Impact of-gst-on-textile-industry

Impact of GST on

Textile Industry

Presented by:

CA Rajat Talati

[email protected]

Talati & co., Chartered Accountants

On 3rd August 2017

Organised by Elite Conferences Pvt Ltd

mailto:[email protected]

A tax charged on supply of Goods and Services or both for consideration.

GST is a destination based consumption tax.

GST is a value added tax to be levied on both goods and services, (exceptthe exempted goods and services).

The tax will be levied on the value of the product or service supplied andnot sold.

OVERVIEW OF GST

Multi Stage TaxSeamless Credit

across entire supply

chainDestination based

consumption taxValue Added Tax

CA Rajat Talati Mumbai

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CONSTITUENTS OF GST

Revenue will be ultimately received by the state in which goods are finally consumed

Intra- State Inter- State

CGST SGSTIGST

GST

CA Rajat Talati Mumbai 3

TAXES TO BE SUBSUMED

Central levies Central Excise Duty

Additional Excise duties

Excise duty levied under the Medicinal and Toiletries Preparation Act

Service Tax

Additional Customs Duty

Special Additional Duty

Surcharges and cesses relating to supply of goods and services

State levies

VAT/ Sales Tax

Central Sales Tax

Entertainment Tax(other than levied by local bodies)

Purchase Tax

Luxury Tax

Taxes on lottery, betting and gambling

State surcharges and cesses relating to supply of goods and services


o Basic Customs Duty

o Excise Duty/VAT on Petroleum Products for initial years(In addition to GST at Nil rate)

o Excise Duty on Tobacco Products(in addition to GST)

o Electricity Duty by state (in addition to GST)

o Entertainment Tax levied by local bodies

o State excise on Alcoholic Beverages(No GST)

o Tolls, passengers and Goods tax on carriage by road/ railway

o Property Tax, stamp duty and taxes on immovable properties

o Royalty on minerals , Environmental/regulatory taxes- e.g. vehicles tax

TAXES NOT TO BE SUBSUMED


EXISTING TAX STURUCTURE

Present Tax Structure

[5 Important Constituents]

Excise Duty

Entry No. 84, List I, Schedule

VII

Taxable Event is Manufacture

Service Tax

Residuary Entry No. 97, List I, Schedule VII

Taxable Event is Provision of

Service

Sales Tax / VAT/ CST

Entry No. 54 of List II (VAT) and

92A of List I (CST)

Taxable Event is Sale

Customs Duty

Entry No. 83, List I, Schedule

VII

Taxable Event is Import & Export

Entry Tax/ Entertainme

nt Tax

Entry No. 52 &62 List II,

Schedule VII

Taxable Event is Entertainment

& Entry of Goods

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GST TAX STURUCTURE7

Intra State Taxable Supply

Excise and Service Tax

will be known as CGST

Local VAT & Other taxes

will be known as SGST

Inter State Taxable Supply

CST will be replaced by Integrated GST (IGST)

Approx. Sum Total of CGST

and SGST

Import From Outside

IndiaCustom Duty

In Place of CVD and SAD, IGST will be

charged


Taxable Event

Existing Practice

Excise Duty-Manufacturing,

Sales Tax/VAT- Sale of Goods

Service Tax- Realization of Service

GST

Taxable event is “Supply “ of Goods & service

The location of the supplier and the recipient within the country is immaterial for the purpose of CGST.

SGST would be chargeable only when the supplier and the recipient are both located within the State.

Inter state Supply of goods and services will attract IGST.


Supply- Basics

Supply

Supply of Goods and/ or Services

Consideration

Made or agreed to be

made

In course or furtherance of business

WithoutConsideratio

n

(Sch I)

Import of service for

consideration


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Supply

Sale Transfer Barter Exchange Licence Rental Lease

Supply Includes…


Exception to “in the course or furtherance of Business”

Import of service for a consideration is considered as supply

even if the same is not in the course or furtherance of business

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Exception to “for a consideration” – Schedule - I

Permanent transfer or disposal of business assets where ITC is availed on such

assets

Supply of goods or services or both made in the course or furtherance of business

to a related person

e.g. 1. Stock transfer to own branch or consignment agent is subject to levy of GST

2. Import of services by a taxable person from a related person or from any of his

other establishments outside India, in the course or furtherance of business.


