Textile GST Hike Notification Rescinded, Status Quo Entry Restored

· Matter Referred to Expert Committee, Decision by End March

· Man-made Fibre Loses once again to Cotton

· 12% IGST on Footwear of sale value not exceeding Rs.1000 per pair

Seeks to supersede notification 14/2021- IT(R) dated 18.11.2021 and amend Notification No 1/2017- Integrated Tax (Rate) dated 28.06.2017.

46th Meeting of the GST Council, Lucknow - Press Release dated 31st December, 2021

The GST Council’s 46th meeting was held today under the chairmanship of the Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman.

The GST Council has recommended to defer the decision to change the rates in textiles recommended in the 45th GST Council meeting. Consequently, the existing rates in textile sector would continue beyond 1st January, 2022.

The GST Council’s last-minute deferment of a proposed rate hike for lower-end textile items from the existing 5 per cent to 12 per cent, has given a reprieve to the industry.

But units have their fingers crossed over what the final decision, expected by March this year, would be, as revenue generation and correction of inverted rates remain valid concerns for the government.

‘Workable option’

In the textiles sector, while MMF fibre and yarn attracted GST of 18 per cent and 12 per cent, respectively, a 5 per cent GST was applicable on all kinds of fabric. All types of garments had a GST levy of 12 per cent while garments below ₹1,000 attracted a lower 5 per cent.

According to sources, the inversion in the duty structure resulted in annual refund amount exceeding ₹4,000 crore.

“The amount is expected to grow, considering that in the first year (of GST implementation), refund of accumulated ITC was not allowed,” the source explained.

To correct the inverted duty structure in the textiles industry, the GST Council, in its meeting on September 17, 2021, proposed to raise the rates for textiles of any value to 12 per cent, effective from January 1, 2022. It also decided to lower the GST on MMF fibre to 12 per cent.

Protests from MSMEs

There was, however, a slew of protests from the MSME sector and various States, including Gujarat, Tamil Nadu, West Bengal and Rajasthan, against the rate hike for garments.

“Higher GST was detrimental to consumers buying lower-end products. Majority of buying in India is below ₹1,000 for apparel. This could have resulted in lesser buying, thereby impacting traders and MSME manufacturers,” said Animesh Saxena, President, Federation of Indian Micro & Small and Medium Enterprises.

The GST Council, in its meeting on December 31, decided to defer the proposed rate hike and refer the matter to the rate rationalisation committee, which is expected to submit its report in February.

[Notification No. 21/2021-Integrated Tax (Rate) dated 31 December 2021]

G.S.R. (E).- In exercise of the powers conferred by sub-section (1) of section 5 of the Integrated Goods and Services Tax Act, 2017 (13 of 2017) read with sub-section (5) of section 15 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, and in supersession of notification of the Government of India in the Ministry of Finance (Department of Revenue), No.14/2021 - Intergated Tax (Rate), dated the 18th November, 2021, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 817(E), dated the 18th November, 2021, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No.1/2017-Integrated Tax (Rate), dated the 28th June, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 666(E), dated the 28th June, 2017, namely:-

In the said notification, -

a. in Schedule I – 5%, serial number 225 and the entries relating thereto shall be omitted;

b. in Schedule II – 12%, after serial number 171 and the entries relating thereto, the following serial number and entries shall be inserted, namely: -

“171A1

Footwear of sale value not exceeding Rs.1000 per pair.”

2. This notification shall come into force on the 1st day of January, 2022.

[F.No.354/79/2021-TRU]