GST and Textile Sector- All You wanted to know

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A compilation by:
B. Venkateswaran , IRS
Asst. Director DG Systems Chennai

PRESENT INDIRECT TAXES

The textile industry has historically enjoyed tax exemptions on the cotton value chain. Currently, attracts zero
Central excise duty (under optional route) .VAT is not applicable on fabrics, but yarn and garments attract VAT
according to state rates. On an average, the items used by the textile industry such as machinery and chemical
agents have been taxed at around 20% throughout the country. After GST, the average tax rate will be lowered to
around 18%.

Central Excise duty

Central excise duty was first introduced on woven garments in year 2001 which was subsequently extended to
entire textile industry by 2003. The excise duty exemption option was also provided vide notification no.30/2004
with condition of non-availment of Cenvat credit. There was also an option to pay concessional rate of excise
duty with Cenvat credit benefit. However, almost all assesses opted for exemption.

In 2011, mandatory excise duty was reintroduced on branded garments with Cenvat credit benefit and
abatement of 55% for duty payment. This mandatory levy was again removed in 2013 and optional scheme of
paying duty with Cenvat credit benefit was continued.

In 2016, mandatory excise duty has been introduced again on branded readymade garments made up of textiles
falling under Central excise tariff heading 61, 62 and 63. The levy is attracted only when retail sale rice (RSP) is
Rs. 1000/- or more and levy is only on 60% value after standard abatement of 40%. For payment of duty, rate of
2% without Cenvat credit or 12.5% with Cenvat credit option is applicable. Non-branded goods continue with
Nil levy without Cenvat credit benefit. Otherwise, option of paying 6% with Cenvat credit in case of garments /
articles of cotton, not containing any other textile material is available. For garments of other composition, Nil
rate without Cenvat credit or 12.5% with Cenvat credit is available.

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VAT / Sales tax

Most of the states in India have exempted textiles and fabrics from levy of VAT / Sales tax. Garments including
textiles are being subject to lower rate of VAT / Sales tax in many states. For small players, the option of paying
taxes at concessional rates is also provided under composition scheme in many states.

Entry tax

Entry tax is levied on specified goods when goods enter local area, many states. Even textiles such as cotton,
woolen or silk or artificial silks are liable to entry tax in states like Karnataka at the rate of 1 % which is adding to
purchase cost.

GOODS AND SERVICES TAX

In GST regime, most of the indirect taxes such as Central excise duty, service tax, and VAT / Sales tax and entry
tax were subsumed and seamless input tax credit is allowed for the entire supply chain.

The major taxes/levies which were subsumed in the GST regime are: CENTRE TAXES
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 Central Excise duty
Additional duties of Excise
Excise duty levied under Medicinal & Toilets Preparation Act
Additional duties of customs (CVD & SAD)
Service Tax
Surcharges & Cesses

STATE TAXES

State VAT/Sales Tax

Central Sales Tax
Purchase Tax
Entertainment Tax (other than those levied by local bodies)
Luxury Tax
Entry Tax (All forms)
Taxes on lottery, betting & gambling
Surcharges & Cesses

GST comprises of the following levies:

a. Central Goods and Services Tax (CGST) [also known as Central Tax] on intra-state or intra-union territory of
goods or services or both.

b. State Goods and Services Tax (SGST) [also known as State Tax] on intra-state supply of goods or services or
both.

c. Union Territory Goods and Services Tax (UTGST) [also known as Union territory Tax] on intra-union territory
supply of goods or services or both.

d. Integrated Goods and Services Tax (IGST) [also known as Integrated Tax] on inter-state supply of goods or
services or both. In case of import of goods also, the present levy of Countervailing Duty (CVD) and Special
Additional Duty (SAD) were replaced by integrated tax.

The taxable event in GST:

The taxable event in GST is supply of goods or services or both. Various taxable events like manufacture, sale,
rendering of service, purchase, entry into a territory of state etc. have been done away with in favour of just one
event i.e. supply.

The constitution defines Goods and Services Tax as any tax on supply of goods, or services or both, except for
taxes on the supply of the alcoholic liquor for human consumption.

Supply of Goods or Services or Both Goods as well as services have been defined in the CGST, Act, 2017.

(52) goods means every kind of movable property other than money and securities but includes
actionable claim, growing crops, grass and things attached to or forming part of the land which are
agreed to be severed before supply or under a contract of supply;

(102) services means anything other than goods, money and securities but includes activities relating
to the use of money or its conversion by cash or by any other mode, from one form, currency or
denomination, to another form, currency or denomination for which a separate consideration is charged;

Schedule II to the CGST Act, 2017 lists a few activities which are to be treated as supply of goods or supply of
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services.

For example, any transfer of title in goods would be a supply of goods, whereas any transfer of right in goods
without transfer of title would be considered as services. Also any treatment or process which is applied to
another persons goods is a supply of services.

Further Schedule III to the CGST Act, 2017 spells out activities which shall be treated as neither supply of goods
nor supply of services or outside the scope of GST.

Under the above legal provisions the impact of GST on Textile Sector is summarized as under.

The textile sector consisting of the following major sub-sectors.