Activities specifically treated as Supply of Goods

or Supply of Services (Schedule II) – Summary

Supply of Goods

Transfer of title in goods is a supply of goods/under HP

Supply of Services

Transfer of right in goods or undivided share in goods without transfer of title thereof

Lease, tenancy, easement, licence to occupy land/Lease or letting out of the commercial, industrial orresidential complex for the purpose of business or commerce

Process undertaken by the job worker on the goods provided by other

Renting of immovable property

Construction of complex, building, civil structure or part thereof with the intension of sale, except whereentire consideration is received after issuance of completion certificate or after its first occupation,whichever is earlier.

Temporary transfer or permitting the use or enjoyment of any intellectual property rights

Transfer of right to use any goods (Leasing) for a consideration

Works contract in respect of immovable property

Supply of food or any article for human consumption (other than alcoholic liquor for human consumption) asa part of any services or in other manner.

12CA Rajat Talati Mumbai

Activities to be treated neither as supply of

goods nor supply of services [Schedule III] -

excerpt Services provided by employee to employer

Sale of land

Sale of building is not a supply except where it is constructed with the

intention to sale it. E.g. residential or commercial complex constructed by

Construction Company for the purpose of sale to intended buyer will be

considered as supply of service.

Actionable claims is not a supply. However, lottery, betting and gambling is

considered as supply for the purpose of GST.

13CA Rajat Talati Mumbai

Composite Supply

It is a transaction where two or more supplies are involved.

Such supplies are naturally bundled and supplied in combination

in the ordinary course of business.

GST levied on principal supply.


Supply of goods

(Principal Supply)

Transit insurance

Naturally

bundledComposite Supply+

Mixed Supply

It is a transaction which comprises of two or more supplies for a single price.

Both the supplies are independent & equally important

GST levied on principal supply.

Supply attracting highest rate of tax will be considered as supply for GST


Movie tickets

Food Combo

For a single

priceMixed Supply+

Intra-state & Inter-State Supply of

Goods and/or Services

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Intra-state & Inter-State Supply of Goods

& Services

Intra-state Supply

Location of supplier & Place of

Supply

Same state/Same Union territory

Inter-State Supply Location of supplier & Place of Supply

Two different state

Two different Union territory

A State and a Union Territory

Supply to or by a SEZ developer or a SEZ unit

Import of goods or services

Supply when the supplier is in India and place of supply is outside India.

Any supply in the taxable territory and which is not an intra state supply.


Branch transfer

Branch transfers between two branches in different states – ‘Supply’ r/w Sch

1 entry 2

IGST will be levied on interstate transfer of goods between branches or from

HO to branch or from branch to HO.

Branch in

Maharashtra

Branch in

Gujarat

Movement of goods

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X sales to Y --- X places order on Z to

dispatch goods to Y

X- 3rd Party

State B

Z- Supplier

State A

Y- Recipient

State B

Transaction Interstate/ Intra-state Tax leviable

Sales from Z to X Interstate supply IGST

Sales from X to Y Intra-state supply CGST+SGST

Movement of

goods

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dispatch goods to Y

X- 3rd Party

State A

Z- Supplier

State A

Y- Recipient

State B


Sales from Z to X Intra-state supply CGST+SGST

Sales from X to Y Interstate supply IGST

Movement of

goods

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dispatch goods to Y

X- 3rd Party

State B

Z- Supplier

State A

Y- Recipient

State A


Sales from Z to X Interstate supply IGST

Sales from X to Y Interstate supply IGST

Movement of

goods

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Reverse Charge Mechanism

Supplier is generally liable to discharge tax liability.

