Currently, there is a turbulence in the minds of car dealers, as the tax authorities are not leaving any stone unturned to curb the government’s revenue loss.
Time has arrived for the car dealers to be investigated by the Indirect Tax authorities. The surveillance is all about the discounts and freebies offered by major car dealers to their customers throughout the nation, under the agnosticism that they may have claimed an input tax credit on those free gifts without paying any GST on them. If the case is so, this will consequence the annihilation of government’s revenue.
To dig the issue deeper the indirect tax department has issued preliminary notices to some of the top-notch car dealers including Maruti Suzuki, Honda, Hyundai, Toyota and Tata Motors, probing details of discounts and freebies offered by them.
Preliminary notices make it apparent that the information excavated through them is all about the taxes paid and input tax credit availed during the transition from the older Tax regime to the GST regime. Through these notices, the tax department is trying to pore over whether the tax treatment of the discounts was done correctly or not during the transition period from old tax regime to GST framework and how these car dealers have figured out and claimed input tax credits on freebies they offered to customers.
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“The focus of the investigation seems to be on whether there is a revenue leakage for the department in the way dealers paid GST and availed input tax credit on the freebies and discounts offered to customers,” told Suresh Nandlal Rohira, the partner at Grant Thornton India.
In general car dealers offer discounts and freebies to customers when they buy cars. But in this case, dealers offered disorderly discounts and freebies on the basis of their sales. According to experts, dealers have been availing ITC on these kinds of stuff, and the taxman is not in favour of it as according to them there is no concept of “free” under GST regime.
“Many automobile dealers offer various freebies, which could be goods or services, whose value is embedded in the price of the automobile,” said M S Mani, partner at Deloitte India. “This makes it difficult to segregate the value of the free or discounted supplies.” He added
“Discounts were offered on cars just before GST was rolled out and the tax department is seeking information regarding discounts offered, the credit availed, GST paid and what were the Tran 1 (transitional credit form) submissions,” added by Rohira, Grant Thornton.
In the view of Industry experts, many manufacturers offered significant discounts and freebies in order to sell off the old backlog of inventory before the commencement of GST. Now the tax officials would be rummaging about in how taxes were computed when GST era was aroused on July 1, 2017.
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The tax department would delve into taxes paid by the dealers and the ITC availed. Transitional credit is the part of credit which is present in the books of companies and dealers since the GST regime began. The GST has given the way to counterbalance this transitional credit against future GST liability.
Under transitional credit, at the time of paying GST, a company is allowed to avail credit on taxes such as excise duty already paid on inputs under the previous tax system.
