GST Council may correct rate anomaly on March 14

Mobile phones, textiles and a few other goods may become costlier if the GST Council chooses to correct certain duty structures on them due to which finished products attract lower duty than the raw material.

This imbalance in taxes, which is called inverted duty structure, has been resulting into a loss of close to Rs 25,000 crore per annum to the government as it has to refund the tax already paid.

Under the GST regime, a registered taxpayer can claim a refund on account of the rate of tax on inputs being higher than that on output supplies.

But when the raw material used attracts higher duty and the finished goods have a low duty, the finished goods producer gets a refund of the tax paid in the inputs he used.

This refund is often delayed as it is to be verified. Such a situation often led to a confrontation between the taxpayers and tax authorities, an official said.

The bulk of the refund demand due to inverted duty structure comes from the lower tax slabs of 5% or 12%.

The duty adjustment could be done by hiking the tax rate on finished products as also lowering the rate of the input tax credit.

At present mobile phones attract a 12% duty under the GST but its components attract 18%. Similarly, finished textiles have a 5% duty but the raw materials are taxed at 12%.

The industry associations have been raising the issue of this rate anomaly for some time. More than a dozen goods including mobile phones, footwear, fabrics, man-made yarn, ready-made garments fertilisers, tractors and pharma equipment attract lower duty on finished products but higher on the raw material.

The government was all set to take the decision in the GST Council meeting on March 14 but the only hitch is the prevalence of coronavirus issues that have already jacked up the cost of raw material and the finished products as well, the official said.