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Gross neglect of Footwear Sector by Finmin/GST council- Fallout of NN 21/2021 CT(Rate)

How can it be forgotten that one upon a time, Footwear ruled India, literally!!

When Lord Ram refused to return at the behest of Shri Bharat, his footwear were taken to Ayodhya and were enthroned as a Ruler, until Lord Rama returned to Ayodhya after completion of his Exile.

Such was the stature and respect dispensed to footwear!

Alas! No more…..

It is only unfortunate that despite falling in the same category of “wearables” and despite garnering substantial employment while ‘making in India’, the footwear sector has always been a step-daughter of the Government, and treated as such.

It generates 2% of India’s GDP, employs the most deprived and unprivileged class of workers, puts India on world map of footwear producers (second only to China), establishes India as 6th largest consumer of footwear in world, and yet it fails to get industry status unlike big-brother Textile industry.

Starting from the basic rates of GST, the net un-favourable treatment of footwear is apparent.

One fails to decipher what makes footwear, leather and non-leather alike, so sinful as to be afforded an exalted category over garments, so that they are taxed at 18% GST rate, while the big-brother garment is taxed at 12%.

The only level field available to poor kid-brother was when Sale Value was up to Rs.1000, where it shared same tax rate of 5% as a garment.

Above this threshold, garments were and are taxed at 12% while footwear is at 18% (with no plausible reason).

Same was the case pre-GST as well. This differential treatment was carried forward into GST regime slickly.

Government’s approach hitherto has been to heed to demands of not who needs it the most, but the one who cries the loudest. A sector in need of support is blissfully ignored, therefore.

Legal Metrology Act,2009 vs. GST rate revision:-

It is known well that a retailer has to comply with Legal Metrology (Packaged Commodities) Rules, 2011 declarations, in the form of a sticker containing six statutory declarations as to MRP, among other things, in the interest of a consumer.

Until all declarations are affixed in form of a sticker, no retailer can sell goods to end-customer under Metrology Act.

Now with government making a hasty decision (as always), it is obvious that no one thought of Legal Metrology qualms faced by a retailer, who might want to pass on the increased burden of raised GST rates, to the end-customer. It is impractical to increase the rates unless all MRP stickers, affixed on the products in market as on EOD 31/12/2021, are changed overnight.

Gross neglect of Footwear Sector by Finmin-GST council

This just cannot be done, as first of all, closing inventory at all locations is needed, followed by printing of new stickers, followed by dispatch and then removal of old declarations (which may or may not be viable) and lastly, fixation of new stickers, all to be done within 10-12 hours.

This predicament is applicable to both footwear and Garments, as both are considered Packaged Commodities (!) by the Metrology Act and cannot be sold for more than the declared MRP. Consequently, the retailer will take the hit of increased GST rate, as increasing MRP is impractical as discussed above.

Moreover, in an already stressed-out market (due to pandemic) customers have become very price-sensitive and will shy away from a product at the slightest opportunity. So even if an effort is made for lawfully increasing the MRP of a product, it may be futile as demand may fall due to increased price.

Inverted Duty Structure vs. increasing GST rate on output:-

Decision for rationalizing Inverted duty in case of garments and footwear was taken in the previous GST council meeting (45th). NN 14/2021 CT (Rate) dated 18/11/2021 was the outcome of that discussion, and GST rates for Finished goods upto Sale Value Rs.1000, was intended to be increased from 5% to 12%, for both garments and footwear.

Firstly, wasn’t this increase an attempt to eat into the accumulated ITC, which could have been refunded to the manufacturer or carried forward by him? But then, even taking refund is a mean task now in view of recent Supreme Court decision (VKC Footsteps case).

Secondly, wouldn’t this action eventually increase the cost of product for the consumer, while filling government’s coffers more?

So how a manufacturer of a product, whose MRP is fixed at the time of manufacture itself, gets benefitted out of such increase in GST rate is not understood. Same applies down-the-line to a trader too who is holding stock as on the date of notification coming into effect (i.e. 31/Dec/2021).

(In)conclusion:-

Therefore, first introducing a remedy and rolling it back partially, sends a wrong wave to a sector which deserves to be treated equally, unless it settles for this prejudice as it always has.

Moreover, the lawmakers should be circumspect to visualize the ground-situation, in the light of cornucopia of laws applicable to a sector. Missing out on one may render a remedy useless, as has happened in this case.

Haste must be avoided. Haven’t we suffered enough already?!

Disclaimer: Personal views only.

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