Tax And Regulatory Program – Indirect Tax

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Tax and Regulatory Program Tax Proficiency test – Indirect tax Questionnaire Part A – Indirect tax


Questions and Answers
  • 1. 

    If Company A (situated in Gujarat) raises an invoice on Company B (situated in Delhi) for supply of goods from its warehouse (situated in Maharashtra) to Company B’s warehouse (situated in Tamil Nadu), in which State will CST be levied?

    • A.

      Gujarat

    • B.

      Delhi

    • C.

      Maharashtra

    • D.

      Tamil Nadu

    Correct Answer
    C. Maharashtra
    Explanation
    The Central Sales Tax (CST) will be levied in Maharashtra because the transaction involves the movement of goods from Company A's warehouse in Maharashtra to Company B's warehouse in Tamil Nadu. CST is levied on inter-state sales of goods, and in this case, Maharashtra is the state where the movement of goods originates.

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  • 2. 

    Which of the following items are generally to be excluded for the purpose of computation of VAT liability?

    • A.

      Sales return within 6 months

    • B.

      Cash discount

    • C.

      Stock transfers

    • D.

      All of these

    Correct Answer
    D. All of these
    Explanation
    For the purpose of computing VAT liability, sales returns within 6 months, cash discounts, and stock transfers are generally excluded. Sales returns are deducted from the total sales as they are considered to be a reversal of the original transaction. Cash discounts are also deducted as they represent a reduction in the selling price. Stock transfers, which involve the movement of goods from one location to another within the same company, are not considered as taxable supplies for VAT purposes. Therefore, all of these items are excluded when calculating VAT liability.

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  • 3. 

    What would be the total VAT/ CST cash outlflow (assuming that the company takes all the available input credit) from the particulars provided below: • Input VAT - INR 750  • Input CST - INR 500   • Output VAT–INR 500 • Output CST – INR 500

    • A.

      INR 100

    • B.

      INR 250

    • C.

      INR 75

    • D.

      None of these

    Correct Answer
    B. INR 250
    Explanation
    The total VAT/CST cash outflow would be INR 250. This is because the company can take input credit for both VAT and CST. The input VAT of INR 750 can be used to offset the output VAT of INR 500, resulting in a net VAT payable of INR 250. Similarly, the input CST of INR 500 can be used to offset the output CST of INR 500, resulting in no net CST payable. Therefore, the total VAT/CST cash outflow is INR 250.

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  • 4. 

    Company A imports tools and dies from France amounting to INR 5 crores and sells such goods on High Seas basis to Company B for INR 6 crores.  Determine the amount on which VAT/ CST is required to be paid by Company A?

    • A.

      INR 5 crores

    • B.

      INR 6 crores

    • C.

      NIL

    • D.

      INR 1 crore

    Correct Answer
    C. NIL
    Explanation
    The amount on which VAT/CST is required to be paid by Company A is NIL. This is because the transaction is considered as an import of goods and subsequent sale on High Seas basis, which is a deemed export. In such cases, VAT/CST is not applicable as the goods are not sold within the country.

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  • 5. 

    A company, incorporated in Uttar Pradesh, is a manufacturer of chocolates. During the festive season of Diwali, the Company in order to augment its sales, offers a discount scheme to customer’s based on the packets of chocolates purchased wherein, on purchase of 4 packets amounting to a minimum of INR 500, an additional packet of chocolate amounting to INR 100 would be given free. Basis the above, specify the amount on which VAT should be calculated?

    • A.

      INR 500

    • B.

      INR 100

    • C.

      INR 600

    • D.

      None of these

    Correct Answer
    A. INR 500
    Explanation
    The amount on which VAT should be calculated is INR 500. This is because the discount scheme is based on the purchase of 4 packets of chocolates amounting to a minimum of INR 500. The additional packet of chocolate worth INR 100 is given for free, but it is not included in the calculation for VAT. Therefore, the VAT should be calculated on the amount of INR 500.

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  • 6. 

    ABC Ltd. located in State B procured goods from XYZ Ltd. in State A. In order to pay CST at a concessional rate of 2%, which of the following Form is required to be provided by ABC Ltd. to XYZ Ltd.?

    • A.

      Form C

    • B.

      Form H

    • C.

      Form E-I

    • D.

