ADMG
No. of Pages:6
No of Questions: 7
Total Marks: 100
Time Allowed: 3 Hrs
Question No.1 is compulsory. Attempt any five from remaining six questions.
Working notes should form part of the answers
1. (a) TQ Ltd. implemented a quality improvement programme and had the following results:
` In ‘000
Particulars
2010
2011
Sales
6000
6000
Scrap
600
300
Rework
500
400
Production inspection
200
240
Product warranty
300
150
Quality training
75
150
Materials inspection
80
60
Classify the quality costs as prevention, appraisal, internal failure and external failure and
express each class as a percentage of sales.
(5 Marks)
(b) What are the advantages and limitations of Zero base Budgeting?
(5 Marks)
(c) P Ltd. manufactures plastic cans of a standard size. The variable cost per can is `4 and the
selling price is `10 each. The factory of the company has eight machines of identical size. Any
individual machine can produce 30 cans per hour. The factory works on 300 days per annum
basic and the actual available hour per machine per day is 7.5. The company has an order of
4,20,000 cans from an oil company, to supply. The yearly fixed cost of the company is `20 lacs.
P Ltd has received an order from another firm for supplying 60,000 nos. of plastic moulded toys.
The price of the toys is `60 each and the variable cost is `50 each. While this order would be
acceptable for supplying for total quantities only, on acceptance, a special mould costing
`2,25,000 would required to be acquired to manufacture the toys. The time study exercise has
revealed that 15 nos. of toys can be produced per hour by any of the machines;
Advise the company, with reasons in the following situations:
(i) Whether to accept the order of manufacturing moulded toys, in addition to supplying
4,20,000 nos. of cans or not;
(ii) While a sub-contractor is willing to supply the toys, either whole or part of the required
quantities at an all inclusive rate of `57.50 each, what would be the minimum excess
capacity needed to justify the manufacturing of any portion of the toys order, instead of subcontracting?
(5 Marks)
PRIME / ME33 / FINAL
1 (d) M Ltd. manufactures a special product purely carried out by manual labour. It has a capacity of
20,000 units. It estimates the following cost structure:
Direct material
30 `/ unit
Direct labour (1 hour / unit) 20 `/ unit
Variable overhead
10 `/ unit
Fixed overheads at maximum capacity is `1,50,000. It is estimated that at the current level of
efficiency, each unit requires one hour for the first 5,000 units. Subsequently it is possible to
achieve 80% learning rate. The market can absort the first 5,000 units at `100 per unit. What
should be the minimum selling price acceptable for an order of 15,000 units for a prospective
client?
(5 Marks)
2. (a) You are Management Accountant of a medium sized company. You have been asked to
provide budgetary information and advice to the board for a meeting where they will decide the
pricing of an important product for the next period. The following information is available from the
records.
Particulars Previous period
1300
(100,000 units at `13 each)
Sales
Costs
1000
Profit
300
Current period
1378
(106,000 units at `13 each)
1077.4
300.6
You find that between the previous and current period there was 4% general cost inflation and it
is forecasted that costs will raise a further 6% in the next period. As a matter of policy the firm did
not increase the selling price in the current period although competitors raised their prices by 4%
to allow for increased costs. A survey by economic consultants was commissioned and has
found that the demand for the product is elastic with an estimated price elasticity of demand for
1.5. This would mean volume would fall by one and a half times the rate of real price increase.
Various options are considered by the board.
(i)
(ii)
(iii)
(iv)
Show the budgeted positions if the firm maintains `13 as selling price for the next
period (when it is expected that competitors will increase their price by 6%).
Show the budgeted position if the firm also raises its price by 6%.
Write a report to the board with appropriate figures recommending whether the firm
should maintain `13 as selling price or raise it by 6%
Make your assumptions.
(3+3+3+3 Marks)
(b) How does the JIT approach help in improving an organisation’s profitability?
3.
(4 Marks)
(a) Four products A, B, C and D have `5, `7, `3 and `9 profitability respectively. First
type of material (limited supply of 800 kgs.) is required by A, B, C and D at 4kgs, 3kgs, 8kgs and
2kgs respectively per unit. Second type of material has a limited supply of 300kgs and is for A, B,
C and D at 1kgs, 2kgs, 0kg and 1kg per unit. Supply of other type of materials consumed is not
limited. Machine hours available are 500 hours and the requirements are 8, 5, 0, 4 hours for A, B,
C and D each per unit. Labour hours are limited to 900 hours and requirements are 3, 2, 1 and 5
hours for A, B, C and D respectively.
PRIME / ME33 / FINAL
2 How should the firm approach so as to maximise its profitability? Formulate this as a linear
programming problem. You are not required to solve the LPP.
(6 Marks)
(b) The output of a production line is checked by an inspector for one or more of three different
types of defects, called defects A, B and C. If defect A occurs, the item is scrapped. If defect B or
C occurs, the item must be reworked. The time required to rework a B defect is 15 minutes and
the time required to rework a C defect is 30 minutes. The probabilities of an A, B and C defects
are 0.15, 0.20 and 0.10 respectively. For ten items coming off the assembly line, determine tile
number of items without any defects, the number scrapped and the total minutes of rework time.
Use the following random numbers,
RN for defect A
48 55 91 40 93 01 83 63 47 52
RN for defect B
47 36 57 04 79 55 10 13 57 09
RN for defect C
82 95 18 96 20 84 56 11 52 03
(5 marks)
(c) Explain the concept of discretionary costs. Give two examples. How control may be exercised
over discretionary costs
(5 Marks)
4. Attempt any four:
(4x4=16 Marks)
(a) You are the manager of a paper mill (XYZ Ltd) and have recently come across a particular type
of paper, which is being sold at a substantially lower rate (by another company –ABC Ltd) than
the price charged by your own mill. The value chain for one use of one tonne of such paper for
ABC Ltd is as follows,
ABC Ltd.
Merchant
Printer
Customer
ABC Ltd sells this particular paper to the merchant at the rate of `1,466 per tonne. ABC Ltd
pays for the freight which amounts to `30 per tonne. Average returns and allowances amount to
4% of sales and approximately equals `60 per tonne.
The value chain of your company, through which the paper reaches the ultimate customer, is
similar to the one of ABC Ltd. However, your mill does not sell directly to the merchant, the latter
receiving the paper from a huge distribution center maintained by your company at Haryana.
Shipment costs from the mill to the Distribution Center amount to `11 per tonne while the
operating costs in the Distribution Center have been estimated to be `25 per tonne. The return
on investments required by the Distribution Center for the investments made amount to an
estimated `58 per tonne.
You are required to compute the “Mill manufacturing Target Cost” for this particular paper for
your company. You may assume that the return on the investment expected by your company
equals `120 per tonne of such paper.
(b) What are the areas in which activity based information is used for decision making?
PRIME / ME33 / FINAL
3 (c) The following information of manufacture and sale is obtained from the records of Vee Aar Ltd.
for the 12 months ending 31.12.2008:
Product
A
B
C
D
E
F
Total
Contribution (`)
500
200
1,500
75
100
125
2,500
You are required to prepare a Pareto product contribution chart and comment on the results.
(d) Explain the concept of theory of constraints. What are the key measures of theory of
constraints?
(e) X ltd. Has been approached by a customer who would like a special job to be done for him and
is willing to pay `22,000 for it. The job would require the following materials;
Materials
Total units
required
A
B
C
D
1,000
1,000
1,000
200
Units
already in
stock
0
600
700
200
Book value of
units in stock
(`/unit)
2
3
4
Realisable
value(`/unit)
Replacement
cost (`/unit)
2.5
2.5
6
6
5
4
9
(i) Material B is used regularly by X ltd. and if stocks were required for this job, they would need to
be replaced to meet other production demand.
(ii) Materials C and D are in stock as the result of previous excess purchase and they have a
restricted use. No other use could be found for material C but material D could be used in
another job as substitute for 300 units of material, which currently cost `5 p.u (of which the
company has no units in stock at the moment).
What are the relevant costs of material, in deciding whether or not to accept the contract?
Assume all other expenses on this contract are to be specially incurred besides the relevant cost
of material is `550
5. (a) Division Z is a profit centre, which produces four products A, B, C and D. Each product is sold
in the external market also. Data for the period is as follows:
A
`
Market Price per unit
150
Variable cost of Production per Unit 130
Labour Hours required per Unit
3
PRIME / ME33 / FINAL
4 B
C
D
`
`
`
146 140 130
100 90 85
4
2
3
Product D can be transferred to division Y but the maximum quantity that might be required for
transfer is 2,500 units of D. The maximum sales in the external market are:
A
2,800 units
B
2,500 units
C
2,300 units
D
1,600 units
Division Y can purchase the same product at a slightly cheaper price of `125 per unit instead of
receiving transfers of product D from division Z. What should be transfer price for each unit for
2,500 units of D, if the total labour hours available in division Z are 20,000 hours?
(11 Marks)
(b) “Cost can be managed only at the point of commitment and not at the point of incidence.
Therefore, it is necessary to manage cost drivers to manage cost”. Explain the statement with
reference to structural and exceptional cost drivers.
(5 Marks)
6. (a) Solve the following transportation problem.
1
2
3
4
5
Demand
1
73
62
96
57
56
6
2
40
93
65
58
23
8
3
9
96
80
29
87
10
4
79
8
50
12
18
4
5 Stock available
20
8
13
7
65
9
87
3
12
5
4
(8 Marks)
(b) How would you use the Monte Carlo Simulation method in inventory control?
(4 Marks)
(c) What do you mean by a dummy activity? Why is it used in networking?
(4 Marks)
7. (a) The following is the Operating Statement of a company for April 2011:
Budgeted Profit
Variances:
Favourable (`)
Sales Volume
Sales Price
9,600
Direct Material Price
Direct Materials Usage
Direct Labour Rate
Direct Labour Efficiency
3,600
Fixed Overheads Efficiency
2,400
Fixed Overheads Capacity
Fixed Overheads Expense
1,400
17,000
Actual profit
PRIME / ME33 / FINAL
Adverse (`)
4,000
`
1,00,000
4,960
6,400
3,600
4,000
22,960
5 5,960 (A)
94,040
Additional information is as under:
Budget for the year
1,20,000 units
Budgeted fixed overheads
`4,80,000 per annum
Standard cost of one unit of product is:
Direct Materials
5 kg.@ `4 per kg.
Direct Labour
2 hours @ `3 per hour
Fixed overheads are absorbed on direct labour hour basis.
Profit
25% on sales
You are required to prepare the Annual Financial Profit / Loss Statement for April, 2011 in the
following format:
Account
Sales
Direct Materials
Direct Labour
Fixed Overheads
Total Costs
Profit
Qty./ Hours
Rate / Price
(12 Marks)
(b) Explain the main features on ‘Enterprise Resource planning’.
PRIME / ME33 / FINAL
Actual Value `
6 (4 Marks)
PRIME ACADEMY
33rd SESSION MODEL EXAM - FINAL
ADVANCED MANAGEMENT ACCOUNTING
SUGGESTED ANSWERS
1. (a) Statement computing profit and analyzing quality cost
Particulars
Sales
Prevention Cost
Quality training
Appraisal cost
Production inspection
Material Inspection
Total
Internal failure cost
Scrap
Rework
Total
External Failure cost
Product warranty
Total cost
Profit
2010
`
6000
2011
`
6000
75
150
200
80
280
240
60
300
600
500
1100
300
400
700
300
1755
4245
150
1300
4700
(b) Advantage of ZBB
(i) It provides a systematic approach for evaluation of different activities and ranks them in order
of preference for allocation of scare resource.
(ii) It ensures that the various functions undertaken by the organisation are critical for the
achievement of its objectives and are being performed in the best way.
(iii) It provides an opportunity to the management to allocate resources for various activities only
after having a thorough cost-benefit analysis.
(iv) The area of wasteful expenditure can be easily identified and eliminated.
(v) Departmental budgets are closely linked with corporate objectives.
(vi) The technique can also be used for the introduction and implementation of the system of
‘management by objective’.
Limitations of ZBB
(i)
(ii)
(iii)
(iv)
Various operational problems are likely to be faced in implementing the technique.
The full support of top management is required.
It is time consuming as well as costly.
It requires proper trained managerial staff.
PRIME / ME33 / FINAL
7 (c) Statement showing Profit / Loss of company
(i) (If it accepts the order of manufacturing moulded toys)
Total available machine hours: (A)
(8 machine × 7.5 hours / day × 300 days)
Machine hours required for producing 4,20,000 cans: (B)
(4,20,000 cans /30 cans)
Balance machine hours: {(A) – (B)]
Total number of production of moulded toys in balance hours
(4,000 hours × 15 toys / hour)
Total contribution on 60,000 moulded toys (`)
Less: Fixed expenses of mould (`)
Net profit (`)
`
18,000
14,000
4,000
60,000
6,00,000
2,25,000
3,75,000
Decision: It is advisable for the company to accept the order of 60,000 moulded toys as it will
increase its profit by `3,75,000.
(ii)
Let the minimum excess capacity needed to justify the manufacturing of any portion of
the moulded toys order be x.
If toys are manufactured, the profit is = (`60 – `50) x – `2,25,000
and, if toys are sub-contracted, the profit is = (`60 – `57.50) x
Indifference point would be 10x – `2,25,000 = 2.5x
or x =
30,000 moulded toys
Toys produced per hour =15 toys
Therefore, 2,000 (30,000 toys / 15 toys) excess machine hours are required to justify
manufacturing of toys by the company, instead of sub-contracting.
(d)
5,000 units 20,000 units
Material
1,50,000
6,00,000
Direct Labour
1,00,000
2,56,000(Wn.1)
Variable Overhead
50,000
2,00,000
Total Variable Cost
3,00,000
10,56,000
Fixed Cost
1,50,000
1,50,000
Total Cost
4,50,000
12,06,000
Total cost / unit
90
60.3
Sales 100 × 5,000
5,00,000
5,00,000
15,000 × x(assumed selling price)
15,000 x
(Total Sales less Total Cost) = Profit 50,000
15,000 x 7,06,000
Or minimum selling price = 50.4(refer to Working Note ii)
Working Note: I
PRIME / ME33 / FINAL
Units
5,000
10,000
Hours
5,000
10,000 × 1 × .8 = 8,000 hours
20,000
20,000 × 1 × .8 × .8 = 12,800 hours
8 Working Note: II
15,000 x – 7,06,000 > 50,000
15,000 x > 7,56,000
or x > 50.4
Alternative Solution:
Total cost / unit of capacity 20,000 = 60.3
Weighted average selling price > 80.4
i.e. 5,000 × 100 + 15,000 x > 60.3
20,000
= 5,00,000 + 15,000 x > 60.3 × 20,000
= 15,000 x > 12,06,000 – 5,00,000
Or
15,000 x > 7,06,000
x > 47.06
Minimum price to cover production Cost = 47.06
Minimum price to cover same amount of profit = 50.40 (refer to Working Note 1)
Working Note 1
(− 47.06 + 50.04) × 15,000 units
= `50,000
2. (a) (i) Budgeted position when Selling price is `13
`
Particulars
Computation
Sales
106000 units x 109% =115540 units x13 1,502,020
Less: Variable cost 115540 units x 6.6144
764,228
Contribution
737,792
Less: Fixed cost
440,960
Profit
296,832
(ii) Budgeted position when selling price is `13.78 (Increased by 6%)
`
Particulars
Computation
Sales
106000 units x 13.78 1,460,680
Less: Variable cost 106000 units x 6.6144
701,126
Contribution
759,554
Less: Fixed cost
440,960
Profit
318,594
•
•
Working notes:
Current period cost at previous period price level
Current period cost=`1077.44
Current period cost at previous period price level=1077.44/1.04 =`1036
Variable and fixed cost:
Variable cost = Change in cost/change in units = (1036-1000) ÷ (106-100) =Rs.6/unit
Fixed cost = Total cost – Variable cost = 1000-6x100= `400
PRIME / ME33 / FINAL
9 •
Variable and fixed cost at next year’s price level:
Variable cost = 6x104%x106% = `6.6144 p.u
Fixed cost = 400x104%x106% = `440.96
(iii) The option of increasing selling price is recommended because it gives the highest budget
profit. In the Option 1, keeping selling price constant helps to increase the volume but the
volume increase also increases the variable cost.
