‘Introduce indemnity clauses with suppliers on tax compliance’
A lot has been written about various aspects of transitioning to GST, but sparse little about contractual caution points. Businesses may refer to the following key aspects in this regard and then negotiate/enter into suitable contracts, capturing the requisite amendments:
Begin by examining if your contract price is ‘tax extra’ or ‘inclusive of taxes’
If it is tax-inclusive, please examine if your ‘change-in-lawclause’ enables tracking the impact of this change across the supply chain? Simply put, if your service provider claims that the tax rate has gone up from 15 per cent service tax to 18 per cent GST and you should pay three per cent extra, does your contract permit you to ask: “15 per cent was on ~100. But, now owing to GST, your ~100 may have gone down to ~95. Before I pay the extra three per cent, you need to pass on the benefit of this reduction from ~100”
If not, resort may be taken to anti-profiteering provision under the GST and Section 64A of the ‘Sale Ownership clauses today are often predicated upon tax arbitrages under the extant VAT/CST regime (like E1/E2 or ‘in-transit’ sale). Now that the tax arbitrage is gone, we ought to agree upon a transfer of title clause that makes sense commercially
Given the concept of credit mismatch under GST, companies ought to introduce specific indemnity clauses obligating the supplier of goods/service to comply with all procedural requirements so as to enable the recipient to avail input tax credit in a timely manner Criteria of ‘GST Compliance rating’ may need to be introduced
There are several rate slabs and classifications under GST along with ambiguities about ‘composite’ and ‘mixed’ supplies. It should come as no surprise that the debate of ‘single-versus-multiple’ contracts will transition to GST.