Over Two Dozen Textile Firms Face CGST Investigation For Tax Misclassification

(MENAFN- KNN India) New Delhi, Mar 17 (KNN) Central Goods and Services Tax (CGST) officials have launched investigations into more than two dozen textile manufacturing companies across India in recent months for allegedly misclassifying textile processing activities, resulting in lower tax payments.

According to official sources, the CGST department has observed that several textile manufacturers are recording activities that involve 'changing the nature of cloth' as 'washing and dyeing,' thereby paying a lower tax rate on those incomes, reported FT.

Under GST laws, washing and dyeing are classified as 'job work services' in the textile industry and attract a GST rate of 5 per cent.

However, processes that significantly transform the fabric, such as bleaching, printing, or other treatments that alter its essential characteristics, are subject to a higher GST rate of 18 per cent.

"Textile manufacturers are knowingly misclassifying the services and paying 5 per cent tax, where they should pay 18 per cent. CGST officials are investigating units of all kinds of firms (corporates, small & medium companies) across India," said an official.

Authorities believe the shortfall in tax payment amounts to hundreds of crores, causing a substantial loss of revenue to the government.

Since the inception of GST in 2017, India's textile industry has experienced profound shifts, with job work services becoming integral to this transformation. Experts note that a major point of contention has been the GST classification of textile processing activities like dyeing and printing.

Initially, tax authorities argued that these processes, which substantially alter fabrics' essential characteristics, should be taxed at 18 per cent instead of the current 5 per cent to safeguard government revenues.

Building on this, during the 45th GST Council meeting, a proposal to increase the rate of dyeing and printing services to 12 per cent was discussed but ultimately dismissed.

(KNN Bureau)

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