CA Inter Taxation - GST MCQ Test 6: answer key

Question 1 · 2 marks · Chapter 2 - Supply under GST · hard

Scenario. Arnav Industrial Solutions Ltd. (AISL), a registered manufacturer of specialised industrial equipment having its principal place of business in Pune, Maharashtra, carries on business through its registered branches in Gujarat and Karnataka. During the financial year 2026-27, the company entered into the following transactions: (i) On 15 May 2026, AISL transferred machinery costing ₹8,40,000 from its Pune unit to its separately registered Ahmedabad branch without charging any consideration. Both registrations belong to the same legal entity and the Ahmedabad branch was eligible to claim full input tax credit on the machinery. The machinery was transferred through a tax invoice. (ii) On 20 July 2026, AISL supplied equipment to an unrelated registered customer for a negotiated price of ₹12,00,000. The invoice separately showed packing charges of ₹24,000 and freight of ₹36,000, both charged by AISL. A municipal levy of ₹15,000, payable by AISL in relation to the supply, was paid directly by the customer to the municipal authority. AISL also received a price-linked subsidy of ₹50,000 from a private industrial development foundation and another price-linked subsidy of ₹75,000 from the State Government. The latter subsidy related exclusively to this equipment. An invoice discount of 2% was granted on the equipment price itself. (iii) On 12 September 2026, AISL offered its distributor an additional discount of ₹80,000 through a financial credit note for achieving annual sales targets. No agreement providing for this discount existed at the time of the original supply. The distributor had already availed the input tax credit relating to the original invoice. AISL did not reduce its original output tax liability. (iv) In October 2026, AISL engaged an electronic commerce operator (ECO) to arrange local delivery of equipment within Maharashtra. The delivery service provider was an independent supplier whose aggregate turnover had exceeded the applicable registration threshold under section 22(1). The delivery service was supplied through the ECO, which collected the payment from AISL. (v) In December 2026, AISL booked passenger transportation services through an ECO from an independent company operating an omnibus. The omnibus had a seating capacity of 30 passengers and was used for transporting AISL's employees to its factory. The operator was a company and charged AISL separately for the transportation service. The company seeks advice on the GST implications of these transactions, particularly the circumstances in which consideration is relevant, the person liable to pay tax and the determination of taxable value.

Examine the GST implications of the machinery transfer from the Pune unit to the Ahmedabad branch. Which of the following statements is correct?

1. The transfer is not a supply because no consideration is charged and both branches belong to the same legal entity.
2. The transfer is a supply under Schedule I because separately registered establishments of the same person are distinct persons, but the invoice value is deemed to be the open market value since the Ahmedabad branch is eligible for full input tax credit. (correct answer)
3. The transfer is a supply only if the machinery is transferred permanently, and its value must necessarily be determined under Rule 30.
4. The transfer is not a supply under Schedule I because the branches have the same PAN, although registration is obtained separately in each State.

Answer: B — The transfer is a supply under Schedule I because separately registered establishments of the same person are distinct persons, but the invoice value is deemed to be the open market value since the Ahmedabad branch is eligible for full input tax credit.

Working. Pune registration and Ahmedabad registration are distinct persons under section 25(4). Transfer in course of business is covered by Schedule I paragraph 2. Consideration is unnecessary. Since full ITC is available to the recipient, invoice value is deemed to be open market value under Rule 28.

Explanation. Under paragraph 2 of Schedule I read with section 25(4), establishments of the same person having separate registrations are distinct persons. Supplies between distinct persons in the course or furtherance of business constitute supplies even without consideration. Rule 28 provides the valuation mechanism. Its proviso deems the invoice value to be the open market value where the recipient is eligible for full input tax credit. Option d is tempting because both registrations share one PAN, but separate GST registrations establish distinct-person status.

Where it goes wrong. Confusing a single legal entity and common PAN with the concept of distinct persons; overlooking the full ITC proviso to Rule 28.

Authority. CGST Act section 7(1)(c); Schedule I paragraph 2; CGST Act section 25(4); CGST Rules Rule 28

Question 2 · 2 marks · Chapter 7 - Value of Supply · hard

Determine the value of supply of equipment made by AISL on 20 July 2026, assuming all amounts are exclusive of GST and the 2% invoice discount applies only to the equipment price of ₹12,00,000.

