Procurement policy for CAPITAL GOODS – Under GST regime

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It is normal for an Entity which runs its business in various states of the Country and its procurement team sits centrally at one place, which usually be at Head office and look after for all its procurement requirements centrally (Capital Goods).

The article is purely referring CAPITAL GOODS which are being bought for business purposes e.g. machinery, tools, electronic equipments etc.

The procurement team thus collates the entire requirement (Capital Goods) from its different locations across country and approaches to dealers to get best bargained price for any such bulk purchases centrally. Once the procurement is been done, the distribution of such items (Goods) are being then dispatched to these various locations.

At present such Capital goods which are being procured at one place and send to a branch in another state require to file FORM F under central sales tax 1956 declaring that movement of such Capital Goods are not sale and hence generally no taxation is being imposed on such Capital Goods transfer between branches.

Now, after the implementation of GST the situation will be different and the Management needs to look at its procurement plans/ setup in a different way at it was in PRE-GST.

All Capital Goods which are being transferred from one location to another (different state) would now be liable for GST tax i.e. IGST which is to be calculated basing on valuation rules.

It will be interesting to note that such IGST that is required to be paid on such Capital Goods which are being transferred from one state to another within Branch would be available for CREDIT which can be utilized for all such output services by the business.

This process required to think such procurement policy to be decentralized or to implement in such a way where supply of such Capital Goods would be at respective branch location only to avoid any double taxation each such time transferring such Capital Goods from one state to another or it needs extra working capital to support such additional IGST liability on movement of such Capital Goods.

Views/ interpretation are personal However comments / feedbacks are welcome..