Category : GST


Bad news for farmers: GST to increase cost of tractor production

Tractor prices may go up by around Rs 25,000 after the goods and services tax is imposed because the gap between input and output taxes is wide.


In a recent meeting, the GST Council addressed the issue of the inverted duty structure in various industries, including the tractor industry. Subject to a 28 per cent duty on components against 12 per cent on tractors, manufacturers would have faced an accumulation of credit. The council reduced the GST rate on clearly identifiable tractor components from 28 per cent to 12 per cent.


However, Chairman of the technical committee and immediate past president of the Tractor Manufacturers’ Association (TMA), said the relief was marginal and input costs per tractor would rise by Rs 25,000 The industry’s working capital would also be squeezed by Rs 1,600 crore, he added.


The revision of the GST rate was limited to token components while engines, transmission and other parts would continue to face the 28 per cent duty, chairperson said. The TMA has sought a change in component duties from 28 per cent to 18 per cent.


Chairperson and chief executive officer of Tractors and Farm Equipment Limited (TAFE), said, “Unfortunately this (the GST) has only been partially rolled out and the increase in input cost stands at Rs 25,000.”


Chairman urged the government to reduce the duty on all components that go into the manufacture of tractors. “This would be needed to ensure that the farming community does not suffer,”


Chief executive officer of Escorts, said tractor makers might not be able to pass on the higher costs to customers because of the anti-profiteering clause. Tractor makers typically hike prices by Rs 3,000-4,000 every year. Transitional provisions for stocks held at dealerships have also not been extended to the tractor industry because tractors were in the exempted category till now. The industry holds over 150,000 tractors in depots and dealerships, and denial of this relief will affect the farming community



  • 28% duty on components
  • 12% duty on tractors
  • Industry says tractor prices would rise by Rs 25,000
  • The council reduced rate only on clearly identifiable tractor components from 28% to 12%
  • The industry’s working capital would also be squeezed by Rs 1,600 cr, industry body says
  • Tractor makers typically hike prices by Rs 3,000-4,000 every year
  • Rise in price to effect the farmers


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GST: Imported garments to become 5-6% cheaper

Imports are likely to remain 5-6 per cent cheaper than locally made apparel, despite the goods and services tax providing input credits to the textile industry.


Apparel imports are subject to a countervailing duty (CVD) of 6 per cent on cotton and 12.5 per cent on polyester, which importers receive as a central value-added tax credit. The CVD is optional at a flat 2 per cent if the importer does not claim a set-off against input costs. The government has provided a 40 per cent abatement on this optional flat duty, which works out to 0.8 per cent. Thus, the total applicable tax is 1.2 per cent for importers who do not claim the set-off. This apart, importers pay a 4 per cent special additional duty (SAD) without any duty protection, which after considering cesses, works out to over 5 per cent.


“The government had levied this duty as protection for domestic players. With the GST, this duty protection will be removed and imported garments will be 5-6 per cent cheaper. The government has fixed 5 per cent as the GST rate on all textile products and apparel,” said by president of  Clothing Manufacturers Association of India.


The textile industry fears an increase in imports from Bangladesh and China, where the cost of manufacturing is lower due to cheaper labour. “The GST subsumes all taxes, including protections. Garment imports will become cheaper due to removal of the SAD,” said an official from the Cotton Textiles Export Promotion Council. The textiles ministry has set an export target of $45 billion for FY18, marginally lower than the $48 billion set for FY17.


The government plans to present a new textiles policy by September. It is also organising Textiles India 2017, a seminar to bring global buyers under one roof, between June 30 and July 2 in Gandhinagar. While 61 countries have booked pavilions, 1,900 stalls are expected to be booked by state governments and industry players.


“Our aim is to increase textiles exports and create a competitive environment. We would like states to take such initiatives to help the industry showcase its products directly,” said by secretary of textiles ministry. Ministry had done some work on the new textiles policy, which would focus on India’s competitiveness in the world market.


Effective levies on imported garments


Before GST 
* Countervailing duty include excise duty on cotton 6% and polyester 12.5% with Cenvat credit

* Optional duty of 2% with abatement of 40% on it (i.e. 0.80%) means effective duty of 1.2% without Cenvat credit

* 4% of special additional duty, which along with cess, educational cess and others wok out to Rs 5.5%.

