Expert Views on Impact of GST on Wind Sector - Mr. Manish Mishra, Partner Indirect tax, BDO India LLP
What is the concept of GST?
GST is a departure from the present regime of taxation a single levy across the country on each and every supply of goods and services. As of now we have central taxing certain activities like manufacture, import, rendition of services and the state levying taxes on sale of goods, whereas under GST we are shifting the taxable event to sup- ply. India is proposing to adopt a dual GST where both Central and State Governments would tax every supply goods and services. Intra-state supplies of goods and services would be subject to Central GST (‘CGST’) and State GST (‘SGST’), whereas inter-state supplies would be subject to Integrated GST (‘IGST’). IGST and CGST would be levied by the Central Government whereas SGST would be levied by the State Governments. It is a big departure in the sense that some of the activities which were not earlier taxable, for instance Stock transfer of goods which was not subjected to any tax earlier, will now be brought under purview of GST.
What is the impact of GST on Wind Sector, one from project perspective and other from Vendor perspective?
The immediate impact of GST on Wind sector would be in terms of an increase in effective rates of tax. Presently, we have Excise duty applicable at 12.5%, Service tax at 15% and Customs duty on imports which become applicable on procurement of goods and services for the sector. However, there are lot of exemptions which are available on components and goods required for the Wind projects. It is expected that most of those exemptions may go away under GST.
Imports under GST would be sub- ject to Basic Customs duty and IGST whereas any local supplies will be subjected to GST. Services in any case will become more expensive because of the increase in the tax rates. It is expected that most the services required for the sector may be taxed at 18 instead of 15% as applicable at present. %that is going to increase the project cost from the project perspective straightaway. Further, it is felt that some of the existing exemptions for the sector may be done away with.
Though representations have been filed by the sector for continuing with the preferential tax treatment, it remains to be seen as to how GST council decides the rates to be applied on the goods supplied to the sector.
From a contractor’s perspective, quite few of the transactions undertaken by them such as stock-transfer or warehousing of goods could be subjected to GST.
Procurements against C-Forms will be subjected to full rate of GST with doing away of such statutory Form.
Contractors in such scenarios may require to re-calibrate the project logistics and the supply-chain and reduce the time-lag between import or procurement of the goods and supply to the project which is going to be a big change and shift in the way projects are structured today.
Other challenge in terms of local procurements shall be with regard to the concepts like sale in transit etc., which are available under the present regime, may not be avail- able under GST regime, thereby meaning that a “Bill-to-Ship-to” transaction may not be viable.
On an overall basis, from a project as well as contractor’s perspective, the effective tax costs are bound to increase.
The challenge is further aggravated as the electricity duty is not going to get subsumed within the GST. So any tax which is getting charged to the project is going to end up as a cost to the project in absence of any output tax liability and in absence of availability of input credits.