Decoding the concept of supply Hands-on-project Quiz Answers

Decoding the concept of supply: Hands-on-project Quiz Answers

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Decoding the concept of supply: Hands-on-project Quiz Answers

Mr X has set up a business for manufacture and sale of specialised equipment required for the infrastructure sector. The equipment is expected to be sold in India as well as other countries in Southeast Asia.

To manufacture such equipment, Mr X has set up a factory in Ludhiana.

  • – He had purchased land for the factory from Mrs Y.
  • – He purchased capital equipment from Mr C, Mr D and Mr E.
  • – Mr C has a factory in Ludhiana itself and sells the capital equipment directly from such factory.
  • – Mr D has a depot in Taloja, Maharashtra, and dispatches the equipment from such depot.
  • – Mr E has a factory in Italy and ships the equipment from his factory. As an importer, Mr X clears the equipment from Customs.
  • – Mr X’s friend, Mr A, had designed the factory; Mr A is an architect and lives in the UK. Mr A had rendered the design services for free.
  • – XYZ Constructions Private Limited had undertaken the construction of the factory. The contract requires XYZ Constructions Private Limited to supply all goods required for the construction. XYZ Constructions Private Limited charged a lumpsum fee for the construction.

Mr X also set up a warehouse in Chennai, given its proximity to his customers in Southeast Asia. For said warehouse,

  • – Mr X contracted with Mrs D to obtain the land on a 50-year lease and
  • – constructed a shed on the land by contracting the construction to XYZ Constructions Private Limited.

Mr X entered into a contract with ILY Limited for supply of 25 units of specialised equipment (as manufactured by him). Of these,

  • – 5 units are to be delivered in Ludhiana immediately,
  • – 10 units are to be delivered to ILY Limited’s storage facility in Bengaluru within one month and
  • – 10 units are to be kept by Mr X in his warehouse in Chennai. As and when required, ILY Limited will first inspect the equipment and then issue a purchase order.

Mr X has entered into a second contract with ILY Limited for annual maintenance of the 25 units of equipment. Such maintenance incurs a fixed monthly fee and includes both servicing and replacement of parts.

Mr X entered into another contract with Oceanic Limited for supply of 15 units of specialised equipment to Jakarta, Indonesia. In addition, Mr X is required to supply certain parts of said equipment. Mr X has purchased the parts from Mr. L, who is based in the USA. The goods are shipped directly from the USA to Indonesia

Question 1)
Whether M. X’s purchase of land from Mrs Y for the purpose of setting up a factory in Ludhiana will attract GST?

  • Yes
  • No

Question 2)
Whether sale of capital equipment by Mr C to Mr X is an inter-state or intra-state sale?

  • Inter-state
  • Intra-state

Question 3)
Consider the case wherein Mr X’s sister, who lives in the UK, had designed the factory free of charge. Whether Mr X has to pay GST on the design of the factory? In other words, will these design services provided free of charge qualify as a ‘supply’?

  • The design services will not qualify as a ‘supply’ since they were provided free of charge.
  • The design services will qualify as a ‘supply’ irrespective of whether they were provided in the course or furtherance of business.
  • The design services will qualify as a ‘supply’ since they were provided between related persons and, therefore, are covered under Schedule I of the CGST Act.

Question 4)
Whether the construction of the factory that XYZ Constructions Private Limited had undertaken qualifies as a supply of goods or supply of services?

  • The sale of goods required for construction will be taxed as a supply of goods, and the services will be taxed as a supply of services.
  • The construction will be treated as a supply of services since it is undertaken under a composite works contract.
  • The construction will be treated as a supply of goods, since the contract is a composite contract and the principal supply is the supply of goods.

Question 5)
Whether the annual maintenance contract for 25 units of equipment is a supply of goods or supply of services?

  • The sale of goods required for maintenance will be taxed as a supply of goods, and the services will be taxed as a supply of services.
  • The annual maintenance will be treated as a supply of services since it is a composite supply and covered under Schedule II to the CGST Act.
  • The annual maintenance will be treated as a supply of services since it is a composite supply, and the predominant supply is the provision of services of maintenance.

Question 6)
Whether sale of 10 units of equipment by Mr X to ILY Limited from the warehouse in Chennai is an inter-state or intra-state sale?

  • Inter-state
  • Intra-state

Question 7)
Whether Mr X has to pay GST on the design of the factory by his friend, who is in the UK? In other words, whether the rendering of design services free of charge will qualify as a ‘supply’?

  • The design services will not qualify as a ‘supply’ since they were provided free of charge
  • The design services will qualify as a ‘supply’ irrespective of whether they were provided in the
  • course or furtherance of business.

Question 8)
Whether the sale of parts by Mr X to Oceanic Limited will be subject to GST?

  • Yes, the sale of parts by Mr X to Oceanic Limited will attract IGST since it is not an intra-state sale.
  • No, the sale of parts by Mr X to Oceanic Limited will qualify as export.
  • No, the sale of parts by Mr X to Oceanic Limited- is covered under Schedule III of the CGST Act and therefore will not be subject to GST.

Question 9)
Whether Mr X’s leasing of land from Mrs D will qualify as a sale of land?

  • Yes. Lease of land for a period of 50 years shall qualify as a sale of land since a lease of 50 years is almost the same as a permanent sale.
  • No. Lease of land is covered under Schedule II of the CGST Act and is specifically treated as a supply of service.

Question 10)
Whether sale of capital equipment by Mr D to Mr X is an inter-state or intra-state sale?

  • Inter-state
  • Intra-state

 

 

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