EXCISE DUTY

Excise duty refers to the taxes levied on the manufacture of goods within the country, as opposed to
custom duty that is levied on goods coming from outside the country. Readers should note that  GST has
now subsumed a number of indirect taxes including excise duty. This means excise duty, technically,
does not exist in India except on a few items such as liquor and petroleum. The information given below
pertains to the functioning of Excise Duty in India before the implementation of GST
Excise Duty is a form of indirect tax which is generally collected by a retailer or an intermediary from its
consumers and then paid to the government. Although this duty is payable on manufacture of goods, it is
usually payable when the goods are ‘removed’ from the place of production or from the warehouse for the
purpose of sale. There is no requirement for the actual sale of the goods for imposing the excise duty
because it is imposed on the manufacture of such goods. The Central Board of Excise and Customs
(CBEC) is responsible for collecting excise duty
In India, almost all products are subject to excise duty provided the following four conditions are
fulfilled:

 There should be a manufacture

 The manufacture was in India (excluding special economic zone)
 The manufacture should result in goods
 The goods thus manufactured must be excisable (means the goods must be specified in central
excise tariff act,1985)

The legal framework around Excise Duty is majorly governed by the two acts-
 

 Central Excise Act, 1944

 Central Excise Tariff Act, 1985

The two acts underline the laws related to the levying of excise duty that extends to the whole of India.

LIABILITY FOR CENTRAL EXCISE

1. GOODS

For an item to be considered goods for the purpose of the levy of central excise duty, it must satisfy two
requirements:

1. Movability Goods must be movable. Duty cannot be levied on immovable property .Central excise
duty cannot imposed on plant and machinery

2. Marketability Goods must be marketable .The goods must be known in the market and must be capable
of being bought or sold

2. EXCISABLE GOODS For the liability of duty of central excise to arise, the item in question should
not only be goods it should also be excisable goods .A goods become excisable if and only if it is
mentioned in the Central Excise Tariff Act 1985. 
3. GOODS MUST BE MANUFACTURED OR PRODUCED

4. MANUFACTURING OR PRODUCTION MUST BE IN INDIA

Who is liable to pay? Since excise duty is levied on the manufacture of goods, the manufacturer of goods
should be liable to pay it to the government. According to the law, there are three parties which are liable
to pay the excise duty-

 The person/entity that manufactured the goods in question

 The person/entity that got the goods manufactured by hiring labour
 Person/entity that got the goods manufactured by other parties

Difference between excise and custom duty

While excise duty is levied on goods produced or manufactured within the country, custom duty applies
to the goods that are sold in India but were produced in a different country. Excise duty is to be paid by
the manufacturer of the goods and not by the consumer. Custom duty is to be paid by the importer of the
goods.

Objectives of excise duty

 Taxes are levied to ensure the smooth running of the public services in India. Excise duty is a part
of it.
  Taxes can also be a tool to control the sale of a good, especially narcotic substances and alcohol.
The increase in tax amount of such products may have eventually lead to reduction of purchase
due to ill affordability.

Types of Excise Duty:-

Basic Excise Duty (CENVAT) – This is specified under section 31 of Central Excise Act, 1944. It is
applicable on all excisable goods at the rate specified in first schedule to Central Excise Tariff Act, 1985

Special Excise Duty (SED) – It is levied as a surcharge on Basic Excise Duty. Its objective is to generate
additional revenue for some specified object. It is applicable at the rates specified in schedule second to
Central Excise Tariff Act, 1985.

Additional Duty:- It is applicable under either additional duty of Excise Act, 1957 or additional duty of
Excise Act, 1978

National Calamity Contingent Duty (NCCD):- It is levied on items like cigarettes, bidi, pan masala or
other tobacco products. It is specified under Finance Act, 2001

Merits of Excise Duty or Importance of Excise Duty

 1. Major source of Government revenue

 2. Psychological advantages to tax payer
 3. Easier to collect
 4. Balanced Industrial Growth
  5. Less collection cost
 6. Tax evasion difficult
 7. Control over wasteful expenditure
 Disadvantages or demerits of Excise Duty
 1. Increase the Price of goods
 2. The incidence is uniform
 3. Reduces demand of goods
 4. Increases project costs

VALUE ADDED TAX (VAT)

