NEW DELHI: Companies in FMCG and consumer durable space are facing a surprise bouncer from their dealers experiencing goods and services tax (GST) transition blues.
Dealers have sought compensation from companies as they are unable to claim credit on the past stock and therefore, have to shell out extra tax from their pocket for now. This has raised their working capital costs.
“There is a minor working capital cash shock for the dealers in the month,” said a source, adding that industry is still grappling with the fine print of this major tax reform.
“There is a lot of fine print within the GST that is yet to be clarified. There is confusion in the trade on issues such as input credit which are still persisting. We are awaiting clarity on the same,” said an official with a leading FMCG company.
Trade partners of most consumer goods and durables firms had destocked in the two weeks just ahead of the GST rollout to ensure they were not saddled with unsold or transition stocks. Those who did not are now facing this issue of input tax credit for this pre-GST stock.
“As far as our company is concerned, we took necessary steps to start with a clean pipeline with the GST and made efforts to ensure that our distributors were not saddled with stocks,” said Parle Products marketing head Mayank Shah.
Last month, BritanniaBSE -0.87 % had dragged distributors in Kerala to court, alleging ‘unfair trade practices’ to extract higher margins’ post the GST implementation. The problem has arisen as there is no clarity on ‘Form Tran-2’, which is to be filed by dealers to avail credit in lieu of tax paid on goods from pre-GST period. The GSTN does not have the utility needed for filing of this form.
“The non-availability of input credit on opening inventory will have adverse impact on working capital. Prompt clarification will be helpful to avoid hardship,” Dabur IndiaBSE -1.02 % chief financial officer Lalit Malik said.
As per the GST law, Tran-2 is required to be filed by an assessees wanting to take deemed credit on transition stock where no duty paying documents are available.
This is mostly for dealers who get central excise duty paid goods, and have paid value added tax and would now want to claim credit for the taxes paid.
The GST rules provide that Tran-2 has to be filed by end of the tax period. Though no clear date has been provided in a tweet it was mentioned earlier that Tran-2 has to be filed by 20th of next month. But, no formal notification has been issued so far.
Rules specify that an entity can avail transition credit after it has paid due tax on the transition stock. This credit is available for sales made within six months of GST cut-off and can be set off against GST liability on the fresh stock.
Since Tran-2 facility has still not been activated, a dealer would need to pay entire amount in cash leading to working capital impact. For example, a dealer on July 1 may have both pre-July and post July stock. He would get eligible for deemed credit of up to 60% of central GST on pre-GST stock. Dealer would now need to discharge his complete GST liability till August 25, but if the Tran-2 was available he could have availed the deemed credit to set off payment of GST on fresh stock. The government has clarified and extended the date of filing of Tran 1for companies till August 28.
“Ideally, same treatment should be given to Tran-2 as the government has given to Tran-1.
Industry should be allowed to take opening deemed credit after payment of GST and filing Tran-2 before August 25. If this is not done, the opening credit would be deferred by at least a month, as the next due date of payment would be September 20.
This impacts the cash flows of many businesses, including retailers,” said Pratik Jain, indirect tax leader, PwC.
AUDIT OF GSTN PORTAL SOUGHT
Meanwhile, Confederation of All India Traders (CAIT), a key traders’ body, has suggested the government to conduct a technology audit of GSTN portal and take all necessary steps to ensure that the portal works in a cohesive manner providing ease to traders in complying with their tax compliances timely.