In a new notification, 5% GST has been imposed on cotton under the reverse charge mechanism (RCM). The tax will be paid by the recipient of cotton supply the ginners and cotton traders. Earlier, the government had postponed the implementation of the RCM till March 31, 2018.
A latest notification related to the goods and services tax (GST) by the revenue department, ministry of finance, has disturbed the cotton ginning industry. In the notification, 5% GST has been imposed by the government under the reverse charge mechanism (RCM). Earlier, the government had postponed the implementation of the RCM till March 31, 2018. The notification says that the GST on supply of raw cotton by agriculturist will be liable to be paid by the recipient of such supply under the RCM, thereby affecting the ginners and cotton traders. After the notification, ginners and cotton traders had decided to go on nation-wide strike on Wednesday, though, after a meeting with the commercial tax commissioner of Gujarat, the industry postponed it as the meeting was positive. “GST Council can address this issue and, we are told, the next GST Council meeting will meet in January.
We can not wait that long, so the commissioner has asked for some time to work out an interim solution,” said Bharat Wala, president of the Saurashtra Ginners’ Association. Gujarat is the largest cotton producer in the country with having about 30-35% share in production. Out of over 4,300 ginning units in the country about 1,300 are located in Gujarat mainly in Saurashtra and northern part of the state. Cotton Association of India (CAI) estimated 10 million bales (a bale of 170 kg) cotton production in Gujarat for the year 2017-18.
If the issue continue, the ginners have expressed their readiness to go on an indefinite strike, a decision on which will be taken after November 20. Wala said, “As of now we have postponed the decision of strike. However, we are ready to go on strike after November 20 if the government will not resolve this issue.” Cotton, under the heading 5201 and 5203, was placed under 5% rate. But since the farmers are not liable to pay the tax and hence not registered under GST, the buyers of raw cotton – the registered persons – will be required to pay the tax on reverse charge basis.
According to the cotton ginners, this decision will block working capital and this will directly impact on cotton, cotton seed and cotton oil prices too. Ginners also said that if government will not change the rule, ginning industry may loose buying power. “This decision of the government will block our money in tax. The blockage of funds will reduce our working capital and prompt us to reduce the purchases. How can we buy cotton from farmers when we will have no money with us?” said Arvind Raichura, director of Padadhari village of Rajkot-based Balkrishna Ginning and Pressing Factory.