GST Council in 45th Meeting held on 17th Sep 2021 has agreed to correct the inverted duty structure on Footwear & Textile industries from 01-Jan-2022.

-Finally on 18th Nov 2021, Notification No. 14/2021- Central Tax (Rate) –w.e.f 01.01.2022 rate of textile items increased from 5 % to 12%.

Is this correction justified???

Before introduction of GST, there was hardly any indirect tax on textile sector but once GST has introduced govt assured that textile sector will be taxed at lower rate under GST, Still yarn was taxed at rate of 18% and fabric 5 %. Difference in tax structure leads to blockage of funds so govt reduced rate to 12% but still blockage of funds continues.

So govt come up with solution- refund policy – Refund on account of inverted duty structure but this policy also has loopholes – Bogus firms are registered, fake invoices produced without actual movement of goods and these invoices are used to claim Input tax credit fraudulently.

Govt decided to mitigate inverted duty structure but COVID-19 pandemic has placed its own challanges before industry and govt drop the idea. Recently on 17th Sep 2021 govt agreed to correct inverted duty structure w.e.f 01.01.2021.

Now there can be three possible options-

Firstly, reduction in GST RATE to 5 %,

Secondly, Increase in GST RATE on fabric to 12 %

Thirdly, mid –way rate between 5 % – 12 %

But Government finally come up on 18 th Nov 2021 Notification No. 14/2021- Central Tax (Rate), increasing rate to 12 %

Now question comes to our mind – Is this rate justified??

Consumer point of view- Earlier consumer is paying tax @ 5 % and now he will pay tax @12% so difference i.e 7 % he will pay more … so prices of textile products will increase ….burden will shift to consumer..

Supplier point of view- Step taken by government is good one as there will no blockage of funds but Rate of 12 % will affect their sales or not…time will tell—GST frauds increase or decrease ..

In GST, Turnover exceeds Rs 5 crores we have to pay tax on monthly basis but are we getting receipts from customers with in month…It means we have to large amount of tax from our own funds —-

So i think time will tell as notification already issued – Welcome this step taken by government…

*****

Queries/doubts related to above mailed at [email protected]

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