GST Notes & Updates 17-04-2017

The Government is fast moving on the tract of implementing GST from 1^st July 2017. however the rates of the goods and services at which they shall be taxed are not yet released and are set for discussion between 18^th & 19^th May 2017, which effectively means the rates will be a surprise just a month ahead of the BIG CHANGE, providing less time to combat with impacts of change in tax rates.

Please find a note on Procurement side just for your information & necessary action.

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• Procurement from non Excise Dealers: Vendors other than Manufacturer, First stage and Second Stage Dealers are not eligible to pass on the credit of excise duty. Further they can avail only credit of VAT. Thus Excise Duty adds to cost of non excise registered vendors and hence leading to higher product price. Under GST, all dealers would be eligible to take credit and pass on to the buyers and hence leading to a lower price of materials.
• No More CST, Entry Tax: CST at the rate of 2% was cost to all the businesses as there is no input tax credit available. Vanishing of CST will be a tremendous cost saving. Further few states charge entry tax on specified goods entered into the state. The entry tax paid is not eligible for input setoff as well. Hence it will also be a cost saving factor.
• RELATED – GST on Slump Sale
• Grading of dealers: Hitherto there was no system available for businesses to verify if their vendors were tax compliant or not, which many times raised issues of reversal of CENVAT Credits by the department by treating the purchases as bogus and also led to disputes. Under GST, a new system of “GST compliance rating” will be introduced, where the registered persons shall be given a rating based on how compliant they are in making tax payments, in filing returns etc. GST compliance rating will work like CIBIL in the banking industry where borrower with good CIBIL scores is eligible for loan. Thus vendors with higher compliance rating shall be preferred over the others.
• Reversal of VAT credits in case of stock transfers to other states: If local purchases are made and transferred to branch in other state, under the current tax regime, Input VAT reversal was to be done. However under GST no such reversal shall be required as the branch transfers shall also be regarded as outward supplies and GST shall be payable by the transferring office and the same shall be taken as credit by the receiving branch
• Anti-profiteering clause: The anti-profiteering clause in GST states that the benefits of the reduction of tax rate and increase input shall be passed on by the vendors to customers by way of price reduction. Thus analysing the impact of GST on your vendor can help in negotiating the price post GST.
• Increase in freight cost in some cases: Due to vanishing of CST, those vendors who maintained branch offices for saving CST shall now disappear, thus procurement may need to be made from interstate, leading to increase in freight cost
• One to one credit matching & reconciliations: GST requires one to one matching and approval of transactions by the customer and vendor for availing of input. Further if the vendor neglects to pay taxes or file returns, it will lead to auto reversal of the credit of input.
• Tax on Advances: Hitherto, there was no tax on advances given for purchase of The concept of tax on advances was only under Service Tax. Under GST, tax shall be paid on advances or purchase of goods and services as per the provisions of the time of supply. Thus it will impact the cash flows, as tax is paid on an early note.
• Purchases from unregistered dealers & from dealers from composition scheme: No input shall be available for purchases made from vendors registered under composition scheme, however the vendor shall take the tax as part of its cost and thus purchase from vendors opting for composition scheme may not be lucrative. Further purchase of goods from unregistered vendors, will increase the compliance cost as tax will need to be paid by the businesses under reverse charge. However input shall be available.