FINAL COURSE

(UNDER REVISED SCHEME OF

EDUCATION AND TRAINING)

GROUP – II

REVISION TEST PAPERS

NOVEMBER, 2021

BOARD OF STUDIES
THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA
(Set up by an Act of Parliament)
New Delhi

© The Institute of Chartered Accountants of India

 © The Institute of Chartered Accountants of India

All rights reserved. No part of this publication may be reproduced, stored in a retrieval
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recording, or otherwise, without prior permission, in writing, from the publisher.

Edition : September, 2021

Website : www.icai.org

Department/Committee : Board of Studies

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 Contents
Page Nos.
Objective & Approach .................................................................................................. i – vi
Objective of Revision Test Paper ......................................................................................... i
Planning & Preparing for Examination ..................................................................................ii
Subject-wise Guidance – An Overview ................................................................................ iii
Paper-wise RTPs
Paper 5: Strategic Cost Management and Performance Evaluation ....................... 1 – 26

Paper 6: 6A to 6F [ELECTIVE PAPERS] ...................................................................... 27

Paper 7: Direct Tax Laws & International Taxation ............................................... 28 – 54

Paper 8: Indirect Tax Laws ................................................................................... 55 – 73

Applicability of Standards/Guidance Notes/Legislative Amendments etc. for

November, 2021 - Final (New) Examination........................................................... 74 – 85

© The Institute of Chartered Accountants of India

 REVISION TEST PAPER, NOVEMBER, 2021 – OBJECTIVE & APPROACH
(Students are advised to go through the following paragraphs carefully to derive maximum
benefit out of this RTP)
I Objective of Revision Test Paper
Revision Test Papers are one among the many educational inputs provided by the Board
of Studies (BOS) to its students. Popularly referred to as RTP by the students, it is one of
the very old publications of the BOS whose significance and relevance from the
examination perspective has stood the test of time.
RTPs provide glimpses of not only the desirable ways in which examination questions are
to be answered but also of the professional quality and standard of the answers expected
of students in the examination. Further, aspirants can assess their level of preparation for
the examination by answering various questions given in the RTP and can also update
themselves with the latest developments in the various subjects relevant from the
examination point of view.
The primary objectives of the RTP are:
• To help students get an insight of their preparedness for the forthcoming examination;
• To provide an opportunity for a student to find all the latest developments relevant for the
forthcoming examination at one place;
• To supplement earlier studies;
• To enhance the confidence level of the students adequately; and
• To leverage the preparation of the students by giving guidance on how to approach the
examinations.
RTPs contain the following:
(i) Planning and preparing for examination
(ii) Subject-wise guidance – An overview
(iii) Updates applicable for a particular exam in the relevant subjects
(iv) Topic-wise questions and detailed answers thereof in respect of each paper
(v) Relevant announcement applicable for the particular examination
Students must bear in mind that the RTP contains a variety of questions based on different
sections of the syllabi and thus a comprehensive study of the entire syllabus is a pre -
requisite before answering the questions of the RTP. In other words, in order t o derive
maximum benefit out of the RTPs, it is advised that before proceeding to solve the
questions given in the RTP, students ought to have thoroughly read the Study Materials .
It is important to remember that there can be large number of other complex questions

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 REVISION TEST PAPER ii

which are not covered in the RTP. In fact, questions contained herein are only illustrative
in nature.
The topics on which the questions are set herein have been carefully selected and
meticulous attention has been paid in framing different types of questions. Detailed
answers are provided to enable the students to do a self-assessment and have a focused
approach for effective preparation.
Students are welcome to send their suggestions for fine tuning the RTP to the Director,
Board of Studies, The Institute of Chartered Accountants of India, A-29, Sector-62, Noida
201 309 (Uttar Pradesh). RTP is also available on the Institute’s website www.icai.org
under the BOS knowledge portal in students section for downloading.
II. Planning and preparing for examination
Ideally, when the RTP reaches your hand, you must have finished reading the relevant
Study Materials of all the subjects. Make sure that you have read the Study Materials
thoroughly as they cover the syllabus comprehensively. Get a good grasp of the concepts/
provisions discussed therein. Solve each and every question/illustration given therein to
understand the application of the concepts and provisions.
After reading the Study Materials thoroughly, you should go through the Updates provided
in the RTP and then proceed to solve the questions given in the RTP on your own. RTP
is in an effective tool to revise and refresh the concepts and provisions discussed in the
Study Material. RTPs are provided to you to help you assess your level of preparation.
Hence you must solve the questions given therein on your own and thereafter compare
your answers with the answers given therein.
Examination tips
How well a student fares in the examination depends upon the level and depth of his
preparation. However, there are certain important points which can help a student better
his performance in the examination. These useful tips are given below:
 Reach the examination hall well in time.
 As soon as you get the question paper, read it carefully and thoroughly. You are given
separate 15 minutes for reading the question paper.
 Plan your time so that appropriate time is awarded for each question. Keep sometime for
checking the answers as well.
 First impression is the last impression. The question which you can answer in the best
manner should be attempted first.
 Always attempt to do all questions. Therefore, it is important that you must finish each
question within allocated time.
 Read the question carefully more than once before starting the answer to understand very
clearly as to what is required.

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 iii FINAL (NEW) EXAMINATION: NOVEMBER, 2021

 Answer all parts of a question one after the other; do not answer different parts of the
same question at different places.
 Write in a neat and legible hand-writing.
 Always be concise and write to the point and do not try to fill pages unnecessarily.
 There must be logical expression of the answer.
 In case a question is not clear, you may state your assumptions and then answer the
question.
 Check your answers carefully and underline important points before leaving the
examination hall.

III. Subject-wise Guidance – An Overview

PAPER - 5: STRATEGIC COST MANAGEMENT AND PERFORMANCE EVALUATION

The Revision Test paper on Strategic Cost Management and Performance Evaluation
covers Case Studies/ Questions on the following topics:
S. Topic About the Problem Verbs used Industry
No.
1. Ethical and Case based on ethical Explain, State, Edible snacks
Non-Financial issues Recommend, manufacturing
Considerations Evaluate
2. Product Life Case on product life cycle Identify Cell Phone
Cycle Discuss Manufacturer
3. Standard Preparation of Prepare Footwear
Costing reconciliation statement Comment Retailer
4. Relevant Analysis of the special Comment Chemical
Costing project cost (based on Analysis Manufacturing
the principles of relevant Company
costing)
5. Special Order Advise on special order Advise Fire Safety
Decision decision. Equipment
Manufacturer
6. Life Cycle Computation of life cycle Compute, Mould
Costing cost Suggest Manufacturer
7. CVP Analysis Analysis of profit Analysis Hotel
improvement plan
8. Cost of Quality Preparation of TQM Prepare Automobile
statement Advise Manufacturer

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 REVISION TEST PAPER iv

9. Cost of Quality Preparation of TQM Prepare, Manufacturing

statement Recommend
10. Balanced Preparation of balanced Prepare HR Coils, Black
Scorecard scorecard report Advise Pipe/GI Pipe-
Manufacturer
11. Basic Concepts Correct pair of statement Identify ---
Every effort has been made to include all possible elucidations for a given case/
question aided by outline and well-chosen photographs for quick industry reference.

PAPER 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION

The syllabus of this paper is divided into two parts, namely, Part I: Direct Tax Laws (70
Marks) and Part II: International Taxation (30 Marks).
The provisions of direct tax laws, as amended by the Finance Act, 2020, the Taxation and
Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 and significant
notifications and circulars issued upto 30.4.2021 are relevant for November, 2021
examination. The relevant assessment year for November, 2021 examination is
A.Y.2021-22.
The November, 2020 edition of the Study Material, comprising of four modules
(Modules 1, 2 and 3 on Part I: Direct Tax Laws and Module 4 on Part II: International
Taxation) is applicable for November, 2021 Examination. The same has to be read along
with the Statutory Update and Judicial Update for November, 2021 examination
webhosted at https://resource.cdn.icai.org/65081bos52350s.pdf and
https://resource.cdn.icai.org/65080bos52350j.pdf, respectively.
You have to read the Study Material thoroughly to attain conceptual clarity. Tables,
diagrams and flow charts have been extensively used to facilitate easy understanding of
concepts. The amendments made by the Finance Act, 2020, the Taxation and Other Laws
(Relaxation and Amendment of Certain Provisions) Act, 2020 and latest notifications and
circulars have been given in italics/bold italics. Examples and Illustrations given in the
Study Material would help you understand the application of concepts. Work out the
exercise questions at the end of each chapter and then, compare your answers with the
answers given to test your level of understanding. Read the webhosted Statutory U pdate
for November, 2021 which has been divided into chapters in line with the Study Material to
facilitate easy co-relation. Read the case laws given at the end of each chapter under
“Significant Select Cases” as well as the webhosted Judicial Update for November, 2021
examination.
Thereafter, solve all the questions in the publication “Booklet on MCQs & Case Scenarios”
to hone your analytical and problem-solving skills. This will help you gain speed and
accuracy in solving the MCQ based questions for 30 marks in this paper.

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 v FINAL (NEW) EXAMINATION: NOVEMBER, 2021

Finally, solve the questions given in this RTP independently and compare the same with
the answers given to assess your level of preparedness for the examination.
Note –
1. Extension of dates/due dates and certain other relaxations vide Taxation and
Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 on
account of COVID 19 pandemic are not applicable for November, 2021
examination.
However, relaxation in TDS/TCS rates for residents during the period
14.5.2020 to 31.3.2021 and extension of time in respect of section 10AA units
for commencement of manufacture are applicable for November, 2021
examination. Accordingly, they have been included in the November, 2020 edition
of the Study Material applicable for November, 2021 examination.
2. Direct Tax Vivad se Vishwas Act, 2020 and Rules, 2020 are not applicable for
November, 2021 examination.

PAPER – 8: INDIRECT TAX LAWS

For Paper 8: Indirect Tax Laws, the following are applicable for November 2021
examination:
(i) The provisions of the CGST Act, 2017 and IGST Act, 2017 as amended by the
Finance Act, 2020* and the Finance (No. 2) Act, 2019**, which have become effective
up to 30 th April, 2021, including significant notifications and circulars issued and other
legislative amendments made, up to 30 th April, 2021.
(ii) The provisions of the Customs Act, 1962 and the Customs Tariff Act, 19 75, as
amended by the Finance Act, 2020, including significant notifications and circulars
issued and other legislative amendments made, up to 30 th April, 2021.
*All the amendments made by the Finance Act, 2020 in the CGST Act and the IGST Act
have become effective till 30.04.2021 and are thus applicable for November 2021
examinations.
** Most of the amendments made by the Finance (No. 2) Act, 2019 in the CGST Act and
the IGST Act have become effective, but select amendments made by the Finance (No. 2)
Act, 2019 namely, amendments made in sections 2(4), 95, 102, 103, 104, 105 and 106 of
the CGST Act, 2017 and the insertion of new sections 101A, 101B & 101C in the CGST
Act, 2017 have not become effective till 30.04.2021. Therefore, the same are not
applicable for November 2021 examinations.

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 REVISION TEST PAPER vi

Further, a list of topic-wise exclusions from the syllabus has been specified by way of
“Study Guidelines for November 2021 Examination”. The same is given as part of
“Applicability of Standards/Guidance Notes/Legislative Amendments etc. for
November, 2021 - Final (New) Examination” appended at the end of this Revision Test
Paper.
The subject of Indirect Tax Laws at the Final level is divided into two parts, namely,
Part I: Goods and Services Tax for 75 marks and Part II: Customs & Foreign Trade Policy
(FTP) for 25 marks.
Students may note that November 2020 Edition of the Study Material is applicable for Final
(New Course) Paper 8: Indirect Tax Laws. The Study Material has been divided into four
modules for ease of handling by students. The first three modules are on GST and the
fourth module is on Customs and FTP.
The subject matter of Part I: Goods and Services Tax of the Study Material on Indirect Tax
Laws is based on the provisions of the Central Goods and Services Tax Act, 2017 and
Integrated Goods and Services Act, 2017 as amended up to 31.10.2020. The amendments
made by the notifications and circulars issued between 01.11.2020 and 30.04.2021 in GST
laws are given in the Statutory Update hosted on the BoS Knowledge portal on the ICAI’s
website www.icai.org. .
It may be noted that in the November 2020 Edition of the Study Material, the erstwhile
provisions of the CGST Act and the IGST Act have been compared with the provisions as
amended vide the Finance (No.2) Act, 2019 and Finance Act, 2020, at the end of the
relevant Chapters. Therefore, the same are not included in the Statutory Update. Students
should read the amended provisions given at the end of the relevant Chapters in place of
the erstwhile provisions discussed in the main body of the Chapters.
However, the amendments of Finance (No.2) Act, 2019 which have not become effective
till 30.04.2021, as mentioned above, should not be referred to as the same are not
applicable for November 2021 examinations. For ease of reference, the Chapters of the
Study Material which cover the said amendments (which have not become effective till
30.04.2021) are given below:
Chapter 19: Demands and Recovery
Chapter 22: Appeals and Revision
Chapter 23: Advance Ruling
The content discussed in Part II: Customs & FTP is based on the customs law as amended
by the Finance Act, 2020 and significant notifications and circulars issued till 31.10.2020
and the latest amendments are given in bold and italics therein. The significant

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 vii FINAL (NEW) EXAMINATION: NOVEMBER, 2021

notifications/ circulars issued from 01.11.2020 to 30.04.2021 in Customs & FTP are given
in the Statutory Update.
You have to read the Study Material thoroughly to attain conceptual clarity. Tables,
diagrams and flow charts have been extensively used to facilitate easy understanding of
concepts. Examples and Illustrations given in the Study Material would help you
understand the application of concepts. Work out the exercise questions at the end of each
chapter and then, compare your answers with the answers given to test your level of
understanding. Read the case laws given at the end of each chapter under “Signif icant
Select Cases” in module on customs laws.
Since the question paper of Indirect Tax Laws has a dedicated section for 30 marks for
objective type questions in the form of MCQs, comprising of both independent MCQs and
case scenario based MCQs, BoS has come up with an MCQ booklet in this paper. You
are advised to apply the concepts and provisions learnt after reading the Study Material in
answering the independent and case scenario based MCQs given in said booklet. You
have to read the case scenario and MCQs, identify the provisions of indirect tax laws
involved, apply the provisions correctly in addressing the issue raised/making the
computation required in the MCQ, and finally, choose the correct answer.
Finally, solve the questions given in this RTP independently and compare the same with
the answers given to assess your level of preparedness for the examination. Detailed
answers have been provided for the descriptive questions given in this RTP to facilitate in
depth understanding and appreciation of the provisions of the indirect tax laws in problem
solving. This will help in enhancing your conceptual clarity and honing your application
and analytical skills so that you are able to approach the examination with confidence and
a positive attitude.

© The Institute of Chartered Accountants of India

 PAPER – 5: STRATEGIC COST MANAGEMENT AND PERFORMANCE EVALUATION

×××CASE STUDY/ CASE SCENARIO ×××

Ethical and Non- Financial Considerations

Food & Beverage

1. Nutty Bites produces many edible snacks that are very popular especially among
children. Peanuts, Peanut oil are essential ingredients in many of its products. They are
currently facing this ethical issue –
“Medical studies have indicated peanut allergic reactions are on the rise. The prevalence
is more profound among children. Reactions can range from hives around the mouth to
potentially life threatening reactions when exposed even to the slightest trace of peanuts.
There is growing media campaign to force companies like Nutty Bites to make disclosure
about the presence of peanut on its package labelling”
Nutty Bites is a mid-size company that has a growing market. Risk to peanut exposure
can come not just from the presence of peanuts in its products. Some of its bought -in
ingredients (raw material input) are cooked in peanut oil. There are risks of “cross-
contamination” amongst products. Let us say, an equipment has been used produce
cookies that has peanuts. Next, the equipment is used, without being cleaned, to produce
chips that does not have peanuts as an ingredient. Some portion of the peanu ts / peanut
oil could contaminate that specific batch of chips produced. Since labels of chips would
not mention “peanuts” as an ingredient, it poses a potential risk of causing allergic
reaction to a customer unaware of this contamination.
Management of Nutty Bites has called for a meeting to discuss this issue. “The issue
need not be addressed at all. After-all Nutty Bites is doing nothing against the law” is the
opinion of many members on the board of the company.
Required
(i) EXPLAIN why Nutty Bites should attempt to address this issue.
(ii) STATE potential benefits that business can garner by addressing this issue.
(iii) RECOMMEND, with reasons, the avenues available to Nutty Bites to address this
ethical issue.
(iv) EVALUATE the recommended solutions.

© The Institute of Chartered Accountants of India

 2 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

Product Life Cycle

2. Cellwell Technologies Ltd. is a manufacturer of mobile phones. It has been an established
player in the market having launched various cell phone models in the last 10 years. With the
preference for usage of cell phones increasing, the company has grown rapidly since
inception. During the last two years, sales have been increasing but at a slower rate.
Competition has increased and hence sales growth has been slowing down.
Cellwell Technologies plans to introduce a new smart phone model called XXX21. The
company’s research and development team has come up an additional feature for this cell
phone model. This feature will periodically inform the customer using the cell phone regarding
any software update required for the model. By installing these updates many existing bugs
in the software model and security issues to the software can be fixed. This process can be
executed remotely with the help of the new technology that the research and development
team has developed. This improves the cell phone performance and keeps it running
smoothly. It improves compatibility of the software with that used in other applications and
devices. It also enhances customer experience as the software update will bring out new
software features (like newest emotions / updated dictionary) that can be used by the
customer. Consequently, the general utility of the cell phone life will improve by almost a
year. There will be less complaints due to performance / compatibility related issues.
The business development team has come up with a proposal for sales promotion. As per
this proposal, customers can trade in older model of their cell phone in order to buy the latest
XXX21 model. Due to the trade, customers can buy the latest model XXX21 at a substantial
discount.
After discussion with the research and development team, they conclude that this would have
an additional advantage. Cellwell Technologies can refurbish (repair and renovate) these
older models and resell them in the market at a substantially lower price. Typically, students
or customers in the lower income groups who look for cheaper models may find this offer
interesting. This creates a new market space for the company to target.
Those older cell phones traded in, that cannot be refurbished or are beyond repair / use can
be recycled. Various parts of these phones can be recycled and fitted into the new cell
phone models that are being made. Any cell phone model contains various precious metals
like gold, copper, platinum as also rare earth elements like neodymium, terbium to name a
few. These are difficult to obtain and need to be mined out of the earth causing huge damage
to the environment. With the demand for cell phone slated to increase, the need for these
materials is going to increase as well. Therefore, if these materials can be extracted from old
cell phones that would otherwise have been disposed-off into a landfill, it would benefit the
environment while providing an alternate source of material procurement. Since billions of cell
phones are used globally, every small measure makes an impact. With increasing awareness
about environment hazards, such a proposal is likely to find support among customers. It is
also helpful to improve the company’s brand image.

© The Institute of Chartered Accountants of India

 PAPER – 5 : STRATEGIC COST MANAGEMENT AND PERFORMANCE EVALUATION 3

Both proposals to introduce software upgrade feature in the cell phone as well as the
trade in sales promotional offer are unique as no other competitor has such features in
their products or have made such offers yet.
Required
(i) IDENTIFY the lifecycle phase of Cellwell Technologies Ltd. JUSTIFY your response
with reference to the case facts.
(ii) DISCUSS the impact of the decision to allow trade in of the company’s older cell
phone models on the product lifecycle of such phone models.

×××QUESTIONS×××

Standard Costing
3. Williams Footwear (WF) is a shop that focuses on shoes for various sports and
activities like jogging, cricket, tennis, and hockey. Budgeted profit for the WF is
calculated considering an average selling price of `500 per pair of shoes and an average
cost of `350 per pair of shoes. The supervisor of the WF has discretion in staffing and in
setting prices. Usually, the WF is staffed for 650 hrs. per month at a budgeted rate of
`125 per hr. In addition to this base wages, sales staff gets a payment equal to 5.5% of
takings. Moreover, staffing levels are not expected to change in response to “little”
changes in shoe sales. For Sep’2021, the WF had budgeted sales of 2,250 pairs of
shoes and 650 staffing hrs. Actual results for Sep’2021 were as follows:
Pairs of shoes sold 2,500
Revenue 12,00,000
Less: Cost of shoes 8,25,000
Less: Staff – additional payment 66,000
Less: Staff – base wages @ `125 per hour 78,125
Profit `2,30,875
Note- “little” changes in shoe sales specified as ± 12%.
Required
(i) PREPARE a reconciliation statement of budgeted profit to actual profit.
(ii) COMMENT on supervisor’s performance.
Relevant Costing
4. Felicity Ltd. is a chemical manufacturing company. It has received a special project that
needs to be completed executed 3 months from the time it is accepted. The management
has to communicate its acceptance or rejection of the project within few days. The y have
approached you, the management accountant to work out the costing for this project.
Following is the information available:

© The Institute of Chartered Accountants of India

 4 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

1. Financing:
The company would require a short-term overdraft of `5,00,000 immediately in
order to execute the project. Bank charges an interest of 10% per annum on this
overdraft. This overdraft facility would be needed for the duration of the project, that
is 3 months and would be repaid in full at the end of the period.
2. Materials:
Felicity Ltd. has a stock of inventory of 5,000 kg on hand that is not of immediate
use. It can be sold as scrap in the market at `250 per kg. The special project
requires 3,000 kg of this inventory which can be replaced at the current market price
of `300 per kg.
3. Labour:
(a) All skilled workers currently work full time in their respective departments,
there are no idle hours. For this special project, 5 workers would be needed
from other departments. They would totally devote 2,000 hours of labour time
to this project. The cost of labour per hour is `300. Since their working hours
have been diverted to this project, the production in the other departments
cannot be met. Hence, the company would incur a loss of contribution of
`1,00,000 for these 2,000 hours. Alternatively, the company can outsource the
labour for this special project at a total cost of `625,000. The management will
opt for the more cost-effective option as the quality of both in-house
manufacturing and outsourcing is the same.
(b) Overtime payment to inspection supervisor, who checks the final products
would be `25,000. This would be incurred irrespective of whether the labour is
in-house or outsourced.
4. Machine X-2.1”
This project would require the use of an existing machine X-2.1”. Depreciation of X-
2.1” is `40,000 per annum. The variable operating cost of X-2.1” for the three-month
period would be `3,00,000. At present, X-2.1” is operating at full capacity. By
diverting it exclusively for the special project would cost the company a loss of
contribution of `1,00,000 for the three-month period.
5. Administration overheads include apportionment cost of `25,000 and an
incremental cost (incurred specifically due to the acceptance of the project) of
`10,000.
6. Total revenue that the company can earn from the project is `20,00,000.
Required
COMMENT whether the special project should be accepted or not. Also give a complete
ANALYSIS of the special project cost based on the principles of relevant costing.

