GST: Textile industry expects rise in cost amid input credit refund delay

The textile industry fears costs could escalate by anywhere between 3% and 5%

Continuing to press its demands for relief under the Goods and Services Tax (GST) regime, the textile industry has now sought refund of the accumulated input tax credit at the fabric stage, citing cost escalation of the value chain.

Industry representatives have stated that delay in refund of accumulated input tax credit could lead to increased import of fabrics, resulting in job losses in the highly vulnerable sectors like powerloom, handloom, and processing.

The textile industry fears costs could escalate by anywhere between three per cent and five per cent which could further impact capacity utilisation. According to the newly elected chairman of the Southern India Mills' Association (SIMA) and managing director of KPR Group, P Nataraj, this percentage share in cost escalation is proportionate to the range of accumulation of input tax credit on the sales value, especially for sectors like powerloom, handloom and processing.

In its recent representation, SIMA cautioned that there were few major problems and ill-effects due to certain GST anomalies that need to be addressed on a war footing to bring all the stakeholders of the textile industry under GST net and enable the products to remain globally competitive.

"The Indian textiles and clothing industry had been passing through continuous recession during the last three years mainly due to poor off-take in the global market, the FTA/PTA competitive advantage gained by the competing nations like Vietnam, Bangladesh, high tariff rates imposed on Indian textiles and clothing products in the major textile makers such as EU, US, Canada, and China. The total textiles and clothing exports had stagnated at around US$ 40 billion during the last three years," Nataraj pointed out.

SIMA and other textile bodies have appealed to the centre to refund the accumulated input tax credit at fabric stage that had been singled out to avoid cost escalation. As per the industry, apart from avoiding cost escalation, a timely refund could also avert high imports of fabrics and fall in capacity utilisation which could result in job losses. For instance, the weaving industry in Surat which houses 650,000 such powerlooms, saw over 40 per cent shut since a month, thereby incurring a loss of over Rs 1,200 crore so far.

As per SIMA, the dyes and chemicals account for over 30 per cent of the processing charge that attract 18 per cent GST, while the fabric or job work is levied with 5 per cent GST.

Ashish Gujarati, president of Pandesara Weavers' Association, which alone has 200,000 powerlooms, told Business Standard that the only difference has been a slight reduction in accumulated input tax credit from Rs 1.25 per metre to 80 paise per metre under a five per cent GST on twisting job work.

The industry is now continuing to press for reduction of GST rate on man-made fibre (MMF) spun yarn, including sewing thread filament yarns from 18 per cent to 12 per cent.

The powerloom sector and independent weaving units that produce over 95 per cent of the woven fabric is burdened with 18 per cent GST on yarn, while the vertically integrated units do not have such a problem as they need to pay 18 per cent GST for fibres and only 5 per cent GST on fabrics and the cost difference works out to 5 to 7 per cent.

The industry has appealed to the GST Council to sort out both the anomalies of refunding the accumulated ITC at any stage of manufacturing, especially processed fabrics and also reduce the GST on MMF spun yarn, including filament sewing threads from 18 per cent to 12 per cent.