1. Fibres to Yarn

2. Fabric and

3. Garments

Various supply chains in Textile Sector

1. Fibres- Cotton to Yarn

Sr Supply type Levy of GST

No

1 Unprocessed Cotton supplied to Ginning mill GST Exempted

2 Ginning Mill to Spinning Mill- GST Exempted

3 Spinning Mill to yarn trader! Weavers etc., Attract GST as supply of

Goods

4 Spinning Mill to Job work ( Cop stage to Reeling, Cone winding, Attract GST as supply of
Doubling Etc.,) Service

2.Yarn to Grey /Processed Fabric (Woven/Knitted etc.,)

Sr. No Supply type Levy of GST

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 1 Yarn from Weavers! Mills to Sizing Mill on Job work basis Attract GST as supply of Service

2 Yarn Weavers! Mills on to Weaving ! Knitting on Job work basis Attract GST as supply of Service

3 Sale of gray fabric to Attract GST as supply of Good

Man ufacturers!Trader

3.Grey Fabrics to Processed Fabric/Garment/

Sr. Supply type Levy of GST

No

1 Unprocessed sent for various processing such as Bleaching, Dying, Printing, Attract GST as supply
Calendaring, etc., on Job work basis of Services

2 Sale of processed / Knitted fabrics Attract GST as goods

4. Garment to Consumer

Sr Supply type Levy of GST

No

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 1 Processed fabrics/ Knitted sent for Tailoring Units and other stitching related Attract GST as supply
process etc., on Job work basis of Services

2 Sale of garments to Attract GST as goods

Distributor/Retailers/Consumers

Some important definitions is given in Annexure-I

REGISTRATION

GST being a tax on the event of supply, every supplier needs to get registered. However, small businesses
having all India aggregate turnover below Rupees 20 lakh (10 lakh if business is in Assam, Arunachal Pradesh,
J&K, Himachal Pradesh, Uttarakhand, Manipur, Mizoram, Sikkim, Meghalaya, Nagaland or Tripura) need not
register. The small businesses, having turnover below the threshold limit can, however, voluntarily opt to register.

The aggregate turnover includes supplies made by him on behalf of his principals, but excludes the value of job-
worked goods if he is a job worker. But persons who are engaged exclusively in the business of supplying goods
or services or both that are not liable to tax or wholly exempt from tax or an agriculturist, to the extent of supply of
produce out of cultivation of land are not liable to register under GST.

It should be noted that GST in India is State-centric. Hence, a person making supplies from different States
needs to take separate registration in each State. Further, the person may take more than one registration within
a State if the person has multiple business verticals. A person who has obtained or is required to obtain more
than one registration, whether in one State or Union territory or more than one State or Union territory shall, in
respect of each such registration, be treated as distinct persons for the purposes of GST. Hence, a supply
between these entities constitutes supply under GST.

The supply chain in the Textile Sector is as under:

Supply through Branch Transfer under GST

A Branch in common sense is a location, other than the main office, where business is conducted. In VAT
Regime, Branch Transfer against F Form. No such form in GST Regime and the supply is regulated under the
concept concept of Distinct Person

As per Schedule I Branch Transfer even if without consideration to be treated as Supply of goods or services
or both between related persons or between distinct persons as specified in section 25, when made in the
course or furtherance of business:
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As per Section 25(4) A person who has obtained or is required to obtain more than one registration, whether in
one State or Union territory or more than one State or Union territory shall, in respect of each such registration,
be treated as distinct persons for the purposes of this Act.

Supply of goods made through an agent

As per Schedule I supply of goods to Agent without consideration is treated as Supply

3. Supply of goods

(a) by a principal to his agent where the agent undertakes to supply such goods on behalf of the principal; or

(b) by an agent to his principal where the agent undertakes to receive such goods on behalf of the principal.

As per Section 24 persons who make taxable supply of goods or services or both on behalf of other taxable
persons whether as an agent or otherwise is required to take registration.

In view of the above GST has to be payable for the supply though Branch and Consignment Agent even though
no consideration is received. Since one state one registration, GST is not payable if supply to Intra-State Brach.

RATE OF GST

After GST, the average tax rate for Textile Sector is around 5 %. Minimum is Zero and maximum rate is 18%. The
rates for various chapter is given in the Annexure-II

SrNo Goods / Service GST Rate

1 Cotton yarn, cotton fabrics, Knitted or crocheted fabrics 5%

(2.5%+2.5%)

2 Articles of apparel and clothing accessories, knitted or crocheted, of sale value not 5%
exceeding Rs. 1000 per piece (2.5%+2.5%)

3 Articles of apparel and clothing accessories, knitted or crocheted, of sale value 12% (6
exceeding Rs. 1000 per piece %+6%)

4 Yarn of manmade staple fibres 18%

(9%+9%)

5 Job work 5%
(2.5%+2.5%)

Composition levy under GST

The composition levy is an alternative method of levy of tax designed for small taxpayers whose turnover is up to
Rs. 75 lakhs ( Rs. 50 lakhs in case of few States) The objective of composition scheme is to bring simplicity and
to reduce the compliance cost for the small taxpayers. Moreover, it is optional and the eligible person opting to
pay tax under this scheme can pay tax at a prescribed percentage of his turnover every quarter, instead of
paying tax at normal rate.

S. Category of Registered person Rate of Tax

No.

1 Manufacturers, other than manufacturers of such goods as may be 2% ( 1% Central tax Plus 1%
notified by the Government (Ice cream, Pan Masala, Tobacco products State tax) of the turnover
etc.)

2 Restaurant Services 5% ( 2.5% Central tax plus

2.5% SGST) of the turnover

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 3 Traders or any other supplier eligible for composition levy 1% ( 0.5% Central tax plus
0.50% State tax ) of the
turnover

VALUATION

Under GST law, taxable value is the transaction value i.e. price actually paid or payable, provided the supplier &
the recipient are not related and price is the sole consideration. In most of the cases of regular normal trade, the
invoice value will be the taxable value. However, to determine value of certain specific transactions,
Determination of Value of Supply rules have been prescribed in CGST Rules, 2017.

