Question

A manufacturer in Gujarat manufactures a machine and marks it at ₹5000. He sells the machine to a wholesaler in Jharkhand at a discount of 20%. The wholesaler sells the machine to a dealer in West Bengal at a discount of 10% on the MP. If the rate of GST is 28%, find the net tax liability of the wholesaler to the Central Government.

• A. ₹150
• B. ₹280
• C. ₹140
• D. ₹70

Answer 1

The correct option is C ₹140

At each stage of sale of the machine , there is an Inter-state transaction. So, the rate of GST on each transaction of machine is 28%.
For the Manufacturer :
MP = ₹5000 and discount = 20% of ₹5000.
Discount = $\frac{20}{100}\times 5000$ = ₹1000
$\therefore$ SP = MP - Discount
= ₹5000 - ₹1000 = ₹4000

For the Wholesaler :
CP = ₹4000
Discount = 10% of MP
Discount = 10% of ₹5000 = $\frac{10}{100}\times 5000$ = ₹500
SP = MP - Discount = ₹5000 - ₹500 = ₹4500

$\therefore$ Net Tax Liability of the wholesaler to the Central Government = Output Tax - Input tax credit
= Tax on SP - Tax on CP
= 28% of ₹4500 - 28% of ₹4000
= 28% of ₹500
= $\frac{28}{100}\times 500$ = ₹140