Loss of credit on transition inventory over a yr antique, boom inside the working capital requirement, impact on alternate discounts – vehicle dealers across India are dealing with these challenges as they tool 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, an associate at United Automobiles, and Saurabh Kedia, director at Kedia Group, shared their issues and posed questions to Ritesh Kanodia, the associate at Dhruva Advisors.
Here are the edited excerpts:
What are a number of the challenges that sellers are facing in Allahabad?
Venkatesh Gulati: The venture is due to the inventory of vintage shares of spares, add-ons, or maybe motors which can be more than one yr old. It’s now not like the electronics marketplace wherein you may supply a 50 percent off and clear the stock. Auto spares and add-ons are greater than three years vintage, and all the auto dealers, not most effective in Allahabad however all over India, are questioning what to do approximately the one’s stocks? They see a direct a hundred percent excise responsibility loss on that.
Is that something dealers in Kolkata are also struggling with?
Saurabh Kedia: I suppose what has passed off is that the authorities have attempted to plan policies if you want to bring individuals who are non-compliant into the mainstream. The auto industry is one way or the other struggling the brunt of it. They are already a very compliant enterprise, and due to that, everyone our stocks are already declared, and we are inside the formal channel.
But the stipulation of multiple years antique inventory now not allowed for entering credit score is hurting us very badly. There is a massive amount of money clogged in that. The hit is in crores, and the overall effect goes to be big.
Is there a manner for dealers to minimize this loss?
Ritesh Kanodia: The authorities have now not given any rest on the one-yr inventory conserving length. The rule says, when you have an inventory that is extra than a year antique, you will no longer get the credit. The simplest factor which I am not privy to is the credit score that you tackle on a 60-40 percent basis, will or not. It’s applicable even when you have an excise responsibility paying document for your hand?
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So, to date, the practice becomes that dealers were now not issued an excise paying report because they have been now not eligible to take any credit and they had been sincerely no longer involved. What producers or importers have started is, they have started out paying them an excise paying record. Also, there is a provision that goes to be added, which is your credit transfer record (CTD). That is still in a draft decree, but regrettably, that provision only addresses a producer, now not an importer.
But my expertise is that it’s far being checked out. So now the question is whilst this credit score switch file is available, the sellers can use simple technique producers and importers to take that CTD and take credit score of excise responsibility. But will a dealer get credit for inventory that is a couple of 12 months antique if the supplier has the duty-paying report remains now not clear?
Did you get any consolation from producers or providers from whom you supply spare components that they’ll be capable of shoulder some pain at the transition stock?
Venkatesh Gulati: They may not be supporting us on the stock. Also, from what I understand, at the stock that is older than 365 days, we gained to get any credit. So we will be losing quite a little cash on that. Manufacturers are obvious that they may no longer help us because they have already paid excise. And then they cannot support us in whatever losses we have because of that.
Any provider, any B-city dealer, is generally wearing an inventory of three crores of spares. You can appropriately expect one provider would be losing around Rs 30 lakh, and we’ve got around 10,000 such dealers all over India. Dealers difficulty lose provider coupon vouchers; also, they get a reserving increase – on each of these, there’s currently no tax occurrence, but as soon as GST comes in, the time of supply policies will come into play GST can be relevant. How will this affect sellers?
Saurabh Kedia: The effect could be in phrases of running capital that allows you to be even more going ahead because we’re gazing elevated operating capital restrict requirement of almost 25 to 35 percentage, relying on a product category, the region of operation, and so forth.
At an all-India stage, we’re searching at maybe Rs 20,000 crore of the boom in running capital for you to have an immediate effect on the balance sheets in addition to at the margins.
Venkatesh Gulati: The principal effect that we are looking forward to is trade reductions, which have been now not taxable earlier. The sellers are absolutely involved that the producer will lessen the discounts or the incentives and cover the GST from the sellers’ part of the deal.
Venkatesh Gulati: Ritesh, at workshops, we sell spares and offer restore services as nicely. How have we treated a transaction that includes both?
Ritesh Kanodia: Actually, it is your name. How do you need to charge? Because allow’s say you do a composite billing that’s generally a protection contract. And you assert within the route of rendering my renovation services; I’m going to promote your elements.
If you are making it a composite contract, which is clearly bundled, you may go with the aid of a straight 18 percentage because my crucial dominant man or woman is service. You would also have the option to move using itemized billing.
But what might take place in an itemized billing is that you’ll see which elements come under 28 percentage. Because let’s say you do the composite, you rate 18, and you do 28 percent of the elements, there might be an accumulation. If you price elements to components 28, there is a loss to the patron because you are charging him 28 percentage for the components.
So, there may be a few leverage opportunities where you have an awesome outflow; you may make a composite bundled preservation settlement, charge him 18, take 28 as the credit score, and use it to difficulty different legal responsibility. You would be capable of lessening the purchaser’s protection value.