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One Year Of GST: Impact On Foundry Sector
There is no provision for a refund in case excess GST has been paid due to error, there should be a provision for the same
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The GST has completed one year since its implementation. The objective of one Nation one tax, common market, transparency, reduction in human interface, widening of the tax base & ease of compliance has been fulfilled to an extent.
This is historical financial reform of unprecedented magnitude. Though in a disruption of this scale, it is not possible to expect perfection from day one especially due to large numbers of businesses ranging from very tiny to operations on large scale & with a large number of micro & small businesses operating in an unorganized sector. Yet by each passing day, the Govt has tried to clear many grey areas progressively. However, a lot needs to be done.
IIF had created awareness programmes on GST for its members in various foundry clusters & the foundry industry was largely prepared for the change & has aligned itself to the GST regime fairly quickly. The impact on Foundry Sector has been largely positive & the sector is estimated to grow by overall 7-8% in 2017-18 as compared to 2016-17.
However, the goal of reduction in the human interface has not been achieved in substantial measure in spite of online systems due to increased inspections/physical verifications due to lack of clarities in various areas causing hardships to the businesses.
Although a lot of taxes have been subsumed in GST, there is still a large number of tax slabs existing in GST regime which needs to be reduced to 2/3 slabs only. There are several inputs used in manufacturing which are taxed @ 28%.
The recently introduced e way bills are also causing hardships to small businesses ( Foundries are largely in small category ) due to increased physical verifications. The upper cap of Rs 50,000/- fore waybill is too small & needs to be reviewed to Rs 2 Lakhs as many small businesses are not geared up. The definition of small business is changing.
There is no provision for a refund in case excess GST has been paid due to error. Some provision must be made to make corrections in case of such errors. The dealer also gets penalized in case GST collected by his vendor is not paid by the vendor thereby denying Input tax credit to the dealer in such cases. This needs to be revisited & the person responsible for default must only bear the cost of non-compliance.
The provision for composition is available to small manufacturers & traders only. It should also be available to services and the limit of Rs 1 crore is too small in present context, which must be revised upwards to Rs 5 crore.
To facilitate ease of doing business & to ensure compliance with ease, returns may be allowed to be filed quarterly instead of monthly.
One of the other major issues facing the foundry sector is the issue of accumulation of unutilized input tax credit due to inverted duty structure. In several cases, the GST on inputs is high & GST on the final product is substantially lower. As a result, the manufacturers are not able to obtain complete input tax credit on the taxes paid by them. This increases the cost of manufacturing & affects cost competitiveness .e.g in case of the foundry units supplying Railway parts to Railways, the GST on inputs varies between 18-28% whereas the final product for supply to Railways attracts only 5% GST. As a result, the units are not able to get full credit of ITC increasing their cost by 12-14 %. Therefore a provision needs to be made to allow ITC in such cases or the GST on the final product in such case should be increased to higher slabs with provision for adjustment of ITC. IIF has represented to Govt to consider & requested for redressal at the earliest for supporting domestic manufacturing.
In some cases where the dies/moulds/patterns are made on behalf of importer by foundries, and retained for manufacturing final components for exports, the SGST & CGST is leviable ( without ITC ) as this is treated as intrastate supply & adds to the cost of exporters . This makes the exports of castings globally incompetitive .IIF has represented to Govt that it should be treated as deemed export if the payment of die/pattern/mould is received in convertible foreign currency.
Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.