Taxation - GST Ch 03: Charge Composition - Test 1: answer key

Question 1 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. Nandini Leaf Products Pvt. Ltd., registered in Karnataka, manufactures bidis and packaged cashew products. Its September 2026 procurement ledger contains six intra-State purchases. On 4 September, it receives cashew nuts worth ₹8,00,000 from Smt. Malathi Rao, an individual who cultivates her own land through hired labour under her personal supervision. The nuts are still in shell and unpeeled. On 9 September, Malathi supplies another lot worth ₹2,00,000 after a third-party unit has shelled the nuts; the kernels remain unpeeled. On 12 September, Nandini buys bidi wrapper (tendu) leaves worth ₹3,00,000 from a HUF whose karta supervises cultivation on family land. On 15 September, it buys tendu leaves worth ₹1,50,000 from a registered partnership that trades leaves purchased from several growers. On 18 September, Nandini buys tobacco leaves worth ₹1,50,000 directly from Smt. Ritu, an individual cultivator who personally supervises hired labour. On 21 September, it buys tobacco leaves worth ₹4,00,000 from a registered merchant who aggregates produce acquired from farmers. Nandini is registered under the CGST Act, while Malathi, the HUF and Ritu have not taken registration for their agricultural produce. All suppliers and the recipient are located in Karnataka, and delivery takes place within the State. The accounts team proposes to charge GST to every seller because the commodities are used in manufacture, while the procurement head believes that all six purchases are covered by one notified entry. The company must identify the notified supplier-product combination before booking recipient-side tax. For the numerical questions, assume a CGST rate of 2.5% and an equal SGST rate on each qualifying purchase; the stated prices are the values under section 15, with no further additions or deductions.

For Malathi's two cashew consignments, determine the recipient-side liability under the notified-goods entry, considering both the seller's status and the physical condition of each lot.

1. Nandini must pay RCM on both consignment lots, since Malathi satisfies the agriculturist condition.
2. Malathi must pay forward-charge CGST on both lots, since she supplied the cashew nuts.
3. Nandini pays RCM only on the ₹8,00,000 lot; the shelled lot is outside the notified description. (correct answer)
4. Neither lot attracts GST because Malathi is not required to register for her cultivation produce.

Answer: C — Nandini pays RCM only on the ₹8,00,000 lot; the shelled lot is outside the notified description.

Explanation. Sl. No. 1 of Notification No. 4/2017-Central Tax (Rate) covers cashew nuts under heading 0801 only when they are not shelled or peeled and the supplier is an agriculturist. The first lot qualifies: ₹8,00,000 × 2.5% = ₹20,000 CGST, with equal SGST. The second lot has been shelled, so it fails the product condition. Malathi's registration relief under section 23(1)(b) does not remove the recipient's RCM on the qualifying lot.

Where it goes wrong. Assuming that the seller's agriculturist status alone covers every cashew consignment, without checking the shelling and peeling condition.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 4/2017-Central Tax (Rate), dated 28.06.2017, Sl. No. 1; Section 23(1)(b) of the CGST Act, 2017

Question 2 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Nandini's ₹3,00,000 purchase of tendu leaves is directly from a HUF whose karta supervises cultivation on family land. Which treatment follows from the statutory meaning of agriculturist and the notified entry for bidi wrapper leaves?

1. Nandini pays RCM on ₹3,00,000; the HUF meets the agriculturist condition. (correct answer)
2. The HUF pays forward tax because it supplies the leaves.
3. The partnership pays RCM since it is registered and trades tendu leaves.
4. No tax applies because the HUF is not registered under GST.

Answer: A — Nandini pays RCM on ₹3,00,000; the HUF meets the agriculturist condition.

Explanation. Section 2(7) defines an agriculturist as an individual or a HUF undertaking cultivation through the specified forms of labour. The HUF's karta supervises cultivation on family land, so the supplier satisfies that definition. Sl. No. 2 of Notification No. 4/2017 covers bidi wrapper leaves (tendu) supplied by an agriculturist to any registered person. CGST is ₹3,00,000 × 2.5% = ₹7,500; equal SGST is also payable by Nandini under RCM.

Where it goes wrong. Treating a HUF as outside the definition of agriculturist, or treating non-registration of the grower as an exemption for the registered recipient.

Authority. Section 2(7) of the CGST Act, 2017; Section 9(3) of the CGST Act, 2017; Notification No. 4/2017-Central Tax (Rate), Sl. No. 2

Question 3 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Nandini purchases tobacco leaves of the same tariff heading from two sellers: ₹1,50,000 directly from an individual cultivator and ₹4,00,000 from a registered merchant who buys from farmers. Which purchase falls within the tobacco-leaf RCM entry?

1. Both purchases attract RCM because the goods are tobacco leaves falling under tariff heading 2401.
2. The merchant becomes an agriculturist for its resale because its stock was bought from growers.
3. Neither purchase attracts RCM because these tobacco leaves are agricultural produce supplied within Karnataka.
4. Only the direct cultivator's supply attracts RCM; the merchant does not meet the supplier condition. (correct answer)

Answer: D — Only the direct cultivator's supply attracts RCM; the merchant does not meet the supplier condition.