* Thus, duty protection of 5.5% from cheap import


After GST  


* All duties subsumed in 5% of the GST for both domestic manufacturers and importers

* No protection, as both domestic manufacturers and importers would require to pay same duty


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GST transitional issues: What more needs to be donex

Transitional rules were recently approved by the GST Council

As the country stands on the cusp of a transformational tax reform, the worry now centres on how smoothly trade and industry can carry over existing input credit into the new GST regime. Therefore, trade and industry is looking closely at transitional rules. This has important consequences on how quickly trade would like to draw down their inventories before the implementation date and also on decisions relating to the pricing pattern.


The transitional rules were recently approved by the GST Council in the meeting held on June 3.


The positive decision was that the input credit available to manufacturers and dealers without having to produce original duty paying documents has been raised from the proposed limit of 40 per cent of the value of the goods to 60 per cent for items bearing GST duty rates of 18 per cent or more. This provision would benefit industries with a long delivery supply chain, extending to first-stage dealers and second-stage dealers and stockists. This measure would largely allay the fears of the business community. Another area of worry relates to simplification of the refund procedure where the inverted duty structure prevails (GST rates on inputs and intermediaries are higher than on the final product). While the existing provisions provide for grant of 90 per cent of the refund amount upfront within seven days in respect to exports. The same facility has not been extended to the inverted duty structure. This needs to be done, as it will reduce the interest burden on industries created by the higher working capital requirements imposed on them due to imposition of IGST levy on inter-state supply.


The transitional rules approved in the third meeting also provide relief to high-value commodities like consumer durables, tractors and so on by allowing validation of duty claims through cross-reference to product details embossed on engines, chassis and other equipment. All in all, the amendments approved to the transitional rules would help trade and industry to effect a smooth transition. Another interesting announcement was that the remaining period of this financial year post the July 1 implementation would be treated as period of transition. This suggests that the government would take a sympathetic view on procedural violation if the intent is honourable and mistakes are unintended.


The announcement also ensures the government would be prepared to make calibrated changes as the situation unfolds, without a rigid view.


There are, finally, two institutional measures the government should take to ensure smooth transition:


A GST Secretariat must be created in all states, where senior state and central tax officials can come together in an institutional framework. this body can be registered under the Societies Act much like the Empowered Committee of State Finance Ministers; this will allow the body to have a dedicated secretariat and also provide a forum for trade and industry to raise non-policy implementation issues at the level of the states


Finally there is also a need to create a technical secretariat both at the Centre and state, which could provide instructions on assessment-related matters which would be binding on the field officers; there is already an enabling provision in the GST law passed which allows this to ensure uniformity of practice all over the country; this would ensure the “rule of law” and not the rule of thumb.


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Industry’s last chance to register for GST

With only a month left for the roll-out of the goods and services (GST) tax businesses would have to register on its network in the next fortnight.


“This is probably the last window before the GST goes online on 1st July. To raise an invoice under the new indirect tax regime one would have to be registered on the GST Network (GSTN),”


Businesses would also be able to amend any mistake made during registration earlier in this window.


Experts said transition of credit and inputs in stock were dependent on being registered with the GSTN. Getting registered early would make the switch easy.


One would, however, be legally liable to register only if operating above a certain limit. In any case, it would be beneficial to register.


It would give businesses the opportunity to avail of tax credit, charge output tax and pass it on to customers, and avoid a cascading impact of taxes under the current tax regime.


Businesses would need to inform customers and suppliers of their registration if the whole value chain had to avail benefits of input tax credit.


“Both suppliers and customers would want registration details. If customers don’t have the registration number of the supplier, they would have to pay taxes on a reverse-charge basis and may not get reimbursement on the tax indicated on the invoice. If the supplier does not have the registration number of the customer, it would be treated as a sale to an unregistered person and the credit will be lost.”


The Central Board of Excise and Customs has made it mandatory for exporters and importers to declare valid GST registration numbers in customs documents, such as bill of entry and shipping bills, from 1st July. This will be required to avail Integrated GST credit on imports or GST refund on exports.


