Taxation - GST Ch 01: Intro - Test 2: answer key

Question 1 · 2 marks · Taxation - GST Ch 01: Intro · medium

Scenario. Bharat Agro Industries Ltd. (BAIL), a manufacturer of agricultural tractors in Haryana, is reviewing its tax obligations for FY 2026-27. BAIL manufactures and sells tractors (GST @ 18%) and also imports specialized steel parts from Germany for its manufacturing process. The company pays Basic Customs Duty (BCD) on these imports. Additionally, BAIL operates a petrol pump in Haryana where it sells petrol and diesel. For its factory building, BAIL pays property tax to the local municipal corporation and electricity duty to the state electricity board. The company is setting up a new manufacturing unit in Ladakh (a Union Territory without a legislature) and another in Delhi (a Union Territory with a legislature). BAIL's management is confused about which taxes are subsumed under GST, the tax treatment of its petroleum products, and the applicable GST components for its new units. The company's Chartered Accountant has been asked to clarify these issues based on the constitutional provisions and the GST framework.

Which of the following levies paid by Bharat Agro Industries Ltd. is NOT subsumed under the Goods and Services Tax regime?

1. Property Tax paid to the local municipality (correct answer)
2. Service Tax on factory machinery maintenance
3. State VAT on the sale of tractors
4. Central Excise Duty on tractor manufacture

Answer: A — Property Tax paid to the local municipality

Explanation. Property tax is a tax on property and is not subsumed under GST. It continues to be levied by local bodies. Central Excise Duty, Service Tax, and State VAT were all subsumed into GST with effect from 1 July 2017. Property tax, stamp duty, and electricity duty are among the taxes not subsumed under GST as they are not related to the supply of goods or services.

Where it goes wrong. Students may think all taxes paid by a business are subsumed. Property tax is a direct tax on property and remains outside GST.

Authority. Section 2(52) of the CGST Act, 2017; Constitution (101st Amendment) Act, 2016

Question 2 · 2 marks · Taxation - GST Ch 01: Intro · medium

BAIL operates a petrol pump in Haryana and sells petrol and diesel. In the current GST regime (FY 2026-27), which of the following statements is correct regarding the tax treatment of these petroleum products?

1. They are leviable to CGST and SGST, and ITC can be claimed.
2. They are outside GST, and Central Excise Duty and VAT are levied. (correct answer)
3. They are subject to IGST, as they are deemed inter-State supplies.
4. They are exempt from all taxes, including Central Excise and VAT.

Answer: B — They are outside GST, and Central Excise Duty and VAT are levied.

Explanation. Petroleum crude, high speed diesel, motor spirit (petrol), natural gas, and aviation turbine fuel are not presently leviable to GST. GST will be levied on these products from a date to be notified on the recommendations of the GST Council. Till such date, central excise duty continues to be levied on manufacture, and CST/VAT on sale. Therefore, they are outside the purview of GST at present.

Where it goes wrong. Students may assume all goods are under GST. The five petroleum products are specifically excluded until a notified date.

Authority. Article 246A(2) of the Constitution of India; Section 9 of the CGST Act, 2017

Question 3 · 2 marks · Taxation - GST Ch 01: Intro · medium

BAIL is setting up a new manufacturing unit in Ladakh (a Union Territory without a legislature) and another in Delhi (a Union Territory with a legislature). On an intra-State supply of goods made from the Ladakh unit, which of the following GST components will apply?

1. CGST and SGST
2. CGST and UTGST (correct answer)
3. IGST only
4. UTGST only

Answer: B — CGST and UTGST

Explanation. As per the dual GST model, Union Territories without legislatures (like Ladakh) are governed by the UTGST Act, 2017. Intra-State supplies in such UTs attract CGST and UTGST. In UTs with legislatures (like Delhi), intra-State supplies attract CGST and SGST. Therefore, for the Ladakh unit, CGST and UTGST will apply.

Where it goes wrong. Students may confuse Ladakh with Delhi. Ladakh does not have a legislature, so SGST is not applicable; UTGST applies instead.

Authority. Section 7 of the IGST Act, 2017; Section 1 of the UTGST Act, 2017

Question 4 · 2 marks · Taxation - GST Ch 01: Intro · hard

BAIL imports specialized steel parts from Germany for its tractor manufacturing unit. In the post-GST regime, which of the following taxes is levied by the Central Government on such imports, in addition to the Basic Customs Duty (BCD)?