(iv) Assumptions:
•
•
•
•
Price is the sole factor influencing the demand
The Price elasticity is accurately estimated
Both variable and fixed cost has the same rate of inflation
Decision is made purely on the basis of economic factors.
(b) JIT approach helps in the reduction of costs/increase in prices as follows:
(i) Immediate detection of defective goods being manufactured so that early correction is
ensured with least scrapping.
(ii) Eliminates/reduces WIP between machines within working cell.
(iii) OH costs in the form of rentals for inventory, insurance, maintenance costs etc. Are reduced.
(iv) Higher product quality ensured by the JIT approach leads to higher premium in the selling
price.
(v) Detection of problem areas due to better production/scrap reporting/labour tracing and
inventory
(vi) Accuracy lead to reduction in costs by improvement.
3. (a) Tabulation:
Products
Profitability/unit(Rs.)
Material requirement/ unit (kg)
-First type (total 800 kg.)
Second type (total 300 kg.)
Machine hrs requirement/ unit (Total 500 hrs)
Labour hrs requirement/ unit (total 900 hrs.)
A
5
B
7
C
3
D
9
4
1
8
3
3
2
5
2
8
0
0
1
2
1
4
5
Formulation:
Taking X1, X2, X3 and X4 as optimal quantities of A, B, C and D respectively.
Maximise Objective function (Total Profit)
Z = 5X1 + 7X2+ 3X3+ 9X4
Subject to:
4X1 +3X2 +8X3+ 2X4 < 800 (Material No-1 Constraint)
1X1 +2X2 +0X3+ 1X4 < 300 (Material No-2 Constraint)
8X1 +5X2 +0X3+ 4X4 < 500 (Machine hrs constraint)
3X1 +2X2 +1X3+ 5X4 < 900 (Labour hrs Constraint)
X1, + X2, X3 and X4 > 0 (Non-negativity Constraint)
PRIME / ME33 / FINAL
10 (b) The probabilities of occurrence of A, B and C defects are 0.15, 0.20 and 0.I0 respectively. So, tile
numbers 00-99 are allocated in proportion to the probabilities associated with each of the three
defects
Defect C
Defect A
Defect B
Random numbers
Random numbers
Random numbers
Exists?
Exists?
Exists?
assigned
assigned
assigned
Yes
00-14
Yes
00-19
Yes
00-09
No
15-99
No
20-99
No
10-99
Let us now simulate the output of the assembly line for 10 items using the given random
numbers in order to determine the number of items without any defect, the number of items
scrapped and the total minutes of rework time required:
Item
No.
RN for
defect A
RN for
defect B
48
55
91
40
93
01
83
63
47
52
47
36
57
04
79
55
10
13
57
09
1
2
3
4
5
6
7
8
9
10
RN for
defect
C
82
95
18
96
20
84
56
11
52
03
Whether
any defect
None
None
None
B
None
A
B
B
None
B,C
Rework time
(in exists
minutes)
–
–
–
15
–
–
15
15
–
15 +30=45
Remarks
–
–
–
–
–
Scrap
–
–
–
–
During the simulated period, 5 out of the ten items had no defect, one item was scrapped and 90
minutes of total rework time was required by 3 items.
(c) Discretionary costs can be explained with the help of following two important features
(i) They arise from periodic (usually yearly) decisions regarding the maximum outlay to be
incurred.
(ii) They are not tied to a clear cause and effect relationship between inputs and outputs.
Examples of discretionary costs includes: advertising, public relations, executive
training, teaching, research, health care and management consulting services. The note
worthy feature of discretionary costs is that mangers are seldom confident that the
“correct” amounts are being spent.
Control:
To control discretionary costs control points/parameters may be established. But these points need
to be devised individually. For research and development function to control discretionary costs,
dates may be established for submitting major reports to management. For advertising and sales
promotion, such costs may be controlled by pre-setting targets. In the case of employees benefits,
discretionary costs may be controlled by calling a meeting of employees union and making them
aware that the company would meet only the fixed costs and the variable costs should be met by
them
PRIME / ME33 / FINAL
11 4. (a) Computation of Target Cost
Per tonne (in `)
1,466
( 30)
( 60)
(120)
1,256
(11)
(25)
1,220
(58)
ABC Ltd selling price to the merchant
Less freight paid by ABC Ltd
Less normal sales returns and allowances
XYZ Ltds Capital charge
Target cost for XYZ Ltd
Ship to Distribution Centre
Distribution Centre operating cost
Subtotal
Distribution centre capital charge
Mill target manufacturing cost
1,162
(b) The areas in which Activity based information is used for making are as under:
(i)
Pricing
(ii)
Market segmentation and distribution channels
(iii)
Make-or-buy decisions and outsourcing
(iv)
Transfer pricing
(v)
Plant closed down decisions
(vi)
Evaluation of offshore production
(vii)
Capital Investment decisions
(viii)
Product line profitability.
(c) Let us rearrange the products in descending order of contribution and find out the cumulative
contribution percentage.
Product Contribution (Rs.) Cumulative
contribution (Rs.)
C
1,500
1,500
A
500
2,000
B
200
2,200
F
125
2,325
E
100
2,425
D
75
2,500
2,500
Cumulative
contribution (%)
60
80
88
93
97
100
On analysis it is found that 80% of the total contribution is earned by two products C and A. The
position of these products needs protecting, perhaps through careful attention to branding and
promotion. The other products should be investigated to see whether their contribution can be
improved through increased prices, reduced costs, increased sales volume, etc.
(d) The theory of constraints focuses its attention on constraints and bottlenecks within organisation
which hinder speedy production. The main concept is to maximize the rate of manufacturing
output is the throughput of the organisation. This requires to examine the bottlenecks and
PRIME / ME33 / FINAL
12 constraints. A bottleneck is an activity within the organization where the demand for that resource
is more than its capacity to supply.
Key measures of theory of constraints:
(i) Throughput contribution: It is the rate at which the system generates profits through sales. It
is defined as, sales less completely variable cost, sales – direct are excluded. Labour costs
tend to be partially fixed and conferred are excluded normally.
(ii) Investments: This is the sum of material costs of direct materials, inventory, WIP, finished
goods inventory, R & D costs and costs of equipment and buildings.
(iii) Other operating costs: This equals all operating costs (other than direct materials) incurred to
earn throughput contribution. Other operating costs include salaries and wages, rent, utilities
and depreciation.
(e) Computation of relevant cost of the job:
A
(1000 x 6)
6000.00
B
(1000 x 6)
5000.00
C
[(700x2.5) + (300x4)]
2950.00
D
(300 x 5)
1500.00
15,450.00
Add: Other Expenses
550.00
16000.00
As the revenue from the order, which is more than the relevant cost of `.16,000, the order
should be accepted.
5. (a) Working Notes:
Ranking of products when availability of time is the key factory
Product
A
B
Market Price per unit
`150
`146
Less: Variable cost of Production per Unit `130
`100
Contribution per unit
20
46
Contribution per hour
6.66
11.50
(`20/3 hrs.)
(`46/4 hrs.) (`50/2 hrs.)
Ranking
IV
III
(i)
C
`140
`90
50
25
(`45/3hrs.)
I
Statement of production mix (when total available hours in division Z are 20,000)
Product
(Refer to
W.N.)
(a)
Maximum
demand
(units)
(b)
C
Hours
per unit
Units
produced
Hours
used
Balance
hours
(c)
(d)
(e)=(b)×(c)
2,300
2
2,300
4600
D
1,600
3
1,600
4800
B
2,500
4
2,500
10000
(f)
15,400
(20,0004,600)
10,600
(15,400 4,800)
600
PRIME / ME33 / FINAL
13 D
`130
`85
45
15
II
A
2,800
3
200
600
(10,600 10,000)
NIL(600600)
Note: Time required to meet the demand of 2,500 units of product D for division Y is 7,500 hours. This
requirement of time viz., 7,500 hours for providing 2,500 units of product D for division Y can be met by
sacrificing the production of 1,725 units of product B (1,725 units × 4 hours) and 200 units of product B
(200 units × 2 hours = 600 hours)
Statement of Transfer Price for each unit for 2,500 units of D
Transfer price
2,500 units of
Product D
2,12,500
4,000
Per unit of
Product D
85.00
1.60
Variable cost (2,500 units × `85)
Opportunity cost of the contribution foregone by not producing
200 units of A. (200 units × `20)
Opportunity cost of the contribution foregone by not producing
79,350
31.74
1,725 units of B (1,725 units × `46)
Transfer price
2,95,850
118.34
(b)
(i) A firm commits costs at the time of designing the product and deciding the method of production.
It also commits cost at the time of deciding the delivery channel (e.g. delivery through dealers
or own retail stores).
(ii) Costs are incurred at the time of actual production and delivery. Therefore, no significant cost
reduction can be achieved at the time when the costs are incurred. Therefore, it is said that
costs can be managed at the point of commitment.
(iii) Cost drivers are factors that drive consumption of resources. Therefore, management of cost
drivers is essential to manage costs. Structural cost drivers are those which can be managed
by effecting structural changes.
(iv) Examples of structural cost drivers are scale of operation, scope of operation (i.e. degree of
vertical integration), complexity, technology and experience or learning. Thus, structural cost
drivers arise from the business model adopted by the company.
(v) Executional cost drivers can be managed by executive decisions, examples of executional cost
drivers are capacity utilization, plant layout efficiency, product configuration and linkages with
suppliers and customers. It is obvious that cost drivers can be managed only at the point of
structural and operating decisions, which commit resources to various activities.
PRIME / ME33 / FINAL
14 6. (a)
The transportation cost = 9 × 8 + 8 × 3 + 13 × 4 + 96 × 6 + 65 × 3 + 29 × 2 + 23 × 5 + 12 × 1
= 72 + 24 + 52 + 576 + 195 + 58 + 115 + 12
= 1104
The above initial solution is tested for optimality. Since there are only 8 allocations and we require 9 (m +
n – 1 = 9) allocations, we put a small quantity in the least cost independent cell (5, 5) and apply the
optimality test. Let u5 = 0 and then we calculate remaining ui and vj.
PRIME / ME33 / FINAL
15 Since some of the Aij's are negative, the above initial solution is not optimal. Introducing in the cell
(Dummy) with most negative Aij an assignment e. The value of e and the new solution as obtained from
above is shown below. The values of ui's, vj's are also calculated. The solution satisfies the conditions of
optimality. The condition Aij = Cij – (ui + vj) > 0 for non allocated cells is also fulfilled.
The above table gives the minimum cost.
PRIME / ME33 / FINAL
16 The cost is
= 9 × 8 + 8 × 4 + 13 × 3 + 65 × 4 + 96 × 5 + 57 × 1 + 29 × 2 + 23 × 4 + 12 × 1
= 72 + 32 + 39 + 260 + 480 + 57 + 58 + 92 + 12
= 1102
(b) Steps involved in carrying out Monte Carlo simulation are:
•
•
•
•
•
•
Define the problem and select the measure of effectiveness of the problem that might be
inventory shortages per period.
Identify the variables which influence the measure of effectiveness significantly for example,
number of units in inventory.
Determine the proper cumulative probability distribution of each variable selected with the
probability on vertical axis and the values of variables on horizontal axis.
Get a set of random numbers.
Consider each random number as a decimal value of the cumulative probability distribution
with the decimal enter the cumulative distribution plot from the vertical axis. Project this point
horizontally, until it intersects cumulative probability distribution curve. Then project the point
of intersection down into the vertical axis.
Then record the value generated into the formula derived from the chosen measure of
effectiveness. Solve and record the value. This value is the measure of effectiveness for that
simulated value. Repeat above steps until sample is large enough for the satisfaction of the
decision maker.
(c) Dummy activity is a hypothetical activity which consumes no resource or time. It is represented
by dotted lines and is inserted in the network to clarify an activity pattern under the following
situations.
PRIME / ME33 / FINAL
17 (i) To make activities with common starting and finishing events distinguishable.
(ii)
To identify and maintain the proper precedence relationship between activities that are
not connected by events.
(iii) To bring all “loose ends” to a single initial and single terminal event.
Dummy (2) – (3) is used to convey that can start only after events numbered (2) and (3) are over:
7. (a) Working notes:
1. (a)
(b)
2. (a)
Budgeted fixed overhead per unit:
= (Budgeted fixed overheads p.a / Budgeted output for the year)
= `4,80,000 p.a. / 1,20,000 units = `4 per unit.
Budgeted fixed overhead hour:
= Budgeted fixed overhead per unit / Standard labour hours per unit
= `4 / 2 hours = `2 per hour
Standard cost per unit:
`
(b)
3 (a)
Direct material
(5 kg × `4/- per kg)
Direct labour
Fixed overhead
(2 hours × `2)
Total standard cost (per unit)
Budgeted selling price per unit
Standard cost per unit
Standard profit per unit
(25% on slaes or 33 – 1/3% of standard cost)
Budgeted selling price per unit
(2 hours × `3/- per hour)
20
6
4
-------30
30
10
---------40
Actual output units for April, 2001:
Fixed overhead volume Variance = Efficiency variance + Capacity variance
or (Budgeted output units – Actual output units) Budgeted fixed overhead p.u.
=`2,400 (Favourable) + `4,000 (Adverse) = `1,600 (Adverse)
or (10,000 units – x units) `4 – `1,600 (Adverse)
or (10,000 units – 400 units) = x (Actual output units)
or Actual output units = 9,600 units
PRIME / ME33 / FINAL
18 (b) Actual fixed overhead expenses:
(budgeted fixed overhead – Actual fixed overhead) = Fixed overhead expenses variance
or (`40,000 – x) = `1,400 (Favourable)
or x = `40,000 – `1,400 = ` 38,600
4. (a) Actual sales quantity units: Sales volume variance
= `4,000 (Adverse) = `10 (x – 10,000 units)
or 400 units = x – 10,000 units
or x (Actual sales quantity) = 9,600 units
(b) Actual selling price per units
or `9,600 (Fav.) = (x – `40) × 9,600 units
or Actual selling price per unit = `41/5. (a) Actual quantity of material consumed:
or 6,400 (Adv.) = (9,600 units × 5 kgs.) `4
or x kgs. = 49,600 kgs.
(actual quantity of material consumed)
(b) Actual price per kg:
Material price variance = (Standard price per kg – Actual price per kg) Actual quantity of material
consumed
-`4,960 = (`4 –Rs. y per kg.) 49,600 kg.
-0.1 = (`4 – `y per kg)
or y = `4.10 per kg.
6. (a) Actual direct labour hour used:
Labour efficiency variance = (Standard hours – Actual hours) Standard rate per hour
`3,600 (Favourable) = (9,600 units × 2 hours – p hours) Rs.3
`3,600 (Favourable) = (19,200 hours – p hours) Rs.3
P hours = (19,200 hours – 1,200 hours) – 18,000 hours
(Actual direct labour hours)
(b) Actual direct labour hour rate:
`3,600 (Adverse) = (`3 per hour – t per hour) 18,000 hours
or t = `3 + `0.20 – `3.20 per hour
(actual direct labour hour rate)
PRIME / ME33 / FINAL
19 7. Actual fixed overheads:
Fixed overhead expense variance = Budgeted fixed overhead – Actual fixed overhead
or `1,400 (Favourable) = 10,000 units × `4 p.u. – Actual fixed overhead
or Actual fixed overhead = `40,000 – `1,400
or Actual fixed overhead = `38,600
Annual financial Profit /Loss Statement
(for April, 2011)
Account
Qty./ Hours
Rate/Price
Actual/ Value
(a)
(b)
(c)
(d)=(b)×(c)
Sales: (A)
9,600 units
41
3,93,600
(Refer to working note 4)
Direct Materials
49,600 kgs. 4.10 per kg.
