How GST Stands Today

By: Arun Kumar Singh

Much has changed, particularly for the textiles andapparel industry, since the goods and services tax (GST) regime was rolled outin July 2017. Arun Kumar Singh looks at the state of things.

The textiles-apparel industry is one of the oldest andlargest contributors to India's economy. As the second largest industry afteragriculture, the sector employs both skilled and unskilled people. The industrycontributes more than 14 per cent of the total annual exports, which is likelyto increase under the goods and services tax (GST) regime. This sector wasdoing well in the pre-GST era as well. With the rolling out of GST-which is nodoubt a daring step by the government to strengthen the economy-this sector,particularly apparel exports, has suffered a jolt.

Rate of GST ontextile goods:Knitted apparel and clothing falls under Chapter 61 of the harmonised system ofnomenclature (HSN) code under articles of apparel and clothing accessories.Apparel and clothing that are not knitted fall under Chapter 62 of the HSNcode. Other textile products like curtains, bedsheets and used clothes arelisted under Chapter 63 of that code under other made-up textile articles,sets, worn clothing and worn textile articles. Under all categories, any pieceof apparel or clothing is taxed 5 per cent GST if the taxable value of thegoods does not exceed ₹1,000 per piece. All types ofapparel and clothing with value exceeding ₹1,000per piece would be taxed at 12 per cent GST.

Fabrics are classified under the first schedule of theCustoms Tariff Act, 1975, based on their constituent materials and attract auniform GST rate of 5 per cent. Garments and made-up articles of textiles underChapters 61, 62 and 63 attract GST at the rate of 5 per cent, when their valueis up to ₹1,000 per piece, and 12 per cent,when the value exceeds ₹1,000 per piece. The amount of ₹1,000 is the sale value, i.e. value at which such piecesare sold by the supplier. It is possible that a piece when sold by amanufacturer to a retailer may have a sale price of less than ₹1,000 and attract lower tax rate and may be sold at thesale price of more than ₹1,000 from the retailer shop andmay attract a higher tax rate.

Classification of fabrics: An October 2017 circular clarified that merepacking of fabrics into pieces of different lengths will not change the natureof these goods and such fabric pieces would continue to be classified under therespective heading as the fabric and attract 5 per cent GST rate. Thisclarification would equally apply to three pieces of fabrics sold in a pack asladies salwar suit. Any embroidery on a fabric piece or certain embellishmentthereon does not change the basic nature of it being a fabric. Wet baby

wipes,wet face wipes, PVC mats and reusable baby cotton nappies are classifieddifferently.

Treatmentof exports: As per the provisions contained under Integrated GST (IGST) Law,export of goods or services or both are to be regarded as 'zero-rated supplies'and a registered taxable person exporting such goods or services or both isallowed to claim GST refund paid under one of the following two options:

·        Exportof goods or services or both under bond or letter of undertaking (LUT) withoutpaying any integrated tax; can claim refund of unutilised input credit.

·        Exportof goods and service or both on the payment of integrated tax; the exporter canclaim GST refund.

Job work activity: The Central GST Act, 2017,defines 'job work' as any treatment or process undertaken by a person on goodsbelonging to another registered person and the word 'job worker' is construedaccordingly. The tax rate on job work activity related to textile and textileproducts is 5 per cent. The responsibility of keeping proper accounts of theinputs sent for job work lies with the principal. Moreover, if the timeframe ofone year for bringing back or further supplying the inputs is not adhered to,the activity of sending the goods for job work is deemed to be a supply by theprincipal on the day when the said inputs were sent out by him. It is theprincipal's responsibility to send the goods for job work and bring those backor supply.

Duty liability under RCM: On a little activity of supply of goods or services orboth, the tax liability on taxable supplies to any other person other than thesupplier is with the recipient. The list of supply of services under reversecharge system is as follows:

Thelist of supply of goods under reverse charge system is as follows:

E-way bill: The e-way bill is an electronicway bill for movement of goods to be generated on the e-way bill portal. For aperson with GST registration, if the value of goods is worth more than ₹50,000 (single invoice/bill/delivery challan) and is madeto or from a registered person, then the registered person or the transportermust generate an e-way bill. It should be generated when there is inter-stateand intra-state movement of goods in relation to supply, reasons other thansupply and inward supply from an unregistered person. An e-way bill is requiredeven if goods are transferred from one vehicle to the other. A consolidatede-way bill is required for multiple consignments.

Input tax creditunder GST: TheCGST Act provides that a person with GST registration is entitled to takecredit of input taxes charged on any supply of goods or services or both tohim, which are used or intended to be used in the course or furtherance of hisbusiness. The said amount shall be credited to his electronic credit ledger.The provisions provide for the following:

(i)        Only aperson with GST registration is entitled to take input tax credit (ITC).

(ii)       Input taxis available on all supply of goods and services equivalent to the amount oftax charged.

(iii)     Theaforesaid goods or services or both must be used or intended to be used eitherin course of business or in furtherance of business.

There are, however, certain restrictions to ITC under GST.

Refund of ITC: Refund is a very important aspectin the apparel sector. Most textile assessees export goods. The tax paid oninput is more than the output tax liability or the same is accumulated due tozero-rated supply under letter of undertaking or bond. The assessee is entitledto the refund in case of zero-rated supply of goods or services made withoutpayment of tax and refund is also given if credit has accumulated due to higheramount of tax on input and lower amount of tax on output supply.

Duty drawback: Duty drawback is a refund inpayments that were initially collected upon import of foreign-made goods; thesepayments could be for customs duties or other fees. The department of customsissues these refunds only when the imported merchandise is either exported ordestroyed. Pre-GST duty drawback on the textile sector was on the higher sidebut after implementation of GST, the rate of duty drawback has beenreduced. 

Rebate of statelevies: Theministry of textiles announced post-GST rates for rebate of state levies (RoSL)on export of garments and made-ups under AA-AIR combination and made-up textilearticles. These rates were effective from October 1, 2017.

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