Compulsory Inclusions

Any taxes, fees, charges levied under any law other than GST law, expenses incurred by the recipient on behalf
of the supplier, incidental expenses like commission & packing incurred by the supplier, interest or late fees or
penalty for delayed payment and direct subsidies (except government subsidies) are required to be added to the
price (if not already added) to arrive at the taxable value.

Exclusion of discounts

Discounts like trade discount, quantity discount etc. are part of the normal trade and commerce. Therefore, pre-
supply discounts i.e. discounts recorded in the invoice have been allowed to be excluded while determining the
taxable value.

Discounts provided after the supply can also be excluded while determining the taxable value, provided two
conditions are met, namely:

(a) Discount is established in terms of a pre supply agreement between the supplier & the recipient and such
discount is linked to relevant invoices

(b) Input tax credit attributable to the discounts is reversed by the recipient

INPUT TAX CREDIT

Input tax credit on inputs and input services and Capital goods are provided for the complete supply chain. It is to
be noted that materials such as chemicals, dyes, accessories and packing materials which constitutes major
material cost is eligible as input tax credit when output GST is paid. The availability of seamless credit could also
result in lower price of goods which could boost demand for Textile Sector. The rates for certain Inputs and
Capital goods is Given in Annexure III

Some of the technical aspects of the scheme of Input Tax Credit are as under:

A. Any registered person can avail credit of tax paid on the inward supply of goods or services or both, which is
used or intended to be used in the course or furtherance of business.

B. The pre-requisites for availing credit by registered person are:

i. He is in possession of tax invoice or any other specified tax paying document.

ii. He has received the goods or services. Bill to ship scenarios also included.

iii. Tax is actually paid by the supplier.

iv. He has furnished the return.

v. If the inputs are received in lots, he will be eligible to avail the credit only when the last lot of the inputs is
received.

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vi. He should pay the supplier, the value of the goods or services along with the tax within 180 days from the date
of issue of invoice, failing which the amount of credit availed by the recipient would be added to his output tax
liability, with interest [rule 2(1) & (2) of ITC Rules]. However, once the amount is paid, the recipient will be entitled
to avail the credit again. Incase part payment has been made, proportionate credit would be

C. Documents on the basis of which credit can be availed are:

i. Invoice issued by a supplier of goods or services or both

ii. Invoice issued by recipient along with proof of payment of tax

iii. A debit note issued by supplier

iv. Bill of entry or similar document prescribed under Customs Act

v. Revised invoice

vi. Document issued by Input Service Distributor

D. The Input Service Distributor (ISD) may distribute the credit available for distribution in the same month in
which, it is availed. The credit of CGST, SGST, UTGST and IGST shall be distributed as per the provisions of
Rule 4(1) (d) of ITC Rules. ISD shall issue invoice in accordance with the provisions made under Rule 9(1) of
Invoice Rules.

E. ITC is not available in some cases as mentioned in section1 7 (5) of CGST Act, 2017. Some of them are as
follows:

a. motor vehicles and other conveyances except under specified circumstances.

b. goods and/or services provided in relation to:

i. Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, except
under specified circumstances;

ii. Membership of a club, health and fitness center;

iii. Rent-a-cab, life insurance, health insurance except where it is obligatory for an employer under any law;

iv. Travel benefits extended to employees on vacation such as leave or home travel concession

How is Input Tax Credit Used?

ITC on account of CGST

It should first be used to pay CGST.
Then, any remaining amount should be used to pay IGST.
Note that you cannot use ITC of CGST to pay SGST.

ITC on account of SGST

It should be used to pay SGST first.
Then, any remaining amount should be used to pay IGST.
Note that you cannot use ITC of SGST to pay CGST.

ITC on account of IGST

It should be used to pay IGST first.
Then, any remaining amount should be used to pay CGST.
The last priority should be given to payment of SGST.

REFUND

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The provisions pertaining to refund contained in the GST law aim to streamline and standardize the refund
procedures under GST regime. Thus, under the GST regime, there will be a standardized form for making any
claim for refunds. The claim and sanctioning procedure will be completely online and time bound, which is a
marked departure from the existing time consuming and cumbersome procedure.

Situations Leading to Refund Claims:

A claim for refund may arise on account of:

i. Export of goods or services

ii. Supplies to SEZs units and developers

iii. Deemed exports

iv. Refund of taxes on purchase made by UN or embassies etc.

v. Refund arising on account of judgment, decree, order or direction of the Appellate Authority, Appellate Tribunal
or any court

vi. Refund of accumulated Input Tax Credit on account of inverted duty structure

vii. Finalisation of provisional assessment

viii. Refund of pre-deposit

ix. Excess payment due to mistake

x. Refunds to International tourists of GST paid on goods in India and carried abroad at the time of their
departure from India

xi. Refund on account of issuance of refund vouchers for taxes paid on advances against which, goods or
services have not been supplied

xii. Refund of CGST & SGST paid by treating the supply as intra- State supply which is subsequently held as
inter-State supply and vice versa

Thus, practically every situation is covered.

Payment of Wrong Tax

Under GST it might happen that the taxable person may pay integrated tax instead of Central tax plus State Tax
and vice versa because of incorrect application of the place of supply provisions. In such cases, while making the
appropriate payment of tax, interest will not be charged and the refund claim of the wrong tax paid earlier will be
entertained without subjecting it to the provision of unjust enrichment.

The refund claim, wherever due, will be directly credited to the bank account of the applicant. The applicant need
not come to the authorities to collect the cheque or for any other issues relating to the refund claim.

JOB WORK & TEXTILE SECTOR

Major production process in the Textile sector is through job work only.

Yarn to Reeling, Doubling, Yarn dying, bleaching, mercerizing etc.,

Gray fabric to Processed fabric dying, bleaching, mercerizing, printing etc.,
Woven /Knitted fabrics to Garment

During the excise regime certain above processes were treated as manufacture and levy is made on the entire

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value including the material value.