2,03,360
(Refer to working note 5)
Direct labour
18,000 hours 3,20 per hour
57,600
(Refer to working note 6)
Fixed Overheads
18,000 hours 2.14444 per hour
38,600
(Refer to working note 6 (a) and 7)
(`38,600/18,000 hours)
(absorbed on direct labour hour basis)
Total costs: (B)
2,99,560
Profit : [(A) – (B)]
94,040
(b) Some of the major features of “Enterprise Resource Planning” (ERP) areas follows:
(i)
ERP facilitates company-wide integrated information system covering all functional areas like
manufacturing, selling and distribution, payables, receivables, inventory etc.
(ii)
It performs core activities and increases customer services thereby augmenting the
corporate image.
(iii)
ERP bridges the information gap across organization.
(iv)
ERP provides complete integration of systems.
(v)
It is a solution for better project management.
PRIME / ME33 / FINAL
20 DTTS
No. of Pages: 6
No of Questions:7
Total Marks: 100
Time Allowed: 3 Hrs
Question No.1 is compulsory. Answer any 5 questions from the remaining 6 questions.
Working notes should form part of the answers
1. (a) X Ltd. furnishes the following particulars for the P.Y. 2010-11. Compute the deduction allowable
under section 35 for A.Y.2011-12, while computing its income under the head “Profits and gains
of business or profession”.
Particulars
(i) Amount paid to Indian Institute of Science, Bangalore for scientific research
(ii) Amount paid to IIT Delhi for an approved scientific research programme
(iii) Amount paid to X Ltd., a company registered in India which has as its main
Object scientific research and development, as is approved by the prescribed
authority
(iv) Expenditure incurred on in-house research and development facility as
approved by the prescribed authority
a. Revenue expenditure on scientific research
b. Capital expenditure (including cost of acquisition of land `5,00,000) on
scientific research.
`
1,00,000
2,50,000
4,00,000
3,00,000
7,50,000
(5 Marks)
(b) During the P.Y.2010-11, XYZ Ltd, an Indian Company,
(i) Contributed a sum of `2 lakh to an electoral trust; and
(ii) Incurred expenditure of `25,000 on advertisement in a brochure of a political party.
Is the company eligible for deduction in respect of such contribution/expenditure? If so, what is
the quantum of deduction?
(5 Marks)
(c) Can the assessing officer refer valuation of assets to the departmental valuation officer for the
purpose of making an assessment in a case where no return of wealth has been filed by the
assessee.
(5 Marks)
(d) Can stamp vendors be treated as agents of the Government for marketing stamp papers? If yes,
can tax be deducted under section 194H in respect of discount given on sale of stamps by the
Treasury to the stamp vendor?
(5 Marks)
PRIME / ME33 / FINAL
1
2.
(a) X enters into a partnership with three other persons on July 1, 2010 to start a manufacturing
business. The following capital assets are contributed by X as his capital contribution:
Date of Acquisition
Fair market value on the date of transfer
by X to the firm (i.e., July 1, 2010)
Stamp duty value
Amount recorded in the books of the firm
Cost of Acquisition
Fair market value on April 1, 1981
17,00,000
Shares
Gold
June 10, 2008 Nov 2, 2009 (`)
(`)
6,00,000
3,00,000
17,60,000
16,00,000
1,500
52,220
5,90,000
2,10,000
-
Land
May 1, 1944 (`)
3,50,000
2,70,000
-
On July 31, 2011, he deposits `12,00,000 in a bank account for purpose of availing exemption U/S
54F ( he owns one residential house).
Construction of a residential house at Bombay is completed on June 21, 2013. `9,50,000, being
the amount of investment, is financed by withdrawing from the deposit account. Assuming that
income of X from other sources (except capital gain) for the previous years 2010-11 and 2013-14 is
`90,000 and `2,10,000, respectively. Determine the net income of X for the assessment year
2011-12 and 2014-15.
(10 Marks)
(b) Mr. Mohan is a resident both in India and Malaysia. He owns some immovable properties
(Rubber Plantations) in Malaysia. During the P.Y.2009-10, he earned income from rubber
estates in Malaysia. The Assessing Officer contented that the business income is assessable in
India and brought the same to tax. Discuss the correctness of the contention of the Assessing
Officer, taking into consideration the following(i)
Mohan has no permanent establishment in India in respect of the business of Rubber
plantations.
(ii)
Article 4 of the Double Taxation Avoidance Agreement between India and Malaysia
provides that where an individual is a resident of both the Contracting States, he shall
be deemed to be resident of the Contracting State in which he has a permanent home
available to him.
If he has a permanent home available to him in both Contracting States, he shall be
deemed to be resident of the Contracting State with which his personal and economic
relations are closer.
(6 Marks)
3. (a) Pursuant to a search conducted in the premises of Mr. Ram, certain seizures were made. Mr.
Ram filed an application for settlement in terms of section 245C claiming to have received the
amount by way of loan from several persons. The Settlement Commission accepted his
statement and made an order U/S 245D(4). The CBI, however, conducted enquiry at the
respect of the Revenue regarding the loans and opined that the alleged lenders had no means
or financial capacity to advance such huge loans to the assessee and were mere money
lenders. The Commissioner filed an application U/S 245D(6) praying for the order to be declared
void and for withdrawal of benefit granted. Mr. Ram, however, contented that the order of the
Settlement Commission was final in terms of section 245-I and any fresh analysis would amount
to sitting in judgement over an earlier decision, for which the Settlement Commission was not
empowered. Discuss the correctness of Mr. Ram’s contention.
(6 Marks)
PRIME / ME33 / FINAL
2
(b) X and Y (3:2) are partners of a firm based in Bombay. For the year ended March 31, 2011, the
Firm returns the following income:
(`)
Long-term capital gains in respect of preference shares
30,000
Profit from newly set up small scale industrial undertaking in a backward district 2,15,000
(production commenced during the P.Y 2001-02)
Profits and gains from the business of export of telecast rights
1,38,000
Profits and gains from export of machines of Sri Lanka
2,45,000
Winning from Lottery
50,000
Gift received by the firm from A on Dec 1, 2010
2,00,000
The firm makes the following expenditures (not deducted from the aforesaid income):
Donation to the Prime Minister’s National Relief Fund
10,000
Interest for money borrowed for payment of Income-Tax
7,000
Determine the net income of the firm for the A.Y. 2011-12.
(10 Marks)
4. (a) X (age: 35 years) gifts `10 lakh to Mrs. X (age: 31 years). She deposits the same in a bank
@ 8% per annum. Y is minor child of X and Mrs. X. Y has a bank deposit of 70,000 (rate of
interest @ 8.25%) which was gifted to him by his grandfather. Other income of X and Mrs. X are
as follows- X: `3,00,000 (Salary: `2,10,000, bank interest: `90,000), Mrs. X: `2,00,000 (interest
as company deposits). Out of interest income, Mrs. X deposits `1,000 in PPF. X’s contribution
to the recognized provident fund is `40,000. Find out the income chargeable to tax and tax
thereon for the A.Y 2011-12.
(3 Marks)
(b)
(i) X is a resident individual. He annually deposits a sum of `15,000 with LIC for the
maintenance of his handicapped grandfather who is wholly dependent upon him. The
disability is one which comes under section 2(i) of the Persons with Disabilities (Equal
Opportunities, Protection of Rights and Full Participation) Act, 1995. A copy of certificate from
medical authority is submitted. Determine the amount of deduction available under section
80DD for the A.Y 2011-12.
(2 Marks)
(ii) How is a poultry shed classified for depreciation purposes- plant or building ? (2 marks)
(iii) Discuss the tax liability of the employee whose employer failed to deduct and pay tax at
source
(2 marks)
(c) X & Co. ( a firm of X and Y with unlimited liability) is engaged in the business of whole-sale
trading (turnover of 2010-11 being Rs. 57,80,000). It wants to claim the following deductionSalary and interest to partners [as permitted by section 40(b)]
Salary to employees
Depreciation
Cost of material used
Other Expenses
Total
Net Profit (`57,80,000 minus `57,55,000)
`
60,000
4,90,000
2,70,000
45,90,000
3,45,000
57,55,000
25,000
Determine the net income of X & Co. For the A.Y 2011-12 assuming that long-term capital gain is
`40,000 and the firm is eligible for a deduction of `5,000 under section 80G.
(4 Marks)
PRIME / ME33 / FINAL
3
(d) Can penalty be levied where a return is filled belatedly under section 139(4)?
(3 Marks)
5. Attempt any Four
(a) Anirudh filed return of income for A.Y. 2010-11 claiming a refund of `37,500. The said refund
was granted and paid to the assessee on 1st March, 2011 after processing the return under
section 143(1). Later on, the case was taken up for regular assessment by issue of notice under
section 143(2) and the said assessment was completed on 7th Sep, 2011 resulting in demand of
`. 6,300. Is the assessee liable to pay interest on the amount of refund already granted to him
and if so, what is the amount of such interest?
(b) Rallis Ltd. filed its original return for the previous year 2008-09 on 28th Sep, 2009 declaring loss
of `16.25 lakhs. Thereafter, it filed a revised return on 28th Feb, 2011 declaring loss of `19.3
lakhs. The assessment of Rallis Ltd. was not completed at that point of time. The Assessment
Officer opined that the loss indicated in the original return alone can be carried forward for setoff in the subsequent years, since section 80 does not contemplate that a revised return can be
filed. Is the contention of the Assessing Officer correct? Discuss.
(c) The assessee, Mr. Ram, declared the cost of construction of cinema theatre at `10.53 lakh,
based on the registered valuer’s report. The Assessment Officer accepted the value of the
theatre as declared by the assessee and completed the assessment. However, the
Commissioner, on enquiry, found that the assessee had availed a loan of `17 lakh from a
leasing company declaring the value of the theatre at `27.40 lakh. Therefore, the
Commissioner, after giving the assessee an opportunity of being heard, set aside the order of
assessment and directed the Assessment Officer to make fresh assessment after verification
and enquiry. On appeal before the Tribunal, the assessee questioned the order of the
Commissioner by contending that the invocation of the provident under section 263 is not
sustainable in law, since there was no information relating to any proceedings under the
Income-tax Act available before the Assessment Officer which show that the assessment was
erroneous and prejudicial to the Revenue. Discuss the correctness of the assessee’s
contention.
(d) SFS Ltd. was engaged in the sale and export of sea food. It obtained a permit to fish in the
Exclusive Economic Zone of India. In order to exploit the said fishing rights, it entered into an
agreement chartering two fishing vessels, with a non-resident company. As per the terms of the
agreement, SFS Ltd. had to pay 85% of fish catch towards the hire charges to the said nonresident company. This receipt in the form of 85% of the fish catch by the non-resident
company was in India and all the formalities were completed in India. The assessing authority
held that the assessee had made the payment to the non-resident company within the meaning
of section 195 and was liable to deduct tax at source therefrom. Is the contention of the
assessing authority correct? Discuss.
(e) ABC Ltd. failed to deduct tax at source under section 194J in respect of fees for professional
services paid by it. The Assessing Officer levied penalty under section 271C for failure to
deduct tax at source. In addition, the Assessing Officer also levied penalty under section
272(2)(c) for failure to furnish return under section 206 and under section 272A(2)(g) for failure
to furnish certificate of tax deducted at source as per the requirement of section 203. Is the
action of the Assessing Officer correct in law?
(4x4=16 Marks)
PRIME / ME33 / FINAL
4
6.
(a) The Director of Income Tax received information that Mr. X has unaccounted cash exceeding
`50 lakh. Can the Director pass orders for seizure of the cash invoking his powers under
section 131(1A)? Does the Director have any other course open to him for the seizure of cash?
(7 Marks)
(b) X Ltd. had let out the house property owned by it to the employees of its sister concern, Y Ltd.
Under what head of income should the income from the house property of X Ltd., occupied by
the employees of its sister concern Y Ltd., be assessed? Can X Ltd. claim that such income is
not chargeable under the head “Income from house property”, on the ground that the property
has been occupied for the purpose of its business or profession?
(9 Marks)
7.
(a) R Ltd. has the following assets and liabilities as on 31-3-2004. Compute the net wealth and
wealth-tax payable for the A.Y 2004-05.
Assets
Book Value
Market Value
as on 31-3-2004 as on 31-3-2004
`
`
Commercial premises used by the company for office and
2,50,000
40,00,000
godown
Commercial premises in an office complex let out on rent
1,50,000
35,00,000
Residential Bungalow allotted to a director drawing annual
1,00,000
20,00,000
emoluments of `6 lakhs
Jewellery held as investment and not for business purpose
1,50,000
15,00,000
Station wagon used for the purpose of business
2,50,000
4,00,000
Indian car used for hiring business to tourist and others
1,50,000
2,00,000
3,00,000
12,00,000
Imported car allotted to director for personal and office use
Investments in shares
2,00,000
7,00,000
5,00,000
7,00,000
Plant and Machinery
Furniture and Fixture
1,00,000
1,50,000
Stock-in-trade
1,00,000
1,00,000
Debtors and other receivables
4,00,000
4,00,000
Cash in hand (as per books)
75,000
75,000
27,25,000
Liabilities
Preference Capital
3,00,000
Equity share capital issued for cash
5,00,000
Bonus share issued in 1991
2,50,000
General reserve
2,00,000
Profit and Loss a/c balance
2,75,000
Bank loan against plant and machinery
2,00,000
Creditors and other payables
10,00,000
27,25,000
(5 Marks)
PRIME / ME33 / FINAL
5
(b) What is the procedure under wealth tax Act, for the assessment of persons residing
outside?What are the provisions for the recovery of tax from him?
(5 Marks)
(c) R made an agreement to sell his property for `20 lakhs on 8-10-2003. He received
`2,00,000 as earnest money; the balance amount is received on 27-03-2004 but the
conveyance deed is executed on 10-4-2004. The documents are registered on 6-6-2004. The
property was shown and assessed for Wealth-tax purposes at `17,00,000 for the A.Y 2003-04.
Advice R regarding the above transaction for submission of his return on net wealth for the A.Y
2004-05.
(3 Marks)
(d) X inherited a house plot situated in the Mumbai Corporation limits, from his deceased father
who had an outstanding income-tax liability of `12 lakhs. The property was sold in April 2004
and the above outstanding liability was collected from the sale consideration by the
department. Is the said liability of the deceased father a deductible debt while considering the
net wealth as on 31-3-2004?
(3 Marks)
PRIME / ME33 / FINAL
6
PRIME ACADEMY
33RD SESSION MODEL EXAM - FINAL – DIRECT TAX LAWS
SUGGESTED ANSWERS
1.
(a) Computation of deduction under section 35 for the A.Y 2011-12
Particulars
Payment for scientific
Research
Indian Institute of Science
IIT, Delhi
X Ltd.
Expenditure incurred on
in-house research and
development facility
Revenue expenditure
Capital expenditure
(excluding cost of
acquisition of land
`5,00,000)
`
Section
1,00,000
2,50,000
4,00,000
35(1)(ii)
35(2AA)
35(1)(iia)
175%
175%
125%
1,75,000
4,37,500
5,00,000
3,00,000
2,50,000
35(2AB)
35(2AB)
200%
200%
6,00,000
5,00,000
Amount
% of
of
weighted
deductions deduction
(`)
------------22,12,500
Deduction allowable under Section 35
(b) An Indian Company is eligible for deduction under section 80GGB in respect of any sum contributed
by it in the previous year to any political party or an electoral trust. Further, the word contribute in
section 80GGB has the meaning assigned to it in the section 293A of the Companies Act, 1956,
and accordingly, it includes the amount of expenditure incurred on advertisement in a brochure of
a political party.