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Textiles industry wants uniform GST for whole value change

The consensus in the non-handloom part of the organised textile industry seems to be for a uniform goods and services tax (GST) rate. The GST Council meets this Saturday to discuss it.  At present, the sector doesn’t have fibre neutrality in taxes. Cotton fibre has no excise; synthetic fibre has 12.5 per cent; fabric has nil. Branded garments have the option of a low rate if no input credit is claimed. The average is five to eight per cent.


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GST: 5% for gold, 12-18% for biscuits; no exemption for handicrafts likely

The Centre is likely to propose two rates for biscuits, depending on prices, at the goods and services tax (GST) Council meeting on Saturday. It would also make a case to tax gold at 5 per cent.


For biscuits priced at Rs 100 a kg or more, the Centre might propose a GST rate of 18 per cent. Those priced less could be slotted in the 12 per cent slab.


At present, biscuits in the second category are not taxed by the Centre, but have a 4.5-14.5 per cent value-added tax, depending on the state.


Biscuit makers are opposing higher taxes. Parle-G, which produces popular glucose biscuits, wants it to be in the lowest tax slab — 5 per cent. They argue it is consumed by the poor and distributed at anganwadi centres.


On Saturday, the Council, chaired by Union Finance Minister (FM) Arun Jaitley and comprising FMs of states or their representatives, will decide on the rates for seven goods — biscuits, gold, textiles, handicrafts, footwear, bidis and agricultural implements. The final call on the fitment of rates might be a political one, but some petitioners to the Council are already giving it a political tinge.


For instance, Hindustan Unilever (HUL), the maker of Surf Excel, Rin, Vim and Wheel, has pitched for a lower GST rate, citing Prime Minister Narendra Modi’s Swachh Bharat campaign.


HUL has argued that a 28 per cent tax on detergents — used to clean toilets — was against Swachh Bharat.


At its previous meeting in Srinagar earlier this month, the GST Council cleared rates for 1,211 goods and 500 services.

On the demand for a low GST rate for biscuits, an official said the Council would look at the current tax incidence before deciding on it. Experts claim there should be a third category — of biscuits priced at Rs 500 per kg. These should be taxed at 28 per cent, said M S Mani, senior director, Deloitte.


“Low-price-high-nutrition biscuits should be taxed at five per cent, those priced between Rs 100 a kg and Rs 500 a kg at 12 or 18 per cent, and those priced higher at 28 per cent,” he said.


Mani added, “On a flight, three biscuits are sold for Rs 150. If a person can afford that, they should pay a higher tax.


HUL’s demand would be considered under the light of the current incidence of tax.


“They want an 18 per cent tax, if not lower,” said a government official, adding that at present detergents attracted a tax of 28 per cent.


The GST might spell doom for tax exemption for handicrafts, rising in some cases to even 28 per cent, if the Council agrees to the Centre’s proposal.


This might be a blow for Jammu and Kashmir and some states in the Northeast, which handcrafts is a big employer. At present there is no central tax on handicrafts; some states also exempt it for levy.


The Center is also likely to propose there should be no distinction between handmade and machine-made items. “For instance, a machine-made shawl is priced at Rs 500 and a handmade one at Rs 5,000. If a person can shell out so much for a handmade item, they might as well pay a higher tax on it,” said an official.


The fitment committee has also proposed to tax handmade furniture at 28 per cent.


The official quoted above said it was difficult to specify if a piece of furniture was handmade. “Fakes are often sold under the guise of handmade,” he said.


According to the proposal, if marble was taxed at 28 per cent, handicraft made from it should also be taxed at the same rate. “Similarly, if bamboo is taxed at 18 per cent, handicrafts made from it should also be taxed at the same rate,” the official said.


Mani of Deloitte said taxing handicraft at same rate as the material would avoid classification disputes.


The Centre is also likely press for a 5 per cent tax on gold as it believes it is not for mass consumption or lower income groups. Currently, it attracts an excise duty of 1 per cent and VAT of about 1 per cent.


“Although the tax incidence on gold will go up, the positive is there would be no distinct slab for it, keeping the four-tier GST rate structure intact,” . A 2-3 per cent rate would have destroyed the GST structure, added.


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Various tax slabs under GST worrying traders

Classification of different items under various tax slabs of GST has created an environment of anxiety and concern among the trading community across the country, Confederation of All India Traders said on Sunday.