Now in the GST, the treatment of Job-work is completely changed. As per Section 2(68) of the CGST Act, 2017
defines job-work as under:

(68) job work means any treatment or process undertaken by a person on goods belonging to another
registered person and the expression job worker shall be construed accordingly;

As per Section 7 of the Act, supply includes

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease
or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(b) Import of services for a consideration whether or not in the course or furtherance of business;

(c) The activities specified in Schedule I, made or agreed to be made without a consideration; and

(d) The activities to be treated as supply of goods or supply of services

as referred to in Schedule II.

As per Schedule II of CGST Act, 2017, Treatment or process any treatment or process which is applied to
another persons goods is a supply of services. The ownership of the goods does not transfer to the job-
worker but it rests with the principal. Thus Job work is a service.

In view of the above facts the job worker is required to obtain registration, if his aggregate turnover exceeds the
prescribed threshold and follow the various procedure as per the provisions of CGST Act, 2017 and rules made
thereunder:

Value for the purpose of payment of GST on Job work:

As per the provisions of Section 15 of CGST Act, 2017, the value of a supply of goods or services or both shall
be the transaction value, which is the price actually paid or payable for the said supply of goods or services or
both where the supplier and the recipient of the supply are not related and the price is the sole consideration for
the supply.

As per Explanation (ii) to Section 22, of CGST, Act, 2017 the supply of goods, after completion of job work, by a
registered job worker shall be treated as the supply of goods by the principal referred to in section 143, and the
value of such goods shall not be included in the aggregate turnover of the registered job worker;

Explanation.For the purposes of this section,

(i) The expression aggregate turnover shall include all supplies made by the taxable person, whether on his
own account or made on behalf of all his principals;

(ii) the supply of goods, after completion of job work, by a registered job worker shall be treated as the supply of
goods by the principal referred to in section 143, and the value of such goods shall not be included in the
aggregate turnover of the registered job worker;

The value of goods after completion of job work is not includible in the turnover of the job-worker. It will
be treated as supply of goods by the principal and will accordingly be includible in the turnover of the Principal.

Rate of GST for Job work:

Notification No: 11/2017 Central (Rate) dated 28/06/2017 prescribes the rate of CGST for various services. As
per this notification rate prescribed for job work for the textile sectors is as under:

Chapter, Section or Heading Description of Service Rate of

CGST

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 Heading 9988 (i) Services by way of job work in relation to- 2.5 %

(Manufacturing services on physical inputs (b) Textile yarns (other than of man-made
(goods) owned by others) fibres) and textile fabrics;

Procedural aspects for the movement of goods from Principal to Job-worker:

In GST regime, the principal would get the option of sending inputs or capital goods for job work. Raw materials
sent to be received back within 1 year and capital goods to be received back within 3 years. If the goods are not
received within this time limit, then supply of goods would be treated as supply for levy of GST. The processed
goods could also be sent directly to customers of principal, provided job workers are registered or the details of
job workers place are added as additional place of business in principals registration certificate.

a. A registered person (Principal) can send inputs! capital goods under intimation and subject to certain
conditions without payment of tax to a job-worker and from there to another job-worker and after completion of
job-work bring back such goods without payment of tax. The principal is not required to reverse the ITC availed
on inputs or capital goods dispatched to job-worker.

b. Principal can send inputs or capital goods directly to the job-worker without bringing them to his premises and
can still avail the credit of tax paid on such inputs or capital goods.

C. However, inputs and!or capital goods sent to a job-worker are required to be returned to the principal within 1
year and 3 years, respectively, from the date of sending such goods to the job-worker.

d. After processing of goods, the job-worker may clear the goods to-

i. Another job-worker for further processing

ii. Dispatch the goods to any of the place of business of the principal without payment of tax

iii. Remove the goods on payment of tax within India or without payment of tax for export outside India on
fulfilment of conditions.

(e) The facility of supply of goods by the principal to the third party directly from the premises of the job-worker
on payment of tax in India and likewise with or without payment of tax for export may be availed by the principal
on declaring premise of the job-worker as his additional place of business in registration. In case the job-worker
is a registered person under GST, even declaring the premises of the job-worker as additional place of business
is not required.

(f) Before supply of goods to the job-worker, the principal would be required to intimate the Jurisdictional Officer
containing the details of the description of inputs intended to be sent by the principal and the nature of processing
to be carried out by the job-worker. The said intimation shall also contain the details of the other job-workers, if
any.

(g) The inputs or capital goods shall be sent to the job-worker under the cover of a challan issued by the
principal. The challan shall be issued even for the inputs or capital goods sent directly to the job-worker. The
challan shall contain the details specified in Rule 10 of the Invoice Rules.

(h) The responsibility for keeping proper accounts for the inputs or capital goods shall lie with the principal.

(i) The waste and scrap generated during the job work can be supplied by the job worker directly from his place
of business, on payment of tax, if he is If he is not registered, the same would be supplied by the principal on
payment of tax.

EXPORT OF TEXTILE PRODUCTS

In the GST regime, the governing provisions related to exports are contained in section 16 of the Integrated
Goods and Service Tax Act, 2017 (IGST Act). Supplies of goods and services for exports have been categorized
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as Zero Rated Supply implying that goods could be exported under bond or Letter of Undertaking without
payment of integrated tax followed by claim of refund of unutilized input tax credit or on payment of integrated tax
with provision for refund of the tax paid.

