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CA Intermediate · Taxation · Accounts and Records

Ravi Enterprises, a registered person, is subject to audit by the tax authorities. During a stock-taking on its premises, the proper officer finds that its stock register shows 500 units of an item while physical stock is 560 units. Under the CGST Act, which of the following is the correct consequence about the excess 60 units?

The 60 excess units are goods not accounted for in the books, so the proper officer can determine tax liability on them with applicable interest and penalty. The excess does not give an exemption, and it does not by itself cancel registration, so the second option is right.

  1. ANo consequence, since extra stock is not taxable
  2. BThe excess stock may be treated as goods not accounted for, and tax liability can be determined with applicable consequencesCorrect
  3. CThe registration is automatically cancelled
  4. DThe 60 units are automatically exempted from tax

Explanation

Goods found in excess of those recorded in the books are treated as not accounted for, and the officer may determine tax on them under the demand provisions, with applicable interest and penalty. Excess stock does not give exemption or automatic cancellation. So option two is correct.

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