1. Countervailing Duty (CVD)
2. Special Additional Duty (SAD)
3. Integrated Goods and Services Tax (IGST) (correct answer)
4. Central Goods and Services Tax (CGST)

Answer: C — Integrated Goods and Services Tax (IGST)

Explanation. Article 269A of the Constitution deems import of goods or services into India as inter-State trade or commerce, empowering the Central Government to levy IGST on imports. CVD and SAD under the Customs Tariff Act, 1975 have been subsumed under GST. Therefore, IGST is levied in addition to BCD on imports.

Where it goes wrong. Students may think CVD or SAD continue. They were subsumed into IGST on imports.

Authority. Article 269A of the Constitution of India; Section 3(7) of the Customs Tariff Act, 1975

Question 5 · 2 marks · Taxation - GST Ch 01: Intro · medium

Scenario. Nandini Hospitality and Services Pvt Ltd. (NHSPL) operates a luxury hotel and a restaurant in Haryana. The restaurant serves both food and alcoholic liquor for human consumption. NHSPL pays luxury tax to the State Government on hotel rooms and entertainment tax to the local municipal corporation for events organized in its banquet hall. The company also provides event management services to clients across India. In February 2026, NHSPL provided event management services to a client located in Delhi from its office in Haryana. NHSPL is also reviewing its tax records from the pre-GST era, including service tax paid in FY 2016-17, to determine if any input tax credit can be claimed in the current regime. The management is particularly concerned about the tax treatment of alcoholic liquor, luxury tax, and entertainment tax levied by local bodies, and the applicable GST on its inter-State services. NHSPL's tax advisor is examining the subsumption of various taxes and the constitutional exclusion of alcoholic liquor to provide a clear compliance roadmap.

Nandini Hospitality and Services Pvt Ltd. pays various taxes. Which of the following taxes paid by the company is subsumed under GST?

1. Luxury tax paid to the State Government (correct answer)
2. Entertainment tax paid to the local municipal corporation
3. Stamp duty paid on the lease agreement
4. Property tax paid on the hotel building

Answer: A — Luxury tax paid to the State Government

Explanation. Luxury tax was subsumed under GST. However, entertainment tax levied by local bodies (municipalities) is not subsumed. Stamp duty and property tax are also not subsumed under GST as they are not related to the supply of goods or services. The study material specifically excludes entertainment tax levied by local bodies from subsumption.

Where it goes wrong. Students may think all entertainment taxes are subsumed. The exception is entertainment tax levied by local bodies.

Authority. Section 2(52) of the CGST Act, 2017; Constitution (101st Amendment) Act, 2016

Question 6 · 2 marks · Taxation - GST Ch 01: Intro · medium

NHSPL serves alcoholic liquor for human consumption at its restaurant. What is the correct constitutional and tax position regarding such supply under the GST regime?

1. It is an exempt supply under GST, and no tax is leviable.
2. It is subject to CGST and SGST, but ITC cannot be claimed.
3. It is outside GST and subject to State Excise Duty and VAT/CST. (correct answer)
4. It is subject to IGST, as it is deemed to be an inter-State supply.

Answer: C — It is outside GST and subject to State Excise Duty and VAT/CST.

Explanation. Article 366(12A) defines GST as a tax on supply of goods or services, except taxes on the supply of alcoholic liquor for human consumption. Therefore, it is constitutionally excluded from GST. The manufacture/production is subject to State excise duty, and inter-State/intra-State sale is subject to CST/VAT. It is not an exempt supply; it is outside the purview of GST.

Where it goes wrong. Students may think alcohol is exempt. It is outside the purview of GST altogether, governed by State excise and VAT laws.

Authority. Article 366(12A) of the Constitution of India; Section 5 of the CGST Act, 2017

Question 7 · 2 marks · Taxation - GST Ch 01: Intro · hard

NHSPL provides event management services to a client located in Delhi. The services are provided from NHSPL's office in Haryana. Which of the following GST components is applicable on this transaction?

1. CGST and SGST
2. CGST and UTGST
3. UTGST only
4. IGST (correct answer)

Answer: D — IGST

Explanation. Since the supplier is in Haryana and the recipient is in Delhi, the location of the supplier and the place of supply are in two different States/UTs. This is an inter-State supply under Section 7 of the IGST Act, 2017. Inter-State supplies attract IGST, which is the sum total of CGST and SGST/UTGST. The place of supply for B2B services is the location of the recipient.

