New GST rates on textile likely from January 1, 2022

 

Despite concerns expressed by the industry, the government is unlikely to defer implementation of higher Goods and Services Tax (GST) on certain textile products, as the decision was taken by the GST Council.

The new GST rates will kick in from January 1, 2022.

The sector had opposed the increase citing higher compliance costs, especially for the unorganised sector and micro, small and medium enterprises (MSMEs), besides making clothing more expensive for the poor.

The finance ministry is expected to take up with the GST Council the concerns raised by the industry over the latter's decision to increase the rates on several textile products to 12%.

The Council had in its previous meeting held in Lucknow on September 17, 2020 decided to correct the inverted duty structure on footwear and textiles. After this, the GST on footwear and textiles was raised to 12%, effective January 1, 2022.

"The decision to implement from January 1, 2022 was taken by the Council after intense deliberations. We will place the representations before the Council whenever it meets next," an official said.

Since the GST was raised by the Council, any decision on the rates or implementation also lay with it, the official added.

Once it kicks in, an apparel will attract 12% GST as against 5% on sale value of up to Rs 1,000 per piece currently. Similarly, the 5% tax on sale value of up to Rs 1,000 per pair of footwear has been increased to 12%.

GST on woven fabric, sewing thread of man-made filaments, synthetic filament yarn other than sewing thread, synthetic monofilament, and artificial filament yarn including artificial monofilament, among others, have also been increased to 12% from 5% earlier. "Inverted duty structure broadly harms the sector as companies are unable to take credit of higher tax paid on inputs. It had to be corrected to help the industry," the official said.

The government has said that uniform GST will aid in the resolution of input tax credit residues that got accumulated due to the inverted tax structure earlier.

It will enable the industry to encash piled-up input tax credit progressively, the textiles ministry said last month.

The Confederation of All India Traders said that any hike in GST rates on textiles will adversely affect consumers and block capital for small traders.

Sources said the textiles ministry had not taken up the issue with the finance ministry or the GST Council Secretariat yet.

"Industry has made a representation to the finance ministry and taken up the issues with them," said another official.

Source from: https://economictimes.indiatimes.com/small-biz/gst/new-gst-rates-on-textile-likely-from-january/articleshow/88466734.cms?from=mdr

Indian FM rejects textiles ministry proposal to defer GST hike

 

India’s finance minister Nirmala Sitharaman at a meeting on December 24, 2021 rejected the proposal put forward by the ministry of textiles to defer the increase in Goods and Services Tax (GST) from the current 5 per cent to 12 per cent on fabrics and other textile products. A similar request from the Confederation of All India Traders (CAIT) was also rejected.

As a result, GST rates will go up as scheduled with effect from January 1, 2022, from 5 per cent to 12 per cent on all types of fabrics, and on garments with retail value below ₹1,000. The GST rate on man-made fibre, however, will come down from 18 per cent to 12 per cent. The rates on cotton, cotton yarn and synthetic yarn will remain unchanged at 5 per cent, 5 per cent, and 12 per cent respectively.

The GST Council at its last meeting had decided to change the GST rate to address the inverted tax structure in the MMF textile value chain. The GST of 18 per cent, 12 per cent and 5 per cent levied on MMF, MMF yarn and MMF fabrics created build-up of credits and cascading costs, as the tax on inputs was at higher rates than finished products. This further led to accumulation of taxes at various stages of MMF value chain and blockage of crucial working capital for the industry.

“Though there is a provision in the GST law to claim unutilised Input Tax Credit (ITC) as a refund, there were other complications and it resulted in more compliance burden. The inverted tax structure caused effective increase in rate of taxation of the sector. The world textiles trade has been moving towards MMF, but India was not able to take advantage of the trend as its MMF segment was throttled by inverted tax regime,” the ministry of textiles had said while announcing the change in GST structure last month.

“The uniform rate of 12 per cent is likely to contribute positively to the growth of the sector by helping save a lot of working capital and reducing the compliance burden of the industry players. It will be helpful in resolving the ITC residues that accumulated due to the inverted tax structure earlier,” the ministry had said.

