Last year when textile was brought under the GST net, the textile traders protested PAN India to bring down the tax rates. Eventually, the GST Rate was fixed at the lowest possible slab of 5% with a rider that the accumulated credit on account of inverted Tax structure will not be refunded to textile sector. This caused huge accumulation of Input tax credit in the books of Textile manufactures and blockage of funds thus they knocked the doors of the government once again. This time their demands were met and the GST council announced that Fabric Suppliers will be entitled for the Refunds.

The Board issued the Notification on 26th July2018 to give the effect of what the GST council had recommended as regards the refund for accumulated unutilized input tax credit (ITC) on account of inverted duty structure on textile products. replica watches

The said notification now allows refund on following Textile goods

HSN 5007 -Woven fabrics of silk or of silk waste

HSN 5111 to 5113 Woven fabrics of wool or of animal hair

HSN 5208 to 5212 Woven fabrics of cotton

HSN 5309 to 5311 Woven fabrics of other vegetable textile fibres, paper yarn

HSN. 5407, 5408 Woven fabrics of manmade textile materials

HSN. 5512 to 5516 Woven fabrics of manmade staple fibres

HSN 60 Knitted or crocheted fabrics [All goods]

HSN 5608 Knotted netting of twine, cordage or rope; made up fishing nets and other made up nets, of textile materials

HSN 5801 Corduroy fabrics HSN 5806 Narrow woven fabrics, other than goods of heading 5807; narrow fabrics consisting of warp without weft assembled by means of an adhesiveHowever on reading the fine print it sounded quite controversial and unconstitutional as per the said GST Notification the accumulated input tax redit lying unutilised in balance, on the inward supplies received up to the 31st day of July 2018, shall lapse.

The language of the notification is confusing and poses severe questions before Textile industry ….Will it be mandatory to opt for such notification? ….Will the entire credit accumulated lapse, meaning thereby credit pertaining to input services and capital goods would lapse as well? …..Will differential credit, of input-output ratio lapse? It is essential to note that such provision and its interpretation thereof has far reaching impact. Textile product manufacturers accumulating stock on seasonal basis as credit on their stock on July 31, 2108 would lapse. Textile product manufacturers who are into expansion phase will also have adverse impact as their costing of Capital expansion would undergo a substantial change considering credit on such Capital Goods will lapse.

Let’s examine the relevant provisions under the GST Law and the notification which will help us to understand this issue in a better perspective.

Notification No. 20/2018-Central Tax (Rate) New Delhi, the 26th July, 2018 G.S.R. (E).-

In exercise of the powers conferred by clause (ii) of the proviso to sub-section (3) of section 54 of the Central Goods and Services Tax Act, 2017 (12 of 2017), the Central Government, on the recommendations of the Council, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No.5/2017-Central Tax (Rate), dated the 28th June, 2017, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i), vide number G.S.R. 677(E), dated the 28th June, 2017, namely:-

In the said notification, in the opening paragraph the following proviso shall be inserted, namely:-

“Provided that,-

(i) nothing contained in this notification shall apply to the input tax credit accumulated on supplies received on or after the 1st day of  August, 2018, in respect of goods mentioned at serial numbers 1, 2, 3, 4, 5, 6, 6A, 6B, 6C and 7 of the Table below;

And

(ii) in respect of said goods, the accumulated input tax credit lying unutilised in balance, after payment of tax for and upto the month of July, 2018, on the inward supplies received up to the 31st day of July 2018, shall lapse.”.

Section 2 (67) “inward supply” in relation to a person, shall mean receipt of goods or services or both whether by purchase, acquisition or any other means with or without consideration.

Section 54( 3 )(ii) where the credit has accumulated on account of rate of tax on inputs being higher than the rate of tax on output supplies (other than nil rated or fully exempt supplies), except supplies of goods or services or both as may be notified by the Government on the recommendations of the Council:

In other words the powers vested under section 54 (3) (ii) are only to the extent to exclude certain goods or services or both which the GST council recommends. Nothing more –nothing less. Thus the insertion of condition in form of a rider that “(ii) in respect of said goods, the accumulated input tax credit lying unutilised in balance, after payment of tax for and upto the month of July, 2018, on the inward supplies received up to the 31st day of July 2018, shall lapse.” Is exceeding and violating the Powers vested under the Act. The term Inward supply has a broad scope and covers all receipt of goods or services or both whether by purchase, acquisition or any other means with or without consideration. Thus in other words one may interpret that the complete balance lying in the Electronic Credit ledger as on closing of 31st July 2018, gets wiped out and lapses.

It appears that the GST Council of Ministers didn’t have such an intention while recommending the Refund provision; however the bureaucrats had something else in their mind, which is reflected from the language of the notification. The government of the day should ensure that the draft notifications are approved in the GST Council before releasing. An Immediate amendment to this notification is the need of the Hour.

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