Explanation. Sl. No. 3 covers tobacco leaves supplied by an agriculturist to a registered person. The direct cultivator's sale qualifies, so Nandini's CGST is ₹1,50,000 × 2.5% = ₹3,750. The merchant's ₹4,00,000 sale is made by a trader, not by the agriculturist who grew the leaves; that sale does not meet this RCM entry. The merchant's own forward-charge position is a separate question and is not converted into RCM merely by the goods' identity.

Where it goes wrong. Focusing only on the description of tobacco leaves and ignoring the identity of the person making the supply.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 4/2017-Central Tax (Rate), Sl. No. 3

Question 4 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Using the facts and assumed rates in the scenario, calculate the total CGST that Nandini must discharge under RCM on the three qualifying purchases of cashew nuts, bidi wrapper leaves and tobacco leaves.

1. ₹28,750 CGST under RCM on the qualifying consignments only
2. ₹31,250 CGST under RCM on the qualifying consignments (correct answer)
3. ₹33,750 CGST under RCM on the qualifying consignments
4. ₹35,000 CGST under RCM after adding every procurement amount

Answer: B — ₹31,250 CGST under RCM on the qualifying consignments

Explanation. The qualifying values are ₹8,00,000 for in-shell, unpeeled cashews, ₹3,00,000 for tendu leaves from the HUF, and ₹1,50,000 for tobacco leaves from the individual grower. The shelled cashews and both trader purchases are excluded from these notified entries. Aggregate qualifying value = ₹8,00,000 + ₹3,00,000 + ₹1,50,000 = ₹12,50,000. CGST under RCM = ₹12,50,000 × 2.5% = ₹31,250; equal SGST is payable separately.

Where it goes wrong. Including the shelled cashews or trader-sourced agricultural goods in the RCM base merely because the product names match.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 4/2017-Central Tax (Rate), Sl. Nos. 1 to 3

Question 5 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. Vikramaditya Tech Labs LLP, registered in Telangana, procures raw cotton for its textile-sensor line and also distributes State-run lottery tickets under a State appointment. On 5 September 2026, Smt. Anuradha Sen, an individual who grows cotton on her own land through hired workers under her personal supervision, issues a commercial sale document for raw cotton priced at ₹14,00,000. The goods reach the LLP's Hyderabad warehouse on 9 September. The LLP enters the payable in its books on 12 September, and its bank account is debited on 13 September. Anuradha is not registered and is not liable to registration for produce from cultivation of her land. On 10 September, the LLP also buys raw cotton worth ₹4,00,000 from Cottonfield Producers Pvt. Ltd., a company operating leased farms through hired supervisors; that company is the seller under the contract. On 17 September, the State Government's lottery directorate supplies lottery tickets for ₹6,00,000 to the LLP in its capacity as an appointed lottery distributor. The invoice is dated 17 September, the tickets are received on 20 September, and payment is entered in the LLP's books on 18 September. A separate purchase of lottery tickets worth ₹1,20,000 is made on 23 September from a private wholesale distributor, not from the State Government. All the supplies are intra-State and the LLP is registered under the CGST Act. It issues its recipient invoice for Anuradha's cotton on 8 October. Assume CGST and SGST rates of 2.5% each for raw cotton and 14% each for the State lottery supply; the stated prices are values under section 15 without adjustment. The finance controller must determine which purchases fall within the notified entries, which date fixes the time of supply, and whether the recipient invoice was issued within the prescribed period. The company has no other RCM purchases in September.

Which of the LLP's two raw-cotton purchases is covered by the entry inserted as Sl. No. 4A in Notification No. 4/2017-Central Tax (Rate), and what CGST follows on that purchase at the assumed rate?

1. Both purchases qualify; CGST is ₹45,000.
2. Only the company-sourced lot qualifies; CGST is ₹10,000.
3. Neither purchase qualifies; CGST is nil.
4. Only Anuradha's lot qualifies; CGST is ₹35,000. (correct answer)

Answer: D — Only Anuradha's lot qualifies; CGST is ₹35,000.

Explanation. Sl. No. 4A covers raw cotton under heading 5201 when supplied by an agriculturist to any registered person. Anuradha is an individual personally supervising cultivation, so her ₹14,00,000 supply qualifies. CGST = ₹14,00,000 × 2.5% = ₹35,000, with equal SGST. Cottonfield Producers Pvt. Ltd. is the contractual supplier of the other lot; a company is not an agriculturist under section 2(7), even if it operates farms through staff.

Where it goes wrong. Assuming that every person engaged in cultivation is an agriculturist, although section 2(7) restricts the defined person to an individual or HUF.

Authority. Section 2(7) of the CGST Act, 2017; Section 9(3) of the CGST Act, 2017; Notification No. 43/2017-Central Tax (Rate), dated 14.11.2017, inserting Sl. No. 4A in Notification No. 4/2017-Central Tax (Rate)

Question 6 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

The LLP receives one lottery consignment worth ₹6,00,000 from the State Government as an appointed distributor and another worth ₹1,20,000 from a private wholesaler. Which transaction attracts RCM under the lottery entry?