Various verticals of retail trade are demanding lower tax on items being dealt by them since they have been categorised under higher tax slab in comparison to tax slab of current VAT tax regime, CAIT said.


As per an analysis, 1,211 goods and 36 services have been so far classified under GST out of which nearly 50 per cent goods have been placed under 18 per cent rate; 14 per cent under 5 per cent rate; 17 per cent under 12 per cent rate and 19 per cent under 28 per cent rate, CAIT said in a statement.


In view of growing discontent about proposed GST rates, CAIT has urged the government to revisit the rate schedule.


“The wider impact of the classification of items under different tax slabs needs to be gauged very cautiously since under GST not only the taxes paid on goods but even the taxes paid on the services will be eligible for input tax credit,” CAIT said.


Besides, taxes paid on inter-state purchases of goods or availing services will also be eligible for input tax credit, it added.


“Hitherto, both these advantages were not available under VAT tax regime. Therefore, impact on the prices of commodities will have to be drawn after calculating advantages of input tax credit’’



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The business of GST decoded

The goods and services tax (GST) is not merely a tax change but a business change that will impact all functions of an organisation such as finance, product pricing, supply chain, information technology, contracts and commercials. Its companywide implementation is not limited to the finance and IT departments, but involves the entire business ecosystem. Any training and sensitising programme has to involve employees, vendors and key customers. Sudipto Dey looks at what it entails:

  • The regime’s impact analysis exercise has to involve several departments, including finance, IT, supply chain, product pricing and human resource, among others
  • Claiming input tax credit is the most important benefit. Currently, service providers can’t claim credit for VAT paid on goods, while traders can’t claim credit for excise/countervailing duty and service tax. Businesses have to identify benefits on account of the transition at an organisation-level
  • Identify possible cost savings key suppliers/vendors could be entitled to under the GST; engage with vendors for pass-through of these benefits in accordance with anti-profiteering provisions
  • Input tax credit is denied on goods and/or services used for personal consumption; tax credit not available on goods lost, stolen, destroyed, written-off or given away as gift or free samples
  • Employer can’t claim tax credit on offering cab service, canteen facilities, life insurance or health insurance to employees
  • One can’t claim input tax credit while taking a client out for a business lunch
  • To claim the input tax credit, the buyer has to ensure the supplier is paid within 180 days from date of invoice; otherwise, proportionate input tax credit will be reversed



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World Gold Council urges govt to reduce tax on gold under GST regime

The World Gold Council  urged the government to reduce the tax incidence on gold and gold products under the new Goods and Sevices Tax regime.

“In the GST regime, we urge and expect that the total tax burden on gold be halved from the current level of around 12 per cent,” WGC managing director Somasundaram PR said here today during launch of a new comprehensive India gold report in Bengali.

The report is published after 15 years and is also available in English, Hindi, Malayam and Tamil for a ready reference to Indian gold industry.

Currently, total taxation comes to between 12 and 13 per cent. Custom duty is 10 per cent, excise is one per cent and VAT of 1-1.5 per cent depending upon states.

“In the GST regime, we demand the total tax burden on gold to be not more than 6-7 per cent. But, we have to wait for a few days more when the GST rates on gold is expected to be announced,” Somasundaram said.

He tried to convince that gold import was not as bad as was perceived to be when asked why the government should offer low tax on gold which is an idle asset and contribute a lot for current account deficit.

“According to a 2014-15 report of PWC, value addition in gold is to the tune of USD 30 billion with a lot more scope. Gold loan is also to the tune of around USD 10 billion with about 1,250 tonne as collateral allowing persons access to credit be it formal or informal,” Somasundaram said.

Hoping GST will bring lot of transparency in the gold industry including check on illgeal imports which is about 120 tonnes a year now. But it will take few months industry to get stabilised, the WGC official said.

Somasundaram said government should promote gold investment through ETF with tax breaks rather than physical gold.

He reteriated that the country needed a gold policy that would help all stakeholders.

Meanwhile, the gold demand during Q1 (January-March, 2017) grew by 15 per cent to 123 tonnes, but it was 18 per cent down compared to the corresponding period in the last five years on average.



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