Tax Law MCQs for CLAT PG

Correct answer: D. To ensure trusts actually deploy income for charitable purposes - if unlimited accumulation were permitted, trusts could receive large donations and let corpus grow indefinitely without spending on charity; the limit ensures at least 85% is applied to charitable purposes annually

The passage states not more than 15 percent of income may be accumulated per year without specific approval. The limit ensures genuine charitable deployment: at least 85% of annual income must be applied to charitable purposes. Without a cap, a trust could operate as an investment vehicle indefinitely while claiming charitable status through nominal spending.

Source note: 15% Accumulation Limit

Correct answer: B. Courts had held that skill games are legitimate commercial activity protected under Article 19(1)(g) right to carry on trade; chance games can be completely prohibited as they lack that protection; applying identical 28% treatment conflates constitutionally distinct categories

Article 19(1)(g) protects the right to carry on any trade or business, which courts have extended to skill games (rummy, poker). Gambling (pure chance) has no such protection and can be prohibited. Applying 28% GST on full face value to both skill and chance games treats constitutionally distinct activities identically, which formed the basis of constitutional challenge.

Source note: 28% GST on Online Gaming: Challenge

Correct answer: D. Igst - because this is inter-state supply (supplier and place of supply in different states); igst is levied by Parliament exclusively.

The passage states IGST applies to inter-state supplies and that revenue from inter-state IGST is allocated to the destination state. This implements the destination-based taxation principle: revenue follows consumption to Tamil Nadu where the goods are consumed, rather than staying with Karnataka where production occurred.

Source note: Destination-Based Taxation: IGST

Correct answer: A. States that had been receiving compensation for revenue growth shortfalls below the 14% baseline suddenly lost this fiscal support; States with below-average GST revenue growth could no longer count on compensation to bridge budget gaps

The passage explains the mechanism guaranteed compensation for revenue shortfall below a 14 percent annual growth baseline. States with weaker economic growth or lower GST base had relied on this compensation. Its expiry removed the safety net, particularly affecting manufacturing-intensive states that had earlier collected CST and had limited services GST base.

Source note: GST Compensation: Expiry Impact

Correct answer: C. Yes - Union (1/3) + 18 states = (18/28) x (2/3) = 36/84 = 3/7; total = 1/3 + 3/7 = 7/21 + 9/21 = 16/21 = 76.2%, exceeding the 75% (3/4) threshold

The weighted voting calculation: Union = 1/3 of total votes; each State's weight = (2/3)/28. 18 states: 18 x (2/3)/28 = 36/84 = 3/7. Union + 18 states: 1/3 + 3/7 = 7/21 + 9/21 = 16/21 approximately 76.2%, which exceeds 75%. The decision passes.

Source note: GST Council Voting: 3/4 Threshold

Correct answer: A. Only the Rs 15 lakhs bank interest - the passage states Parliament's power under Entry 82, List I is for income other than agricultural income; sugarcane income is agricultural income exempt from Union income tax

The passage explicitly limits Parliament's Income Tax power to 'income other than agricultural income' under Entry 82, List I. Agricultural income from sugarcane cultivation is exempt from Union income tax (States may tax it under Entry 46, List II). Bank interest is not agricultural income and is chargeable to Union income tax.

Source note: Agricultural Income Exemption

Correct answer: C. It creates a sui generis head outside the three Lists, granting Parliament and State Legislatures simultaneous (not merely concurrent) power over intra-state GST; for inter-state igst, Parliament alone has exclusive power

Article 246A is not in the Seventh Schedule Lists. The passage calls it granting simultaneous power - distinct from List III concurrence where Article 254 applies. For inter-state GST, Parliament has exclusive power. This cooperative architecture, combined with the GST Council under Article 279A, is the constitutional innovation enabling a unified indirect tax system.

Source note: Article 246A and GST

Correct answer: C. A valid statute enacted by the competent legislature authorising the levy; and the collection itself must be authorised by law - an executive notification going beyond the statute cannot create tax liability

Article 265 embodies two distinct requirements per the passage: (1) valid statute authorising levy; (2) collection also authorised by law. Executive notifications and circulars exceeding statutory authority cannot impose tax. This is the bedrock of rule of law in taxation, applied extensively by the Supreme Court to strike down ultra vires tax demands.

Source note: Constitutional Basis: Article 265

Correct answer: D. Anti-dumping targets private commercial behaviour (foreign company's below-normal-value pricing); countervailing duty targets government behaviour (foreign government subsidising its exporters to give them artificial price advantage) - same outcome (lower import prices) but different source

The passage describes both: anti-dumping duty targets private export pricing below normal value (Section 9A); countervailing duty targets government subsidies to foreign exporters (Section 9). Both result in artificially low import prices, but the legal basis and investigation differ because one addresses private commercial decisions and the other addresses government fiscal intervention.

Source note: Anti-Dumping vs Countervailing Duty

Correct answer: C. Safeguard duty under Section 8B - the passage states safeguard duty addresses import surges causing serious injury regardless of whether imports are dumped or subsidised; it does not require proof of unfair trade practices, only a surge in imports and serious injury

The passage distinguishes safeguard from anti-dumping: safeguard requires only a surge in imports and serious injury; it does not require proof of dumping or subsidies. Anti-dumping requires proof of below-normal-value pricing. For fairly priced but surging imports, safeguard duty under Section 8B is the appropriate WTO-compliant remedy.

Source note: Anti-Dumping vs Safeguard Duty

Correct answer: A. Dumping must be established (export price below normal value in exporting country); and material injury or threat of material injury to the domestic Indian industry must be demonstrated - both conditions are mandatory

The passage specifies both conditions: dumping (export price below normal value) and material injury to domestic industry. Both are mandatory - dumped imports causing no injury do not justify anti-dumping duty; injured domestic industry caused by fairly priced imports requires a different remedy (safeguard duty).

