Actionable before GST is Implemented

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Actionable before GST is Implemented 2017-03-30T09:14:47+00:00

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  • Adarsh MadrechaAdarsh Madrecha
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    #859 |

    With GST just around the corner, there are certain things to be taken care off before GST is implemented.

    Minimising non-creditable inventory

    Transitional credit is allowed only in respect of taxes which qualify for credit under the current tax regime – given this limitation, the inventory to be held on the date of migrating into GST should be evaluated – specifically, the volume and value of inter-State purchases though the CST may be only 2%; inventory not supported with Central Excise invoices; any kind of inventory held by non-excise registrants; any inventory to be held by works contractors etc.

    P&M at job worker’s premises

    With respect to plant and machinery or any other capital goods lying at job worker premises, an evaluation would be required to check if those goods should be brought back under the current tax regime and then resent to the job worker. This will give the same a new lease of life for a fresh 3 years.

    Type of purchases to be made during the first few months of GST

    Though credit of IGST, CGST and SGST are seamless, in situations where any unit has a carry forward of unutilized input credits, it could result in one of the taxes payable while another is a carry forward. Careful analysis of the same would be required to mitigate the impact on cash flows post-GST.

     

    Location of plant and machinery where credits are partly claimed

    Assembled machinery transferred to other locations (other than where it was assembled) – should be mapped to the location where the credit was availed. Differences could dis-entitle transitional credits which are unavailed or unutilised if any.

     

    Write off of any capital goods or inventory

    Write off of normal and abnormal losses, perishables or impairment of assets, as the date for implementation of GST comes closer – given that such write-offs would trigger a reversal of corresponding input credits, a decision would be required on whether the same should be written off under the current tax regime itself.

    Spillover transactions

    Sales return or purchase return of transitional stocks would trigger GST. Discussions with vendors and suppliers for change in terms, if required should be initiated.

    Recording of transactions and reporting in returns

    All purchases up to 30.06.2017 should be recorded in the books of account and reflected in the returns for the period ending June 30, 2017, without exceptions. Delays could result in dis-entitlement to transitional credits – would have to be pursued only as refund under the existing laws.

    Deduction vs. Input credit

    Under certain laws, a deduction is allowed in lieu of input credits (eg: amounts paid to subcontractors in the case of works contracts). The unutilised deduction does not qualify as transitional credit, while an unutilized input credit will. This may trigger a need to change the method of computation even under the current law up to 30.06.2017.

    Long term contracts having advance billing

    Where any vendor invoices are received in advance (say, quarterly or half year), a decision may be required to change the terms of invoicing – eg: if the credit of taxes charged therein are not eligible under the current regime, a change in terms of billing to end of the period could benefit – vendor would charge GST and credit may be available.

    Discussions with vendors about the steps they have initiated for GST readiness

    Input credit will be the most important aspect. GST compliance of the vendors is critical to ensure credits are optimised. Thus, discussions with the vendors to ascertain their status on GST readiness will be critical.

    The above-discussed topics are high-level areas, across functions which most certainly require a decision on an immediate basis. A business-specific analysis is recommended prior to decision making.

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