Circular No. Circular No. 205/17-HGST/2023/GST-II - Dated: 9-11-2023 - Clarification regarding GST rate on imitation zari thread or yarn based on the recommendation of the GST Council in its 52nd meeting held on 7th October, 2023

The recent circular issued by the Haryana State Government, dated November 9, 2023, addresses a crucial matter in the textile industry: the Goods and Services Tax (GST) rate applicable to imitation zari thread or yarn. This circular, originating from the Haryana Excise and Taxation Department under Circular No. 205/17-HGST/2023/GST-II, is a response to the recommendations of the GST Council in its 52nd meeting held on October 7, 2023​​.

The GST Council, in its 50th meeting, had recommended reducing the GST rate on imitation zari thread or yarn, irrespective of its trade name, to 5%. This reduction was formalized with the insertion of Sl. No. 218AA in Schedule I of Notification No. 35/ST-2, dated June 30, 2017​​. However, ambiguities persisted in the industry regarding whether certain types of metallised yarn fell under this reduced rate.

Key Issue: GST Rate Classification for Metallised Yarn

The primary issue revolved around the classification of metal-coated plastic film converted into metallised yarn, often combined with nylon, cotton, polyester, or other yarns to create imitation zari thread. The question was whether such metallised yarn should be categorized under Sl. No. 218AA of Schedule I, which attracts a 5% GST rate, or under Sl. No. 137 of Schedule II, which would mean a higher GST rate of 12%​​.

Clarification and Implications

The GST Council's clarification states that imitation zari thread or yarn made from metallised polyester film or plastic film, which falls under HS 5605, is covered by Sl. No. 218AA of Schedule I. Therefore, such products are subject to a 5% GST rate. Additionally, it was clarified that no refund would be permitted on polyester film (metallised) or plastic film due to the inversion of the tax rate. This decision was implemented through Notification No. 62/GST-2, dated October 20, 2023, amending the earlier Notification No. 39/ST-2 dated June 30, 2017​​.

The GST Council's decision to classify certain metallised yarns under a lower GST bracket significantly impacts the textile industry, particularly in the manufacturing and trade of imitation zari products. The reduced tax rate is expected to make these products more cost-effective, potentially boosting their demand and production. However, the exclusion of refunds on polyester or plastic films due to tax inversion could offset some financial benefits for manufacturers using these materials.

Conclusion

This circular is a significant step in clarifying the GST rates applicable to imitation zari thread or yarn, bringing much-needed relief and clarity to manufacturers and traders in the textile industry. The decision not only helps in standardizing the tax structure but also supports the industry by potentially reducing costs and fostering growth in the sector. This development reflects the dynamic nature of tax regulations and the ongoing efforts to align them with industry needs and market realities.

Full Text:

Circular No. Circular No. 205/17-HGST/2023/GST-II - Dated: 9-11-2023 - Clarification regarding GST rate on imitation zari thread or yarn based on the recommendation of the GST Council in its 52nd meeting held on 7th October, 2023