1. Both lots attract RCM because each consists of lottery tickets supplied within the State.
2. Only the private wholesaler's lot attracts RCM because the LLP resells the tickets.
3. Only the State Government's supply to the appointed distributor attracts RCM. (correct answer)
4. Neither lot attracts RCM because the tickets are ultimately sold to individuals.

Answer: C — Only the State Government's supply to the appointed distributor attracts RCM.

Explanation. Sl. No. 5 applies where the supplier is the State Government, a Union territory or a local authority and the recipient is a lottery distributor or selling agent. The ₹6,00,000 State supply satisfies both conditions; CGST = ₹6,00,000 × 14% = ₹84,000. The ₹1,20,000 purchase from a private wholesaler fails the specified-supplier condition, so that purchase is not covered by this RCM entry and remains subject to its own forward-charge treatment.

Where it goes wrong. Treating every supply of lottery tickets as RCM, without testing both the government supplier and the recipient's distributor or selling-agent status.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 4/2017-Central Tax (Rate), Sl. No. 5

Question 7 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

For Anuradha's raw-cotton supply, compare the receipt of goods on 9 September, the payment entry in the LLP's books on 12 September, the bank debit on 13 September and the 30-day document-based date. What is the time of supply under section 12(3)?

1. 9 September 2026, when the goods reached the warehouse (correct answer)
2. 12 September 2026, when the payable was entered in books
3. 13 September 2026, when the recipient's bank account was debited
4. 6 October 2026, the day after the 30-day document period ended

Answer: A — 9 September 2026, when the goods reached the warehouse

Explanation. For goods taxable under RCM, section 12(3) selects the earliest of receipt, the earlier payment date in the recipient's books or bank account, and the date immediately following 30 days from the supplier's document. The dates here are 9 September, 12 September, 13 September and 6 October, respectively. The minimum date is 9 September, when the goods were received. The later accounting and banking dates do not defer the time of supply.

Where it goes wrong. Using the date of payment or the 30-day backstop automatically, instead of comparing all three statutory events.

Authority. Section 12(3) of the CGST Act, 2017; Section 9(3) of the CGST Act, 2017

Question 8 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Anuradha's goods were received on 9 September 2026, and the LLP issued its recipient invoice on 8 October 2026. Under the special RCM invoicing rule for supplies from an unregistered supplier, which statement is correct?

1. The invoice was due by 5 October, as 30 days run from the supplier's sale document.
2. The invoice was due by 9 October; the 8 October issue date is within time. (correct answer)
3. The invoice was due by 20 October, based on the monthly return filing deadline.
4. The invoice was due by 8 November, because the recipient gets a 60-day period after receipt.

Answer: B — The invoice was due by 9 October; the 8 October issue date is within time.

Explanation. Where the recipient is liable under RCM and the supplier is unregistered, section 31(3)(f) requires the recipient to issue the invoice. Rule 47A fixes the time limit at 30 days from receipt of the supply, not from the supplier's document or the return due date. Receipt occurred on 9 September, so the 30-day deadline falls on 9 October 2026. The LLP issued the invoice on 8 October, one day before the deadline.

Where it goes wrong. Counting 30 days from the supplier's document or substituting the GSTR-3B due date for the Rule 47A deadline.

Authority. Section 31(3)(f) of the CGST Act, 2017; Rule 47A of the CGST Rules, 2017; Section 9(3) of the CGST Act, 2017

Question 9 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. Aryan Steels Ltd., registered in Rajasthan, purchases used commercial vehicles through public auctions. On 3 September 2026, the Rajasthan State Transport Department auctions a used goods truck to Aryan for ₹12,00,000. The Department acts as the State Government, the auction is an intra-State taxable supply, and Aryan's GST registration is active. The Department's sale document is dated 3 September. The truck is delivered on 8 September; Aryan records the payable on 11 September, and its bank account is debited on 12 September. For this transaction, assume the value under section 15 is ₹12,00,000 and CGST and SGST rates are 9% each. Aryan does not report the recipient-side tax in its September 2026 return, due on 20 October, and pays the full tax on 31 October 2026. Assume the entire principal remained unpaid until that date and compute simple interest at the notified annual rate of 18%, using 365 days. Separately, on 19 September, the same Department sells a used staff car for ₹7,00,000 to Smt. Anuradha Sen, who is not registered under GST. On 25 September, Aryan buys a used SUV for ₹5,00,000 from a private registered dealer, which issues a tax invoice charging tax under forward charge. All three transfers are intra-State. Aryan's accounts staff argue that every government-related or second-hand vehicle sale must be treated identically under reverse charge. The tax manager must distinguish the notified supplier-recipient combination, determine the tax payable on the truck purchase, and quantify the interest arising from the delay. Assume no valuation adjustment applies to any stated value.

For the ₹12,00,000 truck auctioned by the Rajasthan State Transport Department to Aryan, identify the person liable to pay the intra-State CGST and SGST, given that Aryan is registered and the seller acts as the State Government.