A. Procedure of Export

1. Any person making zero rated supply (i.e. any exporter) shall be eligible to claim refund under either of the
following options, namely:

(a) he may supply goods or services or both under bond or Letter of Undertaking, subject to such conditions,
safeguards and procedure as may be prescribed, without payment of integrated tax and claim refund of
unutilized input tax credit; or

(b) he may supply goods or services or both, subject to such conditions, safeguards and procedure as may be
prescribed, on payment of integrated tax and claim refund of such tax paid on goods or services or both supplied,
in accordance with the provisions of section 54 (Refunds) of the Central Goods and Services Tax Act or the rules
made there under (i.e.) the Central Goods and Service Tax Rules, 2017).

2. For the option (a) above, procedure to file refund has been outlined in the Central Goods and Service Tax
Rules, 2017. The exporter claiming refund of unutilized input tax credit will file an application electronically
through the Common Portal, either directly or through a Facilitation Centre notified by the GST Commissioner.
The application shall be accompanied by documents as prescribed in the said rules. Application for refund shall
be filed only after the export manifest or an export report, as the case may be, is delivered under section 41 of
the Customs Act, 1962 in respect of such goods. The formats for furnishing bond or LUT for export of goods
have been separately notified under COST Rules, 2017.

3. For the option (b), broadly the procedure is that a registered person shall not be required to file any
application for refund of integrated goods and services tax paid on supply of goods for exports. The shipping bill,
having inter-alia GST invoice details, filed by an exporter shall be deemed to be an application for refund of
integrated tax paid on the goods exported out of India and such application shall be deemed to have been filed
only when the person in charge of the conveyance carrying the export goods duly files an export manifest or an
export report covering the number and the date of shipping bills or bills of export and the applicant has furnished
a valid return in FORM GSTR-3. The details of the relevant export invoices contained in FORM GSTR-1 shall be
transmitted electronically by the common portal to the Customs system and the said system shall in turn
electronically transmit back to the common portal a confirmation that the goods covered by the said invoices
have been exported out of India. Upon receipt of information regarding furnishing of valid return in FORM GSTR-
3 from the common portal, the Customs system shall process the claim for refund and an amount equal to the
integrated tax paid in respect of each shipping bill or bill of export shall be electronically credited to the bank
account of the applicant mentioned in his registration particulars. Government has allowed a grace period to the
registrants to file returns under the new GST Law. Therefore, this refund procedure shall as a consequence
come into operation only when the registrants file the above mentioned returns. Further, the exporters are free to
avail option (a) or option (b). The refund shall be governed by the provisions of the section 16 of the IGST Act. ,
2017

DUTY DRAWBACK

In GST regime, duty drawback may lose relevance as there would be seamless credit at each stage of value
addition and better transparency. Even if duty drawback is continued to offset the impact of basic customs duty
component, which is non-creditable tax, the drawback rate could be very less. This could impact largely, those
assesses who are dependent on duty drawbacks for achieving good margin / profit.

No amendments have been made to the drawback provisions (Section 74 or Section 75) under Customs Act
1962 in the GST regime. Hence, the drawback scheme will continue in terms of both section 74 and section 75.
Option of All Industry Rate (AIR) as well as Brand Rate under Section 75 shall also continue.

Drawback under Section 74 will refund Customs duties as well as Integrated Tax and Compensation Cess paid
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on imported goods which are re-exported.

At present Duty Drawback Scheme under Section 75 neutralises Customs duty, Central excise duty and Service
Tax chargeable on any imported materials or excisable materials used or taxable services used as input services
in the manufacture of export goods. Under GST regime, Drawback under Section 75 shall be limited to Customs
duties on imported inputs and Central Excise duty on items specified in Fourth Schedule to Central Excise Act
1944 (specified petroleum products, tobacco etc.) used as inputs or fuel for captive power generation.

A transition period of three months is also being provided from date of implementation of GST i.e. 1.7.2017.
During this period, existing duty drawback scheme under Section 75 shall continue. For exports during this
period, exporters can claim higher rate of duty drawback (composite AIR) subject to conditions that no input tax
credit of CGST/IGST is claimed, no refund of IGST paid on export goods is claimed and no CENVAT credit is
carried forward. A declaration from exporter and certificate from jurisdictional GST officer in this regard has been
prescribed in the notification related to AIRs. This will prevent double availment of neutralization of input taxes.
Similarly, the exporter can claim brand rate for Customs, Central Excise duties and Service Tax during this
period.

Exporters also have the option of claiming only the Customs portion of AIR and claim refund/ITC under GST
laws. All Industry Rates for the transition period shall be notified in due course of time.

ANNEXURE I

Some important definitions:

(5) agent means a person, including a factor, broker, commission agent, arhatia, del credere agent, an
auctioneer or any other mercantile agent, by whatever name called, who carries on the business of supply or
receipt of goods or services or both on behalf of another;

(6) aggregate turnover means the aggregate value of all taxable supplies (excluding the value of inward
supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or
services or both and inter-State supplies of persons having the same Permanent Account Number, to be
computed on all India basis but excludes Central tax, State tax, Union territory tax, integrated tax and cess;

(7) agriculturist means an individual or a Hindu Undivided Family who undertakes cultivation of land

(a) by own labour, or

(b) by the labour of family, or

(c) by servants on wages payable in cash or kind or by hired labour under personal supervision or the personal
supervision of any member of the family;

(18) business vertical means a distinguishable component of an enterprise that is engaged in the supply of
individual goods or services or a group of related goods or services which is subject to risks and returns that are
different from those of the other business verticals.