      Form E-II

    Correct Answer
    A. Form C
    Explanation
    ABC Ltd. located in State B needs to provide Form C to XYZ Ltd. in State A in order to pay CST (Central Sales Tax) at a concessional rate of 2%. Form C is a declaration form that is used for purchasing goods at a concessional rate of CST for resale, meaning ABC Ltd. intends to sell the goods purchased from XYZ Ltd. The concessional rate of 2% is applicable when the goods are purchased for resale in the course of inter-state trade or commerce.

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  • 7. 

    Which of the following type of lease is generally leviable to VAT?

    • A.

      Financial Lease

    • B.

      Operating Lease

    • C.

      Both the above

    • D.

      None of these

    Correct Answer
    C. Both the above
    Explanation
    Both financial lease and operating lease are generally leviable to VAT. VAT (Value Added Tax) is a consumption tax that is imposed on the value added at each stage of the supply chain. In the case of financial lease, the lessee has the option to purchase the asset at the end of the lease term, and since it is considered a transfer of ownership, it is subject to VAT. On the other hand, operating lease is a short-term lease where the lessor retains ownership of the asset, but VAT is still applicable as it is considered a taxable supply of services. Therefore, both types of leases are subject to VAT.

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  • 8. 

    What is the standard rate of VAT across States?

    • A.

      12.5 – 15 per cent

    • B.

      10 per cent

    • C.

      4 – 5 per cent

    • D.

      26.85 per cent

    Correct Answer
    A. 12.5 – 15 per cent
    Explanation
    The standard rate of VAT across states is 12.5 – 15 per cent. This means that most goods and services in these states are subject to a VAT rate ranging from 12.5% to 15%. VAT, or Value Added Tax, is a consumption tax levied on the value added to a product or service at each stage of its production or distribution. Different states may have different rates, but the given range represents the standard rate applicable in most states.

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  • 9. 

    X Ltd. carries out market research for various organizations. Services provided to which of the following organizations would be exempt from the levy of Service tax?

    • A.

      ABC Hospital

    • B.

      XYZ School

    • C.

      UNICEF

    • D.

      All of these

    Correct Answer
    C. UNICEF
    Explanation
    UNICEF would be exempt from the levy of service tax because it is an international organization that works towards the welfare of children. International organizations like UNICEF are generally exempt from service tax as they are engaged in charitable activities and are not profit-oriented.

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  • 10. 

    Company X hires a firm based out of England to provide management consultancy services. The firm comes to India to provide such consultancy whenever required by the Company X. Which of the following statement is true?

    • A.

      The above transaction qualifies as 'import' and Company X is liable to pay Service tax under ‘reverse charge mechanism’

    • B.

      B. The above transaction does not qualify as ‘import’ and hence not liable to Service tax

    • C.

      C. The law firm is liable to deposit Service tax as the services are performed in India

    • D.

      None of these

    Correct Answer
    A. The above transaction qualifies as 'import' and Company X is liable to pay Service tax under ‘reverse charge mechanism’
    Explanation
    The given correct answer is that the above transaction qualifies as 'import' and Company X is liable to pay Service tax under ‘reverse charge mechanism’. This is because Company X is hiring a firm based out of England to provide management consultancy services and the firm comes to India to provide these services whenever required. This transaction involves the import of services from a foreign country, and as per the reverse charge mechanism, the recipient of the services (Company X) is liable to pay the Service tax.

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  • 11. 

    Ram buys a car for use of the same in providing Rent-a-cab services. Which of the following statement is true?

    • A.

      Ram can avail 100 per cent credit in the first year

    • B.

      Ram can avail 50 per cent of the credit only

    • C.

      C. Ram can avail 50 per cent of the credit in the first year and balance in the next year

    • D.

      D. Credit of Excise duty is not available to a service provider

    Correct Answer
    C. C. Ram can avail 50 per cent of the credit in the first year and balance in the next year
    Explanation
    Ram can avail 50 per cent of the credit in the first year and balance in the next year. This means that Ram can claim a 50% credit for the car purchase in the first year, and the remaining 50% can be claimed in the following year. This suggests that there may be certain tax benefits or deductions available for individuals who use their cars for providing Rent-a-cab services.

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  • 12. 

    Which of the following services would not be liable to Service tax?

    • A.

      Services provided in the State of Rajasthan by a person having a place of business in the State of Jammu and Kashmir

    • B.

      Services provided to an Export Oriented Unit

    • C.

      An interior decorator providing services in Srinagar

    • D.

