For goods which are not pre-packed and are sold to ultimate buyers, legal metrology or provisions relating to MRP do not apply. However, other provisions do not create any distinction as regards passing of benefits is concerned. Accordingly, we will be discussing the best practices to be adopted by companies in response to rate reduction.
Implementation of revised pricing
Revised pricing needs to be determined keeping in view various factors. Following factors may be, inter alia, examined, decided and documented:
- Cost increase, including cost of implementing rate change measures
- Pricing decisions in the past
- Benefit to be passed on to consumers
- Discounts, promotional schemes including festive schemes
Price change needs to be a holistic, evidence and data backed decision, ensuring the same is well documented.
Importance of correct classification:
With the revised slab suggesting only 5% and 18% GST rate slabs to be retained and different rates only for some goods, it will be very important to check the correct classification of product to determine the applicable GST rate, as there will be a direct 13% impact across the supply chain in case of incorrect adoption of classification by manufacturer.
Cost impact if compensation cess is done away with:
Presently, compensation cess is payable on motor vehicles and certain motor cycles. Credit of the same is available and utilized for payment of output compensation cess. Any removal of compensation cess will result in cess no longer being payable. While this will require price re-examination, it is important to note that the cess credit which was hitherto available on stock transfers, purchases will no longer be available. This will result in one time cost increase which will impact the pricing and stock decisions.
Impact of price change on already manufactured products lying in depot / warehouse / with wholesalers and retailers needs to be examined, including issues relating to ITC unavailability in case the Government does away with compensation cess completely, or in case ITC is accumulated for traders and how to deal with refund of such inverted tax structure credit.
Credit note for past supplies:
In case of sales return or discounts in compliance with Section 34 and Section 15 of the CGST Act, GST credit note can be issued. In such cases, the original rate at which supply was made as per invoice shall be the basis for issuance of credit note. Credit note cannot be issued with new GST rate for supplies made pre-rate reduction.
Checklist and implementation guide:
- Review prices
- Impact on goods in stock at different locations in supply chain
- Impact on cost increase, including costs incurred due to rate change, impact of compensation cess
- Credit notes for past transactions
- Compensation to supply chain, ITC accumulation, refunds
- Inverted tax structure, ISD and cross charge
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