© The Institute of Chartered Accountants of India

 PAPER – 5 : STRATEGIC COST MANAGEMENT AND PERFORMANCE EVALUATION 5

Special Order Decision

5. Fire Safety (FS) is the manufacturer and supplier of firefighting and safety equipment for
industrial use and follows the international quality standards and uses the high grade raw
material. It is a fast-growing brand that protects millions of people across India, every single
day. FS has been offered a bid on a prospective export contract for 30,000 commercial fire
extinguishers with following specification from Australian buyer and the delivery terms is FOB.
“two-gallon cylinder holding 10 pounds of multi-purpose dry chemical at 380 PSI”
FS is exporting first time. The price computation per fire extinguisher is as follows:
` `
Direct Material
Circle Part Cost 930
Necking Part 45
Bottom Part 75
Fire Extinguisher Powder 885
Heat Process 75
Nozzle 90
Meter 30
Pipe 75
Nitrogen 45 2,250
Direct Labor (2 hrs. × `60) 120
Leakage Testing 75
Variable Overheads (including packing) 321
Export Clearance Charges on FOB term 54
Fixed Overhead 150
Total 2,970
Add: Markup @ 20% 594
Price `3,564
AUD to INR 54.5
Price in AUD 65.39
After quotation of AUD 65.39, the buyer is negotiating the price and ready to pay only
AUD 52.50.
Required
ADVISE whether it is worth accepting at AUD 52.50 considering other factors.

© The Institute of Chartered Accountants of India

 6 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

Life Cycle Costing

6. Asian Mould Components (AMD) was established in 2001 and has enormous wealth of
experience in the mould manufacturing industry and serves wide range of plastic moulds
all over nation. Over the past decade, AMD has developed the reputation for quality
products & services for customer focused approach. It deals in injection moulds, blow
moulds, die sets, moulds base etc.
With a state-of-the-art infrastructure facility, AMD is able to meet the qualitative and
quantitative demands of its clients. Its vision & mission is to provide high class
manufactured products by using best quality raw materials.
AMD has developed a new product “M-9” which is about to be launched into the market
and anticipates to sell 1,20,000 of these units at a sales price of `200 over the product’s
life cycle of four years. Data pertaining to product “M-9” are as follows:
Costs of Design and Development `12,37,500
of Molds, Dies, and Other Tools
Manufacturing Costs `83 per unit
Selling Costs `80,000 per year + `32 per unit
Administration Costs `1,23,000 per year
Warranty Expenses 4 Replacement Parts per 20 units at `8 per part;
2 Visit per 750 units (Cost `350 per visit)
Required
(i) COMPUTE the product “M-9”’s ‘Life Cycle Cost’.
(ii) SUGGEST two ways to maximize “M-9’’s lifecycle return.
Note: Ignore time value of money
CVP Analysis
7. Hotel Nauru, Zeeland, an affordable leisure hotel resort is an ideal retreat to escape,
unwind and enjoy peace of mind. Set amid expansive tropical greenery in the enclave of
Zeeland, Hotel Nauru is designed for pleasure, where services reign supreme and Italian-
style architecture of its 25 classic rooms harmonize with nature. Hotel Nauru, Zeeland is
a beachfront resort that features a good choice of swim-up pool bar, gym, and variety of
restaurants. A wide array of water sport activities like surfing, sailing, jet skiing etc. are
available from beach operators at walking distance. The hotel is synonymous with
enjoyment and value for money, with a large choice of very attractive “All Inclusive”
packages.
Nauru charges guests ZD 2,700 per room per night, irrespective of single or double
occupancy. The variable cost is ZD 900 per occupied room per night. The Nauru is
available throughout 365 days a year and has a 75% budgeted occupancy rate. Fixed
costs are budgeted at ZD 9 million and are incurred evenly during the year.

© The Institute of Chartered Accountants of India

 PAPER – 5 : STRATEGIC COST MANAGEMENT AND PERFORMANCE EVALUATION 7

During the second quarter (Q2) of the year, usually the room occupancy rates remain
substantially below the levels expected at other quarters of the y ear. Nauru is expecting
to sell 900 occupied room nights during Q2. Management is considering strategy to
improve profitability, including closing the Nauru for the duration of Q2 or adopting one
possible option as follows –
There is scope to extend the Nauru by creating enough space to run a Rustic Chic,
Italian Style restaurant to serve its guests. The annual revenues, costs and sales
volumes for the combined operations are given in the following graph –

Note
Zeeland’s home currency is the ZD.
Required
ANALYZE the profit improvement plan.

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 8 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

Cost of Quality
8. Star Automobile Group is among top 20 business houses in India. It has been founded
in the year 1940, at the height of India's movement for independence from the British, the
group has an illustrious history. Star’s footprint stretches over a wide range of industries,
spanning automobiles (two wheelers manufacturer and three wheelers manufacturer).
Star’s headquarter is located at Hyderabad. Bike Production is one of segment of Star
Group. Management of Star wants to analyse the following actual information for the
April:
Cost Data `
Customer Complaints Centre Cost 35 per hr.
Equipment Testing Cost 18 per hr.
Warranty Repair Cost 1,560 per bike
Manufacturing Rework Cost 228 per bike
Volume and Activity Data
Bikes Requiring Manufacturing Rework 3,200 bikes
Bikes Requiring Warranty Repair 2,600 bikes
Production Line Equipment Testing Time 1,600 hrs.
Customer Complaints Centre Time 2,000 hrs.
Additional Information
Due to the quality issues in the month, the bike production line experienced unproductive
'down time' which cost `7,70,000. Star carried out a quality review of its existing suppliers to
enhance quality levels during the month at a cost of `1,25,000.
Required
(i) PREPARE a statement showing ‘Total Quality Costs’.
(ii) ADVISE any TWO measures to reduce the non- conformance cost.
9. A company produces and sells a single product. The cost data per unit for the year 2021 is
predicted as below:
` per unit
Direct Material 35
Direct Labour 25
Variable Overheads 15
Selling Price 90

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 PAPER – 5 : STRATEGIC COST MANAGEMENT AND PERFORMANCE EVALUATION 9

The company has forecast that demand for the product during the year 20 21 will be
28,000 units. However, to satisfy this level of demand, production quantity will be
increased?
There are no opening stock and closing stock of the product.
The stock level of material remains unchanged throughout the period.
The following additional information regarding costs and revenue are given:
― 12.5% of the items delivered to customers will be rejected due to specification
failure and will require free replacement. The cost of delivering the replacement item
is `5 per unit.
― 20% of the items produced will be discovered faulty at the inspection stage before
they are delivered to customers.
― 10% of the direct material will be scrapped due to damage while in storage.
Due to above, total quality costs for the year is expected to be ` 10,75,556.
The company is now considering the following proposal:
1. To introduce training programmes for the workers which, the management of the
company believes, will reduce the level of faulty production to 10%. This training
programme will cost `4,50,000 per annum.
2. To avail the services of quality control consultant at annual charges of ` 50,000
which would reduce the percentage of faulty items delivered to customers to 9.5%.
Required
(i) PREPARE a statement of expected quality costs the company would incur if it
accepts the proposal. Costs are to be calculated using the four recognised quality
costs heads.
(ii) Would you RECOMMEND the proposal? Give financial and non-financial reasons
(in brief).
Balanced Scorecard
10. Z. Steels is a leading manufacturer of flat and long products and have state-of the-art
plants. These plants manufacture value added products covering entire steel value chain
right from coal mining to manufacturing Pig Iron, Billets, HR Coils, Black Pipe/GI Pipe,
Cable Tapes etc. conforming to international standards. The rock-solid foundation
combined with nonstop upgradation and innovation has enabled the Z. Steels to surpass
its goals constantly. Its vision and values for sustainable growth is balancing economic
prosperity and social equality while caring for the planet. It is preparing its balanced
scorecard for the year 2020-21. It has identified the following specific objectives for the
four perspectives.

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 10 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

▪ Improve post-sales ▪ Improve employee ▪ Improve employee job

service morale satisfaction
▪ Increase gross margin ▪ Increase number of ▪ Increase profitability of
customers core product line
▪ Increase plant safety ▪ Increase customer
retention

Z. Steels has collected Key Performance Indicators (KPIs) to measure progress towards
achieving its specific objectives. The KPIs and corresponding data collected for the year
2020-21 are as follows:
Key Performance Indicator Goal Actual
Average replacement time (number of days) 2 1.5
Gross margin growth percentage 15% 16%
Number of customers 15,000 15,600
Number of plant accidents 0 2
Percentage of repeat customers 83% 81%
Core product line profit as a percentage of core-product line 5% 4.4%
sales
Employee turnover rate (number of employees leaving/ Average 2% 3%
number of total employees)
Employees’ satisfaction rating (1-5, with 1 being the most 1 1.2
satisfied)

For preparation of Balanced Scorecard report, the following format has been developed:
Z. Steels
Balanced Scorecard Report
For the year ended March 31, 2021
Perspective Objective KPI Goal Actual Goal
Achieved
(Yes or No)
Financial × × × × ×
Customer × × × × ×
Internal Business Process × × × × ×
Learning and Growth × × × × ×

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 PAPER – 5 : STRATEGIC COST MANAGEMENT AND PERFORMANCE EVALUATION 11

Required
(i) PREPARE a balanced scorecard report using the above-mentioned format. Place
objective under the appropriate perspective heading in the report. Select a KPI from the
list of KPIs that would be appropriate to measure progress towards each objective.
(ii) Z. Steels desires to integrate sustainability and corporate social responsibility
related KPIs in their balance scorecard to adhere vision and values. ADVISE Z.
Steels, using TBL framework.
Basic Concepts
11. Identify the correct pair of statement→
A During ___________ stage there is space for all, (i) Diversification
competitors and firms are focusing on keeping up with
customer demand and not looking into the future.
B When the buyer has more access to information then he/ (ii) Centralised
she can possibly switch products or even perhaps
backwards integrate and make the products themselves.
___________ power would decrease.
C A health insurance firm moving into the operating fitness (iii) Maturity
centre is an example of ___________ strategy.
D Lower switching costs mean that ___________ will have (iv) Supplier’s
more power.
E Major product differentiation and ___________is usually (v) Growth
considered a barrier to entry.
F A___________organisation has many levels of (vi) Buyers
management, vests decision-making authority at the top.
G The___________is a high-level position and helps (vii) Branding
capture the organisation’s fundamental purpose.
H A wine producer that uses grapes grown in its own (viii) Mission
winery is an example of ___________.
I The life cycle stage ___________ is characterised by (ix) Vertical
slower growth, increased buyer power, supply meeting Integration
demand, and a shift towards efficiency.
J _________ helps management to report on the (x) KPIs
achievement of strategic goals/ objectives.

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 12 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

SUGGESTED ANSWERS/HINTS

1. (i) Modern organizations have a moral duty of care to a wider range of stakeholders
not just its owners / investors. In this case, it owes a duty of care to anybody who
consumes its products. The presence of peanuts or peanut oil makes it a potential
“health hazard” to some consumers. Food safety is a fiduciary duty that Nutty Bites
owes to the society. Corporate Social Responsibility (CSR) is the duty an
organization has towards a wider community.
(ii) Addressing this ethical issue will help Nutty Bites to become a morally responsible
organization. The long- term benefits to its business could be as follows:
(a) Avoid bad publicity that could potentially damage its reputation and brand
image.
(b) Avoid potential legal action for tort, committing a civil wrong.
(c) Operating environment within the business is more ethical, giving a sense of
well-being to its employees.
(iii) Following could be some of the responses that Nutty Bites could take to address the
issue:
(a) A clear warning in the ingredients box that the factory uses peanuts while
manufacturing some of its products. This should be included even in products
that do not contain peanuts, to avoid any harm due to risk of cross-
contamination. Customers who suffer this allergy, would then be aware of the
potential risk of consuming products of Nutty Bites. Protection from potential
lawsuits counters any loss of business for Nutty Bites.
(b) Segregate areas to have separate processing lines for products with peanuts /
peanut oil and those without it. If possible, have segregated staff for the two
production lines in order to avoid the risk of cross-contamination. If this is not
possible, staff have to be well trained on the risks of cross-contamination.
Gloves need to be provided while handling material during production of food
products. This should be changed each time staff handle production changes
from “peanut variety” to the “non-peanut variety”.
(c) Equipment should be thoroughly cleaned while switching production from one
variety to another. Fewer changeovers in the production cycle, that is
producing products in larger batches, reduces the number of switches during
production of different varieties of food products.
(d) Storage of peanut material should be well segregated and monitored to avoid
contamination.

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 PAPER – 5 : STRATEGIC COST MANAGEMENT AND PERFORMANCE EVALUATION 13

(e) If Nutty Bites has the resources, it could invest in pharma companies that are
finding a medical solution to this problem. The food industry could benefit from
research and development of treatments to address this life-threatening
allergy. A break-through would address a societal problem, while also having a
positive impact for growth of Nutty Bites.
(iv) Risk of product safety is an important issue that needs constant review. Review
would be of the production process, storage, material handling as well as ingredient
of purchased raw materials. The benefit of constant review is that Nutty Bites can
immediately identify danger of contamination. For example, is a supplier of raw
material changes the production of the ingredients to include peanut / peanut oil,
then Nutty Bites can be immediately aware of the change due to its review process.
In case of any future litigation, Nutty Bites could defend itself by proving that it had
a robust review process in place.
On the other hand, constant review requires time and money, with an ever-present
possibility of contamination. It is not feasible to ensure complete safety . Reviewers /
quality inspectors could become negligent once the process is well established. This
could lead to instances of contamination, even with a review process in place.
To conclude, Nutty Bites is morally responsible to spread awareness that some of
its products may contain allergy causing peanuts / peanut oil. It should strea mline
its storage and production process to avoid risk of cross-contamination.
2. (i) Cellwell Technologies Ltd. is in the “Maturity” stage of product lifecycle. It has
been an established player in the cell phone market. The company has seen rapid
sales growth. Over the last 2 years sales have been increasing at a slower rate due
to increased competition. Therefore, the company has decided to introduce a new
product model in the form of XXX21.
Retention of existing customers and trying to win over the competitor’s
customers is the strategy being used by Cellwell Technologies. The XXX21 model
that enables customers to upgrade the software of their smartphone enhances its
product features. This differentiates the company’s product with that of its
competitors. Technology changes at a fast pace. By enabling customers to upgrade
their mobiles would definitely improve performance, lower customer complaints due
to breakdown or compatibility issues due to older software. Improved performance
along with longer product life would definitely enhance customer satisfaction as well
as attract newer customers. The add on benefit is that the execution of this update
can be managed from remote locations without the need for in person assistance.
The offer to trade in old cell phones while buying the latest XXX21 model would
appeal to price sensitive customers. It will also evince interest of customers who are
looking to dispose their cell phones that would otherwise end up in the landfill. The
trade in offers monetary benefit in the form of a discount. This sale promotional offer

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 14 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

to trade old phones for a discount in the price of the latest model XXX21 would
definitely help Cellwell Techonogies to effectively compete with its competitors.
Cellwell Technologies would have the first mover advantage by implementing both
the product enhancing / differentiating feature in model XXX21 as well as the trade
in options to customers. This shows that the management has a clear plan on how
to effectively beat the competition. This indicates that the company is now in the
“Maturity” stage of product lifecycle.
(ii) Cellwell Techonogies has introduced a sales feature to allow trade in of older cell
phone models in exchange for model XXX21 at a substantial discount. These
phones would then be used in 2 ways (1) by refurbishing (repairing and renovating)
or (2) recycling useful product parts and extracting precious metals and earth
elements from the phones.
The refurbished phones would be sold at a substantially lower price to customers
like students or lower income groups. Thus, the older cell phone model gets a new
lease of product life after the requisite repairs. This extends its product life cycle
by a further time frame until there may be no use of the cell phone model at a ll.
In the case of phones that are of no use/ completely dead, usable parts are being
recycled into existing products. Thus, this becomes an alternate source of material
procurement for the company at a much lower cost. Consistent use of this measure
would definitely reduce the cost of production by a certain margin. The product
lifecycle of such cell phones (dead phones) is not being extended. However, they
continue to provide value to the company with the help of the recycling process. The
intangible benefit of this measure would be the positive impact that recycling would
have on the environment. A move that would definitely enhance the company’s
brand image.
3. (i) Reconciliation Statement Budgeted and Actual Profit (Sep’2021)

Budgeted profit 1,94,375

Sales volume variance (F) 30,625
Sales price variance (A) 50,000
Shoe cost variance (F) 50,000
Staff cost variance -commission (F) 2,750
Staff cost variance -base wage (F) 3,125
Actual profit `2,30,875

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 PAPER – 5 : STRATEGIC COST MANAGEMENT AND PERFORMANCE EVALUATION 15

(ii) Comment
The performance seems good. It shows that the supervisor of the WF passed on a 5.7%
decrease in shoe cost to customers (same is also revealed through the entirely
offsetting of the shoe cost variance and price variance), i.e. shoe costs decreased by
`20 per pair, from a standard cost of `350 per pair to an actual cost `330 per pair.
Additionally, the selling price decreased by `20 per pair, from a standard price of `500
per pair to an actual price of `480 per pair. In turn, the reduction in the selling price
appeared to produce a favourable sales volume variance and a reasonable increase in
profit.
Since the reduction in the selling price, staff commissions also were lower than
budgeted. Moreover, the `50,000 reduction in revenue led to 0.055 × `50,000 = `2,750
less in commission costs.
Lastly, staffing was 25 hours under budget, leading to a savings of 25 × `125 = `3,125.
Therefore, the supervisor attained an increase in sales with lesser staff hours.
Overall, it appears that the manager has done a great job of making revenue and
controlling costs.
Workings
Statement Showing Budgeted and Actual Profit (Sep’2021)
Budgeted Data Actual Data
Units (pairs of shoes) 2,250 2,500
Price per pair of shoes `500.00 `480.00
Cost per pair of shoes `350.00 `330.00
`27.50 `26.40
Commission rate
(5.5% of `500) (5.5% `480)
Contribution `122.50 `123.60
Revenue `11,25,000 `12,00,000
Less: Cost of shoes 7,87,500 8,25,000
Less: Staff – additional payment
(commission) 61,875 66,000
Less: Staff – base wages 81,250 78,125
Profit `1,94,375 `2,30,875
Computation of variances
Total Profit Variance = `2,30,875 – `1,94,375
= `36,500 (F)

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 16 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

Sales Contribution Volume Variance = Standard Contribution – Budgeted

Contribution
= `122.50 × 2,500 – `122.50 × 2,250
= `3,06,250 – `2,75,625 = `30,625 (F)
Sales Price Variance = Actual Revenue – Standard Revenue
= `480 × 2,500 – `500 × 2,500
= `12,00,000 – `12,50,000 = `50,000 (A)
Shoe Cost Variance * = `350 × 2,500 – `330 × 2,500
= `8,75,000 – `8,25,000 = `50,000 (F)
Staff Cost Variance-commission* = `27.50 × 2,500 – `26.40 × 2,500
= `68,750 – `66,000 = `2,750 (F)
Staff Cost Variance (base wage) = `81,250 – `78,125 = `3,125 (F).
(*) Note- The cost variance (for both shoe and staff-commission) equal to the
difference between the standard cost and the actual cost.
4. Special Project Cost
Item of Cost Comments / Working Amount (`)
Project financing: Interest of Interest @10% on overdraft of 12,500
overdraft `5,00,000 for 3 months
[10% × `5,00,000 × (3months /
12 months)] (Refer note 1)
Materials (Refer note 2) 7,50,000
Labour
(a) Outsourced labour cost (Refer note 3) 6,25,000
(b) Overtime paid to inspection
supervisor (Refer note 4) 25,000
Overheads (Refer note 5)
(a) Operating cost of machinery 3 months 3,00,000
for special project
(b) Opportunity cost of diverting Contribution lost `1,00,000 for 1,00,000
X-2.1” machine 3 months
Administration overheads Incremental cost (Refer note 6) 10,000
Total cost for accepting the project 18,22,500

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Comment
Revenue to be earned from the project is `20,00,000 while the cost of accepting the
project would be `18,22,500. The project can yield a surplus of `1,77,500. Therefore, the
special project can be accepted.
Notes
Note 1: Project financing for 3 months through overdraft of `5,00,000 at interest of
10% per annum.
This is a relevant cost since it is an incremental cost to be incurred only if the project is
accepted. The incremental cost is the interest to be paid on the overdraft of `5,00,000 for
3 months. At the end of three months, the overdraft will be repaid in full, therefore there
will be no further incremental cost.
Note 2: Material cost
The company already has material worth 5,000 kg in its inventory. This is a sunk cost
that has already been incurred. Materials requirement for this project is 3,000 kg which
can be sourced from the current inventory of 5,000 kg. This material could have been
sold as scrap at `250 per kg. However, since 3,000 kg of this material can be used for
this project, the sale proceeds from the scrap sale of 3,000 kg would be the opportunity
cost that has to be accounted for. This is the cash inflow forgone if the project is
accepted.
Replacement cost of 3,000 kg at `300 per kg would be irrelevant since there is no need
to buy this material, it is already in inventory. Also the material has no further immediate
use, so there is no need to replace it.
Note 3: Labour cost – cost of in-house production vs cost of outsourcing the work
for the project
Five skilled workers from other departments would need to devote 2,000 hours for this
project. They are paid at `300 per hour. They are fully working in their respective
departments and are not idle. The cost of labour of these 5 workers for 2,000 hours
would be a relevant cost for the project.
Total hours by 5 skilled workers = 2,000 hours
Rate per hour = `300 per hour
Labour cost for in house skilled workers= 2,000 hours × `300 per hour = `6,00,000
To this, the loss of contribution for diverting the skilled workers’ hours for the project
represents an opportunity cost that is a relevant cost. This is the revenue forgone if the
project is undertaken.
Total labour cost for in house production
= cost of skilled workers + contribution lost (opportunity cost)