      D. A foreign company provides service to the Indian subsidiary of an overseas company

    Correct Answer
    C. An interior decorator providing services in Srinagar
    Explanation
    An interior decorator providing services in Srinagar would not be liable to Service tax because the services are provided within the same state, and Service tax is not applicable for intra-state services.

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  • 13. 

    What is the current rate of Service tax?

    • A.

      10.3 percent

    • B.

      10 percent

    • C.

      12.36 percent

    • D.

      10.2 percent

    Correct Answer
    A. 10.3 percent
    Explanation
    The current rate of Service tax is 10.3 percent.

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  • 14. 

    X Ltd and Y Ltd are associated enterprises. X Ltd shares its office space with Y Ltd for which Y ltd pays a rent of Rs 5000 per month.  For the month of January, X Ltd made the entry in its books on 31 January 2011 but the consideration was received from Y Ltd on 12 February 2010.  When is X Ltd liable to deposit Service tax on the rent received from Y Ltd?

    • A.

      5 January 2010

    • B.

      5 February 2010

    • C.

      5 March 2010

    • D.

      25 April 2010

    Correct Answer
    B. 5 February 2010
    Explanation
    X Ltd is liable to deposit service tax on the rent received from Y Ltd on 5 February 2010. Service tax is generally payable on the date of receipt of payment or the date of issue of invoice, whichever is earlier. In this case, even though the entry was made in X Ltd's books on 31 January 2011, the consideration was received from Y Ltd on 12 February 2010. Therefore, X Ltd is liable to deposit service tax on the rent received on 5 February 2010.

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  • 15. 

    Johny provides Goods transport agency services alpha for INR 10000. What would be the value on which Service tax would be charged?

    • A.

      INR 2500

    • B.

      INR 10000

    • C.

      INR 3300

    • D.

      NIL

    Correct Answer
    A. INR 2500
    Explanation
    The value on which Service tax would be charged is INR 2500. This is because the question states that Johny provides Goods transport agency services alpha for INR 10000. Service tax is typically charged on the value of the services provided, which in this case is INR 10000. However, it is important to note that the question asks for the value on which Service tax would be charged, not the actual Service tax amount. Therefore, the correct answer is the value on which the tax is calculated, which is INR 2500.

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  • 16. 

    How many services is a part of the Negative list?

    • A.

      10

    • B.

      11

    • C.

      12

    • D.

      There is no negative list under Service tax law

    Correct Answer
    D. There is no negative list under Service tax law
    Explanation
    The correct answer is "There is no negative list under Service tax law." This means that there are no services that are included in the negative list under the Service tax law. In other words, all services are taxable under the Service tax law and there is no specific list of services that are exempted or not taxable.

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  • 17. 

    Which of the following statements is not true?

    • A.

      Excise duty is not leviable in the State of Jammu and Kashmir

    • B.

      Goods manufactured for own consumption are liable to Excise duty

    • C.

      Excise duty is levied on manufacture but collected on removal of goods from premises

    • D.

      Excise duty is not levied on manufacture of goods which are exported out of India

    Correct Answer
    A. Excise duty is not leviable in the State of Jammu and Kashmir
    Explanation
    Excise duty is leviable in the State of Jammu and Kashmir.

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  • 18. 

    Company A, located in a Special Economic Zone, manufactures goods and correspondingly export/sells them. Identify the amount of sales on which Excise duty has to be discharged by the Company from the details provided below: • Sales to Domestic Tariff Area- INR 10 crores   • Export Sales- INR 10 crores • Exempt sales- INR 10 crores

    • A.

      30 crores

    • B.

      10 crore

    • C.

      20 crores

    • D.

      No Excise duty is to be levied

    Correct Answer
    D. No Excise duty is to be levied
    Explanation
    Based on the details provided, the company is located in a Special Economic Zone (SEZ), which is a designated area where goods can be manufactured and stored for export without being subjected to certain taxes and duties, including excise duty. Therefore, no excise duty is to be levied on the sales made by the company.

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  • 19. 

    X manufactures goods on job work basis for Company Y. Company Y provides raw material worth INR 1000.  X puts in raw material of its own worth INR 100, labour of INR 200 and a margin of INR 100.  Such goods are further sold by Company Y at INR 2000. On what value would X be liable to charge Excise duty?

    • A.

      Rs 2000

    • B.

      Rs 400

    • C.

      Rs 1400

    • D.

