 "The GST Council on June 11 said tax on services by way of job work in relation to textile yarn and fabrics had been brought down to 5% but the sector suspects it could fall in 18% bracket")
Dhiraj Shah, managing director of Shalon Industries, is worried he will have to pay a higher goods and services tax (GST) rate on synthetic yarn while the fabric he makes will attract a lower rate. With an annual turnover of Rs 500 crore, Shah’s unit makes synthetic fabric in Surat, Gujarat, and has a 1 per cent share of the city’s Rs 50,000-crore textiles business.
Shah has two problems. He will collect 5 per cent GST from his buyer and pay 18 per cent duty on raw yarn. Also, his finished goods will face competition from cheap, imported fabric, which will attract an import duty of 15 per cent. At present, there is no excise duty on fabrics.
Surat produces 40 million metres of fabric every day, 20 per cent in composite mills that do all the value addition in-house. For these units, the accumulated duty credit and the additional working capital cost will be around 3 per cent.
The other 80 per cent of Surat’s fabric is made in powerlooms and shuttle-less looms, which face an even bigger disadvantage post-GST.
“After GST, we will have to pay 18 per cent duty on yarn and another 18 per cent for job work of twisting and weaving. This will result in our costs going up by about 10 per cent,” said Ashish Gujarati of the Aditya group, which has 150 powerlooms in Surat.
“Post-GST, imports of fabrics from China will cause severe damage to Indian fabric makers. The Indian weaving industry, especially the man-made fibre knitting and weaving units in Surat, Bhiwandi and Ludhiana, are already reeling under pressure and cheap imports from China will only add to their woes,” said Sri Narain Aggarwal, chairman of the Synthetic and Rayon Textiles Export Promotion Council.
He explained the current taxes on imports of fabrics were 26.5 per cent: 10 per cent import duty, 12.5 countervailing duty and 4 per cent special additional duty. After the GST, imports will attract a tax of 15 per cent and as a result, imported fabric will become 11 per cent cheaper.
Cotton textile makers will not be affected because the GST rate on both yarn and fabric is 5 per cent.
At present, most imports are from China, and it may make sense for countries like Bangladesh, Sri Lanka and Vietnam to start exporting fabric to India. Annual fabric imports stood at $700 million, or Rs 4,500 crore, which the trade expects will rise manifold. Aggarwal suggested that fabric imports be allowed only to actual users and CVD should be replaced with 23 per cent duty. Surat’s textile industry employs 1 million people, has 150 wholesale textile markets, 50,000 wholesale traders and 20,000 manufacturers, including powerloom owners.
The powerloom industry is fragmented with 2.7 million units employing 6.5 million workers in manufacturing hubs in Surat, Bhiwandi, Ichalkaranji, Malegaon, Tirupur and Coimbatore. Surat accounts for a quarter of the country’s total powerlooms. Another issue will be that of selling synthetic yarn blended with cotton. Aggarwal’s said since cotton yarn would attract a 5 per cent GST rate and synthetic yarn 18 per cent, blended yarn with high polyester content could be sold as cotton yarn. Aggarwal suggested a 12 per cent GST rate for blended yarn.
