GST impact on Mobile Handset Companies - Part II

August 24,2016
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Nimish Goel, Partner & Head, Indirect Tax, International Business Advisors
Ujjwal Kumar Pawra, Senior Manager

This is the second article in a two article series discussing how GST shall impact the mobile handset companies in India.  The first article dealt with issues surrounding imports, make in India, stock transfers, tax rate, barter and CENVAT Credit while the second article shall discuss issues around Valuation.

Valuation Mechanism – Copying is Dreadful

Since inception of mobile handset companies in India, they have been subject to valuation on the basis of MRP (for Customs). However, domestic transactions are mostly carried out at transaction value. Under GST Model law the concept of MRP is proposed to be replaced with the ‘transaction value’ method (scope of which is enlarged).

While going through the provision, it is difficult to ignore the ‘inspiration’ from Excise and Customs Law. While the latter laws were formulated with different intention, the ‘inspiration’ may have its own ramifications. However, it would be interesting to see, how GST officers would consider the transactional value especially when the gambit of transaction value is enlarged. At the same time, it is important to understand whether the GST officers are well equipped to determine the true spirit of transaction value especially when similar issues under Customs and Excise laws have resulted in a plethora of litigations. There may be a possibility that similar litigations are initiated basis under the proposed model without considering the fact that the erstwhile rulings were in respect to a different statute with different objective.

Section 15 of the Model GST law enlarges the scope of ‘transaction value’ by compulsorily adding few items to compute the transaction value. We have attempted to capture few impact areas:

15(2)(a)             any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods and/or services;

Warranty Expenses

The defective component is replaced by the Authorized Service Centre (‘ASC’) and charges are borne by the handset mobile companies.

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