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Report on Impacts of GST and Infrastructure Preparedness of SCL.

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Report on Impacts of GST and Infrastructure Preparedness of SCL.

  1. 1. REPORT ON IMPACTS OF GST AND INFRASTRUCTURAL PREPAREDNESS OF SHREE CEMENT LTD. New Delhi May, 2016 Submitted by Raparthi Srinikith, Rao Ashish Dayashankar, Summer Interns IIM Rohtak To Shree Cement Ltd.
  2. 2. INDEX Contents Page No. 1. Introduction ..............................................................................................................................1 2. Present Tax structure and GST structure .................................................................................1 2.1 Taxes to be subsumed in GST ....................................................................................2 2.2 Taxes not to be subsumed in GST................................................................................2 2.3 Present and GST structure comparison table ..............................................................2 3. Registration, Return Filing, Payment and Refund Process.........................................................6 3.1 Compliances under GST registration ..........................................................................6 3.2 Compliances under returns in GST regime ..................................................................6 3.3 Compliances under GST payments ..............................................................................7 3.4 Compliances under GST refunds .................................................................................7 4. Tax Neutral Rate of SCL ............................................................................................................8 4.1 State Levied Tax (SLT) ................................................................................................8 4.2 Weighted Average Rate of State levies (WAR)............................................................8 4.3 Cascading Factor (CF) .................................................................................................8 4.4 Effective State Levies Tax (ESLT) ..............................................................................9 4.5 Effective Centre Levied Tax (ECLT) ..........................................................................9 4.6 Service Tax Apportionment ........................................................................................10 4.7 Sales and Service Value ..............................................................................................10 4.8 Framework of Tax Neutral rate or Break-even Rate ..................................................10 4.9 Arriving at Tax Neutral Rate or breakeven rate of SCL..............................................11 5. Model for optimization of distribution centers .........................................................................11 5.1 Methodology ...............................................................................................................12 5.2 Concept used ...............................................................................................................12 5.3 Effective Distance.......................................................................................................13 5.4 Conclusions drawn from the illustrations …………………………………………...15 6. Infrastructural Changes in IT system………………………………………………………….15 7. Appendix 1: FY15-16 Tax data of SCL …………....………………….………. (Not disclosed) 8. Appendix 2: Calculation of Tax Neutral Rate for SCL…………….…………... (Not disclosed) 9. References …………………………………………………………………………………….16
  3. 3. 1 | P a g e Report on Impacts of GST And Infrastructural Preparedness of Shree Cement Ltd. Raparthi Srinikith1, Rao Ashish Dayashankar2 1 PGDM, Indian Institute of Management Rohtak, Haryana, India. 2 PGDM, Indian Institute of Management Rohtak, Haryana, India. 1. INTRODUCTION Implementation of Goods and Service Tax (GST) in India will have a major impact on the Indian economy. Businesses will experience a change in the tax structure, tax compliances and the monetary value of taxes paid, which will impact the product pricing and ultimately the profitability. Analysing the change therefore is very crucial for businesses to make a smooth transition to GST regime. The report compares and contrasts the present taxation structure to that of GST structure, suggests the registration procedure, return filing, payment and refund processes after GST implementation. A framework to arrive at a Tax Neutral Rate for the organization to remain at par with the present Indirect tax system when the transition takes place is proposed. A model for efficiently restructuring the Supply Chain footprint of the organization, which takes advantage of the changes proposed in GST regime, is also proposed resulting in huge cost savings to the organization. 2. PRESENT TAX STRUCTURE AND GST STRUCTURES The present indirect tax system grants power to the Central government to levy Custom Duty on imports and exports, Excise Duty on manufacturing of goods (except alcoholic liquors for human consumption and opium, Narcotics etc.) and Service Tax on rendering of services. Apart from this, the residuary taxation powers also lie with the Centre. The States have been granted the power to levy Excise Duty on Alcoholic liquors for human consumption and opium, Narcotics etc octroi or entry tax, tax on consumption or sale of electricity, VAT on sale or purchase of goods (other than on inter-state sales) and luxury tax. GST is commonly described as indirect, comprehensive, broad based consumption Tax. The Dual GST which would be implemented in India will subsume many consumption taxes. The objective is to remove the multiplicity of tax levies thereby reducing the complexity and remove the effect of Tax Cascading. The objective is to subsume all those taxes that are currently levied on the sale of goods or provision of services by either Central or State Government. Subsumption of large number of taxes and other levies will allow free flow of larger pool of tax credits at both Central and State level.
