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“ABC Kirana Store” engages into a local merchant business in City of Agra. The entity has registered business in AGRA and it has two small outlets in Gurugram (Haryana) & Dehradun (UTTARAKHAND). ABC trades in all kind of daily use products in the city of AGRA and transport some specializes RUSK to its outlet in Dehradun & Gurugram as well.
About OUTLETs:
Gurugram & Dehradun outlet are engaged in the name of “ABC Kirana Store”and trade in similar DAILY products which it procures from local market or some of the instances it is been transported from ABC –AGRA , However all specialized RUSKS (which are being made by ABC-AGRA) are being transported from AGRA itself and it has been an exclusive segment being specialized RUSKS.
Some financial data of the business:
ABC kirana store (Yearly INR amounts)
Sale from local market activities (other than outlet)
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5 crore
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Sale at Outlets
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Gurugram
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1 crore
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Dehradun
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75 lacs
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Exempt supplies
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20%
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Taxable supplies
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80%
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Overall RUSK business sales would %
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8% of total
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40 lacs
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Stock transfers are being made using Form F under CST act 1956,
Rusk is currently exempt from UP-VAT, H-VAT & U-VAT (all three states)
SUGGESTED AREAS TO ADVISE CLIENT ON GST (not an exhaustive list)
Basing on the nature of the Business and its activities & information available as mentioned above, we can summaries areas where ABC Kirana needs to strategies its business and to understand any potential impact –
1) Notes and discussion on the registration requirement for ABC Kirana store-
“In terms of Sub-Section (1) of Section 22 of the CGST Act, every supplier making taxable supplies is liable for registration if his aggregate turnover in a financial year exceeds twenty lakh rupees”
Calculation of Aggregate Turnover-
ABC Kirana – Agra - 5 crores
ABC Kirana -Gurugram - 1 crore
ABC Kirana – Dehradun - 75 lacs
Aggregate turnover would include all supplies including taxable & exempt supplies, hence even ABC Kiranahas some exempt supplies would be considered while determining the minimum threshold limit for registration purposes.
“The supplier liable for registration will have to take a separate registration even though such supplier may be supplying goods or services or both from more than one State as a single entity. The application for registration shall be made within 30 days from the date when he becomes liable for registration”
“Para -47 of CGST states “exempt supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply”
Hence below registration as “taxable person” would be required by ABC Kirana-
Taxable person
ABC- AGRA (separate registration)
ABC - Dehradun (separate registration)
ABC- Gurugram (separate registration)
PAN SINGLE at ABC level
Every person who is liable to take a registration or wants to obtain voluntary Registration shall have a Permanent Account Number (PAN). Every person required to deduct tax under section 51 may have, in lieu of a Permanent Account Number, a Tax Deduction and Collection Account Number (TAN).
It is worth to be noted that being the Categories of persons (person making inter-state taxable supplies etc) who shall be required to be registered under this Act irrespective of the threshold as per section 24 of CGST hence in case of ABC Kirana which is involved in transferring taxable supplies out of the state would be liable for registration under GST act irrespective of aggregate turnover.
Para -Sec 25(4) of CGST -A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act. – It means every such taxable person within different locations needs to be separately responsible for all requirements under GST.
2) Discussion about a separate registration for Business Vertical
Para 18 of CGST “business vertical” means a distinguishable component of an enterprise that is engaged in the supply of individual goods or services or a group of related goods or services which is subject to risks and returns that are different from those of the other business verticals.
Now, Even though the person will have an option to avail a single registration or separate registration for each business vertical in a State or Union Territory however ABC Kirana has to evaluate its separable vertical as per the guidance given in GST.
ABC Kirana can consider evaluating it RUSK making process as a separable vertical unit but the component must be a distinguishable component of the person, which is capable of being transferred or to function without affecting any other business of that person. A component cannot become a ‘business vertical’ merely based on geographical differentiation. Hence ABC Kirana needs to evaluate this separation accordingly.
Now, What would ABC Kirana achieve by making a separate registration as Vertical? ..Well, this would completely be a choice for the taxable entity to make a separate registration for any such eligible Vertical, however there would be an advantage for making separate registration for all such vertical for keeping separate GST related records which eventually would make more clarity in terms of balance Input tax credit or subsequent output liability related ledgers.
3) Discussion about Movement of goods from AGRA to GURUGRAM & DEHRADUN
Now,
Interesting thing to discuss with ABC Kirana>>>>
Under the current regime of service tax, services related to transport would be under Reverse Charge Mechanism (RCM) which means the Service tax applicable on such transport services would be submitted/ paid by the receiver of such services. The same implication has been brought into under GST as well.
But,
Now, all goods which are being transported from AGRA to its OUTLETS i.e. HARYANA & UTTRAKHAND would be subject to IGST. Under the current tax regime goods transferred between such branches out of state would be subject to CST unless FORM F is being furnished and hence there is no such tax implication on movement of goods within such outlets.
Now, ABC Kirana needs to manage such IGST tax liability which is to be paid while making a transfer from AGRA to HARYANA or UTTARAKHAND, however credit can be availed for the payment of outward IGST or CGST/ SGST liability.
To charge such IGST, there is a need to value amount of taxable supplies, however it is just a movement of Goods from head office to a branch so how to arrive at value to compute IGST?