1. ₹12,34,000, because packing, freight, municipal levy and both subsidies are includible in the value of supply, while the trade discount shown on the invoice is deductible under section 15(3)(a).
2. ₹12,99,000, because packing, freight, municipal levy and the private foundation subsidy are includible, but the State Government subsidy is excluded and the invoice discount is deductible. (correct answer)
3. ₹12,49,000, because the municipal levy is excluded when paid directly by the recipient, although both subsidies are includible.
4. ₹12,24,000, because only the equipment price after discount and the incidental packing and freight charges are includible.

Answer: B — ₹12,99,000, because packing, freight, municipal levy and the private foundation subsidy are includible, but the State Government subsidy is excluded and the invoice discount is deductible.

Working. Equipment price ₹12,00,000 less 2% discount ₹24,000 = ₹11,76,000. Add packing ₹24,000, freight ₹36,000, municipal levy ₹15,000 and private subsidy ₹50,000. Exclude State Government subsidy ₹75,000. Total = ₹13,01,000. The options require correction before this question can be used.

Explanation. The discounted equipment price is ₹11,76,000. Packing of ₹24,000 and freight of ₹36,000 are incidental expenses. The municipal levy of ₹15,000 is includible even though the customer pays it directly because AISL was liable to pay it. The private subsidy of ₹50,000 is includible as it is directly linked to price, whereas the State Government subsidy of ₹75,000 is excluded. Thus, value is ₹11,76,000 + ₹24,000 + ₹36,000 + ₹15,000 + ₹50,000 = ₹13,01,000. The correct figure is therefore ₹13,01,000, which is not represented by any option.

Where it goes wrong. Distinguishing a Government subsidy from a non-Government price-linked subsidy and identifying taxes payable by the supplier but paid by the recipient.

Authority. CGST Act section 15(1); CGST Act section 15(3)(a); CGST Act section 15(2)(a); CGST Act section 15(2)(c); CGST Act section 15(2)(e)

Question 3 · 2 marks · Chapter 7 - Value of Supply · hard

Examine the GST treatment of the additional discount of ₹80,000 granted to the distributor through a financial credit note in September 2026. Which statement is correct?

1. AISL may reduce its original taxable value and output tax liability because the financial credit note has been issued before the end of the financial year.
2. AISL may reduce its original taxable value if the distributor reverses the corresponding input tax credit, even though no prior agreement existed.
3. AISL cannot reduce its original taxable value or output tax liability because the discount was not established by an agreement at or before the time of supply, although it may issue a financial or commercial credit note. (correct answer)
4. AISL must reduce its output tax liability because every financial credit note issued after supply is treated as a statutory credit note under section 34.

Answer: C — AISL cannot reduce its original taxable value or output tax liability because the discount was not established by an agreement at or before the time of supply, although it may issue a financial or commercial credit note.

Working. Check the three cumulative requirements under section 15(3)(b): prior agreement, specific linkage to invoices and reversal of attributable ITC. The first condition fails. Financial credit note is permissible, but the original taxable value remains unchanged.

Explanation. Section 15(3)(b) permits deduction of a post-supply discount only where the discount is established in terms of an agreement entered into at or before the time of supply, specifically linked to relevant invoices, and the recipient reverses attributable ITC. Here, no prior agreement existed. Consequently, the statutory conditions are not satisfied. A financial credit note may nevertheless be issued, but it does not reduce the original taxable value or output tax liability. Option b is tempting because reversal of ITC is one condition, but it cannot replace the missing prior agreement.

Where it goes wrong. Treating reversal of recipient ITC as sufficient by itself to satisfy the conditions for post-supply discount deduction.

Authority. CGST Act section 15(3)(b); CGST Act section 34(1); Circular No. 92/11/2019-GST; Circular No. 251/08/2025-GST dated 12.09.2025

Question 4 · 2 marks · Chapter 3 - Charge of GST · hard

Determine who is liable to pay GST on the local delivery service arranged through the ECO in October 2026.

1. The independent delivery service provider is liable because the notified section 9(5) category excludes suppliers who are liable for registration under section 22(1). (correct answer)
2. The ECO is liable because local delivery services supplied through an ECO are always covered under section 9(5) of the CGST Act, irrespective of the supplier's registration status.
3. AISL is liable under reverse charge because the ECO collected the consideration on behalf of the delivery service provider.
4. Neither the ECO nor the independent service provider is liable because local delivery services arranged through an ECO are exempt from GST.

Answer: A — The independent delivery service provider is liable because the notified section 9(5) category excludes suppliers who are liable for registration under section 22(1).

Working. Local delivery is a notified section 9(5) service effective 22.09.2025. However, the notification excludes a supplier liable for registration under section 22(1). Hence, the delivery service provider, rather than the ECO, pays GST.

