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♦DUTY STRUCTURE remains inverted with fabric at 5 % GST

The Apparel Export Promotion Council (AEPC), the apex body for apparel exporters in India, has raised with the government the issue of embedded taxes on exports. In a statement, the AEPC said the measures taken by the GST Council on October 6 will give immediate relief to the apparel exports sector which has been facing stress. These measures include reduction in the rate of GST on manmade items including synthetic filament yarn such as nylon, polyester and acrylic, and artificial filament yarn, yarn of man-made staple fibres, real zari from 18% to 12%. The GST Council also made a provision for refund of GST for the month of July by October 10 and for August by October 18 which will ease the working capital stress. A facility of e-wallet has also been introduced for addressing the refund issue.

However, since the duty structure remains inverted with fabric at 5% GST, we are hopeful that the embedded taxes arising out of this inverted structure will be refunded to exporters through appropriate mechanisms,“ it said. The AEPC said the key issue of embedded taxes needed to be taken up by the Centre to address the genuine concerns of the exporters and export sentiments. Invisible taxes needed to be considered for refund under drawback and Remission of State Levies (RoSL) schemes, so that the calibrated refund provided is representative of the tax incidences incurred by the industry, it said.

In its representation to the Ministries concerned, the AEPC said in the absence of encouraging duty drawback and RoSL, exports from the sector will further witness a sharp decline just ahead of the peak festival season. “The appreciating rupee and new levies like GST on intra-company stock transfers, job work, freight and samples imposed in the GST regime have led to cost escalation for exporters further narrowing their low margins in competitive global markets,” the AEPC said.


The industry in Surat expects that with GST on man-made fibres and yarns reducing from 18 to 12% some relief can be expected in unblocking of the working capital due to the huge accumulation of non-refundable input tax credit (ITC). The man-made fibres and yarns were under 18% GST rate while the fabrics were under 5% GST slab with a condition of no refund ITC at fabric stage. This had created a huge accumulation of nonrefundable ITC with the weavers and blockage of working capital. Now, with reduction of GST to 12% this problem will be subsided to a larger extent and more manageable.

The reduction in GST would benefit both the spinning and power loom sector who are the manufacturers and suppliers of yarns to the textile industry. They also expect that the release of held-up refund of IGST paid on goods exported in July from October 10 onwards has come as a big relief to merchant exporters who have put in huge working capital. The merchant exporters will now have to pay nominal GST of 0.1 per cent for procuring goods from domestic suppliers for export. Since the implementation of the GST, traders said that the daily production of cloth in powerlooms in Surat has reduced from 4 crore metre of grey cloth to 3 crore metre.

There are over 6 lakh loom machines in Surat city, which produce over 4 crore metres of synthetic grey cloth. Many small weavers have reduced production by running the factory only during the day shift, while some of them have shut down their businesses and sold their loom machines as scrap. They are now searching for alternate work or business. Factory owners with more than hundred machines are not facing problems. It’s the small weavers who have been hit by the GST.