  4. 4. 2 | P a g e 2.1 TAXES SUBSUMED UNDER GST GST would be levied on all the transactions of goods and services made for a consideration. This new levy would replace almost all of the indirect taxes. In particular, it would replace the following indirect taxes: At Central level  Central Excise Duty (including Additional Duties of Excise)  Service Tax  CVD (levied on imports in lieu of Excise duty)  SACD (levied on imports in lieu of VAT)  Central Sales Tax  Excise Duty levied on Medicinal and Toiletries preparations,  Surcharges and cesses At State level  VAT/Sales tax  Entertainment tax (unless it is levied by the local bodies)  Luxury Tax  Taxes on lottery, betting and gambling  Entry tax not in lieu of Octroi  Cesses and Surcharges 5.2 TAXES NOT SUBSUMED IN GST  Basic Custom Duty  Exports Duty  Road & Passenger Tax  Toll Tax, Property Tax  Stamp Duty  Electric Duty. 2.3 PRESENT AND GST STRUCTURE COMPARISON TABLE Sr. No. Particulars Present Taxation Proposed GST 1 Structural Architecture -Two separate VAT systems operate simultaneously at two levels, Centre and State, and tax paid (input tax credit) under one is not available as set off against the other –Tax on A dual tax with both Central GST (CGST) & State GST (SGST) will be levied on the same base. Thus, all goods and services, barring a few exceptions, will be brought into then GST
  5. 5. 3 | P a g e services is levied under separate legislation by Centre, i.e. Finance Act, 1994 which regulates service tax -No comprehensive taxation of services at the State level; few services are taxed under separate enactments -Import of goods in India are not subjected to State VAT base. There will be no distinction between goods and services for the purpose of tax with a common legislation applicable to both It allows seamless tax credit amongst Excise Duty, Service Tax & VAT 2 Place of Taxation Taxable at the place of manufacture or sale of goods or rendering of service It is consumption (destination) based tax 3 Tax Base Comparatively narrow Wider 4 Excise Duty Imposed by Centre under separate Act, Central Excise Act, 1944. Taxable event is manufacture; Taxed up to manufacturing point To be subsumed in CGST; Taxable event will be sale; To be taxed up to retail level 5 Basic Customs Duty Imposed by Centre under separate Act, i.e., Customs Act, 1962. Taxable event is import No change is proposed 6 CVD/SAD Imposed by Centre under separate Act, i.e., Customs Act, 1962. Taxable event is import To be subsumed in CGST; Taxable event will be import 7 Service Tax Imposed by Centre under separate Act (Finance Act, 1994). Taxable event is provision of service To be subsumed in CGST & SGST; Taxable event will be provision of service 8 Central Sales Tax Imposed by Centre under CST Act, 1956. Collection assigned to States; Taxable event is movement of goods from one State to another Is being phased out 9 State VAT Imposed by States; Taxable event is sale within the State To be subsumed in SGST; Taxable event is sale within State 10 Inter-State Transactions Imposed on goods & services by the Centre (CST, Service Tax) To be subsumed in GST and subject to SGST & CGST 11 Tax on Manufacturing activity As Excise Duty by Centre No such powers under GST regime 12 Powers to levy Tax on Sale of Goods Inter-State : Centre Local : State Concurrent powers to Centre & State 13 Powers to levy Tax on Provision of Services Service Tax by Centre Concurrent powers to Centre & State; States to tax more than 40 services 14 Tax on Import in India Goods are taxed to Customs Duty (comprises Basic Customs Duty, CVD & SAD); Services are taxed to Service Tax -Basic Custom Duty on goods : No Change - CVD & SAD on import of goods and import of services : To be subsumed in GST 15 Tax on Export Exempt / Zero-rated No change is proposed
  6. 6. 4 | P a g e of Goods & Services 16 Tax on inter- State Transfer of Goods to Branch / Depot or Agent Exempt against Form F Will be taxable 17 Tax on Transfer of Goods to Branch or Agent within States Generally exempt but depends upon State procedures May not be taxable 18 Cross-Levy set-off/ adjustment Excise duty and Service tax : Cross set off allowed No cross set-off between CGST and SGST will be allowed 19 Cascading Effect Allows CENVAT tax credit between Excise Duty & Service Tax, but not with VAT(cross set off is not allowed) Allows seamless tax credit amongst Excise Duty, Service Tax & VAT 20 Non- Creditable Goods Do exist May exist depending upon negative list/exemptions etc. 21 Credit on Inputs used for Exempted Activities Not allowed May not be allowed 22 Various Exemptions - Excise Free Zone or VAT Exemption Available May be phased out 23 Exemption for transit Inter- State Sale and High Seas Sale Available May be taxable 24 Transactions against Declaration Forms Allowed under the CST / VAT Forms likely to be abolished 25 Taxation on Govt. and Partially taxed May not change much
