‘Textile’, after food, is the second most basic requirement of the world. It can easily be said that each and every person in the world is a consumer of the textile sector. Importantly, high-quality fabric and affordable cost are India’s pointers which are attracting the global market towards India’s textile sector. Impact of GST on Textile Industry article share a detailed understanding & importance of textile industry in India.
Some of the leading statistics for the textile sector of India are
The textile sector being one of the strong pillars of the Indian economy, it is important to analyze and understand the impact of GST on Textile industry .
Recently, the existence of an inverted duty structure and recommended GST rate hike in all the products relevant under the textile sector has brought the said sector into the limelight.
The present article provides basics of the impact of Goods and Services Tax on the textile sector; proposal of GST rate hike and deferment thereof and GST rate as applicable to textile sector post proposed but deferred hike.
Impact of GST on Textile Industry & It's Importance
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In the pre-GST era, the textile sector had to go through and deal with various taxes like Central Excise Duty; Value Added Tax (VAT); Central Sales Tax (CST); Entry Tax; Customs Duty; etc. However, post-GST, subsuming all the taxes into a single tax, made the administration of the textile sector pretty simple.
Further, an uninterrupted input tax credit chain under GST also benefited the textile sector. Summing up thereby that there was a neutral effect of Goods and Services Tax on the textile sector.
However, along with GST, the problem of inverted duty structure started hindering a certain portion of the textile sector. Let us understand how –
From the implementation of GST, mostly all of the final products relevant to the textile sector fall under the tax slab of 5%.
However, it is important to note the variant tax slab of the following products-
- Man-made fibre – taxable at 18% GST;
- Man-made yarn – taxable at 12% GST; whereas,
- Man-made fabrics – taxable at 5% GST.
The above variation in levy of GST rates was the major concern to be dealt with by the textile sector post implementation of GST.
GST on Textile Industry : Hike Proposal & Deferment
As seen above, the goods and services tax rate applicable to the textile sector is 5%. However, GST applicability on the inputs relevant to man-made fabrics varied between 5%, 12% and 18%.
Accordingly, the textile sector was facing the problem of inverted duty structure, wherein, GST on raw-material is more than that of GST on finished goods. The same was continuously pointed out and represented to the Government to come up with some possible solution.
Positive impact of GST on textile industry
The textile sector was at the assumption that the Government will uniformly apply 5% GST rate to all the relevant products. However, surprisingly and shockingly, for rationalizing the tax rates, the 45th GST council meeting recommended hiking of the GST rate from 5% GST rate to 12% GST rate.
It is important to note here that around only 15% of the textile sector, dealing in the manmade fabric sector and the yarn sector, were facing the problem of inverted duty structure. However, with the recommendation to hike the GST rate to 12%, 85% of the textile sector was going to have an adverse impact.
Naturally, the recommended GST rate change was badly opposed by the textile manufacturer, textile merchants and textile traders. Again, the round of representation started from the textile sector to the Government.
Meanwhile, implementing the 45th GST council meeting recommendation, the Ministry of Finance issued a notification no. 14/2021- Central Tax (Rate) dated 18th November 2021. As per the notification rate of GST of the following tabulated items will be 12% (6% CGST + 6% SGST) effective from 1st January 2022HSN Code | Description |
|---|---|
5007 | Woven fabrics of silk/ of silk waste |
5111 | Woven fabrics of carded wool/ of carded fine animal hair |
5112 | Woven fabrics of combed wool/ of combed fine animal hair |
5113 | Woven fabrics of coarse animal hair/ horse hair |
5208 | Woven fabrics of cotton (containing 85% or more by weight of cotton) weighing not more than 200g/m |
5209 | Woven fabrics of cotton (containing 85% or more by weight of cotton) weighing more than 200g/m |
5210 | Woven fabrics of cotton (containing less than 85% by weight of cotton, mixed mainly/ solely with man-made fibres) weighing not more than 200g/m |
5211 | Woven fabrics of cotton (containing less than 85% by weight of cotton, mixed mainly/ solely with man-made fibres) weighing more than 200g/m |
5212 | Other woven fabrics of cotton |
5309 | Woven fabrics of flax |
5310 | Woven fabrics of jute/ other textile bast fibres of heading 5303 |
5311 | Woven fabrics of other vegetable textile fibres/ paper yarn |
5401 | Sewing thread of man-made filaments (whether or not put up for retail sale) |
5402 | Synthetic filament yarn not put up for retail sale (including synthetic monofilament of less than 67 decitex) |
