MUMBAI: Some retail stores and chains are preparing for a year-end sale this December, with discounts up to 50% likely on branded clothes, gadgets, kitchen appliances and toys if they don’t get relief from a restriction imposed in the goods and services tax regime.
Retailers who bought goods without corresponding invoices before GST was implemented on July 1 are not entitled to claim transitional credit after six months. This means that those who still hold such goods won’t be able to set off the taxes paid on them against their GST liability after December 31.
Consumers could be looking at a “mega stock clearance” sale this year end with retailers likely to sell such goods at wafer-thin margins or at cost, said people aware of the matter.
“We had expected that we will be able to clear the stocks (pre-GST stocks) during Diwali. But the sales were lacklustre this time around and now we will be stuck with them if not sold prior to December,” said the CEO of a large retail chain.
He said if the deadline is not extended, they will be forced to sell the products before December end. “We just want to clear the stocks if this isn’t resolved. The goods which will have huge discounts include some branded shirts, kitchen appliances and handicrafts purchased from small sellers,” he added.
ET spoke to officials from four prominent single-brand retailers and chain stores who confirmed discounts will have to be offered by December. Even smaller shopkeepers may have to offer such discounts by next month.
For now, some big retailers are holding on to their stocks till November end in the hope that the situation will be resolved. Two of the country’s top retail chains are looking to file a writ petition in the Delhi High Court on the issue.
“The larger question is whether any law has power to dictate how business is conducted and whether it can lay restrictions on the time frame of selling any products. Many retailers will have to dispose goods on which they had paid sales tax, excise, etc., before end of the year or else they won’t be able to avail of transitional credit,” said Abhishek A Rastogi, a partner at Khaitan & Co. Tax experts are hopeful the government will resolve the issue soon.
“The issue of transitional credits in respect of unsold stock, without corresponding invoices, lying with distributors and retailers is a very serious issue as many trade channels have reported lessthan-expected sales during the past quarter, hence there is a case for extension of the time period,” said MS Mani, a partner at Deloitte India. “This should hopefully be addressed in the next meeting of the GST Council on November 10.”
ET spoke to a government official who indicated the law was framed in this manner because there was a fear of manipulation by some businessmen.
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