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 18 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

= `6,00,000 + `1,00,000 = `7,00,000

The cost of outsourcing the work for this project is `6,25,000. Since the quality of work is
the same under both options it is cost effective to outsource the labour for this special
project. Therefore, the relevant cost for the special project is `625,000.
Note 4: Overtime paid to inspection supervisor
Overtime paid to inspection supervisor specially for this project is an incremental cost, a
relevant cost.
Note 5: Machine X-2.1”
The operating cost of X-2.1” `3,00,000 is an incremental cost, therefore a relevant cost.
The depreciation of `40,000 per annum on it is a sunk cost and hence not relevant.
This machine X-2.1” works at full capacity, no idle time. Hence the contribution loss of
`1,00,000 for the three-month period due to this diversion will be an opportunity cost that
has to be accounted for. This is revenue forgone if the project is accepted.
Note 6: Administrative overhead
Allocation of administrative overhead of `25,000 is not a relevant cost since this is a
sunk cost already incurred. Incremental administrative cost of `10,000 incurred
specifically for the project is a relevant cost and hence has to be accounted for.
5. Workings
Statement Showing Benefit from Prospective Export Contract
`
Direct Material 2,250
Direct Labor (2 hrs. × `60) 120
Leakage Testing 75
Variable Overheads (including packing) 321
Export Clearance Charges on FOB term 54
Total Relevant Cost 2,820
AUD to INR 54.5
Relevant Cost ⁓AUD 51.74
Price Offered by Customer AUD 52.50
Benefit per extinguisher ⁓AUD 0.76
No. of Extinguishers 30,000
Total Benefit AUD 22,800

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 PAPER – 5 : STRATEGIC COST MANAGEMENT AND PERFORMANCE EVALUATION 19

Advise
From financial perspective, it will be profitable for FS to accept the contract because of
gain of AUD 22,800 (`12,42,600) along with export incentives of drawback. Besides this,
following consideration should also be taken into consideration while exporting fire
extinguishers:
Statutory Compliances
Before exporting to a foreign country or even agreeing to sell to a new customer in a
foreign country, FS should be aware of foreign laws that might affect the sale. Export
documentation is important as it plays a significant role in regulating the flow and
movement of goods in international markets. Each country has its own prescribed
statutory documents to be complied by exporters and importers. Thus, FS should
consider about the documentation and inspection compliances part of new buyer. It may
include third party audit, commercial invoice and packaging list requirements, certificate
requirements like- no child labour certificate, inspection certificate, reach compliance
certificate etc. If any compliance requirement is not met, what will be the consequences?
There may be stiff penalty has to be paid owing to non-compliance or failure to
accurately comply with the export obligation.
Buyer Creditworthiness
It is necessary that before shipment the exporter to carry out its own credit check on the
importer to determine creditworthiness. Thus, FS should make a proper assessment of
the creditworthiness of the foreign buyer and spend sufficient time in cross checking the
credit worthiness of his counterpart to avoid any kind of unforeseen situation in future.
Such information can be easily availed through contracts or through ECGC. Private
agencies also provide information on paid service basis. However, this risk can be
covered by asking for LC payment terms or 100% advance or opting for post shipment
insurance for goods being exported.
Industry Analysis
Industry analysis involves such things as assessing the competition in the industry; the
interplay of supply and demand in the industry; how the industry holds up against other
industries that are emerging and providing competitions; the likely future of the industry,
especially in light of technological developments; how credit works in the industry; and
the exact extent of the impact that external factors have on the industry.
For FS, it is worthwhile to know the current and future demand of fire extinguisher and
factors influencing the growth of global fire extinguisher market. FS can perform industry
analysis through three main ways i.e. the Competitive Forces Model (also known as
Porter’s 5 Forces); the broad factors analysis, also known as PEST analysis; and SWOT
Analysis. It may also arrange industry report from trusted sources.

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 20 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

Additional Terms
Ensure that all terms are clear and suit the business purpose. For instance, delivery
terms should provide date of shipment or means of determining the date. In some
circumstances, a late delivery penalty may be incurred where goods are not supplied by
a specific delivery date. Therefore, FS should evaluate whether shipment date is
attainable or not. If the target shipment date could not be met, what will be the cha rges?
Further, FS must also check whether the foreign bank charges are subject to beneficiary
account. If yes, then the same must be considered in the quotation.
Overall, FS should accept the proposed contract only after due and careful consideration
of above factors.
6. (i) Statement Showing “M-9’s Life Cycle Cost (1,20,000 units)”
Particulars Amount (`)
Costs of Design and Development of Molds, Dies, and Other Tools 12,37,500
Manufacturing Costs (`83 × 1,20,000 units) 99,60,000
Selling Costs (`32 × 1,20,000 units + `80,000 × 4) 41,60,000
Administration Costs (`1,23,000 × 4) 4,92,000
Warranty
(1,20,000 units / 20 units × 4 parts × `8) 1,92,000
(1,20,000 units / 750 units × 2 visits × `350) 1,12,000
Total Cost 1,61,53,500
(ii) Following ways are suggested to maximize “M-9” lifecycle return:
R&D Costs
Often significant part of cost is incurred at the R&D phase of new product, hence
AMD should carefully plan and design its new product “M-9” as it will determine the
number of parts, production process to be used etc. AMD can apply value
engineering here. It involves improving product quality, reducing product costs, fos-
tering innovation, eliminating unnecessary and costly design elements, ensuring
efficient investment in product, and developing implementation procedures. Value
engineering is most successful when it is performed early in product development stage.
A value engineering study should be performed within the first 25-30% of the design
effort prior to selecting the final design alternative. Here, it is also important that R&D
team should work as a part of cross functional team i.e. (participate in a group of
people from different functional areas), to minimise lifecycle cost and the production
cycle time in new development.

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Speed up the Product Launch

In cutthroat competitions, it is important for AMD to get new product “M-9” launch
into the market as soon as possible since this will give “M-9” a long stay in the
marketplace without competition in the market. Competitor always try to launch a
rival product as quickly as possible in order to gain ‘competitive edge’. AMD may
lose overall profitability if it delays in launching of Product “M-9”. It is usually
worthwhile incurring extra costs to keep the launch on schedule or to speed up the
launch.
7. The Present Profit of Hotel Nauru
Total Room Days = 25 Rooms × 365 days × 75% = 6,844
Profit = Total Contribution – Fixed Cost
= 6, 844 room days × (ZD 2,700 – ZD 900) - ZD 90,00,000
= ZD 33,19,200
If Nauru is Shut Down during Q2
Loss of Contribution {900 Room Days × (ZD 2,700 - ZD900)} = ZD 16,20,000
Nauru should not close its hotel during Q2. The fixed costs will still be incurred, and hotel
closure would result in lost contribution of ZD16,20,000. This in turn would decrease annual
profits by ZD16,20,000. In addition, Nauru could lose guests at other quarters of the year,
particularly their regular business customers, who may perceive the Nauru as being non-
reliable.
Proposal of Opening an Italian Restaurant
Opening a restaurant will increase the fixed costs of the Nauru from ZD 9 million p.a. to ZD 12
million p.a. Thus, annual increment of ZD 3 million.
Average Revenue per occupied room will rise from ZD 2,700 to ZD 3,636.36... (ZD 30 million
/ 8,250 rooms) because increasing guest expenditure in Italian restaurant.
The total cost predicted at a level of 8,250 occupied rooms is ZD 23.75 million which means
the variable costs must be ZD 11.75 million (ZD 23.75 million – ZD 12 million fixed costs).
This is a variable cost per occupied room of ZD 1,424.24… which is an increase of ZD
524.24…
Consequently, the breakeven point has gone up from 5,000 to 5,425 (as shown in the
diagram) occupied rooms so the Nauru is required to sell more room nights to cover costs.
However, budgeted occupancy is now 7,310 occupied room nights which is 80.11%
occupancy (7,310/ 9,125). This provides a margin of safety of 1,885 occupied room nights or
25.79%. At 7,310 occupied room nights, Nauru’s budgeted profit would be ZD 41,70,597
{7,310 × (ZD 3,636.36 – ZD 1,424.24) – 12 million} which is more than present budgeted
profit by ZD 8,51,397. So, it is better for Nauru to go for opening an Italian Restaurant.

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 22 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

8. (i) Statement Showing ‘Total Quality Costs’

Particulars of Costs `
Prevention Costs
Supplier Review 1,25,000
Appraisal Costs
Equipment Testing (`18 × 1,600 hrs.) 28,800
Internal Failure Costs
Down Time 7,70,000
Manufacturing Rework (`228 × 3,200 bikes) 7,29,600
External Failure Costs
Customer Complaints (`35 × 2,000 hrs.) 70,000
Warranty Repair (`1,560 × 2,600 bikes) 40,56,000
Total Quality Costs 57,79,400
(ii) The reporting of quality costs highlights the cost of quality activities at Star. The
total quality costs statement clearly displays the relationship between conformance
costs (prevention and appraisal costs) and non-conformance costs (internal failure
and external failure costs) and the drivers of a reduction in the overall spending on
quality. Statement indicates that only 2.16% of the total quality cost is the cost of
preventing quality problems while 0.50% is the cost of appraisal activities. Thus,
prevention and appraisal costs make up only 2.66% of total quality costs. In
contrast, 97.34% of quality control costs are incurred for internal and external failure
costs. Following two measures can be used to reduce non- conformance cost:
Total Productive Maintenance (TPM) is a system of maintaining and improving the
integrity of production and quality system through keeping all equipment in top
working condition so as to avoid breakdowns and delays in manufacturing
processes. It involves identifying machines in every division (including planning,
manufacturing, maintenance) and then planning & executing a maintenance
programme covering their entire useful life.
In this scenario, TPM will help in reducing internal failure cost (i.e., downtime and
manufacturing rework cost), which constitutes 25.95% of total quality cost, by
keeping all equipment in good working conditions so that there is no downtime or
machine breakdown and ensuring that all equipment run smoothly. If machines work
properly, the chances of rework will reduce, ultimately will also reduce chances of
warranty repair and customer complaints (comprising 71.39% of total quality cost
which is major part of total quality cost).

© The Institute of Chartered Accountants of India

 PAPER – 5 : STRATEGIC COST MANAGEMENT AND PERFORMANCE EVALUATION 23

Total Quality Management (TQM) aims at improving the quality of organisational

output, including goods and services, through continual improvement of internal
practices. Its objective is to eradicate waste and increase efficiency without
compromising with the quality. It requires that company maintain this quality
standards in all aspects of business by ensuring that things are done right the first
time so that defects and waste are eliminated from operation.
It appears that Star is not a TQM company at present due to huge disparity between
conformance costs and non-conformance costs. In order to make Star to be
successful, all staff at Star must be engaged in the improvement process and share
in the continuous improvement ethos. In order to establish a reputation as a high-
quality bike manufacturer Star must ensure staff are focused on quality and
attitudes changed toward the importance of conformance activities, for instance,
Star can conduct third party inspection of raw material at supplier’s workplace
leading to maintenances of quality standards.
Overall, while applying above two measures, in the Star, consideration must
therefore be given to the optimum balance between the costs of conformance and
the costs of non-conformance.
9. (i) Statement of ‘Expected Quality Costs’
Particulars Current Situation Proposed Situation
(`) (`)
Prevention Costs --- 4,50,000
Appraisal Costs --- 50,000
External Failure Costs 3,20,000 2,35,120
Internal Failure Costs 7,55,556 3,91,538
Total Quality Costs 10,75,556 11,26,658
Workings
External Failure Cost
Particulars Current Proposed
Situation Situation
Customer’s Demand …(A) 28,000 units 28,000 units
Number of units Dispatched to Customers …(B) 32,000 units 30,939 units
 28,000 units   28,000 units 
 ;  
 87.5%   90.5% 
Number of units Replaced …(B) – (A) 4,000 units 2,939 units
External Failure Cost `3,20,000 `2,35,120
{4,000 units × `(35+25+15+5)};
{2,939 units × `(35+25+15+5)}

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 24 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

Internal Failure Cost

Particulars Current Proposed
Situation Situation
Number of units Dispatched to Customers …(A) 32,000 units 30,939 units
Number of units Produced & Rejected …(B) 40,000 units 34,377 units
 32,000 units   30,939 units 
 ;  
 80%   90% 
Number of units Discovered Faulty … (B) – (A) 8,000 units 3,438 units
Cost of Faulty Production …(D) `6,00,000 `2,57,850
{8,000 units × `(35+25+15)};
{3,438 units × `(35+25+15)}
Material Scrapped 4,444.44 units 3,819.67 units
 40,000 units   34,377 units 
  10%  ;   10% 
 90%   90% 
Cost of Material Scrapped …(E) `1,55,556 `1,33,688
{4,444.44 units × `35}; {3,819.67 units × `35}
Internal Failure Cost …(D)+(E) `7,55,556 `3,91,538
(ii) Recommendation
On purely financial grounds the company should not accept the proposal because
there is an increase of `51,102 in quality costs. However, there may be other
factors to consider as the company may enhance its reputation as a company that
cares about quality products and this may increase the company’s market share.
On balance the company should accept the proposal to improve its long-term
performance.


This question can also be solved by considering rejections of 3,500 units (12.5% of 28,000)
Hence, total 31,500 units are required to be produced.

10. (i) Z. Steels

Balanced Scorecard Report
For the year ended March 31, 2021
Perspective Objective KPI Goal Actual Goal Achieved
(Yes or No)
Financial Increase Gross margin growth 15% 16% Yes
Gross Margin percentage

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 PAPER – 5 : STRATEGIC COST MANAGEMENT AND PERFORMANCE EVALUATION 25

Increase Core product line profit 5% 4.4% No

Profitability of as a percentage of
Core Product core product line sales
Line
Customer Increase Number of Customers 15,000 15,600 Yes
number of
customers
Increase Percentage of repeat 83% 81% No
customer customers
retention
Internal Improve post Average replacement 2.0 1.5 Yes
Business sales service time (number of days)
Process Increase plant Number of plant 0 2 No
safety accidents
Learning and Improve Employees’ 1 1.2 No
Growth employee job satisfaction rating (1-5,
satisfaction with 1 being the most
satisfied)
Improve Employee turnover 2% 3% No
employee rate (Number of
morale employees leaving/
Average number of
total employees)

(ii) “Triple Bottom Line” concept encourages companies to measure not only their
financial profits, but also the impact that its operations have on the society and
environment. Therefore, this framework measures the full cost of doing business by
measuring the following bottom lines (i) Profit (ii) People and (iii) Planet.
Diminishing non-renewable resources have forced businesses to focus on
sustainable manufacturing. This term refers to managing manufacturing processes
such that they minimize any negative impact on the environment by conserving
energy and natural resources. In many instances, improved operational efficiency
not only reduces waste (thereby costs) but also improves product safety, it
strengthens the brand’s reputation and builds public’s trust about the company. As a
long- term strategy, this improves business viability and provides a competitive
edge to the company. This concept is the “Planet Bottom Line” within the Triple
Bottom Line framework. Metrics on the following aspects may be investigated to find
out the environment impact of business operations:
▪ Material consumption
▪ Energy consumption
▪ Water utilization

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 26 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

▪ Emissions, treatment of effluents and waste (include emissions affecting air,

water, and land)
▪ Fuel consumption by tracking freight and transportation costs
▪ Land utilization
▪ Recyclability and disposal of product
“Corporate Social Responsibility” enables the company to become conscious of the
impact its operations has on the society. CSR programs, through philanthropy and
volunteer efforts can forge a stronger bond between itself, its employees, and the
wider community. Again, this improves both the brand image as well as builds
public’s trust about the company. This concept is the “People Bottom Line” of the
Triple Bottom Line framework. Metrics on the following aspects maybe investigated
to find out the social impact of business operations:
▪ Workplace environment and labour relations
▪ Occupational health and safety, accident rates
▪ Human rights practices – child labour, employee work-place security policies
▪ Training and education
▪ Equal opportunity employer – diversity of workforce and opportunities available
for employees’ growth
▪ Suppliers – local sourcing versus sourcing from external markets
▪ Philanthropy and volunteer programs organized
▪ Product safety in terms of customer health and safety
▪ Pricing of essential products to enable wider reach within the society
▪ Transparent and ethical business practices
Z Steels can study these aspects, determine the relevant metrics, and prepare
periodic KPI reports that can help in measuring responsibilities towards
sustainability and social impact.
11. Correct Pair
A B C D E F G H I J
(v) (iv) (i) (vi) (vii) (ii) (viii) (ix) (iii) (x)

© The Institute of Chartered Accountants of India

 PAPER – 6A to 6F [ELECTIVE PAPERS]

PAPER – 6 A : RISK MANAGEMENT

PAPER – 6 B : FINANCIAL SERVICES AND CAPITAL MARKET

PAPER – 6 C : INTERNATIONAL TAXATION

PAPER – 6 D : ECONOMIC LAWS

PAPER – 6 E : GLOBAL FINANCIAL REPORTING STANDARDS

PAPER – 6 F : MULTIDISCIPLINARY CASE STUDY

These papers are open book and case study based. Case Studies on all the above elective

subjects have been webhosted at the BoS Knowledge Portal.

© The Institute of Chartered Accountants of India

 PAPER 7: DIRECT TAX LAWS & INTERNATIONAL TAXATION

The provisions of direct tax laws, as amended by the Finance Act, 2020, the Taxation and Other
Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 and significant notifications
and circulars issued upto 30.4.2021, are relevant for November, 2021 examination. The
relevant assessment year is A.Y.2021-22. The November, 2020 edition of the Study Material
has to be read along with the Statutory Update and Judicial Update for November, 2021
Examination webhosted at https://resource.cdn.icai.org/65081bos52350s.pdf and
https://resource.cdn.icai.org/65080bos52350j.pdf, respectively, at the BoS Knowledge Portal.

QUESTIONS AND ANSWERS

Case Scenario 1
Mr. Harshit, a resident Indian, is in retail business in Mumbai and his turnover for F.Y.2019-20
was ` 8 crores. He regularly purchases goods from another resident, Mr. Pranav, a wholesaler
in Mumbai, and the aggregate payments made by Mr. Harshit to Mr. Pranav during the F.Y.2020-
21 was ` 80 lakh (` 20 lakh on 8.5.2020, ` 25 lakh on 27.8.2020, ` 20 lakh on 18.10.2020 and
` 15 lakh on 11.2.2021). Mr. Pranav’s turnover for F.Y.2019-20 was ` 11 crores.
Mr. Pranav paid ` 5 lakhs on 1.9.2020 to M/s. Thomas Cook for a holiday package to Singapore
for a week with his family, comprising of his wife and two children, being twins aged 22 years,
in the last week of September. He also took an education loan of ` 15 lakhs on 1.2.2021 from
State Bank of India, Madam Cama Road, Mumbai, for his son’s two-year Master of Public
Administration program in Columbia University, USA and remitted the said amount through the
same bank, which is an authorised dealer, under the Liberalised Remittance Scheme of RBI
(LRS). For his daughter’s MBA in Iowa State University, USA, he remitted ` 12 lakhs on
15.2.2021, out of his personal savings, through Bank of India, Bandra branch, Mumbai which is
also an authorised dealer, under LRS. Mr. Pranav also remitted ` 6 lakh on 28.3.2021, out of
his personal savings, under LRS through Bank of India, Bandra branch, as gift to his sister
residing in London, on the occasion of her 50 th birthday.
On the basis of the facts given above, choose the most appropriate answer to Q.1 to Q.5 below -
1. Are provisions of TDS/TCS under the Income-tax Act, 1961 attracted in respect of
purchase/sale transaction between Mr. Harshit and Mr. Pranav? If so, what is the
quantum of tax to be deducted/collected for the P.Y.2020-21?
(a) No; TDS/TCS provisions are not attracted for F.Y.2020-21, since the turnover of
Mr. Harshit in the immediately preceding financial year i.e., F.Y.2019-20 does not
exceed ` 10 crores.
(b) Yes, Mr. Harishit has to deduct tax@0.075% of ` 30 lakhs (` 15 lakhs on
18.10.2020 and ` 15 lakhs on 11.2.2021)

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 29

(c) Yes, Mr. Pranav has to collect tax@0.075% of ` 30 lakhs (` 15 lakhs on

18.10.2020 and ` 15 lakhs on 11.2.2021)
(d) Yes, Mr. Pranav has to collect tax@0.1% of ` 30 lakhs (` 15 lakhs on 18.10.2020
and ` 15 lakhs on 11.2.2021)
2. In case of failure to furnish PAN by the deductee/collectee as required based on the
answer to Q.1 above, what would be the applicable rate of TDS/TCS?
(a) Not applicable, since there is no requirement to deduct or collect tax
(b) 20%
(c) 5%
(d) 1%
3. Is Thomas Cook required to collect tax at source on receipt of ` 5 lakh from Mr. Pranav
for holiday package to Singapore? If so, what is the amount of tax to be collected?
(a) TCS provisions are not attracted in respect of this transaction
(b) Yes; ` 25,000
(c) Yes; ` 2,500
(d) No tax is required to be collected at source, since the receipt does not exceed
` 7 lakh
4. What is the amount of tax to be collected from Mr. Pranav in respect of the remittance
of amounts overseas for his son’s and daughter’s education?
(a) TCS@0.5% of ` 8 lakhs and ` 5 lakhs are attracted in respect of remittance for
son’s and daughter’s education, respectively.
(b) TCS@5% of ` 8 lakhs and ` 5 lakhs are attracted in respect of remittance for
son’s and daughter’s education, respectively
(c) TCS@0.5% of ` 8 lakhs and TCS@5% of ` 5 lakhs are attracted in respect of
remittance for son’s and daughter’s education, respectively.
(d) TCS@5% of ` 8 lakhs is attracted in respect of remittance for son’s education;
No TCS is attracted in respect of remittance for daughter’s education.
5. Are TCS provisions attracted in respect of remittance of gift to sister? If so, what is the
amount of tax to be collected from Mr. Pranav?
(a) No, since the remittance is out of personal savings for a personal purpose
(b) No, since the amount remitted to his sister is less than ` 7 lakhs
(c) No, due to reasons stated in (a) and (b) above
(d) Yes, ` 30,000.

