Supply, the value of supply, input tax credit, returns and the records a registered person keeps are the subjects you apply in this GST test. It carries 8 questions for 15 marks, with a time limit of 30 minutes, and it is set for CA Intermediate Group 1 students preparing for the January 2027 attempt. The chapters covered are Chapter 2 - Supply under GST, Chapter 3 - Charge of GST, Chapter 7 - Value of Supply, Chapter 8 - Input Tax Credit, Chapter 15 - Returns and Chapter 11 - Accounts and Records. The questions sit in three case scenarios: a manufacturer with two State registrations, a trading company with a turnover of ₹1.95 crore, and a manufacturer keeping records for a financial year.
The law basis is the CGST Act 2017, IGST Act 2017 and CGST Rules as amended by Finance Act 2025, notifications and circulars effective up to 28 February 2026. There is no negative marking, so a wrong answer costs nothing. Questions are prepared with AI tools and cross-checked by independent solvers; they are not reviewed by a Chartered Accountant.
8 questions across 5 chapters, 15 marks and 30 minutes in the timed paper. Every answer below is shown with the working behind it and the authority it rests on.
Law and standards used: CGST Act 2017, IGST Act 2017 and CGST Rules as amended by Finance Act 2025, notifications and circulars effective up to 28 February 2026.
Questions
8
Marks
15
Time limit
30 minutes
Attempt
January 2027
Group
Group 1
Law basis
CGST Act 2017, IGST Act 2017 and CGST Rules as amended by Finance Act 2025, notifications and circulars effective up to 28 February 2026
Content as of
2026-10-31
Chapters covered
Supply under GST (3 Q)
Value of Supply (2 Q)
Input Tax Credit (1 Q)
Returns (1 Q)
Accounts and Records (1 Q)
Questions, answers and explanations
Question 1 · 2 marks · Supply under GST · medium
Scenario. Nexora Industrial Systems Ltd., registered under GST in Madhya Pradesh, manufactures and sells industrial equipment. It also holds a separate GST registration in Gujarat under the same PAN. During October 2026, the following transactions occurred:
(i) The Madhya Pradesh establishment transferred machinery worth ₹3,00,000 to its Gujarat establishment without consideration for business purposes.
(ii) The company gifted electronic accessories worth ₹48,000 to one employee during the financial year. The employee had received no other gifts from the company during that year.
(iii) It sold a printing machine with mandatory commissioning services for one consolidated price. The supplies were naturally bundled, with the machine constituting the principal supply.
(iv) It sold industrial equipment to an unrelated customer for ₹6,00,000. A discount of ₹20,000 was recorded in the invoice. It additionally charged packing of ₹12,000, freight of ₹18,000 and a statutory environmental fee of ₹5,000. The customer separately paid ₹10,000 towards an expense which the supplier was contractually liable to incur. A non-government organisation also provided a subsidy of ₹25,000 directly linked to the price of this equipment.
(v) A manufacturer subsequently issued a commercial credit note to a dealer for a post-sale discount, without reducing its original taxable value or tax liability. No separate promotional service was agreed between them.
(vi) The company purchased 100 promotional kits for resale, paying GST of ₹18,000 on the purchase. Subsequently, 10 kits were distributed free of cost as samples to prospective customers.
What is the GST treatment of the transfer of machinery from the Madhya Pradesh establishment to the Gujarat establishment?
It becomes a supply only when the Gujarat establishment subsequently sells the machinery.
It is a supply under Schedule I even without consideration, since the establishments are distinct persons. (correct answer)
It is exempt from GST because the transfer takes place between establishments of the same legal entity.
It is not a supply because no consideration is charged between establishments having the same PAN.
Answer: B — It is a supply under Schedule I even without consideration, since the establishments are distinct persons.