  7. 7. 5 | P a g e Non-Profit Public Bodies 26 Stamp Duty Presently taxed concurrently by the Centre and State Status not clear; If subsumed under GST, big relief to real estate industry : to claim input tax 27 Excise Duty Threshold Limit Presently Rs 1.5 crores Rs.10 lacs to 20 lacs (Turnover of Rs 1.5 crores & above may be administered by Centre and less than Rs 1.5 crores may be administered by States) 28 VAT Threshold Limit Presently, Rs 5 lacs to 10 lacs May be Rs 10 lacs to Rs 20 lacs 29 Service Tax Threshold Limit Rs 10 lacs May be Rs 10 lacs to Rs 20 lacs 30 Classification of Commodities Excise Duty based on HSN VAT not applicable Likely to be based on HSN 31 VAT/GST Registration Number Simple TIN (some States : PAN only based) PAN based 32 Procedures for Collection of Tax and Filing of Return For Central Excise & Service Tax, it is uniform. For VAT, it varies from State to State Likely to be uniform 33 Tax Administration Complex due to number of taxes Likely to be simple and easy, tax friendly 34 Use of Computer Network Just started by the States; very minimum; Central taxes are online Extensive; It will be pre-requisite for implementation of GST 35 Nature of Present Litigations - Sale or Service -Classification of goods -Interpretational issues -Sale or works contract -Valuation of composite transactions, etc. - Exemptions- Suppression/ limitation Likely to be reduced provided GST legislations are properly drafted
  8. 8. 6 | P a g e 3. REGISTRATION, RETURN FILING, PAYMENT AND REFUND PROCESS The Joint Committee constituted by the Empowered Committee of State Finance Ministers has made suitable recommendations for certain processes under GST, such as Registration, Return, Payment, Refund process. 3.1 Compliances under GST Registration The report of Joint Committee on GST Registration suggests the following procedure for migration of the existing registrants either with the Centre or State or both as follows- 1. All existing registered entities, whether with the Centre or State under any of the tax statues being subsumed in GST, would be allotted a GST registration number called Goods and Services Tax Identification Number (GSTIN) on voluntary basis. 2. At present, tax payers are separately registered with State and/ or with Central tax administrations or with both based on their business activity. In the GST regime, a taxpayer will have to obtain State wise registration. Even within a State, the taxpayer may either opt for a single registration or multiple registrations for different business verticals. 3. For Taxpayers Registered under State VAT/Excise i. GSTIN will be generated by NSDL in case of all VAT TINs where PAN has been validated. Along with a password the GSTIN will be sent to respective State Tax Authorities. ii. State tax authorities will communicate the GSTIN/password to taxpayers, with instruction to log on the GST portal and fill up the remaining data. State specific data over and above what is contained in the GST Registration Form can be collected after GST registration becomes operational. Tax authorities will communicate therefore, the GSTIN and password details with instructions to log on to the GST portal from which return filing and payment of taxes can be done after providing the additional required data after logging in. 3.2 Compliances under returns in GST regime Every registered assesse will be required to file returns (including NIL returns). It is pertinent to note that there could be as many as 8 returns as under: Type of Return as per return report Description Due date of filing GSTR 1 Outward supplies made by taxpayer 10th of the succeeding month