On the decision to uniformly tax all garments at 12 per cent, the ministry said that differential rates for garments create problems in compliance of tax regime. “MMF garments cannot be identified easily and cannot be taxed differently, hence there is a need for uniform rate. Uniform rate makes it simple and since there is so much high potential of value addition in garment segment, the increase in rate is likely to be absorbed in value addition. It will provide clarity to the industry and settle, once and for all, the issues caused by inverted tax structure.”

However, industry experts feel that the uniform rate will lead to smaller players being pushed into the unorganised sector, as it will make harder for the sector to keep afloat. So, few textile bodies had made representations to the textiles ministry to defer/cancel the hike in GST rate from 5 per cent to 12 per cent on fabrics, and garments costing below ₹1,000. This request now stands rejected.

Source from: https://www.fibre2fashion.com/news/textile-news/indian-fm-rejects-textiles-ministry-proposal-to-defer-gst-hike-278074-newsdetails.htm

GST not applicable on payment of notice pay and allowed ITC on canteen services

 The AAAR, Madhya Pradesh in the matter of M/S. Bharat Oman Refineries Limited [Advance Ruling No. MP/AAAR/07/2021 dated November 8, 2021] reversed the ruling of AAR which held that GST is applicable on recovery of:

• Notice pay from an employee by employer in lieu of notice period
• Telephone charges
• Group Medical Insurance Policy (“the Policy”) recovered from employees and providing
• Canteen facility to employees free of cost

Held that, the AAR had erred in concluding that such activity was leviable to GST. Further held that Input Tax Credit (“ITC”) shall be available on obligatory canteen services provided by the employer to their employees.

Facts:

This appeal has been filed by M/s Bharat Oman Refineries Limited (“the Appellant” or “the Employer”) against the ruling passed by the AAR, Madhya Pradesh in M/S. Bharat Oman Refineries Limited [Advance Ruling Order No. 02/2021 dated June 7, 2021], wherein, it was held that, GST is applicable on payment of notice pay by an employee to employer in lieu of notice period and telephone charges, premium of the Policy recovered from employees and free of cost canteen facility provided to employees. Further AAR disallowed the ITC with respect to canteen services provided by the employer to their employees.

Issue:

Whether the Appellant is liable to pay GST on amount recovered in lieu of notice pay by an employee, the premium of the Policy at actuals from non-dependent parents of employees, telephone charges, and nominal charges for availing and canteen facility or free of cost canteen facility to the employees, and whether the ITC of tax paid or deemed to have been paid is admissible on such facilities provided?

Held:

The AAAR, Madhya Pradesh in Advance Ruling No. MP/AAAR/07/2021 dated November 8, 2021 held as under:

