Pen Makers Face 18% GST on Cap Clip and Refill, Demand Halved Due to COVID- 19 Pandemic

The Rs 2,000-crore writing instrument industry is facing a double whammy of taxation issues and demand slump with most of the educational institutions being closed in the country due to the COVID-19 pandemic, officials said on Wednesday, 2 December 2020.

Pen manufacturers have approached the Central Board of Indirect Taxes and Customs, alleging that a 12 per cent GST is imposed on the product but some officials have been "misinterpreting" the notifications and imposing tax at 18 per cent on writing instrument components such as cap, clip and refill.

They also claimed that the existing notifications do not discriminate tax between pen and its manufacturing inputs.

"The issue of misinterpretation has come to the fore since early 2020 but the problem escalated during the pandemic.

"The industry witnessed nearly 50 per cent fall in demand as the educational institutions remain closed and have opted for the work-from-home concept," Calcutta Pen Manufacturers and Dealers Association president Naresh Jalan said.

Federation of All India Vyapar Mandal, on behalf of the pen industry, has submitted a representation to the Central Board of Indirect Taxes and Customs, requesting it to advise all zonal commissionerate to impose tax as provided in the notification, its secretary V K Bansal said.

This is an inverted duty structure situation which will prompt pen makers to import, instead of manufacturing in the country, Confederation of West Bengal Traders Association President Sushil Poddar said.

Jalan said, "In the government's app, 'Niryat Mitra', the IGST rate for all goods falling under various sub-headings of heading 9608 is at 12 per cent. Fountain and stylograph pens attract 18 per cent IGST."

The other guidelines for the GST rate and customs notifications also suggest 12 per cent rate on components, except for fountain and stylograph pens, he said, adding that similar tax structure is being followed since VAT regime.

This taxation issue will not help government raise fund as manufacturers can claim the input tax credit in the GST system, Jalan said.

"As it takes a year or so to get the input tax refunds, the high tax pay-out could create pressure on working capital of manufacturers," he added.