  9. 9. 7 | P a g e GSTR 2 Inward supplies made by taxpayer 15th of the succeeding month GSTR 3 Monthly return (inward supplies + outward supplies) 20th of the succeeding month GSTR 7 Return for Tax Deducted at Source 10th of succeeding month GSTR 8 Annual Return By 31st December of next FY The return (including NIL return) filing formalities may increase by manifolds as far as periodicity, number of forms and multiplicity of compliances are concerned. Compliance requirement may further become cumbersome as invoice level details are expected to be provided in the returns. For example, a service taxpayer, covered by the Central Service Tax legislation, is currently required to file half yearly return and within the GST regime, same Service Tax assesse might be required to file as many as 61 returns (5 returns per month i.e. GSTR 1, 2,3,6,7 and GSTR 8 annual return). 3.3 Compliances under GST Payments Payments of CGST, SGST, IGST and Additional Tax are required to be done through internet banking. For making e-payment of GST taxpayer will be required to access Goods and Services Tax Network (GSTN) for generation of the Challan where basic details (such as name, address, email, mobile number, and GST registration number) of the tax payer will be auto populated in the challan. Once the taxpayer chooses a particular bank for payment of taxes, GSTN will direct him to the website of the selected bank wherein taxpayer will make the payment using the USER ID and Password provided by the bank to enter into the secured e-banking area of his bank. In the challan the taxpayer will have to use separate accounting codes for making payment of CGST, SGST, IGST or Additional Tax. Further, accounting codes will also be provided for interest, penalty, fees or others payments. 3.4 Compliances under GST refunds Tax payers can claim refund of GST paid under situations such as exports, excess payment by mistake, refund of pre-deposit, refund to international tourists etc. For export of goods, the report suggests that the exporter should procure the goods on payment of appropriate GST and then claim refund of the same from respective Governments. It is also recommended that the option to procure duty free inputs for exported goods should not be available in the GST regime. As regards, deemed exports, the report suggests that deemed exports should be treated at par with exports. The report also suggests that refund form should be electronic format and refunds should be granted in a time bound manner and delay in processing of refund should enable assesse claim refund for such delay. The Committee recommends that the rate of interest in case of refund may be around 6% and that in case of default in payment of interest may be around 18%
  10. 10. 8 | P a g e 4. TAX NEUTRAL RATE FRAMEWORK Tax neutral rate is the GST rate at which the organization will be at par with the taxes being paid currently in the present regime to that of the GST regime. To arrive at the tax neutral rate or the break-even rate of the company in GST regime, the following framework is set considering all the aspects of changes that are deemed to take place after GST implementation. 4.1 States Levied Tax (SLT) The total monetary value of taxes paid to the state governments in the present Indirect tax regime from here on will be referred to as States Levied Tax (SLT). SLT includes the sum total of all the output taxes being paid to the state governments which include Value Added Taxes, Central Sales Taxes and Entry Taxes for all the seventeen states of operation. SLT = ∑ VAT + CST + ET 𝑎𝑙𝑙 𝑠𝑡𝑎𝑡𝑒𝑠 The sum total of value added taxes include the intrastate sales value inclusive of excise duty for all states of operation, charged at a respective rate of VAT levied by the states. This sum total represents total volume VAT paid to the state governments in the present regime. The sum total of central sales taxes include the interstate sales value inclusive of excise duty for each state of operation, charged respectively at full rate of CST or concessional rate which is availed against C-Form submission. This sum total represents total volume of CST paid to the state governments in the present regime. The sum total of Entry taxes represents the total volume of entry taxes paid to the state governments which levy entry tax upon the movement of goods and commodities from one territory to another. 4.2 Weighted Average Rate of State Levies (WAR) Weighted Average Rate (WAR) of State Levies is the percentage of SLT on Sales value inclusive of excise duty. WAR = SLT Sales inclusive of Excise Duty⁄ This weighted average rate charged on Sales inclusive of Excise Duty will give the value of SLT i.e. the total amount of taxes being paid to the states in the form of VAT, CST and Entry Tax. WAR is the key figure which is used in the calculation of cascading factor. 4.3 Cascading Factor (CF) Cascading Factor is the weighted average rate of state levies (WAR) which is taxed on Excise Duty. This factor signifies the tax on tax volume paid to the government which must be deducted from SLT as there will be no tax cascading effect after GST implementation.
