In our today's business world, the businesses perform movement of material / goods within the Indian territories very commonly. Whether it is manufacturing concerns or construction companies or infrastructure / project companies; whether it is movement of raw materials or semi-finished / finished goods; and whether it is movement between branches or godown or to customers or even to job workers for certain repairs, material movement is a very common phenomenon. Business use all possible means of transport for the above - by rail, road, air, sea ferry etc. Basis the business requirements, the nature of transactions to be performed and the means used for material movement, the formalities / procedures would generally differ, but what remain more or less common in the impact of taxes.
But in a basic simple transaction where goods are to be moved from one place to another within the same country, how would TAXES impact? At this stage, lets keep in perspective the basic nature / requirements of TAXES - it generally involves : (i) a payout of money; and (ii) compliance with the prescribed procedures.
Whenever there is a material movement, one has to first of all understand the stimulus for the same. Why is the material movement happening - is it under sale or transfer from one branch to another or transfer to sale depot, understanding the stimulus which triggers such material movement is a must - since the tax impact would differ significantly basis such stimulus.
Whenever there is a sale or transfer in the ownership, it would typically have a levy of sales tax or Value Added Tax (VAT, as commonly known). The same is levied at the time of sale - generally, when the invoice is raised. Thus, it needs to be seen in a transaction involving material movement. However, if the material is moving from one branch to another branch and there is no sale / transfer of ownership, it would not be subject to VAT. The above might have certain tax registration and other compliance involved which we will talk about later. Also, lets be aware of the levy of EXCISE which would typically be levied on manufacture of goods and has to be discharged before the removal of finished goods from the respective factory.
Now, after we have understood the stimulus and are aware of the general tax impact involved in the same, lets be clear about the modalities for the material movement i .e. understanding if the material movement involve transfer of goods to another Indian state (or sometimes to another Municipality) or would it be within the existing state where the goods would be currently present. To move the material within the state, the respective state Government would require certain forms etc to be filled and submitted by the respective mover. Generally, for movement within the state taxes would not be levied. However, we have seen in the past that taxes like LOCAL BODY TAX were levied by the respective state which were levied when goods moved from a certain municipal limits to another.
Similarly, for inter-state movement of goods, there could be prescribed forms etc which has to be complied with by the mover. Generally a lot of Indian States prescribe their own specified WAYBILLS - which has to be filled by the purchaser of goods (the person who is responsible for bringing the goods into that respective state). At the time of entry of goods into the respective state, there could be ENTRY TAX which would differ depending on the commodity / goods involved and the same would have to be discharged in prescribed timelines to the respective state Government. Interestingly, we find that in inter-state sale, there is a levy of CENTRAL SALES TAX at a concessional rate (as compared to VAT in such state) which later on requires the transacting parties to issue the prescribed C forms etc. to the seller. Similarly, there could be transactions such as sales in course of inter-state movement which would later on require issuance of E1 or E2 forms. In case of transfer from one branch to another, it would require issuance of F Form. These forms are state specific and every Indian state has prescribed procedures to issue / get the same - sometimes, online or otherwise from the Department.
In order to execute the above, one will require prescribed tax registrations. Any taxpayer who wish to execute sale transaction in a particular state, bring goods from one state to another (and issue C forms or E1 / E2 forms) or would like to deal in sensitive goods or would like to execute works contract in a state would require VAT and / or CST registration. It is important to include in such registrations details of all premises / places where goods would be lying or from where business of taxpayer would be performed. Commonly, it happens that after a main registration, additional places of business are added.
One would experience that the manner in which the above mentioned procedures are implemented and administered by the respective state Governments, it would be essential to obtain VAT / CST registration before any material movement. During the material movement, one has to ensure that valid waybills, invoice and other details are available with the transporter / carriage. The prescribed procedures are complied with. Entry tax or other taxes, wherever applicable, are paid in time. Necessary returns are filed within time. Prescribed forms are generated and provided to the concerned parties. Every time, the nature of transaction is understood clearly and necessary forms are procured and provided to carriage (even in case of branch transfers or job works, forms are required as we have seen above). Additional places of business are regularly updated. Whenever dealing with sensitive goods, prescribed procedures are followed.
It would flow as an imperative that non-compliance with any of the above requirements could have serious implications in terms of detention/seizure of goods, penalties and prosecution of people involved etc. Sometimes the stakes could get really high and implications very serious.
Thus, businesses must reckon that this area of material movement holds significant stake and exposure and thus, needs to be dealt with very professionally - as good or as bad as any other significant tax function.
In order to execute the above, one will require prescribed tax registrations. Any taxpayer who wish to execute sale transaction in a particular state, bring goods from one state to another (and issue C forms or E1 / E2 forms) or would like to deal in sensitive goods or would like to execute works contract in a state would require VAT and / or CST registration. It is important to include in such registrations details of all premises / places where goods would be lying or from where business of taxpayer would be performed. Commonly, it happens that after a main registration, additional places of business are added.
One would experience that the manner in which the above mentioned procedures are implemented and administered by the respective state Governments, it would be essential to obtain VAT / CST registration before any material movement. During the material movement, one has to ensure that valid waybills, invoice and other details are available with the transporter / carriage. The prescribed procedures are complied with. Entry tax or other taxes, wherever applicable, are paid in time. Necessary returns are filed within time. Prescribed forms are generated and provided to the concerned parties. Every time, the nature of transaction is understood clearly and necessary forms are procured and provided to carriage (even in case of branch transfers or job works, forms are required as we have seen above). Additional places of business are regularly updated. Whenever dealing with sensitive goods, prescribed procedures are followed.
It would flow as an imperative that non-compliance with any of the above requirements could have serious implications in terms of detention/seizure of goods, penalties and prosecution of people involved etc. Sometimes the stakes could get really high and implications very serious.
Thus, businesses must reckon that this area of material movement holds significant stake and exposure and thus, needs to be dealt with very professionally - as good or as bad as any other significant tax function.
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