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 30 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

Case Scenario 2
A Ltd. is an Indian company which has invested in shares of other Indian and foreign companies.
During the P.Y.2020-21, A Ltd. received dividend from these companies as follows:
% of Date of Date of Amount Interest
holding declaration distribution of expenditure on
of A Ltd. of dividend of dividend dividend loan borrowed
by the by the [Gross] for investment
company company (`) in shares (`)
B Ltd., an Indian 10% 20.6.2020 3.7.2020 2,00,000 45,000
company
C Inc, a foreign 22% 17.9.2020 12.10.2020 4,00,000 90,000
company
D Inc., a foreign 30% 13.11.2020 28.11.2020 6,00,000 1,30,000
company
E Ltd., an Indian 15% 14.1.2021 2.2.2021 3,20,000 70,000
company
A Ltd. declared and distributed dividend of ` 6 lakhs for the F.Y.2019-20 in June, 2020 and
dividend of ` 7 lakhs for the F.Y.2020-21 in July, 2021.
Mr. Aakash and Mr. Aarav are two brothers who have invested in shares of A Ltd. Both of them
were born in India; their parents and grand parents were also born in India. Mr. Aakash is an
Indian citizen who lives in Hyderabad. He is employed with a leading textile manufacturing unit
at a salary of ` 1 lakh per month. His brother, Mr. Aarav is settled in Country Y since the year
2010. He is a citizen of Country Y and is a partner with a software development firm in Country
Y. His share of profit in the Country Y firm for the F.Y.2020-21 is CYD 1,20,000, which was
credited to his bank account in Country Y. The value of one CYD may be taken as ` 25. He is
not subject to income-tax in Country Y, since the share of profits of a firm is exempt in the hands
of partners in Country Y. Mr. Aarav visits India for four months (in continuation) every year. He
earns interest of ` 14 lakhs from fixed deposits with Bank of India.
The details of investment in shares of A Ltd. by Mr. Aakash and Mr. Aarav are given below –
Name of the % of Month of Amt of dividend Interest expenditure
shareholder holding declaration & [Gross] on loan borrowed for
distribution of (`) investment in shares
dividend (`)
Akash 10% June, 2020 60,000 15,000
10% July, 2021 70,000 15,000
Aarav 15% June, 2020 90,000 20,000
15% July, 2021 1,05,000 20,000

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 31

On the basis of the facts given above, choose the most appropriate answer to Q.6 to Q.10
below, on the basis of the provisions of the Income-tax Act, 1961 [Ignore the provisions of
DTAA, if any, with Country Y for the purpose of answering these questions] -
6. What is the amount of dividend income includible in the gross total income of A Ltd. for
A.Y.2021-22 under the provisions of the Income-tax Act, 1961?
(a) ` 11,85,000
(b) ` 12,16,000
(c) ` 13,15,000
(d) ` 13,36,000
7. What is the deduction allowable under section 80M to A Ltd. for A.Y.2021-22?
(a) ` 6,00,000
(b) ` 7,00,000
(c) ` 9,20,000
(d) ` 13,00,000
8. What is the tax liability (rounded off) of Mr. Aakash for A.Y.2021-22 under the provisions
of the Income-tax Act, 1961 if he wishes to make maximum tax savings (ignore TDS)?
(a) ` 1,32,600
(b) ` 1,44,040
(c) ` 1,78,780
(d) ` 1,29,580
9. What is the residential status of Mr. Aarav for A.Y.2021-22?
(a) Resident and Ordinarily resident
(b) Resident but not ordinarily resident
(c) Non-resident
(d) Deemed resident
10. What is the tax liability (rounded off) of Mr. Aarav under the provisions of the Income -
tax Act, 1961 for A.Y.2021-22, if he wishes to make maximum tax savings (ignore TDS)?
(a) ` 11,22,260
(b) ` 2,60,520
(c) ` 1,87,720
(d) ` 1,90,840

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 32 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

11. During the F.Y.2020-21, the following income accrues or arises to a specified fund –
(i) Capital gains on transfer of rupee denominated bonds of NTPC Ltd., an Indian
company (transfer effected in September, 2020 through India International
Exchange, GIFT City, Gujarat and consideration received in US dollars)
(ii) Interest on debentures issued by PQR Inc., a Country P company, whose POEM
is outside India (assume that such income does not otherwise accrue or arise
in India)
(iii) Capital gains on transfer of shares of MNO Ltd., an Indian company
(iv) Capital gains on transfer of debentures issued by MNO Ltd.
(v) Income under the head “Profits and gains of business or profession” of a
securitisation trust

Which of the income referred to above when computed in the prescribed manner would be
exempt in the hands of the specified fund under section 10(4D), assuming that the same
are attributable to units held by a non-resident (not being the permanent establishment of
a non-resident in India)?
(a) (i) and (ii) only
(b) (i), (ii) and (v) only
(c) (i), (ii), (iv) and (v) only
(d) (i), (ii), (iii), (iv) and (v).

12. During the P.Y.2020-21, Helpage, a charitable trust, made voluntary contributions, not
being corpus donations, to –
(i) another charitable trust registered u/s 12AA out of its current year income derived
from property held under trust
(ii) an educational institution referred to in section 10(23C)(vi) out of its current year
income derived from property held under trust
(iii) another charitable trust registered u/s 12AA out of the accumulated income of the
trust
Which of the above voluntary contributions are permitted as application of income for
charitable purposes for A.Y.2021-22 under the provisions of the Income-tax Act, 1961?
(a) None of the above
(b) Only (i) above
(c) (i) and (ii) above
(d) (i) and (iii) above

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 33

13. What would be your answer to Q.12 above, had the voluntary contributions to the said
trust/institution been in the form of corpus donations?
(a) None of the above
(b) Only (i) above
(c) (i) and (ii) above
(d) (i) and (iii) above
14. A real estate investment trust (REIT) receives dividend of ` 8 lakh in February, 2021
from A Ltd., a special purpose vehicle, in which the business trust holds 80% of
shareholding. The REIT distributes the dividend to its unit holders in March, 2021. Mr. X
is a resident Indian holding 5% units and Mr. Y is a non-resident holding 10% units. What
would be the tax consequence in the hands of the REIT and its unit-holders Mr. X and
Mr. Y?
(i) REIT enjoys pass-through status in respect of dividend received from A Ltd., only
if A Ltd. does not opt for section 115BAA
(ii) REIT enjoys pass-through status in respect of dividend received from A Ltd., only
if A Ltd. opts for section 115BAA
(iii) REIT enjoys pass-through status in respect of dividend received from A Ltd.,
irrespective of whether A Ltd. opts for section 115BAA
(iv) In cases where dividend is taxable in the hands of REIT, the same would be
subject to tax at maximum marginal rate
(v) Dividend is exempt in the hands of Mr. X and Mr. Y, only if A Ltd. opts for section
115BAA
(vi) Dividend is exempt in the hands of Mr. X and Mr. Y, only if A Ltd. does not opt for
section 115BAA
(vii) Dividend is exempt in the hands of Mr. X and Mr. Y, irrespective of whether A Ltd.
opts for section 115BAA.
(viii) Tax is deductible by REIT on dividend distributed to Mr. X and Mr.Y@10%, only
in cases where dividend is taxable in their hands
(ix) Tax is deductible by REIT on dividend distributed to Mr. X@7.5% and Mr.Y@10%,
only in cases where dividend is taxable in their hands
(x) Tax is deductible by REIT on dividend distributed to Mr. X and Mr.Y@7.5%, only
in cases where dividend is taxable in their hands
Which of the above statements are correct?
(a) (i), (iv) and (vii)
(b) (iii), (v) and (x)

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 34 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

(c) (iii), (vi) and (ix)

(d) (ii), (v) and (viii)
15. A Ltd. is a Singapore Company (whose POEM is in Singapore) which owns and operates
an electronic platform for provision of services. B Ltd. is a Malaysian company (whose
POEM is in Malaysia) which provides online advertisement services. The gross receipts
from such services may be taken as ` 3 crores in the F.Y.2020-21 for both A Ltd and B
Ltd. A Ltd. does not have a branch in India whereas B Ltd. has a branch in India at
Mumbai and the online advertisement services are effectively connected to that branch.
If Mr. X, a citizen and resident of India, has availed services from A Ltd. and B Ltd. in
September, 2020 for purposes of business in India, and the amount payable to A Ltd.
and B Ltd. is ` 5 lakhs and ` 12 lakhs, respectively, would equalisation levy be attracted
in respect of the same?
(a) Equalisation levy would be attracted in both cases, albeit at different rates
(b) Equalisation levy@2% would be attracted in the hands of A Ltd. in respect of
consideration received from Mr. X.
(c) Equalisation levy@6% would be attracted in respect of the transaction between
Mr. X and B Ltd. However, no equalisation levy would be attracted in respect of
transaction between Mr. X and A Ltd., since the said transaction has taken place
before 1.10.2020.
(d) No equalisation levy would be attracted in both cases.
16. X Ltd. is an Indian company engaged in the business of generation of electricity. The
company was set up on 1.4.2018 and on that date, it had employed 500 new employees,
all of whom participate in recognized provident fund. The emoluments of these employees
are paid by ECS through bank account @ ` 18,000 per month per employee for 150
employees, @` 22,000 per month per employee for 150 employees and @` 26,000 per
month per employee for 200 employees. On 28.9.2019, it had exercised option for
depreciation on written down value method on block of assets for A.Y.2019-20. Its turnover
for P.Y.2018-19 and P.Y.2019-20 are ` 402 crores and ` 249 crores, respectively. On
1.10.2020, the company installed new plant and machinery of ` 9 crore and put the same
to use immediately. The company has received dividend of ` 60 lakhs from other domestic
companies during the P.Y.2020-21. X Ltd. distributed dividend of ` 72 lakhs for the
F.Y.2020-21 in July, 2021.
Y Ltd. is an Indian company set up on 1.10.2020 for printing of books. On the same date,
it installed new plant and machinery for ` 2 crore and put the same to use immediately. It
employed 200 new employees on the said date@ ` 25,000 per month per employee. Their
emoluments were paid by account payee cheque and all of them participate in recognized
provident fund.

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 PAPER – 7: DIRECT TAX LAWS AND INTERNATIONAL TAXATION 35

The gross total income for A.Y.2021-22 computed under the special provisions of the Income-
tax Act, 1961 inserted by the Taxation Laws (Amendment) Act, 2019 is ` 6.60 crore for X
Ltd. and ` 1 crore for Y Ltd. Both X Ltd. and Y Ltd. are subject to tax audit for A.Y.2021-22.
You are required to -
(i) Compute the tax liability of X Ltd. and Y Ltd. for A.Y.2021-22, assuming that the
companies desire to avail the beneficial tax rates under the special provisions
inserted by the Taxation Laws (Amendment) Act, 2019 in the Income -tax Act, 1961
by fulfilling the conditions specified thereunder.
(ii) Compute the total income of X Ltd. and Y Ltd. under the regular provisions of the
Income-tax Act, 1961.
(iii) Examine whether it would it be beneficial for X Ltd. to opt for the special provisions
inserted by the Taxation Laws (Amendment) Act, 2019. For this purpose, you may
assume that the book profit of X Ltd. computed under section 115JB for A.Y.2021-22
for levy of minimum alternate tax is ` 4.20 crore.
17. Examine the tax consequences for A.Y.2021-22 in the case of the following charitable
institution/trust, considering each case independently -
(i) A charitable institution, having its main object as “any other object of general public
utility”, carries on business in the course of actual carrying out of such
advancement of any other object of general public utility and maintains separate
books of account in respect of business. The gross receipts during the P.Y.2020 -
21 is ` 2 crore, which comprises of receipts of ` 44 lakh from such business and
` 1.56 crore by way of voluntary contributions (not being corpus donations). It has
applied 85% of its gross receipts for charitable purposes.
(ii) A charitable trust paid annual rent of ` 12 lakh in the P.Y.2019-20 and ` 15 lakh in
the P.Y.2020-21 in respect of a building used for charitable purposes, after
deducting tax at source. However, tax deducted on such rent in the P.Y.2019-20
was remitted only in January, 2021; and tax deducted in the P.Y.2020-21 was
remitted only in July, 2021.
(iii) A charitable trust registered under section 12AA with the object of “Relief of poor”
changed its object on 1.4.2020 to “any other object of general public utility”. The
application of income in the year P.Y.2020-21 was towards general public utility
and not relief of poor. It has, however, not applied for fresh registration under
section 12AA (based on the modified object) upto 31.3.2021.
18. Saraswati Centre of Excellence Ltd. (SCEL) is an Indian company which is the end -user
of shrink-wrapped computer software directly imported from Kallang Ltd. (KAL), a
Singapore company (whose POEM is in Singapore) through an End-User Licence
Agreement (EULA).

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The broad terms of the EULA between the two companies are as follows -
Grant of licence. KAL grants SCEL a limited non-exclusive licence to install, use, access,
display and run one copy of the shrink-wrapped Computer Software (SWCS) on a single
Kallang Mobile Device, local hard disk(s) or other permanent storage media of one
computer. SCEL should not make SWCS available over a network where it could be used
by multiple computers at the same time. SCEL may make one copy of the SWCS in
machine readable form for backup purposes only; provided that the backup copy must
include all copyright or other proprietary notices contained on the original.
Reservation of rights and ownership. KAL reserves all rights not expressly granted to
SCEL in this EULA. The SWCS is protected by copyright and other intellectual property
laws and treaties. KAL owns the title, copyright and other intellectual property rights in the
SWCS. The SWCS is licenced (only for use and not any other purpose), not sold.
Limitations on end user rights. SCEL shall not, and shall not enable or permit others to,
copy, reverse engineer, decompile, disassemble, or otherwise attempt to discover the source
code or algorithms of, SWCS (except and only to the extent that such activity is expressly
permitted by applicable law notwithstanding this limitation), or modify, or disable any features
of, SWCS, or create derivative works based on the SWCS. SCEL should not rent, lease,
lend, sub-license or provide commercial hosting services with the SWCS. SCEL should not
transfer this EULA or the rights to the SWCS granted herein to any third party.
Based on the above terms of EULA, the provisions of the Income-tax Act, 1961 and the
India-Singapore DTAA (the relevant extract of which is given below), examine whether the
amount paid by SCEL to KAL, as consideration for the use of the SWCS can be considered
as payment of royalty for the use of copyright in the computer software . If yes, are tax
deduction provisions u/s 195 attracted in this case? Examine.
Extract of Article 12 of India-Singapore DTAA – Royalties and Fees for Technical
Services
1. Royalties and fees for technical services arising in a Contracting State and paid to a
resident of the other Contracting State may be taxed in that other State.
2. However, such royalties and fees for technical services may also be taxed in the
Contracting State in which they arise and according to the laws of that Contracting State,
but if the recipient is the beneficial owner of the royalties or fees for technical services, the
tax so charged shall not exceed 10 per cent.
3. The term "royalties" as used in this Article means payments of any kind received as
a consideration for the use of, or the right to use :
(a) any copyright of a literary, artistic or scientific work, including cinematograph film or
films or tapes used for radio or television broadcasting, any patent, trade mark, design or
model, plan, secret formula or process, or for information concerning industrial, commercial
or scientific experience, including gains derived from the alienation of any such right,
property or information

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19. A petition for stay of demand was filed by XYZ Ltd. before the Income-tax Appellate
Tribunal in respect of a disputed demand for which appeal was pending before it . The
Appellate Tribunal granted stay vide order dated 1.1.2021 for a period of 180 days from
the date of such order, on deposit of 20% of the amount of tax by XYZ Ltd. The reafter, the
bench was functioning intermittently till 1.2.2022 on account of the COVID pandemic and
therefore, the disputed matter could not be disposed of. In the meanwhile, in June 2021,
XYZ Ltd. had made an application for extension of stay and was granted extension of stay
upto 31.12.2021. Thereafter, on 5.1.2022, the Assessing Officer attached the bank account
of XYZ Ltd. and recovered the amount of ` 15 lakhs against the arrear demand of ` 25
lakhs. The company requested the Assessing Officer to refund the amount as it holds stay
over it. The Assessing Officer, however, rejected the contention of the assessee stating
that the stay period expired on 31.12.2021, after which the order of stay stood vacated
automatically. Examine the correctness of contention of the Assessing Officer.
20. Hutch Ltd., engaged in development of housing projects, filed its return of income for
A.Y.2021-22 claiming deduction of ` 40 lakhs under section 80-IBA. The return was
selected for scrutiny. In the assessment, a sum of ` 18 lakhs, being 30% of ` 60 lakhs,
towards sub-contract payment was disallowed for non-deduction of tax at source by
invoking section 40(a)(ia). The Assessing Officer, however, limited the deduction under
section 80-IBA to the original amount claimed by Hutch Ltd. Hutch Ltd. contended that it
was eligible for a higher deduction of ` 58 lakhs under section 80-IBA consequent to
disallowance under section 40(a)(ia). Examine the correctness of contention of Hutch Ltd.
21. Mr. Vaibhav, a resident Indian aged 61 years, furnishes you the following particulars of income
earned in India, Country P and Country Q for the P.Y. 2020-21. India does not have a double
taxation avoidance agreement (DTAA) with Country P and Country Q.
Particulars `
Income from profession carried on in India 11,00,000
Agricultural income in Country P 75,000
Dividend received from a company incorporated in Country Q 2,20,000
Royalty income from a literary book from Country P (gross) 4,50,000
Expenses incurred for earning royalty 80,000
Business loss of proprietary business in Country Q 72,000
Rent from a house situated in Country Q (gross) 3,09,000
Municipal tax paid in respect of the above house in Country Q (not 9,000
allowed as deduction in Country Q)

Note: Business loss in Country Q not eligible for set off against other incomes as per
law of that country. Royalty income is brought into India in August, 2021 in US dollars.

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The rates of tax in Country P and Country Q are 15% and 20%, respectively. Compute
total income and tax payable by Mr. Vaibhav in India for A.Y.2021 -22, assuming that
he does not opt for the provisions of section 115BAC.
22. Jupiter Ltd. is an Indian company whose turnover for the P.Y. 2018-19 was ` 380 crores
and P.Y.2019-20 was ` 410 crores. The following are the particulars furnished for the
Assessment Year 2021-22:
Particulars Total Income (`)
As per return of income filed under section 139(1) (10,00,000)
Determined under section 143(1)(a) (7,00,000)
Assessed under section 143(3) (2,00,000)
Reassessed under section 147 1,00,000
Can penalty be levied u/s 270A on M/s Jupiter Ltd.? If yes, compute the penalty leviable
u/s 270A, assuming that –
(i) the company has not opted for section 115BAA;
(ii) none of the additions or disallowances made in the assessment or reassessment
qualifies under section 270A(6); and
(iii) the under-reporting of income is not on account of mis-reporting.
23. Delta Ltd., an Indian company, declared total income of ` 2,100 crores computed in
accordance with Chapter IV-D before making primary adjustment, if required, in respect of
the loan transaction with Alps Inc, a Swiss company, for the year ended 31.03.2021. Alps
Inc. had advanced a loan of Euro 350 crores carrying interest@9% p.a. on 1.4.2020 to
Delta Ltd. The total book value of assets of Delta Ltd. was ` 60,000 crores. Assume that
the amount of interest computed@9% p.a. and payable to Alps Inc. does not exceed 30%
of EBITDA and that this is the only loan taken by Delta Ltd.
Alps Inc also advanced a loan of similar nature and amount to Beta Ltd., another Indian
company@7% p.a. during the F.Y. 2020-21. The value of 1 Euro may be taken as ` 88.
You are required to:
(i) Examine whether transfer pricing provisions under the Income-tax Act, 1961 would
be attracted in this case and if so, on what basis.
(ii) Advise Delta Ltd. regarding primary adjustments, if any, to be made to the above
income keeping in mind the transfer pricing provisions contained in the Income-tax
Act, 1961 and compute the total income for A.Y.2021-22.
(iii) Elaborate on secondary adjustments, if any, required to be made under the provisions
of Income-tax Act, 1961, assuming that Delta Ltd. has made the primary adjustment
suo moto.

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(iv) Calculate the additional income-tax liability, if Delta Ltd. opts for payment of additional
income-tax in lieu of making secondary adjustment.
24. Analyze the tax consequence in the hands of Mr. Hugh Grant, a non-resident, for A.Y.
2021-22 in respect of fees for technical services (FTS) received from Himalaya Ltd., an
Indian company, in pursuance of an agreement approved by the Central Government, if -
(a) India has no Double Tax Avoidance Agreement (DTAA) with Country X
(b) India has a DTAA with Country X, which provides for taxation of such FTS @8%.
(c) India has a DTAA with Country X, which provides for taxation of such FTS@15%.
Assume that Mr. Hugh Grant is a resident of Country X and he has no fixed place of his
profession in India and that the technical services are utilised by Himalaya Ltd. for its
business in India.
Also, examine whether Mr. Hugh Grant would be exempt from filing his return of income if
tax deductible at source had been fully deducted in each case mentioned above in a
manner most beneficial to him; and his total income comprises only of the said fees from
technical services.
Would your answer change if he has a fixed place of his profession in India and he renders
technical services through that place? Examine, in a case where India has no DTAA with
Country X.
25. The Assessing Officer, with prior approval of Commissioner of Income-tax, surveyed Good
Day Cyber Café, which was within his jurisdiction, at 1 a.m. on 1.6.2020 for the purpose of
obtaining information which may be relevant to the proceedings under the Income -tax Act,
1961. The Cyber Café is kept open for business every day between 2 p.m. and 2 a.m.
On 15.6.2020, the Assessing Officer entered Bright Light Cyber Café which was also within
his jurisdiction at 11 p.m. for the purpose of collecting information which may be useful for
the purposes of the Income-tax Act, 1961. This Cyber Café is kept open for business every
day between 12 noon to 12 midnight.
In both the above cases, the Assessing Officer impounded and retained in his custody for
a period of 12 days (inclusive of holidays), books of account and other documents
inspected by him, after recording reasons for doing so. The Assessing Officer, however,
did not take prior permission from the Commissioner for doing so.
The owners of these Cyber Cafés claim that the Assessing Officer could not enter the café
after sunset and take away with him the books of account kept at the Cyber Café. Also,
the owner of Bright Light Cyber Café claimed that the Assessing Officer ought to have
obtained the prior approval of the Commissioner before entering the Café. Examine the
validity of the claim made by the owners and the action of the Assessing Officer in both
the cases.