  11. 11. 9 | P a g e CF = Excise Duty ∗ WAR This is the volume of taxes which the final consumers will be saving as there will be no burden of tax cascading effect in the GST regime. 4.4 Effective States Levied Tax (ESLT) Effective States Levied Tax is defined as the effective volume of taxes which will be paid to the State governments on goods in GST regime. All the factors of change from the present taxation regime to the GST regime are to be considered to arrive at this value. ESLT = SLT − CF − Input tax on Interstate purchases − ITC reversal There will be no Cascading effects post the implementation of GST, so the Cascading Factor must be deducted from SLT. Present Indirect tax system does not give credit on the input taxes being paid on the interstate purchases which the GST system does provide, effectively lessening the tax burden by the amount of input CST paid on interstate purchases, so the input taxes paid on interstate purchases must be deducted from SLT. The concept of ITC Reversal is null and void in the GST regime. The full value of input taxes paid will be available as ITC to the businesses without the deductions of reverse ITC effectively lessening the tax burden by the same volume. So the ITC reversal amount must be deducted from the SLT. Thus by deducting CF, input tax paid on interstate purchases and the ITC reversal amount from the SLT will give the value of Effective States Levied Tax (ESLT). 4.5 Effective Centre Levied Tax (ECLT) Effective Centre Levied Tax is defined as the effective volume of tax which will be paid to the Central Government on goods in the GST regime. Excise duty less CENVAT credit availed on service tax is considered as a major part of ECLT. Service tax CENVAT credit is deducted from excise duty because ECLT by definition is defined only on goods. Service tax CENVAT utilized is therefore accounted solely under Service Tax. ECLT = Excise Duty − Service Tax CENVAT credit + NON CENVATABLE Cesses NON CENVATABLE Cesses = Custom E Cess + Custom S&H Cess+ Clean Energy Cess Cesses on which no CENVAT credit can be claimed in the present regime should also be included under ECLT as they are not accounted in the Excise duty. These NON CENVATABLE Cesses include Custom E-Cess, Custom S&H Cess and Clean Energy Cess which are levied on coal imports.
  12. 12. 10 | P a g e 4.6 Service Tax Apportionment Service tax in the present Indirect tax regime is collected by the Central Government. Post implementation of GST, both Centre and states have stake on it. Service value charged at CGST rate will be collected by the Central Government and Service value charged at SGST rate will be collected by the State Governments. So the Service Tax paid wholly to the Central government in the present regime is required to be apportioned to the Central and State governments in the proportions of CGST (X) and SGST (Y) rates respectively. Service Tax apportioned to Centre = Service Tax ∗ X X + Y⁄ Service Tax apportioned to States = Service Tax ∗ Y X + Y⁄ The volume of Service Tax considered includes the input service tax paid for services received from providers and the output service tax paid for services rendered as a provider. The Service Tax CENVAT utilized on Excise duty is also accounted in the volume of Service tax considered. 4.7 Sales and Service Value To arrive at the sales value figure, the assessable value of VAT & CST which is inclusive of excise duty is considered. Excise duty less Clinker CENVAT is then deducted from the above assessable value to get the sales value. Sales Value = Basic Assessable Value of VAT & CST − (Excise Duty − Clinker CENVAT) Sales and Service Value = Sales Value + Service Value Clinker CENVAT is deducted from Excise Duty because the Excise duty paid for the manufacture of clinker in the Integrated Units is utilized when the clinker is transferred to the Grinding Units thereby nullifying the effect. Summation of Sales value and Services value thus obtained will give the total Sales and Service Value on which taxes are charged in the GST regime. 4.8 Framework of Tax Neutral Rate or Breakeven Rate To arrive at the break even CGST and SGST Rates, the volume of goods and service taxes which will be paid to the Centre and to the States in the GST regime on Total Sales and Services Value should be considered. The below mentioned equations have been framed to arrive at the breakeven CGST and SGST Rates post the implementation of GST.
