IBS Hyderabad

Academic Year – 2020-21

MBA SEMESTER II
GOODS AND SERVICES TAX (GST)
Course Faculty: Dr. Anto Joseph
Group Project: Study of GST from Industry Perspective focusing on Textile Industry

Name of the Members Registration No.

Devanshi Grover 19BSPHH01C0335
Sanjana Bhardwaj 19BSPHH01C1040
Sharmistha Anand 19BSPHH01C1098
Victor Banik 19BSPHH01C1387
Vedika Dammani 19BSPHH01C1373
 ACKNOWLEDGEMENT

We are overwhelmed in all humbleness and gratefulness to acknowledge our depth to all
those who have helped us to put these ideas, well above the level of simplicity and into
something concrete.
I would like to express my special thanks of gratitude to my teacher Mr. Anto Joseph who
gave us the golden opportunity to do this wonderful project on the topic " Impact of GST on
textile industry " , which also helped us in doing a lot of Research and we came to know
about so many new things.

Secondly, we would also like to thank industry executives who helped us in procuring
necessary information and our friends who helped us in finalizing this project within the
limited time frame.

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 INDEX

SR. PARTICULARS PAGE

NO. NO.

1. INTRODUCTION TO GST 3

2. 4
ABOUT THE TEXTILE INDUSTRY

3. TEXTILE INDUSTRY PRE GST 5

4. TEXTILE INDUSTRY POST GST 6

5. TAX STRUCTURE 6-10

6. IMPACT OF GST 10

7. INSIGHTS FROM INDUSTRY PERSONNEL 11-12

8. CONCLUSION 13

9. BIBLIOGRAPHY 14

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 INTRODUCTION TO GST

Implemented on 1st July, 2017 by the One hundred and first Amendment of The Constitution
of India, Goods and Services Tax (GST) is an indirect tax or consumption tax imposed all
over India on supply of goods and services. It is a comprehensive multistage destination-
based tax.

Comprehensive as it has subsumed, almost all the taxes except a few like Excise duty etc.
Multi-stage as it is imposed at every step of production (ITC is allowed at every step).
Destination based as it collected from the point of consumption and not from point of origin.

GST covers almost all the goods and services one can think of, except petroleum products,
alcohol for human consumption and electricity, which are generally taxed by the respective
state governments.

GST COUNCIL:

GST Council is an apex member committee to modify, reconcile or to produce any law or
regulation in the context of Goods and Services Tax in India. The GST Council is responsible
for any revision or enactment of rule or any rate changes of the goods and services in India.

GST Council is the Governing Body of GST that has 33 members which represents members
from 29 States, 3 Union Territory and 2 members from Centre. The council contains:

1 Union Finance Minister as the Chairperson i.e. Mrs. Nirmala Sitharaman.

2 Union Ministers of State in charge of revenue or finance.

3 The ministers of state in charge of finance or taxation or other ministers as nominated by

the State.

COMPONENTS OF GST:

There are 3 taxes applicable under this system: CGST, SGST & IGST.

CGST: Under GST, CGST is a tax levied on Intra State supplies of both goods and
services by the Central Government and will be governed by the CGST Act. SGST

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 will also be levied on the same Intra State supply but will be governed by the State
Government. E.g.: supply of goods from Hyderabad to Secundarabad.

SGST:  Under GST, SGST is a tax levied on Intra State supplies of both goods and
services by the State Government and will be governed by the SGST Act. As
explained above, CGST will also be levied on the same Intra State supply but will be
governed by the Central Government. E.g.: supply of goods from Hyderabad to
Secundarabad.

IGST: Under GST, IGST is a tax levied on all Inter-State supplies of goods and/or
services and will be governed by the IGST Act. IGST will be applicable on any
supply of goods and/or services in both cases of import into India and export from
India. E.g.: supply of goods from Hyderabad to Bangalore.

ABOUT THE TEXTILE INDUSTRY

Traces of the textile industry in India can be found dated back to the Harrapan Civilization,
references of sewing, weaving and spinning materials can be found in the Vedic literatures.

Traditionally, the Textile Industry, after agriculture, is the only industry that has been
generating huge employment for both skilled and unskilled labourers in India. It offers
employment to more than 45 million people in the country as per the data of 2017-18.

The industry has two broad segments. First, the unorganised sector which consists of
handlooms, handicrafts and sericulture, operating on small scale through traditional tools and
methods. The second, the organised sector consisting of spinning, apparel and garments
working with the usage of modern machinery and techniques such as economies of large
scale etc.

