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MCQ Self Challenge # 0076 on Valuation of Supply under GST in case of Related Parties

Valuation of Supply under GST in case of Related Parties

 

Dear Professional Seniors & Friends,
Warm Greeting!

Here is the Next post of #MCQ on concept based practical professional knowledge on Valuation of Supply under GST in case of related parties in a unique manner to be self answered by participants. The detailed answer of these MCQs shall be posted next day for the self assessment of the participants.

MCQ 76.1: M/s MM Fabricators and M/s SS Fabricators are owned by Mr. Jagabir. A factory contracts M/s MM Fabricators for fabrication of its machinery for a Fee of Rs 5,00,000. M/s MM Fabricators subcontracts the work to M/s SS Fabricators for Rs 4,00,000. Generally, M/s SS Fabricators charges a fixed sum of Rs 1200 per man hour to its clients. What will be the value of supply?

A) Rs 5,00,000
B) Rs 4,00,000
C) Rs 1200 Per man hour
D) None of the above.

MCQ 76.2: Mr X located in Jaipur purchases 2000 drawing Boxes for Rs 2,00,000 from M/s Stationers Ltd(Wholesalers) in Delhi . Mr X son is an employee in M/s Stationers Ltd. The price of Each Drawing Box in Open Market is Rs 120. The Supplier additionally Charges Rs 5000 for Delivering Goods. What is value of Taxable Supply

A. Rs 200000
B. Rs 205000
C. Rs 245000
D. Rs 2,40,000

Sincere Regards

CA Sanjay Kumar Agrawal
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Answer MCQ Self Challenge # 0076

 

Dear Professional Seniors & Friends,

Warm Greetings!

 

This post of #MCQ is on provisions relating to valuation of Supply under GST in case of related parties.

 

Answer to MCQ 76.1: C) Rs 1200 Per man hour

 

Answer to MCQ 76.2: B) Rs 205000

 

Practical Analysis for MCQ 76.1& 76.2:-

  • Explanation to Section 15 of CGST Act provides the meaning of related person for the purpose of valuation which are as follows-
  1. i) such persons are officers or directors of one another’s businesses;

(ii) such persons are legally recognised partners in business;

(iii) such persons are employer and employee;

(iv) any person directly or indirectly owns, controls or holds twenty-five

per cent. or more of the outstanding voting stock or shares of both of them;

(v) one of them directly or indirectly controls the other;

(vi) both of them are directly or indirectly controlled by a third person;

(vii) together they directly or indirectly control a third person; or

  • As per Section 15(4), valuation in case of related persons & distinct persons shall not be transaction value & same shall be derived as per Rule 28 which provides that the value shall be as follows ‘
  1. a) be the open market value of such supply;

(b) if the open market value is not available, be the value of supply of goods or services of like kind and quality;

(c) if the value is not determinable under clause (a) or (b), be the value as determined by the application of rule 30 or rule 31, in that order

  • Based on the above analysis, Correct answer to MCQ 76.1 : C) Rs 1200 Per man hour as the open market value.
  • Correct answer to MCQ 76.2 : B) Rs 205000(Transaction Value + Incidental Expenses) as Mr. X and M/s Stationers Ltd would not be treated as related persons merely because the son of the recipient is an employee of the supplier.

 

(Disclaimer: The objective of the MCQ post is just to discuss the concept, it may happen, by change of facts, the answer may be different. Please do not treat this as professional opinion; you can definitely have your own opinion.)

 

Sincere Regards!

 

CA Sanjay Kumar Agrawal

Mobile: 9810116321 WhatsApp: 8799772245

 

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