Manufacturing Industry is one of the most important pillars of an economy. In this era of GST almost every industry has been affected some favorably and the others Adversely. While talking about Food Processing industry it can be clearly seen that in some cases GST has adversely affected it. For example:- Prior to the period of GST implementation the above said industry was governed by the provisions of Excise, CST & VAT. To be more specific about the condition of FLOUR MILLS being their finished product FLOUR, SEMOLINA , PORRIDGE etc. the provisions of EXCISE were not applicable and same was the situation in VAT also. The rate of taxes on INPUT machinery were also quite low and in the case of GTA service, service tax was also exempt by the MEGA EXEMPTION LIST. Thus this industry was suffering a burden of tax only in the case of capital goods and input goods (upto some extent).

But After the implementation of GST, two options have been given :-

1. If your Brand Name is Registered you can discharge your tax liability @ 5% and avail the facility of input tax credit.

 2. If your brand Name is Unregistered then your tax liability is NIL but you are not allowed to avail the facility of input tax credit.

Practically both the options are available with burden of taxes. In 1st option a huge part of the working capital is blocked since the input and capital goods are heavily duty paid and most of the machinery are covered under the tax bracket of 28% and the inputs under 12% in current scenario of GST leading to unnecessary blockage of funds. while in the second option one has to forgo the tax credit facility. Presently most of the flour mills are working under the second option and discharging nil rate of duty but the heavy duty on inputs and Capital Goods has additionally increased the cost of their product which has negatively impacted their profitability.

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Qualification: CA in Job / Business
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Location: DELHI, New Delhi, IN
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  1. Deepak seth says:

    Please also explain applicability of Section 9 (4) reverse charge to flour mills because these mills also supply scrap or old machinery etc which are taxable supplies. In that case most of the expenses of these mills are taxable under reverse charge and no input credit is available to thsee mills

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November 2020