Recently, lot of amendments have been made in the GST rate of textile and footwear products vide NOTIFICATION NO. 15/2021-CENTRAL TAX (RATE) DATED 18.11.2021 which are to be effective w.e.f. 01.01.2022. In the said notification, amendment has also been made with respect to job work of textile products. The Entry no. 26(i)(b) providing GST rate of 5% for job work in relation to textile products is amended to read as follows:-
Services by way of job work in relation to textiles and textile products falling under chapters 50 to 63 in the First Schedule to the Customs Tariff Act, 1975 except services by way of dyeing or printing of the said textile and textile products. This has the effect that the job work services of dyeing or printing of textile and textile products will not be liable to 5% GST w.e.f. 01.01.2021. The taxability of such job work will be governed by the normal provisions, i.e., if job work is being done for registered principal under entry 2(id) then the GST rate will be 12% whereas if the job work is being by undertaken for un-registered principal under 2(iv), GST rate will be 18%.
However, one issue that crops up is the taxability of ancillary job work processes of the textile industry except dyeing and printing processes. It is pertinent to mention that the job work of textile industry comprises of various ancillary processes such as bleaching, washing, drying, felt-finishing, stentering etc. We further submit that the textile industry is popular in Surat and Pali region. While the textile industry at Surat region follows the practise of getting the process of dyeing and printing along with ancillary processes such as bleaching, washing, drying, felt-finishing, stentering etc. from single job-worker, the transaction takes the colour of composite supply wherein the ancillary processes get naturally bundled with the principal service of dyeing and printing. Resultantly, even though the ancillary processes attract 5% GST rate, they are liable to a consolidated GST rate of 12%/18% depending upon the fact whether the principal is registered or not.
However, if we observe the working of textile industry in the region of Pali, it is found that there are very small units established for undertaking a particular process. To illustrate, there is different unit for undertaking bleaching process, different unit for dyeing, different unit for printing process, different unit for undertaking washing, different unit for undertaking felt-finishing process and different unit for the stentering process. In such case, after implementation of the amendment, the ancillary processes if undertaken from different job workers would attract 5% GST rate while the standalone processes of dyeing and printing would attract 12% GST rate. This will lead to disparity between the principals availing the services of job work of dyeing and printing along with ancillary processes against the principals availing the services independently from different buyers.
The above anomaly can be explained with the help of example as follows:-
Situation no. 1:- When the registered principal is getting job work of dyeing and printing done by a single job worker for Rs. 200/- per than. In such a case, the GST on the entire job work process would be leviable at the rate of 12% which comes to Rs. 24/-.
Situation no. 2:- Where the registered principal is getting the job work of various processes being done by independent job workers at the following rates:-
Bleaching: 5%
Washing: 5%
Dyeing: 12%
Printing: 12%
Stentering: 5%
Felt Finishing: 5%
It is submitted that on comparing the results of the above two situations, it is clear that the amendment bifurcating the job work process of dyeing and printing from the rest of the ancillary products leads to ambiguity as regards the burden of GST to be borne by the registered principal when the ancillary processes of job work are being undertaken by separate job workers on individual basis. The difference in the GST imposable is Rs. 7.7 per than which is substantial enough to follow the practice of getting the job work of ancillary processes being done separately by individual job workers.
It is submitted that the government should try to maintain equality and consistency in the provisions designed as pointed out in the above case so that the assessees have clarity in following the appropriate course of action as regards tax compliance.
Disclaimer: This is solely for educational purpose.