CA Inter Taxation - GST MCQ Test 13: answer key

Question 1 · 2 marks · Value of Supply · hard

Scenario. Nirvaan AgroTech Pvt. Ltd. is registered in Pune, Maharashtra, and manufactures taxable farm equipment besides providing taxable repair services. Its records for FY 2025-26 show the following. On 12 August 2025, it supplied a harvester to Kirti Farms of Gujarat. The list price was Rs 12,00,000 excluding taxes. Nirvaan charged packing Rs 25,000, freight Rs 35,000 for agreed delivery at Kirti's premises, and municipal tax Rs 12,000 separately. A trade discount of 3% on the list price was recorded in the invoice. Nirvaan also received a price-linked subsidy of Rs 80,000 from a private NGO and interest of Rs 18,000 (inclusive of GST) from Kirti for delayed payment. In February 2026, Nirvaan paid GST of Rs 72,000 on raw material, Rs 1,12,000 on a five-seater car for its managing director, Rs 22,500 on outdoor catering for a customer meet, Rs 54,000 on works contract for its office building, Rs 1,08,000 on a truck used to transport goods, and Rs 18,000 on general insurance for that truck. On 10 April 2025, Nirvaan raised an invoice on Surya Dealers for goods. On 20 January 2026, it issued a credit note of Rs 40,000 plus GST Rs 7,200 for deficient goods. Surya is registered and has not reversed the ITC attributable to the credit note. For February 2026, output tax was IGST Rs 1,80,000, CGST Rs 90,000 and SGST Rs 90,000; ITC was IGST Rs 1,20,000, CGST Rs 70,000 and SGST Rs 70,000. For August 2025, the return due on 20 September was filed on 18 November; tax of Rs 20,000 was paid in cash and Rs 30,000 by ITC. In February 2026, taxable supply other than exempt and zero-rated supply was Rs 75,00,000 and output tax Rs 6,00,000; no rule 86B exception applies.

What is the value of the taxable supply made by Nirvaan AgroTech Pvt. Ltd. to Kirti Farms on 12 August 2025?

1. The transaction is not a supply because stock transfers between distinct persons are not covered by Schedule I unless accompanied by consideration.
2. Rs 13,31,254, since packing, freight, municipal tax, private subsidy and taxable interest are includible and recorded discount is deductible. (correct answer)
3. Rs 13,67,254, since the private subsidy is added twice and the recorded trade discount is not deductible from the list price.
4. Rs 13,52,000, since the recorded trade discount and the interest for delayed payment are both excluded from the value.

Answer: B — Rs 13,31,254, since packing, freight, municipal tax, private subsidy and taxable interest are includible and recorded discount is deductible.

Working. 12,00,000 + 25,000 + 35,000 + 12,000 + 80,000 - 36,000 + (18,000 x 100/118 = 15,254) = 13,31,254.

Explanation. Packing, freight for agreed delivery, municipal tax and private price-linked subsidy are includible under section 15(2). The recorded trade discount is deductible under section 15(3)(a). Interest is includible under section 15(2)(d); its taxable value is Rs 18,000 x 100/118 = Rs 15,254. The tempting option a wrongly omits interest and treats subsidy as a simple addition.

Where it goes wrong. Interest is inclusive of GST and must be back-calculated; private NGO subsidy is includible.

Authority. Section 15(1), 15(2)(a), 15(2)(c), 15(2)(d), 15(2)(e) and 15(3)(a), CGST Act, 2017

Question 2 · 2 marks · Input Tax Credit · medium

What is the amount of ITC that Nirvaan AgroTech Pvt. Ltd. can avail in February 2026 from the purchases listed in the scenario?

1. Rs 1,80,000, because raw material and truck are eligible but general insurance on the truck is blocked as a motor vehicle-related service.
2. Rs 2,52,000, because car and catering are blocked but works contract for office building is eligible as plant and machinery.
3. Rs 1,98,000, because raw material, truck and truck insurance are eligible while car, catering and office works contract are blocked. (correct answer)
4. Rs 3,10,000, because all items except the car are eligible since they are used in the course or furtherance of business.

Answer: C — Rs 1,98,000, because raw material, truck and truck insurance are eligible while car, catering and office works contract are blocked.

Working. Eligible ITC = 72,000 + 1,08,000 + 18,000 = 1,98,000.

Explanation. Raw material ITC is eligible under section 16(1). The truck used for goods transport and its general insurance are eligible. The five-seater car is blocked under section 17(5)(a), outdoor catering under section 17(5)(b), and works contract for office building under section 17(5)(c). Option b is tempting because it treats office works contract as eligible plant and machinery.

Where it goes wrong. General insurance on an eligible goods vehicle is allowed, while insurance on a blocked car is not.

Authority. Sections 16(1), 17(5)(a), 17(5)(b) and 17(5)(c), CGST Act, 2017

Question 3 · 2 marks · Tax Invoice; Credit and Debit Notes · hard

Can Nirvaan AgroTech Pvt. Ltd. reduce its output tax liability in the return for January 2026 on account of the credit note issued to Surya Dealers?

