Central Goods and Services Tax (CGST) officials have
launched investigations into more than two dozen
textile manufacturing companies across India in recent
months for allegedly misclassifying textile processing activities, resulting in lower tax payments.
According to official sources, the CGST department has
observed that several textile manufacturers are recording
activities that involve ‘changing the nature of cloth’ as
‘washing and dyeing,’ thereby paying a lower tax rate on
those incomes, reported FT.
Under GST laws, washing and dyeing are classified as ‘job
work services’ in the textile industry and attract a GST rate
of 5 per cent.
However, processes that significantly transform the
fabric, such as bleaching, printing, or other treatments
that alter its essential characteristics, are subject to a
higher GST rate of 18 per cent.
“Textile manufacturers are knowingly misclassifying the
services and paying 5 per cent tax, where they should pay
18 per cent. CGST officials are investigating units of all
kinds of firms (corporates, small & medium companies)
across India,” said an official. Authorities believe the
shortfall in tax payment.