Transition to GST – Action points

GST being largest indirect tax reform in history of India is on verge of its implementation. Every business, small or big will get impacted from GST. Amidst other changes in Indian economy, like demonetization, application of Ind AS, changing business environment etc., GST Implementation is going to be the biggest change and it becomes vital for a business to gear itself up for smooth transition to GST regime from existing regime.

Businesses and Government are running against time to implement GST in a manner that it creates less hassle after implementation date, which is expected 1st April, 2017 as of now, however any delay would be welcomed by Industry. Section 165 to Section 197 of Revised Model GST law deals with various legal situations like carry forward of credit, refunds, Job work related situations, goods lying in stock on transition date etc., There may be many legal points which will arise during transition to GST regime but few other areas which needs appropriate action to ensure seamless transition are as follows:

1.   Re-vamping IT Systems: IT systems like SAP, ERP needs to be changed substantially, as there are various changes which needs to be done to make your business GST Compliant. Many new transactions are getting covered under GST e.g. Cost allocation by head office to its various units across India would attract GST. Also, various transactions are going out of GST ambit too, e.g. transfer of stock within the same state between two units having single registration.
There are many other procedural changes too, e.g. change in format of invoice, change in returns frequency & format. IT systems need to be modified to cover all the impacts of GST.

2.  Vendors Management/Education: Unorganized vendors of businesses shall be educated about GST to make them understand how their GST Compliances are going to impact your business. To illustrate input tax credit would be available in electronic ledger only when vendor pays tax to govt. and files the GST return timely. Those vendors who are GST compliant (as per compliance records) shall be chosen for dealing to avoid loss of credit under GST.

Also, as per section 163 of revised model law, anti-profiteering clause has been inserted which states that taxpayer has to pass on the benefit to its customers on account of
a.       Benefit on account of increase in input tax credit
b.       Benefit on account of reduction in Tax Rates

Hence, vendors shall be asked to send their quotes again considering the benefits mentioned above under GST. Vendors can further re-negotiate with their sub vendors to pass on the benefit.

3.  GST Enrollment: GST Registration has been started for VAT assesses who have to get their registration migrated to GST. Decision shall be taken considering impact of registrations taken before migration, whether separate registrations would be required for more than one business places/verticals of a legal entity under one state or single registration to be obtained for one state is to be taken shall be decided. GST registration for service tax assesses would start later. There is no concept of centralized registration under GST as of now.

4.  Modifying agreements: Corporates may have entered into many long term contracts with various causes related to taxes, price variations, advances, etc. All those contracts shall be re-visited and safeguard clauses shall be inserted to make them GST compliant.

To illustrate, advances receipt shall be received with GST amount now otherwise recipient shall have to pay GST from the advance received.
Also, safeguard clauses regarding payment of taxes shall be inserted in all the contracts. E.g. for regular vendors, safeguard clause stating that tax amount shall be recovered from vendor in case it is not paid to the govt. or return is not filed.

  5.  Filing of last return under existing regime carefully: As per section 167 of revised model law, credit of Cenvat credit/VAT/Entry tax appearing in return filed related to the last day (existing regime) shall be eligible to be carried forward under GST regime. Hence, returns filed on last day shall capture maximum details related to the period belonging to the existing regime to avoid any credit loss or to avoid any procedural hassle (as prescribed under section 171). however, if any such credit is missed, assesse can revise the last original return filed and can take benefit of such credit. Though Credit increased, if any in revised return (last return) shall be refunded in cash as per section 185. Considering all these, extra efforts shall be made to file last return carefully capturing maximum transactions.

6.  Representations: Final GST law is expected to be out in Jan-Feb 2017, industry can look upon nuisances of revised GST law so that appropriate representations can be made to Govt. seeking relaxations/clarity.

To illustrate, whether input tax credit of excise duty present in goods lying with unregistered/registered depots on transition date will be available or not is not yet clear. Businesses should engage themselves with Govt. with proposal for amendment in GST law.

Lastly, it is expected that there would be some delay in implementation of GST, 01.04.2017 is date announced as of now. A slight delay is welcomed by industry as every business will get time to prepare itself for GST.