As per purchase records of the local distributor, SMART HOMES, the total purchase value during the period stood at INR/BTN 27,803,160.58 while the GST of 18% withheld by the Indian supplier comes to INR/BTN 5,004,568.90
In July 2024, a hardware distributor/retailer in Thimphu discovered something about Indian Goods and Sales Tax (GST) which nobody knew or still know about in Bhutan.
Unawares of what was going on between 2017 and 2024, Smart Homes, a Thimphu-based distributor of branded hardware for architectural projects, and furniture and kitchen fittings, was levied double taxes in the form of GST by its supplier in Mumbai, India. Although GST is already included in the final market price by the manufacturer, the supplier added another 18% on purchases made by the distributor/retailer.
How did this GST issue surface?
The local distributor, Smart Homes, received an invoice from one supplier on 12 July 2024 that was in different format from all the previous invoices. The previous invoices simply stated the net price (MRP-55% which is the approved distributor margin) showing the net invoice total accordingly.
However the July 2024 invoice showed an additional line described as GST rebate of 18%. Hence the total net amount after discount was further reduced by 18% on account of GST.
“When I called up the concerned salesperson, he clearly told me that the invoice with GST rebate is correct,” the proprietor of Smart Homes said. Then, the distributor wrote to the senior management of the suppliers seeking clarification and claiming Bhutan’s imports have been subjected to Indian GST all along since 2017. However, besides delaying the response, the suppliers wrote back providing very vague and disconnected answers.
In the meantime, the local distributor looked up the GST notification of the Government of India (GoI) which was passed in March 2017 and put into effect from July 2017. It was learned that GST is applicable only for domestic consumption in India.
GST, as opposed to the earlier VAT system, is a one-time levy the manufacturer/supplier has to pay. They pass it on to the warehouse/distributor, from where it is passed onto the retailers, and then finally to the end customers.
“The manufacturers/suppliers in India work out their cost of production/ procurement, adds up all other operation costs, margin for distributor, their own profit margin and arrives at the final selling price. Then they add up 18% GST to arrive at the final MRP. Therefore, the MRP is already inclusive of GST,” the local distributor said.
While GST rules apply for sales in India, the notification also has provisions for exports to Bhutan and Nepal. Exports to Bhutan and Nepal are defined as Zero Rated Supply. GST component is to be removed from the MRP before exporting goods on agreed distributor discount. Further, suppliers need not file GST to the GoI because they are eligible for the waiver or refund as the case may be.
“After much email exchanges, the supplier finally accepted our claim and gave us the following pricing structure,” said the local distributor.
Although business resumed again, the issue of the GST withheld by the supplier since July 2017 to July 2024 still remains unresolved. According to the distributor, this amount should have accrued to the customers. Since it did not, the local customers have been double taxed – GST and BST. “Despite repeated reminders, the suppliers have not yet responded.”
As per purchase records of the distributor, the total purchase value during the period stood at INR/BTN 27,803,160.58. The GST of 18% withheld by the supplier comes to INR/BTN 5,004,568.90. “If it was a sale in India, this amount of GST would have accrued to the Indian Government authorities, but it did not because it was an export. Nor did this benefit get passed down to local customers in Bhutan,” the distributor explained.
The GST waiver given to the Royal Government of Bhutan (RGoB) by the GoI was “to enable manufacturers and suppliers in India to have a wider market outreach in these neighboring countries and make their products more competitive in these markets”.
“To say the least, what the supplier has done by retaining the GST is a flagrant violation of the provisions of the Indian GST and an unethical act against our customers,” the distributor exclaimed.
There are four other Indian companies supplying hardware to the same distributor. He further claimed, “Since the emergence of the GST issue, these companies have literally gone underground. It would be helpful if the concerned agency in our government could take this matter up with their counterparts in India.”
“The important thing to note is that I have not incurred losses but the hundreds of my individual customers, hospitality, institutional and residential projects that have been deprived of the GST benefit granted by the GoI.”
“Since GST is an Indian regulation, I would assume that business entities in India should be the first to look at this and ensure compliance,” the local distributor insisted.
The local distributor also suggested that it would also be an effective measure if the Indian Customs could institute a new rule requiring the manufacturers/suppliers (exporting under LUT – Letter of Undertaking) who can export without pre-paying GST, to submit a copy of BST receipt to validate their export and compliance of GST regulations.
Meanwhile, despite queries and several reminders for clarifications, the supplier did not respond to this paper.
Tashi Namgyal from Thimphu
