GST on Textile Industry, Current Tax Regime on Textile Industry with Issues
GST on Textile Industry, Current Tax Regime on Textile Industry with Issues: Pertinent Issue in Current Taxation on Textile Industry. In this article you may find complete details for GST on Textiles & Apparels Industry. Check detailed analysis for GST on Textile Industry from below and also find details for current tax structure on Textile Industry and what is the main issues in current tax structure on Textile Industry…..
GST on Textile Industry
- With the 101st constitutional amendment, Central Excise Act as well as provisions of VAT shall have their scope limited to the products like Petroleum & Tobacco. All other products, from the notified date would be liable for payment of GST.
- Under the GST regime, the concept of manufacture and levy of excise duty would be given a go bye. Tax would be levied on supply of goods/services whether by a manufacturer or by any other person.
- There would be following three Acts to administer and levy GST in India:- (i) The Central Goods and Services Tax Act. (ii) The State Goods and Services Tax Act. (iii) The Integrated Goods and Services Tax Act.
- Every manufacturer with an aggregate Turnover of more than Rs. 20 Lakhs is liable to registration under GST unlike excise duty where a manufacturer shall be liable for registration if the turnover exceeds Rs 90 Lakhs.
- Composition scheme available to persons whose aggregate turnover not exceeding Rs. 50 Lakhs,i.e. supply not greater than 50 lakhs. Further condition to adopt composition levy are no supply of services, no inter-state supply, no credit to be taken and no supply shall be made through an E- Commerce operator
- Supply of good shall be the taxable event and tax shall be payable at –
|S. No||Requirement||Time of supply or tax|
|A||Supply of goods||Earlier of the following:- (i) The date on which supplier issues an invoice with respect to supply or the last date on which he is required to issue invoice. (ii) The date on which supplier receives the payment with respect to supply.|
|B||RCM on receipt of goods||Earlier of: • Date of receipt of goods or • Date of making payment or • Date immediately following 30 days from the date of issue of invoice|
|C||Any other||Due date for filing gst return Date of payment of tax|
- Place of supply shall be location of goods at the time at which the movement of goods terminates for delivery to the recipient. The sum and substance of this is that the destination of goods is the place of supply.
- Import, export and supply to SEZ, EOU shall be considered as inter-state Supply
- Import of goods shall be taxed in GST and Tax paid (IGST) on imported goods shall be eligible for credit as input tax credit to the importer.
- Exports physical and supplies to SEZ will be treated as Zero Rated Supplies. No tax will be payable on export of goods. However, credit of input tax credit will be available and the same may be utilized by the exporter for other outward supplies. In the alternative, the exporter may claim refund of corresponding input tax credit. Export benefits like drawback, rebate/ refund would be available.
- As per the MGL, CGST can be used to set-off CGST & IGST, SGST for SGST & IGST and IGST for IGST, CGST & SGST respectively. Therefore, barring fungibility of CGST & SGST all other taxes are fungible
Must Read : GST Impact on Textiles & Apparels Industry
Current Tax Regime on Textile Industry
Indirect taxes on textile sector is obfuscated and indifferent across its various sectors. Most of their products are either exempt or are taxed at a relatively lower rate and are extensively subsidized under different central and state regimes.
The textile industry is taxed both under the central and state regime. The following are the indirect taxes applicable to the textile industry
- Central Excise Duty: The Central Government levies excise duty under the Central Excise Act, 1944. The tax is charged on the manufacture of goods and are meant for domestic consumption. Special excise duty and Additional duty of excise are also charged under the said act.
- The domestic textile industry has an optional route to pay zero excise duty across various stages of the value chain, provided they don’t claim the Input Tax Credit (ITC) at any stage. Cotton based industry are exempt from payment of excise and apparels have been attracting excise duty at effective rate of 1.2% (@ 2% with abatement @ 40%). Tax payable at the time of removal.
- Value Added Tax (VAT): State VAT is a form of sales tax levied by the state governments on intra-state sale of goods. VAT is applied by the State governments at each stage of sale, with a particular apparatus of credit for the input VAT paid.
- Currently in most of the states VAT on apparels is @ 4~5%. Fabric manufacturing in India is largely carried out through the SSI sector, where many of the companies operate under the composite scheme of taxation (applicable with turnover of up to Rs 1.5 crore). ITC cannot be claimed on purchases from suppliers under composite scheme. Tax payable at the time of sale.
- Central Sales Tax (CST): The Central sales Tax is a tax levied by the Union government but collected and retained by the state governments of the originating State on inter-state sale of goods. It is currently charged at the rate of 2% on the value of sale of goods. Tax payable at the time of sale.
- Entry Tax: Entry tax is an account based tax levied and collected by state governments on entry of goods into a local area for consumption, use or sale therein.
- Customs Duty: Custom duty in India is defined under the Customs Act, 1962 and enables the government to levy duty on exports and imports, prohibit export and import of goods, procedures for importing/exporting and offences, penalties etc. Under customs duty different taxes are levied like Basic customs Duty, Additional Customs Duty (CVD), Protecting duty, Anti-dumping duty and Safeguard duty. Custom duty on exports is normally nil rated except for raw cotton and cotton waste, imports are leviable to CVD and special CVD.
- Export Incentives: These are in form of drawback, rebate/ refund of taxes paid and several incentives in the form of scrips which could be sold.
Pertinent Issue in Current Taxation
- Break in input tax credit chain: Most of industry, being an SSI, use composition scheme. Numerous transactions in the textiles industry flow from the unorganized to the organized sector and vice versa. Where Regular/Registered Taxpayer purchase goods from composition Taxpayers, they are not eligible for Input Tax Credit, thus breaking the Cenvat Credit chain. Input Tax credit paid on the previous transaction is included in the cost of the product making the product costly.
- Small Business Compliance Cost: Composition scheme Taxpayer is hesitant to join Credit chain as it increases the compliance cost of engaging professional to meet their Tax obligation.
- Job work under Central Excise: In terms of the Rule 4(1A) of Central excise rules, every person who gets the goods, falling under Chapter 61 or 62 or 63 of the First Schedule to the Tariff Act, produced or manufactured on his account on job work, shall pay the duty leviable on such goods. Therefore, it is the raw material supplier and not job worker who is liable to excise duty under current regime.
- Branded goods: Affixing of the brand name on goods amounts to manufacture under central excise and the person affixing brand name would be liable to pay the excise duty. If job worker affixes brand name on behalf of other job worker would be liable to excise, however if the brand owner if himself affixes the brand name then the brand owner can claim excise exemption.
- Differential treatment of Job Work under CENVAT and State VAT: For the purpose of CENVAT, job work units are treated like any other manufacturing unit with job workers paying CENVAT on processed fabrics and getting a credit of excise duty paid on their inputs i.e. grey fabrics. Unlike the CENVAT procedure, the State VAT treats job workers under the Works Contract category, where job worker pay tax on the total value of goods used in processing the fabric like dyes etc. including gross profit. This leads to a difference in tax base with the CENVAT tax base being more than the State VAT tax base.
- Inclusion of all other taxes into the GST: Supply chain of Textile Industry is loaded with input and output across state boundaries to reach the ultimate consumer. Octroi and Entry Tax are the bottlenecks, credit of which are not allowable, thus form the part of the cost. Subsume of octroi, entry tax etc. into GST will remove the cascading effect at the distribution stage.
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