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Would your answer change if the Assessing Officer had surveyed Good Day Cyber Café
only for the purpose of verifying whether tax has been deducted/collected at source in
accordance with the provisions of the Income-tax Act, 1961? Examine.
SUGGESTED ANSWERS/HINTS

MCQ No. Most Appropriate Answer MCQ No. Most Appropriate Answer
1. c 9. c
2. d 10. c
3. a 11. c
4. c 12. c
5. d 13. a
6. d 14. c
7. d 15. b
8. d

16. (i) Computation of tax liability of X Ltd. and Y Ltd. for A.Y.2021-22 u/s 115BAA
Particulars X Ltd. Y Ltd.
` `

Gross Total Income computed u/s 115BAA 6,60,00,000 1,00,00,000

Less: Permissible deductions under Chapter VI-A
Under section 80JJAA 2,16,00,000 -
X Ltd - [(` 18,000 x 12 x 150) + (` 22,000 x 12 x
150)] x 30%
Under section 80M 60,00,000 -
Dividend received (` 60 lakhs), to the extent of
dividend distributed on or before the due date i.e.,
the date one month prior to the due date of filing of
return u/s 139(1) (` 72 lakhs)
Total Income 3,84,00,000 1,00,00,000
Computation of tax liability
Income-tax@22% [As per section 115BAA] 84,48,000 22,00,000
Add: Surcharge@10% 8,44,800 2,20,000
92,92,800 24,20,000

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Add: Health and Education cess@4% 3,71,712 96,800

Total tax liability 96,64,512 25,16,800
Total tax liability (rounded off) 96,64,510 25,16,800

Notes:
(1) X Ltd. is eligible to opt for special provisions under section 115BAA, as per
which the rate of tax would be 22% plus surcharge@10% plus HEC@4%. It
is not eligible to opt for section 115BAB even though it is engaged in
generation of electricity, since it was set up before 1.10.2019.
Y Ltd. is a set up after 1.10.2019, but it is not eligible to opt for section 115BAB,
and avail benefit of concessional rate of tax@15% plus surcharge@10% and
HEC@4%., since business of manufacture or production of any article or thing
does not include business of printing of books. It is, however, eligible to opt
for section 115BAA and pay tax@22% plus surcharge@10% plus HEC@4%.
(2) X Ltd. is eligible to claim deduction u/s 80JJAA, which is a permissible Chapter
VI-A deduction while computing total income under section 115BAA, subject
to fulfillment of conditions specified thereunder.
Since new employees are employed on 1.4.2018 in case of X Ltd., it can claim
30% of additional employee cost for three years, namely, P.Y.2018-19,
P.Y.2019-20 and P.Y.2020-21. Accordingly, it would be entitled to deduction
u/s 80JJAA for P.Y.2020-21. 150 employees whose emoluments are ` 18,000
p.m. and 150 employees whose emoluments are ` 22,000 p.m. qualify as
additional employees. Further, these employees also participate in recognized
provident fund and their emoluments are paid by way of ECS through bank
account. 200 employees whose emoluments exceed ` 25,000 p.m. do not
qualify as additional employees.
Y Ltd. is not entitled to claim deduction u/s 80JJAA for A.Y.2021-22, since its
employees are not employed for a minimum period of 240 days in the
P.Y.2020-21.
(3) X Ltd. is eligible to claim deduction u/s 80M, which is also a permissible
Chapter VI-A deduction while computing total income under section 115BAA,
subject to fulfillment of conditions specified thereunder. X Ltd. would be
eligible to claim deduction in respect of dividend of ` 60 lakhs received from
other domestic companies in the P.Y.2020-21, to the extent of the amount
distributed to its shareholders on or before the due date, i.e., the date one
month prior to the date of furnishing return of income under section 139(1). In
this case, since it has distributed ` 72 lakhs in July, 2021, it is entitled to claim
deduction of the entire amount of ` 60 lakhs received in the P.Y.2020-21 as
dividend from other domestic companies.

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(ii) Computation of total income of X Ltd. and Y Ltd. for A.Y.2021-22 under the regular
provisions of the Income-tax Act, 1961
Particulars X Ltd. Y Ltd.
` `

Gross Total Income computed u/s 115BAA 6,60,00,000 1,00,00,000

Less: Additional Depreciation [20% of ` 9 crore
and ` 2 crore, respectively, since the plant and
machinery has been put to use for 182 days (180
days or more) in the P.Y.2020-21] 1,80,00,000 40,00,000
Gross Total Income (computed under the 4,80,00,000 60,00,000
regular provisions of the Act)
Less: Deductions under Chapter VI-A
Under section 80JJAA 2,16,00,000 -
X Ltd - [(` 18,000 x 12 x 150) + (` 22,000 x 12 x
150)] x 30%
Under section 80M 60,00,000 -
Dividend received (` 60 lakhs), to the extent of
dividend distributed on or before the due date
i.e., the date one month prior to the due date of
filing of return u/s 139(1) (` 72 lakhs)
Total Income 2,04,00,000 60,00,000

Note – Both X Ltd. and Y Ltd. are entitled to additional depreciation@20% on new
plant and machinery installed by them. X Ltd. is engaged in the business of
generation of electricity, and hence qualifies for additional depreciation, since it has
opted for depreciation as per written down value method. Once it has opted for
WDV method for A.Y.2019-20, the same will apply for subsequent years also, as
such option, once exercised shall be final and shall apply to all the s ubsequent
assessment years. Further, the CBDT has, vide Circular No.15/2016 dated
19.5.2016 clarified that the business of printing amounts to manufacture or
production of article or thing and is, therefore, eligible for additional depreciation.
Hence, Y Ltd., engaged in the business of printing of books, is also eligible to claim
additional depreciation.

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(iii) Computation of tax liability of X Ltd. for A.Y.2021-22 as per the other provisions
of the Act (other than section 115BAA)
Particulars `
Tax@30% on ` 2,04,00,000 [Since turnover of P.Y.2018-19 61,20,000
exceeds ` 400 crore]
Add: Surcharge @7% (since total income exceeds ` 1 crore but
does not exceed ` 10 crore) 4,28,400
65,48,400
Add: Health and Education cess@4% 2,61,936
Total tax liability 68,10,336
Total tax liability (rounded off) 68,10,340
Computation of MAT liability for A.Y.2021-22
15% of book profit of ` 4.2 crore 63,00,000
Add: Surcharge@7% since book profit exceeds ` 1 crore but does
not exceed ` 10 crore 4,41,000
67,41,000
Add: Heath and Education cess@4% 2,69,640
70,10,640
MAT credit to be carried forward u/s 115JAA
MAT liability u/s 115JB 70,10,640
Less: Tax computed under the regular provisions of the Act 68,10,340
MAT credit to be carried forward 2,00,300
Since the MAT liability u/s 115JB is higher than the income-tax payable under the
regular provisions of the Act, the book profit of ` 4.20 crore of X Ltd. would be deemed
to be its total income and tax would be payable@16.692% (15% plus surcharge@7%
plus HEC@4%). Hence, the tax liability of X Ltd. for A.Y.2021-22 would be
` 70,10,640. X Ltd. would, however, be entitled to carry forward MAT credit of
` 2,00,300 and set it off in future years, when the tax liability under the regular
provisions of the Act is higher than the MAT liability.
Accordingly, since the tax liability under the other provisions of the Act (i.e., MAT
liability) for A.Y.2021-22 is ` 70,10,640 vis-à-vis tax liability of ` 96,64,510 computed
under section 115BAA, it is not beneficial for X Ltd. to opt for the special provisions
under section 115BAA for A.Y.2021-22. Moreover, X Ltd. would be eligible to carry
forward MAT credit of ` 2,00,300, if it pays tax as per the other provisions of the Act
(i.e., other than section 115BAA). Hence, X Ltd. should not opt for the special
provisions under section 115BAA for A.Y.2021-22.

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17. Tax consequences in the hands of the charitable trust/institution for A.Y.2021-22
(i)
In this case, the main object of the charitable institution is “any other object of
general public utility” and therefore, its aggregate receipts from business
undertaken in the course of actual carrying out of such advancement of any other
object of general public utility should not exceed 20% of total receipts, if it wants
to retain its “charitable status”. However, the aggregate receipts from business for
P.Y.2020-21, in this case, is 22% of total receipts. Hence, the institution would
lose its “charitable status” for the P.Y.2020-21. Application of 85% of receipts for
its main object during the year would not help in retaining its “charitable” status
for that year.
(ii) Rent paid in respect of a building used for charitable purposes can be claimed as
application of income for charitable purposes. However, since tax deducted on
such rent paid for P.Y.2019-20 was remitted after the due date of filing of return
of income u/s 139(1) for A.Y.2020-21, ` 3,60,000, being 30% of annual rent of
` 12 lakh, would not have been allowed as application in the P.Y.2019-20, by
virtue of Explanation 3 to section 11(1) read with section 40(a)(ia). However, since
the tax so deducted was remitted in January, 2021, the said amount of ` 3,60,000
(i.e., 30% of rent not allowed as application in the P.Y.2019-20) would be allowed
as application in the P.Y.2020-21 (A.Y.2021-22). Further, the rent of ` 15 lakh
paid in the P.Y.2020-21 would also be allowed as application in A.Y.2021-22,
since the tax deducted in respect of such rent was remitted in July, 2021 i.e.,
before the due date of filing of return u/s 139(1) for A.Y.2021-22. Therefore, an
amount of ` 18,60,000 towards rent paid would be allowed as application of
income in the P.Y.2020-21 (A.Y.2021-22).
(iii) As per section 115TD(3)(ii)(a), a trust would be deemed to have been converted
into any form not eligible for registration under section 12AA in the P.Y.2020 -21,
if it has adopted or undertaken modification of its objects which do not confirm to
the conditions of registration and it has not applied for fresh registration under
section 12AA in that previous year. Accordingly, it would tantamount to deemed
conversion of the trust into a form not eligible for registration under section 12AA
and the accreted income of the trust shall be taxable at maximum marginal rate
(@34.944%) as per section 115TD(1).

18. The issue of whether the amount paid by a resident Indian end-user to a non-resident
computer software supplier for use of computer software can be treated as royalty came
up before the Apex Court in Engineering Analysis Centre of Excellence P. Ltd v. CIT and
Another (2021) ITR 471.

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The Apex Court observed that as per the definition given in Explanation 2(v) to section
9(1)(vi) of the Income-tax Act, 1961, “royalty” means consideration for, inter alia, the
transfer of all or any rights (including the granting of a licence), in respect of any copyright,
literary, artistic or scientific work. Further, as per Explanation 4 thereto, such transfer of all
or any rights includes transfer of all or any right for use or right to use a computer software
(including the granting of a licence).
As per the meaning assigned in the DTAA with Singapore, however, “royalty” means
payment of any kind received as consideration for “the use of, or the right to use, any
copyright” of a literary, artistic or scientific work. The Apex Court observed that where
computer software is purchased directly by an end-user, resident in India, from a foreign,
non-resident supplier or manufacturer, the end-user licence agreement (EULA) does not
create any interest or right to such end-user, which would amount to the use of or right to
use any copyright. The "licence" that is granted vide the EULA, is not a licence in terms of
the Copyright Act, but is a "licence" which imposes restrictions or conditions for the use of
computer software.
There is an important difference between the right to reproduce and the right to use
computer software. Whereas the former would amount to parting with a copyright by the
owner thereof, the latter would not. Under the non-exclusive licence, the end-user only
receives a right to use the software and nothing more.
Accordingly, the Apex Court held that the amount paid by a resident Indian end -user to a
non-resident computer software manufacturer or supplier, as consideration for the use of
the computer software through EULA, is not royalty for the use of copyright in the computer
software.
As per section 90(2), the provisions of the Income-tax Act, 1961 will apply only to the extent
they are more beneficial to the assessee, in a case where India has entered into a DTAA
with the other country. In this case, since the provisions under the DTAA are more
beneficial, the taxability of the payment would be determined as per the meaning of royalty
assigned under the DTAA between India and Singapore. The Apex Court, accordingly, held
that the provisions contained in the Income-tax Act, 1961 [namely, section 9(1)(vi) read
along with Explanations 2 and 4 thereof], which deal with royalty, not being more beneficial
to the assessee, would not be applicable.
Applying the rationale of the above decision to the facts of this case, the consideration paid
by SCEL to KAL for use of SWCS as per the terms of EULA is not “royalty” as per the
meaning assigned in the DTAA, since it does not create any interest or right to SCEL which
would amount to the use of or right to use any copyright. Accordingly, the same does not
give rise to any income chargeable to tax in India. Since the provisions of the DTAA are

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more beneficial, the same would apply in the case on hand. Hence, the tax deduction at
source provisions u/s 195 would not be attracted in this case.
19. As per section 254(2A), the Appellate Tribunal may, on merit, pass an order of stay in any
proceedings relating to an appeal. However, such period of stay cannot exceed 180 days
from the date of such order subject to the condition that the assessee deposits not le ss
than 20% of the amount of tax, interest, fee, penalty, or any other sum payable under the
provisions of this Act, or furnishes security of equal amount in respect thereof.
No extension of stay shall be granted by the Appellate Tribunal, where such appe al is not
so disposed of within the said period as specified in the order of stay, unless the assessee
makes an application and has complied with the condition of depositing 20% of tax and the
Appellate Tribunal is satisfied that the delay in disposing of the appeal is not attributable
to the assessee. However, the aggregate of the period of stay originally allowed and the
period of stay so extended cannot exceed 365 days and the Appellate Tribunal has to
dispose of the appeal within the period or periods of stay so extended or allowed.
If such appeal is not so disposed of within 180 days or the period or periods extended not
exceeding 365 days, the order of stay shall stand vacated after the expiry of such period
or periods, only if the delay in disposing of the appeal is attributable to the assessee.
It was so held by the Supreme Court in DCIT v. Pepsi Foods Ltd (2021) 433 ITR 295.
Accordingly, if an appeal is not heard by the bench, due to the bench functioning
intermittently on account of the COVID pandemic, the delay is not attributable to XYZ Ltd.
In such a case, though the extended stay period of 365 days had expired on 31.12.2021,
the recovery of ` 15 lakhs against the arrear demand of ` 25 lakhs made by the Assessing
Officer on 5.1.2022 is not in order, since the delay in disposing of the appeal is not
attributable to XYZ Ltd. Therefore, the contention of the Assessing Officer is not correct.
The order of stay would stand vacated after 31.12.2021, only in a case where the delay in
disposing of the appeal had been attributable to XYZ Ltd.
Note – On account of the Supreme Court ruling in DCIT v. Pepsi Foods Ltd (2021) 433 ITR
295, the answer to Q.9 in pages 18.52 – 18.53 of the November, 2020 edition of the Study
Material has undergone a change. Students are advised to read Q. 19 in this RTP and the
answer given above in the place of Q.9 and its answer given in the Study Material.
20. The issue under consideration in this case is whether the increase in gross total income
on account of disallowance of expenditure under section 40(a)(ia) can be considered for
the purpose of deduction under section 80-IBA.
The Bombay High Court, in CIT v. Sunil Vishwambharnath Tiwari (2016) 388 ITR 630,
observed that if on account of non-deduction of tax at source by a company, expenses
have been disallowed under section 40(a)(ia) which goes to increase the income
chargeable under the head ‘Profits and gains of business or profession’, such enhanced

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income becomes eligible for deduction as profit-linked deduction under Chapter VI-A is
with reference to an assessee’s gross total income.
The High Court held that the company is entitled to claim profit-linked deduction under
Chapter VI-A in respect of the enhanced gross total income as a consequence of
disallowance of expenditure under section 40(a)(ia).
Further, the CBDT has, in its Circular No.37/2016 dated 2.11.2016, mentioned that the
courts have generally held that if the expenditure disallowed is related to the business
activity against which the Chapter VI-A deduction has been claimed, the deduction needs
to be allowed on the enhanced profits. Thus, the settled position is that the disallowances
made under, inter alia, section 40(a)(ia), relating to the business activity against which the
Chapter VI-A deduction has been claimed, result in enhancement of the profits of the
eligible business, and that deduction under Chapter VI-A is admissible on the profits so
enhanced by the disallowance.
Accordingly, applying the rationale of the Bombay High Court ruling and the CBDT Circular
in this regard to the facts of this case, Hutch Ltd. would be entitled to claim deduction under
section 80-IBA in respect of the enhanced profits of ` 58 lakhs, consequent to disallowance
under section 40(a)(ia).
21. Computation of total income of Mr. Vaibhav for A.Y.2021-22
Particulars ` `
Income from House Property [House situated in
Country Q]
Gross Annual Value 1 3,09,000
Less: Municipal taxes paid in Country Q 9,000
Net Annual Value 3,00,000
Less: Deduction under section 24 – 30% of NAV 90,000 2,10,000

Profits and Gains of Business or Profession

Income from profession carried on in India 11,00,000
Royalty income2 from a literary book from Country P (after
deducting expenses of ` 80,000) 3,70,000
Less: Business loss of proprietary business in Country Q 72,000
13,98,000
Income from Other Sources
Agricultural income in Country P [Not exempt] 75,000

1Rental income has been taken as GAV in the absence of other information relating to fair rent, municipal value etc.
2 Alternatively, royalty income can be taxable under the head “Income from Other Sources”.

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 48 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

Dividend received from a company in Country Q 2,20,000 2,95,000

Gross Total Income 19,03,000
Less: Deduction under Chapter VI-A
Under section 80QQB – Royalty income of a
resident from literary book allowable as deduction
since the amount has been brought into India in
convertible foreign exchange within six months from
the end of the previous year 3,00,000
Total Income 16,03,000
Note – Since the adjusted total income of ` 19,03,000 [i.e.,
` 16,03,000 (total income) + ` 3,00,000 (deduction u/s
80QQB)] does not exceed ` 20 lakhs, AMT would not be
attracted in this case.
Computation of tax liability of Mr. Vaibhav for A.Y.2021-22
Particulars `
Tax on total income [30% of ` 6,03,000 + ` 1,10,000, since 2,90,900
Mr. Vaibhav is a senior citizen, he is eligible for higher basic exemption
limit of ` 3,00,000]
Add: Health and education cess@4% 11,636
3,02,536
Less: Deduction u/s 91 (See Working Note below) 89,315
Tax Payable 2,13,221
Working Note: Computation of deduction under section 91
Deduction u/s 91 is available in respect of doubly taxed income earned in Country P
and Q, with whom India does not have a double taxation avoidance agreement.
Average rate of tax in India 18.873%
[i.e., ` 3,02,536/16,03,000 x 100]
Rate of tax in Country P 15%
Rate of tax in Country Q 20%
Particulars ` `
Doubly taxed income pertaining to Country P3
Agricultural Income 75,000
Royalty Income [` 4,50,000 – ` 80,000 (Expenses) –

3Doubly taxed income includes only that part of income which is included in the assessees total income. The amount
deducted under Chapter VIA is not doubly taxed and hence, no relief is allowable in respect of such amount – CIT v. Dr.
R.N. Jhanji (1990) 185 ITR 586 (Raj.).

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` 3,00,000 (deduction under section 80QQB)] 70,000

1,45,000
Deduction under section 91 on ` 1,45,000 @15% [being the 21,750
lower of average Indian tax rate (18.873%) and Country P
tax rate (15%)]
Doubly Taxed Income pertaining to Country Q
Income from house property 2,10,000
Dividend 2,20,000
4,30,000
Less: Loss from business set-off against other business
income 72,000
3,58,000
Deduction under section 91 on ` 3,58,000 @18.873% [being
the lower of average Indian tax rate (18.873%) and Country 67,565
Q tax rate (20%)]
Total deduction under section 91 89,315
Note: Mr. Vaibhav shall be allowed deduction u/s 91, since the following conditions are
fulfilled:-
(a) He is a resident in India during the relevant previous year (i.e., P.Y.2020 -21).
(b) The income in question accrues or arises to him outside India in foreign countries P
and Q during that previous year and such income is not deemed to accrue or arise in
India during the previous year.
(c) The income in question has been subjected to income-tax in the foreign countries P
and Q in his hands and it is presumed that he has paid tax on such income in those
countries.
(d) There is no agreement u/s 90 for the relief or avoidance of double taxation between
India and Countries P and Q where the income has accrued or arisen.
22. Jupiter Ltd. is deemed to have under-reported its income since:
(1) the assessment u/s 143(3) has the effect of reducing the loss determined in a return
processed u/s 143(1)(a); and
(2) the reassessment u/s 147 has the effect of converting the loss assessed u/s 143(3)
into income.
Therefore, penalty is leviable under section 270A for under-reporting of income.
The applicable rate of income-tax for Jupiter Ltd., an Indian company, for A.Y.2021-22
is 25%, since its turnover for the P.Y.2018-19 does not exceed ` 400 crores.

