The GST Council on Friday decided to defer the hike in textile duty to 12 per cent from 5 per cent that was due to take effect from January 1 and referred the matter for review to the group of ministers on rate rationalisation.

The panel, the highest decision-making body for indirect taxes, met under emergency provisions after states made a request for deferring the tax rate hike on textiles, from the current 5 per cent, to be effective from January 1, 2022.

At the GST Council meeting in September it was decided to correct the inverted duty structure for textiles and footwear. The GST on both was raised to 12 per cent.

The GST Council on Friday did not defer the decision on footwear.

Finance minister Nirmala Sitharaman said “from December onwards... representations started coming and on December 29, letter also came from the Gujarat FM and therefore the emergency meeting (was called). The decision of the emergency Council meeting is that we retain the status quo and not go to 12 per cent, from 5 per cent, meaning don’t do the correction now in case of textiles.”

The GST Council decided the rate rationalisation committee would and submit their report on the textiles duty review by February.

M.S. Mani, partner, Deloitte India said “while the rollback of the GST rate hike proposed on many textile products would benefit the sector, especially SMEs and MSMEs who operate in this employment intensive sector, it would be necessary to find out a solution in the future to the problems of inverted duty structure in the textile sector.”

Ritesh Kanodia, partner, Dhruva Advisors, said “ what the industry had asked was to reduce rates on raw materials to resolve the inverted duty issue, rather a rate increase was made. The move puts back the industry in an inverted duty structure regime requiring them to claim refund of input taxes. However it is still beneficial when compared to the rate increase which would have had a direct impact on the prices”.

Footwear hike stays

The GST Council did not agree to defer the hike in footwear duty to 12 per cent. The finance minister did not give any reason why the decision was not deferred for footwear