INDUSTRY CHEERS AS GOVT FINALISES 5% GST ON JOBWORK

BURNING ISSUE

INDUSTRY CHEERS AS GOVT FINALISES 5% GST ON JOBWORK



The whole storm of GST implementation on textiles came to a hope-filled halt when the Finance Minister, after a meeting with the GST council, announced the reduction of GST on cotton based fabric to 5% instead of the initially proposed 18%. Garment manufacturers have welcomed the government’s decision to cut service tax (goods and services or GST levy) on the third-party services commonly known as job work. This 5% rate will be applicable for job works in apparel, shawls and carpets. Earlier, the GST Council had lowered the rates on the job work in the jewellery sector while keeping the rate unchanged at 18% for readymade garments. “We welcome the decision. This is a major relief for the garments sector. The rate of 18% was a big barrier. With this relief, the garment sector in India will see a major leap in the days ahead,” said Ashok Rajani, Chairman, AEPC.

In the unorganised garment sector, almost 75% depends on job work such as stitching, trading and other associated work. The sector feared hundreds of thousands of job losses with high tax on third party work. Since many inputs were kept under various tax slabs, the high level of 18% tax on merchant services would have created an inverted duty structure resulting in a negative impact on the business.

The textiles and apparel industries in India are largely dependent upon job work with over two-thirds of the volume manufactured in merchant factories. The move of the GST Council will help many job workers generate self-employment. With captive plants attracting only 5% tax, it was only job work that fell in the 18% bracket. Job workers needed to be aligned with captive manufacturers. Hence, the GST rate cut on job workers is a big relief for the entire textiles industry,” said S Rajgopal, Executive Director, The Cotton Textiles Export Promotion Council (Texprocil).

This will now result in comparatively lower priced garments of the order of 2-3% because of lowered GST. The entire textile fraternity of India swept the dust off the ground when ministry announced GST implementation on fabric; traders came onto the road demonstrating against it and almost all India textiles market observed shutters down to protest GST.The final verdict brought about much relief to the industry. Textile industry sources termed the 5% GST rate on cotton textiles as a progressive decision and one that would give impetus for the growth and development of the entire textile value chain. The low rate will not only ensure compliance but also encourage farmers to grow more cotton, will not cast any additional burden on the sector and above all ensure that India regains its competitiveness in the world market. The 5% GST rate on cotton fibre would also benefit 20 million cotton farmers, while the same rate on readymade garments priced below Rs. 1,000 would benefit the common man. The GST rates on textile job works like stitching, embroidery and tractor parts were cut, while e-way bill provisions relating to online pre-registration of goods before transportation were relaxed.

Addressing a conference, FM Jaitley said, “We hope that textile job works would be exempted from service tax considering that the units that operate in the power loom, knitting, processing and garmenting space are predomi-nantly decentralised and micro and small enterprises in nature.” He added that the 18% GST on man-made fibre and synthetic yarn would have an inverted duty structure problem as the fabric would attract only 5% GST. The lower GST rates across products would go a long way in promoting ‘Make in India. A job work involves a manufacturer sending goods out of the factory for a specialised processing job without having to pay taxes. The move “would now help SMEs of power loom, knitting and processing sectors also in that they would face a much lower financial burden.” In such a situation, a manufacturer who does not have integrated composite units to complete the process of embroidery, printing and finishing as per market requirements would face a great loss. A common rate across the chain would also avoid confusion. All textile job works being manufacturing activities were exempted from service tax in the pre- GST regime. But job workers could not avail input tax credit, increasing the cost of the products while affecting export competitiveness and also domestic consumers. The 5% GST rate on job works would enable the industry to claim full input credit and also avoid any inverted duty and strengthen the global competitiveness of the textile sector apart from benefiting domestic consumers. The reduction of GST rate for manmade fibre and synthetics from 18 to 12% is however taken as a deterrent because, with this set up, imports will become cheaper than domestic products as the countervailing duty (CVD) and special additional duty (SAD) on imports have become Integrated GST.

Earlier, the additional duties, namely CVD & SAD, were a protection against imports. Hence, industry would need some safeguard measures to ensure the Make in India initiative does not get washed away in the avalanche of imports which, post GST, has become 12 to 16% cheaper.Industry still seeks 12% GST rate on MMF and synthetic yarn or refund of duty under inverted duty incidence at the fabric stage as prescribed in GST Act.

The Council also gave in-principle approval to anti-profiteering measures and setting up of a screening Committee in 15 days to see if tax reductions after implementation of GST have been passed on to consumers. Briefing reporters after the 20th meeting of the Council, Jaitley said all goods worth over Rs 50,000 will have to be pre-registered online before they are moved for sale beyond 10 km. The e-way bill mechanism is likely to come into force by 1st October. As per the draft provision, GSTN would generate e-way bills that would be valid for 1-20 days, depending on the distance to be travelled — one day for 100 kilometres, three days (100 to less than 300 km), five days (300-less than 500 kilometres) and 10 days (500-less than 1,000 kilometres).

In the unorganised garment sector, almost 75% depends on job work such as stitching, trading and other associated work. The sector feared hundreds of thousands of job losses with high tax on third party work. Since many inputs were kept under various tax slabs, the high level of 18% tax on merchant services would have created an inverted duty structure resulting in a negative impact on the business.

A job work involves a manufacturer sending goods out of the factory for specialised processing job without having to pay taxes. The move “would now help SMEs of power loom, knitting and processing sectors also in that they would face a much lower financial burden.” In such a situation, a manufacturer who did not have integrated composite units to complete the process of embroidery, printing and finishing as per the market requirements would face a great loss.