  13. 13. 11 | P a g e CGST Rate(X) = ECLT + Service Tax ∗ X X + Y⁄ Sales and Services Value SGST Rate (Y) = ESLT + Service Tax ∗ Y X + Y⁄ Sales and Service Value The numerator part of first equation signifies the effective taxes paid to the Central Government and the numerator part of second equation signifies the effective taxes paid to State Governments in the GST regime. The breakeven CGST and SGST rates can be arrived therefore by solving the above equations for CGST and SGST Rates. 4.9 Arriving at Tax Neutral Rate or Breakeven Rate of SCL Data of SCL for the financial year 2015-16 is used in the above framework to arrive at the following Tax Neutral Rate for SCL Any rate which is set below the 24.94% rate will give Shree Cement Ltd a tax benefit stand. Going with 16% which is the committee’s preferred rate, tax benefit up to 9% can therefore be realized. 5. MODEL FOR OPTIMIZATION OF DISTRIBUTION CENTERS The present Indirect Tax system allows multiple warehouse strategy which decreases the interstate movement of goods thereby decreasing the associated tax. Warehouse location thus currently is not based on logistics consideration but rather is tax saving oriented. In GST regime, state boundaries are of least concern to the businesses as businesses will be paying the same volume of taxes for both inter and intrastate transactions. Thus, post the implementation of GST, the Supply Chain of Shree Cement Ltd. can be restructured to its operational efficiency, which will eliminate obsolete warehouses which have been set up to cater the local sales resulting in huge cost savings. The idea is to implement a distribution configuration which caters to the existing demand at a lower cost. The following GST Rate (X+Y) = 24.94% CGST Rate (X) = 13.25% SGST Rate (Y) = 11.69%
  14. 14. 12 | P a g e model is developed with the above idea to optimize the distribution centers after GST implementation. The model developed is implemented on few selected warehouses located in the states of Punjab and Haryana for illustration purpose and can be extended to all the warehouses which are under operation currently. Data very close to reality is used in the model for illustration purpose and does not pertain to the real-time data taken from Shree Cement Ltd. Real-time data of SCL can therefore be used in this model to arrive at the optimal supply chain configuration and to know the actual volume of cost savings. 5.1 Methodology The model considers all the warehouses of a business and the destination points to which these warehouses supply their finished goods to. It then computes the cost of operation for all the different configurations of warehouses that are possible and selects a configuration whose cost of operation is the minimum. Factors that are considered for the calculation of cost of operation are-  Average monthly sales of all the destination points.  Distances between warehouses and destination points.  Secondary Distribution Transportation charges  Warehouse Maintenance cost Fixed Cost: Cost that doesn’t depend on the amount of stock handled Variable Cost: Cost that depends on amount of stock handled For illustration eleven warehouses and thirty seven destination points are considered and cost is calculated for all possible configurations which in this case is 2048 (= 2^Number of Warehouses = 2^11). Warehouses considered are Amritsar, Bhatinda, Rohtak, Rohini, Chandigarh, Hissar, Karnal, Kaithal, Sirsa, Patiala and Jalandhar. 5.2 Concept Used The key points that are considered to find the optimal solution are-  Each destination point’s demand will be fulfilled by the nearest active warehouse.  Warehouses won’t supply to destination points which are more than 400 kilometers.  Relating the variable cost with the amount of inventory handled.  Relating the fixed cost with the status of the warehouse.  All possible configurations considered = 2 ^ (No. of Warehouses)  Each configuration results in a different warehouse distribution cluster which affects- Transportation Cost, Fixed cost and Variable Cost. These points are then converted into programming logic and Total cost optimizer is framed which calculates the total cost for every configuration of warehouses possible.
