How GST Stands Today

By: Arun Kumar Singh

Much has changed, particularly for the textiles and apparel industry, since the goods and services tax (GST) regime was rolled out in July 2017. Arun Kumar Singh looks at the state of things.

The textiles-apparel industry is one of the oldest and largest contributors to India's economy. As the second largest industry after agriculture, the sector employs both skilled and unskilled people. The industry contributes more than 14 per cent of the total annual exports, which is likely to increase under the goods and services tax (GST) regime. This sector was doing well in the pre-GST era as well. With the rolling out of GST-which is no doubt a daring step by the government to strengthen the economy-this sector, particularly apparel exports, has suffered a jolt.

Rate of GST on textile goods: Knitted apparel and clothing falls under Chapter 61 of the harmonised system of nomenclature (HSN) code under articles of apparel and clothing accessories. Apparel and clothing that are not knitted fall under Chapter 62 of the HSN code. Other textile products like curtains, bedsheets and used clothes are listed under Chapter 63 of that code under other made-up textile articles, sets, worn clothing and worn textile articles. Under all categories, any piece of apparel or clothing is taxed 5 per cent GST if the taxable value of the goods does not exceed 1,000 per piece. All types of apparel and clothing with value exceeding 1,000 per piece would be taxed at 12 per cent GST.

Fabrics are classified under the first schedule of the Customs Tariff Act, 1975, based on their constituent materials and attract a uniform GST rate of 5 per cent. Garments and made-up articles of textiles under Chapters 61, 62 and 63 attract GST at the rate of 5 per cent, when their value is up to 1,000 per piece, and 12 per cent, when the value exceeds 1,000 per piece. The amount of 1,000 is the sale value, i.e. value at which such pieces are sold by the supplier. It is possible that a piece when sold by a manufacturer to a retailer may have a sale price of less than 1,000 and attract lower tax rate and may be sold at the sale price of more than 1,000 from the retailer shop and may attract a higher tax rate.

Classification of fabrics: An October 2017 circular clarified that mere packing of fabrics into pieces of different lengths will not change the nature of these goods and such fabric pieces would continue to be classified under the respective heading as the fabric and attract 5 per cent GST rate. This clarification would equally apply to three pieces of fabrics sold in a pack as ladies salwar suit. Any embroidery on a fabric piece or certain embellishment thereon does not change the basic nature of it being a fabric. Wet baby