Therefore, ABC Ltd. is eligible for a deduction of `2,25,000 under section 80GGB in respect of
sum of `2,00,000 contributed to an electoral trust and `25,000 incurred by it on advertisement in
a brochure of a political party.
It may be noted that there is a specific disallowance under section 37(2B) in respect of
expenditure incurred on advertisement in a brochure of a political party. Therefore, the
expenditure of `25,000 would be disallowed while computing business income/ gross total
income. However, the said expenditure incurred by an Indian Company is allowable as a
deduction from gross total income under section 80GGB.
(c) The question was answered in the Punjab & Haryana High court in CWT v. Anil Tayal (HUF)
(2006).The high court observed that the object of section 16A of the Wealth Tax Act ,1957 is to
enable the assessing officer to refer the issue relating to the value of any asset to a Valuation
Officer for the purpose of making assessment. The expression ‘in any other case” in clause (b) of
PRIME / ME33 / FINAL
7
Section 16A (1)is wide enough to include a case where no return has been filed by the assessee .If
a narrow view is taken that the reference under Section 16A(1) can be made only when return has
been filed, then the expression “in any other case” in clause (b) of section 16A(1) and the
expression “where no such return has been made” in subsection (4) of Section 16A would become
redundant. Therefore, a reference under section 16A(1) could be made even when no return has
been filed by the assessee under section 14 or section 15.
(d) In Kerala Stamp Vendors Association Vs Office of the Accountant General (2006) 282 ITR 0007,
the High Court held that stamp vendors cannot be treated as agents of Government for marketing
stamp papers. The discount given on sale of stamp by the Treasury to the stamp vendor is outside
the scope of TDS provisions under section 194H.
The High Court observed that only commission and brokerage are subject to tax deduction under
section 194H. Commission or brokerage is paid for services rendered in the course of sale. This
implies services rendered by third parties like brokers or agents. It cannot mean services rendered
by a buyer because a buyer is not rendering any service expect for buying. A price discount given to
the seller by the buyer cannot be treated as commission or brokerage for services rendered in the
course of buying and selling of goods. This is because the act of buying does not constitute
rendering any service. Therefore, stamp vendors cannot be treated as agents of the Government for
marketing stamp papers and consequently, TDS provisions under section 194H are not attracted.
2.(a) Assessment Year 2011-12 (Previous Year 2010-11)
Capital Gains
Value of consideration received as a result of transfer of assets
to firm (i.e. amount recorded in books of accounts)
Less: Cost of Acquisition
Indexed cost of Acquisition [`52,220 * 711/100]
Balance
Less: Exception under section 54F (`12,00,000 / `16,00,000 *
`12,28,716)
Land
(`)
16,00,000
Gold
(`)
5,90,000
Shares
(`)
3,50,000
3,71,284
12,28,716
9,21,537
2,10,000
3,80,000
-
2,70,000
80,000
-
3,07,179
3,80,000
80,000
Capital gains
7,67,179
Other income
90,000
Net Income (rounded off)
8,57,180
Since X has not fully utilised the deposit account for purchase/ construction of residential house, the
amount left utilised by June 30, 2013 will be considered for calculating deemed capital gains.
Amount utilised out of deposit account (a)
Sale proceeds of land (b)
Capital gains (c)
Amount of exemption [(a)/(b)*(c)]
Amount of exemption availed during the A.Y 2011-12
Excess of exception taxable as deemed long term capital gains
Other income
Net Income (rounded off)
PRIME / ME33 / FINAL
8
`
9,50,000
16,00,000
12,28,716
7,29,550
9,21,537
1,91,987
2,10,000
4,10,990
(b) The issue arising in this case is similar to the issue which has been settled by the Apex Court in CIT
v. P.V.A.L. Kulandagan Chettiar (2004) 137 Taxmen 460. In this case, the Apex Court observed the
following:
(i) Section 90(2) of the Income Tax Act, 1961 makes it clear that in any case of conflict between
the provisions of Double Taxation Avoidance Agreement (DTAA) and the Income Tax Act,
1961, the provisions of Double Taxation Avoidance Agreement (DTAA) would prevail over the
provision of the Act.
(ii) The tax liability arising in respect of a person residing in both the Contracting States has to be
determined with reference to that State with which his personal and economic relations are
closer. The person shall be deemed to be a resident of that Contracting State in which he has a
habitual abode.
(iii) The immovable property in question (Rubber Plantations) is situated in Malaysia and income
was derived from that property. Further, there was no PE in India in regard to the business of
rubber plantations. Therefore, the business income from rubber plantation could not be taxed
in India because of closer economic relations between the assessee and Malaysia, being the
place where
(1) the property is located
(2) the PE has been set up.
These two factors go to determine the fiscal domicile.
(iv) If an assessee is deemed to be a resident of a contracting State where his personal and
economic relations are closer, then in such a case, the fact that he is a resident in India to be
taxed in terms of section 4 and 5 would become irrelevant, since the DTAA prevails over
section 4 and 5.
Therefore, in this case, the contention of the Assessing Officer is not correct.
3.(a) The Apex Court, in CIT v. Om Prakash Mittal (2005) 143 Taxman 373/273 ITR 0326, observed
that a bare reading of section 245D(6) shows that every order passed under sub-section (4) has
to provide for the following:
• The terms of settlement and
• That the settlement would become void if it is subsequently found by the Settlement
Commission that it has been obtained by fraud or misrepresentation.
The decision whether the order has been obtained by fraud or misrepresentation is that of the
Settlement Commission. However, there is no requirement that the Settlement Commission
must suo motu initiate the action. The Revenue can move the Settlement Commission for
decision on an issue if it has material to show that the order was obtained by fraud or
misrepresentation of facts.
The Supreme Court observed that the foundation for settlement is an application which an
assessee can file at any stage of a case relating to him in such form and manner as may be
prescribed. The fundamental requirement of the application under section 245C is that there
must be full and true disclosure of the income along with the manner in which it has been
derived. If an order is obtained by fraud or misrepresentation of facts, it cannot be said there is
a full and true disclosure. That is why the Legislature has prescribed the condition relating to
declaration of order void when it is obtained by fraud or misrepresentation of facts.
PRIME / ME33 / FINAL
9
The Supreme Court held that merely because section 245-I provides that the order of settlement
is conclusive, it does not take away the power of the Settlement Commission to decide whether
the settlement order has been obtained by fraud or misrepresentation of facts. If the
Commissioner is able to establish that the earlier decision was void because of
misrepresentation of facts, then it is open for the Settlement Commission to decide the issue. It
cannot be called by any stretch of imagination to be a review of the earlier judgement or the
subsequent Bench sitting in appeal over the earlier Bench’s decision.
Mr. Ram’s contention is therefore not correct.
`
(b) Computation of Net Income of the firm:
Capital gains
Profit from newly set up industrial undertaking
Profits from the business of export of telecast rights
Profits from export of machines of Sri Lanka
Income from other sources:
Winning from Lottery
Gift (gift is taxable only in the hands of an individual / HUF subject to certain conditions)
Gross Total Income
Less: Deductions u/s 80C to 80U
U/S 80G in respect of donation to the Prime Minister’s National Relief Fund (100% of
`10,000)
U/S 80-IB in respect of profits from newly set up industrial undertaking (25% of Rs.
2,15,000)
Net Income
30,000
2,15,000
1,38,000
2,45,000
50,000
6,78,000
10,000
53,750
6,14,250
4.(a)
X
`
2,10,000 -
Salary
Income from other sources
- Bank interest of Mrs. X
- Bank interest of Y (8.25% of
`70,000 – `1,500)
- Bank interest of X
Interest of company deposit
Gross total income
Less : Deduction u/s 80C
Net Income (rounded off)
Income – Tax
Add: Surcharge (not applicable)
Tax
Add; Educational Cess
Add: Secondary and higher education cess
Tax Liability
PRIME / ME33 / FINAL
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Mrs. X
`
Y
-
80,000
4,275
-
-
90,000
3,84,275
40,000
3,44,280
18,428
18,428
369
185
18,980
2,00,000
2,00,000
1,000
1,99,000
900
900
18
9
930
-
(b) (i) As grandfather does not come within the definition of “dependent” in section 80DD, nothing
shall be deducted under section 80DD.
(ii) A poultry shed is not a plant enabling the assessee to claim a higher rate of depreciation as
applicable to a plant but is entitled to depreciation as applicable to buildings only held the
Andhra Pradesh high court in CIT v.Padmavathi Hatcheries (P) Ltd.& Ors.
(iii) The Full Bench of the Uttarkhand High Court has in DIT &Anr.v. Maersk Co., Ltd., has
taken the view that where an employer has failed to deduct and pay tax at source on salaries
paid to the employee,the employee was liable to pay the tax thereon directly under section
191 but was not liable to pay interest under section 234B.
(c)
Income from the wholesale business (8% of `57,55,000)
Less: Expenses
Salary and interest to partners [as permitted by section 40(b)]
Other expenses [except Salary and interest to partners in the case of firm, no other
expenditure is deductible]
Income from business
Capital gains
Gross total Income
Less: Deductions u/s 80C to 80U
Total
`
4,62,400
60,000
Nil
4,02,400
40,000
4,42,400
5,000
4,37,400
(d) Penalty of `5000 is attracted u/s 271F for failure to furnish return of income as required u/s
139(1) before the end of the relevant A.Y. The time allowed for filling a belated return is upto
one year from the end of the relevant A.Y. or before the completion of the assessment,
whichever is earlier. If the belated return u/s 139(4) is filed before the end of the relevant A.Y,
penalty u/s 271F is not attracted. However, if the same is filed after the end of the relevant A.Y,
penalty u/s 271F is attracted.
5.(a) As per section 234D, where any refund is granted to the assessee after processing the return
u/s 143(1) and later on, in the regular assessment there is no refund due or the amount
refunded exceeds the amount refundable, the assessee shall be liable to pay simple interest at
½% for every month or part of a month from the date of grant of refund to the date of such
regular assessment on the whole or the excess amount so refundable.
The assessee was granted refund on 1.3.2011 after processing the return u/s 143(1). The
regular assessment u/s 143(3) was completed on 7.9.2011 and resulted in tax payable of
`6,300. Therefore, no refund was due on regular assessment. Accordingly, the assessee is
liable to pay interest u/s 234D on `37,500 at ½ % for 7 months.
Interest payable by the assessee u/s 234D works out to `1,313 (i.e `37,500 * ½ % * 7 months).
(b) Rallis Ltd. has filed its original return u/s 139(3) before the time allowed u/s 139(1) i.e. before
30th Sep, 2009. It has also filed the revised return within the time allowed u/s 139(5) i.e. before
the expiry of one year from the end of relevant A.Y or before completion of assessment,
whichever is earlier. In this case, the assessment was yet to be completed and one year from
the end of relevant A.Y expires on 31.3.2011. Since Rallis Ltd. has filed its revised return on
28.2.2011, it was within the time allowed u/s 139(5).
PRIME / ME33 / FINAL
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A perusal of section 139(3) makes it clear that a return of loss filed u/s 139(3) may be filed
within the time allowed u/s 139(1). One such a return is filed; all the provisions of the Act shall
apply as if such return has been filed u/s 139(1). In other words, a return filed u/s 139(3) is
deemed to be a return filed u/s 139(1). The provision contained in section 139(3) makes it clear
that all the provisions of the act shall apply to such a return as if it were a return u/s 139(1). In
view of such specific provision, there is no further necessity in section 80 to refer to such
provision. Hence, there is no reason to exclude the applicability of section 139(5) to a return
filed u/s 139(3). Therefore, a loss return filed u/s 139(3) can be revised by filing a revised return
u/s 139(5) within the time allowed. Such loss, as per the revised return can be carried forward,
even though section 80 does not specifically provide for carry- forward of loss which has been
determined in pursuance of return filed u/s 139(5).
This principle has been supported by the Madras High Court in CIT v. Periyar District Co-op.
Milk Products Union Ltd. (2004) 137 Taxman 364 (Mad.).
The contention of the Assessing Officer is therefore, incorrect.
(c) This issue was resolved by the Madras High Court in CIT v. Dr.K.Ramachandran (2004) 139
Taxman 320. The High Court observed that the Explanation to section 263 provides that the
term record shall include and shall be deemed always to have included all records relating to
any proceeding under the Act available at the time of examination by the Commissioner. In Cit
v. Shree Manjunathesware Packing Products & Camphor Works (1998) 231 ITR 53(SC), the
Apex Court made it clear that section 263 enables the Commissioner to call for and examine the
records of any proceedings under the Act and pass such orders thereon as the circumstances
of the case justify, including an order enhancing or modifying the assessment or cancelling the
assessment and directing a fresh assessment, if he considers that the order passed by the
Assessing Officer is erroneous and prejudicial to the interest of the Revenue. For this purpose,
record would include not only record which was available to the Assessing Officer at the time of
passing the assessment order, but would include the records available with the Commissioner
at the time of passing the order by the Commissioner.
The High Court also relied on its earlier decision in the case of CIT v. M.N.Sulaiman(1999) 238
ITR 139, wherein it followed the above decision of the Supreme Court. The High Court further
held that the explanation added to section 263(1) in the year 1998 has to be regarded as
declaratory.
Therefore, since the term record shall include all records available at the time of passing of
order under section 263 by the Commissioner and is not restricted to information available to
the Assessing Officer at the time of passing the assessment order, the assessee’s contention is
not correct.
(d) The Andhra Pradesh High Court settled this issue in Kanchanganga Sea Foods Ltd. v. CIT
(2004) 136 Taxman 8, where it was held that 85% of fish catch which was adjusted in discharge
of liability of the assessee towards hire charges, would be receipts in the hands of non-resident
company under section 5(2). Further, this receipt in the form of 85% of the fish catch by the nonresident company was in India since all the formalities were completed in India. It was further
held that payment contemplated under section 195 not only includes cash payment or payment
by cheque or draft, but also a payment given by any other mode. Therefore, the payment of hire
charges made by the assessee by giving 85% of fish catch to the non-resident company
amounted to payment as contemplated under section 195.
Therefore, the contention of assessing authority is correct.
(e) This issue came up before the High Court of Allahabad in CIT-II, Lucknow vs. Sahara Airlines
Ltd. The high Court held that the provisions of sections 203 and 206 would be applicable only if
PRIME / ME33 / FINAL
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tax has been deducted at source by the person concerned and he commits default in complying
with any of the provisions of section 203 or 206. However, in a case where no tax has been
deducted at source, the aforesaid provisions would not be attracted. For failure of the assessee
in deducting tax at source, penalty can be imposed upon him under section 271C. Once a
person concerned has been subjected to a penalty under section 271C for not deducting tax at
source, there would not arise any occasion for levying penalty u/s 272A(2)(c) and 272(2)(g) for
non-compliance of the provisions of section 206 and 203. In other words, in case the tax has not
been deducted at source, the question of issuing the certificate of tax deducted u/s 203 and that
of filing of return u/s 206 would not arise at all. Therefore, the question of imposing penalty for
violation of the provisions of section 203 and 206 would not arise.
Therefore, the action of the Assessing Officer imposing penalty u/s 272A(2)(c) and 272(2)(g) in
a case where tax has not been deducted at source is not correct in law.
6.(a) The powers u/s 131(1A) deal with power of discovery and production of evidence. They do not
confer the power of seizure of cash or any other asset. The Director, for purposes of making an
enquiry or investigation relating to any income concealed or likely to be concealed by any
person or class of persons within his jurisdiction shall be competent to exercise powers
conferred u/s 131(1), which confine to discovery and inspection, enforcing attendance,
compelling the production of books of accounts and other documents and issuing commissions.