Explanation. Under section 25(4), establishments having separate GST registrations under the same PAN are distinct persons. Schedule I, paragraph 2, read with section 7(1)(c), treats supplies between distinct persons in the course or furtherance of business as supplies even without consideration. Therefore, the machinery transfer is taxable, subject to the applicable valuation provisions. The tempting option (d) incorrectly assumes that a common PAN prevents distinct-person treatment.
Where it goes wrong. Confusing a common PAN with a single registered person for GST purposes.
What is the GST treatment of the electronic accessories gifted to the employee?
The gift is a taxable supply because every transaction between related persons is taxable irrespective of value.
The gift is exempt supply under section 11 of the CGST Act.
The gift is not treated as a supply because its value does not exceed ₹50,000 per employee during the financial year. (correct answer)
The gift is a taxable supply because the employer and employee are related persons.
Answer: C — The gift is not treated as a supply because its value does not exceed ₹50,000 per employee during the financial year.
Working. Value of gifts during the financial year = ₹48,000. Since ₹48,000 does not exceed ₹50,000, the gift is not treated as a supply.
Explanation. Schedule I, paragraph 2, contains a specific proviso that gifts not exceeding ₹50,000 in value in a financial year by an employer to an employee shall not be treated as supply. Since the employee received gifts worth ₹48,000 during the financial year, the transaction is outside the scope of supply under this provision. Option (d) overlooks the specific employer-employee gift proviso.
Where it goes wrong. Applying the related-person rule without considering the ₹50,000 employee gift proviso.
How should the supply of the printing machine along with its mandatory commissioning services be classified for determining its tax liability?
Two independent supplies, each necessarily taxable at its respective rate.
Mixed supply, taxable at the highest rate applicable to the constituent supplies.
Exempt supply because commissioning is provided along with machinery.
Composite supply, taxable at the rate applicable to the principal supply. (correct answer)
Answer: D — Composite supply, taxable at the rate applicable to the principal supply.
Explanation. A composite supply consists of two or more taxable supplies which are naturally bundled and supplied in conjunction with each other, one of which is the principal supply. Here, the machine and mandatory commissioning services are naturally bundled, with the machine being the principal supply. Under section 8(a), the entire composite supply is treated as a supply of the principal supply. Option (b) incorrectly applies the treatment of mixed supplies.
Where it goes wrong. Confusing naturally bundled composite supplies with mixed supplies.
Compute the value of supply of the industrial equipment under section 15. Assume that all amounts are exclusive of GST and that the statutory environmental fee is charged separately. Round the final answer to the nearest rupee.
₹6,15,000
₹6,30,000
₹6,25,000
₹6,50,000 (correct answer)
Answer: D — ₹6,50,000
Working. Basic price of equipment = ₹6,00,000
Less: Discount recorded in invoice = ₹20,000
Net price = ₹5,80,000
Add: Packing charges = ₹12,000
Add: Freight charges = ₹18,000
Add: Environmental fee charged separately = ₹5,000
Add: Supplier's liability paid by recipient = ₹10,000
Add: Non-government subsidy directly linked to price = ₹25,000
Value of supply = ₹5,80,000 + ₹12,000 + ₹18,000 + ₹5,000 + ₹10,000 + ₹25,000 = ₹6,50,000.
Explanation. The transaction value is reduced by the invoice-recorded discount and increased by the includible elements under section 15(2). These include packing, freight, statutory environmental fee, the supplier's liability paid by the recipient and the directly price-linked non-government subsidy. Option (b) is tempting because it omits the third-party payment and subsidy, both of which are includible in the value.
Where it goes wrong. Omitting third-party payments or non-government subsidies directly linked to the price.
In the case of the commercial credit note issued to the dealer, which statement correctly describes the treatment of the recipient's input tax credit?
The manufacturer must reduce its original output tax liability even though the commercial credit note does not satisfy the conditions of section 15(3).
The dealer is not required to reverse ITC merely because of the commercial credit note, since the original transaction value and corresponding tax liability are not reduced. (correct answer)
The dealer must reverse proportionate ITC because every post-sale discount requires reversal.