Explanation.For the purposes of this clause, factors that should be considered in determining whether goods
or services are related include

(a) the nature of the goods or services;

(b) the nature of the production processes;

(c) the type or class of customers for the goods or services;

(d) the methods used to distribute the goods or supply of services; and

(e) the nature of regulatory environment (wherever applicable), including banking, insurance, or public utilities;

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(42) Drawback in relation to any goods manufactured in India and exported, means the rebate of duty, tax or
cess chargeable on any imported inputs or on any domestic inputs or input services used in the manufacture of
such goods;

(68) job work means any treatment or process undertaken by a person on goods belonging to another
registered person and the expression job worker shall be construed accordingly;

(72) manufacture means processing of raw material or inputs in any manner that results in emergence of a
new product having a distinct name, character and use and the term manufacturer shall be construed
accordingly;

(88) principal means a person on whose behalf an agent carries on the business of supply or receipt of goods
or services or both;

(98) reverse charge means the liability to pay tax by the recipient of supply of goods or services or both
instead of the supplier of such goods or services or both under sub-section (3) or sub-section (4) of section 9, or
under sub-section (3) or subsection (4) of section 5 of the Integrated Goods and Services Tax Act;

ANNEXURE II
CGST, SGST and IGST Rate for Textile Sector

Sr. Schedule Chapter / Description of Goods CGST SGST IGST

No as per RATE
Notification Heading /
Sub-

heading /
Tariff item

1 SCH 52 Gandhi Topi 0.00% 0.00% 0.00%

2 SCH 52 Khadi yarn 0.00% 0.00% 0.00%

3 SCH 5303 Jute fibres, raw or processed but not spun 0.00% 0.00% 0.00%

4 SCH 5305 Coconut, coir fibre 0.00% 0.00% 0.00%

5 SCH 63 Indian National Flag 0.00% 0.00% 0.00%

6 SCH-I 5201 to Cotton and Cotton waste 2.50% 2.50% 5.00%

5203

7 SCH-I 5204 Cotton sewing thread, whether or not put up for 2.50% 2.50% 5.00%
retail sale

8 SCH-I 5205 to Cotton yarn [other than khadi yarn] 2.50% 2.50% 5.00%
5207

9 SCH-I 5208 to Woven fabrics of cotton 2.50% 2.50% 5.00%

5212

10 SCH-I 5301 All goods i.e. flax, raw or processed but not spun; 2.50% 2.50% 5.00%
flax tow and waste (including yarn waste and
garneted stock)

11 SCH-I 5302 True hemp (Cannabis sativa L), raw or 2.50% 2.50% 5.00%
processed but not spun; tow and waste of true
hemp (including yarn waste and garneted stock)

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12 SCH-I 5303 All goods i.e. textile bast fibres [other than jute 2.50% 2.50% 5.00%
fibres, raw or processed but not spun]; tow and
waste of these fibres (including yarn waste and
garneted stock)

13 SCH-I 5305 to All goods [other than coconut coir fibre] including 2.50% 2.50% 5.00%
5308 yarn of flax, jute, other textile bast fibres, other
vegetable textile fibres; paper yarn

14 SCH-I 5309 to Woven fabrics of other vegetable textile fibres, 2.50% 2.50% 5.00%
5311 paper yarn

15 SCH-I 5407, 5408 Woven fabrics of manmade textile materials 2.50% 2.50% 5.00%

16 SCH-I 5512 to Woven fabrics of manmade staple fibres 2.50% 2.50% 5.00%
5516

17 SCH-I 5705 Coir mats, matting and floor 2.50% 2.50% 5.00%
covering

18 SCH-I 5809, 5810 Embroidery or zari articles, that is to say,- imi, 2.50% 2.50% 5.00%
zari, kasab, saima, dabka, chumki, gotasitara,
naqsi, kora,
glass beads, badla, glzal

19 SCH-I 60 Knitted or crocheted fabrics [All 2.50% 2.50% 5.00%

goods]

20 SCH-I 61 Articles of apparel and clothing accessories, 2.50% 2.50% 5.00%

knitted or crocheted, of sale value not exceeding
Rs. 1000 per piece

21 SCH-I 62 Articles of apparel and clothing accessories, not 2.50% 2.50% 5.00%
knitted or crocheted, of sale value not
exceeding Rs. 1000 per piece

22 SCH-I 63 Other made up textile articles, sets, worn clothing 2.50% 2.50% 5.00%
and worn textile articles and rags, of sale value
not exceeding Rs. 1000 per piece

23 SCH-II 5601 Wadding of textile materials and articles thereof; 6.00% 6.00% 12.00%
such as Absorbent cotton wool

24 SCH-II 5602 Felt, whether or not impregnated, coated, 6.00% 6.00% 12.00%
covered or laminated

25 SCH-II 5603 Nonwovens, whether or not impregnated, 6.00% 6.00% 12.00%

coated, covered or laminated

26 SCH-II 5604 Rubber thread and cord, textile covered; textile 6.00% 6.00% 12.00%
yarn, and strip and the like of heading 5404 or
5405, impregnated, coated, covered or sheathed
with rubber or plastics

27 SCH-II 5605 the like of heading 5404 or 5405, combined with 6.00% 6.00% 12.00%
metal in the form of thread, strip or powder or
covered with metal; such as Real zari thread
(gold) and silver thread, combined with textile
thread), Imitation zari threadMetallised yarn,
whether or not gimped, being textile yarn, or strip
or

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28 SCH-II 5606 Gimped yarn, and strip and the like of heading 6.00% 6.00% 12.00%
5404 or 5405, gimped (other than those of
heading 5605 and gimped horsehair yarn);

chenille yarn (including flock

chenille yarn); loop wale-yarn

29 SCH-II 5607 Twine, cordage, ropes and cables, whether or 6.00% 6.00% 12.00%
not plaited or braided and whether or not
impregnated, coated, covered or sheathed with
rubber or plastics