Thus, the power of seizure of unaccounted cash is not one of the power conferred on the
Director u/s 131(A).
However, u/s 132(1), the Director has the power to authorise any Assistant Director, Deputy
Director, Assistant Commissioner or Deputy Commissioner or Income-tax Officer to seize
money found as a result of search [Clause iii of section 132(i)], if he has reason to believe that
any person is in possession of any money which represents wholly or partly income which has
not been disclosed [Clause (c) of section 132(1)]. Therefore, the proper course open to the
Director is to exercise his power u/s 132(1) and authorize the Officers concerned to enter the
premises in which the cash is kept and seize the unaccounted cash.
(b) These questions have been answered by the Madras High Court in CIT v. TVS (2005) 145
Taxman 380/ (2004) 271 ITR 0079. The High Court observed that in order to claim exemption in
respect of income from house property u/s 22, the assessee must satisfy two conditions namely:
1) The property or portion thereof must be occupied by the assessee for the purposes of
business or profession; and
2) The profits of such business should be chargeable to income-tax.
The issue under consideration is that in order to avail the exemption u/s 22, is it necessary that
the property must be –
(i) In direct occupation of the assessee-company and
(ii) Used as such for transaction of the assessee’s business or profession.
The High Court observed that the term ‘occupy’ appearing in section 22, when judicially
interpreted, means occupation, directly by the assessee himself or through an employee or
agent, subservient and necessary for the performance of the duties in connection with the
business of the company. The assessee had let out the properties in question to the employees
of the sister concerns, who were separate and independent assessees by themselves, which
made a vast difference in letting out of properties to the employees of assessee itself.
Therefore, the occupation of the properties in question by the employees of sister concern could
PRIME / ME33 / FINAL
13
not be construed as an occupation by the employees of assessee itself, in the absence of any
specific provision in law to that effect.
Therefore, the income from the property let out to the employees of the sister concern Y Ltd.
should be treated as income from house property of X Ltd. u/s 22.
7.(a) Computation of Net Wealth R Ltd., for the A.Y. 2004-05
`
Residential bungalow allotted to a Director drawing annual emoluments exceeding 5 lakhs 20,00,000
and hence an asset
Jewellery held as investment and not for business purpose
15,00,000
Station wagon used for the purpose of business is taxable
4,00,000
Imported car allotted to director for personal and office use
12,00,000
51,00,000
Less: Liability
NIL
51,00,000
Wealth Tax on above @ 1% on the amount in excess of `15,00,000
36,000
(b) If the person is liable to tax under this Act resides outside India ,the tax may be assessed on
the agent for the person.The agent is a person appointed adhoc by the Assessing Officer.The
assessing Officer chooses the agent from the following three categories:
(a) Person employed by or on behalf of the outsider.
(b) Person acting as a media of transmission to the outsider of income,profit or gain.
(c) Person having possession or custody of any assets of outsider.
Such agent is entitled to be reimbursed by his principal on whose account he pays the amount
of wealth-tax. For this purpose he can retain the amount from the money that may be in his
possession or may come to him as an agent. The power of retention of any money payable by
the agent to his principal residing outside India may also be exercised by him when he
apprehends that he may be assessed as an agent. In such case ,if any disagreement as to the
amount to be so retained arises between him and his principal, then the agent may obtain from
the assessing officer a certificate showing the amount to be retained pending settlement of
liability. The certificate shall be warrant of the agent for retaining that amount.
(c) This problem is based on a case decided by the Supreme Court in CWT v. Nawab Sir Mir
Osman Ali Khan (1986) 162 ITR 888 in which Supreme Court held that the liability to wealthtax arises because of the belongings of the asset and not otherwise. Mere possession, or joint
possession, unaccompanied by the right to be possession or ownership of property, would,
therefore, not bring the property within the definition of” net wealth” for it would not then be an
asset “belonging” to the assessee.
(d) A property is a bundle of rights and if a liability is attached to the same, it should also be taken
due note of. A house plot has to be valued as per Rule 20 of the Schedule III of the Wealth-Tax
Act. The value of the house plot shall be the price it would fetch if sold in the market on the
valuation date. If a liability is attached to the property, it affects its market price. Hence, the
outstanding income-tax liability of `12 lakhs shall be deducted for the purpose of computing
net wealth as on 31.3.2004.
PRIME / ME33 / FINAL
14
INST
No. of Pages: 1
No of Questions: 7
Total Marks: 100
Time Allowed: 3 Hrs
Question No 1 is Compulsory.
Answer any 4 questions from the remaining 6 questions
1
(a) CAM Technologies is in the process migrating to new international ERP system. Describe
briefly the various activities involved in the process
(b) R & D division of ABC Ltd is in the process of developing its own application software for costing
function. The management is considering of adopting a prototype approach. Kindly advise them
the process, strengths and weaknesses of this model
(c) Explain the various requirements as a system analyst you would look into in case of stock
operations of a multi-branded cloth store during system design stage
(10+5+5 = 20 Marks)
2. (a).Explain data integrity policies in brief
(b)What is maturity level of software process?Explain Level1
(c)Discuss COBIT’s working definition in brief
(8+8+4=20 Marks)
3
(a) Sundaram finance wants to ensure that the business continuity plan developed by it is
working well. What the check points you will suggest for the back up plan of its IT resources.
(b) Explain the IS Controls Audit Process
(c) Define BPR
(8+8+4=20 Marks)
4
(a) Explain how does impact of control and audit influences an organisation
(b) Enumerate the various types of information security policy that may be adopted by organizations
(2*10=20 Marks)
5
(a) What are the conditions subject to which electronic record may be authenticated by means
of affixing digital signature?
(b) Distinguish risk, threat, vulnerability and exposure
(c) Explain the three levels of implementation of databases
(8+8+4=20 Marks)
6
(a) Describe Risk Management Process
(b) Explain the characteristics of ERP
(2*10=20 Marks)
7
Write short notes on any four of the following
(a) Open and closed systems
(b) Business continuity Planning
(c) Substantive Testing
(d) Steps in the information technology Audit
(e) Firewalls
(4x4=16 Marks)
PRIME / ME33 / FINAL
1
PRIME ACADEMY
33RD SESSION MODEL EXAM - FINAL – INFORMATION SYSTEMS CONTROL AND AUDIT
SUGGESTED ANSWERS
1. (a) Various activities involved in Migrating from legacy to new system
Migrating to new ERP package includes all those activities which must be completed to
successfully convert from the previous system to the new information system. Fundamentally
these activities can be classified as follows:
Procedure conversion:
•
•
•
Documentation of operating procedures for the new system that applies to both computeroperations and functional area operations.
Before any parallel or conversion activities can start, operating procedures must be clearly
spelled out for personnel in the functional areas undergoing changes.
Information on input, data files, methods, procedures, output and internal controls must be
presented in clear, concise and understandable terms for the average reader; written
operating procedures must be supplemented by oral communication during the training
sessions on the system change.
File conversion:
This phase should be started before programming and testing are completed.
• Cost and related problems of conversion should be understood.
• Thorough testing of conversion programs and adequate controls should be built into the
conversion methodology.
• On line and offline file conversion
System Conversion:
This includes the following:
• Establishing the reliability of the new system
• Shifting of daily processing of the existing system to the new one
Scheduling personnel and equipment:
•
•
Scheduling data processing operations by the system manger along with functional heads
To make users more familiar with the new system, schedules to be drawn and master
schedules for the next month should provide sufficient computer time to handle all required
processing.
(b) Prototype approach to SDLC:
The process, strengths and weaknesses of the model – Refer SM-Chap 2 -6.8
(c) Requirements as a system analyst would look into during design stage for stock
PRIME / ME33 / FINAL
2
operations
• Input requirements
• MIS REQUIREMENTS
• Output requirements
• Process flow
For detailed description refer to SM Chap 2.- 2.22
2. (a) Data integrity policies
Various data integrity policies are as follows:
•
•
•
•
•
•
•
Virus –signature updating – is done immediately when they are made available from the
Vendor
Software testing: must be done in a suitable test environment before installation of
production systems
Division of Environments: into development, test and production is required for critical
systems
Version zero software:1.0, 2.0, and so on must be avoided whenever possible to avoid
undiscovered bugs
Offsite back up storage: Backups older than one month must be sent offsite for permanent
storage
Quarter end and Year end backups: must be done separately from the normal schedule for
accounting purposes
Disaster recovery: A comprehensive plan must be used to ensure continuity of the corporate
business in the event of an outage.
(b) Maturity level of software process:
A maturity level is a well defined evolutionary level toward achieving a mature software process.
Each level comprises a set of process goals that when satisfied, stabilize an important component
of the software process.
Achieving each level of the maturity framework establishes a different component in the software
process, increasing the process capability of the organisation.
CMM has total five levels
• Level 1: The initial Level
• Level 2: The repeatable Level
• Level 3: The defined level
• Level 4: The managed Level
• Level 5: The optimizing Level
Level 1: In this level the organization does not provide a stable environment for developing and
maintaining software.
They often face crisis and during crisis projects are abandoned;
Success depends entirely on having an exceptional manager and seasoned and effective
software team.
In this level they do not have an orderly process. Level 1 thus is a characteristic of individuals
than of organization.
PRIME / ME33 / FINAL
3
(c) COBIT’S working definitions are as follows:
Effectiveness: I t deals with information being relevant and pertinent to the business process as
well as being delivered in a timely, correct, consistent and usable manner.
Efficiency: It concerns the provision of information through the optimal (most productive and
economical) use of resources
Confidentiality: It concerns the protection of sensitive information from unauthorized disclosures
Integrity: It relates to the accuracy and completeness of information as well as to its validity in
accordance with business values and expectations.
Availability: It relates to information being available when required by the business process now
and in the future. It also concerns the safeguarding of necessary resources and associated
capabilities
Compliance: It deals with complying with those laws, regulations and contractual arrangements
to which the business process is subjected i. e., externally imposed business criteria
Reliability of information: It relates to the provision of appropriate information for management
to operate the entity and for management to exercise its financial and compliance reporting
responsibilities.
3.(a) Backup plan: The backup plan should ensure that all its critical resources are backed up. It
includes
Personnel
Hardware
Facilities
Documentation
Supplies
Data information
Application software
System Software
(b) IS Control Audit Process
•
•
•
The Audit of an IS environment is to evaluate the systems, practices and operations and may
include one or both of the following:
Assessment of internal controls within the IS environment to assure validity, reliability, and
security information.
Assessment of the efficiency and effectiveness of the IS environment in economic terms The
IS audit process is to evaluate the adequacy of internal controls with regard to both specific
computer programs and the data processing environment as a whole. This includes
evaluating both the effectiveness and efficiency. The focus (scope and objective) of the audit
process is not only on security which comprises confidentiality, integrity and availability but
also on effectiveness (result-orientation) and efficiency (optimum utilisation of resources) The
audit objective and scope has a significant bearing on the skill and competence
(c) Business Process Reengineering (BPR)
It is the fundamental and radical redesign of processes to achieve dramatic improvement, in
critical, contemporary measures of performance such as cost, quality, service and speed.
Refer study note for detailed steps involved in BPR
PRIME / ME33 / FINAL
4
4.(a) Impact of control and audit on an organization
You can explain how the costs of data loss, computer abuse computer error cost of incorrect
decision making, cost of maintenance of privacy can all be controlled through audit and in
achieving improved safeguarding of assets, data integrity, system effectiveness and efficiency.
Please refer SM-chapter 3 -3.2
(b) Various types of information security policy are
• Information security policy
• User security policy
• Acceptable usage policy
• Organizational information security policy
• Network &system policy
• Information classification policy
• Conditions of connections
Brief of the above may be explained.
5.(a) Chapter-II of IT Act, 2000 gives legal recognition to electronic records and digital
signatures. It is contained in section 3.
This Section deals with the conditions subject to which an electronic record may be authenticated
by means of affixing digital signature which is created in two definite steps.
First the electronic record is converted into a message digest by using a mathematical function
known as “Hash function” which digitally freezes the electronic record thus ensuring the integrity
of the content of the intended communication contained in the electronic record. Any tampering
with the contents of the electronic record will immediately invalidate the digital signature.
Secondly, the identity of the person affixing the digital signature is authenticated through the use
of a private key which attaches itself to the message digest and which can be verified by anybody
who has the public key corresponding to such private key. This will enable anybody to verify
whether the electronic record is retained intact or has been tampered with since it was so fixed
with the digital signature. It will also enable a person who has a public key to identify the originator
of the message.
For the purposes of this sub-section, “hash function” means an algorithm mapping or translation of
one sequence of bits into another, generally smaller set known as “hash result” such that an
electronic record yields the same hash result every time the algorithm is executed with the same
electronic record as its input making it computationally infeasibleto derive or reconstruct the original electronic record from the hash result produced by the
algorithm; that two electronic records can produce the same hash result using the algorithm.
(b) Risk, threat, vulnerability and exposure
1. Risk: It is the likelihood that an organization would face a vulnerability being exploited or a
threat becoming harmful.
The direct and indirect risk that is generated out of the system lead to gap between the need
to protect and the degree of protection applied.
PRIME / ME33 / FINAL
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2. Threat: is an action, event or condition where there is a compromise in the system, its quality
and ability to inflict harm to the organization. It is any circumstance or event with the
potential to cause harm to an information system in the form of destruction, disclosure,
adverse modification of data and denial of services.
3. Vulnerability: It is the weakness in the system safeguards that exposes the system to
threats. It may be weakness that could be exploited by a threat. They potentially allow a
threat to harm or exploit the system
4. Exposure: It is the extent of loss the organisation has to face when a risk materialises. It is
not just the immediate impact, but the real harm that occurs in the long run. Loss of business,
loss of reputation, violation of privacy, loss of resources.
(c) Implementation of database:
Data base is implemented at three levels as listed below:
Physical level: It relates to storage of data in the hard disk where in the management of storage
and access is controlled by the operating system
Logical Level: This is more concerned with the design of DBMS which are done by professional
programmers. It deals with
• Nature of data
• The scheme of data
• Its divisions into various tables, its structure
• Its relationship definition with indexes
•
External Level: This is more related with users. It deals with how the data defined in the logical
level can be more related by users.
6.(a) Risk Management Process: Broadly it comprises of the following:
a. Identify the technology related risks under the gamut of operational risks
b. Assess the identified risks in terms of probability and exposure
c. Classify the risks as systematic and unsystematic
d. Identify various managerial actions that can reduce exposure to systematic risks and the
cost of implementing the same
e. Look out for technological solutions available to mitigate unsystematic risks
f. Identify the contribution of the technology in reducing the overall risk exposure.
g. Evaluate the technology risk premium on the available solutions and compare the same
with the possible value of loss from the exposure
h. Match the analysis with the management policy on risk appetite and decide on induction of
the same.
(b) Characteristics of ERP
ERP system is not only the integration of various organisations processes. The features are:
•
Flexibility: An ERP system should be flexible to respond to the changing needs of an
enterprise.
PRIME / ME33 / FINAL
6
•
•
•
•
Modular and open: It has to have open system architecture. That is any module can be
interfaced or detached whenever required without affecting the other modules. It should
support multiple hardware platforms for the companies having heterogeneous collection of
systems. Should be able to support third party add- ons also.
Comprehensive: Should be able to support variety of organizational functions and must be
suitable for a wide range of business organizations.
Beyond the company: It should not be confined to the organizational boundaries , rather
support the on-line connectivity to the other business entities of the organizations.
Best Business practices: It must have a collection of the best business processes
applicable worldwide. An ERP package imposes its own logic on a company’s strategy
culture and organization.