1. Yes, because a credit note for deficient goods always reduces output tax once it is issued within the time limit, whether or not the recipient reverses ITC.
2. No, because a credit note for deficiency can never reduce output tax after six months from the date of the original invoice, even if ITC is reversed.
3. Yes, because the supplier has not passed on the incidence of tax and can reduce output tax in the annual return instead of the monthly return.
4. No, because the registered recipient has not reversed the ITC attributable to the credit note, though the credit note is issued within the time limit. (correct answer)

Answer: D — No, because the registered recipient has not reversed the ITC attributable to the credit note, though the credit note is issued within the time limit.

Working. Credit note for FY 2025-26 can be declared up to 30 November 2026 or annual return, whichever is earlier; but output tax reduction needs ITC reversal by registered recipient.

Explanation. Under section 34(2), as amended by the Finance Act 2025, reduction in the supplier's output tax liability on a credit note is not permitted unless the registered recipient has reversed the ITC attributable to that credit note and the incidence condition is satisfied. The credit note is within the time limit, so option b is wrong. Option a ignores the ITC reversal condition.

Where it goes wrong. The Finance Act 2025 amendment requires recipient ITC reversal for registered recipients.

Authority. Section 34(1) and section 34(2) with proviso, CGST Act, 2017, as amended by the Finance Act, 2025

Question 4 · 2 marks · Payment of Tax · medium

For February 2026, what is the minimum GST payable by Nirvaan AgroTech Pvt. Ltd. through the electronic cash ledger after applying the prescribed order of ITC utilisation?

1. Rs 1,00,000, because IGST cash balance and local shortfalls after set-off remain payable through the electronic cash ledger. (correct answer)
2. Rs 80,000, because the remaining IGST credit after paying IGST can be used against CGST and SGST liabilities.
3. Rs 1,60,000, because CGST and SGST credits cannot be used against IGST and only IGST credit is usable.
4. Rs 1,20,000, because IGST credit must first be used against CGST and SGST before being used against IGST.

Answer: A — Rs 1,00,000, because IGST cash balance and local shortfalls after set-off remain payable through the electronic cash ledger.

Working. IGST: 1,80,000 - 1,20,000 = 60,000 cash; CGST: 90,000 - 70,000 = 20,000 cash; SGST: 90,000 - 70,000 = 20,000 cash; total = 1,00,000.

Explanation. IGST ITC is first used against IGST liability: Rs 1,20,000 against Rs 1,80,000 leaves Rs 60,000 IGST cash. CGST ITC of Rs 70,000 against CGST of Rs 90,000 leaves Rs 20,000 cash. SGST ITC of Rs 70,000 against SGST of Rs 90,000 leaves Rs 20,000 cash. Total minimum cash is Rs 1,00,000. Option b wrongly assumes unused IGST credit remains.

Where it goes wrong. There is no remaining IGST credit after set-off against IGST; local credits cannot cross-utilise CGST and SGST.

Authority. Sections 49(5), 49A and 49B, CGST Act, 2017; rule 88A, CGST Rules, 2017

Question 5 · 2 marks · Payment of Tax · hard

What is the interest payable under section 50(1) of the CGST Act, 2017 for the August 2025 return filed on 18 November 2025 after the due date of 20 September 2025?

1. Rs 1,455, because interest is computed on the total tax of Rs 50,000 for 59 days under section 50(1) of the CGST Act.
2. Rs 582, because interest under the proviso is computed on the cash portion of Rs 20,000 for 59 days at 18% per annum. (correct answer)
3. Rs 1,476, because interest is computed on the total tax of Rs 50,000 for 60 days at 18% per annum.
4. Rs 873, because interest is computed on the cash portion of Rs 20,000 for 59 days at 24% per annum.

Answer: B — Rs 582, because interest under the proviso is computed on the cash portion of Rs 20,000 for 59 days at 18% per annum.

Working. 21 September to 18 November = 59 days; 20,000 x 18% x 59/365 = 581.92, rounded to Rs 582.

Explanation. The return was filed after the due date but before any proceedings, so the proviso to section 50(1) applies. Interest is computed only on the tax paid through the electronic cash ledger, i.e. Rs 20,000, for 59 days at 18% per annum. Option a wrongly uses gross tax. Option d uses 24%, applicable to wrongly availed and utilised ITC, not this delay.

Where it goes wrong. Belated return interest is on net cash tax, not on the ITC portion.

Authority. Section 50(1) with proviso and rule 88B, CGST Rules, 2017

Question 6 · 2 marks · Payment of Tax · medium

For February 2026, what is the minimum amount Nirvaan AgroTech Pvt. Ltd. must discharge through the electronic cash ledger under rule 86B?

