Textile units under GST lens for mis-classifying services

Central Goods and Services Tax (CGST) officials in the recent months have investigated over two dozen textile manufacturing companies across the country for mis-classifying textile processing activities and subsequently paying lesser tax.

According to official sources, the CGST department has observed that several textile manufactures are recording activities which involve ‘changing the nature of cloth’ as ‘washing and dyeing’, and therefore are paying lower tax rate of those incomes.

Under the GST laws, washing and dyeing are considered as ‘job work services’ in the textile industry and attract a GST rate of 5%; while processes that significantly transform the fabric, such as bleaching, printing, or other treatments that alter its essential characteristics, attract a GST rate of 18%.

ALSO READAI being used for collusion, says CCI chairperson

“Textile manufacturers are knowingly misclassifying the services…and paying 5% tax, where they should pay 18%. CGST officials are investigating units of all kinds of firms (corporates, small & medium companies) across India,” said an official. Authorities feel the shortfall in tax-payment is to the tune of hundreds of crores, causing a substantial loss of revenue to the government.

Tax experts say that the GST misclassification in the textile industry arises from ambiguity in tax slabs. “Some manufacturers have allegedly misclassified transformative processes under the 5% category. The issue stems from multiple GST rates, unclear definitions, and potential misuse,” noted Sivakumar Ramjee, executive director, Nangia Andersen.

Krishan Arora, partner, Grant Thornton Bharat said: “This appears to be a clear case of mis-interpretation, with the Department’s stance contradicting the GST legislation’s original intent. In this regard, a definitive resolution is essential to provide much-needed clarity to the industry.”

ALSO READAmazon responds after BIS raids uncover uncertified products at warehouses

Since the inception of GST in 2017, India’s textile industry has witnessed profound shifts, with job work services being integral to this transformation. A major point of contention has been the GST classification of textile processing activities like dyeing and printing, say experts.

Initially, tax authorities argued that these processes, which substantially alter fabrics’ essential characteristics, should be taxed at 18%, instead of the current 5% to safeguard government revenues. Building on this, during the 45th GST Council meeting, a proposal to increase the rate of dyeing and printing services to 12% was deliberated.

 » Read More

Related Articles

Physics Wallah confidentially files for $500-mn IPO

Edtech giant Physics Wallah has confidentially filed for an initial public offering (IPO) that could raise as much as $500 million, according to a report by IFR. The company in October 2024 said it might launch a $400-500-million IPO in 2025. If the public issue is launched, Physics Wallah will be the first pure-play edtech

FY25 advance taxes grow 14.6%; Q4 rise at just 2.4% 

Advance tax collections from the corporate sector, other firms and individuals in the current fiscal stood at Rs 10.45 lakh crore as on Sunday, up 14.6% on year. In the corresponding period of last fiscal, these collections — a proxy of corporate profitability and the state of the economy — stood at Rs 9.11 lakh

Each demerged Vedanta firm has potential to be $100-bn company, chairman Agarwal

The four new companies formed after the restructuring of Vedanta have the potential to be $100 billion firms each, chairperson Anil Agarwal has said in a letter to shareholders. He has also highlighted the potential of the natural resources sector, both in India and global economies.“While Vedanta currently contributes close to 1.4% to India’s GDP, there

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Stay Connected

0FansLike
0FollowersFollow
0SubscribersSubscribe
- Advertisement -

Latest Articles

Physics Wallah confidentially files for $500-mn IPO

Edtech giant Physics Wallah has confidentially filed for an initial public offering (IPO) that could raise as much as $500 million, according to a report by IFR. The company in October 2024 said it might launch a $400-500-million IPO in 2025. If the public issue is launched, Physics Wallah will be the first pure-play edtech

FY25 advance taxes grow 14.6%; Q4 rise at just 2.4% 

Advance tax collections from the corporate sector, other firms and individuals in the current fiscal stood at Rs 10.45 lakh crore as on Sunday, up 14.6% on year. In the corresponding period of last fiscal, these collections — a proxy of corporate profitability and the state of the economy — stood at Rs 9.11 lakh

Each demerged Vedanta firm has potential to be $100-bn company, chairman Agarwal

The four new companies formed after the restructuring of Vedanta have the potential to be $100 billion firms each, chairperson Anil Agarwal has said in a letter to shareholders. He has also highlighted the potential of the natural resources sector, both in India and global economies.“While Vedanta currently contributes close to 1.4% to India’s GDP, there

FMCG firms seek separate law for beauty products

Fast-moving consumer goods (FMCG) companies are asking for a separate law to govern beauty and personal care (BPC) products, saying current regulations under the Drugs and Cosmetics Act 1940 impede growth. At present, the making of soaps, skin care, hair care, oral care and cosmetic products, much like drugs, is regulated under a system of

Amazon eyes spinoff and local listing Valuation may get impacted due to ongoing CCI probe

E-commerce major, Amazon, is exploring the possibility of spinning off its India operations and listing it, according to industry sources. The company, which is the second largest player in the e-commerce sector, behind Flipkart, has initiated preliminary talks with investment banks to assess the feasibility of such a move, sources added. According to a report