Taxability of GST on Stock Transfer of Goods

Stock transfers to a branch or consignee agent have been the norms of trade in both pre and post VAT regime and shall continue to be there in GST regime. Further. Stock Transfer can be both inter-State and intra-State. Various businesses contemplate options of supplying the goods to another dealer or opening up a branch in another State, sending the goods on stock transfer and then selling the same to its customers from that branch.

 Under Schedule I of the CGST Act, supply of goods or services or both between related persons or between distinct persons as specified in Section 25, when made in the course or furtherance of business, even if, without consideration, is subject to GST. Accordingly. Schedule I covers the transactions of stock transfer which is without consideration. The movement of goods or services from one State to another shall be considered as supply even though such transfer is to its own branch or to its own agent and consequently, same would be leviable to IGST. Further, the branch/consignment agent can avail the credit of IGST paid on such transfer and shall be entitled to adjust the against outward tax liability which will aid overall reduction of cost.

 

However, taxation of stock transfer is in effect only a pre-payment of tax on output which will primarily impact the working capital requirements. The quantum of impact will vary depending on stock turnaround time at warehouse, credit cycle to customer, quantum of stock transfer etc. Thus. working capital requirements of a supplier of goods or services or both shall increase in GST Regime. There is another reason for increase in working capital requirement of the supplier of goods due to abolition of C, E & H forms. Under GST regime, such supplier of goods who were making purchases against the strength of these forms will have to pay tax at applicable rate on all inward supplies made by them. It is not in dispute that credit for the same shall be available against outward tax liability, but funds will be blocked in the amount of tax till adjusted against output tax liability. In other words, firstly supplier of goods has to make payment of GST at full rate to its vendor on inward supplies of goods as benefit of concessional Central Statutory Forms is not available in GST regime. 

Further, such credit can be utilized by the supplier only when output tax liability will arise in future. Investment the amount of input lax till the credit of same can be utilized shall be an additional burden on the working capital of the supplier of goods. 

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