7.(a) Open and closed systems -Open systems are those which are open to changes in
environment and closed system do not adapt themselves to the changes in the environment
Refer study vol- II-chap 1
(b) Business continuity Planning: is planning in advance and it covers the following viz.
•
•
•
•
•
•
•
Business resumption planning
Disaster recovery planning
Crisis management...It involves the following steps:
Developing a continuity plan
Doing an Business impact analysis
Development of plans like emergency plan, backup plan and recovery plan.
The objectives and goals may also be briefly mentioned here
.
(c) Substantive Testing – Testing as to the quantum is called substantive testing Refer SM Chap
4.1
(d) Steps in the information technology Audit Refer SM 3.6.4
(e) FireWalls - It is combinationof both hardware and software that acts as intruder
dectector. Refer SM
PRIME / ME33 / FINAL
7
IDXS
No. of Pages: 7
No of Questions: 7
Total Marks: 100
Time Allowed: 3 Hrs
Question no 1 is compulsory. Answer any five questions from the rest.
Give suitable assumptions. Each sub division must be answered continuously.
1. (a) A Manufacturer in Gujarat has a depot in Bangalore. His factory gate price is `9,000. Transport charges
from Gujarat to Bangalore are `500 per piece. The manufacturer’s Karnataka depot price is `10,000
exclusive of excise duty and Karnataka Sales Tax. Karnataka Sales Tax on the goods is 10%.
As per Karnataka Sales Tax Law, sales tax is payable on selling price plus excise duty. The manufacturer
is planning to make direct sale to Bangalore buyers from his Gujarat factory, instead of selling from depot.
Bangalore dealers want that their present cum-duty invoice price (excluding Karnataka Sales Tax) should
remain unaffected even if goods are sold from Gujarat. The reason they are giving is that if goods are
directly sold to them from Gujarat, they will have to pay Karnataka Sales Tax. The Bangalore dealers are
registered under CST Act and are in a position to issue C form for their purchases. The manufacturer has
agreed to the request of dealers. You are required to calculate the assessable value and excise duty and
CST payable if goods are sold directly from Gujarat, assuming that dealers’ request is accepted. The
product is leviable to excise duty @ 10% plus education cess as applicable. If the product is sold in Gujarat
State, the sales tax rate is 8%.
(5 Marks)
(b) Determine the assessable value and customs duty amount from the following data :
Name of the raw material Avita
FOB value US Dollar 1 million
Ocean freight Actual data not available
Ocean Insurance Actual data not available
Freight from sea port to godown paid in India `10,000
Transit insurance in India `2,000
Selling commission paid to agent in India 5%
Royalty on manufacture and sale of final product to foreign collaborator 5%
Interest payable on raw material imported at 180 days credit (on FOB value) 12% p.a.
Dividend paid to the foreign supplier of raw material on their equity participation for the year
2010-11 `2 per share on 1 million shares of face value `10/share.
Importer supplied design and drawings worth US$ 10,000 to the foreign raw material supplier.
Landing charges as per Customs provisions
Customs duty rates : BCD – 30%, ACD – 16%, SAD – 4%
Exchange rate: 1 US$ = `42
(5 Marks)
PRIME / ME33 / FINAL
1 (c) Compute net VAT liability of Rishi from the following information –
• Raw materials from foreign Market (Includes duty paid on imports @20%) – `1,20,000
• Raw material purchased from local market - Cost of Raw material ` 2,50,000 Add : Excise duty
@16% `40,000 (sub-total – `2,90,00) - Add : VAT @ 4% - `11,600. Total `3,01,600
• Raw material purchased from neighbouring State (Includes CST @ 2%) - `51,000
• Storage and transportation cost – `9,000
• Manufacturing expenses – `30,000. –
Rishi sold goods to Madan and earned profit @ 12% on the cost of production. VAT rate on sale of such
goods is 4%
(d) High Voyage Limited is registered for the following services:(i) Cargo handling Services
(ii) Port Services
(iii) Steamer Agency services
(iv) Port services
(v) Custom House Agency
(vi) GTA
You have been engaged as a consultant for handling Service Tax matters.
They seek your advice as regards to the methodology adopted for
(i) Preparing the Invoices and maintenance of Records
(ii) Preparing the statement for Service Tax return
(iii) You may take into account the reimbursements of expenses if any,
Abatement if any for these Registered Services.
They have been handling Import as well as Export Cargo.
State your assumptions clearly.
2
(5 Marks)
(a) A manufacturer has to supply a machinery on following terms and conditions:
(i)
Price of machinery : `3,40,000 (net of taxes and duties)
(ii) Machinery erection expenses : `26,000
(iii) Packing (normally done by him for all machinery) : `4,000
(iv) Design and drawing charges relating to manufacture of machinery : `30,000 (Net of taxes and
duties)
(v) Central Sales Tax @ 1%
(vi) Central Excise Duty @ 10% plus education cess of 2% plus SAH education cess of 1%
(vii) Cash discount of `5,000 will be offered if full payment is received before dispatch of goods.
(viii) The machine will be supplied along with bought out accessories @ `8,500. The accessories were
optional. You are informed that
(a) The buyer made all payment before delivery
(b) The manufacturer incurred cost of `1,200 in loading the machinery in the truck in his factory.
These are not charged separately to buyer. Find the ‘Assessable Value’ and the duty payable.
(4 Marks)
PRIME / ME33 / FINAL
2 (b) An actual user imports following goods from England per Mr. Harimohan:
(1) Second hand numerically controlled horizontal lathe machine - Tariff heading – 84.5811, Value FOB –
1,000/- Pound Sterling
(2) A. C. motors - Tariff heading – 85.0110, Value FOB - 500/- Pound Sterling. - - Other relevant data are: Exchange rate 1 UK Pound = `65, Freight – 150 UK Pounds, Insurance – 25 UK Pounds. Rate of duty
Basic customs duty - 10%, CVD - 12%, Education Cess and Spl CVD at applicable rates. It is found
that the lathe machine is undervalued. It is proposed to load the FOB value of the lathe machine by
25%. Party does not want show cause notice and personal hearing.
Compute:
(i) Assessable value;
(ii)Total duty payable. What are the duty refunds/benefits available if the importer is
(a) Manufacturer
(b) Service provider
(c) Trader?
(4 Marks)
(c) What are Appellate Stages and whether Duty and Penalty have to be deposited as a precondition to
appeal?
(4 Marks)
(d) M/s. XYZ, a 100% export oriented undertaking (100% E.O.U. in short) imported DG sets and furnace oil
duty free for setting up captive power plant for its power requirements for export production. They used the
power so generated for export production but sold surplus power in domestic tariff area. Is customs
department justified in demanding duty on DG sets and furnace oil as surplus power has been sold in
Domestic tariff area
(4 Marks)
3
(a) Central Excise Officers visited the factory premises of assessee manufacturing unit. Certain stock of
finished goods as well as raw material was found lying in the factory premises. Upon physical verification,
excess stock of finished goods and raw material was found when compared with the statutory records
maintained by the assessee.
Accordingly an order came to be made after adjudication to confiscate the goods with an option to redeem
the same upon payment of redemption fine. Personal penalty was also imposed upon the assessee
manufacturing Unit as well as the Production Engineer. While framing the order, the adjudicating authority
disregarded the contention of the assessee that the finished goods could not be entered in RG-1 Register
since last three days as the person concerned was on leave but the same had already been entered in the
Production Register. The department submitted that a presumption arose that the excess stock was going
to be removed clandestinely and sold without payment of excise duty, and this warranted confiscation,
redemption fine in lieu thereof, and imposition of personal penalty on the manufacturing Unit and the
Production Engineer. On appeal Tribunal had held that confiscation was not justified and in reducing the
personal penalty on the manufacturing unit, and also deleting the penalty in total insofar as the Production
Engineer was concerned. Against the same the department is in appeal.
(4 Marks)
PRIME / ME33 / FINAL
3 (b) Mrs. & Mr. Kapoor visited Germany and brought following goods while returning to India on 8th February,
2011. (i) Their personal effects like clothes, etc., valued at `35,000. (ii) A personal computer bought for
`36,000. (iii) A laptop computer bought for `95,000. (iv) Two litres of liquor bought for `1,600. (v) A new
camera bought for `37,400. What is the amount of customs duty payable?
(4 Marks)
(c) M/s. Abanti Associates is a registered dealer engaged in the manufacturing of steel in the State of
Maharashtra. During the year 2010-11 the firm has procured raw materials of `25,50,320 (VAT @ 4%) and
purchased plant and machinery of `20,00,000 (VAT @ 4%) and `5,00,000 (CST @ 2%) for use in the
manufacturing of steel. Sales of steel materials made during the year is `40,00,000 (VAT @ 4%) and interState sale is `5,29,000 (@ 2% CST). Besides above, branch transfer of `3,20,000 was made to Kolkata.
Calculate the following as per White Paper on VAT Law in India –
(i) Output tax
(ii) Input tax credit to be availed during the year
(iii) Balance tax payable and
(iv) Input tax credit, if any, to be carried forward
(4 Marks)
(d) Certain goods were imported in February 2011. "Into bond" bill of entry was presented on 14th February
2011 and goods were cleared from the port for warehousing. Assessable value was $ 5,00,000.
Customs officer issued the order under section 60 permitting the deposit of the goods in warehouse on 21st
February 2011 for 3 months. Goods were not cleared even after warehousing period was over, i.e., 21st
May 2011 and extension was also not obtained.
Customs officer issued notice under section 72 demanding duty and other charges. Goods were cleared by
importer on 28th June 2011. What is the amount of duty payable while removing the goods?
Compute on the basis of following information (assume that no additional duty of customs or special
additional duty of customs is payable):
14.2.2011 21.5.201
Rate of Exchange per US $
`48.20 `48.40
Basic customs duty
35%
30%
28.6.2011
`38
25%
(4 Marks)
4
(a) A dealer purchased 11,000 Kgs of inputs on which Vat paid @ 4% was `4,000. He manufactured 10,000
Kgs of finished products from the inputs. 1,000 Kgs was the process loss. The final product was sold at
uniform price of Rs 10 per Kg, as follows – Goods sold within State – 4,000 Kgs. Finished product sold in
inter-state sale against C form – 2,500 Kgs. Goods sent on stock transfer to consignment agents outside
the State – 2,000 Kgs. Goods sold to Government departments outside the State – 1,500 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%. Calculate liability of Vat and CST. Find Vat credit available to dealer and tax required to be
paid in cash.
(4 Marks)
(b) The contract for industrial construction is for `8,00,000 which includes value of services plus material
which is to be supplied by contractor. Value of material used by contractor is `5,00,000 and the value of
service is `3,00,00 (Total `8,00,000). The customer has agreed to supply steel to contractor free of cost
(FOC), the value of which is `2,00,000. Its value is not considered in quotation given by contractor. The
land belongs to customer. Its value is `4,00,000. Cenvat credit on input services is `10,000, Calculate
PRIME / ME33 / FINAL
4 service tax under composition scheme and also under normal scheme assuming service tax rate of
10.30%, if (a) the contract is covered under State works contract tax and (b) The contract is not covered
under works contract service.
(4 Marks)
(c) What is the Penalty Payable U/S 11 AC Of the Central Excise?
(4 Marks)
(d) Explain the procedure for claiming drawback on goods exported by post. Divergence between accounting
and taxation principles.
5
(a) State briefly whether the following circumstances would constitute “manufacture” for purposes of section
2(f) of the Central Excise Act, 1944:
(i) Both inputs and the final product fall under the same tariff heading under the first schedule to the Central
Excise Tariff Act, 1985 (Tariff Act.)
(ii) Inputs and final product fall under different tariff headings of the Tariff Act.
(5 Marks)
(b) (i) What is the Time Limit for issuing Show Cause Notice under Central Excise Act?
(ii) When would the invocation of extended period not applicable?
(4 Marks)
(c) Mr. S was found engaged in smuggling in respect of certain imported goods, the value whereof; as
computed for the purposes of section 14 of the Customs Act, 1962, is `10 lakhs. Compute the maximum
amount of penalty imposable on Mr. S in the following independent cases (i) If the said goods are prohibited goods, otherwise chargeable to duty ®10%
(ii) If the said goods are non-prohibited goods chargeable to duty ®10% ;
(iii) If the said goods are non-prohibited goods chargeable to Nil rate of duty, but the value declared by
Mr.S is `12 lakhs (higher value declared to claim higher export incentives);
(iv) If the said goods are prohibited goods, which were declared by Mr.S to be some other goods valuing
`25 lakhs chargeable to duty @ 10%.
(v) If the said goods are non-prohibited goods chargeable to duty @ 30%, but Mr.S had declared them to
be some other goods valuing `25,00,000 chargeable to duty @ 5%.
(5 Marks)
(d) Services have been rendered to the SEZ unit and SEZ Developer.
What is the Quantum of CENVAT to be reversed?
(2 Marks)
6
(a) Adecco Corporation Limited (ACL) was a manufacturer of polypropylene bags. It shifted its factory located
at Kalyanpuri to Greater Kailash. ACL transferred a quantity of 20,000 kg of inputs (plastic granules) and
one capital good i.e. automatic bag machine to the new site. These were the only available inputs and
capital goods with ACL at the time of transfer. The inputs, capital goods and the balance of unutilized
CENVAT credit were duly received and accounted for in the registers of the new unit.
The said balance of unutilized CENVAT credit transferred was `6,00,000. However, the CENVAT credit
corresponding to inputs and capital goods transferred to the new site amounted to `4,50,000 only. The
Department raised the plea that assessee was entitled to transfer only `4,50,000 of CENVAT credit and not
the entire balance of unutilised credit of `6,00,000. Explain, with the help of a decided case law, if any,
whether Department’s plea is justified in law.
(6 Marks)
PRIME / ME33 / FINAL
5 (b) Whether input services distributor can also opt for any of the options provided under rule 6(3) of CENVAT
Credit Rules, 2004?
(4 Marks)
(c) Explain the following statement:Treatment of expenditure incurred by a Pure Agent.
(4 Marks)
(d) What is the Time limit for filing “Refund claim” under the Customs Act?
(2 Marks)
7
(a) Explain the validity of the following statements with reference to Central Excise Rules, 2002:
(i) Inputs received in the factory may be removed as such for further processing to a job worker without
payment of excise duty.
(ii) The date of removal of any excisable goods being captively consumed within the factory of
production is the date on which the final product in the production of which such goods are being
used is removed.
(iii) The assessee can pay duty on the goods, removed from the factory in the month of December
2008, electronically through internet banking till 6.01.2009.
(iv) Goods removed from a 100% Export Oriented Unit to Domestic Tariff Area are exempt from the duty
of excise.
(4 Marks)
(b) Examine the validity of following statements:(i) Hindustan Info systems is engaged in study, analysis, design and programming of information
technology software. The said services are taxable under the category ‘business auxiliary services’.
(ii) The services provided by a money changer in relation to dealing of foreign currency (buying or selling),
at specified rates, without separately charging any amount as commission for such dealing, is not liable
to service tax as foreign exchange broking under ‘banking and other financial services’.
(iii) The services 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’.
(iv) 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’
(6 Marks)
(c) A small scale manufacturer produces a product ‘P’. Some of the production bears his own brand name,
while some production bears brand name of his customer. The customer purchases the goods from the
small scale unit and sales himself by adding 20% margin over his purchase cost.
Clearances of the SSI unit in 2009-10 was `3,53,00,000. He achieved clearances of `445 lakhs in 2010-11
as per following break up. [These clearances are without considering excise duty and sales tax]
(a) Clearances with his own brand name : `80 lakhs.
(b) Clearances of product bearing his customer’s brand name : `365 lakhs. Normal excise duty of his
product is 10% plus education cesses as applicable. The SSI unit intends to avail Cenvat benefit on
inputs on goods supplied to the brand name owner but intends to avail SSI exemption on his own
clearances.