Explanation. The statutory update effective from 22 September 2025 includes local delivery services supplied through an ECO within the notified section 9(5) categories, except where the person supplying such services through the ECO is liable for registration under section 22(1). The facts expressly establish that the delivery provider has crossed the applicable registration threshold. Therefore, the exclusion applies and the supplier itself pays GST. Option b overlooks the express registration-related exception.

Where it goes wrong. Applying the general ECO tax-payment mechanism without considering the specific exception for suppliers liable under section 22(1).

Authority. CGST Act section 9(5); Notification No. 17/2017 CT(R) dated 28.06.2017, as amended; Notification No. 17/2025 CT(R) dated 17.09.2025; Statutory Update for September 2026, Chapter 3, pages 2-3

Question 5 · 2 marks · Chapter 3 - Charge of GST · medium

Determine the person liable to pay GST on the omnibus passenger transportation service booked by AISL through the ECO in December 2026.

1. The company operating the omnibus is liable because the section 9(5) notification excludes services supplied through an ECO by a company. (correct answer)
2. The ECO is liable under section 9(5), because every omnibus passenger transportation service supplied through an ECO is covered under the notified category.
3. AISL is liable under reverse charge because the transportation service is used for its employees.
4. The service is exempt because passenger transportation by an omnibus having seating capacity exceeding 12 passengers is outside the scope of GST.

Answer: A — The company operating the omnibus is liable because the section 9(5) notification excludes services supplied through an ECO by a company.

Working. Identify the supplier as a company. The amended section 9(5) notification excludes omnibus transportation supplied by a company from ECO liability. The company operating the omnibus pays GST.

Explanation. The amended notification includes passenger transportation by an omnibus supplied through an ECO, except where the person supplying the service is a company. The statutory update expressly clarifies that tax on omnibus transportation supplied through an ECO by a company is payable by that company itself and not by the ECO. The operator in this case is a company. Option b incorrectly treats all omnibus operators alike and ignores the company-specific exception.

Where it goes wrong. Confusing the general inclusion of omnibus passenger transportation with the specific exception applicable to company operators.

Authority. CGST Act section 9(5); Notification No. 17/2017 CT(R) dated 28.06.2017, as amended; Notification No. 17/2025 CT(R) dated 17.09.2025; Statutory Update for September 2026, Chapter 3, page 3

Question 6 · 2 marks · Chapter 3 - Charge of GST · medium

Which statement correctly describes the effect of the statutory update on the two ECO transactions undertaken by AISL?

1. Both transactions are taxable under section 9(5), and the ECO is liable in both cases because it collects the consideration.
2. The local delivery service is exempt from GST, whereas the omnibus transportation service is taxable under reverse charge in the hands of AISL.
3. AISL is not required to reverse any ITC because the recipient is registered under GST and will discharge the tax liability under the reverse charge mechanism of section 9(3).
4. The local delivery service is outside ECO liability because the delivery supplier is liable under section 22(1), whereas the omnibus transportation service supplied by a company is also outside ECO liability. (correct answer)

Answer: D — The local delivery service is outside ECO liability because the delivery supplier is liable under section 22(1), whereas the omnibus transportation service supplied by a company is also outside ECO liability.

Working. Local delivery: supplier liable under section 22(1), hence excluded from ECO payment mechanism. Omnibus service: supplier is a company, hence excluded from ECO payment mechanism. In both cases, exclusion of ECO liability does not automatically mean exemption from GST.

Explanation. The September 2026 statutory update introduces two relevant exclusions in the notified ECO categories. Local delivery is excluded from ECO liability where the supplier is liable for registration under section 22(1). Omnibus passenger transportation supplied through an ECO by a company is likewise excluded from ECO liability, with the company operator itself responsible for tax. Option c incorrectly equates the supplier's registration status with ECO liability and disregards the company exception.

Where it goes wrong. Applying two separate exceptions as though they had the same qualifying condition or assuming that exclusion from ECO liability means exemption from GST.

Authority. CGST Act section 9(5); Notification No. 17/2025 CT(R) dated 17.09.2025; Statutory Update for September 2026, Chapter 3, pages 2-3

Question 7 · 2 marks · Chapter 9 - Registration · hard

Scenario. Meera, a registered supplier of taxable consulting services in Maharashtra, has an aggregate turnover of ₹18.60 lakh during FY 2025-26. During FY 2026-27, she additionally makes taxable consulting services of ₹2.10 lakh to an unregistered recipient in Gujarat. All her supplies are made from Maharashtra, and she has no other place of business. She has not made any inter-State supply of goods, does not undertake any activity requiring compulsory registration independently of section 22 and has not opted for voluntary registration. She contends that making an inter-State taxable supply automatically requires registration irrespective of the turnover threshold. Her accountant argues that a specific relaxation applies to inter-State taxable supplies of services.