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Computation of penalty leviable under section 270A

Particulars ` `
Assessment under section 143(3)
Under-reported income:
Loss assessed u/s 143(3) (2,00,000)
(-) Loss determined under section 143(1)(a) (7,00,000)
5,00,000
Tax payable on under-reported income @25% 1,25,000
Add: HEC@4% 5,000
1,30,000
Penalty leviable @50% of tax payable 65,000
Reassessment under section 147
Under-reported income:
Total income reassessed under section 147 1,00,000
(-) Loss assessed under section 143(3) (2,00,000)
3,00,000
Tax payable on under-reported income @25% 75,000
Add: HEC @4% 3,000
78,000
Penalty leviable@50% of tax payable 39,000

23. (i) Delta Ltd., an Indian company and Alps Inc, a Swiss company are deemed to be
associated enterprises since the latter has advanced a loan to the former which
constitutes 51.33% of the book value of total assets of the former [Euro 350 crores x
` 88/Rs.60,000 crores]. Since the loan advanced by Alps Inc is not less than 51% of
the book value of the total assets of Delta Ltd., the two companies are deemed to be
associated enterprises.
A loan transaction between two enterprises, one of whom is a non-resident (Alps Inc,
Switzerland, in this case), would be an international transaction. Accordingly, transfer
pricing provisions would be attracted in this case.
(ii) The interest rate charged by Alps Inc. on loan advanced to Delta Ltd. is 9% p.a.
whereas the arm’s length interest charged by Alps Inc. in a comparable uncontrolled
transaction with Beta Ltd., another Indian company, is 7% p.a. Therefore, the arm’s
length adjustment (primary adjustment) to be made is = 9% - 7% = 2% of ` 30,800
crores (Euro 350 crores x ` 88, being the value of 1 Euro) = ` 616 crores

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The total income (after primary adjustment) of Delta Ltd for P.Y.2020-21 = ` 2,100
crores + primary adjustment of ` 616 crores = ` 2,716 crores.
(iii) Since the primary adjustment has been made by Delta Ltd. suo moto while filing its
return of income for A.Y.2021-22, Delta Ltd. has to carry out secondary adjustment
in the following manner.
The excess money (i.e., ` 616 crores) lying with Alps Inc has to be repatriated within
90 days from 30.11.2021, being the due date for filing return of income.
If the excess money is not repatriated on or before 28 th February, 2022, it would be
deemed as an advance made by Delta Ltd. to Alps Inc and interest would be
chargeable from 30.11.2021 at six month LIBOR as on 30 th September, 2021 + 3%,
since the loan is denominated in Euros. Such interest for the period from 30.11.2021
to 31.3.2022 (assuming that it has not been repatriated upto 31.3.2022) would be
included in the total income of Delta Ltd. for P.Y.2021-22.
(iv) If Delta Ltd. opts for payment of additional income-tax, it has to pay ` 129.153 crores
[i.e., 20.9664% (tax@18% + surcharge@12% + cess@4%) of ` 616 crores].
24. As per section 9(1)(vii)(b), income by way of fees for technical services payable by a
resident is deemed to accrue or arise in India, except where the fees is payable, inter alia,
in respect of services utilized in a business or profession carried on by such person outside
India. In this case, since Himalaya Ltd. utilizes the technical services for its business in
India, the fees for technical services payable by Himalaya Ltd. is deemed to accrue or arise
in India in the hands of the non-resident, Mr. Hugh Grant.
In accordance with the provisions of section 115A, where the total income of a non -
corporate non-resident includes any income by way of fees for technical services other
than the income referred to in section 44DA(1), received from an Indian concern in
pursuance of an agreement made by him with the Indian concern and the agreement is
approved by the Central Government, then, the special rate of tax at 10% of such fees for
technical services is applicable. No deduction would be allowable under sections 28 to 44C
and section 57 while computing such income. The non-resident would be exempt from the
requirement of filing return of income under section 139(1), if tax deductible at source has
been fully deducted and the rate of tax deduction is not less than the rate specified in
section 115A and his total income comprises only of income referred to in section 115A.
Section 90(2) makes it clear that where the Central Government has entered into a DTAA
with a country outside India, then, in respect of an assessee to whom such agreement
applies, the provisions of the Act shall apply to the extent they are more beneficial to the
assessee.

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 52 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

(a) In this case, since India does not have a DTAA with Country X, of which Mr. Hugh
Grant is a resident, the fees for technical services (FTS) received from Himalaya Ltd.,
an Indian company, would be taxable @10%, by virtue of the provisions of section
115A (plus surcharge, if applicable, and health and education cess@4%). If tax
deductible at source at the said rate has been fully deducted, he would be exempt
from the requirement of filing return of income under section 139(1), since his total
income comprises only of such fees for technical services taxable u/s 115A.
(b) In this case, the FTS from Himalaya Ltd. would be taxable @8%, being the rate
specified in the DTAA, even though section 115A provides for a higher rate of tax,
since the tax rate specified in the DTAA is more beneficial. However, since Mr. Hugh
Grant is a non-resident, he has to furnish a tax residency certificate from the
Government of Country X for claiming such benefit. Also, he has to furnish other
information, namely, his nationality, his tax identification number in Country X and his
address in Country X. Further, he would not be exempt from the requirement to file
return of income under section 139(1), since tax would have been deducted at 8%,
being the rate specified in the DTAA, which is lower than the rate of 10% u/s 115A.
(c) In this case, the FTS from Himalaya Ltd. would be taxable @10% as per section 115A
(plus surcharge, if applicable, and health and education cess@4%) , even though
DTAA provides for a higher rate of tax, since the provisions of the Act (i.e. section
115A in this case) are more beneficial. If tax deductible at source at the said rate has
been fully deducted, he would be exempt from the requirement of filing return of
income under section 139(1), since his total income comprises only of such fe es for
technical services taxable u/s 115A.
If Mr. Hugh Grant has a fixed place of profession in India, and he renders technical services
through the fixed place of profession, then, by virtue of section 44DA, such income by way
of fees for technical services received by Mr. Hugh Grant from Himalaya Ltd., India, would
be computed under the head "Profits and gains of business or profession" in accordance
with the provisions of Income-tax Act, 1961, since technical services are provided from a
fixed place of profession situated in India and fees for technical services is received from
an Indian concern in pursuance of an agreement with the non-resident and is effectively
connected with such fixed place of profession. No deduction would, however, be allowed
in respect of any expenditure or allowance which is not wholly and exclusively incurred for
the fixed place of profession in India. Mr. Hugh Grant would be required to keep and
maintain books of account and other documents in accordance with the provisions
contained in section 44AA and get his accounts audited by an accountant and furnish the
report of such audit in the prescribed form duly signed and verified by such accountant on
or before the specified date referred to in section 44AB [i.e., date one month prior to the
due date of filing of return of income u/s 139(1)].

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It may be noted that the concessional rate of tax@10% under section 115A would not apply
in this case. Further, he would not be exempt from the requirement of filing return of income
under section 139(1).
25. Good Day Cyber Cafe
For the period upto 31.10.2020, the Assessing Officer can exercise his power of survey
under section 133A only after obtaining the approval of the Joint Director/Joint
Commissioner, where information is received from prescribed authority and
Director/Commissioner, in any other case. In this case, since he has obtained prior
approval of the Commissioner, he is empowered under section 133A to enter any place of
business of the Good Day Cyber Café, which was within his jurisdiction, only during the
hours at which such place is open for the conduct of business. It is only in case he wishes
to enter any other place, other than the place of business, he has to do so before sunset.
Good Day Cyber Cafe is open from 2.00 p.m. to 2.00 a.m. for the conduct of business. The
Assessing Officer entered the cyber cafe at 1 a.m. which falls within the working hours of
the cyber cafe. Therefore, the claim made by the owner of Good Day Cyber Cafe to the
effect that the Assessing Officer could not enter the cyber cafe after sunset is not correct.
Further, as per section 133A(3)(ia), the Assessing Officer may, impound and retain in his
custody for such period as he thinks fit, any books of account or other documents inspected
by him. However, he shall not impound any books of account or other documents except
after recording his reasons for doing so. He shall not retain in his custody any such books
of account or other documents for a period exceeding 15 days (exclusive of holidays)
without obtaining the approval of the Principal Chief Commissioner or Chief Commissioner
or Principal Director General or Director General or Principal Commissioner or
Commissioner or Principal Director or Director therefor, as the case may be. In this case,
since the Assessing Officer has recorded his reasons for impounding and t he period of
retention is only 12 days (inclusive of holidays), prior approval of higher authorities is not
required for this purpose.
Hence, the action of the Assessing Officer in entering the premises at 1 a.m. and
impounding and retaining books of account and other documents inspected by him for 12
days is within the powers of survey conferred on him under section 133A.
However, in case the Assessing Officer had surveyed the Cyber Café only for the purpose
of verifying whether tax has been deducted/collected at source in accordance with the
provisions of the Income-tax Act, 1961, then, he cannot enter the Café after sunset and
impound and retain books of account inspected by him, by virtue of the restrictions laid
down in section 133A(2A) read with the proviso to section 133A(3).

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Bright Light Cyber Cafe

Section 133B empowers an income-tax authority to enter any place of business during the
hours at which such place is open for the conduct of business for the purpose of collecting
information which may be useful for the purposes of the Income-tax Act, 1961. The Cyber
Cafe is open from 12 noon to 12 midnight for the conduct of business. The Assessing
Officer entered the hotel at 11 p.m. which fell within the working hours. The claim made
by the Cyber Café owner to the effect that the Assessing Officer could not enter the Cyber
Cafe after sunset is not in accordance with law. Also, in case of section 133B, the prior
permission of Commissioner or any other higher authority is not required 4.
Section 133B(3) provides that the Assessing Officer acting under this section shall, on no
account, remove or cause to be removed from the place wherein he has entered, any
books of account. In view of this clear prohibition in section 133B(3), the action of the
Assessing Officer in impounding and retaining with him the books of account kept at the
Bright Light Cyber Cafe is not valid in law.

4
Except in case the income-tax authority happens to be an Inspector of Income-tax, in which authorisation of Assessing
Officer is required.

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 PAPER-8: INDIRECT TAX LAWS

QUESTIONS

(1) All questions should be answered on the basis of position of (i) GST law as amended
by the provisions of the Finance Act, 2020 and the Finance (No. 2) Act, 2019, which
have become effective up to 30th April, 2021, including significant notifications and
circulars issued and other legislative amendments made, up to 30th April, 2021 and
(ii) customs law as amended by the Finance Act, 2020, including significant
notifications and circulars issued and other legislative amendments made, up to
30th April, 2021.
(2) The GST rates for goods and services mentioned in various questions are
hypothetical and may not necessarily be the actual rates leviable on those goods
and services. The rates of customs duty are also hypothetical and may not
necessarily be the actual rates. Further, GST compensation cess should be ignored
in all the questions, wherever applicable.
SR Associates is a partnership firm registered under GST in the State of Rajasthan. In the
month of July, following transactions were made by SR Associates:
1. Purchase of commodity X on 1 st July for an amount of ` 5,00,000 at the rate of ` 1000 per
tonne from the open market. The said commodity was deposited in the warehouse of
NCDEX Ltd. (an agricultural commodity exchange) in Rajasthan as a security against
transactions entered by SR Associates on the same day.
2. In order to hedge the aforesaid transaction, on 1st July, SR Associates undertook a
derivative sale transaction in futures contract for the month of August at NCDEX at the rate
of ` 1,100 per tonne.
3. SR Associates took subscription for an AI (Artificial Intelligence) based platform from an
unrelated party, ABC Inc (a company based in US) to get real time updates on the pricing
of commodity X in the international market. ABC Inc charged ` 50,000 for such
subscription. The invoice was issued to SR Associates on 1 st July, but the payment was
made to ABC Inc on 20 th August.
4. NCDEX charges rent from SR Associates at the rate of ` 10,000 per month and service
charges at the rate of ` 20,000 per month.
5. On the date of expiry of future contract of the month of August, i.e. 31 st August for
commodity X, the rate of commodity X was ` 900 per tonne. SR Associates squared off
the contract for the month of August at the same rate.

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6. NCDEX charged brokerage on the transactions (both purchase and sale of derivative
contract separately) at the rate of ` 5,000 per contract from SR Associates in the month
when such transaction was entered and when such transaction was squared off.
7. On the purchase of commodity X, additional levy in form of Mandi Tax was applicable at
the rate of ` 10 per tonne which is not included in the rate per tonne under point 1 above.
All the amounts given above are exclusive of GST unless otherwise provided. The opening
balance of input tax credit for the relevant tax period of SR Associates is Nil. Subject to the
information given above, assume that all the other conditions necessary for availing ITC have
been fulfilled.
Assume that there is no other outward or inward supply transaction apart from aforesaid
transactions, in the months of July and August.
GST is applicable in the aforesaid case scenario at the following rates unless otherwise
specified:
I. Intra-State supply – 9% CGST and 9% SGST
II. Inter-State supply – 18% IGST
Based on the facts of the case scenario given above, choose the most appropriate answer to
Q. Nos. 1 to 5 as follows:-
1. Compute the taxable value of supply of commodity X procured by SR Associates in the
month of July.
(a) 5,00,000
(b) 5,50,000
(c) 5,55,000
(d) 5,05,000
2. Compute the value of outward supply made by SR Associates in the month of August.
(a) Nil
(b) 5,55,000
(c) 5,60,000
(d) 5,00,000
3. What is the time of supply for subscription of AI based platform by SR Associates?
(a) July 1

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(b) August 31
(c) August 20
(d) July 31
4. Compute the net GST payable in cash by SR Associates for the month of August.
(a) Nil
(b) 2,700
(c) 81,000
(d) 9,000
5. Compute the input tax credit balance available with SR Associates for the month of July.
(a) 9,000
(b) 16,200
(c) 97,200
(d) Nil
Mr. Ashok, proprietor of M/s Office-Linc Enterprises, is engaged in trading of office stationery
items in its stationery store located at Salt Lake City, Kolkata. The said store is taken on lease
from Kolkata Municipal Corporation (KMC).
During the financial year 2019-20, the turnover of M/s Office-Linc Enterprises was ` 14 lakh.
Mr. Ashok supplies goods within the State of West Bengal only, but purchases stationery items
mostly from Delhi & Mumbai. He owns a duplex house in New Town, Kolkata. He stays on the
ground floor & has let out the first floor to an employee of IDICI Bank, Delhi for residential
purposes. The rent for the same is paid by IDICI Bank to Mr. Ashok.
He applied for GST registration on voluntary basis on 2nd April, 2020 and the registration was
granted to him on 9th April, 2020.
The details of his stock position is as under:
Particulars 2nd April, 2020 8th April,
2020
Office stationery items purchased from a registered ` 1 lakh ` 1 lakh
dealer
Books, periodicals, journals, newspaper, maps etc. ` 0.20 lakh ` 0.30 lakh

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The details of transactions carried out by Mr. Ashok during the financial year 2020-21 is
furnished hereunder:
Particulars 1st April, 2020 to 9th April, 2020 to
8th April, 2020 31st March, 2021
(` in lakh) (` in lakh)
Sale of office stationery items 3 84
(Intra-State supply to registered person)
Sale of office stationery items 2 14
(Intra-State supply to unregistered person)
Legal fee paid to advocate - 0.10
Purchase of stationery items 3 74
(Intra-State supply received from registered
person)
Purchase of furniture for use in own office - 1
(from an unregistered dealer of Kolkata)
Purchase of stationery items from a registered 1 18
dealer of Delhi
Lease rent of the stationery store paid to Kolkata - 1.20
Municipal Corporation (KMC)
Transportation charges paid to M/s Gati 0.10 1.50
Transporters, a GTA
(tax is not payable @ 12%)
Interest paid on borrowings from BBI Bank 0.20 1.80
Accrued interest on Fixed deposit with BBI Bank - 0.16
Rent received from IDICI Bank for its employee - 2.40

Mr. Ashok went to Mumbai, Maharashtra for a business meeting in February, 2020 and stayed
in Hotel Blue Pines for a week. Hotel charged ` 1,00,000 (taxable value) for the stay.
All the amounts given above are exclusive of GST, wherever applicable, unless otherwise
provided. Assume that there is no other outward or inward supply transaction apart from
aforesaid transactions in the financial year 2020-21.
GST is applicable on all inward and outward supplies, except on services of transportation of
goods, at the following rates:
I. Intra-State supply – 6% CGST and 6% SGST
II. Inter-State supply – 12% IGST

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Based on the facts of the case scenario given above, choose the most appropriate answer to
Q. Nos. 6 to 10 below:-
6. The value of outward supply which shall be subject to GST for the financial year 2020-21
is _______.
(a) ` 98 lakh
(b) ` 100 lakh
(c) ` 102.40 lakh
(d) ` 108 lakh
7. Which of the following statements is correct in terms of the facts of the case scenario given
above?
(a) Mr. Ashok cannot opt to pay tax in the financial year 2021-22 under composition
scheme under section 10(1) and 10(2) of the CGST Act, 2017.
(b) Mr. Ashok is entitled to take the ITC of inputs held in stock on 1st April, 2020.
(c) Mr. Ashok shall be liable to pay GST under reverse charge under section 9(4) of the
CGST Act during the financial year 2020-21 in respect of purchases made from
unregistered persons.
(d) Mr. Ashok is entitled to take the ITC of inputs held in stock on 8 th April, 2020.
8. The value of supply on which Mr. Ashok is liable to pay GST under reverse charge for the
financial year 2020-21 is _______________.
(a) ` 1,60,000
(b) ` 2,80,000
(c) ` 1,30,000
(d) ` 2,70,000
9. Which of the following inward supply is not subject to payment of tax under reverse charge
mechanism?
(i) Shop rent paid to KMC
(ii) Legal fee paid to advocate
(iii) Purchase of stationery items from unregistered person
(iv) Transportation charges paid to M/s Gati Enterprises
(a) (i) and (ii)

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(b) (iii)
(c) (ii) and (iii)
(d) (i) and (iii)
10. Whether input tax credit is available on the GST paid by Mr. Ashok on the taxable value of
` 1,00,000 charged by Hotel Blue Pines located in Mumbai, Maharashtra, for his stay? If
yes, please specify the amount of input tax credit available.
(a) Yes, ` 3,000 - CGST and ` 3,000 - SGST
(b) Yes, ` 12,000 - IGST
(c) Yes, ` 6,000 - CGST and ` 6,000 - SGST
(d) No input tax credit is available.
11. Pyarelal Singh, registered under GST in Lucknow, Uttar Pradesh, is appointed as a del-
credre agent by Sunnykart Co. (P) Ltd. He sells eye opticals to his customers locally within
the same State. Sunnykart Co. (P) Ltd. is also registered under GST in the State of Uttar
Pradesh.
During the current financial year, Sunnykart Co. (P) Ltd. supplied taxable goods worth
` 10 crore whose open market value is ` 10.05 crore, from its Allahabad unit to Pyarelal
Singh. Pyarelal Singh has further sold these goods for ` 10.10 crore by raising invoices
using his own GSTIN. Pyarelal Singh has received a commission of ` 75 lakh from
Sunnykart Co. (P) Ltd. during the year and has guaranteed the payment of the value of
such goods from the customers to Sunnykart Co. (P) Ltd.
Pyarelal Singh has also provided financial assistance in the form of larger credit period to
his customers, on which he has also earned interest of ` 15 lakh.
Compute the value of supply of Sunnykart Co. (P) Ltd. and Pyarelal Singh for the current
financial year assuming that both of them wish to adopt minimum value of supply to the
extent possible.
(a) Sunnykart Co. (P) Ltd.: ` 9.09 crore and Pyarelal Singh: ` 11.00 crore
(b) Sunnykart Co. (P) Ltd.: ` 10.05 crore and Pyarelal Singh: ` 10.85 crore
(c) Sunnykart Co. (P) Ltd.: ` 10.15 crore and Pyarelal Singh: ` 10.85 crore
(d) Sunnykart Co. (P) Ltd.: ` 10.15 crore and Pyarelal Singh: ` 75.00 lakh
12. Which of the following statements is false?
(a) No duty drawback shall be allowed under customs in respect of the goods the market
price of which is less than the amount of drawback thereon.

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(b) Duty drawback shall not be allowed under customs where the amount of drawback in
respect of any goods is ` 100 or less.
(c) Where the claim of duty drawback is not paid to claimant within 1 month from the date
of filing such claim, interest @ 6% p.a. is payable to the claimant.
(d) Interest is payable by the claimant of duty drawback on erroneous refund of duty
drawback @ 15% p.a.
13. Sapphire Enterprises imported some goods through vessel from USA in the month of April.
The value of goods imported was ` 6,50,000.
The date of entry inwards was 21 st April (basic customs duty on said date was 10%).
Further, Sapphire Enterprises filed bill of entry for home consumption on 25 th April (basic
customs duty on said date was 20%). Applicable rate of integrated tax was 12% and social
welfare surcharge was 10%. Ignore GST compensation cess.
However, before inspection and clearance for home consumption, Sapphire Enterprises
found that the goods had been damaged owing to negligence on part of proper officer of
customs. The proper officer accepted that due to said damage, the value of the goods has
come down to ` 4,00,000.
Compute the total customs duty payable in the given case.
(a) ` 97,280
(b) ` 2,38,160
(c) ` 1,58,080
(d) ` 1,46,560
14. Kaushal Manufacturers Ltd., registered in Delhi, is a manufacturer and supplier of
electronic home appliances. It is paying tax under regular scheme. It supplies the
electronic home appliances in the domestic as well as overseas market. For supplies in
other States of India, the company has appointed consignment agents in each such State ,
except Gurgaon, Haryana and Noida, Uttar Pradesh, where the goods are supplied directly
from its Delhi warehouse.
In the month of January, consignments of electronic home appliances were sent to Cardinal
Electricals Pvt. Ltd. and Rochester Technos – agents of Kaushal Manufacturers Ltd. in
Punjab and Madhya Pradesh respectively. Cardinal Electricals Pvt. Ltd. and Rochester
Technos supplied these electronic home appliances under their invoices to the stores
located in their respective States for ` 40,00,000 and ` 70,00,000 respectively. Open
market value of such appliances is not available.

