View 2 against the invoice for intra_plant_sale

View 2 against the invoice for intra plant state

 

Preface : (Intra Company Transactions)

Preface : Please note that this is a “normal business activity”

Case 1 : Manufacturing Plants
Case 2 : Trading Shops / Showrooms
Case 3 : Warehouses

In GST Law :

For Same state Same GSTN transfers, Tax is NIL , both invoice can be made and Delivery challan can be madeBut in “Different State” There is no option, You have to make an invoice only and charge GST. compulsory.

Note on Impact on Profitability

Manufacturing Plants need Plant level Profitability analysis.Owners of Large Showrooms also want to know which Showroom is Profitable and which is in Losses.Hence they must transfer goods on Invoice– with impact on both profits and Stocks.

So, First we discuss case of Manufacturers

Case  1  : I have two factories. One makes the Semi Finished Product. The second finishes it, and sells to the final customer say Maruti / LG / Samsung / Hero / Honda 

Case  2  : I have One factory in Gurgaon and One Depot in Faridabad.
Factory makes the Product. The sells to the Depot, and Depot to the final customer say Maruti / LG / Samsung / Hero / Honda

So, the Question is

Will there be a Tax invoice under GST law ? Or a Delivery Challan, between Faridabad and Manesar Factories?

Right now everybody is “Evolving”. Even the Law is Evolving. And nothing is Final. So, Different Consultants are interpreting it differently.

The Short Answer: The Invoice is better.   but “Delivery Challan” is also a workable option for small companies.

Detailed Answer on:  Why Invoice is better Choice ?

Reason number 1 : Law says you have to make Tax invoice if you clear taxable goods to anybody (details below section 31).

Reason number 2 : How will you take out Plant Level profitability for Internal purposes. If you make a challan you will never ever make Plant level Balance Sheet / Plant level Profit and Loss Account. 

Reason number 3 : Finsys has the facility to netting out the inter-plant sales and inter-plant purchases in the Consolidated Trial Balance, so there will be no doubling of sales in the consolidated P and L Account.

Reason number 4 : Finsys has the flag to identify the Intra state sales separately ,so they will not go into the Online GST returns, in the taxable area. They will go into the tax free area. 

Reason number 5 : Stock out from RG-1 (Finished goods register),  will not reconcile with sales at plant level. It is best to make invoice so that stock out is equal to sales quantity.

Some Extracts from the GST Law

Reason number 1 : There is a section in law, that defines an Invoice

Section 2 (66) of SGST Act Haryana :  “invoice” or “tax invoice” means the tax invoice referred to in section 31;  So we see section 31 

Section 31. (1) A registered person supplying taxable goods shall, before or at the time of-

(a) removal of goods ………. or

(b) delivery of goods ………  

Issue a tax invoice showing the description, quantity and value of goods, the tax charged thereon and such other particulars, as may be prescribed:

 

So,

Your company is a Registered person? Yes

Your company is sending Taxable goods to plant 2 ? = Yes

Where does the Section 31 say that invoice only if tax is there? No where!

It says, if taxable goods are sent, you have to make an invoice.

Tax is zero or anything, Invoice will be made, or can be made. 

Next Question : Will I be charged SGST + CGST in this case ? If I make Invoice?

Short Answer : No

Detailed Answer : See the Law : Schedule I of the SGST Act.

SCHEDULE [See section 7]

ACTIVITIES TO BE TREATED AS SUPPLY EVEN IF MADE WITHOUT CONSIDERATION:

1. …………

2. 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:

 

Screenshot above : Different State – Same entity – still deemed to be Distinct persons and hence GST = YES. 

Next Question

But, are the Two plants of the Same GST number Distinct Persons?

Answer is “NO”, they are not.

How? See Section 25 of Haryana State SGST Act.

Section 25(4) A person who has obtained or is required to obtain more than one registration, whether in one State or Union territory or more than one State or Union territory shall, in respect of each such registration, be treated as distinct persons for the purposes of this Act. 

See.

So,
In an event wherein a company has two business verticals in same state and decides to have two different registrations in that state (GST Law gives that option).

Any stock transfer between these establishments of these two verticals would be liable to CGST + SGST. 

Example:  One Division is Distributor Trader of Importer Electronics Goods and Second Division is a Manufacturer of LED Lights. … So, if you exercise this option and apply for and get a second registration number, only in that case, you will have to charge GST, as applicable. Otherwise there is no question of CGST/SGST. It is not a “Supply at all”.