In RCM -Recipient is liable to pay tax on the behest of supplier.

Commonly applicable on – import of service and intangible properties

In GST - Reverse charge is applicable on

Notified supplies (Goods transport, Advocates etc.)

Purchases of goods or services or both from URD (URD purchases of say stationery,

auto/taxi)

Only on taxable goods/services

Upto Rs 5000/- per day exempt from RCM

However, Exempt supplies received from the unregistered person is not subject to RCM

(including conditional exempt supplies).


Textile industries – incidence of indirect taxes

– Pre-GST

CED VAT only on local sale CST only on inter

state sale

Service tax

Cotton Nil 2-4% 2% - Against C

Form

Cotton – Ginning 2-4% 2% - Against C

Form

15% (Jobwork)

Cotton fiber 6%

Optional

with

CENVAT

credit

2-4% 2% - Against C

Form

Synthetic fiber 12.5% 6% 2% - Against C

Form


Textile industries – incidence of indirect taxes – Pre-GST

CED VAT only on local sale CST only on inter

state sale

Service tax

Yarn

- Reeling/Winding

- Twisting/doublin

g

- Dyeing

Works contract

- Exempt in few states

Sale of yarn

- Sizing – job work

- Wearing

- Fabric

2%

Works contract exempt

in few states

Exempt

15% (Jobwork)

15% (Jobwork)

15% (Jobwork)

Fabric

- Bleaching

- Dying

- Printing

- Textile-

garnment

1.2% 4 to 6% 2% - Against C

Form 15% (Jobwork)

15% (Jobwork)

15% (Jobwork)

15% (Jobwork)


Textile industries – incidence of indirect

taxes – Post-GST

CGST SGST IGST

Cotton – Ginning (Jobwork) 2.5% 2.5% 5%

Cotton fiber 2.5% 2.5% 5%

Synthetic fiber 9% 9% 18%

Yarn (Jobwork)

- Reeling/Winding

- Twisting/doubling

- Dyeing

2.5% 2.5% 5%


Textile industries – incidence of indirect

taxes – Post-GST

CGST SGST IGST

Sale of yarn

- Sizing - Jobwork

- Weaving -Jobwork

- Fabric – Jobwork

2.5%

2.5%

2.5%

2.5%

2.5%

2.5%

2.5%

2.5%

5%

5%

5%

5%

Fabric

- Bleaching- Jobwork

- Dying - Jobwork

- Printing - Jobwork

- Textile – garment (sale value NOT exceeding Rs 1000

Per Piece)

- Textile – garment (sale value exceeding Rs 1000 Per

Piece)

2.5%

2.5%

2.5%

2.5%

2.5%

6%

2.5%

2.5%

2.5%

2.5%

2.5%

6%

5%

5%

5%

5%

5%

12%


Issues in Pre-GST era

Break in input tax credit chain – leading to cascading effect

Cost of compliance

Job work under Central Excise

Person who gets goods produced on job work is liable to pay CED

Branded goods

Branding amounts to manufacture & would attracts CED

Job work – different treatment under central excise & under state VAT

Under Central Excise, job work is akin to manufacturer.

Job work can claim CENVAT Credit

Under State VAT, job worker is not treated as manufacturer.

ITC is claimed on raw material by owners of rate material & not by job worker.

Thus, difference in base of taxation.


Impact on Textile Industry

Incidence of tax on garment & …… even after considering the full ITC would be more

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

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 taxes 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.


Impact on Textile Industry ….contd

Higher compliance cost / administrative cost

Higher working capital need in certain cases

Transition issues

Allowance of ITC on stock/semi & finished stock

In entire value chain

Re-working of MRP of goods

Re-working of percentage margin in distributive chain

Re-visit distribution model

Re-visit supply chain model


Impact on Textile Industry ….contd

Management of changes

Invoicing

Accounting

Costing / MIS

Working capital needs

Software upgradation

Man-management-training



Thank you

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