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The problem, the industry’s pain and the government’s rationale


At a time when sectors of the textile industry were demanding a correction of the reverse tariff structure to facilitate cash flow, the recent notification issued by the Central Council for Indirect Taxes and Customs (CBIC) was not supported. bodes well for the industry.

What is the solution

The GST on man-made fibers (MMF), MMF yarns and MMF fabrics were taxed at 18 percent, 12 percent and 5 percent under the GST respectively. Taxing inputs at higher rates than finished products has created an accumulation of credit and escalating costs. This has further led to the accumulation of taxes at different stages of the MMF value chain and the blocking of crucial working capital for the industry.

At its last meeting, the GST Council took the decision to correct the reverse tax structure and presented a notification n ° 14/2021 of 18.11.201 raising the tax from 5 to 12% for several textile and clothing items to from January 2022.

Industry claims

Considering the rate change, the industry is demanding a reversal because they believe it will make their products more expensive, which will impact sales. Calling it unjustified and not meeting the fundamental objective of removing reverse duties as envisioned by the government, the Confederation of All Indian Traders (CAIT) said: “Instead of simplifying and streamlining the tax structure of the GST, the GST Council made it as the most complicated GST law in India in the world. “

CAIT General Secretary Praveen Khandelwal said: “The question is whether the reverse tax structure is fully corrected? The answer is a big no. In the cotton textile industry, there was no reverse tax structure. the 12 percent bracket. Even in the artificial textile industry, at the stage of manufacturing clothes, sarees and all types of makeup, there was no problem with reverse tax. Without having any understanding of the stages of the textile industry, a decision will be a regressive one.

“The central government’s notification to increase the GST rate on basic items like textiles and footwear from 5% to 12% is being contested across the country, including Delhi, and the CAIT has decided to launch a mega agitation across the country against such arbitrariness. The agitation will be led by two major trade associations in the fabric trade, namely the Delhi Hindustani Mercantile Association and the Federation of Surat Textile Association (FOSTA) under the auspices of CAIT. associated with them will also participate. CAIT urged Finance Minister Nirmala Sitharaman and Textile Minister Piyush Goyal to keep the notification pending and begin consultations with traders, ”Khandelwal said.

Expressing similar concerns and sharing the impact of the increase in the GST on businesses, Kumar Rajagopalan, CEO of the Retailers Association of India (RAI), said: “The increase in GST rates on textiles and clothing is not in anyone’s best interest because of its impact On the business side, it will increase the financial burden on an already stressed industry, slow its pace of recovery and affect working capital requirements, especially in the case of MSME companies which represent 90 percent of the industry. aside, it will cause clothing prices to rise, thus hurting consumption. On the government side, in the long run, this could lead many unorganized businesses out of the GST net.

RAI believes that a much more beneficial and reasonable solution is to subject the entire value chain to a fixed GST rate of 5%. This will not only solve the reverse service structure anomaly, but also give the industry a boost.

Government response

Union Finance Minister Nirmala Sitharaman, during her recent visit to Jammu and Kashmir, said the government’s recent notification of the uniform goods and services tax (GST) at 12% for the sector textile and clothing aimed at correcting the inverted tariff structure which led to accumulation. input tax credit by businesses. She did not subscribe to industry fears that this would lead to higher prices for finished products.

“Anytime rate adjustments do not result in higher prices for customers. A higher rate on inputs resulted in higher refunds for taxpayers and required a correction. Correcting the reverse duty structure has was decided at the GST Council, “she said at a press conference. press briefing during his two-day visit to Jammu and Kashmir.

“The reverse tariff structure was a problem for the MMF industry. GST rates are currently 18% for fibers, 12% for yarns and 5% for fabrics. The recent notification was issued following the recommendations of the 45th meeting of the GST Council. prescribing a uniform rate of 12% across the MMF chain would have left some sections of the industry “distressed and disappointed”.

The MSME sector, which is largely focused on fabric production, would undoubtedly be affected. While the rate hike for them to 7% is substantial, the new rates will not guarantee any credit blocking. While not unexpected, the MSME sector’s request to maintain a status quo or a flat rate of 5 percent may not be justified. The new rate goes into effect on January 1, 2022 and gives the industry enough time to prepare, ”said Najib Shah, former president of CBIC.

(Edited by : Jomy Jos Pullokaran)

First publication: STI


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