PRIME / ME33 / FINAL
6 (A) Find the total duty paid by the manufacturer in 2009-10, if
(i) Inputs are common but SSI unit is able to maintain separate records of inputs in respect of final
products under his brand name and those with other’s brand name
(ii) The inputs are common and SSI unit is not able to maintain separate records on inputs used in final
products manufactured under his brand name and with other’s brand name.
(B) What will be the rate of excise duty payable by him in April 2011
(i) On product bearing his own brand name and
(ii) On product bearing his customer’s brand name.
(C) Will there be any difference in duty payable in April 2009 if all his clearances of `445 lakhs in 201011 were of product under his own brand name?
(4 Marks)
(d) For filing Refund claim original Documents are to be submitted-Validate with decided case law if any
(2 Marks)
PRIME / ME33 / FINAL
7 PRIME ACADEMY
SESSION MODEL EXAM - FINAL
INDIRECT TAXES SUGGESTED ANSWERS
33rd
1. (a) Present selling price of the manufacturer from his depot is as follows –
Net Price ` 10,000
Add: Excise Duty @ 10.30% ` 1,030
Total Sales price ` 11,030
It is desired that the price to dealer should remain unchanged.
Assume that Assessable Value if goods are sold from Gujarat is ‘z’. Excise duty @10% plus Education
Cess@ 2% and SAH Education Cess @ 2% will be 0.103z. CST @ 2% on 1.103z is equal to 0.02206z.
Invoice price will be ` 1.12506z. Transport charges of ` 500 can be charged extra.
1.12506z + ` 500 = ` 11,030
or, 1.12506z = ` 10,530
or, Z = ` 10,530/1.12506
Z = ` 9,359.50
Check this as follows –
Z = ` 10,530/1.12560
Assessable Value =
` 9,359.50
Add: Excise duty @ 10.30% =
` 964.04
` 10,323.54
Add: CST @ 2% on ` 10,323.53 =
` 206.46
Add: Freight =
` 500.00
Total Invoice Price =
` 11,030.00
(b) Since ocean freight is not available, it has to be taken at 20% of FOB. Insurance will have to be
taken@ 1.125% of FOB Value. Royalty on manufacture and sale of final products payable to foreign
collaborators has no relation to goods imported. Hence, it not includible in Assessable Value for customs.
Similarly, dividend paid to foreign supplier has no relation with supply of raw materials. It is not includible in
Assessable Value. Interest payable for credit is not includible in assessable value for customs purposes, as
it is not part of ‘transaction value’. Freight from seaport to godown and transit insurance in India are postimportation costs and are not includable.It is assumed that selling commission to selling agent in India is
payable on basis of CIF Value of goods including cost of drawings supplied by buyer. As per rule
9(1)(b)(iv) of Customs Valuation Rules, cost of engineering drawings is includible only if work was
undertaken outside India. Since, payment has been made in Euro, it is assumed that the design and
drawing work was done outside India.
Landing charges will be 1% of CIF Value, as per Customs Valuation Rules.
Hence, calculation of customs duty will as follows –
(A) Value of goods in Euro = 10, 00,000 Euro
(B) Add – Freight @ 25% of FOB = 2, 00,000 Euro
(C) Add – Insurance @ 1.125% of FOB = 11,250 Euro
(D) Total CIF Value (A + B + C) = 12, 11,250 Euro
(E) Add designing and drawing charges = 10,000 Euro
(F) Total CIF Value = 12, 21,250 Euro
(G) CIF Value in Rupees @ ` 42.00 = ` 5, 12, 92,500.00
PRIME / ME33 / FINAL
8 (H) Local Agency Commission @ 5% = ` 25, 64,625.00
(I) Total Value = ` 5, 38, 57,125.00
(J) Add – landing Charges @ 1% of I = ` 5, 38,571.25
(K) Assessable Value (I +J) = ` 5, 43, 95,696.25
(L) AV Rounded upto = ` 5, 43, 95,696.00
Duty Payable:
Basic Customs Duty (BCD) @ 30% of AV = ` 1, 63, 18,708.00
CVD @ 16% is payable on AV + BCD = ` 1, 13, 14,304.77
SAD @ 4% is payable on AV + BCD + CVD = ` 32, 81,148.38
Thus, total duty payable is Basic – ` 1, 63, 18,708.80, CVD – ` 1,3,14,304.77 And SAD ` 32, 81,148.38.
Thus, total duty is 3, 09, and 14,161.95, rounded to 3, 09, and 14,162.
(c) Cost of production is as follows:
(i)
Imported raw material – ` 1,20,000
(ii)
Local raw material – ` 2, 90,000 (Vat is not to be considered as its set off i.e. credit is available)
(iii)
Raw material from neighbouring State – ` 51,000 (Set off of CST is not available. Hence, it is
incudible in cost)
(iv) Storage and transportation cost ` 9,000
(v)
Manufacturing Expenses – ` 30,000. - Total cost of production [i to v] – ` 5, 00,000. Profit @ 12%
` 60,000. Hence, selling price – ` 5, 60,000. Vat @ 4% on selling price – ` 22,400. Vat credit
available – ` 11,600. Hence, Net Vat payable – ` 9,800 [22,400 – 11,600].
(d) Given as a separate excel worksheet.
Category of Service Gross Billing Steamer Agency Port Service Reimbursement 0 under Pure Agent category Taxable Amount Service Tax 10% Good Transport Good Transport Agency(wherethe Agency(wherethe Cargo Cargo Gross amount Good Custom Gross amount Handling Handling charged on House Transport charged on all Service Service "individual Agency Agency consignments (Export) (Import) consignment" Transported in a Transported in a goods carriage goods carriage does not exceed does not exceed `1500 `750 0 NA 0 NA 10% 10% 2% of ST 2% of ST 2% of ST PRIME / ME33 / FINAL
0 10% 2% of ST 9 10% 2% of ST 2.500% 2% of ST Exempt Exempt 1% of ST 1% of ST 1% of ST 1% of ST 1% of ST 1% of ST 2. (a) Erection expenses are not includible in AV. Cash discount is allowable as deduction. Duty is
not payable on optional bought out accessories supplied along with the machinery. The cost of ` 1,200
is already included in the selling price of machinery (as it is not charged separately) and hence is not to
be added again. Hence, AV is ` 3, 69,000 [3, 40,000 + 4,000 + 30,000 – 5,000]. Duty @ 10%will be `
36,900, plus education cess @ 2% i.e. ` 738.00 and SAH education cess @ 1% i.e. ` 369.00.
(b ) Since FOB value of lathe machine is being loaded by 25% for under-valuation, the FOB Value of lathe
machine for purpose of assessment is 1250 UK Pounds. Value of AC Motors is 500 UK Pounds. Thus,
total FOB value for purposes of customs valuation is 1,750 UK Pounds. — Total insurance and freight
is 175 UKPounds [freight is 150 UK Pounds and insurance is 25 UK Pounds]. This will be allocated on
lathe machine and AC motors in proportion to value (as no other basis is available).
FOB Value (UK pound)
Add : Allocated Total freight & insurance
[@ 500 : 1250] 175
CIF Value
Exchange Rate per UK pound
CIF Value in INR
Add : Landing carhges @ 1%
Assessable Value
Rounded off
PRIME / ME33 / FINAL
A/C Motors
500.00
50.00
550.00
` 65.00
` 35,750.00
` 357.50
` 36,107.50
` 36,107.00
10 Lathe Machine
1250.00
125.00
1,375.00
` 65.00
` 89,375.00
` 893.75
` 90,268.75
` 90,269.00
Calculation of duty payable is as follows :
On Lathe Machine
90,269.00
9,026.90
99,295.90
(A) Assessable Value ` 10,000
(B) Basic Customs Duty 10%
(C) Sub-Total for calculating CVD ‘(A+B)’
(D) CVD ‘C’ × excise duty rate 12
(E) Education cess of excise – 2% of ‘D’
On A/C Motor
36,107.00
3610.00
39,717.70
11,915.51
238.31
4,776.12
95.32
1 119.16
47.66
21,299.88
8,519.80
(H) Edu Cess of Customs – 2% of ‘G’
2 426.00
170.40
(I) SAH Education Cess of Customs – 1% of ‘G’
1 213.00
85.20
1,12,207.88
44,882.40
(K) Special CVD u/s 3(5) – 4% of ‘J’
4,448.32
1,795.30
(L) Total Duty
26,472.20
10,570.70
(F) SAH Education cess of excise – 1% of ‘D’
(G) Sub-total for edu cess on customs ‘B+D+E+F’
(J) Sub-total for Spl CVD ‘C+D+E+F+H+I’
(M)Total duty rounded off
26,472.00
10,571.00
Notes: Buyer, who is manufacturer, is eligible to avail Cenvat Credit of D, E, F and K above. A buyer, who is
service provider, is eligible to avail Cenvat Credit of D, E and F above. A trader who sells imported goods in
India after charging Vat/sales tax can get refund of Special CVD of 4% i.e. ‘K’above.
(c)
Under the provisions of Chapter VIA of the Central Excise Act 1944 both assessees and revenue
department have the right of two or three stage remedies against the orders passed under the
Central Excise Act and Rules.
• In case of orders passed by officers lower than the rank of Commissioner of Central Excise, the
first appeal lies to the Commissioner (Appeals) and there from to the Appellate Tribunal and
finally to the Supreme Court. But where the order of the Tribunal does not relate to
determination of rate of duty or value of goods, a reference has to be made to the High Court,
instead of Appeal to Supreme Court.
• The Central Government has also got revisionary powers under Section 35EE where it says that
any person aggrieved by any order passed by the Commissioner (Appeals) may apply to the
central government for revision of the order.
• Does Duty and Penalty Have to Be Deposited as a Pre-condition to Appeal?
Where there is an order of demand for duty and penalty on which the appeal is preferred it is a
pre-condition that the duty and penalty to be deposited. However the appellate authority may
dispense which such pre-deposit of the duty demanded or penalty levied on the reason that
those pre-deposit would cause undue hardship to such person.
PRIME / ME33 / FINAL
11 (d)
The facts of the case are similar to that in CC v. Hand Era Textile Ltd. [2005] 180 ELT A44 (SCE) In
this case, DG sets and furnace oil were imported duty free to set up power plant for meeting powerproduction requirements for export. The assessee has met the export requirements and has sold
only the surplus power in Domestic Tariff Area. Thus, where the export requirements have been
fulfilled, the import duty cannot be demanded on DG sets and furnace oil and hence, the demand
raised by the Customs Department is unjustified. However, if there is any restrictive clause in the
notification that the imported goods should be solely or exclusively used for the purpose of
manufacture of goods for export, then, the demand raised by the Customs Department may be
justified.
It is an accepted position that the liability to pay duty arises at the point of time when the goods are
to be removed from the factory premises. Admittedly, the goods were found lying in the factory
premises. Therefore the occasion to pay duty had not arisen. In other words, the liability to pay
duty had not accrued in law. In the circumstances, it is not possible to accept the contention of the
appellant that an inference should be drawn that the goods were to be clandestinely removed and
hence confiscation was permissible. Such an inference should be possible if there is other
surrounding or attendant circumstances. In the present case, no such evidence exists on record.
The Tribunal was therefore, justified in coming to
the conclusion that the confiscation of goods was not justified.
3.
(a) No, Revenue’s claim is not valid in Law.It is an accepted position that the liability to pay duty
arises at the point of time when the goods are to be removed from the factory premises. Admittedly, the
goods were found lying in the factory premises. Therefore the occasion to pay duty had not arisen. In other
words, the liability to pay duty had not accrued in law. In the circumstances, it is not possible to accept the
contention of the appellant that an inference should be drawn that the goods were to be clandestinely
removed and hence confiscation was permissible. Such an inference should be possible if there is other
surrounding or attendant circumstances. In the present case, no such evidence exists on record. The
Tribunal was therefore, justified in coming to the conclusion that the confiscation of goods was not justified.
(b) Personal effects and one laptop are exempt from customs duty. Two liters of liquor can be
accommodated in General free Allowance. Hence, Mr. Kapoor can bring one personal computer and two
litres of liquor on his account. Total value is ` 37,600 (PC ` 36,000 plus liquor ` 1,600). He will get General
Free Allowance of ` 25,000 and duty payable will be on ` 12,600. Customs Duty @ 35% of ` 12,600 will
be ` 4,410 plus education cess of ` 88.20 @ 2% of customs duty and SAH education cess of ` 44.10 @
1% of customs duty.
Mrs. Kapoor can bring one camera on her account. Total value is ` 37,400. She will get General Free
Allowance of ` 25,000 and duty payable will be on ` 17,400. Customs Duty @ 35% of ` 17,400 will be `
6,090 plus education cess of ` 121.80 @ 2% of customs duty and ` 60.90 as SAH education cess
(c) Output tax
(A) (i) Sale within State – ` 1,60,000 (4% of ` 40,00,000)
(ii) Interstate sale – ` 10,580 (2% of ` 5,29,000)
(iii) Stock transfer of ` 3,20,000 – No tax. Total sales (including stock transfer) – `
48,49,000. Total Tax payable – ` 1,70,580
PRIME / ME33 / FINAL
12 (B) Input tax credit on raw material 1,02,012.80 (4% of ` 25,50,320 – It is presumed that the
purchase price given in example is net of Vat). Total sales (including stock transfer) are ` 48,49,000,
out of which stock transfer is of ` 3,20,000 i.e. 6.6%. Hence, on 6.6% of input raw material, 2% Input
Tax Credit is disallowed. Total raw material – ` 25, 50,320. Raw material used for stock transfer
(6.6%) i.e. ` 1,68,321.12. Hence, 2% of ` 1, 68, 321, 12 i.e. ` 3,366.42 is not allowed. Thus, Input
Tax Credit available is ` 98,646.38 (`1, 02,012.80 – ` 3,366.42)
(C) Input credit on Plant and machinery – ` 20,000 (4% of ` 5, 00,000 – As per White Paper, the
credit is to be taken in three years. Hence, credit in first year is ` 6,666.67. Balance ` 13,333.33 will be
carried forward.
(D)
(E)
(F)
(G)
No Input tax credit of inter-state purchases of ` 5,00,000.
Hence, total credit available for use – ` 98,646.38 + ` 6,666.67 = ` 1,05,313.05.
Net tax payable by cash – ` 65,266.95 (` 1,70,580 – ` 1,05,313.05).
Credit of ` 13,333,33 on capital goods will be carried forward.
(d) Computation of customs duty payable by the importer (in `)
Assessable value US $ 5,00,000 × ` 48.20 (Note 1) 2,41,00,000
Basic Customs duty @ 30.9% (Note 2) 74,46,900
Notes: (a) As per section 14, the assessable value is to be computed as per the exchange rate in
force on the date on which into-bond bill of entry for warehousing is filed u/s 46 of the Act.
Therefore, the rate of exchange in force as on 14th February i.e. ` 48.20 per US $ will be taken.
(b) As per decision of the Supreme Court in Kesoram Rayon v. CC [1996] 86 ELT 464 (SC) when
the warehousing period expires without extension thereof, the date on which warehousing period
comes to an end will be the date of deemed removal and the rate ofduty prevalent on that date
shall be applicable for determining customs duty. Therefore,the date of expiry of warehousing
period i.e. 21st May will be the date of deemed removal and rate of duty prevalent on that date
i.e. 30% (plus 3%EC & SHEC) shall be the rate of customs duty chargeable on such goods.