      Rs 300

    Correct Answer
    A. Rs 2000
    Explanation
    X would be liable to charge Excise duty on the value of the goods sold, which is Rs 2000. This is because Excise duty is typically charged on the transaction value of the goods at the time of their removal from the place of manufacture. In this case, the goods are sold by Company Y at a price of Rs 2000, so X would be liable to charge Excise duty on this value.

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  • 20. 

    Which of the following statements are true? At what point of time Customs duty becomes payable  i. They enter territorial waters of India ii. Bill of entry is filed with the Customs authorities for home consumption iii. They are warehoused in Custom bonded warehouse iv. They are unloaded at the port

    • A.

      Ii

    • B.

      I and ii

    • C.

      Ii and iii

    • D.

      Iii

    Correct Answer
    A. Ii
    Explanation
    The correct answer is ii. Customs duty becomes payable when a bill of entry is filed with the Customs authorities for home consumption. This means that the goods have been declared for import and are intended for use or consumption within the country. Filing a bill of entry is a formal process that triggers the assessment and payment of customs duty. The other statements are not correct because entering territorial waters, being warehoused in a bonded warehouse, or being unloaded at the port do not necessarily indicate that customs duty is payable.

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  • 21. 

    From the list of documents mentioned below, identify the documents which are required for clearance of goods through Customs on import of goods?

    • A.

      Bill of Entry

    • B.

      Invoice and packing list

    • C.

      Import license

    • D.

      All of these

    Correct Answer
    D. All of these
    Explanation
    All of the mentioned documents are required for the clearance of goods through Customs on the import of goods. The Bill of Entry is a legal document that contains details of the imported goods and is required for customs clearance. The Invoice and packing list provide information about the value and contents of the goods. An Import license is necessary to legally import goods into a country. Therefore, all of these documents are essential for the clearance of goods through customs on import.

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  • 22. 

    The credit of which of the following Customs duty component is not available to a manufacturer under the Cenvat Credit Rules, 2004?

    • A.

      Basic Customs Duty

    • B.

      Additional Duty of Customs

    • C.

      Additional Customs duty

    • D.

      Secondary Higher Education Cess on Additional Customs duty

    Correct Answer
    A. Basic Customs Duty
    Explanation
    Under the Cenvat Credit Rules, 2004, a manufacturer is not eligible to avail the credit of Basic Customs Duty. The Cenvat Credit Rules allow manufacturers to claim credit for certain duties paid on inputs used in the manufacturing process. However, Basic Customs Duty is not eligible for credit as it is considered a non-creditable duty. The manufacturer will not be able to offset or claim credit for the Basic Customs Duty paid on imported goods used in their manufacturing process.

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  • 23. 

    If Ram manufactures and sells machinery to Shyam for INR 20,000 and charges 2% freight thereon, what would be the amount of Excise Duty if the transfer of title would happen at Ram’s factory (assuming Excise duty rate @ 10%)?

    • A.

      INR 2000

    • B.

      INR 2020

    • C.

      INR 2040

    • D.

      None of these

    Correct Answer
    A. INR 2000
    Explanation
    The amount of Excise Duty would be INR 2000. This is because the Excise Duty rate is 10% and the total value of the machinery, including the freight charges, is INR 20,000. So, 10% of INR 20,000 is INR 2000.

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  • 24. 

    Under which of the following schemes proposed by Director General of Foreign Trade, the Company can claim benefit for rendering services to foreigners traveling to India?

    • A.

      SFIS

    • B.

      EPCG

    • C.

      Advance authorization

    • D.

      Duty drawback

    Correct Answer
    A. SFIS
    Explanation
    SFIS stands for the "Served From India Scheme," which is a scheme proposed by the Director General of Foreign Trade. Under this scheme, a company can claim benefits for rendering services to foreigners traveling to India. This scheme aims to promote export of services from India and provides incentives to companies for their contribution in this area.

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  • 25. 

    A, located in Maharashtra sells goods to B who is located in Delhi (wherein goods are supplied from Maharashtra to Delhi). To which State would SGST revenue accrue?

    • A.

      Maharashtra

    • B.

      Delhi

    • C.

      Centre

    • D.

      Both Maharashtra and Delhi

    Correct Answer
    B. Delhi
    Explanation
    The SGST revenue would accrue to the state of Delhi. SGST stands for State Goods and Services Tax, which is a tax levied by the state government on the intra-state supply of goods and services. In this scenario, since the goods are being supplied from Maharashtra to Delhi, the SGST revenue would be collected by the state of Delhi, where the recipient of the goods is located.

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