Where it goes wrong. Students may think that since the service was performed from Haryana, SGST applies. For services, the place of supply is the recipient's location (Delhi), making it inter-State.

Authority. Section 7 of the IGST Act, 2017; Section 12(2) of the IGST Act, 2017

Question 8 · 2 marks · Taxation - GST Ch 01: Intro · hard

NHSPL is reviewing its tax compliance for FY 2026-27. Which of the following taxes, if paid by NHSPL, would NOT be available as input tax credit under GST?

1. CGST paid on purchase of kitchen equipment
2. IGST paid on purchase of furniture from another State
3. Luxury tax paid on hotel rooms in the pre-GST regime (correct answer)
4. SGST paid on purchase of cleaning services within the State

Answer: C — Luxury tax paid on hotel rooms in the pre-GST regime

Explanation. Input tax credit under GST is available for CGST, SGST, UTGST, and IGST paid on inward supplies. Luxury tax was subsumed under GST and was a pre-GST tax. Credits of pre-GST taxes like luxury tax are not available as ITC under GST, except through the specific transition provisions which have expired. Therefore, luxury tax paid in the pre-GST regime cannot be claimed as ITC.

Where it goes wrong. Students may think all taxes paid are claimable. Pre-GST taxes cannot be claimed as ITC in the current GST regime.

Authority. Section 16 of the CGST Act, 2017; Section 140 of the CGST Act, 2017

Question 9 · 2 marks · Taxation - GST Ch 01: Intro · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Which of the following statements regarding the five petroleum products under GST is correct?

1. They are permanently excluded from GST by the Constitution.
2. They are currently leviable to GST at a notified rate.
3. They are subject to IGST but not CGST and SGST.
4. They will be brought under GST from a date notified by the GST Council. (correct answer)

Answer: D — They will be brought under GST from a date notified by the GST Council.

Explanation. The Constitution (101st Amendment) Act, 2016 does not permanently exclude petroleum products. Article 246A(2) provides that GST on petroleum crude, high speed diesel, motor spirit, natural gas, and aviation turbine fuel shall apply from a date recommended by the GST Council. Till then, they are outside GST. Unlike alcoholic liquor, they are not permanently excluded.

Where it goes wrong. Students may think petroleum products are permanently outside GST like alcohol. They are only temporarily outside, pending a notified date.

Authority. Article 246A(2) of the Constitution of India

Question 10 · 2 marks · Taxation - GST Ch 01: Intro · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered person in Mumbai supplies goods to a registered person in Chennai. The supplier pays IGST on the supply. Which of the following is the correct order of utilization of input tax credit for the supplier?

1. IGST credit first, then CGST credit, then SGST credit. (correct answer)
2. CGST credit first, then SGST credit, then IGST credit.
3. SGST credit first, then CGST credit, then IGST credit.
4. IGST credit first, then SGST credit, then CGST credit.

Answer: A — IGST credit first, then CGST credit, then SGST credit.

Explanation. As per Section 49 of the CGST Act, 2017, the order of utilization of ITC is: IGST credit should be utilized first towards IGST, then towards CGST and SGST in any order. After IGST is fully utilized, CGST credit should be utilized for CGST and IGST in that order. Thereafter, SGST credit should be utilized for SGST and IGST in that order. Since the supplier has IGST credit, it must be used first.

Where it goes wrong. Students may think CGST credit should be used first. The law specifies IGST credit is utilized first.

Authority. Section 49 of the CGST Act, 2017

Question 11 · 2 marks · Taxation - GST Ch 01: Intro · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Which of the following taxes is not subsumed under GST?

1. Central Sales Tax (CST)
2. Basic Customs Duty (BCD) (correct answer)
3. Central Excise Duty
4. Service Tax

Answer: B — Basic Customs Duty (BCD)

Explanation. Basic Customs Duty (BCD) continues to be levied under the Customs Act, 1962 and is not subsumed under GST. Central Sales Tax, Central Excise Duty, and Service Tax were all subsumed into GST with effect from 1 July 2017. Customs duty continues in the post-GST regime, although CVD and SAD were subsumed into IGST.

Where it goes wrong. Students may think customs duty is subsumed. BCD is outside GST, while CVD and SAD were subsumed into IGST.

