Should a Retailer Selling Goods in MRP Get Registered Under the GST?

Yes, a retailer selling goods at Maximum Retail Price (MRP) must get registered under the Goods and Services Tax (GST) if their turnover exceeds the prescribed threshold limit. This requirement ensures compliance, tax efficiency, and growth opportunities. Let's explore the key reasons:

Legal Requirement

Under GST law, businesses with a turnover exceeding 20 lakh (10 lakh for special category states) are required to register for GST. Selling goods at MRP does not exempt retailers from this legal obligation. Failure to register can result in legal penalties and compliance issues.

Input Tax Credit (ITC)

By registering under GST, retailers can claim input tax credit on the GST paid for goods and services purchased for their business. This can significantly reduce the overall tax burden, making the business more financially efficient.

Compliance

Registered retailers are required to comply with regular GST filing requirements. Compliance helps avoid penalties and legal issues, ensuring smooth business operations. It also demonstrates commitment to financial transparency and accountability.

Credibility

Being a registered GST taxpayer enhances the credibility of a retailer in the eyes of suppliers and customers. It may also be a mandatory requirement for larger businesses. Credibility, in turn, can lead to better business relationships and opportunities.

Interstate Sales

If the retailer sells goods across state lines, GST registration is mandatory. This is necessary to collect and remit the appropriate taxes, ensuring compliance with interstate sales regulations.

Business Growth

Having GST registration as the business grows can facilitate easier scaling and expansion. Registered retailers can participate in government contracts or tenders, which might require GST registration as a prerequisite.

Understanding GST Registration with an Example

Let's understand the importance of GST registration with an example involving Britannia, a manufacturer of biscuits:

Case A - When Retailer is Registered

Manufacturer:
ITC - 1
Output tax liability 15 × (18/118) 2.28
Net liability Actual received by Govt 2.28 – 1 Rs.1.28 Retailer:
Cost 15
Sale price MRP 20
ITC 2.28
Output tax liability 20 × (18/118) 3.05
Net liability Actual received by Govt 3.05 – 2.28 Rs.0.77 Total GST received by Govt 1.28 0.77 Rs.2.05

In this scenario, the total GST received by the government corresponds to the GST on MRP, minus the ITC from the manufacturer. This ensures that the tax liability is correctly captured and remitted.

Case B - When Retailer is Not Registered

Manufacturer:
ITC - 1
Output tax liability 15 × (18/118) 2.28
Net liability Actual received by Govt 2.28 – 1 Rs.1.28 Retailer (Not Registered):
Cost 15
Sale price MRP 20
Output tax liability 0 (no ITC claim as the retailer is not registered)
Total GST received by Govt 1.28

In this scenario, the government suffers a loss of Rs.0.77 due to the retailer not registering for GST, as the retailer cannot claim the ITC and hence cannot accurately remit the output tax liability.

Conclusion

In summary, GST registration is crucial for compliance, tax efficiency, and growth opportunities, especially for retailers selling goods at MRP. Ensuring GST compliance can help retailers avoid penalties, maintain credibility, and potentially benefit from opportunities that require GST registration.