  15. 15. 13 | P a g e Total Cost Optimizer Value ‘0’ indicates the warehouse is operating and ‘1’ indicates the warehouse is closed. 5.3 Effective Distance Using the assumption that the warehouses won’t supply demand points more than distance of 400 Kms, Effective distance is defined accordingly which will eliminate distances that are greater than 400 Kms and also the distances to the destination points from warehouses that are closed down. Effective distance between all destination points and warehouses determines which warehouse should supply which destination point to minimize cost. Minimum of the effective distances from all the warehouses to a destination point then will determine the connectivity between that destination point and a warehouse. Once the connectivity is decided, quantity to be supplied by each warehouse and the total destination points supplied by each warehouse can be easily computed. Then a macro is run to understand which warehouses if closed will result in the least cost of operation. Dashboard Matrix developed to eliminate obsolete warehouses. Value ‘0’ indicates the warehouse is operating and ‘1’ indicates the warehouse is closed. This matrix considers all warehouse configurations that are possible and calculates the total cost with change in values of warehouse (0 or 1). The given dashboard is optimising total cost by optimising combination of fixed cost, variable cost and transportation cost. Value ‘0’ indicates the warehouse is operating and ‘1’ indicates the warehouse is closed. Eleven depots are taken for analysis. The model takes the combinations of different warehouses and computes the total cost for each such configuration. After the application of the analytical model, Warehouse AMRITSAR BHATINDA (S31)ROHTAK (S15)ROHINI CHANDIGARH HISSAR KARNAL KAITHAL SIRSA PATIALA JALLANDHAR Value 1 0 1 0 0 0 0 0 0 0 0 Fixed Cost 61762 30629 77484 64115 84240 35723 110490 73408 109642 113323 32484 Effective Fixed 0 30629 0 64115 84240 35723 110490 73408 109642 113323 32484 654054 Rs/MT 82.345 58 93.2 119.645 113.5 50 63.421 71.5 85 66.75 92.3 Total Variable cost 0 1436547.6 0 16089735 2021857.648 414287 1433503 1065231 775510 1051372.9 3502793.094 27790836.61 Total Transport Cost 27693497.9 Total Cost 56138388.51
  16. 16. 14 | P a g e it generates 2048 solutions out of which two best solutions are considered. Table below shows the most optimal and the second best optimal solution. Warehouse Present Most Optimal Second Optimal Amritsar 0 1 1 Bhatinda 0 0 0 Rohtak 0 1 0 Rohini 0 0 0 Chandigarh 0 0 0 Hissar 0 0 0 Karnal 0 0 0 Kaithal 0 0 0 Sirsa 0 0 0 Patiala 0 0 0 Jalandhar 0 0 0 Total Cost (Rs./Month) 58792794.38 56138388.51 56364531.42 0 indicates that warehouse is operating, 1 indicates that warehouse is closed. Thus optimal supply chain configuration is obtained by eliminating the warehouses located in Amritsar and Rohtak, which gives a cost saving of ₹ 2654405.00 per month. Saving opportunity of ₹ 3.18 Crore can therefore be realized per annum in Punjab and Haryana region alone. Warehouses are decreased from 11 to 9 thereby decreasing the supply chain complexity. After GST implementation, the remaining nine warehouses have to handle more tonnage and demand points than before. Destinations points served by operating warehouse and tonnage handled by each warehouse for the optimal solution are shown below. Warehouse Bhatinda Rohini Chandigarh Hissar Karnal Kaithal Sirsa Patiala Jalandhar Demand points Served 3 10 3 2 4 3 2 3 7 Inventory Handled (MT) 7484.2 14050.4 2123.15 4624.28 3596.6 6551.93 3334.29 3003.56 1755.8
