Impact of GST on the Automobile Industry

How Automobile Sector can get GST ready

The new GST law to be rolled out on July 1 will bring many opportunities and changes in how you would conduct business in the coming times. Our team has compiled simple guidelines to make the transition smoother

1. Tax Rate on Motor Vehicles

The GST law has proposed the uniform rate of 28% on motor vehicles (except refrigerated motor vehicles) & its parts and compensation cess of 1%, 3% and 15% on small petrol cars, small diesel cars and other motor vehicles respectively. All types of motorcycles will attract 28% (compensation cess of 3% to apply on motorcycle above 350cc).

2. New Procedure under GST Regime

Under the GST law taxpayers need to consider the following key procedures and compliances: Particular Rules
1. Registration

The person with INR2 million of aggregate turnover in a financial year is to register compulsorily under GST. However, in certain states, the limit is reduced to INR1 million.

The taxpayers who are already registered under the current state or central taxes are migrated to the common portal and GST registration will be granted with a request to provide additional information, where required.

2. Invoice

The taxpayer requires to issue the tax invoice at the time of supply of goods and services having information such as - name, address, GSTIN of the seller / service provider, address and GSTIN of the buyer/service recipient, date of invoice, value of goods/service, description of goods/service, rate and value of Central GST (CGST), State GST (SGST) or Integrated GST (IGST), signature, etc.

3. Input Credit

The taxpayer can claim the Input Credit on the basis of the documents such as tax Invoice, a debit note, and a bill of entry. In case the payment has not been made within 180 days, the amount of input credit will be added to the output liability.

The Input Credit can be utilized in the following manner:

  • IGST shall be utilised first towards payment of IGST and the remaining amount can be utilised towards payment of CGST and SGST.
  • CGST shall be utilised first towards payment of CGST and the remaining amount can be utilised towards payment of IGST.
  • SGST shall be utilised first towards payment of SGST and the remaining amount can be utilised towards payment of IGST.
4. Valuation

TGST shall be calculated on the transaction value of goods or service or both where:

  • Supplier and the recipient of the supply are not related; and
  • The price is the sole consideration for the supply.

The Determination of Value of Supply Rules covers the cases where transaction value is not applicable. The said rules have specified the following concepts for determining the value to calculate the GST liability:

  • Open market value
  • Value of supply of goods or services of same kind and quality
  • 110% of cost of production or manufacture or cost of acquisition of goods or cost of provision of services
  • Residual Value
  • Pure Agent, in case of supply of services


3. Treatment of Input Credit as on 30th June 2017

The registered taxpayer is entitled to carry forward or claim various input credits at the time of transition. The taxpayer requires to submit an application in the prescribed form within sixty days. A person who is not registered in the present law but registered in the GST regime can claim input tax credit where documents evidencing payment of excise duty are not available. Such credit would be available as under:

  1. Input Tax Credit will be allowed at the rate of sixty per cent which attract central tax at the rate of nine per cent. or more and forty per cent. for other goods of the central tax applicable on supply of such goods after the appointed date;
  2. Input Tax Credit on unsold stock will be allowed only after supply of such goods under GST and payment of applicable Central tax is made;
  3. Benefit of such Input Tax Credit should be passed on to the customer by way of reduced prices;
  4. Goods should not be wholly exempt from Excise duty or were not nil rated;
  5. The scheme shall be available for six tax periods from the appointed date; and
  6. Document for procurement of such goods is available with the registered person

Similar credit of SGST is available for VAT paid on the opening stock, where the opening stock is subjected to VAT only on the first sale in the State and subsequent sales exempted. The manner, quantum of eligible credit and applicable conditions are same as above.

4. Treatment of Pending Refund Claims or Appellate Proceedings

Any claim of a refund filed by a taxpayer before or after the appointed day i.e., the date from which GST will be applicable, for refund of any amount of input credit, duty, tax or interest paid before the appointed day shall be disposed off in accordance with the provisions of the earlier law and any amount accruing there upon shall be paid in cash. If the amount of credit has been fully or partially rejected, the amount so rejected shall be lapsed.

In case of any appellate proceedings filed by a taxpayer relating to claim for input credit, duty, tax or interest initiated before, on or after the appointed day i.e., the date from which GST will be applicable, then such proceedings shall be disposed of in accordance with provisions of the earlier law. If any amount becomes admissible to the company, then such amount shall be paid in cash to it.

5. Key Actions Points

The following are the action plans to help companies in automobile sector comply with GST law and implement it seamlessly.

  1. Identify the states of supply of goods and/or provision of services which requires the GST registration.
  2. Evaluate the current contracts to re-organise the terms & conditions and billing structure.
  3. Refresh your IT systems to make them GST compliant.
  4. Evaluate the classification of goods and services on which GST will be applicable.
  5. Ensure that input credits are availed without any loss of credits in the system. The IT systems of companies need to be ready to capture all credits in line with the provisions.
  6. The vendor management will become necessary, and entities would need to ensure that their vendors have filed GST returns after discharging appropriate liabilities accurately.
  7. Evaluate the status of pending refund or appellate proceedings and their implication with GST law being applicable.

Please contact ILO Consulting to make your business GST Complaint.