A value added tax (VAT) is a form of consumption tax. It is a tax on the estimated market value added to
a product or material at each stage of its manufacture or distribution, ultimately passed on to the
consumer. It differs from a sales tax, which is levied only at the point of purchase. Value Added Tax is
intended to be levied - or charged - whenever there is some value addition to raw material. The taxpayers
on the other hand, will get credit for the amount of tax paid off at the stages of procurement. The value
added tax system has proven to be effective in avoiding problems that normally might arise out of the
double taxation of goods and services. In sales tax, there is no provision for input tax credit, which means
that the end consumer may pay tax on an input that has already been taxed previously. This is known as
cascading and leads to increases consumer tax and price levels, which increases the rate of evasion and
can be detrimental to economic growth. The value added tax system deals with these problems quite
efficiently. As VAT is imposed on value addition - at every single stage - there is no incidence of
cascading. In this way, the final consumers bear the burden of paying value added tax. This system
involves absolute transparency at every stage of taxation, thereby making the tax system quite
comprehensible and simple. Value added tax is different from the conventional system of sales tax,
because VAT is charged at every stage of value addition - whereas sales tax is imposed on final value of
transaction only.

Basic concept of Vat

VAT works on the principle that when raw material passes through various manufacturing stages and
manufactured product passes through various distributions stages, tax should be levied on the ‘Value
Added’ at each stage and not on the gross sales price. This ensures that same commodity does not get
taxed again and again and there is no cascading effect. In simple terms, ‘value added’ means difference
between selling price and purchase price. VAT avoids cascading effect of a tax.
Basically, VAT is multi-point tax, with provision for granting set off (credit) of the tax paid at the earlier
stage, thus, tax burden is passed on when goods are sold. This process continues till goods are finally
consumed. Hence, VAT is termed as ‘consumption type’ tax with ‘destination principle’. VAT works on
the principle of ‘tax credit system’.
Meaning of ‘cascading effect of tax’
Generally, any tax is related to selling price of product. In modern production technology, raw material
passes through various stages and processes till it reaches the ultimate stage e.g., steel ingots are made in
a steel mill. These are rolled into plates by a re-rolling unit, while third manufacturer makes furniture
from these plates. Thus, output of the first manufacturer becomes input for second manufacturer, who
carries out further processing and supply it to third manufacturer. This process continues till a final
product emerges. This product then goes to distributor/ wholesaler, who sells it to retailer and then it
reaches the ultimate consumer. If a tax is based on selling price of a product, the tax burden goes on
increasing as raw material and final product passes from one stage to other.
For example, let us assume that tax on a product is 10% of selling price. Manufacturer ‘A’ supplies his
output to ‘B’ at Rs.100. Thus, ‘B’ gets the material at Rs.110, inclusive of tax @ 10%. He carries out
further procession and sells his output to ‘C’ at Rs.150. While calculating his cost, ‘B’ has considered his
purchase cost of materials as Rs.110 and added Rs.40 as his conversion charges. While selling product to
C, B will charge tax again @ 10%. Thus, C will get the item at Rs.165 (150 +10% tax). In fact, ‘value
added’ by B is only Rs.40 (150-110), tax on which would have been only Rs.4, while the tax paid was
Rs.15. As stage of production and /or sales continue, each subsequent purchaser has to pay tax again and
again on the material which has already suffered tax. Tax is also paid on tax. This is called cascading
effect.
VAT avoids cascading effect of tax
System of VAT works on credit method. In Tax Credit Method of VAT, the tax is levied on full sale
price, but credit is given of tax paid on purchases. Thus, effectively, tax is levied only on ‘Value Added’.
Most of the countries have adopted ‘Tax credit’ method for implementation of VAT. E.g.
‘B’ will purchase goods form ‘A’ @ Rs.110, which is inclusive of duty of Rs.10. Since ‘B’ is going to get
credit of duty of Rs.10, he will not consider this amount for his costing. He will charge conversion
charges of Rs.40.00 and sell his goods at Rs.140. He will charge 10% tax and raise invoice of Rs.154.00
to ‘C’. (140 plus tax @ 10%). In the Invoice prepared by ‘B’, the duty shown will be Rs.14. However, ‘B’
will get credit of Rs. 10 paid on the raw material purchased by him from ‘A.’ Thus, effective duty paid by
‘B’ will be only Rs.4. ‘C’ will get the goods at Rs.154 and not at Rs.165 which he would have got in
absence of VAT. Thus, in effect, ‘B’ has to pay duty only on value added by him.
Advantage of VAT over conventional system of taxation
The advantage of ‘consumption type’ VAT are as follows –
(a)    The tax burden is only at the last i.e. consumption stage.
(b)    It becomes easier to give concessions to goods used by common man or goods used for manufacture
of capital goods or exported goods and charge heavy duty on luxury goods.
(c)    Administration control is easy due to ‘credit method’ that can be adopted.
(d)   It makes no distinction between capital intensive and labour intensive activities. Tax avoidance by
