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 intrepreting 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 qnty 

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 I[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 excercise 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"
 
Hence Final Summary

Stock Transfer (Inter-State) : Haryana to Rajasthan

If goods are transferred from one establishment to another (of same entity) in different states, then it shall be treated as an inter-state supply and hence liable to IGST.

Stock Transfer (Intra-State) : Faridabad to Gurgaon(Both in Haryana) or Pune to Aurangabad( both in Maharashtra)

Two establishments of same entity within same state would get covered under single GSTIN (GST registration number). Thus, any stock transfer between them would not amount to supply and thus, no tax would be levied.

Can you make invoice ? Of Course, Since that section 31 is not talking about Supply, it is talking about Removal of Goods or Delivery of Goods. It says if Removal / Delivery is there, you have to make an invoice.

So, invoice is made, with ZERO tax

Hence the solution from Finsys side is
Make a Sales Order as usual

Seller : Own plant
Buyer : Your second plant
Your State : picked automatically by the ERP
Buyers state : picked automatically by the ERP

So, a Branch Transfer/Inter unit Sale invoice is made. 
And the tax rate is ZERO. 
Finsys will do this automatically, if the buyer is in Accounts master in the Accounts Group “02”.
 
Next : How to configure In accounts

Where the account to be opened in Trial Balance / Accounts ?In the Sales group, create two accounts

a)Sales ( Inter-Unit)

b)Purchases ( Inter-Unit)

Say, Account no 200031 = Sales( Inter-unit)  and  Account no 200032 = Purchase( Inter-unit)  
( Internal Note : Benefit of this is that, in the Plant that is selling, it becomes a “Sale” in the P and L account, and in the plant 2, which is purchasing, it becomes a “Purchase”). Further, in the Consolidated Profit and Loss account, these inter unit Sales and purchases are automatically netted-out.  

Journal Voucher automatically made In the books of Plant 1

Akito Kowa Ltd – Plant 2           Dr 
To Sales( inter unit) account
Note : There is no GST in case of inter unit sales within same state

Journal Voucher  made In the books of Plant 2

Purchases ( inter unit) account    Dr
To Akito Kowa Ltd – Plant 1    
Note : There is no GST in case of inter unit Purchase- within same state

Consolidated Trial balance will show something as follows :

So, there will be Automatic Net off of the Sales inter unit
Hence making inter unit Sales on Invoices is perfect solution

The contents of this circular are for Private circulation & intended for academic discussion only. We do not warrant that this information is free of mistakes, errors or any other defect. Care has been taken to provide authentic information, but it is advisable to confirm/verify with qualified legal practitioners, professionals before implementing any suggestions. The views expressed are not necessarily those of the MLG Associates. We encourage readers, our Members to write to us their opinions, suggestions, ideas, comments, thoughts and bring to our knowledge mistakes, omissions etc. which we’d be pleased to correct/implement.

For Large Traders

Yes use the Invoice Route between Showrooms. Helps you know who is making profits and who is bleeding you.
 
But use the Challan Route for (Same State) Warehouse to Showroom and vice Versa

For Very small Traders / Mom and Pop stores, with single location
Question does not apply at all
 
Small Trader with Two Locations in same city locations
One warehouse and one shop, Since they have limited infrastructure, they should make challans, to keep things easy ( Same State )

Think about going for Composition scheme, if it applies for you.

GST, enjoy... make your life easy