Burn­ing is­sue

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The whole storm of GST im­ple­men­ta­tion on tex­tiles came to a hope-filled halt when the Fi­nance Min­is­ter, af­ter a meet­ing with the GST coun­cil, an­nounced the re­duc­tion of GST on cot­ton based fab­ric to 5% in­stead of the ini­tially pro­posed 18%. Gar­ment man­u­fac­tur­ers have wel­comed the gov­ern­ment’s de­ci­sion to cut ser­vice tax (goods and ser­vices or GST levy) on the third-party ser­vices com­monly known as job work. This 5% rate will be ap­pli­ca­ble for job works in ap­parel, shawls and car­pets.

Ear­lier, the GST Coun­cil had low­ered the rates on the job work in the jew­ellery sec­tor while keep­ing the rate un­changed at 18% for ready­made gar­ments. “We wel­come the de­ci­sion. This is a ma­jor re­lief for the gar­ments sec­tor. The rate of 18% was a big bar­rier. With this re­lief, the gar­ment sec­tor in In­dia will see a ma­jor leap in the days ahead,” said Ashok Ra­jani, Chair­man, AEPC.

In the un­or­gan­ised gar­ment sec­tor, al­most 75% de­pends on job work such as stitch­ing, trad­ing and other as­so­ci­ated work. The sec­tor feared hun­dreds of thou­sands of job losses with high tax on third party work. Since many in­puts were kept un­der var­i­ous tax slabs, the high level of 18% tax on mer­chant ser­vices would have cre­ated an in­verted duty struc­ture re­sult­ing in a neg­a­tive im­pact on the busi­ness.

The tex­tiles and ap­parel in­dus­tries in In­dia are largely de­pen­dent upon job work with over two-thirds of the vol­ume man­u­fac­tured in mer­chant fac­to­ries.

The move of the GST Coun­cil will help many job work­ers gen­er­ate self-em­ploy­ment. With cap­tive plants at­tract­ing only 5% tax, it was only job work that fell in the 18% bracket. Job work­ers needed to be aligned with cap­tive man­u­fac­tur­ers. Hence, the GST rate cut on job work­ers is a big re­lief for the en­tire tex­tiles in­dus­try,” said S Ra­j­gopal, Ex­ec­u­tive Direc­tor, The Cot­ton Tex­tiles Ex­port Pro­mo­tion Coun­cil (Tex­procil).

This will now re­sult in com­par­a­tively lower priced gar­ments of the or­der of 2-3% be­cause of low­ered GST.

The en­tire tex­tile fra­ter­nity of In­dia swept the dust off the ground when min­istry an­nounced GST im­ple­men­ta­tion on fab­ric; traders came onto the road demon­strat­ing against it and al­most all In­dia tex­tiles mar­ket ob­served shut­ters down to protest GST.THE fi­nal ver­dict brought about much re­lief to the in­dus­try.

Tex­tile in­dus­try sources termed the 5% GST rate on cot­ton tex­tiles as a pro­gres­sive de­ci­sion and one that would give im­pe­tus for the growth and de­vel­op­ment of the en­tire tex­tile value chain. The low rate will not only en­sure com­pli­ance but also en­cour­age farm­ers to grow more cot­ton, will not cast any ad­di­tional bur­den on the sec­tor and above all en­sure that In­dia re­gains its com­pet­i­tive­ness in the world mar­ket.

The 5% GST rate on cot­ton fi­bre would also ben­e­fit 20 mil­lion cot­ton farm­ers, while the same rate on ready­made gar­ments priced below Rs. 1,000 would ben­e­fit the com­mon man. The GST rates on tex­tile job works like stitch­ing, em­broi­dery and trac­tor parts were cut, while e-way bill pro­vi­sions re­lat­ing to on­line pre-reg­is­tra­tion of goods be­fore trans­porta­tion were re­laxed.

Ad­dress­ing a con­fer­ence, FM Jait­ley said, “We hope that tex­tile job works would be ex­empted from ser­vice tax con­sid­er­ing that the units that op­er­ate in the power loom, knit­ting, pro­cess­ing and gar­ment­ing space are pre­domi-

nantly de­cen­tralised and mi­cro and small en­ter­prises in na­ture.” He added that the 18% GST on man-made fi­bre and syn­thetic yarn would have an in­verted duty struc­ture prob­lem as the fab­ric would at­tract only 5% GST. The lower GST rates across prod­ucts would go a long way in pro­mot­ing ‘Make in In­dia’.

A job work in­volves a man­u­fac­turer send­ing goods out of the fac­tory for a spe­cialised pro­cess­ing job without hav­ing to pay taxes. The move “would now help SMES of power loom, knit­ting and pro­cess­ing sec­tors also in that they would face a much lower fi­nan­cial bur­den.” In such a sit­u­a­tion, a man­u­fac­turer who does not have in­te­grated com­pos­ite units to com­plete the process of em­broi­dery, print­ing and fin­ish­ing as per mar­ket re­quire­ments would face a great loss.

A com­mon rate across the chain would also avoid con­fu­sion. All tex­tile job works be­ing man­u­fac­tur­ing ac­tiv­i­ties were ex­empted from ser­vice tax in the pregst regime. But job work­ers could not avail in­put tax credit, in­creas­ing the cost of the prod­ucts while af­fect­ing ex­port com­pet­i­tive­ness and also do­mes­tic con­sumers. The 5% GST rate on job works would en­able the in­dus­try to claim full in­put credit and also avoid any in­verted duty and strengthen the global com­pet­i­tive­ness of the tex­tile sec­tor apart from ben­e­fit­ing do­mes­tic con­sumers.

The re­duc­tion of GST rate for man­made fi­bre and syn­thet­ics from 18 to 12% is how­ever taken as a de­ter­rent be­cause, with this set up, im­ports will be­come cheaper than do­mes­tic prod­ucts as the coun­ter­vail­ing duty (CVD) and spe­cial ad­di­tional duty (SAD) on im­ports have be­come In­te­grated GST.

Ear­lier, the ad­di­tional du­ties, namely CVD & SAD, were a pro­tec­tion against im­ports. Hence, in­dus­try would need some safe­guard mea­sures to en­sure the Make in In­dia ini­tia­tive does not get washed away in the avalanche of im­ports which, post GST, has be­come 12 to 16% cheaper.

In­dus­try still seeks 12% GST rate on MMF and syn­thetic yarn or re­fund of duty un­der in­verted duty in­ci­dence at the fab­ric stage as pre­scribed in GST Act.

The Coun­cil also gave in-prin­ci­ple ap­proval to anti-prof­i­teer­ing mea­sures and set­ting up of a screen­ing Com­mit­tee in 15 days to see if tax re­duc­tions af­ter im­ple­men­ta­tion of GST have been passed on to con­sumers. Brief­ing re­porters af­ter the 20th meet­ing of the Coun­cil, Jait­ley said all goods worth over Rs 50,000 will have to be pre-reg­is­tered on­line be­fore they are moved for sale beyond 10 km. The e-way bill mech­a­nism is likely to come into force by 1st Oc­to­ber.

As per the draft pro­vi­sion, GSTN would gen­er­ate e-way bills that would be valid for 1-20 days, de­pend­ing on the dis­tance to be trav­elled — one day for 100 kilo­me­tres, three days (100 to less than 300 km), five days (300-less than 500 kilo­me­tres) and 10 days (500-less than 1,000 kilo­me­tres).

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