1. Aryan pays both CGST and SGST under RCM as the registered recipient. (correct answer)
2. The Department pays both taxes under forward charge on every auction.
3. Aryan pays only CGST under RCM because the seller is a State department.
4. The Department and Aryan each pay half of the total GST.

Answer: A — Aryan pays both CGST and SGST under RCM as the registered recipient.

Explanation. Sl. No. 6 covers used vehicles supplied by the Central Government, State Government, Union territory or local authority to any registered person. The Department is the State Government and Aryan is registered, so Aryan pays the whole tax under RCM. On ₹12,00,000 at 9%, CGST = ₹1,08,000 and SGST = ₹1,08,000. The recipient, rather than the government seller, discharges both components for this notified transaction.

Where it goes wrong. Assuming that a government auction is always forward charge, or that RCM shifts only the central component of an intra-State tax.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 36/2017-Central Tax (Rate), dated 13.10.2017, inserting Sl. No. 6 in Notification No. 4/2017-Central Tax (Rate)

Question 10 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

The State Transport Department sells a used staff car for ₹7,00,000 to Smt. Anuradha Sen, who is not registered under GST. What follows from the recipient condition in the government-used-vehicle RCM entry, assuming the Department is registered and the intra-State supply is taxable at 9% CGST and 9% SGST?

1. Anuradha pays ₹63,000 CGST under RCM because the seller is the State Government.
2. No GST is payable because a used government vehicle is outside the scope of GST.
3. The Department pays ₹63,000 CGST under forward charge; RCM does not apply to this buyer. (correct answer)
4. The Department and Anuradha each pay ₹31,500 CGST as a shared tax liability.

Answer: C — The Department pays ₹63,000 CGST under forward charge; RCM does not apply to this buyer.

Explanation. The government-used-vehicle RCM entry requires the recipient to be a registered person. Anuradha is unregistered, so the recipient condition fails and she does not pay under RCM. The Department, which is registered and makes a taxable intra-State supply, pays CGST under section 9(1): ₹7,00,000 × 9% = ₹63,000; SGST of ₹63,000 is also payable. The circular clarifies the taxable treatment of government sales to unregistered buyers.

Where it goes wrong. Reading the supplier condition in isolation and overlooking that Sl. No. 6 also requires a registered recipient.

Authority. Section 9(1) of the CGST Act, 2017; Section 9(3) of the CGST Act, 2017; Notification No. 36/2017-Central Tax (Rate), Sl. No. 6; Circular No. 76/50/2018-GST, dated 31.12.2018

Question 11 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Calculate the total GST that Aryan must discharge under RCM on the truck purchase, using the ₹12,00,000 value and the assumed 9% CGST plus 9% SGST rates.

1. ₹1,08,000 CGST component only on this intra-State vehicle purchase
2. ₹2,16,000 total CGST and SGST on this RCM vehicle purchase (correct answer)
3. ₹1,80,000 total GST after reducing the stated transaction value
4. ₹2,40,000 total GST using a 20% central and State rate

Answer: B — ₹2,16,000 total CGST and SGST on this RCM vehicle purchase

Explanation. The full tax is payable by Aryan because the used truck is supplied by the State Government to a registered recipient. CGST = ₹12,00,000 × 9% = ₹1,08,000. SGST = ₹12,00,000 × 9% = ₹1,08,000. Total RCM liability = ₹1,08,000 + ₹1,08,000 = ₹2,16,000. The ₹1,08,000 figure is only one component; it is not the combined amount payable on the intra-State supply.

Where it goes wrong. Reporting only the CGST amount as the total liability, despite the intra-State supply attracting an equal SGST component.

Authority. Section 9(3) of the CGST Act, 2017; Section 15 of the CGST Act, 2017; Notification No. 36/2017-Central Tax (Rate), Sl. No. 6

Question 12 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Aryan pays the full ₹2,16,000 RCM tax on 31 October 2026, although the September return tax was due on 20 October. Calculate interest for 11 days of delay at 18% per annum, using simple interest and a 365-day year.

1. ₹958.68 interest for the stated period at the notified annual rate
2. ₹1,065.21 interest for the stated period at the notified annual rate
3. ₹1,100.00 interest for the stated period using a rounded day count
4. ₹1,171.73 interest for the stated period using simple interest (correct answer)

Answer: D — ₹1,171.73 interest for the stated period using simple interest

Explanation. Section 50(1) imposes interest on tax remaining unpaid, at the notified rate; Notification No. 13/2017-Central Tax fixes 18% per annum. The period begins on the day after the due date: 21 to 31 October = 11 days. Interest = ₹2,16,000 × 18% × 11 ÷ 365 = ₹1,171.73 (rounded to paise). The calculation uses the full unpaid CGST-plus-SGST principal and not merely the CGST component.

Where it goes wrong. Starting interest on the due date rather than the following day, or applying the rate only to the CGST part.

Authority. Section 50(1) and section 50(2) of the CGST Act, 2017; Notification No. 13/2017-Central Tax, dated 28.06.2017; Rule 88B of the CGST Rules, 2017

Question 13 · 2 marks · Taxation - GST Ch 03: Charge Composition · 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.