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Further, in January, electronic home appliances have been supplied to Ronn Technomart
- a wholesale dealer of electronic home appliances in Noida, Uttar Pradesh for
consideration of ` 23,00,000, from its Delhi warehouse. Kaushal Manufacturers Ltd. owns
75% shares of Ronn Technomart. Open market value of the electronic home appliances
supplied to Ronn Technomart is ` 30,00,000. Further, Ronn Technomart is not eligible for
full input tax credit.
Kaushal Manufacturers Ltd. also provides repair and maintenance services to electronic
appliance manufacturers located in India.
The company has also furnished the following information for the month of January:
Particulars `
Supply of electronic home appliances to wholesale dealers of such 84,00,000
appliances in Delhi
Electronic home appliances supplied to Anchor Electricals Inc., USA 1,26,00,000
under LUT [Consideration received in convertible foreign exchange]
Repair and maintenance services provided to Unitech Ltd., an 8,40,000
electronic appliance manufacturer, located in Delhi
Advance received towards repair and maintenance services to be 7,00,000
provided to Orelec Ltd., an electronic appliance manufacturer, located
in Delhi
[Repair and maintenance services have been provided in February and
invoice is issued on 28 th February]
Advance received for electronic home appliances to be supplied to 8,40,000
Novick Electricals, a wholesale dealer of such appliances in Gurgaon,
Haryana
[Invoice for the goods is issued at the time of delivery of the electronic
appliances in March]
You are required to determine the gross GST liability [CGST & SGST and/or IGST] of
Kaushal Manufacturers Ltd. for the month of January.
Note:
(i) All the given amounts are exclusive of GST, wherever applicable.
(ii) Assume the rates of GST to be as under:
Goods/services supplied CGST SGST IGST
Electronic home appliances 2.5% 2.5% 5%
Repair and maintenance services 9% 9% 18%
You are required to make suitable assumptions, wherever necessary.

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15. Dobriyal Technocrats Ltd., registered in Gurgaon, Haryana, is engaged in manufacturing

heavy steel machinery. It enters into an agreement with Mindsharp Associates, registered
in Delhi, for imparting motivational training to the top management of Dobriyal Technocrats
Ltd. in a 5-day residential motivational training programme at an agreed consideration of
` 20,00,000.
Mindsharp Associates books the conference hall alongwith the rooms of Hotel Chumchum,
Neemrana (registered in Rajasthan) for the training programme, for a lump sum
consideration of ` 12,00,000.
You are required to determine the place of supply in respect of the supply(ies) involved in
the given scenario.
16. Answer the following questions:
(i) Nirmal Private Limited, registered in Vasai, Maharashtra, is engaged in supply of
taxable goods and services. In the month of April, it sold goods worth ` 5,00,000
(excluding GST) to Suraksha Enterprises and collected tax @ 28% on said goods
from the buyer. However, the actual rate of tax appliable in the given case was 18%.
Nirmal Private Limited deposited the tax @ 18% on these goods to the Government
on the due date and retained the remaining tax collected. Determine the amount of
penalty, if any, that may be imposed on Nirmal Private Limited in the month of October
in the given case ignoring interest payable, if any.
(ii) Bindusar, Chief Executive Officer of Ashoka Solutions Ltd., is issued a summon to
appear before the central tax officer to produce the books of accounts of Ashoka
Solutions Ltd. in an inquiry conducted on said company. Determine the amount of
penalty, if any, that may be imposed on Bindusar, if he fails to appear before the
central tax officer.
17. Answer the following questions:
(i) Prithviraj Ltd., registered under GST in Uttar Pradesh, is served a notice for audit by
the tax authority under GST law on 10 th July. The records and other documents as
sought by the tax authority have been made available by Prithviraj Ltd. on 25 th July.
The tax authority visits the office of Prithviraj Ltd. located in Noida, Uttar Pradesh on
8th August for conducting audit.
Determine the time-limit within which the audit under section 65 of the CGST Act,
2017 is required to be completed assuming that no extension is permitted in the given
case.
(ii) Dhruv & Co. sends certain textile products for dyeing to Bhanushali Manufacturers on
job work basis on 16th August. On 18th August, Dhruv & Co. credited 100% of the job
work charges to the bank account of Bhanushali Manufacturers in advance and

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 64 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

recorded it in its books of accounts on the same date. Bhanushali Manufacturers

issues the invoice for the same in first week of September.
Assuming that inputs are received back by Dhruv & Co. after job work in the month
of October (i.e. within time limit prescribed under section 143 of the CGST Act, 2017),
determine the time of supply for such job work done by Bhanushali Manufacturers.
(iii) Mr. Vijay, a registered supplier, receives 100 invoices (for inward supply of goods/
services) involving GST of ` 10 lakh, from various suppliers during the month of
October.
Compute the ITC that can be claimed by Mr. Vijay in his GSTR-3B for the month of
October to be filed by 20 th November in the following independent cases assuming
that GST of ` 10 lakh is otherwise eligible for ITC:
Case I: Out of 100 invoices, 80 invoices involving GST of ` 6 lakh have been uploaded
by the suppliers in their respective GSTR-1s filed on the prescribed due date therefor.
Case II: Out of 100 invoices, 95 invoices involving GST of ` 9.8 lakh have been
uploaded by the suppliers in their respective GSTR-1s filed on the prescribed due
date therefor.
18. Padmavati Traders, registered in Karnataka, is engaged in supply of taxable goods. Its
turnover in the preceding financial year was ` 230 lakh and was furnishing its GST return
on monthly basis.
In the beginning of April month in the current financial year, it sought advice from its tax
consultant, Dua Consultants, whether it can furnish its GST returns on quarterly basis from
now onwards. Dua Consultants advised Padmavati Traders that it cannot furnish its return
on quarterly basis as the GST law does not provide for quarterly return under nay
circulstances. Discuss the technical veracity of the advice given by Dua Consultants.
19. Rishabh Traders is engaged in trading of cast iron moulds. It imported a total of 600 units
of cast iron moulds in two consignments of 200 and 400 units which has been valued at
` 1,500 per unit. The customs duty on the imported moulds has been assessed at ` 250
per unit. Rishabh Traders sells the moulds for ` 2,030 per unit after adding its profit margin
of ` 280 per unit.
After one month of selling the entire consignment of cast iron moulds, Rishabh Traders
found that there had been an error in payment of amount of duty, in which duty for the
consignment of 200 units was paid as if it was 400 units, resulting in excess payment of
duty. Rishabh Traders files an application for refund for ` 50,000 (200 X 250). You are
required to determine whether the unjust enrichment is attracted in the given case?
20. Sambhav Industries imported a machine for manufacturing steel equipment from George
Inc., USA through vessel. The cost of the said machine at the factory of George Inc. is US
$ 10,000. George Inc. incurred the cost of US $ 500 for transporting the said machine

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 PAPER – 8: INDIRECT TAX LAWS 65

from its factory to the port of New York and New Jersey from which the machinery was
shipped for export to Mumbai port, India. It further paid US $ 50 as handling charges for
loading the machine in the ship.
You are required to determine the assessable value of the machine imported by Sambhav
Industries under the Customs Act, 1962 taking into account the following additional
information:
(i) Buying commission paid by Sambhav Industries US $ 50
(ii) Freight charges from port of New York and New Jersey
to Mumbai port US $ 1,000
(iii) Exchange rate to be considered: 1$ = ` 70
(iv) Actual insurance charges paid are not ascertainable
(v) Lighterage charges paid by Sambhav Industries at Mumbai port ` 12,000
(vi) Unloading and handling charges paid at Mumbai port ` 24,000

SUGGESTED ANSWERS

1. (d)
2. (a)
3. (c)
4. (d)
5. (c)
6. (a)
7. (d)
8. (d)
9. (c)
10. (d)
11. (a)
12. (b)
13. (d)

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 66 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

14. Computation of gross GST Liability of Kaushal Manufacturers Ltd. for the month of
January
Particulars CGST (`) SGST (`) IGST (`)
Supply of electronic home appliances to 4,95,000
consignment agents - Cardinal Electricals [99,00,000
Pvt. Ltd. and Rochester Technos of Punjab × 5%]
and Madhya Pradesh [Note - 1]
Supply of electronic home appliances to 1,50,000
Ronn Technomart of Noida, Uttar Pradesh [30,00,000
[Note - 2] × 5%]
Supply of electronic home appliances to 2,10,000 2,10,000
wholesale dealers of such appliances in [84,00,000 × [84,00,000
Delhi [Note - 3] 2.5%] × 2.5%]
Electronic home appliances supplied to Nil
Anchor Electricals Inc., USA under LUT
[Note - 4]
Supply of repair and maintenance services 75,600 75,600
to Unitech Ltd., an electronic appliance [8,40,000 × [8,40,000
manufacturer, located in Delhi [Note - 5] 9%] × 9%]
Advance received for repair and 63,000 63,000
maintenance services supplied to Orelec [7,00,000 × [5,00,000
Ltd., a electronic appliances manufacturer, 9%] × 9%]
located in Delhi [Note - 6]
Advance received for electronic home Nil
appliances to be supplied to Novick
Electricals, a wholesale dealer of electronic
appliances in Gurgaon, Haryana [Note - 7]
Total GST liability 3,48,600 3,48,600 6,45,000
Notes:
1. Value of supply of goods made through an agent is determined as per rule 29 of the
CGST Rules, 2017. Accordingly, the value of supply of goods between the principal
and his agent is the open market value of the goods being supplied, or at the option
of the supplier, is 90% of the price charged for the supply of goods of like kind and
quality by the recipient to his unrelated customer, where the goods are intended for
further supply by the said recipient.
In the given case, since open market value is not available, value of electronic home
appliances supplied to consignment agents - Cardinal Electricals Pvt. Ltd. and

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 PAPER – 8: INDIRECT TAX LAWS 67

Rochester Technos – will be ` 99,00,000 [90% of (40,00,000 + 70,00,000)]. Further,

being an inter-State supply of goods, supply of electronic home appliances to the
consignment agents is subject to IGST @ 5%.
2. If any person directly or indirectly controls another person, such persons are deemed
as related persons. [Clause (a)(v) of explanation to section 15 of the CGST Act]. In
the given case, since Kaushal Manufacturers Ltd. owns 75% shares of Ronn
Technomart, both are related persons.
Value of supply of goods between related persons (other than through an agent) is
determined as per rule 28 of the CGST Rules, 2017. Accordingly, the value of supply
of goods between related persons is the open market value of such goods and not
the invoice value. Furthermore, since Ronn Technomart is not eligible for full input
tax credit, value declared in the invoice cannot be deemed to be the open market
value of the goods.
Thus, open market value of the electronic home appliances supplied to Ronn
Technomart, i.e. ` 30,00,000 is the value of supply of such goods. Further, being an
inter-State supply of goods, supply of electronic home appliances to Ronn
Technomart is subject to IGST @ 5%.
3. Being an intra-State supply of goods, supply of electronic home appliances to
wholesale dealers of said appliances in Delhi is subject to CGST and SGST @ 2.5 %
each.
4. Section 2(5) of the IGST Act defines export of goods as taking goods out of India to
a place outside India. In view of the said definition, supply of the electronic home
appliances to Anchor Electricals Inc. of USA under LUT is export of goods.
Export of goods is a zero-rated supply [Section 16(1) of the IGST Act]. A zero-rated
supply under LUT is made without payment of integrated tax [Section 16(3)(a) of IGST
Act].
5. Being an intra-State supply of services, supply of repair and maintenance services to
Unitech Ltd. of Delhi is subject to CGST and SGST @ 9% each.
6. Being an intra-State supply of services, supply of repair and maintenance services to
Orelec Ltd. of Delhi is subject to CGST and SGST @ 9% each. Further, in terms of
section 13(2) of the CGST Act, the time of supply of services is the earlier of the date
of invoice or date of receipt of payment, if the invoice is issued within 30 days of the
supply of service. In the given case, invoice is issued within 30 days of the supply of
service. Therefore, time of supply of services will be date of receipt of advance and
hence, GST is payable on the advance received in January.

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7. Being an inter-State supply of goods, supply of electronic home appliances to Novick

Electricals of Gurgaon, Haryana is subject to IGST @ 5%. Further, in terms of section
12(2) of the CGST Act, the time of supply of goods is the earlier of the date of issue
of invoice/last date on which the invoice is required to be issued or date of receipt of
payment.
However, Notification No. 66/2017 CT dated 15.11.2017 specifies that time of supply
of goods for the purpose of payment of tax is the date of issue of invoice/last date
when the invoice ought to have been issued under section 31.
Thus, GST is not payable at the time of receipt of advance against supply of goods.
The time of supply of the advance received for electronic home appliances to be
supplied to Novick Electricals is the time of issue of invoice, which is in March. Thus,
said advance will be taxed in March and not in January.
15. In the given situation, two supplies are involved:
(i) Services provided by Mindsharp Associates to Dobriyal Technocrats Ltd. by way of
providing motivational training to its top management.
(ii) Services provided by Hotel Chumchum to Mindsharp Associates by way of
accommodation in said hotel for organizing the training programme.
The place of supply in respect of each of the above supplies is determined as under:
(i) As per the provisions of section 12(5)(a) of the IGST Act, 2017, the place of supply
of services provided in relation to training and performance appraisal to a registered
person, shall be the location of such person.
Therefore, the place of supply of services supplied by Mindsharp Associates to the
registered recipient - Dobriyal Technocrats Ltd. by way of providing motivational
training to its top management is the location of Dobriyal Technocrats Ltd., i.e.
Gurgaon, Haryana.
(ii) As per the provisions of section 12(3)(c) of the IGST Act, 2017, the place of supply
of services, by way of accommodation in any immovable property for organizing,
inter alia, any official/ business function including services provided in relation to such
function at such property, shall be the location at which the immovable property is
located.
Therefore, the place of supply of services supplied by Hotel Chumchum to Mindsharp
Associates by way of accommodation of conference hall alongwith the rooms of Hotel
Chumchum for the training programme shall be the location of the Hotel Chumchum,
i.e. Neemrana, Rajasthan.

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16. (i) Section 122(1)(iv) of the CGST Act, 2017 stipulates that a taxable person who collects
any tax in contravention of the provisions of the CGST Act, but fails to pay the same
to the Government beyond a period of 3 months from the date on which such payment
becomes due shall be liable to pay a penalty of:
(a) ` 10,000
or
(b) an amount equivalent to the tax evaded
whichever is higher.
In the given case, since Nirmal Private Limited has collected tax at a wrong rate (i.e.
28%), but fails to deposit the full tax collected to the Government i.e. it deposits only
tax @ 18% thereby retaining the remaining tax collected, the amount of penalty that
can be imposed on Nirmal Private Limited is as follows:
(a) ` 10,000
or
(b) an amount equivalent to the tax evaded [` 50,000 (` 5,00,000× 28%) -
(` 5,00,000× 18%)],
whichever is higher, i.e. ` 50,000.
(ii) Section 122(3)(d) of the CGST Act, 2017 stipulates that any person who fails to
appear before the officer of central tax, when issued with a summon for appearance
to give evidence or produce a document in an inquiry is liable to a penalty which may
extend to ` 25,000. Therefore, penalty upto ` 25,000 can be imposed on Bindusar,
in the given case.
17. (i) As per section 65(4) of the CGST Act, 2017, audit shall be completed within a period
of 3 months from the date of commencement of the audit. Further, commencement
of audit means the later of the following:
(a) the date on which the records and other documents, called for by the tax
authorities, are made available by the registered person, or
(b) the actual institution of audit at the place of business of the taxpayer.
Accordingly, in the given case, date of commencement of audit is later of:
(a) the date on which the records and other documents, are made available by
Prithviraj Ltd., i.e. 25 th July, or
(b) the actual institution of audit at the place of business of Prithviraj Ltd., i.e.
8th August.
Thus, date of commencement of audit is 8 th August.

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Hence, audit shall be completed within 3 months from the date of commencement of
the audit (8 th August).
(ii) As per Schedule II of the CGST Act, 2017, the activity by way of any treatment or
process which is applied to another person's goods is a supply of services. Hence,
job work is squarely covered within the purview of supply of services. Accordingly,
the time of supply shall be determined as per section 13 of the CGST Act, 2017.
As per section 13, time of supply of services where invoice has been issued within
30 days of provision of services is:
(a) date of issuance of invoice, or
(b) date of recording the payment in the books of accounts of the supplier, or
(c) date on which payment is credited in the bank account of the supplier,
whichever is earlier.
In the present case, the service charges for job work are paid as advance at the time
of sending inputs to job worker. Hence the time of supply of job work services shall
be triggered at the time of payment of advance by Dhruv & Co., i.e. 18 th August.
(iii) Section 16(2) of the CGST Act, 2017 provides certain conditions for availing ITC
wherein one of the conditions is that the taxpayer must be in possession of the tax
invoice or other tax paying document in respect of which he is claiming the ITC. Rule
36 of the CGST Rules, 2017 lays down the documents and other conditions basis
which the registered person can claim ITC. Sub-rule (4) of rule 36 of the CGST Rules,
2017 stipulates that ITC to be availed by a registered person in respect of invoices or
debit notes, the details of which have not been uploaded by the suppliers in GSTR -
1, cannot exceed 5% of the eligible credit available in respect of invoices or debit
notes the details of which have been uploaded by the suppliers in GSTR-1.
In accordance with the aforesaid provisions, given two cases have been analysed as
under:
Case I
ITC to be claimed by Mr. Vijay in his GSTR-3B for the month of October to be filed by
20th November will be computed as under-
Invoices Amount of ITC involved Amount of ITC that can
in the invoices (`) be availed (`)
In respect of 80 invoices 6 lakh 6 lakh
uploaded in GSTR-1 [Refer Note 1 below]
In respect of 20 invoices 4 lakh 0.3 lakh
not uploaded in GSTR-1 [Refer Note 2 below]
Total 10 lakh 6.3 lakh

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Notes:
(1) In respect of invoices uploaded by the suppliers in their GSTR-1, full ITC can be
availed.
(2) The ITC in respect of invoices not uploaded has to be restricted to 5% of eligible
ITC in respect of invoices uploaded in GSTR-1. Thus, in respect of 20 invoices
not uploaded in GSTR-1s, the ITC has been restricted to ` 0.3 lakh [5% of ` 6
lakh].
Case II
ITC to be claimed by Mr. Vijay in his GSTR-3B for the month of October to be filed by
20th November will be computed as under-
Invoices Amount of ITC involved Amount of ITC that can
in the invoices (`) be availed (`)
In respect of 95 invoices 9.8 lakh 9.8 lakh
uploaded in GSTR-1 [Refer Note 1 below]
In respect of 5 invoices 0.2 lakh 0.2 lakh
not uploaded in GSTR-1 [Refer Note 2 below]
Total 10 lakh 10 lakh

Notes:
(1) In respect of invoices uploaded by the suppliers in their GSTR-1, full ITC can be
availed.
(2) The ITC in respect of invoices not uploaded has to be restricted to 5% of eligible
ITC in respect of invoices uploaded in GSTR-1. However, since in this case, the
actual ITC [` 0.2 lakh] in respect of 5 invoices not uploaded in GSTR-1 does not
exceed 5% of the eligible ITC in respect of invoices uploaded in GSTR-1s
[` 0.49 lakh (5% of ` 9.8 lakh)], actual amount of ITC can be availed.
18. No, the advice given by Dua Consultants is not valid in law. With effect from 01.01.2021,
a quarterly return has been introduced under GST law where the payment of tax is to be
made on monthly basis. The scheme is known as Quarterly Return Monthly Paymen t
(QRMP) Scheme.
The scheme has been introduced as a trade facilitation measure and in order to further
ease the process of doing business. It is an optional return filing scheme, introduced for
small taxpayers having aggregate annual turnover (PAN based) of upto ` 5 crore in the
current and preceding financial year to furnish their Form GSTR-1 and Form GSTR-3B on
a quarterly basis while paying their tax on a monthly basis through a simple challan. Thus,
the taxpayers need to file only 4 GSTR-3B returns instead of 12 GSTR-3B returns in a
year. Similarly, they would be required to file only 4 GSTR-1 returns since Invoice Filing
Facility (IFF) is provided under this scheme.

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 72 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

Opting of QRMP scheme is GSTIN wise. Distinct persons can avail QRMP scheme opti on
for one or more GSTINs. It implies that some GSTINs for a PAN can opt for the QRMP
scheme and remaining GSTINs may not opt for the said scheme.
Since the aggregate turnover of Padmavati Traders does not exceed ` 5 crores in the
preceding financial year, it is eligible for furnishing the return on quarterly basis till the time
its turnover in the current financial year does not exceed ` 5 crore. In case its aggregate
turnover crosses ` 5 crore during a quarter in the current financial year, it shall no longer
be eligible for furnishing of return on quarterly basis from the first month of the succeeding
quarter and needs to opt for furnishing of return on a monthly basis, electronically, on the
common portal, from the first month of the quarter, succeeding the quarter during which its
aggregate turnover exceeds ` 5 crore.
19. As per section 27 of the Customs Act, 1962, the importer or his agent, or the buyer who
has been charged the duty by the importer, has to establish that h e has not passed the
burden of duty to another person, in order to be given refund of duty. Otherwise, the refund
amount is credited to the Consumer Welfare Fund.
First proviso to section 27(2) of the Customs Act, 1962, inter alia, provides that the amount
of refund shall be paid to the applicant instead of being credited to the fund in case where
such amount is relatable to the duty paid by the importer/exporter, if he had not passed on
the incidence of such duty and interest to any other person and in case where such amount
is relatable to the duty paid in excess by the importer before an order permitting clearance
of goods for home consumption is made where such excess payment of duty is evident
from the bill of entry in the case of self-assessed bill of entry.
Rishabh Traders’ invoices establish that it collected ` 250 per unit (duty amount) on 600
moulds from the buyer(s). However, it paid the extra import duty on 200 moulds. This
payment, in the normal course, was made before the order permitting the clearance of the
goods and excess payment of duty on 200 units would be evident from the bill of entry.
Thus, Rishabh Traders’ case falls within the exceptions to unjust enrichment as discussed
above. Hence, it will be able to refute the charge of unjust enrichment.
20. Computation of assessable value of the imported machine
US $
(i) Cost of the machine at the factory 10,000.00
(ii) Transport charges up to port 500.00
(iii) Handling charges at the port 50.00
FOB value in US $ 10,550.00
`
FOB value in Indian rupees @ ` 70 per $ 7,38,500.00
(iv) Freight charges up to India [US $ 1,000 × ` 70] 70,000.00

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 PAPER – 8: INDIRECT TAX LAWS 73

(v) Insurance charges @ 1.125% of FOB [Note 1] 8308.13

(vi) Lighterage charges paid by the importer [Note 2] 12,000
(vi) Unloading and handling charges paid at Mumbai port [Note-3] Nil
CIF/Assessable value 8,28,808.13
Assessable value (rounded off) 8,28,808
Notes:
(1) Insurance charges have been included @ 1.125% of FOB value of goods [Third
proviso to rule 10(2) of the Customs Valuation (Determination of Value of Imported
Goods) Rules, 2007].
(2) Cost of transport of the imported goods includes lighterage charges [Explanation to
rule 10(2) of Customs Valuation (Determination of Value of Imported Goods) Rules,
2007].
(3) As per rule 10(2) of the Customs Valuation (Determination of Value of Imported
Goods) Rules, 2007, only charges incurred for delivery of goods “to” the place of
importation are includible in the transaction value. Thus, loading, unloading and
handling charges associated with the delivery of the imported goods at the place of
importation are not to be added to the assessable value of the goods.
(4) Buying commission is not included in the assessable value [Rule 10(1)(a)(i) of the
Customs Valuation (Determination of Value of Imported Goods) Rules, 2007].