4. (a) CST against C form is 2%. Sale to government will be treated as sale to unregistered dealer and tax–
Quantity
Value of CST
State Vat
Description
payable is 12.5%. sold
goods
payable
payable
Thus, the tax `
`
`
sold
payable would be
`
as follows
Sale within State
@ 12.5%
Goods sent on
stock transfer
Goods sold
against C form,
tax rate 2%
Goods sold to
Government, tax
rate 12.5%
Total
PRIME / ME33 / FINAL
4,000
40,000
2,000
20,000
2,500
25,000
500
1,500
15,000
1,875
10,000
1,00,000
2,375
13 5,000
5,000
Tax paid on inputs – ` 4,000. Credit (set off) will not be available in case of goods sent on stock transfer.
Tax on inputs attributable to goods sent on stock transfer is 20% i.e. ` 800. Out of this, credit will be
available of tax paid in excess of 2%.. Thus, credit of ` 400 will be available in respect of goods stock
transferred and credit of ` 400 will not be available (since Vat rate is 4%). Thus, total credit of ` 3,600 (tax
paid on inputs) is available.
Thus, tax payable is as follows –
(A) Total Tax payable (State Vat plus CST) – ` 7,375
(B) Set off (credit) available) – ` 3,600
(C) Tax payable in cash – ` 3,775
(b) Under composition scheme, value of material supplied by customer free of cost is required to be added. In
that case, total value of contract (including material supplied by customer, but excluding value of land) is `
10,00,000. The contractor can opt to pay duty @ 33% on total value i.e. on ` 3,30,000, if he is not covered
under State works contract tax. Service tax payable will be 10.30% of ` 3,30,000 i.e. ` 33,990. The
contractor cannot avail any Cenvat credit. If value of land is not shown separately, then service tax will be
payable @ 25% of gross amount which will include value of land plus value of material supplied by
customer. If the contract is covered under State Works Contract Tax, the service tax payable is 4.12% of
` 10,00,000 i..e. ` 41,200. He can avail Cenvat credit of ` 10,000. Thus, net tax payable is ` 31,200.
Under normal scheme of payment of service tax, the tax is payable on value of service of ` 3,00,000 @
10.30% i.e. ` 30,900. Cenvat credit of ` 10,000 can be availed. Hence, net service tax payable is 20,900.
(c) Wherever duty is not paid or not levied, short paid or short levied or erroneously refunded by reason of
fraud, collusion, willful misstatement, or suppression of facts, or contravention of any of the provisions of
this Act or of the rules made there under with an intent to evade the payment of duty the manufacturer
would be liable to penalty equal to the duty amount determined under section 11AC of the Act in addition to
interest determined u/s 11AB.
A relaxation is given where the duty determined under the said section along with the interest payable
under section 11AB is paid within 30 days from the date of communication of the order. The relaxation is
with the effect that only 25% of the penalty needs to be paid.
In case of appeals where the duty determined at the early stage is varied in the appeal order the penalty
amount would also increase or decrease as the case may be.
(d) Rule 11 of the Customs, Central Excise Duties and Service Tax Drawback Rules, 1995 lays down the
procedure for claiming drawback on goods exported by post as under:1. Outer Packing
The outer packing of the parcel/package carrying the address of the consignee shall
also carry in bold letters the words "DRAWBACK EXPORT"
2. Form of filing of claim
The exporter shall deliver a claim in the prescribed form, in quadruplicate, along with the
parcel/package, to the competent Postal Authority.
3. Date of filing of claim The date of receipt of the aforesaid claim form by the proper officer of customs
from the postal authorities shall be deemed to be date of filing of drawback claim by the exporter for the
purpose of section 75A.
4. Intimation to exporter An intimation of the same shall be given by the proper officer of customs to the
exporter in such form as the Commissioner of Customs may prescribe.
PRIME / ME33 / FINAL
14 5. Deficiencies in drawback claim form In case the aforesaid claim form is not complete in all respects, the
exporter shall be informed of the deficiencies therein within fifteen days of its receipt from postal
authorities by a deficiency memo in the form prescribed by the Commissioner of Customs, and such
claim shall be deemed not to have been received for the purpose of claiming drawback.
6. Compliance of deficiencies and date of filing of claim in such case When the exporter complies with the
requirements specified in the deficiency memo within thirty days of its return, he shall be issued an
acknowledgement by the proper officer in the form prescribed by the Commissioner of Customs and
the date of such acknowledgement shall be deemed to be date of filing the claim for the purpose of
section 75A.
5. (a) (i) Manufacture’ is bringing into being the goods known in the market having distinctive name, character or
use and separate and identifiable function. Once a new commodity having a definite and distinct
commercial identity in market is produced and the same has been specified in the tariff, it is eligible to duty.
It is irrelevant whether the new article falls into the same tariff heading as the duty paid raw material from
which it is manufactured or belongs to a separate tariff heading.
It was held in CCEx. v. Kapri International (P) Ltd. (2002) 142 ELT 10 (SC) that if manufacture takes
place, the commodity is dutiable even if the raw material and the resultant product fall under the same tariff
heading. It was subsequently followed in CCEx., Jaipur v. Mahavir Aluminium Ltd. (2007) 212 ELT 3
(SC), wherein it was heldthat converting aluminium ingots (7601.10 – old entry) into aluminium billets
(7601.10 –old entry) is ‘manufacture’, because they have separate, distinct and identifiable marketability
and saleability.
(ii) As held in CCEx. v. Markfed Vanaspati (2003) 153 ELT 491 (SC), mere change in tariffdoes not mean
there is ‘manufacture’. It was confirmed in CCEx. v. S R Tissues (2005) 186 ELT 385 (SC) that just
because raw material and finished product fall in different tariff headings it cannot be presumed that
process of obtaining finished product from such raw material automatically constitutes ‘manufacture’.
Therefore, manufacturing is not only about a process and a product but it is about a new identity that must
emerge out of the given process. Mere mention of process in tariff entry is not sufficient, it must be
specifically stated that a particular process ‘amounts to manufacture’ – Shyam Oil Cake Ltd. v. CCEx.
(2005) 174 ELT 145 (SC – 3 members bench).
(b) Where the demand involves fraud or collusion orwillful mis-statement or suppression of facts or
contravention of any provisions with an intent to evade payment of duty - 5 years from relevant date.
In other cases - 1 year from relevant date. Where the service of notice is stayed by court order, the period
of such stay would be excluded in computing this time limit.(both 1 year as well as 5 years).
If the matter is before the Settlement Commission, Sec. 32L(3) specifies that the time commencing from
date of application to receipt of order sending back the case shall be excluded. Such notice must be
received by the assessee within the time limit stipulated above.
The extended period can be invoked under the Central Excise Act, where any duty of excise has not been
levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud or collusion
or any willful mis-statement or suppression of facts, or contravention of any of the extended period can be
invoked under the Central Excise Act, where any duty of excise has not been levied or paid or has been
short-levied or short-paid or erroneously refunded by reason of fraud or collusion or any willful misstatement or suppression of facts, or contravention of any of the
(c) The amount of penalty imposable on Mr.S in the aforesaid cases shall be as follows:a. Penalty = Value of goods or ` 5,000, whichever is higher = ` 10 lakhs ;
b. Penalty = Duty sought to be evaded or ` 5,000, whichever is higher = ` 1,03,000
PRIME / ME33 / FINAL
15 Duty sought to be evaded = 10 lakhs × 10.3% = ` 1,03,000.
c. Penalty = ` 2,00,000, being the higher of the following –
(i) Declared Value - Actual Value = ` 12 lakhs - ` 10 lakhs = ` 2,00,000 ;
(ii) ` 5,000
d. In this case, the goods are prohibited goods, which have been declared by Mr.S to be some other
goods valuing ` 25 lakhs. Since the value declared by Mr.S is higher than its actual value and the
goods are prohibited ones, therefore, penalty = ` 15, 00,000, being the highest of the following
three –
a. Actual value i.e. ` 10,00,000;
b. Declared value - Actual Value = ` 25, 00,000 - ` 10, 00,000 = ` 15, 00,000;
c. ` 5,000.
d. In this case, the goods are dutiable goods on which duty has been sought to be evaded
and the value declared by Mr.S is also higher than its actual value. Therefore, maximum
penalty imposable = ` 15, 00,000, being the highest of the following three –
1. Duty sought to be evaded i.e., (30.9% of .10 lakhs - 5.15% of 25 lakhs) =
` 1, 80,250
2. Declared Value - Actual Value = ` 25, 90,000 - ` 10,00,000 = ` 15,00,000;
3. ` 5,000
(d) No reversal or payment of amount if services provided to a SEZ unit or Developer Rule 6 (6A) w.e.f
1.4.2011.
6. (a) The facts of the given case are similar to the case of CCE, Pondicherry v. CESTAT 2008 (230) ELT 209
(Mad.).
In this case, Madras High Court decided that erstwhile rule 8 of the CENVAT Credit Rules, 2002 [now rule
10 of the CENVAT Credit Rules, 2004*] did not provide that the assessee could transfer the CENVAT credit
corresponding only to the quantum of inputs or capital goods transferred to the new factory, but permitted
the assessee to transfer the entire balance of unutilised CENVAT credit along with inputs and capital goods
in stock at the factory to the new location provided the stock of inputs as such or in process, or the capital
goods is also transferred along with the factory or business premises to the new site or ownership and the
inputs, or capital goods, on which credit has been availed of are duly accounted for to the satisfaction of the
Deputy Commissioner of Central Excise or, as the case may be, the Assistant Commissioner of Central
Excise. Thus, requirement of erstwhile rule 8 of the CENVAT Credit Rules, 2002 [now rule 10 of the
CENVAT Credit Rules, 2004*] had been fulfilled by the assessee. Hence, he could avail the CENVAT credit
transferred by him. Thus, in the given question, Adecco Corporation Limited (ACL) can avail the entire
balance of unutilized CENVAT credit of ` 6, 00,000 available with him.
(b) Expenditure incurred by Service Provider as Pure Agent not includible:Conditions to be satisfied:
(i)
(ii)
(iii)
The service provider acts as a pure agent of the recipient of service when he makes payment to
third party for the goods or services procured;
The recipient of services uses the goods or services procured by the service provider in his
capacity as pure agent of the recipient of service;
The recipient of service is liable to make to third party;
PRIME / ME33 / FINAL
16 (iv)
(v)
The recipient of service authorizes the service provider to make payment on his behalf;
The recipient of service knows that the Goods and Services for which the payment has been made
by the Service provider shall be provided by the Third party;
(vi) The payment made by the Service provider on behalf of the recipient of service has been
separately indicated in the invoice issued by the service provider to the recipient of service;
(vii) The Service Provider recovers from the recipient of Service only such amount as has been paid by
him to the Third party; and
(viii) The goods or services procured by the service provider from the Third party as a pure agent of the
recipient of service are in addition to the Services he provides in his own account.
(c) Circular no. 868/6/2008 – CX dated 09.05.2008 clarified that as an input service distributor does not provide
any service, and is like a trader, the question of availing either of the options provided under rule 6(3) of
CENVAT Credit Rules, 2004 would not arise.
(d) Time Limit is one year.
7. (a)(A)
(i). The statement is absolutely valid. Rule 16A of Central Excise Rules, 2002 provides that any inputs
received in a factory may be removed as such or after being partially processed to a job worker for further
processing, testing, repair, re-conditioning or any other purpose subject to the fulfilment of conditions
specified in this behalf by the Commissioner of Central Excise having jurisdiction.
(ii) The statement is not correct. The date of removal of any excisable goods being captively
consumed
within the factory of production is the date on which these goods are issued for such use and not the date on
which the final product in the production of which such goods are being used is removed [Explanation to rule
5(2) of Central Excise Rules, 2002].
(iii) The statement is absolutely justified. Rule 8(1) of the Central Excise Rules, 2002 has been amended to
provide that the duty on the goods removed from the factory or the warehouse during a month shall be paid
by the 6th day of the following month, if the duty is paid electronically through internet banking.
(iv) The statement is incorrect. Goods removed from a 100% Export Oriented Unit to Domestic Tariff Area are
liable to duty of excise. Rule 17 of Central Excise Rules, 2002 provides that goods shall be removed from a
100% Export Oriented Unit to Domestic Tariff Area under an invoice by following the procedure specified in
rule 11, and the duty leviable on such goods shall be paid by utilizing the CENVAT credit or by crediting the
duty payable to the account of the Central Government in the manner specified in rule 8 of the said rules.
(B)
(a) The statement is incorrect. The services of study, analysis, design and programming of information
technology software are taxable under the category of ‘information technology software services’ under
section 65(105)(zzzze) of the Finance Act, 1994 as amended by Finance Act 2008. Prior to this
amendment, any information technology software service was taxable under the category of ‘business
auxiliary service’.
PRIME / ME33 / FINAL
17 (b) The statement is absolutely correct. Circular No. 96/7/2007 ST dated 23.08.2007 clarifies that
moneychangers are authorized by RBI to buy and sell foreign exchange at the prevalent market rates.
Buying or selling of foreign exchange by such persons without separately charging any amount as
commission or brokerage does not fall within the scope of foreign exchange broking and is not liable to
service tax under section 65(105)(zm) of the Finance Act, 1994 as amended.
(c) The statement is incorrect. By amending the definition of taxable consulting service provided under sub
– clause (g) of clause (105) of section 65, Finance Act 2008 has included the consultancy services in
the field of computer software engineering within the scope of taxable services provided by a consulting
engineer. Hence, the said services are no longer exempt and are taxable under the category
‘consulting engineer’s service’.
(d) The statement is absolutely correct. Circular No. 96/7/2007 ST dated 23.08.2007 clarifies that the
nature of service provided by ‘Express Cargo Service’ provider falls within the scope and definition of
the courier agency. Hence, the said service is liable to service tax under courier agency service under
section 65(105)(f)] of the Finance Act, 1994 as amended.
(b) (A) SSI unit can avail Cenvat on final products cleared under other’s brand name and avail SSI
exemption in respect of his own production.
(i) In the first case, he has to pay duty @ 10% on ` 365 lakhs, i.e. ` 36.50 lakhs plus
education cess of ` 73,000 plus SAH education cess of ` 36,500. He cannot avail Cenvat credit in
respect of inputs used to manufacture product under his own brand name.
(ii) In the second case, since he is unable to maintain separate record of inputs, he will have
to pay 10% ‘amount’ on ` 80 lakhs as per rule 6(3)(b) of Cenvat Credit Rules. Thus, he has to pay
duty of ` 36.50 lakhs, plus education cess of ` 73,000 plus SAH education cess of ` 36,500,plus
an ‘amount’ of ` 8.00 lakhs. He can avail Cenvat of all the inputs. — Note that in respect of goods
bearing customer’s brand name, duty is payable on his selling price to the customer even if
customer sells them subsequently at higher price.
The assessee has to carefully do his costing and decide
(i) Whether to avail Cenvat on all inputs, pay full duty on all final products and10% ‘amount’ on final
products cleared under his ownbrand name or
(ii) Not avail Cenvat at all and avail exemption from duty on his own production with his brand name.
(B) The turnover of SSI during 2009-10 was over ` 4 crores. However, for purposes of calculating
the upper limit of ` 4 crores, clearances with other’s brand name are not to be considered.
Hence, from 1st April 2010, he can clear goods bearing his own brand name upto ` 150 lakhs without
payment of duty, if he does not avail Cenvat credit on inputs used in such products.
If he is unable to maintain separate records, he will have to pay 10% ‘amount’ on goods manufactured
under his own brand name.
(C) If total turnover of ` 4.45 crores in 2009-10 was under his own brand name, the manufacturer
is not eligible for any Small industry concession in April 2008 and he will have to pay duty at normal
rates on his total clearances in April 2010.
PRIME / ME33 / FINAL
18 (c) Refund can be claimed even based on the attested GAR-7 Challan and original not required.
[Narayan Nambiar Meloths v. CCus. 2010 (251) E.L.T. 57 (Ker.)]
PRIME / ME33 / FINAL
19