Under the chairmanship of the Union Finance & Corporate Affairs Minister Smt. Nirmala Sitharaman, the GST Council held its 45th meeting on 17th Sep in Lucknow wherein correction in Inverted Duty structure in Footwear and Textiles sector was discussed. Post meeting Press release confirmed that the New Rules will be applicable from 1st January, 2022. According to sources, the council could not correct it in the past, particularly during last year due to the pandemic, because it would have had an adverse impact on either GST revenue collections or consumer prices of the finished products. Some other industries facing the brunt of the inverted duty structure are the fertilizer, pharmaceutical and textile apart from footwear industry.
An ‘Inverted duty structure’ means a higher duty on inputs and a lower duty on finished products. According to sources, the lower duty on finished products creates an inversion and the consequences are – a higher refund to industry which affects the cash flows for companies and revenue collections for the government. For example, The footwear sector uses a variety of components with different rates. The raw materials used in the footwear industry are taxed at 12% or 18%. The final product is taxed at 5% in cases where the price of footwear is up to Rs.1,000. This leads to unrecovered credits for the manufacturer. The consumers do not gain anything rather this may result in a higher price for consumers.