classifying capital goods purchase as revenue purchase is avoided. This simplifies tax administration.
Simplicity and transparency. – Simplicity is because there are minimum variations in tax rates. Control
is through transparent audit system. Transparency is achieved as the total tax burden on a product is as
shown in invoice. There are no ‘hidden’ taxes. Audit system checks over dealers and ensures proper
payment of taxes.
Reduction in tax evasion – Tax evasion is reduced. Input credit is available only if evidence of duty
payment through invoice is available. The buyer will not get input credit if seller’s tax invoice is not
available. Thus, practically, buyer keeps a check on seller.
Disadvantage of consumption type of Vat –
(1) All tax is collected in the State in which goods are finally consumed. State in which goods are actually
produced do not get any tax, while the State Government has to provide infrastructure and other facilities
for production for which it has to spend huge amounts. This is the reason why some States are insisting
on imposing purchase tax in such cases, which is obviously against the principle of consumption based
tax.
(2) The States get indirect benefits like growth of employment, improved economy etc. but no direct
benefit of Vat/ sales tax.
(3)Tremendous paper work and record keeping in VAT. Vat system can work only if record keeping is
proper and reliable. The elaborate record keeping is not possible to small businesses. Hence, an
exemption is granted to tiny businesses whose turnover is below prescribed limits. In case of small
businesses, a composition scheme is provided where tax is paid on gross value of sales at a fixed rate.
Other related problems with VAT are:
¨      Bogus Invoices on which tax credit is availed.
¨      Acquisition fraud (Mission trader fraud).
¨      Carousel Fraud.
‘Acquisition fraud’ – The acquisition fraud is based on the fact that goods imported are tax free. A
dealer imports goods and makes sale within the country. The dealer either has his own Vat registration
number or he hijacks other’s Vat number. He collects the tax from buyer and then disappears without
paying the collected tax to the Government. The buyer is usually innocent and is not aware that the seller
is not going to pay tax to Government. This is ‘missing trader fraud’ of one type
In Indian context, this fraud is possible when CST rate is Nil or is reduced to 1%. A dealer can purchase
goods inter -state and makes sale within the State. He will collect tax and then disappear. He may use
someone else’s Vat number in his invoices or may himself get registered with address of some rented
premises.
 ‘Carousel fraud’-Carousel means ‘merry- go- around. ‘This type of fraud is difficult to trace. E.g. a
dealer ‘A’ imports goods without tax. He sells goods to ‘B’ and charges VAT. ‘B’ avails credit of tax
shown by ‘A’ in his invoice. ‘B’ sells the goods to ‘C’ and charges VAT. ‘B’ has to pay only differential
amount as tax. ‘C’ exports the goods and claims the refund of input tax i.e. entire tax shown by ‘B’ in his
invoice. This is a valid transaction. The missing link is that ‘A’ actually does not deposit tax to
Government. Thus, ‘C’ gets refund of tax which is not paid by ‘A’. By the time Government traces the
transaction to A, he has disappeared. The same goods are used again and again for ‘imports’ and
‘exports.’ That is why the fraud is termed as ‘carousel fraud.’
Non Availability of Input Credit In Certain Cases
Credit or tax paid on inputs will be denied in following situations-
No credit if final product is exempt- Credit of tax paid on inputs is available only if tax is paid on final
product. Thus, when final product is exempt from tax, credit will not be availed. If availed, it will have to
be reversed on pro rata basis.
Restricted credit if output goods are transferred to another state – If the final products are transferred
to another state as stock transfer or branch transfer, input credit availed will have to be reversed on pro
rata basis, which is in excess of 2%. In other words, in case of goods sent on stock transfer/branch
transfer out of state, 2% tax on inputs will become payable e.g. if tax paid on inputs is 12.5%, credit of
10.5% is available.
When CST rate is reduced to Nil, full credit of tax paid on inputs will be available i.e., inter-state sales
and stock transfers will be ‘zero rated’ and not ‘exempt’.
No input credit in certain cases- In following cases, the dealer is not entitled to input credit-
(a)     Inputs used in exempted final products
(b)     Final product not sold but given as free sample
(c)     Inputs lost/damaged/stolen before use. If credit was availed, it will have to be reserved.
Broadly, the following purchases are not eligible for Vat credit-
(d)    Final product is exempted from Vat.
(e)     Inter-state purchases i.e. goods purchased from outside the state
(f)      Goods imported (obvious, since there will be no Vat invoice)
(g)     Goods purchased from unregistered dealer (as he cannot charge Vat)
(h)     Goods purchased from dealer who is paying Vat under composition scheme (as he cannot charge
Vat separately in invoice)
(i)       Purchase where final goods sold are exempt from tax
(j)       Final product is given free i.e. goods not sold
(k)     Inputs stolen/lost/damaged before use/sale as there is no sale
(l)       Proper Tax Invoice showing Vat separately is not available
(m)   Ineligible purchases like automobiles, fuel, certain capital goods etc. as specified in relevant state
Vat law i.e. items in negative list.

