input taxes levied in the
structure and minimization of
production value chain.
exemptions will significantly
However, Central taxes cannot
reduce disputes regarding
be set-off against State taxes
classification of products.
and vice versa. This often leads to a situation where manufacturers are unable to set off excess credit of central or state levies. Further, central sales tax paid on inter-state procurements is also not creditable and are costs for the company.
Current supply and distribution models are structured to optimize indirect tax impact arising at various levels of value addition. Transition to GST should hopefully result in such decisions being taken to optimize business efficiency (as opposed to indirect tax
Another issue faced currently
efficiency). For example,
is the cascading of taxes at
currently warehousing choices
the post manufacturing stage.
are often based on arbitrage
Dealers, retailers etc. are
between VAT rates in different
subject to taxes on their input
States/ between applicable
side which are not creditable
VAT and CST rates. With the advent of GST, it is hoped that such warehousing and logistics decision would be based on economic efficiency such as costs and location advantages vis-a-vis key customers. However, a key hindrance could be the proposal to levy a 1% origin tax on inter-state supplies.
(service tax on input services, excise duty on capital goods). This leads to an increase in the cost of goods, ultimately affecting the competitiveness of Indian manufactured goods vis-à-vis imports. All of the above issues are addressed under the Model GST Law, which permits tax set offs across the production value-chain, both for goods and services. This will result in a reduction of the cascading effect of taxes and bring down the overall cost of production of goods. Currently, due to varying rates of excise duty and VAT on different products, as well as several exemptions provided under excise and VAT legislations, classification disputes are a regular cause for litigation under both central excise and VAT, especially for the manufacturing sector. It is expected that the inception of GST which is based on the principles of a simplified rate
- one gauge, many applications
Kemppi India is a purely manufacturing entity and all the points under manufacturing impacts us. We will be waiting for more clarity on the bill in the days to come. The author Rashmi Ranjan Mohapatra, Managing Director, Kemppi India, has an illustrious portfolio to his name. He worked with Linde and ADOR WELDING, was consultant to the Government of Netherlands, External Affairs Ministry, is a Managing Committee member of IIW – Chennai and is currently in the panel of CII (CONFEDERATION OF INDIAN INDUSTRY) for Skill Development and Entrepreneurship.
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