The total textile export in FY 19 was around $31.65 billion and is expected to rise by $82.00
billion in FY 2021.
The Textile industry in India is currently estimated to be of around US$ 250 billion. It
contributes around 7 percent to the industry output, and contributes to around 5 percent to the

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GDP of India. The sector contributes to around 15 percent to the export earnings of India as
per the data of 2018.

TEXTILE INDUSTRY PRE GST

Historically, Indian textile industry being vastly based on the handloom industry, the
government of India have always been inclined towards keeping this particular industry out
of the tax net. The motive being increase in production and exports resulting in increase in
employment and net foreign inward remittances. The indirect tax structure in the country
basically consisted of 3 major taxes i.e. excise duty, sales tax and the service tax. Out of the
three taxes, the excise duty was implemented in the 40’s whereas the sales tax and the service
tax are of relatively younger age. Initially the textile industry was kept out of the excise net
and it continued for several decades. Finally, in the initial phase of 90’s i.e. when
the liberalization started, the textile industry was bought under the excise net. Yet due to
continuously increasing competition and the deteriorating health of the industry forced the
government to withdraw excise duty on the textile industry. Similarly, sales tax was not made
applicable on it and service tax had a very limited coverage that was only by reverse charge
mechanism. Another major reason of the failure of the taxation scheme was the huge impact
of cascading effect because the credit flow was restricted due to non-alignment of the taxes
into each other. Credit of inter-state transaction not being allowed was also an impactful
reason of trade being limited to specific regions only. It can be concluded that not being in
the tax net obviously helped the industry to thrive but also forced it to remain
largely unorganized sector.

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 Source: Researchgate.com

TEXTILE INDUSTRY POST

GST

India’s textiles sector is one of the oldest industries in Indian economy dating back several
centuries. Even today, it is one of the largest contributors to India’s exports with
approximately 13 per cent of total exports. The textiles industry is also labor intensive and is
one of the largest employment providers in the country. It employs about million people
directly and indirectly.

India’s overall textile exports during FY 2015-16 stood at US$ 40 billion. In the global
exports of textiles, India is ranked as the third largest exporter, trailing EU27 and China. The
position has been achieved by tremendous government support in way of subsidies and tax
reliefs. Under GST, some of the existing subsidization would be taken care of automatically.

The textile industry has two broad segments. First, the unorganized sector consisting of
handloom, handicrafts and sericulture, which are operated on a small scale and through
traditional tools and methods. The second is the organized sector consisting of spinning,
apparel and garments segment which apply modern machinery and techniques, both in
respect of inputs and finished products. The textile industries draw various inputs (Raw
Cotton, Yarn, Silk, Viscous etc.) and services (Job worker, weaver, handcraft etc.) from many

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other sectors consisting of both goods and services including dyes and chemicals and other
allied products.

TAX STRUCTURE
GST on Apparel
Knitted apparel and clothing falls under chapter 61 of the HSN code under articles of apparel
and clothing accessories. Apparel and clothing not knitted falls under chapter 62 of the HSN
code. Other textile products like curtains, bed sheets, used clothes, etc., have been listed
under chapter 63 of the HSN code under other made up textile articles, sets, worn clothing
and worn textile articles; rags. Under all the categories, any piece of apparel or clothing
would be taxed at 5% GST provided the taxable value of the goods is not exceeding Rs.1000
per piece. All types of apparel and clothing of sale price exceeding Rs. 1000 per piece would
be taxed at 12% GST.

HSN Description of Goods Unit GST Rates

CGS SGS IGS

T T T

61,62 & Articles of apparel and clothing accessories falling under u 2.5% 2.5% 5%
63 chapter 61, 62 and 63, of sale value not exceeding Rs.
1000/- per piece.

61,62 & Articles of apparel and clothing accessories falling under u 6% 6% 12%
63 chapter 61, 62 and 63, of sale value exceeding Rs.
1000/- per piece.

Source: Cleartax.com

Fabrics are classified under chapters 50 to 55

and 60 of the First Schedule to the Customs tariff Act, 1975 on the basis of their constituent
materials, attract a uniform GST rate of 5%.

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 Note: Rs. 1000/- per piece refers to sale price, i.e. value at which such pieces are being sold
by the supplier. It is possible that a particular piece when sold by manufacturer to retailer
may have sale price of less than 1000/- rupees and hence attract lower tax rate and may be
while selling to the customer holds a sale price of more than Rs. 1000/- and may attract a
higher tax rate.

GST on Fibres
Moreover, fibres like Silk, jute and cotton are taxed differently. GST rate on manmade fibre
and yarn is 18%, while its end product Fabric will be levied under tax rate of 5% if its sale
price is up to Rs. 1000 otherwise at 12%. The following table shows how various materials
falls under different tax slab.

