Post migration from the earlier regime of VAT, Excise & Service Tax Laws to the new Goods and Services Tax Act since July 2017, almost every taxpayer has been reeling to upkeep with the changes in law, which frequently hit them like sandstorms.
The Govt. made amendments to GST laws 30+ times during its 2 years stint, in consideration to the representations filed by the tax payers to cater the nuances of compliance's and ensure 100% adherence. We were bestowed with a legacy of filing 500+ GST returns in a year for its 20 states pan-India.
In the first 9 months of compliance i.e. July-17 to March-18, we had seen a GST cash outflow of ~21%, whereas the average gross margin or value addition was ~9%.
The above required us to act as a double-edged sword for -
- Slaying the incompetence's in the road of timely compliance and implementing amendments on one hand, and
- Strategizing ways to optimize utilization GST credit and significantly reduce cash outflow.
- To keep afloat in this everchanging & challenging environment, our peers hired experts from renowned consulting firms and purchased specialized application software, with a significant cost to the exchequer.
With an extra push to save such significant cost, we decided to swim against the tide with the internal team and resources available in the quest to minimize the cash outflow of GST.
In addition to mapping of amendments to GST law, to day to day activities, the following process were charted by our team -
- Reconciliation of Input Tax Credit claimed by us vs Returns filed by our Vendors (1000+ Vendors).
- Identifying Non-filers and educating them the importance of timely and correct filing of returns through WebEx, conference calls and face to face sessions.
- Ensuring timely processing of IV's for optimum recording of GST Credits in books.
- Synchronizing the Vendor and Customer master records with correct GST details and discouraging business from un-registered and non-compliant vendors.
- Refining HSN classification of entire Material master records for applying the correct rate of GST and avert future classification issues.
- Ensuring 100% generation of E-waybill for all supplies from our Co. irrespective of relaxations provided by the Govt. for smaller consignments or distances. We had implemented e-waybills w.e.f. 1st Feb 2018 whereas actual effective dates were postponed to April-June 2018.
- With cohesive research and inhouse guidance, we succeeded to bring down the Cash outflow of GST to ~8% through optimum utilisation of credit during April 2018 to March 2019 and ensure 500+ timely compliances.
Seamless flow of Credit under the GST mechanism required a set of genuine compliances by the supplier and recipient throughout the value chain of operations. In case of a single non-compliant supplier/vendor the chain was out to be disturbed and the recipient shall lose the credit. Hence, unlike the earlier indirect tax laws, now the recipient of credit was bestowed with the responsibility to ensure that the supplier is compliant to GST laws and safeguard the credit which he has paid as part of his purchase.
Our Co. is a recipient to a varied list of goods and services and so is the diversification of class of vendors. 20% of the Vendors (big in size) could afford to be compliant with the dynamic GST laws, the remaining 80% were unaware of the nuances of the law and its amendments.
So, the remaining 80% of the Vendors were brought on board through a series of webex, communications etc. about the new law and amendments therein to ensure error-free compliance from their end.
To optimize the utilization of credit, the following processes are imperative on part of Vendor -
- Raising a valid Tax Invoice in compliance with the GST Rules.
- Mentioning the correct HSN and Tax Rate.
- Determining the correct place of supply, selecting the correct GSTIN, Name and location of recipient where they have supplied goods and/or services and charging IGST or CGST & SGST accordingly.
- Timely filing of Invoice details through GST Returns along with payment of taxes.
- Generation of correct E-waybill for its supplies.
- Significant no. of our Vendors erred in one or the other compliance listed above, which were identified by us through the process of reconciliation of our purchase register with sales uploaded by them on the GST portal. Issues were categorized and highlighted via emails followed by face to face sessions, in support with the supply chain management, to remove their defects. Further assistance was provided to ensure necessary amendments are filed in their returns. Periodical verification was also done to see that the vendor was compliant enough to not put ours credit flow in jeopardy.
It has been the nature of the humans to repulse from accepting the new or change as they have cushioned themselves with the warmth of their old practices, garnered through a span of time. And so was the reaction of the taxpayers to accept the dynamic maneuvers of GST laws.
Our team engrossed with the vision of optimizing credit utilization and reduce cash outflow, was further embellished with the goal of educating our stakeholders about the changes in law and be more compliant to its requirements.
We became in-guise consultants for those who could not afford one and empower the successful implementation of GST throughout our value chain of operations. We were able to achieve this with internal guidance and brainstorming and without any external support of experts, unlike our peers.