GST: Rate cut for textile jobwork a relief amidst other pending concerns


01-September-2017  |  13 mins read

GST rates relief but not for everyone

Developments and contrasting opinions continue to be the talk of the town for GST this year. It is for sure that this will be applicable from July 1, 2017 and allows filing of returns till September 2017. It is also confirmed that the Anti-Profiteering authority will be here for two years which will take all final decisions regarding penalties. With regard to the textile industry, they got a major relief when the GST Council announced a sharp cut in rates on the merchant services to straight 5% from an 18% high declared earlier. Since many inputs were kept under various tax slabs, the continuation of 18% tax on merchant services would have offered inverted duty structure resulting in negative impact on the business. However, at the same time, not including apparel jobwork into the same 5% rate, is a crucial reason of worry for the apparel industry.

Raja M Shanmugham, President, Tirupur Exporters Association (TEA), is thankful to the GST Council, particularly to the Union Minister of Finance, for considering the requisitions of the textile industry and added that the much-awaited decision is a big relief for the Tirupur knitwear garment sector. However, he also showed alarming concern about the stature of the apparel and textile clusters like Tirupur which would be badly affected by not being included in the list of 5% reduced rate. A letter in this regard has also been sent to the MSME Minister, Textiles Minister, Minister of State for Commerce and Industry and the PMO.

Considering the fact that any rate revision in GST would be done only after three months, comes as a major blow to the garmenting, made-ups and spinning domains which are predominantly dependent on jobwork and who would have to now pay 18% service tax to avail the same. Moreover, Indian exporters are still in doubt about the migration to the new tax regime which would need significant tweaking of the duty drawback schemes. What would happen to the various drawback benefits, and how the refund mechanism would take place, are a few apprehensive questions lurking in everybody’s mind. It is being said that if the policy is not tweaked to accommodate GST, the industry can face loss of nearly Rs. 1,500 crore refunds budgeted for the current year. Subrata Gupta, Joint Secretary, MoT said, “It will probably undergo some changes because VAT (value added tax) is being subsumed under GST. It is being studied right now.”

Prediction regarding the consequences of GST has caused several strikes by various stakeholders of the domestic textile industry across the nation raising objections against it. Surat, Ahmedabad, Erode, Amritsar and few other hubs are witness to such protests. In Amritsar, the industry emphasized on cotton and natural yarn not being covered under the excise tax, which will be charged with 5% GST and man-made yarns with 18%. In Surat, protesting traders and power loom weavers demanded the textile sector to be exempted from GST and instead demanded for turnover tax. The system regarding return goods is also complicated in GST.

“The GST Council’s decision of considering any rate revision only after three months has come as a severe blow for the garmenting, made-ups and synthetic spinning sectors. More than 80% of the garment/made-up manufacturing units are in the decentralized sector and undertake jobwork. These units would become unviable with 18% service tax on the jobwork when compared to vertically integrated manufacturing units.

The decision of considering GST revision after three months would paralyze the decentralized garment/made-up segments that predominantly function with the jobwork and the synthetic spinning sector, compelling several thousands of units to be closed and throwing several lakh people out of jobs.” – M. Senthilkumar, Chairman, Southern India Mills’ Association (SIMA)

In Mumbai, The Clothing Manufacturers Association of India (CMAI) in partnership with Tata Consultancy Services (TCS), has developed a software named ‘ADHIGAM’ for apparel manufacturers to alert them about GST compliance. Rahul Mehta, President of CMAI, briefed about the software, “The software automatically sends reminders to a vendor or a supplier, who has not paid tax at any stage in the textile value chain. A manufacturer can know which vendor in the value chain has not paid tax and hence the garment manufacturer can guide the vendor to pay the tax.” In a seminar on GST, DM Akhade, Head – GST Cell, Maharashtra and Co-Convener – GST Council, informed that so far rules have not been framed for E-Way Bill procedure and it would take 3 to 4 months’ time. At the border check posts, octroi and LBT will be removed from July 1, 2017 and the transportation of goods would be done with ease. He further stated that under GST Composition Scheme, manufacturers will have to pay 1% or 2% GST rate depending on certain criteria, but these have yet to be notified. He went on to advise businessmen to come under the GST structure and stay away from any wrong dealings. Gajanan Khanande, Deputy Commissioner, Automation Unit – GST Mumbai, stated that the Government would give 90% refund amount within 7 days. In case, the refund is delayed beyond 3 months, the Government itself would pay interest.