Source: fashionatingworld.com

Treatment of Export

As per the provisions held under IGST law, export of goods or services or both are to be
regarded as “zero-rated supplies” and a person
being a registered taxable person exporting such
goods or services or both shall be allowed to
claim the refund of the GST paid under one of
the following two options:

 Export of goods or services or both under

bond or letter of undertaking (LUT) without
paying any Integrated Tax and can claim the
refund of unutilized input credit.
 Export of goods and service or both on the payment of Integrated Tax and the
exporter can claim the refund of the GST paid on such goods and services so exported. The
above-mentioned refunds will be subject to certain rules, procedures, and safeguards as may
be prescribed.

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Job Work Activity
According to clause (68) of section 2 of the CGST Act, 2017, “job work” means any
treatment or process undertaken by a person on goods belonging to another registered person
and the expression “job worker” shall be construed accordingly. The rate of tax on job work
activity related to textile and textile products falling under chapter 50 to 63.

It may be noted that the responsibility of keeping proper accounts of the inputs sent for job
work lies with the principal. Moreover, if the time frame of one year for bringing back or
further supplying the inputs is not adhered to, the activity of sending the goods for job work
shall be deemed to be a supply by the principal on the day when the said inputs were sent out
by him. It may be noted that the responsibility for sending the goods for job work as well as
bringing them back or supplying them has been cast on the principal.

Duty liability under RCM

On little activity of supply of goods or services or both the burden of liability to pay tax on
taxable supplies to any other person other than the supplier under sub-section (3) and sub-
section (4) of section 9 of the CGST Act, or sub-section (3) or sub-section (4) of section 5 of
IGST, Act. As per above mentioned sections tax is required to be paid by the recipient supply
rather than the supplier.

The list of supply of goods under reverse charge system is as follows:

HSN Description of supply of Supplier of goods Recipient of

Code Goods Goods

5004- Silk yarn Any person who manufactures silk Any

5006 yarn from raw silk or silk worm registered
cocoons for supply of silk yarn person

5201 Raw Cotton Agriculturist Any

registered
person

Any Used vehicles, seized and Central Government, State Any

Chapter confiscated goods, old and used Government, Union territory or a registered
goods, waste and scrap local authority person

Source: Cleartax.com

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Eway Bill
EWay Bill is an Electronic Way bill for movement of goods to be generated on the eWay Bill
Portal. A GST registered person the value of goods is worth more than Rs 50,000 (Single
Invoice/bill/delivery challan) and is made to or from a registered person then, the registered
person or the transporter must generate EWB. E-Way bill should be generated when there is
Inter-state & Intra-state movement of goods in relation to:

 Supply
 Reasons other than a supply.
 Inward supply from an unregistered person.
 An e-way bill is required even if goods are transferred from one vehicle to the other.
 A consolidated e-way bill is required for multiple consignments.

Input Tax Credit under GST

Section 16(1) of the CGST Act provides that every registered person is entitled to take credit
of input taxes charged on any supply of goods or services or both to him which are used or
intended to be used in the course or furtherance of his business. The said amount shall be
credited to his electronic credit ledger. The provisions provide for following principles;

1. A registered person is entitled to take credit. Thus, to avail any input credit,
registration of a person is must.
2. Input tax is available on all supply of goods and services equivalent to the amount of
tax charged.
3. The aforesaid goods or services or both must be used or intended to be used either in
course of business or in furtherance of his business.

Refund of ITC

The refund is very important aspect in apparel sector. Most of the textile assessee exported
the goods. The tax paid on input is more than the output tax liability or the same is
accumulated due to zero rated supply under letter of undertaking or bond. The assessee is
entitled for the refund in case of "zero rated” supply of goods or services made without
payment of tax and refund is also given in case credit has accumulated due to higher amount
of tax on input and lower amount of tax on output supply.

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IMPACT OF GST
 Rate: GST has subsumed most of
the indirect taxes such as
central excise duty, service tax,
VAT / Sales tax and entry tax. For
textile and its products, GST the
average tax rate is 18%. This could
have a negative impact as the industry is price sensitive.
 Input credit: Input tax credit is not allowed if the inputs are procured from
composition scheme taxpayers or the unorganized sector, and large portion of the
textile industry in India operates under the unorganized sector or composition scheme.
Thus, gap will be left under GST and would enable a smoother input credit system.
 Credit on Capital Goods: under GST, there will be input tax credit available for the
tax paid on capital goods, which earlier was not allowed (excise duty paid is not
allowed as input tax credit).
 Manufacturing cost: GST would help reduce costs for manufacturers in the textile
industry as it subsumed the various fringe taxes like Octroi, entry tax, luxury tax etc.
 Exports: Under GST, Input tax credit will be provided as a refund under GST instead
of earlier duty drawback schemes. This would be a significant boost for promoting the
export of textile products. Earlier exporters can claim the exemption for duty paid if
they export six times the value of duty within a period of next six times, this scheme
would lose its significance under GST.

