Kolkata, Sep 22 (PTI) Exercise and notebook manufacturers have urged the Centre to revisit the new GST rates, arguing that the inverted duty structure after the rationalisation would lead to escalation of production costs and inability to pass on benefits to consumers.

The GST Council, comprising the Centre and states, had decided to reduce tax rates on goods and services from September 22.

The Exercise Book Manufacturers Association said "the Council has recommended 'nil' rate for exercise books, graph books and notebooks as well as paper used to make them".

"While the noble intent of the government is to reduce the burden of taxation on notebooks and make them affordable to students, what happened in reality is that this has made notebooks ineligible for claiming input tax credit. In effect, production costs will increase and nullify the intended benefit from GST rate rationalisation," it said in a statement.

The Karnataka Paper and Stationery Traders Association said manufacturers cannot offset input taxes paid when the product has a zero tax rate.

It said that as the paper for use in notebooks is 'nil' rated, the taxes incurred on inputs and capital goods would become ineligible for claiming input tax refund.

The associations have suggested that all paper products, including notebooks, should either be subject to 5 per cent GST or an alternative mechanism be provided for claiming full refund of input taxes.

According to them, the GST rate reduction on notebooks and paper for notebooks to 'nil' would not make those cheaper in the hands of consumers.

The market size of notebooks and exercise books in the country stands at around Rs 10,000 crore.

The GST for notebooks and exercise books was 12 per cent before the reforms.

The rate structure post the rationalisation makes the notebooks industry as the only one whose primary raw material in the value chain are taxed at 18 per cent, and the end product exempt from tax, resulting in an inverted duty structure with no scope for claiming any refund, they said.

The GST rate on wood has remained at 18 per cent and that on pulp reduced from 12 per cent to 5 per cent, the associations said.

The industry is of the view that since pulp can be imported at 'nil' basic customs duty, it would become cheaper as against domestic-manufactured pulp, and adversely affect Indian players. PTI DC RBT

Inverted duty structure blocks input tax credit for notebooks, prompting calls for GST rate revision or an input tax refund mechanism. An inverted duty structure results from notebooks and their paper being nil-rated while upstream inputs and capital goods remain taxed, preventing manufacturers from claiming input tax credit or refunds. Industry associations argue this will raise production costs and negate consumer benefits from rate rationalisation, create competitive distortions due to differing input rates and import advantages, and request either a uniform low GST rate on paper products or an alternative refund/credit mechanism to restore input tax recoverability.