The textiles industry has complained that the absence of refund on input tax credit on the domestic sale of synthetic fabrics has blocked its working capital, while an inverted duty structure makes the rate on inputs higher than that on the output. “At present, synthetic fibre is taxed at 18 per cent, yarn at 12 per cent and final output at 5 per cent, creating a tax structure where rate on inputs is higher than that on output. This inverted structure has made it easier to import synthetic textiles, (rather) than manufacture them domestically,” said Sanjay Jain, Chairman, Confederation of Indian Textile Industry (CITI).“Refund of inverted duty is allowed, but it is complicated and leads to working capital blockage for months. Goods and services tax (GST) on capital goods is not refunded,” Jain added.

Export of manmade yarn, fabrics and made-ups dropped 3 per cent on-year in November, to $371mn. As per industry estimates, the inverted duty structure made imports 15-20 per cent cheaper for the domestic industry. Sales of manmade textiles such as polyester and viscose,” said another industry representative, requesting anonymity.

Another grouse of the industry is that rules do not allow refund or adjustment of goods and services tax on services from output GST obligations, which has led to losses for small and medium enterprises using job working services and having an inverted duty structure. “It is incorrectly framed and the refund rule needs to be rectified,” said Jain of CITI. To resolve the issue, the industry has sought refund for unused input tax credit that lapsed on July 31 last year and extension of the refund to those selling in the domestic market.