On 14 August 2026, Vikramaditya Tech Labs LLP makes an intra-State taxable supply of industrial controllers with a value of ₹75,00,000 determined under section 15. The rate notification in force prescribes CGST at 12%, but a departmental working paper mistakenly applies 22% on the ground that the State levy is also 22%. Ignoring any exemption or abatement, what is the statutory maximum CGST amount that section 9(1) permits on this value, and what amount is actually payable at the notified 12% rate?

1. CGST payable is ₹9,00,000; the statutory ceiling is ₹15,00,000. (correct answer)
2. CGST payable is ₹15,00,000; the statutory ceiling is ₹9,00,000.
3. CGST payable is ₹16,50,000; the statutory ceiling is ₹15,00,000 under section 9(1).
4. CGST payable is ₹9,00,000; the statutory ceiling is ₹16,50,000.

Answer: A — CGST payable is ₹9,00,000; the statutory ceiling is ₹15,00,000.

Explanation. Section 9(1) caps the CGST rate at 20%, but the amount actually payable follows the rate notified for the supply. At 12%, actual CGST = ₹75,00,000 × 12% = ₹9,00,000. The statutory ceiling is ₹75,00,000 × 20% = ₹15,00,000. A 22% rate cannot be applied merely because the State tax percentage is stated to be 22%; the central ceiling and the notified rate govern separately.

Where it goes wrong. Confusing the statutory maximum rate with the rate actually notified, or assuming that the CGST rate must mirror a percentage asserted for the State levy.

Authority. Section 9(1) of the CGST Act, 2017; Section 15 of the CGST Act, 2017

Question 14 · 2 marks · Taxation - GST Ch 03: Charge Composition · 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.

On 6 October 2026, Bharat Spirits Ltd. undertakes three intra-State transactions: sale of potable alcoholic liquor valued at ₹7,00,000; sale of undenatured extra neutral alcohol valued at ₹5,00,000 to a distillery that uses it to manufacture alcoholic liquor for human consumption; and sale of rectified spirit valued at ₹4,00,000 to a chemical unit for industrial solvent production. No export or import is involved. What aggregate value is kept outside the CGST levy by the exclusions written into section 9(1)?

1. ₹7,00,000 is outside the CGST levy on these three intra-State transactions.
2. ₹9,00,000 is outside the CGST levy on these three stated transactions.
3. ₹16,00,000 is outside the CGST levy on these three stated transactions.
4. ₹12,00,000 is outside the CGST levy on these three stated transactions. (correct answer)

Answer: D — ₹12,00,000 is outside the CGST levy on these three stated transactions.

Explanation. Section 9(1) excludes alcoholic liquor for human consumption and undenatured extra neutral alcohol or rectified spirit used to manufacture such liquor. Therefore, the ₹7,00,000 potable-liquor supply and ₹5,00,000 qualifying ENA supply are outside CGST: ₹7,00,000 + ₹5,00,000 = ₹12,00,000. The ₹4,00,000 rectified spirit sold for industrial solvent use does not meet the stated use condition and is not included in the exclusion.

Where it goes wrong. Treating every sale of ENA or rectified spirit as excluded, without testing whether it is used to manufacture alcoholic liquor for human consumption.

Authority. Section 9(1) of the CGST Act, 2017

Question 15 · 2 marks · Taxation - GST Ch 03: Charge Composition · 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.

During October 2026, a refinery makes intra-State supplies of high-speed diesel worth ₹18,00,000 and natural gas worth ₹7,00,000. Its accounts team applies the ordinary forward-charge mechanism in section 9(1), arguing that both are goods supplied for consideration. As at 31 October 2026, section 9(2) still states that central tax on these five petroleum products is to commence only from a date notified by the Government on the Council's recommendations. What CGST treatment follows for the two stated supplies?

1. CGST applies at the notified rate to both supplies under section 9(1).
2. CGST applies only to diesel because natural gas is exempt under this provision.
3. CGST is not yet levied on either supply until the notified commencement date. (correct answer)
4. CGST applies to both supplies, but the collection date is postponed until next year.

Answer: C — CGST is not yet levied on either supply until the notified commencement date.

Explanation. Section 9(2) provides that central tax on petroleum crude, high-speed diesel, motor spirit, natural gas and aviation turbine fuel will be levied from a date notified by the Government on the Council's recommendations. As at 31 October 2026, that commencement has not been notified for the stated products. The combined transaction value is ₹18,00,000 + ₹7,00,000 = ₹25,00,000, but no CGST is presently levied on those supplies under section 9(2).

Where it goes wrong. Applying the general intra-State levy in section 9(1) without giving effect to the specific postponement in section 9(2).

Authority. Section 9(2) of the CGST Act, 2017

Question 16 · 2 marks · Taxation - GST Ch 03: Charge Composition · 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.

On 21 July 2026, registered Aryan Steels Ltd. buys a small consignment of tobacco leaves for ₹3,600 from an individual agriculturist who personally supervises cultivation. The goods fall under heading 2401 and are supplied within the State. The accounts clerk declines to book RCM because the transaction is below ₹5,000 and the supplier is unregistered. Assuming the goods are taxable at 2.5% CGST and 2.5% SGST, which conclusion is correct under the notified-goods entry?

