GST DETAILS

1. Impact of GST on
Textile Industry
Presented by:
CA Rajat Talati
rajat@talatico.Com
Talati & co., Chartered Accountants
On 3rd August 2017
Organised by Elite Conferences Pvt Ltd

2.  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, (except
the exempted goods and services).
 The tax will be levied on the value of the product or service supplied and
not sold.
OVERVIEW OF GST
Multi Stage Tax
Seamless Credit
across entire supply
chain
Destination based
consumption tax Value Added Tax
CA Rajat Talati Mumbai
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3. CONSTITUENTS OF GST
Revenue will be ultimately received by the state in which goods are finally consumed
Intra- State Inter- State
CGST SGST
IGST
GST
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4. 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
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5. 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
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6. 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
6
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7. GST TAX STURUCTURE
7
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
India
Custom Duty
In Place of
CVD and SAD,
IGST will be
charged
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8. 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.
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9. Supply- Basics
Supply
Supply of
Goods and/
or Services
Consideratio
n
Made or
agreed to be
made
In course or
furtherance
of business
Without
Consideratio
n
(Sch I)
Import of
service for
consideratio
n
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10. 10
Supply
Sale Transfer Barter Exchange Licence Rental Lease
Supply Includes…
CA Rajat Talati Mumbai

11. 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
11
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.
CA Rajat Talati Mumbai

12. 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 or
residential 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 where
entire 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) as
a part of any services or in other manner.
12CA Rajat Talati Mumbai

13. 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

14. 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.
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Supply of goods
(Principal Supply)
Transit insurance
Naturally
bundled
Composite Supply
+

15. 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
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Movie tickets
Food Combo
For a single
price
Mixed Supply
+

16. Intra-state & Inter-State Supply of
Goods and/or Services
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17. 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.
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18. 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
18
CA Rajat Talati Mumbai

19. 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
19
CA Rajat Talati Mumbai

20. X sales to Y --- X places order on Z to
dispatch goods to Y
X- 3rd Party
State A
Z- Supplier
State A
Y- Recipient
State B
Transaction Interstate/ Intra-state Tax leviable
Sales from Z to X Intra-state supply CGST+SGST
Sales from X to Y Interstate supply IGST
Movement of
goods
20
CA Rajat Talati Mumbai

21. 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 A
Transaction Interstate/ Intra-state Tax leviable
Sales from Z to X Interstate supply IGST
Sales from X to Y Interstate supply IGST
Movement of
goods
21
CA Rajat Talati Mumbai

22. 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).
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23. 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
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24. 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)
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25. 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%
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26. 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%
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27. 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.
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28. 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.
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29. 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
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30. Impact on Textile Industry ….contd
 Management of changes
 Invoicing
 Accounting
 Costing / MIS
 Working capital needs
 Software upgradation
 Man-management-training
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31. CA Rajat Talati Mumbai 31
Thank you