INSIGHTS FROM INDUSTRY PERSONNEL

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Discussing about the conditions prevailing in the Industry after advent of GST, Mr. Drolia, a
Bombay Dyeing Merchant from Jharkhand India, he pointed out that GST has both positives
and negatives. Since the textile sector is largely unorganised and they next had to pay taxes
before this that is why Implementation of GST has given them a real shock. Starting from the
manufacturers, GST rates for different types of Fibre is different with manmade Fibre and
yarn taxed as high as 18% GST. This is discouraging these manufacturers from being in
business. Talking about the retailers, according to him retailers like him had some initial
difficulties in adapting to the new system where they have to file returns every month. In
contrary to quarterly or half yearly filing done before GST. But real problem is with the
Small and Medium retailers. Most of them have never even filed tax before. Another big
problem in the industry according to him has been lack of awareness among less educated
dealers and retailers. They not only faced problems understanding the regime but also
implementing them. They had no other way than to hire advisors or CAs to file returns for
them and make them aware of the everyday changes to the GST Law.

Talking about the compensation scheme Mr. Drolia pointed out that even though it sounds
like businesses with lower turnover should be benefitted by them but the entire process of
executing Compensation scheme is too complex plus the tax benefit out of Compensation
Scheme is not that hefty.

Now pointing out at the input tax credit, he said that after GST the process of claiming ITC
has rather improved which is a very good sign. Apart from this is also pointed out that the
overall prices of garments and apparels have rather fell down due to GST. This is a positive
sign not only to the retailers but also to the buyers.

So, in a nutshell GST can actually benefit the suppliers and retailers in the textile industry
only if implemented patiently and calmly. In an Industry like textile where the local players
are in the business since decades making them adapt to the system will take some time. He
also wishes if the Government not bring such fast changes in the law as it leads to a lot of
confusion for them as retailers.

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Talking with Mr. Rajendra Naresh, a
Raymond Dealer from Raipur India, he
mentioned that the company have seen a
nearly 30 per cent decline in demand since demonetisation. The industry faced major decline
as there was no liquidity. The company faced same difficulties at the time of GST as the
industry was unorganised before GST. He mentioned that they had to upgrade their
technology and also had to train their employees. While training their employees, they had
major problem like the employees had partial knowledge and that created a problem for them.
According to him, the employees took around 3-4 months to cope up with the new system
and because of that the company incurred huge cost.

He also mentioned that the major problem was with accounting system. In initial months,
they use to spend more time in accounting and making things more systematic. With the
introduction of GST, the company’s margin reduced but because of strong brand name, this
year the company has recovered in terms of revenue and profit growth.

He also talked about Input Tax Credit that after GST the process has become smoother. But
in initial months, they faced difficulties as sometimes they use to pay late GST with penalty
or they have received late ITC.

According to him, GST has improved and made things more systematic. He also added that
with the help of GST, the industry will become more organised and will also help to
formalise the system.

CONCLUSION
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There may be a few drawbacks for the textile industry due to the higher tax rate and removal
of benefits under cotton value chain, but it is safe to say that GST will help this industry in
the long run by getting more registered taxpayers under a well-regulated system. It can also
be hoped that GST will help the textile industry to get more competitive in both the global
and domestic markets and create opportunities for sustainable, long-term growth.

 Could be shift in blended fabric towards more use of manmade fibre.

 Higher incidence of tax on cotton based yarn.
 No fiscal barrier in interstate trade.
 Incidence of tax on capital goods will reduce as full ITC available.
 Since, other than Basic Customs Duty every other tax is available as ITC [IGST,
SGST & CGST]
 Improved compliance.
 Better control on allowance of ITC.
 Higher Revenue to the Govt.
 Competitive market for organized sector.
 Higher compliance cost / administrative cost.
 Higher working capital need in certain cases.
 Transition issues

o Allowance of ITC on stock/semi & finished stock

o Re-working of MRP of goods
o Re-working of percentage margin in distributive chain
o Re-visit distribution model

BIBLIOGRAPHY

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1. https://cleartax.in/s/gst-law-goods-and-services-tax
2. https://cleartax.in/s/gst-rates-for-textile-industry
3. https://www.deskera.in/gst-impact-on-the-indian-textile-industry/
4. https://cleartax.in/s/impact-gst-textile
5. https://pib.gov.in/Pressreleaseshare.aspx?PRID=1579349
6. https://www.hrblock.in/blog/impact-gst-textile-industry-india

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