1. No RCM applies because the value is below ₹5,000.
2. RCM applies; CGST is ₹90 and SGST is ₹90. (correct answer)
3. The agriculturist must pay ₹90 CGST under forward charge.
4. RCM applies only if the buyer's daily purchases exceed ₹5,000.

Answer: B — RCM applies; CGST is ₹90 and SGST is ₹90.

Explanation. The tobacco-leaf entry applies when an agriculturist supplies goods under heading 2401 to a registered person. It contains no minimum consignment value. CGST = ₹3,600 × 2.5% = ₹90, and equal SGST = ₹90. The fact that the supplier is unregistered does not displace the entry; the recipient is the person treated as liable for tax under section 9(3). The notification does not prescribe a monetary minimum for this entry.

Where it goes wrong. Importing a small-value exemption into a notified section 9(3) goods entry, which has no ₹5,000 threshold.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 4/2017-Central Tax (Rate), Sl. No. 3

Question 17 · 2 marks · Taxation - GST Ch 03: Charge Composition · 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.

Four entities sell raw cotton worth ₹10,00,000 each to a GST-registered mill during FY 2026-27. (i) An individual cultivates land using hired labour under personal supervision; (ii) a HUF uses family labour; (iii) an LLP operates leased farms through its salaried agronomist; and (iv) a company cultivates through its director and farm staff. The cotton falls under heading 5201. Assuming no other condition differs, which supplier category satisfies the statutory definition of agriculturist in section 2(7) for the RCM entry, and what CGST arises on the qualifying supply at 2.5%?

1. Only the LLP and company satisfy section 2(7), so CGST applies on both lots.
2. Only the company satisfies section 2(7), so the mill pays CGST of ₹25,000.
3. The individual and the HUF satisfy section 2(7); CGST is ₹50,000. (correct answer)
4. All four suppliers satisfy section 2(7), so the mill pays CGST of ₹1,00,000.

Answer: C — The individual and the HUF satisfy section 2(7); CGST is ₹50,000.

Explanation. Section 2(7) recognises only an individual or a HUF who undertakes cultivation through own labour, family labour or labour under personal supervision. Thus, the individual and HUF meet the definition; an LLP and a company do not, even when they cultivate through employees or directors. Two qualifying supplies of ₹10,00,000 each produce CGST of ₹10,00,000 × 2.5% × 2 = ₹50,000, payable by the registered mill under RCM.

Where it goes wrong. Treating any business entity that conducts agricultural operations as an agriculturist, despite the limited legal definition.

Authority. Section 2(7) of the CGST Act, 2017; Section 9(3) of the CGST Act, 2017; Notification No. 43/2017-Central Tax (Rate), Sl. No. 4A

Question 18 · 2 marks · Taxation - GST Ch 03: Charge Composition · 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.

On 22 September 2026, the State Government's Directorate of Lotteries supplies tickets valued at ₹5,00,000 to Prerna Distributors, a registered firm appointed as a lottery distributor under the relevant lottery regulations. On the same date, the Directorate sells tickets worth ₹1,00,000 directly to a corporate employee club for a staff raffle; the club is not a distributor or selling agent. The supplies are intra-State and the notified CGST rate on the qualifying supply is 14%. Which party bears RCM and what is the CGST amount?

1. Prerna pays ₹70,000 CGST under RCM on the State supply. (correct answer)
2. The Directorate pays ₹70,000 CGST under forward charge on the distributor sale.
3. The employee club pays RCM on its ₹1,00,000 ticket purchase.
4. Both recipients pay RCM because the tickets were sold by the State Government.

Answer: A — Prerna pays ₹70,000 CGST under RCM on the State supply.

Explanation. The notified entry requires both a specified government supplier and a lottery distributor or selling agent as recipient. Prerna meets the recipient condition and receives ₹5,00,000 from the State Government. CGST under RCM = ₹5,00,000 × 14% = ₹70,000. The employee club is not a distributor or selling agent, so its ₹1,00,000 purchase does not qualify for this entry; ticket identity alone is insufficient.

Where it goes wrong. Applying RCM to all lottery buyers rather than only a distributor or selling agent receiving supply from the specified government supplier.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 4/2017-Central Tax (Rate), Sl. No. 5; Rule 2(c) of the Lotteries (Regulation) Rules, 2010

Question 19 · 2 marks · Taxation - GST Ch 03: Charge Composition · 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.

State Motor Pool auctions a used bus worth ₹8,00,000 to a GST-registered operator on 11 October 2026. The seller is the State Government acting through its Transport Department; the recipient holds an active registration and the auction is intra-State. In a separate tender, a local authority sells a used van worth ₹6,00,000 to another registered fleet operator. Assume a 9% CGST rate on each value. Which treatment correctly identifies the person liable under the government-used-vehicle entry and the combined CGST under RCM?