CENTRAL SALES TAX

Central Sales Tax (CST) is a tax on sales of goods levied by the Central Government of India. CST is
applicable only in the case of inter-state sales and not on sales made within the state or import/export of
sales. 

Inter-state sale is when a sale or purchase constitutes movement of goods from one state to another.
Accordingly, consignments to agents or transfers of goods to branch or other offices is not a sale as per
the CSTAct 
CST is payable in the state where the goods are sold and movement commences. The tax collected is
retained by the state in which the tax is collected. CST is administered by Sales Tax authorities of each
state. Thus, the State Government Sales Tax officer who assesses and collects local (state) sales tax also
assesses and collects CST.

Sales Tax is a tax, levied on the sale or purchase of goods. There are two kinds of Sales Tax i.e. Central
Sales Tax, imposed by the Centre and Sales Tax, imposed by each state.

 INTER-STATE SALE
An inter-state sale takes place when a sale or purchase:

 Leads to movement of goods from one State to another State.

 Is achieved by the transfer of documents of title while the goods are being moved from one State
to another State.

Example 1: “A” in Orissa sells and delivers goods to “B” in Gujarat.

Example 2: “X” in Orissa delivers goods to “Y” in Calcutta. “Y” sells it to “C” in Delhi by transferring
the document of title during the goods movement from Orissa to Delhi.  

Note: Goods that are sold within a state, but while transporting travel through another state is not
considered inter-state sales.

WHAT ARE THE OBJECTIVES OF CST ACT?

1.         Formulate principles for determining when a sale or purchase of goods takes place:-
-           in the course of interstate trade or commerce; or
-           outside a State; or 
-           in the course of import into or export from India.

2.         Provide for the:-

-           levy of 
-           collection and 
-           distribution of taxes on sales of goods in the course of interstate trade or commerce.

3.         Declare certain goods to be of special importance of interstate trade or commerce.

4.         Specify the restriction and conditions to which state laws imposing taxes on the sale or purchase
of such goods of special importance shall be subject.

5.         Provides for collection of tax in the event of liquidation of a company.

6.         Authority to settle disputes in course of interstate trade or commerce.

WHAT ARE THE CONDITIONS FOR CST ACT TO BECOME APPLICABLE?

1.         The sale should not take place in the course of import into or export from India.
2.         There should be a Dealer and such dealer must be registered under the CST Act.
3.         He should made a sale to any buyer (registered dealer or unregistered dealer)
4.         He should carry on any business.
5.         He should made a sale of any goods (declared or undeclared)
6.         The sale should be made in the course of interstate trade or commerce (i.e. the sale should not be a
sale inside a state.

WHAT HAPPENS IF THE ABOVE CONDITION ARE SATISFIED

1.         The CST Act becomes applicable and CST is levied at the Rate specified.
2.         It is levied on Turnover, which in turn is computed on the basis of the sale price.
3.         It is payable by the dealer who makes the sale in the course of interstate trade or commerce.
4.         It is payable in respect of sale of goods effected by him during the year.
5.         It is so payable to appropriate state in which the dealer has a place of business.

RATE OF CST

 In an inter-state sale to a registered dealer against form C the rate of CST is 4% or local sales tax
rate whichever is lower.
 If under the local sales tax law, sale or purchase is exempt from CST the CST is Nil.
 In an inter-state sale to government against form D the rate of CST is 4% or local sales tax rate
whichever is lower.
 Rate of CST in case of  inter-state sale of declared goods without  form C or D  is twice the rate
of tax applicable to the local sale or purchase of such goods in that state.
 Rate of CST in case of other goods (i.e. non-declared goods) is 10% or the applicable local sales
tax of that state, whichever is higher.