  17. 17. 15 | P a g e Breakup of different costs for the optimal solution are- In Rupees Total Fixed Cost 6,54,054 Total Variable Cost 2,77,90,836.61 Total Transport Cost 2,76,93,497.9 Total Cost 5,61,38,388.51 5.4 Conclusions drawn from the illustration  Cost savings of ₹ 3.18 crore per annum for Punjab and Haryana zone.  Decreased the number of warehouses from 11 to 9 in Punjab and Haryana regions.  Reduction in supply chain complexity to a large extent.  Model if implemented on all warehouses will result in huge cost savings to the company. This model therefore suggests the infrastructural changes that are required in the supply chain to maximize the operational efficiency after GST implementation. 6. IT INFRASTRUCTURAL CHANGES Information Technology is a key area for business organizations, irrespective of the fact whether the organization is ready or not, on the very first day GST is introduced, the information technology system of an organization has to be ready and running else it will bring the entire business to standstill. For businesses having multi-state presence, currently, the IT systems of the business generate invoice/ bill with applicable respective VAT or CST. In GST regime, the IT System should generate invoice/ bill with applicable CGST and SGST or IGST and additional 1% tax, if applicable. For services, there could be more challenges as applicability of CGST and SGST or IGST will depend on the Place of Supply Rules (to determine whether the transaction is intra-State or Inter-State). Thus, embedding the Place of Supply Rules in the IT system could pose a major challenge. Given this, to avoid the threat of disruption of business, it is advisable that early study should be carried out to understand how the systems migration for GST could be done.
  18. 18. 16 | P a g e References:  http://www.mondaq.com/india/x/456858/sales+taxes+VAT+GST/Cost+Of+Compliance+Under+GST  https://www.taxmanagementindia.com/visitor/detail_article.asp?ArticleID=6603&kw=procedures- compliances-proposed-gst-law-india  http://howtoexportimport.com/Different-Tax-returns-under-GST-Goods-and-Service--2260.aspx  http://dor.gov.in/Gstintro  icaitv.com/live/cpe070813/GSTinIndia.pptx  http://www.gstindia.com/taxability-of-software-under-present-indirect-tax-laws-proposed-gst-with- examples-in-india/  http://www.cbec.gov.in/htdocs-cbec/gst  http://qz.com/317108/the-complete-guide-to-understanding-indias-biggest-tax-reform-the-gst/  http://www.gstindia.com/exemption-list-to-be-pruned-for-gst/  http://www.gstactindia.com/issues-in-cement-industry.html  http://www.prsindia.org/uploads/media/Constitution%20122nd/Brief--%20GST,%202014.pdf  http://gstindiaonline.com/  http://www.veertutorial.com/comparison-of-present-taxation-and-proposed-gst/  www.taxguru.in/wp-content/uploads/2015/.../GST-in-India-e-book-CA-Pritam-Mahure.pdf  Designing and Managing the Supply Chain by David Simchi-Levi  Cognizant (2012), India’s Goods and Service Tax: the Case for Distribution Network Redesign. Retrieved from http://www.cognizant.ch/InsightsWhitepapers/Indias-Goods-and-Service-Tax-the-Case-for- Distribution-Network-Redesign.pdf  ITC Infotech (2012), Looking Ahead – The Big Opportunity for Network Design - GST Introduction in India. Retrieved from http://www.itcinfotech.com/Uploads/GUI/knowledgecentre/GST_WP_Revised1.pdf  Mandar Shirsavkar, GST Preparedness (2015) .Retrieved from http://magnivirtus.com/index.php/2015/06/03/gst-the-tax-and-other-greater-implications-for-supply-chain- networks/  Rakesh Kumar (2015), Taking advantage of GST – Critical impact areas and implications. Retrieved from http://retail.economictimes.indiatimes.com/web/files/retail_files/reports/data_file-How-will-GST-impact- your-business-Report-1435137397.pdf  Report of the Joint Committee on Business Process for GST on GST Registration Process  Report of the Joint Committee on Business Process for GST on GST Payment Process  Report of the Joint Committee on Business Process for GST on GST Refund Process

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