that since the goods were deemed to be improperly removed from the warehouse (considering the over stay of such goods in the warehouse) under section 73(1)(b), the case would not fall under section 68 and thus proviso to section 68 could not be invoked. It was submitted that before invoking the proviso to section 68, the condition of section 68 must be fulfilled which was not done in the instant case. The Department further contended that the relinquishment is subject to discretion of proper officer and that the same cannot be done where the importer has the ability to pay the impugned duty.
Durga Steels contends that this relinquishment absolves the importer from total liability.
Examine the correctness of the rival contentions.
(b) Illustrate the points of differences between pilferage of goods under section 13 and loss/destruction of goods under section 23 of the Customs Act, 1962. 5 (0)
(c) The value of clearance from four units of Janak Corporation Limited (JCL) during 2008–09 are as follows:
Units situated at Value of clearances (Rs. in lakhs)
JCL sought your advice as a consultant whether benefit under Excise Notification No.8/2003 shall be available to JCL during 2009–10. You are required to indicate your advice in this context. 4 (0)
6. (a) Mr. Ankit was a partner in a firm in his capacity as the Karta of his HUF, representing the HUF. On the amounts deposited by the partner, the firm paid interest. Ankit in his individual capacity had made deposit in the said firm. The assessee firm claimed that the interest paid in his individual capacity should not be disallowed. The assessing Officer did not agree and disallowed the interest paid to Mr. Ankit in his individual capacity, under section 40 (b) of the Income–tax Act, 1961. Is the aforesaid interest allowable as deduction in the hands of the firm? 3 (0)
(b) On 1st April, 2008, Mr. A & Mrs. A purchased entire shares of M/s. Thankur Company Private Limited in which public are not substantially interested. The company had unabsorbed business loss and accumulated depreciation from earlier years.
Accumulated non–speculative business losses
Unabsorbed Depreciation —
— Rs. 3 lakhs
Rs. 8 lakhs
The company made sufficient profits during the Asst. year 2009–10 to accommodate above allowances.
(i) State the effect of changes of shareholders in the right of the company to carry forward the losses and unabsorbed depreciation for set off.
(ii) Is it different if the shares are acquired by Mr. A & Mrs. A by way of gift?
(c) Mr. Akash, an individual assessee, has filed an appeal before Hon’ble High Court against the order passed by Income Tax Appellate Tribunal. Can the High Court interfere with the factual findings recorded by the Tribunal? Under what circumstances will the appeal challenging the factual findings be admitted? 2 (0)
(d) Mr. Baunty is an assessee whose sales (turnover) is Rs. 38.00 lakhs, during the assessment year 2009–10. An amount of Rs. 10 lakhs as received by his minor son is clubbed u/s. 64(1) of the Income–tax Act, 1961 while filing the return of income. The Assessing Officer contended that Mr. Baunty is liable to Tax Audit under section 44AB of the Income–tax Act, 1961 as the amount exceeded Rs. 40 lakhs after clubbing of minor child receipt. 3 (0)
7. (a) M/s.Airways Ltd. a non–resident company operates aircrafts between Newyork and New Delhi. During the financial year 2008–09, an amount of Rs. 5 crores and Rs. 2 crores are received in course of business operations of aircraft for passengers and goods respectively between Newyork and New Delhi. Similarly an amount of Rs. 2 crores and Rs. 1 crore are also received for carriage of passengers and goods from New Delhi to Newyork. Total expenditure incurred by the company for the purpose of this business during the year ending 31.03.2009 was Rs. 8.5 crores. Compute the income chargeable to tax in India under the head “Profits and Gains of business or profession”. 3 (0)
(b) M/s. ABC Services Ltd. a service provider for the first time made an agreement on 22nd May, 2008 with XYZ Ltd. to provide different services covered under Business. Auxillary Services at a price of Rs. 80 lakhs (inclusive of service tax) per annum. They are not providing any other services except as above. As per terms of contract executed by ABC Services Ltd., an advance of 15% of contract price has been received for the services to be provided which would be adjusted against final bill in the end of the year. The bills raised and amount received are given as follows:
(Amount Rs. in Lakhs)
SI. No. Particulars Bill raised Amount received
Date Amount Date Amount
1. Advance 15% of contract
price for service to be
provided 01.06.2008 12 01.06.2008 12
2. 1st Bill for June ‘08 service
provided 08.07.2008 25 20.07.2008 12
3. 2nd Bill for July ‘08 service
provided 05.08.2008 12 18.08.2008 25
Service tax due as per provision has been deposited in due time. Total gross value of services provided was Rs. 37 lakhs after which the contract was terminated with mutual consent. On closer of the contract amount of advance of Rs. 12 lakhs has been refunded to M/s. XYZ Ltd. Please explain the following assuming service tax payable is 10.3% (and figures are expressed in Rs. in lakhs)
(i) What action should be taken by ABC Services Ltd. on execution of agreement on dated 22nd May. 2008?
