The Goods and Services Tax (GST) Council has decided to correct the inverted duty structure in the apparel industry from next year.It was decided during the 45th meeting of the Council, chaired by the Union Finance Minister Nirmala Sitharaman.

Inputs into the MMF fabric segment (fibre and yarn) attract a GST rate of 18 per cent and 12 per cent whereas the GST rate on the MMF fabric is 5 per cent and that for the finished goods apparel is 5 per cent and 12 per cent.

It creates a tax structure where the rate on inputs is higher than that on the outputs. This increases the effective rate of taxation of MMF fabrics and garments and violates the principle of fibre neutrality.

The inverted duty structure has been an issue with the apparel industry and that the Council had made recommendations to the Government for the elimination of this anomaly that has been resulting in input tax credit accumulation blocking crucial working capital for businesses.

Apparel industry has welcomed the decision as it will be a big breather to the industry as it will lessen the tax burden on manmade fibre (MMF) fabrics and apparels.

Sakthivel, Chairman, Apparel Export Promotion Council (AEPC) has welcomed the Government’s decision and said that AEPC is thankful to the Government for granting its request and agreeing to correct the inverted duty structure from 1 January 2022.

He also welcomed the GST Council’s decision to extend the validity of GST exemption on transport of goods by vessel and air from India to outside India till 30 September 2022. It will partially help soften the impact of the current exorbitant freight costs.