Inverted duty on textiles to be corrected from Jan '22: Indian FM

17 Sep '21

2 min read

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Inverted duty on textiles and footwear will be corrected from January 1, 2022, India’s finance minister Nirmala Sitharaman said at a press conference today. She was addressing the media after chairing the 45th meeting of the Goods and Service Tax (GST) Council in Lucknow. Currently, certain inputs are taxed at a higher rate than finished goods.

“GST rate changes in order to correct inverted duty structure, in footwear and textiles sector, as was discussed in earlier GST Council Meeting and was deferred for an appropriate time, will be implemented with effect from 01.01.2022,” an official statement issued after the press conference said.

Textiles and footwear businesses are unable to claim input-tax credit (ITC) because raw materials are taxed at a higher rate than the finished goods. For example, inputs into the MMF fabric segment (fibre and yarn) attract a GST rate of 18 per cent and 12 per cent, whereas the GST rate on the MMF fabric is 5 per cent and that for the finished goods apparel is 5 per cent (for those with MRP less than ₹1,000) and 12 per cent (for MRP more than ₹1,000).

The GST Council had discussed the issue of inverted duty structure in the past, but had not reached any conclusion, particularly last year, as reducing GST on raw material would result in loss of revenue.

The main impact of inverted duty structure in on the working capital of the businesses. It is because the GST paid at higher rates on raw materials is blocked till the government releases refund.

The GST Council held its physical meeting today after a gap of 16 months. The Council had last met physically on March 14, 2020 in New Delhi.

The gross GST revenue collected in the month of August 2021 was ₹1,12,020 crore of which CGST was ₹20,522 crore, SGST was ₹26,605 crore, IGST was ₹56,247 crore (including ₹26,884 crore collected on import of goods) and Cess was ₹8,646 crore (including ₹646 crore collected on import of goods).

The revenues for the month of August 2021 were 30 per cent higher than the GST revenues in the same month last year. During the month, the revenues from domestic transaction (including import of services) were 27 per cent higher than the revenues from these sources during the same month last year. Even as compared to the August revenues in 2019-20 of ₹98,202 crore, this is a growth of 14 per cent.

Fibre2Fashion News Desk (RKS)

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