Hemanta Kumar Behera,
B.com, ACA, ACMA
Contents Covers :-
- Supply Chain Management
- Production & Distribution
- Legal, Finance and Accounting.
- Job work & ISD (Input Service Distributor)
- Structural Changes
Supply Chain Management
1. Stock transfers taxable supplies :-
- Branch and depo transfers will be treated as taxable supplies accordingly IGST will be chargeable on such transfers made from one state to other. It will result in increase in working capital requirements as though the tax paid by receiving unit/depo is allowed as input tax credit but there will be a time gap between the time of payment of tax and utilization of its credit on subsequent sale.
2. Savings in warehouse & depo management cost :-
- In order to save the CST burden which was not available as credit to buyer many companies have set warehouses & depos. But in GST scenario , business strategy can be redesigned and supply can be made directly to distributor rather than keeping in warehouse as the IGST charged on sale to distributor will be available as credit to him unlike that of CST.
- This redesigned strategy will on the on hand benefit the buyer as it will be entitled to claim input tax credit of IGST whereas on the other hand it will also benefit manufacturer as it can reduce its no. of depos and warehouses and can save costs of managing them i.e. rent , warehouse management expense, insurance , power and other incidental costs.
3. Indifference in choosing distribution area :-
- One beauty of GST will be that the rates, procedures and everything will be same across India which will make entire India a single unified market. As a result of which tax costs will no longer be a deciding factor in making distribution strategies.
4. Removal of Check Posts (No purchase /entry tax & Octroi ) :-
- There will be no entry tax , local body tax in GST scenario , therefore, check posts will no longer be required . With removal of check posts transportation system will become more efficient which will save cost and time to deliver goods. Further this will lead to lower transit time and thereby generate higher truck utilization. This will boost demand for high tonnage trucks and lead to overall reduction in transportation It will facilitate seamless inter-state flow of goods, which is expected to directly accelerate demand for logistic service.
5. Transfer of goods to agent to be treated as taxable supply :-
- Supply of goods by a principal to his agent where the agent undertakes to sale such goods on behalf of the principal shall be treated as taxable supplies even when the goods are supplied to agent without consideration.
- As to how the valuation shall be made for supplies without consideration rules are yet to be framed.
6. No Luxury Tax and Entertainment Tax:
- There will be no Luxury tax & entertainment tax in GST scenario , therefore the marketing expenses like (lodging & boarding expenses) will become low.
Production and Distribution
1. Removal of cascading effect of taxes :-
- In the current tax regime, VAT/CST is chargeable on value of goods including excise duty which created problem of cascading effect of taxation (i.e. tax on tax). However, in GST scenario only CGST/SGST or IGST will be applicable thereby eliminating cascading effect of taxes.
- Company by suitable changing its pricing policies can gain competitive advantage.
2. MRP based valuation no longer mandatory :-
- In GST the valuation of goods to be made at transaction value i.e. value arrived after adding suitable profit margin. Pricing policies to be changed accordingly.
- Further, such transaction value to include interest or late fee or penalty for delayed payment of any consideration for any supply. It means that liquidated damages /demurrage charges to form part of taxable value.
3. Value of free materials/services supplied by buyer not to form part of taxable value :-
- The value of goods or services supplied by buyer free of cost or at reduced prices will not form part of taxable value provided such value has not been included in the price actually paid or payable.
4. Free sample non-taxable supplies :-
- The definition of supply does not include supply of free sample as taxable supplies, so no need to pay tax or reverse input tax credit in respect of such free sample.
5. Credit of capital goods allowed in year of acquisition itself :-
- Input tax credit in respect of capital goods is allowed in the year of purchase itself and no therefore unlike the existing law no need to defer 50% credit to next year. This will to some extent contribute to meet working capital requirements.
6. Exclusion of discount from value of supply :-
- Discounts given to buyer before or at the time of the supply and indicated in the invoice shall be allowed as deduction from value of supply.
- Post-supply discounts if allowed in terms of agreement with vendor shall also be excluded from the value of supply provided the buyer has reversed the input tax credit attributable to such post supply discount.
