A recent order by the Union Finance Ministry has put a question mark on the tax credit, worth hundreds of crore of rupees, that was due to textile players. Accordingly, the accumulated input tax credit (ITC) lying unutilised in balance, on purchases received up to July 31, 2018 could lapse. Textile players say they will urge the government to amend the order.
As the GST was rolled out a year ago, textile fabric was subject to 18% tax. Following widespread protests by traders, the tax was brought down to 5% with a condition that they will not get tax credit on purchases made. Meanwhile, the sector – one of the major providers of jobs – suffered a severe slowdown and businessmen suffered shortage of liquidity. The recent GST Council meet decided that tax credit will now be available. Finance Ministry came out with a notification, which according to experts will deprive businessmen of surplus credit lying with the government.
"Accordingly, the accumulated input tax credit lying unutilised in balance, on the inward supplies received up to July 31 shall lapse, leading to huge losses," said Monish Bhalla, founder and director of Taxolegal. Bhalla said the notification is confusing. There is uncertainty about which credit will lapse. Will the credit pertaining to input services and capital goods would lapse as well?
"Such a provision will have far reaching consequences. Textile product manufacturers accumulate stock on seasonal basis as credit on their stock on July 31, 2108 would lapse. For those in expansion phase, the cost of capital will rise," he said.
Naresh Sharma, president of Ahmedabad Textile Processors Association said that they will urge the government to amend the notification so that the intent of GST Council could materialise. Bhalla said that it seems that GST Council didn't have such an intention while recommending the provision of refund; 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," said Bhalla.