PAPER – 8 : INDIRECT TAX LAWS
PART – III : QUESTIONS AND ANSWERS
QUESTIONS
Basic concepts of central excise
1. With reference to the provisions of Central Excise Act, 1944, explain whether the
following items can be considered as excisable goods:
(i) Huge metal tanks erected at site for storing petroleum products in oil refineries.
Such tanks are not embedded in earth, but once erected they cannot be physically
moved and will have to be necessarily dismantled in case of sale/disposal.
(ii) Turn key projects
Classification of excisable goods
2. Mr. X manufactures a cream called as ‘Moisture-BN’ which has certain pharmaceutical
contents. The cream is prescribed by dermatologists for curing dry skin conditions and at
the same time is also available without prescription of a medical practitioner. Mr. X
classifies the cream as a medicament since it has pharmaceutical contents and is being
prescribed by dermatologists for treating dry skin conditions.
However, the Central Excise Officer is of the view that the cream should be classified as
a cosmetic/toilet preparation as (i) the same is mainly used for ‘care’ of the skin and (ii)
can also be purchased without prescription of a medical practitioner. The Central Excise
Officer contends that even if a cosmetic product contains certain subsidiary
pharmaceutical contents or even if it has certain subsidiary curative value, it would still
be treated as cosmetics only.
What do you think should be the correct classification of the cream; a medicament or a
cosmetic/toilet preparation? Support your answer with the help of a decided case law, if
any.
Valuation of excisable goods
3. Alpha Ltd., a manufacturer of excisable goods, has two production units-Unit A and Unit
B. Unit A of Alpha Ltd. manufactures product ‘X’. 80% of such production is consumed
captively by Unit B to further manufacture product ‘Y’ and the remaining 20% is sold to
unrelated buyers at ` 75 per unit. In March, 2014, Unit A has manufactured 1000 units of
product ‘X’. Assuming that there is no opening and closing inventory of product X,
compute its assessable value for the purpose of central excise duty from the following
information provided by Alpha Ltd. in relation to Unit A for the month of March, 2014-
Particulars `
Cost of direct materials (inclusive of central excise duty @ 12.36%)* 22,472
Cost of direct salaries (includes house rent allowance of ` 12,000) 30,000
Consumable stores and repairs 8,400
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, 106 FINAL EXAMINATION: NOVEMBER, 2014
Depreciation of machinery 500
Quality control cost 4,300
Research & development cost 2,700
Administrative cost:
Production related 2,000
Project management related 1,800
Interest and financial charges 2,400
Cost incurred due to break down of machinery 1,300
Amortised cost of moulds and tools received free of cost from the 600
production unit ‘B’ for being used only in the manufacture of goods to
be consumed by unit ‘B’
Selling and distribution cost 4,600
Scrap value realized 1,500
*Note: CENVAT credit of the excise duty so paid is available.
CENVAT credit
4. LMN Ltd. manufactures machinery for sugar and cement plants. It entered into a
contract for setting up a sugar manufacturing plant in Mexico. For this purpose, it
manufactured certain machines in its own factory and also purchased certain other
machinery from other dealers/manufacturers. Both the machineries (manufactured and
bought-out) were then put in a container and transported to Mexico for setting up the
sugar plant.
LMN Ltd. has availed CENVAT credit on bought-out machinery describing them as
eligible capital goods. The Central Excise Officer, however, has disallowed such credit.
Examine whether the action taken by the Central Excise Officer is correct in law, with the
help of a decided case law, if any.
SSI exemption
5. PQR & Co. is eligible for exemption in terms of Notification No. 8/2003 CE dated
01.03.2003 for the year 2013-14. It provides the following particulars with regard to the
clearances of goods effected during the said year:
Particulars ` (in lakh)
Value of domestic clearance of goods with own brand name 210
Value of clearance of goods with the brand name of others (including ` 40 100
lakh in respect of goods manufactured in a rural area)
Value of clearances for exports 120
Value of clearances for captive consumption (Final products are eligible for 160
SSI exemption)
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, PAPER – 8: INDIRECT TAX LAWS 107
Value of clearances of goods exempted under notification other than 40
Notification No. 8/2003
(Assume rate of excise duty at 12%)
Exports made by PQR & Co. are exempt from duty. Determine the total duty payable and
duty payable in cash, if any, by PQR & Co. in respect of the year 2013-14.