1. The Department pays ₹1,26,000 CGST under forward charge.
2. Only the bus sale qualifies; CGST under RCM is ₹72,000.
3. Only the van sale qualifies; CGST under RCM is ₹54,000.
4. Both registered buyers pay RCM; combined CGST is ₹1,26,000. (correct answer)

Answer: D — Both registered buyers pay RCM; combined CGST is ₹1,26,000.

Explanation. Sl. No. 6 covers used vehicles supplied by the State Government or a local authority to a registered person. Both sales satisfy the supplier and recipient conditions. The combined value is ₹8,00,000 + ₹6,00,000 = ₹14,00,000. CGST under RCM = ₹14,00,000 × 9% = ₹1,26,000, payable by the two registered recipients on their respective purchases. The government's auction method does not change the notified liability.

Where it goes wrong. Reading the used-vehicle entry as limited to the Central Government, or omitting a local authority from the specified supplier list.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 36/2017-Central Tax (Rate), Sl. No. 6

Question 20 · 2 marks · Taxation - GST Ch 03: Charge Composition · 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 registered cotton cooperative in Gujarat purchases raw cotton worth ₹9,00,000 directly from an HUF agriculturist whose karta supervises cultivation on family land. The cooperative argues that the RCM entry cannot extend to it because it is a member-owned society rather than a company. The transaction is intra-State and the cotton falls under tariff heading 5201. Assuming the applicable CGST rate is 2.5%, which treatment follows from the phrase 'any registered person' in the raw-cotton entry?

1. The cooperative is excluded because it is not a company incorporated under company law.
2. The cooperative pays ₹22,500 CGST under RCM as a registered recipient. (correct answer)
3. The HUF pays ₹22,500 CGST under forward charge as the supplier of raw cotton.
4. No RCM applies to raw cotton supplied by HUF agriculturists to registered buyers.

Answer: B — The cooperative pays ₹22,500 CGST under RCM as a registered recipient.

Explanation. Sl. No. 4A applies to raw cotton supplied by an agriculturist to any registered person. A registered co-operative society is a person and a registered recipient; it is not excluded merely because it is member-owned. The HUF's karta supervises cultivation, satisfying section 2(7). CGST payable by the cooperative = ₹9,00,000 × 2.5% = ₹22,500, with equal SGST payable separately. A co-operative society is included within the statutory meaning of person.

Where it goes wrong. Reading 'any registered person' as restricted to companies and excluding registered co-operative societies.

Authority. Section 2(7) of the CGST Act, 2017; Section 9(3) of the CGST Act, 2017; Notification No. 43/2017-Central Tax (Rate), Sl. No. 4A

Question 21 · 2 marks · Taxation - GST Ch 03: Charge Composition · 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 processor buys cashew nuts worth ₹2,40,000 directly from an agriculturist on 16 August 2026. The entire consignment has already been shelled and peeled before dispatch, although it remains raw and unroasted. The buyer contends that the seller's agriculturist status alone brings the transaction within section 9(3). Assume the supply is intra-State and no other notified entry applies. Which treatment is correct under Sl. No. 1 of Notification No. 4/2017-Central Tax (Rate)?

1. No RCM applies under this entry because the nuts were shelled and peeled. (correct answer)
2. The processor pays ₹6,000 CGST because the agriculturist supplied the cashew nuts.
3. The agriculturist pays ₹6,000 CGST under forward charge on the processed kernels.
4. The processor pays ₹12,000 total GST under RCM on the shelled and peeled kernels.

Answer: A — No RCM applies under this entry because the nuts were shelled and peeled.

Explanation. Sl. No. 1 covers cashew nuts that are not shelled or peeled, supplied by an agriculturist to a registered person. The supplier condition is satisfied, but the goods have undergone both shelling and peeling, so the description fails. The value is ₹2,40,000; RCM under this entry is therefore nil, not ₹2,40,000 × 2.5% = ₹6,000 CGST. This conclusion is limited to the specified entry and does not determine any separate levy under another provision.

Where it goes wrong. Treating raw, unroasted kernels as covered merely because the agriculturist is the supplier, while disregarding the stated product condition.

Authority. Section 9(3) of the CGST Act, 2017; Notification No. 4/2017-Central Tax (Rate), Sl. No. 1

Question 22 · 2 marks · Taxation - GST Ch 03: Charge Composition · 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.

On 10 July 2026, a registered manufacturer receives bidi wrapper leaves from an unregistered HUF agriculturist and becomes liable to pay tax under section 9(3). The supplier issues only a commercial delivery document; the recipient must therefore issue the prescribed invoice under section 31(3)(f). The recipient generates that invoice on 8 August 2026. Under Rule 47A, which deadline applies and is the invoice issued on time? Ignore any separate time-of-supply issue.

1. Within 15 days of receipt; the 8 August recipient invoice is late.
2. Within 30 days of the supplier document; the 8 August invoice is late.
3. Within 45 days of receipt; the 8 August invoice is timely.
4. Within 30 days of receipt; the 8 August invoice is in time. (correct answer)

Answer: D — Within 30 days of receipt; the 8 August invoice is in time.