Source note: Anti-Dumping: Two Conditions

Correct answer: B. When transaction value cannot be used - typically in related-party transactions where the relationship may have influenced the declared price, making it unreliable as an arm's length measure; the Customs Valuation Rules prescribe sequential fallback methods

The passage states transaction value is the primary basis with fallback methods when it cannot be used. Related-party transactions are the most common trigger - when buyer and seller are related (parent-subsidiary or controlled entities), the declared price may not reflect arm's length dealing, requiring use of fallback methods such as transaction value of identical goods, similar goods, deductive value, or computed value.

Source note: Customs Valuation: Fallback Methods

Correct answer: A. An internationally standardised classification provides predictability - the same product receives the same classification in different countries, enabling importers to determine duty liability in advance; it also forms the basis for WTO tariff binding commitments to be precisely defined and prevents arbitrary reclassification to impose higher duties

The HSN is used by over 200 countries through the World Customs Organisation. At the 6-digit level it is globally standardised. This predictability allows exporters to anticipate duty in the destination country, makes trade agreements legally precise, and prevents arbitrary reclassification by customs authorities. WTO bound tariff rates are expressed at specific HS headings.

Source note: HSN: Purpose of Standardised Classification

Correct answer: D. Several High Courts had allowed itc on construction of buildings for rent (since renting is a taxable supply), but the Supreme Court reversed this and confirmed an absolute block under Section 17(5)(d) regardless of downstream taxable use - denying itc on construction costs even for commercially rented buildings

The passage states the 2024 ruling reversed several High Court decisions. High Courts had reasoned that if renting is taxable, ITC on construction should be available. The Supreme Court read Section 17(5)(d) literally as blocking all construction ITC on own account, irrespective of whether the building is subsequently used for making taxable supplies.

Source note: Blocked Credit on Rental Building

Correct answer: A. The system was fragmented with multiple levies causing cascading taxation (tax on tax); GST replaced this with seamless itc eliminating the cascading effect through a unified credit chain

The passage states GST replaced a fragmented system and operates on the principle of seamless input tax credit. Cascading taxation occurs when tax is levied on value that already includes tax from earlier stages. ITC eliminates this by allowing each stage to credit the tax paid on inputs against output tax.

Source note: GST: Purpose and Cascading

Correct answer: A. Each registered business in the supply chain offsets GST paid on purchases against GST charged on sales, paying only the net; only the final consumer has no output supply to offset and therefore bears the full accumulated GST

The passage explains: each registered business offsets GST paid on purchases against GST charged on sales, paying only the net difference. This credit chain means tax embedded in costs is recovered at each stage until it reaches the final consumer who has no onward taxable supply to offset it against.

Source note: ITC Chain and Final Consumer Burden

Correct answer: B. No - one condition for itc is that the tax charged must have been actually paid to the government by the supplier; if the supplier defaults, the buyer's itc claim fails

Section 16(2)(c) of the CGST Act requires the tax to have been actually paid to the government by the supplier. This prevents double revenue loss (supplier keeps collected tax AND buyer claims credit). ITC is matched through GSTR-2B auto-populated from suppliers' filed GSTR-1 to enforce this condition.

Source note: ITC Condition: Supplier Must Pay Tax

Correct answer: B. Letting out is itself the very business; property was acquired for letting.

The passage directly states the Chennai Properties test: 'when letting out premises is itself the very business of the assessee - the property was acquired for letting, and the entire income flows from such letting.' The test distinguishes active business conduct (letting as the commercial activity) from passive owner-exploitation of a capital asset.

Source note: Chennai Properties Test

Correct answer: A. Business income - services beyond mere letting (security, maintenance, marketing for mall tenants) indicate active commercial conduct rather than passive property ownership; this is a Raj Dadarkar indicator of business income

The passage under Raj Dadarkar identifies 'services provided beyond mere use of premises' as a key business income indicator. Providing security, marketing, and customer support transforms the landlord from a passive rent collector into an active business operator managing a commercial destination.

Source note: Mall Operator: Business or Property Income

Correct answer: D. Yes - civil penalty is compensatory (recovery plus financial deterrence); criminal prosecution is punitive (imprisonment for wilful evasion).

The passage states civil penalty and criminal prosecution for the same act are not mutually exclusive. Article 20(2) of the Constitution prevents successive criminal prosecutions for the same offence but does not bar simultaneous civil and criminal proceedings - they serve different purposes and are separate legal actions.

Source note: Civil Penalty and Criminal Prosecution: Concurrent

Correct answer: B. By randomly allocating cases nationally and conducting all communication digitally, it eliminates personal relationships between assessees and specific officers, prevents selective harassment, and creates a complete verifiable audit trail - no off-record dealings are possible

The passage states the scheme has eliminated face-to-face interactions, promoting transparency. Random national allocation means neither assessee nor advisor knows which officer handles the case, eliminating the corrupt personal relationship that could previously develop. All communications are on the digital record, preventing off-record arrangements.

Source note: Faceless Assessment: Anti-Corruption Objective

Correct answer: A. No - itat is the final fact-finding authority per the passage; Section 260A limits the High Court to substantial questions of law.

The passage states ITAT is the final fact-finding authority and that the High Court has jurisdiction only on substantial questions of law under Section 260A. A factual determination that an expense was not incurred is within ITAT's exclusive domain; the High Court cannot retry this question on a Section 260A appeal.

Source note: ITAT as Final Fact-Finder