GST and the Concept of FSD SSD

As we all are aware that Government is moving at a fast pace to implement the biggest indirect tax reform in history of independent India.  In this process of moving towards being GST complaint, lot of re-alignment of business practices would take place.  One such business practice is being registered as First Stage Dealer (FSD) or Second Stage Dealer (SSD).

Before we move on to the impact of GST on FSD/ SSD, let us first understand these concepts.

Rule 2 of Cenvat Credit Rules, 2004 (CCR) defines FSD as:
(ij) “first stage dealer” means,-
(i) a dealer, who purchases the goods directly from the manufacturer under the cover of an invoice issued in terms of the provisions of Central Excise Rules, 2002 or from the depot of the said manufacturer, or from premises of the consignment agent of the said manufacturer or from any other premises from where the goods are sold by or on behalf of the said manufacturer, under cover of an invoice; or

(ii) an importer who sells goods imported by him under the cover of an invoice on which CENVAT credit may be taken and such invoice shall include an invoice issued from his depot or the premises of his consignment agent;

In other words, FSD is as dealer who purchases goods from manufacturer in India/ or imported from Outside India and sells these goods under an excise invoice based on which cenvat credit can be taken.

Rule 2 of CCR defines SSD as:
(s) “second stage dealer” means a dealer who purchases the goods from a first stage dealer;

SSD purchases goods from FSD and sells these goods under an excise invoice based on which cenvat credit can be taken.

From the above, it is clear that FSD/ SSD are preferred buyers in case where credits are available to the purchaser.  In current indirect tax regime, many manufacturers/ service providers purchase goods from FSD/ SSD as excise credit is available on such purchases.  These give FSD/ SSD an advantage over its rivals who are not registered as dealer under the Central Excise legislation.

Come GST, the whole indirect tax structure is going to change.  The current concept of manufacture/ sale/ service provision are all going to be merged into one concept known as “SUPPLY”.  Under the GST regime there is no concept of separate excise duty and vat; hence all the invoices in the chain ie from manufacturer – wholesaler – retailer – consumer would have only GST as tax on them.

The most important effect this will have is that full GST credit would be available to all traders (subject to credit restrictions, if any); which to the extent of excise duty was allowed to be passed on only by FSD/ SSD.

Hence all the traders who are under the current tax regime not registered as either FSD or SSD would be at par with FSD/ SSD and would have equal access to the market available only to FSD/ SSD.

This is where the concept of open market comes in.  Under GST, it is expected that all the decisions generally made by purchasers based on indirect tax benefits/ incentives available would vanish and the market would be open for competition based on skills/ efficiencies.


The views expressed here are intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. On any specific matter, reference should be made to the appropriate advisor.

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