(ii) Can ABC Services Ltd. avail threshold limit for the year 2008–09, if so what is the amount?
(iii) Service tax payable on the advance of Rs. 12 lakhs for which no service has been provided. How much advance is taken for computation of service tax?
(iv) What is the value of services taken for computation and the amount of service tax paid through designated branches and on which dates?
(v) What will happen to the service tax, if any, excess deposited for which no service was provided due to termination of contract and refund of the amount thereof?
(c) Please specify the relevant date for determination of rate of customs duty in respect of following goods imported/exported:
(i) In the case of entry for export under section 50 of the Customs Act, 1962.
(ii) If bill of entry is presented before the date of entry inward of Vessel.
(iii) In case of goods imported by Postal Parcel.
8. (a) M/s. XYZ Ltd. sold machinery to Mr. K at a price of Rs. 5 lakhs on 15th June, 2008 and the same was removed from the factory at Kolkata. The rate of excise duty applicable is 10.3% on the date of removal. Mr. K. refused to take delivery of the machine when it reached his destination. In the meantime, M/s. XYZ Ltd. increased the prices of the similar type of machinery to Rs. 6 lakhs with effect from 16th June, 2008. The machinery as refused by Mr. K has been sold on 20th June 2008 to Mr. L at the revised price of Rs. 6 lakhs. The excise duty including education cess is 12.36% applicable with effect from 10th June 2008.
Explain the following with reasons:
(i) What is the value to be taken as assessable value?
(ii) What is the rate of excise duty applicable and duty payable on above transaction?
(iii) The Central Excise Officer is demanding duty on the price of Rs.6 lakhs at the time of sale to Mr. L. Is he right in his approach?
(iv) Does cost of production have any bearing on the assessable value?
(b) The Balance Sheet of LMN Ltd. as on 30th November, 2008, being the date on which Unit N has been transferred by way of slump sale is given hereunder:
Balance sheet as on 30.11.2008
Liabilities Rs. in lakhs Assets Rs. in lakhs
Paid up capital
Unit N 1,700
90 Fixed Assets:
Using the further information given below, calculate the capital gain arising on slump sale of Unit N and the tax therefor:
(i) Slump sale consideration is Rs. 880 lakhs.
(ii) Fixed assets of Unit N includes land which was purchased at Rs. 60 lakhs in the year 2003 and revalued at Rs. 90 lakhs as on 31.03.2008.
(iii) Fixed assets of Unit N reflected at Rs. 460 lakhs (Rs. 550 lakhs less land value Rs. 90 lakhs) is written down value of depreciable assets as per books. However, the written down value of these assets under section 43(6) of the Income–tax Act, is Rs. 410 lakhs.
(iv) Other assets of Unit N shown at Rs. 390 lakhs represents book value of non–depreciable assets.
(v) Unit N is in existence since July, 2002.
(vi) Cost inflation index may be taken as 463 for 2003–04 and 582 for 2008–09.
Clear working notes should be shown for computation of various items.