The dealer must reverse the entire ITC originally availed on the purchase.
Answer: B — The dealer is not required to reverse ITC merely because of the commercial credit note, since the original transaction value and corresponding tax liability are not reduced.
Working. Original transaction value and corresponding tax liability remain unchanged. The commercial credit note does not reduce the supplier's output tax liability. Consequently, the dealer is not required to reverse the corresponding ITC merely on account of this discount.
Explanation. Circular No. 251/08/2025-GST clarifies that where a supplier issues a financial or commercial credit note without reducing the original transaction value and tax liability, the recipient is not required to reverse the ITC attributable to that discount. The original tax charged remains unchanged. Option (c) incorrectly applies the ITC reversal condition applicable to qualifying post-supply discounts under section 15(3)(b).
Where it goes wrong. Treating a commercial credit note as a GST credit note and automatically requiring ITC reversal.
Calculate the amount of ITC blocked under section 17(5)(h) on the promotional kits distributed free of cost as samples.
₹1,800 (correct answer)
₹16,200
Nil
₹18,000
Answer: A — ₹1,800
Working. Total kits purchased = 100
Total ITC = ₹18,000
ITC per kit = ₹18,000 ÷ 100 = ₹180
Kits distributed as free samples = 10
Blocked ITC = 10 × ₹180 = ₹1,800
Eligible ITC attributable to remaining 90 kits = ₹18,000 − ₹1,800 = ₹16,200.
Explanation. Section 17(5)(h) blocks ITC on goods disposed of by way of gifts or free samples. The ITC attributable to the 10 kits distributed free of cost is therefore blocked. The remaining 90 kits are not distributed as free samples and their attributable ITC is not blocked on this particular ground. Option (d) incorrectly treats the entire purchase credit as ineligible.
Where it goes wrong. Either retaining ITC on free samples or reversing the entire purchase credit instead of the attributable portion.
Scenario. A registered trading company had an aggregate turnover of ₹1.95 crore during the financial year 2025-26. It is not covered by any special category requiring annual return filing and has no other outstanding compliance issue. The company wants to determine whether it must furnish its annual GST return for that financial year in view of the amendment applicable from financial year 2024-25 onwards.
Is the company required to furnish its annual GST return in Form GSTR-9 for FY 2025-26?
No, because registered persons having aggregate turnover up to ₹2 crore in a financial year are exempt from furnishing the annual return for that year. (correct answer)
No, because all registered persons having aggregate turnover up to ₹5 crore are automatically exempt from annual return filing.
Yes, because exemption from annual return is available only where aggregate turnover does not exceed ₹1 crore.
Yes, because every registered person must furnish an annual return irrespective of turnover.
Answer: A — No, because registered persons having aggregate turnover up to ₹2 crore in a financial year are exempt from furnishing the annual return for that year.
Working. Aggregate turnover = ₹1.95 crore
Annual return exemption threshold = ₹2 crore
₹1.95 crore is less than ₹2 crore.
Therefore, the company is exempt from furnishing GSTR-9 for FY 2025-26.
Explanation. Notification No. 15/2025-Central Tax dated 17.09.2025 exempts registered persons whose aggregate turnover in a financial year is up to ₹2 crore from furnishing the annual return for that financial year, with effect for FY 2024-25 onwards. Since the company's turnover is ₹1.95 crore, it falls within this exemption. Option (b) incorrectly confuses the annual return exemption threshold with the ₹5 crore QRMP eligibility threshold.
Where it goes wrong. Confusing the ₹2 crore annual return exemption threshold with the ₹5 crore QRMP eligibility threshold.
Question 8 · 1 marks · Accounts and Records · easy
Scenario. A registered manufacturer maintains its GST books of account and supporting documents for financial year 2025-26. The manufacturer is not involved in any appeal, revision, other proceedings or investigation relating to those records.