© The Institute of Chartered Accountants of India

 Applicability of Standards/Guidance Notes/Legislative Amendments etc. for
November, 2021 Examination
Study Guidelines for November, 2021 Examinations
Final New Course
Elective Papers
Paper 6A: Risk Management
"The pattern of examination for this paper is open-book and case study based. The entire
content included in the August 2019 edition of the Study Material shall be relevant for the
November 2021 examination."
Paper 6B: Financial Services and Capital Markets
The pattern of examination for this paper is open-book and case study based. Part A of the
Study Material of Financial Services and Capital Markets (November 2020 Edition) shall be
relevant for the November 2021 examination. Following SEBI Regulations (excluding
Schedules) revised upto 30th June 2020 are also relevant:
a. SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015
b. SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
c. SEBI (Prohibition of Insider Trading) Regulations, 2015
d. SEBI (Buy Back of Securities) Regulations, 2018
e. SEBI (Mutual Funds) Regulations, 1996
Paper – 6C : International Taxation
1. Applicability of amendments made by Finance Act
As far as the applicability of Finance Act is concerned, the amendments made by the
Finance Act of a particular year would be applicable for the May and November
examinations of the next year. Accordingly, the direct tax laws, as amended by the
Finance Act, 2020, would be applicable for November, 2021 examinations. The
relevant assessment year for November, 2021 examinations is A.Y.2021 -22. This
would be relevant as far as the topics on International Taxation pertain to the
Income-tax Act, 1961, equalization levy and the Black Money (Undisclosed
Foreign Income and Assets) and Imposition of Tax Act, 2015.
However, if the case study based question requires computation/determination
relating to any earlier assessment year also, then, the relevant provisions pertaining
to that year would be given in the question itself. In the alternative, the question
may mention that the relevant provisions in the earlier year were the same as they
are for A.Y.2021-22.

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2. Applicability of amendments made by circulars, notifications, press

releases/press notes and other legislations
Students are expected to be updated with the notifications, circulars, press
releases/press notes issued and other legislative amendments made in direct tax laws
upto 6 months prior to the examination. For instance, for November, 2021
examination, significant notifications, circulars, press releases/press notes issued by
the CBDT/Central Government and legislative amendments made upto 30 th April, 2021
would be relevant. Accordingly, the amendments made by the Taxation and Other
Laws (Relaxation and Amendment of Certain Provisions) Act, 2020, would be
applicable for November, 2021 examinations. However, certain provisions which
provide for extension of time for making investment or filing return etc. owing to COVID -
19 pandemic are not applicable for examination. Likewise, CBDT Circulars and Press
Releases providing for extension of timelines are not applicable for the examination.
3. Applicability of provisions of direct tax laws dealt with in Final (New) Paper 7
while addressing issues and making computation in case study based questions
in Final (New) Paper 6C
The questions based on case study in the Elective Paper 6C: International Taxation
may involve application of other provisions of direct tax laws dealt with in detail in
Paper 7: Direct Tax Laws and International Taxation, which the students are
expected to be aware of. Students may note that they are expected to integrate and
apply the provisions of direct tax laws (dealt with in Final Paper 7: Direct Tax Laws
and International Taxation and in the Elective Paper 6C: International Taxation) in
making computations and addressing relevant issues in questions raised in the
Elective Paper 6C on International Taxation.
Therefore, the November, 2020 edition of the Study Material for Final Paper 6C:
International Taxation available at https://www.icai.org/post.html?post_id=16967
and Final Paper 7: Direct Tax Laws and International Taxation available at
https://www.icai.org/post.html?post_id=16965 are relevant and important for
answering case-study based questions in Paper 6C. These publications and updates
have to be read along with the relevant bare Acts and Rules to address issues and
make computations in case study based questions. The initial pages of the Study
Material of Paper 6C available at https://resource.cdn.icai.org/62360bos50456-ip.pdf
contains the link to the important webpages of the income-tax department and the
relevant bare Acts and Rules.
4. Scope of coverage of certain topics
As regards certain topics on International Taxation, namely, Tax Treaties: Overview,
Features, Application & Interpretation and Anti-Avoidance Measures, only the content as
covered in the November, 2020 edition of the Study Material would be relevant for
November, 2021 Examination. US Model Convention is excluded from the scope of the
topic “Overview of Model Tax Conventions” by way of Study Guidelines.

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It may be noted that if a case study based question involves application of a double
taxation avoidance agreement (DTAA), the extract of the relevant article(s) of the
DTAA would be given in the question paper. Alternatively, the question may menti on
that the DTAA is in line with the OECD/UN Model Tax Convention, in which case, the
students have to refer to the relevant article(s) of the Model Tax Convention. Students
are expected to have the ability to interpret the article(s) of the DTAA in answe ring
case study based questions.
Paper 6D: Economic Laws
All the significant Rules/ Notifications/ Circulars/ Clarification/ Orders issued in the specified
Acts covered under the Economic Laws, up to 30 th April 2021, are applicable for November 2021
examination.
Inclusions / Exclusions from the syllabus

(1) (2) (3)

Inclusions Exclusions
Chapters/ Topics (Provisions which are included (Provisions which are
of the syllabus from the corresponding chapter excluded from the
of the syllabus) corresponding chapter of the
syllabus)
World Trade - Entire chapter is excluded.
Organization
Chapter 1- The The entire content included in the Following Sections of the
Competition Act, November 2020 edition of the Study Competition Act, 2002 are
2002 and Material and the Legislative excluded for the examination:
Rules/Regulations amendments hosted on the website 23, 24, 25, 34, 37, 40 are
for November 2021 examinations, excluded.
shall only be relevant for the said
examinations.

Significant Rules/Regulations Coverage of the Rules or

related to the Competition Act are regulations to the Competition Act
covered in the study material in the are restricted to the extent
Broad manner. These are relevant covered in the study material.
for November 2021 examination to
the extent covered in the study
material.
Chapter 2- Real The entire content included in the Regulations pertaining to RERA
Estate (Regulation November 2020 edition of the Study are excluded.

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and Development) Material and the Legislative

Act, 2016 and amendments hosted on the website
Rules/Regulations for November 2021 examinations,
shall only be relevant for the said
examinations
Chapter 3- The The entire content included in the Following sections are excluded
Insolvency and November 2020 edition of the Study of the Notified chapters of the
Bankruptcy Code, Material and the Legislative Code:
2016 and Rules/ amendments hosted on the website 3(2), 3(3), 3(5), 3(14), 3(22),
Regulations for November 2021 examinations, 3(24), 3(25), 3(26), 3(28), 3(29),
shall only be relevant for the said 3(32), 3(36), 3(37), 5(2) to 5(4),
examinations 5(10), 5(15), 5(16), 5(19), 5(21) to
5(23), 19, 26, 191, 195, 205, 224,
228, 229, 241-255.
In specific, Regulations/ Rules In specific, chapter related to
related to Insolvency and Insolvency resolution and
Bankruptcy, it is covered broadly and bankruptcy for individuals and
not in entirety. partnership firms of the Code
These shall only be applicable to the (from section 78 to 187) is
extent covered in the study material. excluded.
Coverage of the Rules or
regulations to the IBC are
restricted to the extent covered in
the study material.
Chapter 4- The The entire content included in the Rules related to PMLA are
Prevention of November 2020 edition of the Study excluded.
Money Laundering Material and the Legislative
Act, 2002 and amendments hosted on the website
Rules/Regulations for November 2021 examinations,
shall only be relevant for the said
examinations
Chapter 5- The The entire content included in the Following provisions of the
Foreign Exchange November 2020 edition of the Study FEMA, 1999 is excluded for the
Management Act, Material and the Legislative examination-
1999 and Rules / amendments hosted on the website Sections 17(3) - 17(6), 20 to 31,
Regulations for November 2021 examinations, 33, 45, 46, 47 & 48.
shall only be relevant for the said
examinations.

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 78 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

In specific following FEM Following FEM(Regulations)/

(Regulations)/ Rules read with the Rules are entirely excluded:
Act, shall only be applicable to the • Foreign Exchange
extent covered in the study material- (Authentication of
• Foreign Exchange Management Documents) Rules, 2000
(Current Account Transactions) • Foreign Exchange
Rules, 2000 (Compounding Proceedings)
• Foreign Exchange Management Rules, 2000
(Permissible Capital Account • Foreign Exchange
Transactions) Regulations, 2000 Management (Adjudication
• Foreign Exchange Management Proceedings and Appeal)
(Acquisition and Transfer of Rules, 2000
Immovable Property in India) • Foreign Exchange
Regulations, 2018 Management (Encashment of
• Foreign Exchange Management Draft, Cheque, Instrument
(Acquisition and Transfer of and Payment of Interest)
Immovable Property outside Rules, 2000
India) Regulations, 2015 • Foreign Exchange
• Foreign Exchange Management Management (Borrowing and
(Export of Goods and Services) lending in Rupees)
Regulations, 2015 Regulations, 2000
• Foreign Exchange Management • Foreign Exchange
(Realisation, repatriation and Management (Deposit)
surrender of foreign exchange) Regulations, 2016
Regulations, 2015 • Foreign Exchange
• Foreign Exchange Management Management (Establishment
(Possession and retention of in India of a Branch Office or
foreign currency) Regulations, a Liaison Office or a Project
2015 Office or any other place of
• Liberalized Remittance Scheme. business) Regulations, 2016
• Import of Goods and Services • Foreign Exchange
• External Commercial Borrowings Management (Export and
• Overseas Direct Investments Import of Currency)
Regulations, 2015
• Foreign Exchange
Management (Foreign
Currency Accounts by a

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 REVISION TEST PAPER 79

person resident in India)

Regulations, 2015
• Foreign Exchange
Management (Foreign
Exchange Derivative
Contracts) Regulations, 2000
• Foreign Exchange
Management (Guarantees)
Regulations, 2000
• Foreign Exchange
Management (Insurance)
Regulations, 2015
• Foreign Exchange
Management (Investment in
firm or proprietary Concern in
India) Regulations, 2000
• Foreign Exchange
Management (Issue of
security in India by a Branch
Office or Agency of a person
Resident in outside India)
Regulations, 2000
• Foreign Exchange
Management (Manner of
Receipt and Payment)
Regulations, 2016
• Foreign Exchange
Management (Remittance of
Assets) Regulations, 2016
• Foreign Exchange
Management (Transfer or
issue of any Foreign security)
Regulations, 2004
• Foreign Exchange
Management (Transfer or
issue of security by a person
resident outside India)
Regulations, 2000

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 80 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

• Foreign Exchange
Management (Withdrawal of
General permission to
Overseas Corporate Bodies)
Regulations, 2003
• Foreign Exchange
Management (Removal of
Difficulties) Order, 2000
• Foreign Exchange
Management (Crystallization
of Inoperative Foreign
Currency Deposits)
Regulations, 2014
• Foreign Exchange
Management (Offshore
Banking Unit) Regulations,
2002
• Foreign Exchange
Management (International
financial Services Centre)
Regulations, 2015
• Foreign Exchange
Management (Regularization
of assets held abroad by a
person Resident in India)
Regulations, 2015
Chapter 6 - The entire content included in the Except the provisions covered
Prohibition of November 2020 edition of the Study under column (2), others are
Benami Property Material and the Legislative excluded.
Transactions amendments hosted on the website
Act,1988 and for November 2021 examinations,
Rules/ Regulations shall only be relevant for the said
examinations.
Notes:
(1) In the above table of Inclusion/exclusion, in respect of the Chapters of the syllabus specified in
column (1) the related exclusion is given in column (3). Where an exclusion has been so
specified in any topic of the syllabus, the provisions corresponding to such exclusions, covered
in other topic(s) forming part of the syllabus, shall also be excluded.

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(2) November 2020 edition of the Study Material, Booklet on Significant Case Laws of
December 2020 edition and Case Study Digest of February, 2021 are relevant for November
2021 examinations.
(3) Except the exclusions mentioned in the column (3) of the table, the entire content of the
syllabus included in the November 2020 edition of the Study Material, shall be relevant for
the said examinations.
(4) The amendments - made after the issuance of this Study Material given as significant
amendments for November 2021 examinations also shall be relevant for the said
examinations. The Legislative amendments are available on the BoS Knowledge Portal.
Paper 6E: Global Financial Reporting Standards
1. Relevant Study Material and Scope of Coverage of the content
November, 2020 edition of the Study Material is relevant for November, 2021
examination.
The study material contains the amendments in IFRS equivalent to the corresponding
amendments taken place in Ind AS till 31 st October, 2020. In case any amendment had
taken place in IFRS but the same is yet to be notified in Ind AS, then it would not be
applicable for this paper for November, 2021 examination.
As regards to the topic on ‘Significant differences between IFRS and US GAAPs’, the
content as covered in the chapter given in the study material would be relevant for
November, 2021 examination. The same file has also been uploaded on the website at
the link https://resource.cdn.icai.org/48696bos32691a.PDF.
2. Non-applicability of certain International Financial Reporting Standards (IFRS) and
IFRS Interpretations (IFRICs)
Since the Core paper on Financial Reporting does not cover Ind AS equivalent to IAS
26, IAS 29 (including IFRIC 7), IFRS 4, IFRS 6, IFRS 14 and IFRS 17, the same IFRS
shall also not form part of the GFRS Paper. Similarly, in applicable Ind AS there are no
corresponding Appendix on IFRIC 2, IFRIC 9 and SIC 7, hence these IFRICs shall also
not form part of the GFRS Paper.
Paper 6F: Multidisciplinary Case Study
The Multi-disciplinary case study would involve application of two or more of the seven core
subjects at the Final level. List of seven core subjects at final level is given as under:
Final Paper
Paper 1: Financial Reporting
Paper 2: Strategic Financial Management
Paper 3: Advanced Auditing and Professional Ethics
Paper 4: Corporate and Economic Laws

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 82 FINAL (NEW) EXAMINATION: NOVEMBER, 2021

Paper 5: Strategic Cost Management and Performance Evaluation

Paper 7: Direct Tax Laws & International Taxation
Paper 8: Indirect Tax Laws
Note: The applicability/ non-applicability of Standards/ Guidance Notes/ Legislative
Amendments etc. for Paper 6F: Multidisciplinary Case Study for November, 2021
Examination would be same as applicable for each of the above individual papers.

Paper 7 : Direct Tax Laws and International Taxation

Applicability of Finance Act, Assessment Year etc. for November, 2021 Examination
The provisions of direct tax laws, as amended by the Finance Act, 2020 including significant
notifications, circulars and press releases issued up to 30th April, 2021, are applicable for
November, 2021 examination. The relevant assessment year is A.Y.2021-22.
The November, 2020 edition of the Study Material contains the provisions of direct tax laws
relevant for November, 2021 examination. The said Study Material has to be read along with
the Statutory Update and Judicial Update for November, 2021 examination, webhosted at the
BoS Knowledge Portal.
Scope of coverage of certain topics in Part II: International Taxation
As regards certain topics on International Taxation, namely, Overview of Model Tax
Conventions, Application & Interpretation of Tax Treaties and Fundamentals of Base Erosion
and Profit Shifting, the specific content as covered in the November, 2020 edition of the Study
Material would be relevant for November, 2021 Examination.
Note –
1. The amendments made by the Taxation and Other Laws (Relaxation and Amendment
of Certain Provisions) Act, 2020 are applicable for November, 2021 examination.
However, extension of dates/due dates and certain other relaxations vide Taxation and
Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 and
extension of timelines vide CBDT Circulars/Press Releases on account of COVID 19
pandemic are not applicable for November, 2021 examinations.
It may be noted that relaxation in TDS/TCS rates for residents during the period
14.5.2020 to 31.3.2021 and extension of time in respect of section 10AA units for
commencement of manufacture are applicable for November, 2021 examination .
Accordingly, they have been included in the November, 2020 edi tion of the Study
Material applicable for November, 2021 examination . The extended last date for
intimating Aadhaar number under the Income-tax Act, 1961 for the purposes of linking
Aadhaar with PAN would be 30 th June, 2021. This extended date is applicable for
November, 2021 examination and the same is included in the Statutory Update.

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2. The amendments in section 10(23C), the provisions of new section 12AB and
consequential amendments in section 11, 12A, 12AA, 35, 56(2), 80G, 115BBDA,
115TD and 253, effected by the Finance Act, 2020, in respect of which the effective
date has later been deferred to 1.4.2021 by the Taxation and Other Laws (Relaxation
and Amendment of Certain Provisions) Act, 2020, are not applicable for November,
2021 examination.
3. Direct Tax Vivad se Vishwas Act, 2020 and Rules, 2020 are not applicable for students
for November, 2021 examination.

Paper 8 : Indirect Tax Laws

The following are applicable for November 2021 examination:
(i) The provisions of CGST Act, 2017 and IGST Act, 2017 as amended by the Finance Act,
2020 and the Finance (No. 2) Act, 2019, which have become effective up to 30 th April,
2021, including significant notifications and circulars issued and other legislative
amendments made, up to 30 th April, 2021.
(ii) The provisions of the Customs Act, 1962 and the Customs Tariff Act, 1975, as amended
by the Finance Act, 2020, including significant notifications and circulars issued and other
legislative amendments made, up to 30 th April, 2021.
The Study Guidelines given below specify the exclusions from the syllabus for November 2021
examination.
List of topic-wise exclusions from the syllabus

(1) (2) (3)

S. No. in Topics of the syllabus Exclusions
the (Provisions which are excluded
syllabus from the corresponding topic of the
syllabus)
Part-I: Goods and Services Tax
1(ii) Levy and collection of CGST and IGST (i) Rate of tax prescribed for supply
– Application of CGST/IGST law; of goods*
Concept of supply including composite (ii) Rate of tax prescribed for supply
and mixed supplies, inter-State supply, of services*
intra-State supply, supplies in territorial (iii) Exemptions for supply of goods
waters; Charge of tax including reverse
(iv) Categories of supply of goods, tax
charge; Exemption from tax;
on which is payable on reverse
Composition levy
charge basis

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1(iv) Time and Value of supply Value of supply in cases where Kerala
Flood Cess is applicable.
1(v) Input tax credit (i) Manner of determination of input
tax credit in respect of inputs,
input services and capital goods
and reversal thereof in respect of
real estate projects
(ii) Manner of reversal of credit of
additional duty of customs in
respect of Gold dore bar
1(vii) Procedures under GST including (i) Furnishing of GSTR-2, GSTR-1A
registration, tax invoice, credit and debit and GSTR-3
notes, electronic way bill, accounts and (ii) Matching, reversal & reclaim of
records, returns, payment of tax input tax credit
including tax deduction at source and tax
(iii) Matching, reversal & reclaim of
collection at source, refund, job work
reduction in output tax liability
1(xv) Other provisions Transitional Provisions
Part-II: Customs & FTP
1.(v) Officers of Customs; Appointment of Completely excluded
customs ports, airports etc.
1.(vii) Provisions relating to coastal goods
and vessels carrying coastal goods
1.(viii) Warehousing
1.(x) Demand and Recovery
1.(xi) Provisions relating to prohibited
goods, notified goods, specified
goods, illegal importation/exportation
of goods
1.(xii) Searches, seizure and arrest;
Offences; Penalties; Confiscation and
Prosecution
1.(xiii) Appeals and Revision; Advance
Rulings; Settlement Commission
1.(xiv) Other provisions
*Rates specified for computing the tax payable under composition levy are included in
the syllabus.

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Notes:
(1) Applicability of the Finance (No. 2) Act, 2019: All the amendments made by the Finance
(No. 2) Act, 2019 are applicable for November 2021 examinations except the amendments
which have not become effective till 30.04.2021 namely, amendments made in sections
2(4), 95, 102, 103, 104, 105 and 106 of the CGST Act, 2017 and the insertion of new
sections 101A, 101B & 101C in the CGST Act, 2017.
(2) In the above table, in respect of the topics of the syllabus specified in column (2) the related
exclusion is given in column (3). Where an exclusion has been so specified in any topic
of the syllabus, the provisions corresponding to such exclusions, covered in other topic(s)
forming part of the syllabus, shall also be excluded.
(3) November 2020 edition of the Study Material is relevant for May 2021 and November 2021
examinations. The amendments in the GST law and in the customs law and FTP - made
after the issuance of this Study Material - to the extent covered in the Statutory Update for
November 2021 examination alone shall be relevant for the said examination. The
Statutory Update shall be hosted on the BoS Knowledge Portal.
Though the Statutory Update for November 2021 examination shall provide the precise
scope and coverage of the amendments, for the sake of clarity, it may be noted that the
amendments made in the various provisions of the GST law for providing relief to the
taxpayers in view of spread of Novel Corona Virus (COVID-19) shall not be applicable for
November 2021 examinations.
(4) The entire content included in the November 2020 edition of the Study Material (except the
exclusions mentioned herein) and the Statutory Update for November 2021 examination
shall be relevant for the said examination.

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