Additional Information:
Excise duty paid on inputs consumed in exempt and dutiable clearances in the year 2013-14
is ` 2,25,000 and ` 4,50,000 respectively. Excise duty paid on capital goods purchased in
the year 2013-14 is ` 6,35,000.
Show your workings with explanations where required.
Basic concepts of service tax
6. Chunni Lal is engaged in the activity of preparation of place for organizing event or
function by way of erection/laying of pandal and shamiana. He is of the view that service
tax is not leviable on his activity as it is a transaction involving “transfer of right to use
goods” and hence, is a deemed sale.
Examine whether the contention of Chunni Lal is valid in law.
Basic concepts of service tax
7. Mr. A owns a residential building in a prime commercial locality. Basement of the
building is leased to Mr. B, a wholesaler. One-fourth of the basement is used by Mr. B as
his office and remaining portion is used as a godown for storing his merchandise.
Ground floor of the building is given on rent to Mr. C who uses the same as a guest
house for his business contacts. First floor of the building is occupied by Mr. A. and his
family. Second floor is given on rent to Mr. D who uses the same as his residence.
There is a large vacant land in the backyard of the building which is also given on rent to
a parking contractor, Mr. E who has set up a parking facility on the said land.
Separate rent/lease deeds have been executed in respect of each floor of the building and
vacant land given on rent/lease.
Examine the service tax liability of Mr. A with respect to the residential building owned by him.
Place of provision of service
8. With reference to Place of Provision of Services Rules, 2012, answer the following
question:
(i) A movie-on-demand is provided as on-board entertainment during the Bangalore-
Delhi leg of a Singapore-Bangalore-Delhi flight against a charge of ` 500 per
passenger in addition to the fare of ` 25,000 per passenger. What will be the place
of provision of service in this case? Will your answer change, if the above service is
provided on a Delhi-Bangalore-Singapore-Malaysia flight during the Singapore-
Malaysia leg?
© The Institute of Chartered Accountants of India
, 108 FINAL EXAMINATION: NOVEMBER, 2014
(ii) Mr. Sumit has a permanent residence at Ahmedabad. He has a savings bank
account with Ahmedabad Branch of Safe and Sound Bank. On April 1, 2012, Mr.
Sumit opened a safe deposit locker with the Ahmedabad Branch of Safe and Sound
Bank. Mr. Sumit went to USA for official work in December, 2012 and has been
residing there since then. Mr. Sumit contends that since he is a non-resident during
the year 2013-14 in terms of the Income-tax Act, service tax cannot be levied on the
locker fee charged by Safe and Sound Bank for the year 2013-14.
Examine the correctness of the contention of Mr. Sumit.
Point of taxation
9. Determine whether the following services amount to continuous supply of service in the
following independent cases:-
(i) XYZ & Co., a firm of interior decorators, enters in to a contract with Mr. Mehta on
01.08.2013 for doing up the interiors of his newly constructed home for a total
consideration of ` 60 lakh. As per the terms of the contract, XYZ & Co. will
complete the work by 31.01.2014 and consideration will be paid in six equal
instalments on the first day of each month covered during the period of contract.
(ii) Mr. Kapoor has taken a mobile connection from Cell Two, a telecom service
provider, on 10.01.2014. However, on account of poor service, he discontinued the
services of Cell Two on 15.03.2014.
Valuation of taxable service
10. Shambhu Pvt. Ltd. was awarded a contract in November, 2013 for providing flooring and
wall tiling services in respect of a building located in Delhi by Nath Ltd. As per the terms
of contract, Shambhu Pvt. Ltd. was to provide all the required material for execution of
the contract. However, a portion of the material was also provided by Nath Ltd.
Whether the services provided by Shambhu Pvt. Ltd. are subject to service tax? If yes,
determine the service tax liability of Shambhu Pvt. Ltd. from the following particulars-
Particulars `
Gross amount (excluding all taxes) charged by the Shambhu Pvt. Ltd. for 6,00,000
the contract
Fair market value of the material supplied by Nath Ltd. 1,00,000
Amount charged by Nath Ltd. for the material (inclusive of VAT) 60,000
Excise duty paid on inputs 12,750
Service tax paid on input services 6,000
Excise duty paid on capital goods, purchased during the year, used in the 4,000
contract
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