Authority. Section 2(52) of the CGST Act, 2017; Customs Act, 1962

Question 12 · 2 marks · Taxation - GST Ch 01: Intro · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

The Constitution (101st Amendment) Act, 2016 inserted Article 246A to empower:

1. The Parliament to levy GST on inter-State supplies only.
2. The State Legislatures to levy GST on intra-State supplies only.
3. The GST Council to levy and collect GST.
4. Both Parliament and State Legislatures to levy GST concurrently. (correct answer)

Answer: D — Both Parliament and State Legislatures to levy GST concurrently.

Explanation. Article 246A(1) confers simultaneous power on Parliament and State Legislatures to make laws with respect to GST imposed by the Union or the State. It allows both levels of government to levy GST on intra-State supplies. Article 246A(2) gives exclusive power to Parliament for inter-State supplies. Therefore, Article 246A empowers concurrent levy on intra-State supplies.

Where it goes wrong. Students may think Article 246A gives exclusive power to Parliament for all supplies. It is concurrent for intra-State and exclusive for inter-State.

Authority. Article 246A(1) of the Constitution of India

Question 13 · 2 marks · Taxation - GST Ch 01: Intro · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A supplier in Delhi makes an intra-State supply of goods to a buyer in Delhi. The tax rate is 18%. The supplier charges CGST at 9% and SGST at 9%. The supplier has input tax credit of CGST ₹ 1,000 and SGST ₹ 1,000. The output tax liability is CGST ₹ 1,800 and SGST ₹ 1,800. What is the net tax payable in cash?

1. CGST ₹ 800 and SGST ₹ 800 (correct answer)
2. CGST ₹ 800 and SGST ₹ 800, but cross-utilization is allowed.
3. CGST ₹ 800 and SGST ₹ 800, with cross-utilization of credits.
4. CGST ₹ 1,800 and SGST ₹ 1,800, as cross-utilization is not allowed.

Answer: A — CGST ₹ 800 and SGST ₹ 800

Explanation. Under the dual GST model, CGST credit can be utilized only for CGST, and SGST credit only for SGST. Cross-utilization between CGST and SGST is not permitted. Therefore, the net payable is CGST ₹ 800 (1,800 - 1,000) and SGST ₹ 800 (1,800 - 1,000). The total cash outflow is ₹ 1,600.

Where it goes wrong. Students may think CGST credit can be used for SGST. The law expressly prohibits cross-utilization between CGST and SGST.

Authority. Section 49 of the CGST Act, 2017

Question 14 · 2 marks · Taxation - GST Ch 01: Intro · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Which of the following is a correct statement about the tax treatment of tobacco under GST?

1. It is outside the purview of GST and is subject only to State excise duty.
2. It is subject to GST, and the Union Government also retains the power to levy excise duty. (correct answer)
3. It is subject to GST, but the State Governments can also levy excise duty on it.
4. It is subject to GST at a nil rate, and only excise duty is applicable.

Answer: B — It is subject to GST, and the Union Government also retains the power to levy excise duty.

Explanation. Tobacco is within the purview of GST, meaning GST is leviable on it. However, the Union Government has also retained the power to levy excise duties on tobacco and tobacco products manufactured in India. Resultantly, tobacco is subject to GST as well as central excise duty. This is unlike alcoholic liquor, which is outside GST.

Where it goes wrong. Students may think tobacco is outside GST like alcohol. It is within GST, but central excise duty is also levied.

Authority. Article 269A of the Constitution of India; Section 9 of the CGST Act, 2017

Question 15 · 2 marks · Taxation - GST Ch 01: Intro · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A company provides services to a client in a Union Territory without a legislature. The supplier is located in a State. Which of the following is the correct tax treatment?

1. CGST and SGST are applicable.
2. CGST and UTGST are applicable.
3. IGST is applicable. (correct answer)
4. Only UTGST is applicable.

Answer: C — IGST is applicable.

Explanation. Since the supplier is in a State and the recipient is in a Union Territory, the location of the supplier and the place of supply are in two different States/UTs. This is an inter-State supply under Section 7 of the IGST Act, 2017. Therefore, IGST is applicable, not CGST and UTGST. CGST and UTGST apply only for intra-State supplies within a UT without a legislature.

Where it goes wrong. Students may think UTGST applies for any supply to a UT. UTGST applies only for intra-State supplies within that UT. Cross-border supplies attract IGST.

Authority. Section 7 of the IGST Act, 2017