Explanation. Section 31(3)(f) requires a recipient liable under RCM to issue an invoice for goods received from an unregistered supplier. Rule 47A requires issue within 30 days from receipt of the supply. Goods were received on 10 July; the 30-day period ends on 9 August 2026. The invoice dated 8 August is within that period. The supplier's document date does not start this special recipient-invoice clock.

Where it goes wrong. Starting the recipient's 30-day period from the supplier's document date rather than the date on which the recipient receives the supply.

Authority. Section 31(3)(f) of the CGST Act, 2017; Rule 47A of the CGST Rules, 2017; Section 9(3) of the CGST Act, 2017

Question 23 · 2 marks · Taxation - GST Ch 03: Charge Composition · 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.

An intra-State supply of raw cotton by an agriculturist to a registered textile company is subject to RCM. The supplier's sale document is dated 6 July 2026; the goods are received on 24 July; the recipient records payment in its books on 26 July, while its bank account is debited on 22 July. No earlier advance or receipt occurred. For section 12(3), select the time of supply after comparing the receipt date, the earlier of the two payment dates, and the date immediately following 30 days from the supplier's document.

1. 6 July 2026, being the supplier's sale document date for the cotton supply.
2. 24 July 2026, being the date of receipt of the goods at the recipient's premises.
3. 22 July 2026, because the bank debit is the earliest payment event under section 12(3). (correct answer)
4. 26 July 2026, being the date when payment was entered in the recipient's books.

Answer: C — 22 July 2026, because the bank debit is the earliest payment event under section 12(3).

Explanation. For RCM goods, section 12(3) compares receipt of goods, the earlier of payment entry in the recipient's books or bank debit, and the day immediately following 30 days from the supplier's document. The payment date is the earlier of 26 July and 22 July, namely 22 July. It precedes receipt on 24 July and the 30-day backstop of 6 August. Therefore, 22 July 2026 is the time of supply.

Where it goes wrong. Taking the date entered in the books as the payment date without comparing it with the earlier bank debit.

Authority. Section 12(3) of the CGST Act, 2017

Question 24 · 2 marks · Taxation - GST Ch 03: Charge Composition · 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 registered buyer discovers that, during FY 2026-27, it omitted RCM on two qualifying agriculturist purchases of tobacco leaves. The unpaid CGST is ₹630 on the first purchase and ₹360 on the second, with no other tax short-paid in that financial year. There is no allegation of fraud or wilful misstatement. The proper officer proposes issuing a notice under section 74A(1). Considering the proviso to that sub-section, what is the outcome, and does the threshold erase the underlying tax liability?

1. A notice may issue because the unpaid tax relates to two separate purchases.
2. No notice may issue on ₹990, though the underlying tax remains payable. (correct answer)
3. No tax is payable because the financial-year amount is below ₹1,000.
4. A ₹10,000 penalty is imposed automatically for every such short-payment case.

Answer: B — No notice may issue on ₹990, though the underlying tax remains payable.

Explanation. For section 74A, the proviso to sub-section (1) bars issue of a notice where the tax not paid or short-paid in a financial year is less than ₹1,000. The amount here is ₹630 + ₹360 = ₹990, which is below that limit. The proviso restricts notice issuance; it does not extinguish the substantive RCM liability. The recipient must still discharge the tax and applicable interest under section 50.

Where it goes wrong. Treating the ₹1,000 notice threshold as a substantive exemption from RCM tax, rather than a limit on issuing a section 74A notice.

Authority. Section 74A(1) of the CGST Act, 2017, proviso

Question 25 · 2 marks · Taxation - GST Ch 03: Charge Composition · 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.

For FY 2026-27, a recipient has short-paid ₹1,20,000 of CGST under section 9(3) by omitting a notified-goods purchase. The omission is not due to fraud, wilful misstatement or suppression. A notice under section 74A is served; the recipient does not pay tax with interest within 60 days of issue of the notice. What penalty is payable under section 74A, assuming the adjudicated tax due remains ₹1,20,000? No payment or settlement has been recorded before adjudication.

1. ₹10,000, being the minimum statutory penalty on the short-paid amount.
2. ₹6,000, being five per cent of the tax due under the notified entry.
3. Nil, because the omission was not due to fraud or wilful misstatement.
4. ₹12,000, being ten per cent of the tax due under section 74A. (correct answer)

Answer: D — ₹12,000, being ten per cent of the tax due under section 74A.

Explanation. For a non-fraud case, section 74A(5)(i) prescribes penalty of 10% of tax due or ₹10,000, whichever is higher. Ten per cent of ₹1,20,000 = ₹12,000; comparing ₹12,000 with ₹10,000 gives a penalty of ₹12,000. Section 74A(8)(ii) would avoid penalty if tax and interest were paid within 60 days of the notice, but that payment window has expired without settlement. No earlier payment changes this penalty computation.

Where it goes wrong. Assuming that absence of fraud eliminates penalty, or applying the ₹10,000 floor even when 10% of tax due is higher.

Authority. Section 74A(5)(i) of the CGST Act, 2017; Section 74A(8)(ii) of the CGST Act, 2017