Inter state sales and reselling - how taxes or commission on sales apply for seller and reseller
We are into furniture business and want to expand our business in other states. Model we want to choose is we as seller and other party to be reseller of our product. That could be on commission on sales basis or could be rebilled by the reseller to the end user of the product.
Kindly explain with appropriate example as to what are the options available to transact such business as stated above. What would be the impact of CST . In case it is billed on VAT and rebilled by seller on Vat how input credit works. In case we choose to work on commission basis what will be the impact of service tax for reseller and how to take input in such case. Can we as seller be benefitted too with input against service tax on commission.
As you have suggested, there are two models available to you:
I. Reseller Model:
In this model, the reseller will have to apply to Sales tax number in the other state. You would sell to the reseller and charge CST @2% on the sales. Obtaining C-Form compliance will have to be made.
The reseller purchasing your product will then sell it to the final customer. The reseller will get the input credit of CST@2% that was by you to the reseller. THe reseller shall charge VAT according to the respective state law.
II. Commission Model:
In this model, the commission agent in the other state will charge commission on total sales. If total commission amount exceeds Rs. 10 lacs, then no service tax is chargeable. If it exceeds Rs. 10 lacs, then Service tax is charged. No input credit is available against and of such service tax amount.
As this is a commission model, it would be a inter state sale. If you are selling it to a registered dealer in the other state, then answer would be the same.
However, if it directly to the end customer, then you will have to pay CST at the rate of State VAT applicable to you, i.e if State VAT on sale of furniture is 12.5%in your State, you will have to pay CST@12.5%.
Further, no set off of any input VAT will be available against the same.
Therefore in my humble opinion, you should go for the reseller model and not Commission model from the point of view of VAT & CST.
The disadvantage from the Income tax point of view would be that capital building on your account would be distributed, as you would be maintaining two different entities.
CA Dhruv Gaglani.