Consider the following scenario under GST.
A registered dealer and an unregistered dealer sell the same goods as follows:
| Seller | Registered Dealer (X) | Unregistered Dealer (Y) |
| Value of Goods | 100 | 105 |
| GST @ 12% | 12 | NIL |
| Total | 112 | 105 |
The question is whom should a buyer (A) Registered Dealer and (B) Unregistered Dealer purchase from?
The Sale is made at a price of Rs. 120 + GST by Registered Dealer and Rs. 145 by Unregistered Dealer
[A] Computation for Registered Dealer
| SALE | Purchase from Registered Dealer (X) | Purchase from Unregistered Dealer (Y) |
| Value of Goods | 120.00 | 120.00 |
| GST @ 12% | 14.40 | 14.40 |
| Total | 134.40 | 134.40 |
| PURCHASE | ||
| Value of Goods | 100.00 (Relevant Cost) | 105.00 |
| GST @ 12% | 12.00 | 0.00 |
| Total | 112.00 | 105.00 (Relevant Cost) |
| NET | ||
| Profit / Value Added | 20.00 | 15.00 |
| GST Payable | 2.40 | 14.40 |
| Total | 22.40 | 29.40 |
Clearly, for a registered dealer, it will be imperative to factor in the pre-GST cost as GST paid on inputs is available for set-off as tax credit.
[B] Computation for Unregistered Dealer
| SALE | Purchase from Registered Dealer (X) | Purchase from Unregistered Dealer (Y) |
| Value of Goods | 145.00 | 145.00 |
| GST @ 12% | 0.00 | 0.00 |
| Total | 145.00 | 145.00 |
| PURCHASE | ||
| Value of Goods | 100.00 | 105.00 |
| GST @ 12% | 12.00 | 0.00 |
| Total | 112.00 (Relevant Cost) | 105.00 (Relevant Cost) |
| NET | ||
| Profit / Value Added | 33.00 | 40.00 |
| GST Payable | 0.00 | 0.00 |
| Total | 33.00 | 40.00 |
Also, for a unregistered dealer, it will be imperative to factor in the post-GST cost as GST paid on inputs cannot be utilized for set-off as input tax credit.
In the given scenario,
- The Selling Registered Dealer (A) must purchase inputs from Registered Dealer (X).
- The Selling Unregistered Dealer (B) must purchase inputs from Unregistered Dealer (Y).
While the impact of the above principle so deduced on profitability will be on all sectors and some businessman are used to calculate costing of goods similarly while making decision of Local / Interstate purchases subject to VAT (Available for Input Tax Credit) and CST (Not available for Input Tax Credit), under the GST regime its importance will only grow.
CA Nirmal Ghorawat's Blog 