How does Input credit work here

[Asked by Guest]

1. Small company in Poland, wants to outsource product manufacture in India to (OEM). The product will be sold in India. However, the invoice will we paid by the polish company. Assuming the Invoice value is 50,000 Rs and SGST of 2.5%, CSGT of 2,5% applies on the manufacturer side. Then, when we sell the product in India SGST and CSGT of 2,5 % each applies. Selling the product at 60,000 Rs.
How much tax are we liable to pay and how much tax credit do we get?

2. Small company in Poland, produces the product in poland and ships it to India for sale. Basic Customs duty is 0% and IGST is 18%. The manufacturing costs are 50,000 rs. When selling in India, the CGST and SGST that is applicable for the product is 2,5 % each.
Selling price 60,000 rs.
Therefore the company pays more tax on the IGST and collects less from the buyer... how does this work? do we get return from somewhere or can we get credit on excess amount?

Thanks in advance

[Kishan Barai]

Assuming your procurement is 50,000 and 5% GST (52,500 = 50,000 BUY + 2500 GST) selling product at 60,000 INR {{60,000 = 57142.85 SELL + 2857.14 GST)

Now on Imports from poland,

50,000 INR + IGST 18% = 59,000 INR (9000 IGST)

So if you buy from poland and sell in india you will pay 9000 IGST & Collect 2857.14 as CGST & SGST so ITC available would be 2857.14 INR & yet 6142.86 INR excess IGST paid could be available as ITC on sale of different product with CGST / SGST / IGST.

AI Summary

Input tax credit on imports and domestic procurement offsets output GST; excess IGST may be available as ITC.
Input tax credit treatment is illustrated for domestic procurement and import: GST paid on domestic procurement is available as ITC against output GST; IGST paid on import is likewise available as ITC against output liabilities, and any excess IGST paid on import may be available for utilisation as ITC on other supplies (CGST/SGST/IGST).