Loss of credit score on transition stock this is a 12 months old, boom inside the operating capital requirement, impact on trade reductions – car sellers throughout India are coping with those challenges as they gear up for the 1 July rollout of the Goods and Service Tax regime.
On Bloomberg quint’s unique series, GST Countdown, John Paul, president of the Federation of Automobile Dealers Association, Vinkesh Gulati, companion at United Automobiles, and Saurabh Kedia, director at Kedia Group, shared their issues and posed questions to Ritesh Kanodia, an accomplice at Dhruva Advisors.
Here are the edited excerpts:
What are some of the demanding situations that dealers are going through in Allahabad?
Vinkesh Gulati: The challenge is due to the inventory of vintage shares of spares, add-ons or maybe automobiles that are more than one 12 months vintage. It’s not just like the electronics marketplace wherein you could give a 50 percent off and clean the inventory. Auto spares and accessories are objects which can be greater than 3 years vintage, and all the automobile sellers, now not simplest in Allahabad but throughout India, are thinking what to do approximately the one’s stocks? They see a right away a hundred percent excise duty loss on that.
Is that something dealers in Kolkata are also suffering with?
Saurabh Kedia: I assume what has befallen is that the government has attempted to plot guidelines for you to convey those who are non-compliant into the mainstream, and the auto industry is by hook or by crook suffering the brunt of it. They are already a completely compliant business, and because of that everyone our stocks are already declared, and we are inside the formal channel.
But the stipulation of a couple of yr antique stock now not allowed for entering credit is hurting us very badly. There is a massive amount of cash clogged in that. The hit is in crores, and the overall impact is going to be massive.
Is there a manner for dealers to minimize this loss?
Ritesh Kanodia: The authorities have no longer given any rest on the only-year stock keeping period. The rule says, when you have a stock which is greater than a yr antique, you’ll now not get the credit score. The only element which I am now not aware of is the credit score which you tackle a 60-40 percentage Foundation, will it’s relevant even when you have an excise responsibility paying record on your hand?
So, until the date, the practice became that dealers were now not issued an excise paying report, because they had been no longer eligible to take any credit score and that they had been truly not involved. What manufacturers or importers have started out is, they have got started paying them an excise paying document.
Also, there may be a provision which goes to be brought, that is your credit switch file (CTD). That continues to be in a draft degree, but lamentably, that provision only addresses a producer; now not an importer.
But my understanding is that it is being checked out.
Now the query is whilst this credit transfer record comes in, the dealers can clearly approach producers and importers to take that CTD and take credit of excise duty. But will a provider get credit score for inventory this is a couple of year vintage if the dealer has the duty-paying document is still now not clean?
Did you get any comfort from producers or vendors from whom you supply spare elements that, if at all, they will be able to shoulder some pain on the transition inventory?
Vinkesh Gulati: It’s very clear that they’ll not be helping us on the inventory stock. Also, from what I apprehend, on the inventory that is older than twelve months, we received to be able to get any credit score.
We can be dropping numerous money on that. Manufacturers are very clear that they may not be capable of aid us due to the fact they have got already paid excise. And then they can not help us in something losses we have because of that.
Any supplier, any B-town dealer is usually carrying a stock of 3 crores of spares. You can adequately count on one provider would be dropping around Rs 30 lakh, and we’ve got round 10,000 such dealers throughout India.
Dealers problem unfastened service coupon vouchers; also they get a booking strengthen – on each these, there is currently no tax incidence, however, once GST is available in, the time of supply guidelines will come into play and GST may be applicable. How will this affect sellers?
Saurabh Kedia: The effect may be in phrases of running capital, with a purpose to be even extra going forward because we are looking at the elevated running capital limit requirement of virtually 25 to 35 percentage, depending on product class, the region of operation, and many others.
We’re searching at maybe, at an all-India stage, of perhaps Rs 20,000 crore of the boom in working capital, so that it will have an instantaneous effect on the balance sheets in addition to on the margins.
Vinkesh Gulati: The important impact that we’re expecting is on exchange reductions, which have been not taxable earlier than. The sellers are simply worried that the producer will lessen the discounts or the incentives and cover the GST from the sellers’ a part of the deal.
Vinkesh Gulati: Ritesh, at workshops we sell spares and offer restore offerings as well. How must we deal with a transaction that includes each?
Ritesh Kanodia: Actually, it’s far your name how do you want to rate. Because let’s say you do a composite billing which is typically a renovation contract. And you assert within the course of rendering my protection services, I’m going to sell you elements.
If you’re making it as a composite settlement, that’s certainly bundled, you can cross by way of directly 18 percentage because my important dominant person is serving. You might also have the choice to head through itemized billing.
But what might take place in an itemized billing is which you’ll need to see which parts come underneath 28 percent. Because allow’s say you do a composite, you rate 18 and you do 28 percentage of the components, there could be an accumulation.