Examine whether Meera is required to obtain GST registration in Maharashtra on account of the inter-State taxable consulting service supplied to the recipient in Gujarat.

1. Yes, because every inter-State taxable supply of services automatically attracts compulsory registration under section 24 of the CGST Act, irrespective of aggregate turnover in the financial year.
2. Yes, because her aggregate turnover exceeds ₹20 lakh after including the inter-State taxable service.
3. No, because a person making inter-State taxable supplies of services is entitled to the applicable threshold exemption of ₹20 lakh, and her aggregate turnover does not exceed that limit. (correct answer)
4. No, because inter-State supplies of consulting services are not treated as taxable supplies under the IGST Act.

Answer: C — No, because a person making inter-State taxable supplies of services is entitled to the applicable threshold exemption of ₹20 lakh, and her aggregate turnover does not exceed that limit.

Working. FY 2026-27 aggregate turnover = ₹2.10 lakh. Applicable threshold under Notification No. 10/2017-IT = ₹20 lakh. Since turnover does not exceed ₹20 lakh, registration is not required.

Explanation. Under Notification No. 10/2017-IT, persons making inter-State taxable supplies of services are exempt from compulsory registration under section 24 if their aggregate turnover in a financial year does not exceed the applicable threshold limit under section 22(1) (₹20 lakh for Maharashtra). Meera's aggregate turnover during FY 2026-27 is ₹2.10 lakh, which is well within the ₹20 lakh limit. Her FY 2025-26 turnover of ₹18.60 lakh is not aggregated with FY 2026-27. Option a is wrong because the exemption applies below the threshold.

Where it goes wrong. Assuming that the inter-State service threshold exemption applies without first computing aggregate turnover for the relevant financial year.

Authority. CGST Act section 22(1); CGST Act section 24(i); Notification No. 10/2017 Integrated Tax dated 13.10.2017

Question 8 · 1 marks · Chapter 15 - Returns · medium

Scenario. Vardhan Traders, a registered regular taxpayer, has an aggregate turnover of ₹1.92 crore during FY 2025-26. It has furnished all applicable monthly and quarterly statements and returns and has no pending cancellation proceedings. The proprietor is preparing the annual compliance calendar for FY 2025-26. He believes that every registered person must furnish an annual return irrespective of turnover, since the annual return requirement under section 44 applies generally to registered persons. His accountant draws attention to the exemption notified for specified registered persons from FY 2024-25 onwards.

Is Vardhan Traders required to furnish an annual return in Form GSTR-9 for FY 2025-26?

1. Yes, because every registered regular taxpayer must furnish an annual return irrespective of aggregate turnover.
2. ₹10,000, because the statutory minimum penalty under section 122(1) applies automatically whenever mandatory e-invoicing provisions are not complied with by a notified registered supplier.
3. No, because every registered taxpayer with aggregate turnover below ₹5 crore is automatically exempt from all annual return requirements.
4. No, because registered persons having aggregate turnover up to ₹2 crore in the relevant financial year are exempted from furnishing the annual return under section 44. (correct answer)

Answer: D — No, because registered persons having aggregate turnover up to ₹2 crore in the relevant financial year are exempted from furnishing the annual return under section 44.

Working. Aggregate turnover = ₹1.92 crore. Notified exemption threshold = up to ₹2 crore. Since ₹1.92 crore does not exceed ₹2 crore, Form GSTR-9 is not required for FY 2025-26.

Explanation. Section 44(1) empowers the Commissioner, on the recommendations of the GST Council, to exempt specified classes of registered persons from filing annual returns. Notification 15/2025-CT provides exemption to registered persons whose aggregate turnover in a financial year is up to ₹2 crore, from furnishing the annual return for that financial year, applicable from FY 2024-25 onwards. Vardhan Traders has turnover of ₹1.92 crore and therefore qualifies.

Where it goes wrong. Assuming that the general statutory annual return requirement overrides a specific exemption notified under section 44(1).

Authority. CGST Act section 44(1); Notification 15/2025-CT; Statutory Update for September 2026, Chapter 15, page 20