SERVICE TAX
Definition: Service tax is a tax levied by the government on service providers on certain service
transactions, but is actually borne by the customers. It is categorized under Indirect Tax and came into
existence under the Finance Act, 1994.

Description: In this case, the service provider pays the tax and recovers it from the customer. Service
Tax was earlier levied on a specified list of services, but in the 2012 budget, its scope was increased.
Services provided by air-conditioned restaurants and short term accommodation provided by hotels, inns,
etc. were also included in the list of services.

It is charged to the individual service providers on cash basis, and to companies on accrual basis. This tax
is payable only when the value of services provided in a financial year is more than Rs 10 lakh. This tax
is not applicable in the state of Jammu & Kashmir.
The salient features of levy of service tax are:

1.  Scope: It is leviable on taxable services ‘provided’ or ‘to be provided’ by a service provider. The
services ‘to be provided’ in future are taxed only if payment in its respect is received in advance.

Two separate persons required Payment to employees not covered: For charge of service tax, it is

necessary that the service provider and service recipient should be two separate persons acting on
‘principal to principal basis’. Services provided by an employee to his employer are not covered service
tax and, therefore, salaries or allowances paid to them cannot be charged to service tax.

2.  Rate: It is leviable @ 12% of the value of taxable services. Education Cess @ 2% and Secondary and
Higher Education Cess @ 1 % are chargeable on the amount of service tax, thus, making the effective rate
of service tax at 12.36% of the value of taxable service.

Update: While presenting the Budget 2015, the FM had increased the Service Tax Rate from 12.36% to
14%. This new rate of Service Tax @ 14% was applicable from 1st June 2015. Moreover from 15th Nov
2015, Swachh Bharat Cess @ 0.5% also got applicable. Budget 2016 has proposed to impose a Cess,
called the Krishi Kalyan Cess, @ 0.5% on all taxable services. The new effective service tax rate in India
could henceforth be 15%.

3.  Taxable services: Service tax is leviable only on the taxable services. Taxable services mean the
services taxable under section 65(105) of the Finance Act, 1994.

4.  Value: For the levy of the service tax, the value shall be computed in accordance with section 67 read
with Service Tax (Determination of Value) Rules, 2006.

5.  Free services not taxable: No service tax is leviable upon the services provided free of cost.

6.  Payment of service tax: The person providing the service (i.e. the service provider) has to pay service
tax in such manner and within such period as is prescribed in the Service Tax Rules, 1994. The service
tax is to be paid only on the receipt of payment towards the value of taxable services.

7.  Procedures: Provisions have been made for registration, assessment including self-assessment,

rectifications, revisions, appeals and penalties on the service provider.

8.  CENVAT credit: The credit of service tax and excise duty across goods and services is allowable in
accordance with the CENVAT Credit Rules, 2004. Accordingly, output service provider (i.e. provider of
any taxable service) can avail credit not only of the service tax paid on any input service consumed for
rendering any output service but also of the excise duty paid on any inputs and capital goods used for
rendering output service. CENVAT credit so availed can be utilized for payment of service tax on taxable
output service.

9.  Services provided by an unincorporated association/body to its members also taxable

[Explanation to Sec. 65] : ‘Taxable  service’ includes any taxable service provided  or  to be provided
by  any  unincorporated  association or  body  of persons  to a member thereof, for  cash, deferred 
payment or  any  other  valuable  consideration. Hence, the services (falling under any category of taxable
service) provided or to be provided by any unincorporated association/body to member thereof shall be
liable to service tax. This provision is an exception to the ‘principle of mutuality’.

10. Performance of statutory activities/duties, not ’service’: An activity performed by a

sovereign /public authority under provisions of law does not constitute provision of taxable service to a
person and, therefore, no service tax is leviable on such entities.