• Noted that, para 5(e) of the Schedule II of the Central Goods and Services Tax Act, 2017 (“CGST Act”) is similar to the Section 66E(e) of the Finance Act, 1994 (“the Finance Act”) applicable during Service Tax regime. In the GST era also, services provided by an employee to the employer is treated neither as supply of goods nor supply of services under Schedule III of the CGST Act.
• Relied on the judgment of the Hon’ble Madras High Court in GE T & D India Limited v. Deputy Commissioner of Central Excise [W.P. Nos. 35728 to 35734 of 2016] wherein, it was held that, no service tax is payable on notice pay recovery made by the Employer.
• Stated that, the services by an employee to the Employer in the course of or in relation to his employment have been placed out of the purview of GST. Further, the compensation which accrues to the Employer is in relation to the services provided by the employee and is related to the services not provided by him to the Employer during the course of employment i.e. the Employer is being compensated for the employee's sudden exit.
• Observed that, the Appellant is collecting amounts only in respect of Mediclaim cover in lieu of the Policy provided to the employee’s non-dependent parents and retired employees who opt for such cover. Evidently, the Appellant is not in the business of providing insurance coverage and providing such insurance cover is not a mandatory requirement under any law for the time being in force and therefore, non-providing insurance coverage to employees non-dependent parents and retired employees would not affect Appellants business by any means. Therefore, activity of recovery of cost of insurance premium at actuals cannot be treated as an activity done in the course of business or for the furtherance of business.
• Reversed the ruling passed by the AAR, Madhya Pradesh and held that:
  • Merely because the Employer is being compensated does not mean that any services have been provided by him or that he has 'tolerated' any act of the employee for premature exit.
  • Facilitating medical insurance services in lieu of the Policy to non-dependent parents and retired employees upon recovery of premium amount on actuals and telephone connection to employees upon recovery of usage charges on actuals cannot be considered as 'supply of service' under CGST Act.
  • GST is not applicable on the collection by the Appellant, of employees' portion of amount towards foodstuff supplied by the third party / Canteen Service Provider and the Appellant is providing the facility to employees, without making any profit and working as mediator and the Employer is mandated to run a canteen under the Factories Act, 1948 (“the Factories Act”). Further, canteen services provided to employees without charging any amount i.e. free of cost will also fall under Para 1 of Schedule III of CGST Act that shall be treated neither as a supply of goods nor a supply of services and therefore, not be subjected to GST.
  • ITC on GST paid towards telephone services and Policy would not be available to the Appellant in terms of Section 17(1) of the CGST Act and Section 17 (5) of the CGST Act respectively. Further, ITC in respect of canteen facility provided by the Appellant would be available as per Section 17(5)(b), as obligatory for an Employer to provide the same to its employees under the Factories Act.

Karnataka AAR ruled that 5% GST applicable on packed and branded Pushti

 

The Hon’ble Karnataka Authority for Advance Ruling (“the Karnataka AAR”) in the matter of  M/s. Devanahalli and Hosakote Taluks MSPC [Advance Ruling No. KAR ADRG 56/2021 dated October 29, 2021], ruled that Pushti is classified under HSN code 1106. If unbranded it attracts nil Goods and Services Tax (“GST”) as per S. No. 78 of Notification No. 2/2017-Central Tax (Rate) dated June 28, 2017 and if branded and packed it attracts 5% GST as per S. No. 59 of Schedule I of Notification No. 1/2017-Central Taxes (Rate) dated June 28, 2017.

Factually, the M/s. Devanahalli and Hosakote Taluks MSPC (“the Applicant”) are registered as a Society under Karnataka Societies Registration Act, 1960. The Applicant stated that as per the Integrated Child Development Services (“ICDS”) Scheme of the Government of India, Karnataka State Government has established Mahila Supplementary Production and Training Center (“MSPC”) in all the taluks of the State. MSPC supply supplementary food to Anganwadi centers through Child Development Project Office (“CDPO”) and the activities and operations of MSPC are supervised by the CDPO of the concerned Taluks. The society i.e MSPC is all women associated with the main objective of member’s welfare especially widows, women in reservation cadre, backward communities, and SC/ST. Further, the society also aims at providing high nutrition food products to beneficiaries under ICDS Scheme. The Applicant states that the Society is formed with the motive of social welfare and not monetary benefits and is into supply of Pushti which is a powdered mixture of Ragi, Rice, Wheat, Green gram, Fried gram, Moong dal, and Soya in different proportions to CDPO and CDPO, in turn applies the same to Anganwadis which is further distributed to children, pregnant women and lactating mothers.

The Applicant has sought the advance ruling on the issue in respect of classification and rate on Pushti.

The Hon’ble Karnataka AAR ruled that Pushti which is a powdered mixture of Ragi, Rice, Wheat, Green gram, Fried gram, Moong dal, and Soya in different proportions is classified under HSN code 1106. If unbranded it attracts Nil GST as per S. No. 78 of Notification No. 2/2017-Central Tax (Rate) dated June 28, 2017 and if branded and packed it attracts 5% GST as per S. No. 59 of Schedule I of Notification No. 1/2017-Central Taxes (Rate) dated June 28, 2017.