1. Rs 6,000, because rule 86B requires 1% of the taxable supply value of Rs 75,00,000 to be paid through electronic cash ledger.
2. Nil, because rule 86B does not apply when the electronic credit ledger has sufficient balance to meet the entire output tax liability.
3. Rs 60,000, because rule 86B requires 1% of the output tax liability of Rs 6,00,000 to be paid through electronic credit ledger.
4. Rs 6,000, because rule 86B restricts ITC use to 99% of output tax liability, so at least 1% of Rs 6,00,000 must be paid in cash. (correct answer)

Answer: D — Rs 6,000, because rule 86B restricts ITC use to 99% of output tax liability, so at least 1% of Rs 6,00,000 must be paid in cash.

Working. 1% of Rs 6,00,000 = Rs 6,000.

Explanation. Rule 86B applies because taxable supply other than exempt and zero-rated supply exceeds Rs 50 lakh in the month and no exception applies. It restricts use of ITC to 99% of output tax liability. Therefore, at least 1% of output tax liability, i.e. Rs 6,000, must be paid through the electronic cash ledger. Option a uses the wrong base.

Where it goes wrong. The 1% is of output tax liability, not of taxable supply value.

Authority. Rule 86B, CGST Rules, 2017

Question 7 · 2 marks · Registration · hard

Scenario. Tanmay Appliances Pvt. Ltd. filed a complete application for registration in Form GST REG-01 on the common portal on 4 December 2025 and completed Aadhaar authentication. On 6 December 2025, the common portal identified it as a low-risk applicant on the basis of data analysis and risk parameters. No notice seeking clarification or documents was issued by the proper officer, and no physical verification was directed. The company wants to know the outer time limit for grant of registration by the common portal under the special facility for low-risk applicants introduced with effect from 1 November 2025.

By what date is the registration to be granted electronically to Tanmay Appliances Pvt. Ltd. under rule 9A of the CGST Rules, 2017?

1. Within 3 working days from 4 December 2025, because rule 9A overrides rule 9 for low-risk applicants identified on the portal. (correct answer)
2. Within 7 working days from 4 December 2025, because successful Aadhaar authentication always gives deemed approval in seven working days.
3. Within 30 days from 4 December 2025, because physical verification of the principal place of business is mandatory in every case.
4. On 6 December 2025 itself, because identification as a low-risk applicant by the portal is itself the grant of registration.

Answer: A — Within 3 working days from 4 December 2025, because rule 9A overrides rule 9 for low-risk applicants identified on the portal.

Working. Application submitted 4 December 2025; low-risk identified 6 December; rule 9A period runs within 3 working days from submission.

Explanation. Rule 9A, effective from 1 November 2025, provides that a person identified as low-risk on the common portal on the basis of data analysis and risk parameters is granted registration electronically within 3 working days from the date of submission of application. It overrides rule 9. Aadhaar authentication alone does not always give a 7-working-day deemed approval under rule 9A.

Where it goes wrong. Rule 9A automatic low-risk grant is 3 working days, not the ordinary rule 9 timeline.

Authority. Rule 9A, CGST Rules, 2017; Notification No. 18/2025 CT dated 31.10.2025

Question 8 · 1 marks · GST in India - An Introduction · hard

Scenario. A study circle is discussing the constitutional scheme of GST. One member says alcoholic liquor for human consumption is outside GST by the definition of GST in Article 366(12A). Another says the five petroleum products are permanently outside GST and customs duty has been subsumed. A third says customs duty continues even after GST. The group also notes that the five petroleum products will be brought into GST from a date notified on the GST Council's recommendation. Which statement correctly describes the position?

Which statement correctly describes the position regarding alcoholic liquor, the five petroleum products and customs duty under GST?

1. GST covers all supplies including alcoholic liquor; the five petroleum products await a notified date, and customs duty continues.
2. GST covers alcoholic liquor and all petroleum products from 1 July 2017, while customs duty stands subsumed in GST under the 101st Amendment.
3. GST covers all supplies except alcoholic liquor for human consumption; the five petroleum products are outside until a notified date, and customs duty continues. (correct answer)
4. GST covers all supplies including alcoholic liquor, but the five petroleum products are permanently outside and only State VAT applies to them.

Answer: C — GST covers all supplies except alcoholic liquor for human consumption; the five petroleum products are outside until a notified date, and customs duty continues.

Working. Alcoholic liquor excluded by definition; petroleum crude, high speed diesel, petrol, ATF and natural gas await notified date; customs duty continues.

Explanation. Article 366(12A) defines GST as tax on supply of goods or services except alcoholic liquor for human consumption. The five petroleum products are not presently leviable to GST; they will be brought in from a date notified on GST Council recommendations. Customs duty continues in the post-GST regime. Option a wrongly includes alcoholic liquor.

Where it goes wrong. Alcoholic liquor is excluded by definition; only five petroleum products await notification, not all petroleum products.

Authority. Article 366(12A), Constitution of India; Chapter 1, GST in India - An Introduction