Goods and Services Tax – GST – By: – Ravi Kumar Somani – Dated:- 28-1-2017 Last Replied Date:- 20-6-2017 – The Indian auto industry is one of the largest in the world. The industry accounts for 7.1 per cent of the country's Gross Domestic Product (GDP). Almost 13% of the revenue from central excise is from this sector and claims a size of 4.3% of total exports from India. Despite its contribution to the economy and growth potential, this sector has been combating the hardship of high tax rates for substantially a long period of time now with central excise duty ranging between 12.5% to 30% coupled with introduction of multiple cesses at revenues whims and fancies, most recent being infrastructure cess. Apart from the high tax rates, industry has seen extensive litigations on VAT v/s Service Tax tussle, valuation issues in case of PDI charges, warranties, taxation on handling charges and many more. Thus, introduction of GST shall be a breather for this sector wherein taxes on vehic
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nter-state sale of the vehicles, they will be collecting and paying IGST (i.e. Integrated GST, which is nothing but the summation of CGST + SGST). Impact of GST on various aspects is as examined below: 1) Impact on Credits: Currently, automobile dealers are not able to avail CENVAT credit on the following indirect taxes paid by them: CST Paid on purchase of vehicle, spares, consumables, accessories and assets; Excise Duty paid on purchase of vehicles, spares, consumables and accessories; NCCD, Auto Cess and Infrastructure Cess paid on purchase of vehicles; CVD paid on any imported Spares, accessories and consumables; SBC paid on input services; Reversal of proportionate CENVAT credit of service tax due to trading activity – Showroom Rent, Advertisement expenses etc. In GST Regime, all the above duties/ taxes will get subsumed, therefore dealers should be able to avail the input tax credit of all its procurements of goods/ services except for few restrictions laid in the Model GST Law.
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00 5,93,000 Since IGST and cesses shall be fully available as credit in the GST regime, therefore they will not form part of purchase cost and can be set-off from output GST payable on sale of the vehicle. Procurements are assumed to be in the course of Inter-state. GST rates have been assumed to be at such levels based on the various news reports and the reports issued by various committees formed by the Ministry of Finance. As noted above, reduction in procurement cost is substantial as cascading of taxes was just adding to the cost in this sector. 3) Impact on the Sale Price: Since, the procurement cost reduces in GST and if the benefit of the same is fully passed on to the consumer, then it leads to reduction in sale price of the vehicles as tabulated below: Type of Vehicle Sale Price Current Regime Sale Price in GST Regime Sale Price VAT @ 14.5% Total SP Sale Price IGST @ 18% / 30% (2% cess) Total SP Motor Vehicle 61,215 8,876 70,091 52,500 9,450 61,950 Small Cars 4,89,720 71,009
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rate GST registration number is obtained for each such dealership, then transfer of any goods/ services between such dealerships will also be liable for GST. This shall block the working capital as the taxes needs to be paid from own funds and collection of taxes will be at a later date only when such goods/ services are eventually sold. Free Service Coupon vouchers: These coupons will be issued at the time of sale of the vehicle. As per the time of supply rule, GST on such coupons needs to be paid immediately on the date of issue of such vouchers. As per the policy of some manufacturers, the amounts in respect of such coupons will be redeemed to the dealers only once the customer brings the vehicle for repair to the workshop. Therefore, dealers would have to pay tax on such coupons immediately on its issue but the said taxes can be collected from the customers only when the vehicle comes for the repair leading to unnecessary blocking of funds in taxes. Vehicle Booking Advance: It is q
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ufacturer: Various commissions, incentives, reimbursements, warranty receipts etc. are received from manufacturer. Dealer dont pay taxes on these incomes on accrual basis as the same may or may not get approved by the manufacturer at a later date. Therefore, currently service tax is paid on receipt basis only when the amount is credited by the manufacturer and is reflected in the manufacturer s statement. However, the luxury of paying taxes on receipt basis will not be accepted in the GST regime as everything will be system driven. Therefore, dealers will have to either get its system corrected with the bankers and manufacturers immediately to ensure smooth transition into the GST regime or else it would have to take the brunt of taxes on its own due to fault of its vendors. 5) Impact on Valuation: Bundling of Car with accessories, warranty, handling charges: Automobile dealers charge amounts for Sale of vehicle and also for various ancillary services such as insurance, extended warran
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ecurity Number Plate Charges; Credit Card Swiping Charges etc. Currently, Service Tax is not paid on such values, if collected as a pure agent. Ideally, these receipts must also be kept out of the GST net, or else it would create further valuation tussle in the GST regime. Road Tax/ Life Tax: Currently, service tax or VAT is not paid on the Road Tax element. However, in the GST regime, value for the purpose of paying GST must also include Road Tax. Section 15 of the revised model law clearly states that no taxes shall be allowed as reduction from the value except CGST, SGST and IGST. Therefore, duplication of taxes to this extent shall continue, if not timely represented by the associations. Road tax rates are fairly high and it ranges between 2% to 15%. Such increased tax base would unnecessary increase cost for the consumers. Discounts: Generally, dealers receive various discounts from its manufacturers based on targets, vehicles lifted, Special Customers, Year-End Discounts etc. It
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anufacturer can later be taken as a credit. Adoption of this would require tremendous efforts. 6) Reduced current litigations: Currently, the sector is facing disputes on the following areas: Valuation in Servicing of vehicle: Complexity in bifurcation of the material and labour component in the servicing of vehicle has led to multiple disputes as both the service tax and sale tax authorities demand taxes on a higher component. Handling Charges: Whether it is liable for VAT or Service Tax has led to demand of taxes from both the authorities and thereby disputes. Registration charges: Disputes were noted on applicability of service tax on various charges that are merely collected as pure agent such as temporary permanent registration etc. Incentives: It has been a matter of dispute at a various judicial forums as to whether the incentives received by the automobile dealers from the manufacturer whether amounts to any Service to be liable for service tax. Such disputes would end in the G
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a dealer is not availing the credit of VAT/SAD currently due to restriction in the state VAT law, then credit can be availed based on the ascertainment of stock as on appointed day. However, if the credit of VAT is being currently availed then the same needs to be properly reflected in the last VAT return to transfer such credits to the GST regime. Credit of CST: The same cannot be availed based on the stock availability as on the appointed day. Entry Tax: Credit of same can be availed subject to possession of appropriate documents for the same in states where such set off is permissible. 8) Impact due to Anti-Profiteering Measures: Since a dealer will be able to take the credit of goods lying in stock, the tax cost would decrease. This additional benefit accruing to a dealer is expected to be passed on to the end consumer by way of reduction in prices etc. A separate authority will be formed in the GST regime to monitor the non-compliance of the anti-profiteering matters which could
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to the customers. Therefore, timely payment of taxes, filing of returns needs to be ensured in the GST regime. Accounting: Coordination/ communication, flow of documents from various branches to accounts department should be before 10th of the subsequent month. Therefore, accounting function needs to be more robust, live and automatic. As far as possible, a dealer must map its accounting framework with other processes in an ERP environment and therefore finance & accounts department needs to be better structured to cope up with the needs of the GST regime. IT Infrastructure: In GST regime, businesses have to move from the manual environment to computerized environment. Only an efficient IT infrastructure and its best usage can help businesses meet the high compliance needs of the GST. If IT infrastructure is not optimally utilized, then it would be challenging for any business including real-estate sector to function efficiently in the GST regime. Further, in the computerized envir
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