The Goods and Service Tax Council, in its 46th meeting in Delhi, has decided to defer the hike in GST rate for textiles to 12 percent from 5 percent. The matter was referred to an existing Group of Ministers on GST rate rationalisation, said Finance Minister Nirmala Sitharaman on Friday.

       “It was a brief meeting, triggered by a letter sent to me by Finance Minister of Gujarat. We will retain the status quo and not go to 12 percent from 5 percent, in the case of textile,” Sitharaman said at a media briefing after the Council meeting.

       At the 45th its meeting in Lucknow on September 17, the Council had decided to rectify inverted duty structure for footwear and textiles. Subsequently the rate for footwear and textiles for any value was raised to 12 percent, effective from January 1, 2022. Earlier the GST rate was five per cent for sale value up to Rs 1,000 per piece in the case of apparels and per pair in the case of footwear.

       While experts hailed the move, a section of the clothing industry decried it saying that only a small group of the sector had inverted duty structure. Many trader organizations have also been demanding a rollback of the rate hikes.

       At a pre-budget meeting between centre and states on Thursday, Tamil Nadu Finance Minister P Thiagarajan and Rajasthan Technical Education Minister Subhash Garg, had asked that the rate hike be delayed.

       Former West Bengal Finance Minister Amit Mitra and Telangana Industries Minister KT Rama Rao had earlier urged the centre to roll back the proposed GST rate hikes in textiles. “Modi Govt will commit another blunder on Jan 1st. By raising GST on textiles (from) 5 percent to 12 percent, 15 million jobs will be lost and 1 lakh units will close,” Mitra had tweeted.

       The problem of inverted duty structure arises when the finished product is at a lower tax bracket compared to the input raw materials. However, this usually leads to the rise in rates of the finished products. There has not been as much opposition to the rate hike in footwear, compared to textiles, and that hike will come into effect from January 1.

       At the Lucknow meeting, the Council had set up two GoMs. One group was tasked with suggestions on rationalizing rates and correction of inverted duty structure and is led by Karnataka Chief Minister Basavaraj Bommai. The tenure of this group has been extended and it will submit its report on rate hike on textiles by February 2022, Sitharaman said

       The other group has been tasked with recommending ways to review IT systems, potential sources of evasion, and data analyses in order to expand the tax base and and maximise returns. This GoM is headed by Maharashtra Deputy Chief Minister Ajit Pawar.