11. Import/Export of services: While import of services is chargeable to tax u/s 66A, the export of
services has been made exempt from tax. Import/export provisions are discussed separately.
EFFECT OF GST ON LOGISTICS AND SUPPLY CHAIN BUSINESS / INDUSTRY

Introduction to GST:-

CGST Act 2017: GST (Goods and Services Tax) or CGST (Central Goods and Services Tax) was
introduced as The Constitution (One Hundred and Twenty Second Amendment) Act 2017, following the
passage of Constitution 122nd Amendment Bill. CGST bill was introduced in Lok sabha on 23rd March
2017. Later on 12th April 2017 Dr.Pranab Mukherjee the then President of India gave the consent to the
bill. GST is an indirect tax throughout India to replace taxes levied by State and Central government of
India on goods and services. It is a uniform indirect tax removing all the other taxes levied at different
stages bringing uniformity in the tax system.

Salient features of GST:

1. Applicable to both intra-state and inter-state transactions

2. Applicable at the time of supply

3. Administration at state and central level

4. Follows a two-rate structure

5. Levied on import of goods and services in India

Background of logistics

Logistics can be defined as the planning, execution and control of the procurement, movement,
stationing of personnel, material and other resources to achieve the objectives of a campaign, plan,
project, or strategy. It may also be stated as the “management of inventory in motion and at rest.”

Logistics is considered as the backbone of the manufacturing and trading activities in the Indian
economy.  It plays a crucial role in developing countries where consumption is reaching a peak and
demands are ever-increasing. A well developed and organized logistics industry will leapfrog the
“Make in India” initiative taken by the Modi Government to its required position.

Simplifying it, logistics can be considered as the transport of goods from its point of origin to its
point of consumption i.e. to the end user. A well planned and well organized logistics will ensure
delivery of right items at the right time to the right destination in a proper condition to the right
consumer. Everything goes for a toss if any of this is not met properly. The stakes remain high for
both consumer and supplier.

The overview of the logistics in the present scenario:-

Indian logistics is expected to grow at a CAGR of 8.6 percent between the year 2015 and 2020,
which grew at a rate of 9.7 percent during 2010-2015.

Transportation and communication accounted for 7.0 percent of the nation’s Gross Domestic Product
(GDP) in the year 2015, accounting for around US $130.44 billion.
Drawbacks of the present logistic industry:-

The present logistic industry is fragmented and under- developed. Due to this, the logistic costs are
relatively and adding on to the causes are:-

 Poor physical and communication infrastructure

 High dwell time at ports
 Under developed containerization
 Multi-layered tax system- this contributes to the significant delays at border crossing points.

On the whole, the Indian logistic industry is not as efficient as it is expected to be which causes delay
in the transportation of goods and services.

IMPACT OF GST ON LOGISTIC COMPANY

The implementation of the goods and services tax (GST) ushered in much-needed reforms in India’s
largely unorganized logistics and transport sector, and helped speed up movement of trucks,
according to industry executives. Transporters and logistics players said the switch to GST led to at
least 20% reduction in turnaround time of trucks after border check posts were dismantled. Besides,
they said, implementation of the e-way bill on consignments of Rs 50,000 and above was gradually
freeing them from unnecessary checking by the state government raid parties.