For how long must the manufacturer retain its GST books of account and supporting records under section 36?
36 months from the end of the relevant financial year.
72 months from the date of registration under GST.
72 months from the due date of furnishing the annual return for the relevant financial year. (correct answer)
60 months from the date of filing the annual return.
Answer: C — 72 months from the due date of furnishing the annual return for the relevant financial year.
Working. Prescribed retention period = 72 months (6 years) from the due date of furnishing the annual return for the relevant financial year.
Explanation. Section 36 requires every registered person to retain books of account and other records until expiry of 72 months from the due date of furnishing the annual return for the year pertaining to those records. Since the scenario specifies that no appeal, revision, other proceedings or investigation is pending, the extended retention provision does not apply. Option (d) incorrectly uses the date of actual filing rather than the statutory due date.
Where it goes wrong. Calculating the retention period from the actual filing date or the end of the financial year instead of the annual return due date.
The paper asks you to decide what is a supply and what is not, to compute the value of a supply, to state when input tax credit is blocked or when a recipient has to reverse it, to read the conditions for filing the annual return, and to state how long records are kept. The 8 questions sit in three case scenarios: a manufacturer with two State registrations, a trading company with a turnover of ₹1.95 crore, and a manufacturer keeping records for a financial year.
How many questions are there and how long do I have?
There are 8 questions and the paper carries 15 marks. Seven questions are worth 2 marks each and the last one is worth 1 mark. The time limit is 30 minutes. In exam mode the paper is timed and marked once at the end, so you can move between questions and return to any of them before the time is up.
Which chapters does the paper cover?
The chapters covered are Chapter 2 - Supply under GST, Chapter 3 - Charge of GST, Chapter 7 - Value of Supply, Chapter 8 - Input Tax Credit, Chapter 15 - Returns, and Chapter 11 - Accounts and Records. The questions draw on all six, so a gap in any one of them will cost you marks. Read the scenario before you start answering.
Which law do the questions follow?
The law basis is the CGST Act 2017, IGST Act 2017 and CGST Rules as amended by Finance Act 2025, with notifications and circulars effective up to 28 February 2026. The content is stated as at 31 October 2026. Where a notification or a circular changes a rule, the change as at that date is applied in the questions, so work from your study material and the applicable statutory update.
How are the questions written?
Each question sits inside a short case scenario. You read a passage of facts, which gives the names of the parties, the amounts and the dates, and then apply the law to those facts. One passage is shared by the questions that follow it, so the same scenario usually carries more than one question. Work through the passage once and note the key figures and dates before you look at the options.
Which computations are in the paper?
Two questions ask you to work out amounts. One computes the value of a supply where packing, freight, a statutory fee, an amount paid by the buyer and a subsidy linked to the price all have to be taken into account, and where a discount recorded in the invoice is deducted. The other works out the credit blocked on goods distributed as samples without charge, where only the part that relates to the samples is blocked.
Is there negative marking?
No. There is no negative marking, so a wrong answer costs nothing. Each question carries the marks set out above and the paper is marked on that basis. If you are unsure of an option, attempt it rather than leave it blank, because an attempt that turns out wrong does not reduce your score.
Can I take the paper without a timer?
Yes. In practice mode there is no timer, and you can read the explanation for every answer as you go, so you can pause and work through the questions at your own pace. In exam mode the paper is timed and marked once at the end, and you get a certificate carrying your name and score when the paper closes.
Do I need to sign up or pay anything?
No sign-up is needed and there is no payment. Nothing about a student is stored on a server. You can open the paper, attempt it and read the result without creating an account, and the same applies to the timed mode and the untimed mode alike.
Is this paper issued by ICAI?
No. This is a practice test by HeyArtha. It is not issued by or affiliated with ICAI, and it is written for students of CA Intermediate Group 1 preparing for the January 2027 attempt. Use it alongside your study material and the applicable statutory update, and check the position of each rule as at the date stated in the paper.
