Understanding the GST Rate Clarification for Imitation Zari Thread
In a recent circular, the Government of India’s Ministry of Finance, Department of Revenue, Tax Research Unit, has provided a much-needed clarification regarding the GST rate on imitation zari thread. This clarification is based on the recommendation of the GST Council in its 52nd meeting held on 7th October, 2023. The circular, numbered 205/17/2023-GST and dated 31st October, 2023, is a significant development for businesses involved in the production and sale of imitation zari thread or yarn.
Background and Previous Recommendation
To provide some context, the GST Council, in its 50th meeting, had recommended a reduction in the GST rate for imitation zari thread or yarn to 5%. This was a favorable move for the industry and was intended to streamline the taxation of these products.
Imitation Zari Thread Classification
The circular addresses an important question that has arisen after the initial recommendation. It pertains to whether metal-coated plastic film, which is later converted to metallized yarn and twisted with materials like nylon, cotton, polyester, or any other yarn to create imitation zari thread, falls under the category covered by Sl No. 218AA of Schedule I, which attracts a 5% GST rate, or if it should be classified under Sl No. 137 of Schedule III, attracting a 12% GST rate.
To resolve this issue, reference is made to the HS Explanatory Notes, which provide essential guidance. The heading 5605 in these notes encompasses various products, including yarn consisting of textile material combined with metal thread or strip. It also covers yarn of any textile material covered with metal using various processes, such as electro-deposition or metal dust coating. Additionally, products made of a core of metal foil or plastic film coated with metal dust and sandwiched between plastic film layers are also included.
GST Council’s Recommendation
In light of the information provided by the HS Explanatory Notes, the GST Council has recommended that imitation zari thread or yarn made from metallized polyester film or plastic film, falling under HS 5605, should be classified under Sl No. 218AA of Schedule I. This means that such products will attract a 5% GST rate.
Furthermore, the GST Council has specified that no refund will be permitted on polyester film (metallized) or plastic film due to the inversion of the tax rate. This decision aims to simplify and clarify the taxation of these products, ensuring uniformity in the applicable GST rates.
Implementation of the Circular
Businesses and stakeholders in the imitation zari thread industry should take note of this important clarification and adjust their tax compliance accordingly. It’s essential to ensure that the correct GST rate is applied to the products in question to avoid any tax-related issues.
In case of any difficulties or challenges in implementing the circular’s recommendations, stakeholders are encouraged to bring them to the notice of the Board for further guidance and resolution.
Conclusion
The circular, Circular No. 205/17/2023-GST, offers much-needed clarity on the classification and GST rate applicable to imitation zari thread or yarn made from metallized polyester or plastic film. This clarification is a significant step towards simplifying and standardizing the taxation of these products, benefiting both businesses and consumers. Understanding and implementing these guidelines is crucial to ensure compliance with the updated GST rates.
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F. No. CBIC-190354/195/2023-TO(TRU-II)
Government of India
Ministry of Finance
Department of Revenue
(Tax Research Unit)
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North Block, New Delhi
Circular No. 205/17/2023-GST Date: 31st October, 2023
To,
Principal Chief Commissioners/ Principal Directors General,
Chief Commissioners/ Directors General,
Principal Commissioners/ Commissioners of Central Excise & Central Tax
Madam/ Sir,
Subject: Clarification regarding GST rate on imitation zari thread or yarn based on the recommendation of the GST Council in its 52nd meeting held on 7th October, 2023 –reg.
The GST Council in its 50th meeting had recommended reduction of GST rate to 5% on imitation zari thread or yarn known by any name in trade parlance, following which Sl. No. 218AA had been inserted in Schedule I of notification no. 1/2017- Central Tax (Rate) dated 28.6.2017.
2. Doubts have been raised whether metal coated plastic film converted to metallised yarn and twisted with nylon, cotton, polyester or any other yarn to make imitation zari thread is covered under Sl No. 218AA of Schedule I covering imitation zari thread or yarn, and attracting 5% GST, or under Sl No. 137 of Schedule III covering other metallised yarn attracting 12% GST. As per HS Explanatory Notes, the heading 5605 covers – (1) yarn consisting of any textile material (including monofilament, strip and the like and paper yarn) combined with metal thread or strip, whether obtained by a process of twisting, cabling or by gimping, whatever the proportion of the metal present (2) yarn of any textile material (including monofilament, strip and the like and paper yarn) covered with metal by any other process including yarn covered with metal by electro-deposition. The heading also covers products consisting of a core of metal foil (generally of aluminum) or of a core of plastic film coated with metal dust, sandwiched by means of an adhesive between two layers of plastic film.
3. In light of the above, the GST Council has recommended to clarify that imitation zari thread or yarn made from metallised polyester film/ plastic film falling under HS 5605 are covered by Sl No. 218AA of Schedule I attracting 5% GST. The GST Council has also recommended that no refund will be permitted on polyester film (metallised)/plastic film on account of inversion of tax rate. Requisite changes have been made in notification no. 5/2017- Central Tax (Rate) vide Notification no 20/223-Central Tax (Rate) dated 19.10.2023.
4 Difficulty if any, in the implementation of this circular may be brought to the notice of the Board.
Yours faithfully,
Dibyalok
Technical Officer , TRU
