The recent GST Council meeting, heralded for its “consumer-friendly” rate cuts effective post 22.09.2025, has been met with widespread applause. Headlines tout reduced taxes on everything from household utensils to hotel stays. However, a deeper, more nuanced examination of the changes reveals a more complex and often contradictory picture. For many industries and end consumers, the purported benefits are an illusion, masked by a structure that shifts the tax burden, creates new inverted duty cycles, and fails to address core inflationary pressures.
This article serves as an eye-opener, dissecting the fine print to reveal who the real winners and losers are in this latest round of GST reforms.
The Utensils vs. Metals Conundrum
The reduction of GST on utensils is paraded as a major relief for the common household. However, this narrative collapses when viewed alongside the rate on the primary raw material – metals.
Old Structure –
Stainless Steel Flat Products (the raw material for utensils) were taxed at 18%. The final utensils were also taxed at 18%. This was a coherent structure.
New Structure –
Stainless Steel – GST remains at 18%.
Utensils – GST slashed to 5%.
This creates a severe “Inverted Duty Structure”. The manufacturer pays a higher tax on inputs (18%) than he can collect on his outputs (5%). While he can claim a refund for the accumulated ITC, this process is notoriously slow, cumbersome, and locks up working capital. For the vast MSME sector that dominates utensil manufacturing, this is a crippling blow, not a benefit. The consumer might see a minor price drop, but the industry faces a severe liquidity crisis.
Beyond Utensils: A Sectoral Analysis of Illusory Benefits
Several other sectors also face similar paradoxical outcomes.
The Textile and Apparel Maze
The Change – GST on several textile products (like readymade garments) has been reduced.
Illusionary impact – GST rate on man-made fibres (MMF) and yarns has not been reduced proportionally. This, again, creates or exacerbates an inverted duty structure for fabric weavers and garment manufacturers, hurting their cash flow and potentially stalling investments.
“Affordable” Hotel Stay
The Change – Hotels with room tariffs below ₹7,500 per night have been moved to a lower tax slab.
Illusionary impact – The cost structure of a hotel (real estate, maintenance, amenities, food) attracts GST at 12%. If the room tariff is taxed at 5%, the hotel faces an inverted duty structure on a significant portion of its operations, making the business model less viable.
“No Tax” on Food Items
The Change – Certain food items may be moved to a nil or 5% slab.
Illusionary impact – The transportation (GST on freight), packaging (GST on plastics), and cold storage (GST on services) for these items continue to attract 18% GST. Since the final product is exempt, this ITC becomes a cost, ultimately inflating the final price to the consumer. The tax is hidden, not eliminated.
The Broader Impact: A Myopic Vision?
The council’s approach appears to be driven by a short-term desire to provide headline-grabbing tax cuts without a holistic view of the supply chain.
1. Working Capital Blockage : The proliferation of inverted duty structures acts as a direct tax on the working capital of manufacturers, making Indian goods less competitive.
2. Policy Uncertainty : Frequent and seemingly un-calibrated changes create uncertainty, discouraging long-term investment in affected sectors.
3. Administrative Chaos : The refund mechanism for ITC is already overburdened. Adding more sectors to this list will only increase compliance costs and administrative delays for both businesses and the government.
Final advise – The need for a Holistic, Supply-chain driven approach
The recent GST rate changes, while politically appealing, are an economic quagmire for many critical sectors. The government’s intention to provide relief is clear, but the execution is flawed. By focusing solely on the final product and ignoring the tax burden on the entire supply chain, the council has created a system of winners and losers where the losers are often the job-creating MSMEs.
True GST reform requires a comprehensive, supply-chain-wide review. Rate changes must be coherent, ensuring that the tax on inputs is not higher than the tax on outputs. Until then, the so-called “tax cuts” will remain, for many, a classic illusion—a case of one step forward and two steps back.
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