In Delhi, EPCH had a meeting with senior officers of the Ministry of Finance including Pradeep Goel, Commissioner, CBEC (Co-convenor of the Handicrafts Sectoral Group) on the handicrafts sector represented by O.P. Prahladka, Chairman, EPCH, and Rakesh Kumar, ED, EPCH. Rakesh Kumar made a presentation giving an overview of the handicrafts sector including exports, export markets, craft clusters, various handicraft segments and the manufacturing process. The main issue highlighted here was “Handicrafts – Classification on GST Schedule”. Handicrafts are currently exempted from Central Excise and VAT in various states. The rates on handicrafts sector are indicated in the 4-digit HS classification and that too on the higher side for handicrafts items. The concern of stock in hand as on 30th June 2017 was highlighted here as the limit of one year should be removed for exporters allowing ITC for stocks only for one year purchases in case of exporters.

GST on fair participation was also an important point in the meeting. Participation in B2B fairs within India is to be treated similar to the process of movement of goods (no sale or purchase) and is to be exempted from GST. Further, participants from various states taking part in fairs are to be exempted from registering as casual taxable persons in the state where the exhibition is being held. Similarly, GST on foreign agency commission earned by buying agents was also discussed in the meeting. The services rendered by buying agents should be treated as export of services where commission is received in foreign exchange and should be subject to zero rate GST.

Rakesh Kumar also highlighted the issue of rate of duty drawback as tax incidence is being offset by way of grant of duty drawback to the exporters, i.e. lower rate of drawback when input tax credit is availed and higher rate of duty drawback when input tax credit is not availed on the same lines as available currently in the drawback schedule to be made for the exporters.

Sanjay K Jain, MD, TT Ltd., Chairman, NITRA and Vice Chairman CITI, feels that GST would benefit the industry in terms of lower logistic costs, lower lead times, making Pan India selling easier by removal of forms needed, reduction of administrative hassles by creating a single tax window, reduction of costs by allowing taxes in all expenses to be adjusted, etc. However, he thinks that the synthetic chain which will be impacted due to the inverse rate structure can be further accentuated due to disallowance of refund of excess GST on input. This will also lead to overflow of imports of fabric as GST on imports will be 5%, while effective tax incidence on domestic fabric will be close to 10%. This GST structure will lead to more cotton consumption, due to duty variance of 13%. Another indirect fallout from GST, according to Sanjay, is the big threat of imports of fabric and garments from China, Bangladesh and Sri Lanka. Earlier imports had a 12.5% CVD which wasn’t adjustable. Now they attract 5% GST which is adjustable against subsequent sales. Hence post-GST, the industry will be relatively disadvantaged by 12.5%, vis-à-vis its peers abroad. This could create a very big issue as 12.5% in textiles is more than the net profit of most manufacturers.

In the meanwhile, Textiles Minister Smriti Irani chaired a high-level workshop in New Delhi to review the industry’s readiness for GST. An advisory firm has also been roped in to explain and train traders on filing for returns, a source informed a leading daily. The export promotion councils are also spreading awareness about GST through extensive workshops and seminars. The Confederation of Indian Industries (CII) has decided to conduct more than 100 workshops across the country to enable enterprises to comply with the new regulations in view of roll out of GST from July 1.

AEPC and National Securities Depository Limited (NSDL) have joined hands to provide end-to-end handholding on GST compliances related to online filing of returns. Under this institutional arrangement, AEPC will be providing training and a GSTN aligned platform for online filing of returns and all other services related to GST compliance. The services will be provided to AEPC members at concessional rate, under this arrangement. For technical queries related to GST specially online registration, filing of returns, claiming of refunds, validation of funds and other GST compliances, AEPC has set up a help desk at various regions across India through its regional offices which will be providing support to the exporters in regional languages also.

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