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CMA Intermediate · Direct and Indirect Taxation · Concept of Indirect Taxes

A manufacturer sells goods for Rs 1,00,000 (excluding tax) under a regime where tax is levied on the value of each sale, with credit allowed for tax paid on inputs. Tax rate is 18%. Input tax paid on purchases was Rs 12,000. Compare with a cascading tax of 18% on the sale value with no credit. How much more tax does the cascading system collect at this stage than the credit-based system?

The cascading system collects Rs 12,000 more. Under the credit-based system, tax payable is 18,000 output tax minus 12,000 input tax, which is Rs 6,000. Under cascading, the full Rs 18,000 is payable, so the difference equals the denied input tax credit.

  1. ARs 12,000Correct
  2. BRs 18,000
  3. CRs 6,000
  4. DRs 30,000

Explanation

Credit-based system: output tax 18,000 less input tax 12,000 = Rs 6,000 payable. Cascading: Rs 18,000 with no credit. Difference = 18,000 - 6,000 = Rs 12,000, which is exactly the input tax not set off. Option B is the cascading tax itself, not the difference.

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