30 SCH-II 5608 Knotted netting of twine, cordage or rope; made 6.00% 6.00% 12.00%
up fishing nets and other made up nets, of textile
materials

31 SCH-II 5609 Articles of yarn, strip or the like of heading 5404 6.00% 6.00% 12.00%
or 5405, twine,

cordage, rope or cables, not

elsewhere specified or included

32 SCH-II 5701 Carpets and other textile floor coverings, 6.00% 6.00% 12.00%
knotted, whether or not made up

33 SCH-II 5702 Carpets and other textile floor 6.00% 6.00% 12.00%

coverings, woven, not tufted or

flocked, whether or not made up,

including Kelem, Schumacks,

Karamanie and similar hand-

woven rugs

34 SCH-II 5703 Carpets and other textile floor coverings, tufted, 6.00% 6.00% 12.00%
whether or not made up

35 SCH-II 5704 Carpets and other textile floor 6.00% 6.00% 12.00%

coverings, of felt, not tufted or

flocked, whether or not made up

36 SCH-II 5705 Other carpets and other textile floor coverings, 6.00% 6.00% 12.00%
whether or not made up; such as Mats and
mattings including Bath Mats, where cotton

predominates by weight, of

Handloom, Cotton Rugs of

handloom

37 SCH-II 5801 Woven pile fabrics and chenille 6.00% 6.00% 12.00%

fabrics, other than fabrics of

heading 5802 or 5806

38 SCH-II 5802 Terry towelling and similar woven terry fabrics, 6.00% 6.00% 12.00%
other than narrow

fabrics of heading 5806; tufted textile fabrics,

other than products of heading 5703

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39 SCH-II 5803 Gauze, other than narrow fabrics of heading 6.00% 6.00% 12.00%
5806

40 SCH-II 5804 Tulles and other net fabrics, not 6.00% 6.00% 12.00%

including woven, knitted or

crocheted fabrics; lace in the

piece, in strips or in motifs, other than fabrics of

headings 6002 to 6006

41 SCH-II 5805 Hand-woven tapestries of the type Gobelins, 6.00% 6.00% 12.00%
Flanders, Aubusson, Beauvais and the like, and
needle-

worked tapestries (for example, petit point, cross

stitch), whether or not made up

42 SCH-II 5806 Narrow woven fabrics, other than goods of 6.00% 6.00% 12.00%
heading 5807; narrow fabrics consisting of warp
without weft assembled by means of an adhesive
(bolducs)

43 SCH-II 5807 Labels, badges and similar articles of textile 6.00% 6.00% 12.00%
materials, in the piece, in strips or cut to shape or
size, not embroidered

44 SCH-II 5808 Braids in the piece; ornamental 6.00% 6.00% 12.00%

trimmings in the piece, without

embroidery, other than knitted or

crocheted; tassels, pompons and

similar articles

45 SCH-II 5809 Woven fabrics of metal thread and woven fabrics 6.00% 6.00% 12.00%
of metallised yarn of heading 5605, of a kind
used in apparel, as furnishing fabrics or for
similar purposes, not elsewhere

specified or included; such as Zari borders [other

than Embroidery or zari articles, that is to say,-
imi, zari, kasab, saima, dabka, chumki, gota

sitara, naqsi, kora, glass beads,

badla, glzal]

46 SCH-II 5810 Embroidery in the piece, in strips or in motifs, 6.00% 6.00% 12.00%
Embroidered badges,

motifs and the like [other than Embroidery or zari

articles, that is to say,- imi, zari, kasab, saima,
dabka,

chumki, gota sitara, naqsi, kora,

glass beads, badla, glzal]

47 SCH-II 5811 Quilted textile products in the piece, composed of 6.00% 6.00% 12.00%
one or more layers of textile materials assembled

with padding by stitching or otherwise, other than

embroidery of heading 5810

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48 SCH-II 5901 Textile fabrics coated with gum or amylaceous 6.00% 6.00% 12.00%
substances, of a kind used for the outer covers of
books or the like; tracing cloth; prepared painting
canvas; buckram and similar stiffened textile
fabrics of a kind used for hat foundations

49 SCH-II 5902 Tyre cord fabric of high tenacity yarn of nylon or 6.00% 6.00% 12.00%
other polyamides, polyesters or viscose rayon

50 SCH-II 5903 Textile fabrics impregnated,

coated, covered or laminated with

51 SCH-II 5904 Linoleum, whether or not cut to shape; floor 6.00% 6.00% 12.00%
coverings consisting of a coating or covering
applied on a textile backing, whether or not cut

to shape

52 SCH-II 5905 Textile wall coverings 6.00% 6.00% 12.00%

53 SCH-II 5906 Rubberised textile fabrics, other than those of 6.00% 6.00% 12.00%
heading 5902

54 SCH-II 5907 Textile fabrics otherwise 6.00% 6.00% 12.00%

impregnated, coated or covered;

painted canvas being theatrical

scenery, studio back-cloths or the

like

55 SCH-II 5908 Textile wicks, woven, plaited or 6.00% 6.00% 12.00%

knitted , for lamps, stoves, lighters,

candles or the like; incandescent

gas mantles and tubular knitted gas

mantle fabric therefor, whether or

not impregnated

56 SCH-II 5909 Textile hose piping and similar textile tubing, with 6.00% 6.00% 12.00%
or without lining, armour or accessories of other
materials

57 SCH-II 5910 Transmission or conveyor belts or belting, of 6.00% 6.00% 12.00%

textile material, whether or not impregnated,
coated, covered or laminated with plastics, or
reinforced with metal or other material