7. Electricity Duty exempted form GST :-
- Power sector is exempted from GST , hence it also reduce the production cost.
Job Work & ISD ((Input Service Distributor)
- Goods sent to Job work :-
- Input goods sent to jobwork to be treated as taxable supplies if the same are not received back or otherwise disposed off by job worker within a period of 1 year of their being sent out to job worker.
- Similarly, capital goods sent to job worker shall be treated as taxable supplies if the same not received back within a period of 3 years from being sent to job worker.
- Distribution of credit through ISD (Input Service Distributor) :-
- ISD can distribute the credit of CGST, SGST and IGST as IGST to various units located in different states. To units located in same state the credit of SGST/ IGST can be distributed as SGST and credit of CGST /IGST as CGST.
- The credits can be distributed by ISD in respect of a common service procured by it for various units
- Credit to be distributed in the ratio of turnover of the various units getting benefitted from the common service.
Legal, Finance and Accounting
1. Increase in compliance volume & Professional Fees :-
- As India has adopted the dual GST model where both central and state govt. has concurrent jurisdiction to administer tax, the taxpayers would be required to obtain registration in every state in which they operate and file separate returns for the same.
- This will result in likely increase in compliance volume , however, due to uniformity of law across India things would not become complex atleast.
2.Input tax credit admissible on certain employee related expenses :-
- Unlike the existing law, in GST in respect of expenses which the employer is statutorily obliged to incur like Employees State Insurance etc. credit of input tax shall be admissible.
3.Matching concept of credit :-
- Input tax credit is admissible only when the tax has been paid to the credit of government. Therefore, a proper mechanism to be set to co-ordinate with vendors to ensure timely tax payments to govt. failure of which would disentitle credit to buyer.
4. Reverse charge on services – Overdue basis liability period curtailed :-
- Time of Supply of service in case of reverse charge shall be the earlier of : i) the date on which the payment is made, or b) the date immediately following 60 days from the date of issue of invoice by the supplier:
- In existing law overdue for more than 90 days payable under reverse charge, but as per revised draft overdue for more than 60 days will trigger liability to pay tax under reverse charge.
5.Limited time period for booking of credit :-
- Credit in respect of an invoice can be taken upto 1 year of the invoice date only. In addition to this, one more limitation imposed that no credit can be taken after the expiry of due date of filling Annual Return (i.e. Sep 30 after the completion of financial year).
- Therefore, it should be ensured that invoices are posted timely more particularly those dated of 4th quarter of financial year.
6. GST on Export of Goods and Services :-
- GST on export would be zero rated only.
- Similar benefits may be given to Special Economic Zones (SEZ)
- GST paid by Exporter on the procurement of goods and services will be refunded. Hence the exporter will be required to claim refund of unutilized input of GST credits.
7. GST on Imported of Goods :-
- Import of goods will be subject to basic customs duty and IGST( In place of CVD & SAD).
1. Sourcing :-
* Inter-state procurement could prove viable.
* May open opportunities to consolidate suppliers/vendors.
2. Distribution :-
*Changes in tax system could warrant changes in both procurement and distribution arrangements.
* Current arrangements for distribution of finished goods may no longer be optimal with the removal of the concept of excise duty on manufacturing.
3. Pricing & Profitability :-
* Tax savings resulting from the GST structure would require repricing of products.
*Margins or price mark-ups would also need to be re-examined due to Sec-4 valuation.
4. Cash Flow :-
* Removal of the concept of excise duty on manufacturing could result in improvement in cash flow and inventory costs as GST would now be paid at the time of sale/supply rather than at the time or removal of goods from the factory.
5. System Change :-
*Potential changes to accounting and IT systems in areas of master data, supply chain transactions.
*Existing open transactions and balances as on the cut-off date need to be migrated out to ensure smooth transition to GST.
*Changes to supply chain reports (e.g., purchase register, sales register, services register), other tax reports and forms (e.g., invoices, purchase orders) need review.
*Appropriate measures such as training of employees, compliance under GST.
- Background materials on GST by IDT Committee, ICAI.
- FAQ on GST by CBEC.
- Other Articles.