Corporates fret over penalty, prosecution clauses

With the deadline for roll-out of GST nearing, corporate houses are fretting over the penalty and prosecution clauses even as the government has soothed their nerves by reducing tax rates on few products.

Large corporates sourcing components and raw material from different suppliers will now have to ensure that the GST is paid properly by the seller to claim input tax credit.

Shrikant Kamat, Partner-Indirect Tax, BDO India, said apart from the penalty and compliance, companies are worried over the discretionary powers given to the GST officer of the rank of Joint Commissioner to decide on the offence committed by a corporate and recover unsubstantiated dues under the threat of arrest and prosecution.

“The responsibility of payment of GST and filing of returns by suppliers has been vested with the recipient (buyer) for claiming input tax credit. This is a cumbersome process and hence the government has to set a simple framework for claiming input tax credit,” said Confederation of Indian Industry in a note to the government.

Corporates have urged the government to include electricity, which accounts for significant portion of input cost for manufacturing sector, in GST so that they avail themselves of the benefit of input tax credit.

Post-GST, the effective tax on power would go up to 24 per cent as the tax is calculated on sales value. On the small entities’ GST preparedness, Kamat said many small and micro units undertake cash transactions with very limited ability to computerise their billing and accounting systems. Given the fact that billing, accounting, registration and compliance are IT-driven, they face major challenge.

GST on inter-branch stock transfer will have an impact on cash flow of firms and might force rationalisation in the way they store their goods. Currently, many companies resort to a lot of inter-branch transfers as these transfers are tax free.

GST needs to be paid in the month when the transfer is done and the input tax credit can be utilised only when the sale is done, thus blocking working capital.

Eventually, companies have to restructure their storage infrastructure to ensure that goods move from the primary warehouse to the dealer directly, eliminating the need for multiple points of storage.