The government is preparing to provide a major relief to the textile and footwear industries with the rollout of an automatic GST refund system from October 1, ET NOW reported citing sources.
Provisional GST refund system
The Central Board of Indirect Taxes and Customs (CBIC) may introduce a provisional or automatic refund system early to support the industry. The system is expected to be operational from October 1. Under this arrangement, businesses could receive up to 90% of their GST refund on a provisional basis, based on data evaluation and risk analysis. This move aims to speed up the refund process and reduce working capital constraints for manufacturers.
Biggest beneficiaries: Textile and footwear sectors
The textile and footwear industries are expected to be the largest beneficiaries of the new refund mechanism. These sectors have been significantly affected by the inversion of GST rates, where taxes on raw materials are higher than those on finished goods, leading to blocked working capital for manufacturers.
Inversion problem explained
Currently, GST on man-made fibres (MMF) raw material is 18%, whereas finished goods attract a GST rate of only 5%. This mismatch has created an inversion problem, preventing manufacturers from efficiently utilizing their input tax credits. The new system is expected to release stuck capital by issuing refunds immediately, based on automated data evaluation and risk analysis.
Decision at GST Council
The decision to implement the automatic refund system was finalized during the last GST Council meeting. The measure is intended to support businesses in the textile and footwear sectors and address the liquidity issues caused by the current GST structure.
Expected impact
With the rollout of the provisional refund system starting October 1, manufacturers in these sectors are likely to receive faster refunds, easing working capital pressures and enabling smoother operations. Industry experts expect this move to provide timely financial relief and improve cash flow for companies heavily impacted by GST inversion.
Source #ET
