Blocked GST Credit: Some AC, TV Dealers Get Relief, Others Left To Cope Alone

As GST 2.0 reforms kick in from Sept. 22, AC maker Blue Star Ltd. has stepped in to ease working capital stress for their dealers hit by blocked credits on pipeline inventory. Most others, without such relief, however, are left banking on strong festive season sales to cushion the blow.

"Our dealers, who had purchased stocks before the rationalisation at a GST of 28%, will now be able to bill them only at 18%, leaving them with excess input tax credit," said Blue Star managing director B Thiagarajan. "So, we are compensating them for the interest burden on their blocked working capital... and in about 3-4 months we should be able to adjust this."

While Blue Star has agreed to compensate dealers, Voltas has no such blanket policy and plans to absorb costs only on a case-by-case basis.

"We haven't committed dealers to cover for the excess GST they had paid for existing stocks...we may look at it at a case-to-case basis depending on inventory levels but expect the festive sales to largely mitigate the impact for them," Mukundan Menon, managing director, Voltas, told NDTV Profit.

AC dealers are sitting on high inventory after sluggish summer sales and are operating in a market riddled with uncertainty. Many have paused stocking due to the ongoing Shradh period, considered inauspicious for major purchases including appliances. The dealers are likely to resume stocking again post GST implementation to cater to the festive demand.

"Dealers will hold stock build up till 22nd, post which primary and secondary sales are expected to spike," said Kamal Nandi, business head and executive vice-president (appliances), Godrej Enterprises Group. "We have been careful about not overstocking ACs and only replenishing based on consumer offtake...Trade is expected to adjust the difference at their end over time, based on additional GST to be paid on their margins."

The GST Council has announced a sweeping rationalisation of tax slabs, bringing a set of consumer durables under a lower rate. The Council scrapped the 12% and 28% slabs, retaining only 5% and 18%. This brings ACs, televisions beyond 32 inches and dishwashers — which were taxed at the steepest 28% — to shift to 18%. For households, an AC could now cost about Rs 2,500-Rs 3,000 less depending on the model, while a large-screen TV could become up to Rs 4,000 cheaper, according to industry executives.

AC makers said that they will pass on the entire benefits of the cuts to consumers. This along with additional festive offers is expected to drive volumes and lift AC penetration, which is still at just 9-10% in India.

The television industry, too, is not in a position to cover for the blocked working capital — firstly because they don't enjoy such high margins to be able to compensate dealers and secondly, sales have remained subdued.

"Moreover, unlike ACs, the retailers selling TV are not sitting on high inventory as they didn't stock up much for the current lean period of Shradh, according to Avneet Singh Marwah, CEO, Super Plastronics Pvt., brand licensee for Kodak, Blaupunkt and Thomson. "Since retailers are avoiding billing during this inauspicious time, the impact is not likely to be much. As we plan to pass on the benefit of GST cuts entirely to consumers, we expect higher demand to offset the impact on existing stocks."

Marwah is expecting a 20-25% growth in sales this festive season. A 10% cut, translating to savings of Rs 4,000, is seen as catalyst to boost consumption, especially in the 55 inches and above segment.