⇛Supply through agent (Rule 3)
Open market value or ‘at the option’ of supplier 90% of the price charged for Goods , which essentially means if ABC Kirana sends Goods of an amount of INR 100,000 and the Goods will be sold at INR120,000 by the Outlet to the customers and it is difficult to find OPEN Market value (i.e. fair value of the GOODS so transferred) then ABC Kirana can opt to calculate IGST on 90% of INR 120,000.
⇛Cost based value (Rule 4)
Where cost is used as a base for determining the value of supply and when any of the more specific methods prescribed are unavailable for specific reasons, this rule may be applied. It provides that the value will be ‘cost plus 10%’ which means ABC Kirana can find the taxable value of the Goods so transacted as INR 100,000+ 10% of INR 100,000 = INR 110,000.
There are other methods available which possibly not relevant in case of ABC Kirana. Hence ABC Kirana needs to formulate its process and evaluate such method of defining taxable supplies. Extra working capital would be required to pay for such IGST which is available for any outward GST in future trades.
4) Discussion on Purchase from Unregistered dealers- Reverse Charge Mechanism (RCM)
Under the current tax regime, RCM is only applicable in case of services provided (some specified services), however under GST the concept is applicable in case of GOODS as well.
Now,
For making a payment to the suppliers for raw material to make RUSK, or purchasing stationary or paying fees to accountant etc would now need ABC Kirana to make a GST payment to the govt. under RCM. Each time if such supplier of GOODS/ SERVICES are not registered then ABC Kirana needs to calculate GST on such inward receipts of Goods/ services and then make such GST payment to the govt. in CASH only…there is no creditable balance allowed for RCM. Hence ABC Kirana needs to manage such cash requirement to make RCM related to all unregistered dealers.
5) Discussion on Returns to be furnished
Return to furnish the below details
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Return
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Due date for filing
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Outward supplies (other than composition
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GSTR 1
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10th of next month
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supplier, ISD)
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Inward supplies received (other than
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GSTR 2
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15th of next month
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composition supplier, ISD)
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Monthly return (other than composition
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GSTR 3
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20th of next month
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supplier, ISD)
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Annual Return
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GSTR 9
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31 Dec after end of year
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6) Discussion related to the provision on Composite supplies
Para 30 of CGST states “composite supply” means a supply made by a taxable person to a recipient consisting of two or more taxable supplies of goods or services or both, or any combination thereof, which are naturally bundled and supplied in conjunction with each other in the ordinary course of business, one of which is a principal supply;
It essentially means that when there are two or more taxable supplies of GOODS or SERVICES or BOTH, then it can be taken together as if it is one taxable supply after considering its principal supply as main supply and accordingly the GST rate for such principal supply could be used for GST liability. Such composition should be naturally bundled and a principal component should dominant over the product. In case of ABC Kirana, when Goods are being sold to the customers together with the requirement to make an arrangement for transportation of such GOODS (may include insurance as well) then it could fall under composite supplies and GOODS rate can be used to find tax liability under GST.
7) Discussion on “MIXED supplies”
Para 74 of CGST states that “mixed supply” means two or more individual supplies of goods or services, or any combination thereof, made in conjunction with each other by a taxable person for a single price where such supply does not constitute a composite supply.”
ABC Kirana used to make such GIFT PACKS at the time of festivals for an outwards sales to its customers, hence it is now carefully to be considered the items which are being mixed while making such GIFT packs.
Example- At the time of DIWALI there are lot of Gift hampers that are being sold which might consist of Fruit Juices, Chocolates, Namkeen, Cold drinks etc. Under the concept of Mixed supplies, the highest chargeable rate for such MIX e.g. chocolate would be charged with highest GST rate would be used to calculate GST liability from such packages sold.
Example- At the time of DIWALI there are lot of Gift hampers that are being sold which might consist of Fruit Juices, Chocolates, Namkeen, Cold drinks etc. Under the concept of Mixed supplies, the highest chargeable rate for such MIX e.g. chocolate would be charged with highest GST rate would be used to calculate GST liability from such packages sold.
8) Discussion on Composition scheme
RUSK business can be considered as separate Vehicle for ABC Kiraana by making it a separate business entity so that Composition scheme can be considered/ evaluated.
Composition scheme is applicable only for those businesses whose aggregate turnover is less than 50 lacs with below restrictions-
§ who is not engaged in the supply of services; or
§ who makes no supply of goods which are not leviable to tax under this Act; or
§ who makes no inter-State outward supplies of goods; or
§ who makes no supply of goods through an electronic commerce operator who
§ is not required to collect tax at source under section 56; or
§ who is not a manufacturer of such goods as may be notified on the recommendation of the Council,
Under the composition scheme the taxable person needs to pay who is manufacturer by using 2% rate on all taxable supplies irrespective of GST rates category of Goods.
ABC Kirana having a division which makes RUSK and whose annual turnover is less than 50 lacs and it is purely supplying of GOODS, however to consider this option ABC Kirananeed to supply within UP only and hence no Inter-state supply is allowed under this scheme. But an adhoc rate of GST i.e. 2% would be applicable comparing to keeping all records under different rates within GST.
The discussion above is solely articulated for the purpose of our readers to provide them an approach towards the REAL TIME case studies and accordingly ADVISORY ON GST can be given.
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