Stock Transfer Under GST
What is Stock Transfer under Existing Law:-
- Under Excise
As per excise law, we need to pay excise duty on clearance of good from factory or place of business, so if we transfer goods from factory, we need to pay excise duty.
- Under Vat/CST
As per VAT/CST law, Stock Transfer is exempt to pay tax if it is within same State and if it is between of two or more states, then it is exempt only if F form is provided and if we fail to obtain F form then stock transfer is treated as Deemed sale and we need to pay tax on it.
Under Model GST law
Stock Transfer is not defined under GST, we need to construct the meaning by reading various provisions of model GST law.
- Section 3:- Section 3 is charging section which defines Supply of goods.There is sub-section 3(1) (c) which indicates that supply madse or agreed to be made without consideration where we can interpret it as stock transfer. it is always without consideration , hence Stock transfer is clearly coming under the ambit of Section 3.
- Schedule 1 of Model GST: – Schedule 1 says that supply of goods between related person OR Distinct persons, should be treated as supply of goods. Distinct person is explained under sec-10 of Model GST law which says every person is distinct person if having different registration number even in same state (refer to example 2) so each registration is distinct person.
Example 1:- Mr Ghanshyam has shoe shop in Karol Bagh, Delhi and having a branch office in Agra , he will be distinct person for both locations as he has to take two registrations under GST , if he transfers his stock from Delhi to Agra , it will be treated a supply under GST as it is between distinct persons as defined in Section 10.
Example 2:- Mr Jain has business of pharma and IT under company name Jain & co., he wants to take two registrations for both verticals to see their profitability separately, Jain & co. will be distinct person for pharma business and IT business as they have different registration under GST. If Stock is transferred from Pharma to IT, then it is deemed supply under GST.
Conclusion: – Stock Transfer is deemed Supply under GST and person transferring stock will be liable to pay GST, although he will be eligible to take its credit for future payment of GST.
Impact of Stock Transfer under GST
- More working capital needed due to taxability of stock transfer.
- Need to work upon warehousing to avoid regular stock transfer.
- Need to re-negotiate with vendors for return/payments terms.
- Need to arrange internal funding to pay tax on Stock transfer.
- Work upon Transportation cost if multiple warehouses to avoid stock transfer’s taxability.