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GST is the buzzword these days. The new tax regime will have its own share of financial implications. This article analyses various provisions of GST and their likely impact on working capital needs. This is worth mentioning here that this article does examine the entire law but select provisions.

Branch Transfers:

As per section 25(4) of the CGST Bill “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 Bill.

As per section 25(5) “Where a person who has obtained or is required to obtain registration in a State or Union territory in respect of an establishment, has an establishment in another State or Union territory, then such establishments shall be treated as establishments of distinct persons for the purposes of this Bill.

These provisions are equally applicable in case of IGST Bill.

It is noteworthy that under existing laws such transfers are not subject to tax if relevant form such as Form F is submitted at the time of assessment. However under GST regime by virtue of the aforesaid provisions of law such transfers would be subject to IGST if there are inter-state transfers and if the same entity has different business verticals in same state they will also be subject to CGST and SGST on intra state supply even though both business verticals belong to same entity.

FAQ on branch transfers also clarifies this position

Are self-supplies taxable under GST?

Ans. Inter-state self-supplies such as stock transfers, branch transfers or consignment sales shall be taxable under IGST even though such transactions may not involve payment of consideration. Every supplier is liable to register under the GST law in the State or Union territory from where he makes a taxable supply of goods or services or both in terms of Section 22 of the model GST law. However, intra-state self-supplies are not taxable subject to not opting for registration as business vertical.

This is likely to increase working capital needs and the associated finance costs apart from increasing compliance burden.

Agent and principal

Principals supply there goods through agents without any consideration being received from the agent for transfer made. The agent makes sales on behalf of principal and is entitled to a commission thereof. The agent may collect payments on behalf of the principal or the customer might make direct payment to the principal. In either case there is no sale because agent does not receive any consideration from the principal. However as per Schedule I supply of goods by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal will be considered as supply and if the good are taxable than be subject to GST.

Similarly supply of goods by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal is deemed to be a supply of goods even though agent receives no consideration for providing goods to the principal except commission which is his remuneration for handling goods on behalf of the principal.
This is likely to increase working capital needs and the associated finance costs apart from increasing compliance burden.

Unregistered Supplier

Section 9(4) of the CGST Bill which states that
The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both.

Presently if you hire services of unregistered service provider no service tax is payable unless the goods are classified under reverse charge category. But under GST regime tax to be paid on reverse charge on all supply of goods or services received from unregistered supplier.

This is likely to increase working capital needs and the associated finance costs apart from increasing compliance burden

The purpose of this article is to spread awareness about the soon to be implemented Goods and Service Tax in India.

(The author practices as a Chartered Accountant under the name and style of Rishabh Kumar Barmecha and Associates and is an expert in auditing, financial investigation, direct and indirect taxation. The author can be reached at rishabhkumarbarmecha@gmail.com Mobile No.  91 9007909221 or Twitter @CARKBarmecha.)

 

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