Business

GST Confusion Causes Bhiwandi’s Power Loom Owners To Shut Establishments

Business has come to a standstill after the small scale power loom owners of Maharashtra’s textile town Bhiwandi have kept their establishments closed because of their confusion in decoding GST norms.

Since most small-scale loom owners are still untouched by the government’s digitisation drive and transact using cash, GST is unclear to them as they find themselves staring at multiple layers of taxes.

Initially when yarn is purchased, a tax of 5% is levied on cotton yarn but synthetic yarns cost much higher, with 18% tax levied on it. Apart from this, a 5% tax has been levied on each stage of manufacturing – from dyeing the cloth, weaving, embroidering, etc. Since none of these stages have a digital record, power loom owners end up paying all of this from their own pockets as they are not eligible to claim the input tax credit available.

Talking about the existing confusion over the GST levied on the power loom sector, Santosh Maurya, a chartered accountant said that the way GST will be levied is that a dealer is eligible to avail of input tax credit of all taxes paid on procurement of goods and services and take credit while paying output liability. “Effectively the dealer ends up paying only net amount/value addition made to the government. There is no cascading effect of tax as the industry will get credit for all taxes paid on the procurement of goods or services,” he said.

To cut costs, bigger power loom owners have moved the entire manufacturing process in-house because this allows them to do away with the 5% additional taxes on sizing, warping, dyeing and embroidery.

Since many of these bigger players have computerised transactions, they can also claim input tax credits. However, they too have requested the government to rethink the 18% tax levied on synthetic yarn.

The government has imposed GST of 18% on synthetic yarns but on cotton yarns it is 5%. The loom owners have requested that GST on cotton and synthetic yarns must be equal. They have argued that cotton is a rich man's fabric. It costs Rs 70-80 per metre but synthetic fabric costs about Rs 30-32. Synthetic fabric is worn by the poor. This disparity must be removed and the government must also reconsider the multiple taxes imposed, power loom owners said.