In recent months, the Central Goods and Services Tax (CGST) officials have scrutinized more than 2 dozen textile manufacturing companies in the nation concerning misclassifying textile processing activities and subsequently paying lesser tax.
As per the officials, the CGST department has noted that various textile manufacturers are recording activities that involve ‘changing the nature of cloth’ as ‘washing and dyeing’, and thus are filing a lower tax rate for those incomes.
Under the GST statute, washing and dyeing are regarded as ‘Job Work Services‘ in the textile industry and draw a 5% GST during the process that transforms the fabric, such as bleaching, printing, or other treatments that alter its essential characteristics, draw a GST rate of 18%.
As per the officials, “Textile manufacturers are knowingly misclassifying the services…and paying 5% tax, where they should pay 18%. CGST officials are investigating units of all kinds of firms (corporates, small & medium companies) across India.” The authorities feel the lack of tax payment is to the tune of hundreds of crores, which causes an influential loss of government revenue.
Read Also:- CBIC Seeks CGST Zone Proposals for Tax Reorganization by Mar 31, 2025
As per the tax experts, the GST misclassification in the textile industry emerges from the peculiarity in the tax slabs. Particular manufacturers have allegedly misclassified transformative procedures under the 5% category. The problem arises from various GST rates, unclear definitions, and potential misuse.
The tax expert mentioned that the same appears to be a clear matter of misinterpretation with the stance of the department opposing the intent of GST legislation. Concerning the same, a definitive solution is important to furnish much-needed clarity to the industry.
Since the start of GST in 2017, the textile industry of India has seen profound transformations with the job work services being integral to this transformation. A contention point has been the GST categorization of textile processing activities such as dyeing and printing.
It was claimed by the tax authorities that such procedures, which modify the fabrics’ essential characteristics, must be levied to tax at 18%, instead of the current 5% to safeguard government revenues. Developing on the same at the time of the 45th GST Council, a proposal to surge the rate of dyeing and printing services to 12% was deliberated. However, it was dismissed.
Source: Financial Express