With the implementation of the Goods and Services Tax (GST) from 01 July 2017, business units
across the country are beginning to feel its impact. Since the GST has subsumed all other taxes, such
as service tax, VAT, Octroi, excise duty etc. collected by the central and state governments in India,
the reforms are extensive. Their impact too is comprehensive and is expected to continue well into
the future.
Like all other industries in India, GST impact on logistics and supply chain will also bring some
major changes in the way these domains operate, as well as their bookkeeping activities. Logistics is
a small but major part of supply chain management that concerns the administration of goods
distribution in an efficient manner.
The logistics industry includes the road transport sector (comprising unorganized and small
enterprises, trucking companies and other fleets), the storage and warehousing domain and the third-
party logistics. The operational efficiency of this industry had been falling due to the complexity of
networks, growing coordination costs across supply chains, inadequate infrastructure and the levying
of entry fee in different states. In addition to these, the multitude of business taxes was making
logistics management an unwieldy and expensive process.
Most firms had to establish hubs and transit points in several states to avoid the state value added tax
(VAT) because the goods directly supplied to dealers were taxed as per the VAT rate, but the transfer
from the warehouse was treated as a stock transfer and did not attract VAT. However, this only
caused more problems in accounting and lack of clarity for companies, while also resulting in
opportunities for tax evasion.
GST for logistics companies 
With GST now having replaced the multiple state taxes, there is no longer the long-prevalent need to
install a hub across all states. Companies can remodel their supply chains and consolidate their hub
operations to benefit from large-scale operations. It will also help them to use efficient practices like
bulk breaking and cross-docking through a centralised location.
Under GST, the tax on warehouse and services involving manual labour has increased to 18% from
the previous tax rate of 15%. With this change, a third-party Logistics Company will have greater
incentive to provide services where the degree of value addition is high and where input tax credit
can be claimed. This, in turn, will help in the consolidation of storage and warehouse sector.
With the convenience of entry across states by measures like the e-way bill, transportation delays
will be reduced, although it will also call for streamlined IT systems and readily usable
documentation at the entry points. For the third-party logistics companies, the costs of designing a
logistics network will be less, and asset-light firms will be able to adapt quickly and reap more
advantages in comparison to asset-heavy firms.
Impact of GST on supply chain
Before we look at the GST impact on supply chain, it must be understood that supply chain
management is vital for the running of business organizations producing and distributing
merchandise. Each business has standards for inventory turnaround, and these must be diligently
adhered to in order to ensure optimum profit for the organization. A loss of inventory at any point
will result in a loss of value.
Post the implementation of GST, the benefits accrued by entities in supply chain management
mechanism include:
Customisation of supply chain – Under GST, manufacturers can shift towards tailored supply chain
models as per customer requirements. The removal of stock transfer benefits can help in increasing
the share of direct dispatches for medium and large-sized dealerships.
Superior inventory management – After the elimination of multiple state-level taxes in lieu of a
uniform GST rate, the stock points have been optimized and channel inventories reduced. There will
be fewer transit stays after GST, which will help in advancing lead times while also reducing
inventory levels at stocking points. With more potential for consolidation, warehouse management
can also become more efficient.
Tangential decrease in incoming logistics costs – An impact of GST on supply chain will also be
seen in the form of tangential benefits for direct out-of-state procurements and logistics costs. This
can help manufacturers to expand their vendor base outside state boundaries and alter the sourcing
models profitably.
Cash flow management for export businesses – Due to GST, tax exclusion benefits will continue
with minimum effect on the bottom line, and a streamlined tax system will help in promoting more
exports.
Modified after-sales distribution models- Implementation of GST can significantly affect the spares
market due to an increased need for storage and retail penetration. Forward-looking businesses can
develop their distribution footprint to retreat from consignment stocking, and enable customized
supply chain models while also offering high-quality service at lower costs.
Overall, the logistics and supply chain management industry has been touted as one of the primary
beneficiaries of GST structure. To begin with, there will be more compliance and adjustment costs
because the frequency of filing returns has increased for businesses. Further, to claim the input tax
credit, compliance will be expected from every single party across the value chain. This may hurt the
profitability of the industry in the short run, but in the long run, operational efficiency is bound to
enhance.

ADVANTAGES OF GST TO LOGISTIC COMPANIES

COST / TIME SAVING:

Bigger warehouses and end market driven logistics planning is likely to result in meaningful costs
savings over time. On account of entry taxes and heavy paper work at state check posts, there is an
additional 5-7 hours added to the transit time for inter-state transport of goods. Abolishment of entry
tax and easier tax compliance procedures is likely result in easier movement of goods across the
country.

FORWARD INTEGRATION:

As these companies gather scale, that will enable them to offer services at lower costs. As a result,
companies for whom transportation is not a core part of their business will increasingly outsource
their logistics operations to third party logistics (3PL) and fourth party logistics (4PL) service
providers.

SINGLE RATE:

Standard tax rates will allow corporations to move away from the practice of building a warehouse in
different states to adhere to each state’s tax code. A big packaged consumer goods company could
thus make do with one large mother warehouse at critical points in the country and employ logistics
companies to manage distribution and supply chains

Benefits to the Indian Economy:-

1. A formation of better environment to perform businesses in India overtime would be

developed and this will eventually provide a platform for a better economic growth helping
India to transform into a developed nation.

2. Implementation of GST will give the control to the Indian Government to exercise tax duties
bringing down the expenses within the system; will also deduct unaccounted part of the
economy thereby increasing the Government resources.

3. This will enhance the competitive spirit in the Indian economy to match with the levels of
developed nation’s economy within the global economic system.

4. This will also increase the funds and hence can be used for the development of the nation.

MAIN CUSTOMERS OF THE LOGISTIC INDUSTRY

 Healthcare and pharmaceutical industry.

 Auto and auto components industry

 Lifestyle and readymade garments,

 High tech, engineering and

 Mobile telephone including base towers and mobile telephones.