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58 SCH-II 5911 Textile products and articles, for technical uses,
specified in Note 7 to this Chapter; such as
Textile fabrics, felt and felt-lined woven fabrics,
coated, covered or laminated with rubber, leather
or other material, of a kind used for card clothing,
and similar fabrics of a kind used for other
technical purposes, including narrow fabrics
made of velvet impregnated with rubber, for
covering weaving spindles (weaving beams);
Bolting cloth, whether or Not made up; Felt for
cotton textile industries, woven;

Woven textiles felt, whether or not impregnated

or coated, of a kind commonly used in other
machines, Cotton fabrics and articles used in
machinery and plant, Jute fabrics and articles
used in machinery or plant, Textile fabrics of
metalised yarn of a kind commonly used in paper
making or other machinery, Straining cloth of a
kind used in oil presses or the like, including that
of human hair, Paper makers felt, woven,
Gaskets, washers, polishing discs and other
machinery parts of textile articles

59 SCH-II 61 Articles of apparel and clothing accessories, 6.00% 6.00% 12.00%

knitted or crocheted, of sale value exceeding Rs.
1000 per piece

60 SCH-II 62 Articles of apparel and clothing accessories, not 6.00% 6.00% 12.00%
knitted or crocheted, of sale value exceeding Rs.
1000 per piece

61 SCH-II 63 Other made up textile articles, sets, worn clothing 6.00% 6.00% 12.00%
and worn textile

62 SCH-III 5401 Sewing thread of manmade filaments, whether or 9.00% 9.00% 18.00%
not put up for retail sale

63 SCH-III 5402, All synthetic filament yarn such as nylon, 9.00% 9.00% 18.00%
5404, polyester, acrylic, etc.
5406

64 SCH-III 5403, All artificial filament yarn such as viscose rayon, 9.00% 9.00% 18.00%
5405, Cuprammonium, etc.
5406

65 SCH-III 5501, 5502 Synthetic or artificial filament tow 9.00% 9.00% 18.00%

66 SCH-III 5503, Synthetic or artificial staple fibres 9.00% 9.00% 18.00%

5504,5506,
5507

67 SCH-III 5505 Waste of manmade fibres 9.00% 9.00% 18.00%

68 SCH-III 5508 Sewing thread of manmade staple fibres 9.00% 9.00% 18.00%

69 SCH-III 5509, Yarn of manmade staple fibres 9.00% 9.00% 18.00%

5510,
5511

ANNEXURE III
GST, SGST AND IGT RATES FOR SOME INPUTS AND CAPITAL GOODS

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Sl. SCH Chapter / Description of Goods CGST SGST CGST
No Heading / RATE RATE RATE
Sub-heading
/ Tariff item

1 SCH- 3203 Colouring matter of vegetable or animal origin 9.00% 9.00% 18%
III (including dyeing extracts but excluding animal black),
whether or not chemically defined; preparations as
specified in Note 3 to this Chapter based on colouring
matter of vegetable or animal origin

2 SCH- 3204 Synthetic organic colouring matter, whether or not 9.00% 9.00% 18%
III chemically defined; preparations as specified in Note 3
to this Chapter based on synthetic organic colouring
matter; synthetic organic products of a kind used as
fluorescent brightening agents or as luminophores,
whether or not chemically defined

3 SCH- 3205 Colour lakes; preparations as specified in Note 3 to 9.00% 9.00% 18%
III this Chapter based on colour lakes

4 SCH- 3206 Other colouring matter; preparations as specified in 9.00% 9.00% 9.00%
III Note 3 to this Chapter, other than those of heading
32.03, 32.04 or 32.05; inorganic products of a kind
used as luminophores, whether or not chemically
defined

5 SCH- 8452 Sewing machines 6.00% 6.00% 6.00%

II

6 SCH- 8445 Machines for preparing textile fibres; spinning, 9.00% 9.00% 18%
III doubling or twisting machines and other machinery for
producing textile yarns; textile reeling or winding
(including weft-winding) machines and machines for
preparing textile yarns for use on the machines of
heading 8446 or 8447

7 SCH- 8446 Weaving machines (looms) 9.00% 9.00% 18%

III

8 SCH- 8447 Knitting machines, stitch-bonding machines and 9.00% 9.00% 18%
III machines for making gimped yarn, tulle, lace,
embroidery, trimmings, braid or net and machines for
tufting

9 SCH- 8448 Auxiliary machinery for use with machines of heading 9.00% 9.00% 18%
III 84.44, 84.45,84.46 or 84.47 (for example, dobbies,
Jacquards, automatic stop motions, shuttle changing
mechanisms); parts and accessories suitable for use
solely or principally with the machines of this heading
or of heading 8444, 8445,8446 or 8447 (for example,
spindles and spindles flyers, card clothing, combs,
extruding nipples, shuttles, healds and heald frames,
hosiery needles)

10 SCH- 8449 Machinery for the manufacture or finishing of felt or 9.00% 9.00% 18%
III nonwovens in the piece or in shapes, including
machinery for making felt hats; blocks for making hats

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 11 SCH- 8451 Machinery (other than machines of heading 8450) for 9.00% 9.00% 18%
III washing, cleaning, wringing, drying, ironing, pressing
(including fusing presses), bleaching, dyeing,
dressing, finishing, coating or impregnating textile
yarns, fabrics or made up textile articles and machines
for applying the paste to the base fabric or other
support used in the manufacture of floor covering such
as linoleum; machines for reeling, unreeling, folding,
cutting or pinking textile fabrics

12 SCH- 8482 Ball bearing, Roller Bearings 9.00% 9.00% 18%

III

References

E-filers of the CBEC on various legal provisions of GST

Goods and Services Act, 2017
Goods and Services Rules, 2017
Notification No:1/2017 Central (Rate) dated as amended
Notification No:2/201 7 Central (Rate) dated as amended

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