5403 | Artificial filament yarn not put up for retail sale (including artificial monofilament of less than 67 decitex) |
5404 | Synthetic monofilament of 67 decitex or more (wherein no cross-sectional dimension exceeds 1mm strip and synthetic textile material of width not exceeding 5mm.) |
5405 | Artificial monofilament of 67 decitex or more (wherein no cross-sectional dimension exceeds 1mm strip and synthetic textile material of width not exceeding 5mm.) |
5406 | Man-made filament yarn put up for retail sale (other than sewing thread) |
5407 | Woven fabrics of synthetic filament yarn (including woven fabrics got from material heading 5404) |
5408 | Woven fabrics of artificial filament yarn (including woven fabrics got from material heading 5405) |
5501 | Synthetic filament tow |
5502 | Artificial filament tow |
5503 | Synthetic staple fibres (not carded) combed/ otherwise processed for spinning |
5504 | Artificial staple fibres (not carded) combed/ otherwise processed for spinning |
5505 | Waste of man-made fibres (includes yarn waste, noils and garnetted stock) |
5506 | Synthetic staple fibres (carded) combed/ otherwise processed for spinning |
5507 | Artificial staple fibres (carded) combed/ otherwise processed for spinning |
5508 | Sewing thread of man-made staple fibres (whether or not put up for retail sale) |
5509 | Yarn of synthetic staple fibres (not put up for retail sale) |
5510 | Yarn of artificial staple fibres (not put up for retail sale) |
5511 | Yarn of man-made staple fibres (put up for retail sale) |
5512 | Woven fabrics of synthetic staple fibres (containing 85% or more by weight of synthetic staple fibres) |
5513 | Woven fabrics of synthetic staple fibres (containing less than 85% by weight of such fibres, mixed mainly/ solely with cotton of a weight not more than 170 g/m2) |
5514 | Woven fabrics of synthetic staple fibres (containing less than 85% by weight of such fibres, mixed mainly/ solely with cotton of a weight more than 170 g/m2) |
5515 | Other woven fabrics of synthetic staple fibres |
5516 | Woven fabrics of artificial staple fibres |
5608 | Knotted netting of twine made up of fishing nets & other made up nets of textile materials |
5801 | Woven pile fabrics & chenille fabrics (other than fabrics of heading 5802/ 5806) |
5806 | Narrow woven fabrics/ narrow fabrics consisting of warp without weft assembled by means of an adhesive |
6001 | Pile fabrics (knitted or crocheted) (including long pile fabrics & terry fabrics) |
6002 | Knitted/ crocheted fabrics of a width not more than 30 cm (containing by weight 5% or more of rubber thread/ elastomeric yarn) |
6003 | Knitted/ crocheted fabrics of a width not more than 30 cm (other than those of heading 6001/ 6002) |
6004 | Knitted/ crocheted fabrics of a width more than 30 cm (containing by weight 5% or more of rubber thread/ elastomeric yarn) |
6005 | Warp knit fabrics other than those of headings 6001 to 6004 |
6006 | Other knitted/ crocheted fabrics |
6301 | Blankets and travelling rugs |
6302 | Table linen, bed linen, toilet linen & kitchen linen |
6303 | Curtains, drapes and interior blinds. |
6304 | Other furnishing articles (excluding heading 9404) |
6305 | Sacks & bags of such a kind used for the packing of the goods |
6306 | Tarpaulins, sunblinds & awnings, tents; |
6307 | Other made up articles (including dress patterns) |
6308 | Sets (consisting of woven fabric & yarn) |
6309 | Worn clothing/ other worn articles |
6310 | Used/ new rags, twine, scrap, rope, cordage, cables and worn out articles of cordage, twine, cables or rope of textile materials |
6405 | Footwear (sale value not more than INR 1,000 per pair) |
Post recommendation of 45th GST council meeting and the issuance of notification no. 14/2021- Central Tax (Rate) dated 18th November 2021, there was a lot of hue and cry in the textile sector.
Impact of GST Rise on Textile Industry
Thereafter, due to various representation and oppositions, implementation of the above rates, as notified vide notification no. 14/2021- Central Tax (Rate) dated 18th November 2021, was deferred. Meaning thereby that even after the effective date i.e. 1st January 2022, old GST rates as prevalent earlier continued to be operative to the textile sector.GST on Textile Services & Rate Applicability
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The 46th GST Council Meeting recommended to defer the GST rate hike as notified vide notification no. 14/2021- Central Tax (Rate) dated 18th November 2021. Accordingly, all the GST rates as applicable till 31st December 2021 continued to remain effective even after 1st January 2022.
Notably, there was no discussion as such in the 47th GST council meeting held on 28th and 29th June 2022. Hope the issue of inverted duty structure hindering the textile sector is sorted out by the Government soon.
For the purpose of easing up and summarizing thereof, the entire scenario, with zero conclusion, of inverted duty structure issue going on in the textile sector can be summed up in the following manner
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