GOODS AND SERVICES TAX REPORT

Impact of GST on Indian Textile Industry

Submitted in partial fulfilment in the award of the degree

MASTERS IN BUSINESS ADMINISTRATION

Submitted to

Dr. Bharat Supra

Submitted by

Priyanka Mazumdar -20BSPHH01C0922

Sumedha Agrawal-20BSPHH01C01311
Roli Srivastava-20BSPHH01C01022
Shailendra Mohan-20BSPHH01C01131
Etika Pandey-20BSPHH01C0415
Abhinay Adimulam-20BSPHH01C1609
Kashish Arora-20BSPHH01C0559

IBS HYDERABAD, SHANKARAPALLI ROAD, HYDERABAD, TELENGANA

Acknowledgement
We accept this open door to thank everyone who helped us in finishing our venture
report on schedule. We would specially thank our faculty and guide Dr Bharat Supra
for supporting us all through the undertaking report. We will consistently be thankful
for all the direction, helpful analysis, well-disposed counsel, and enlightening
perspectives shared through the excursion of the venture report. The various websites
and secondary resources from which information was acquired have proved to be
helpful and valuable sources of information for our project. Lastly, we would like to
thank our friends and family for their support and encouragement, for without them,
our project would not have been successful.

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Contents

Abstract..........................................................................................................................................4
Introduction of Indian Textile Industry..........................................................................................5
Literature Review regarding impact of GST on Indian textile industry........................................8
Tax regimes in Indian Textile Industry before GST....................................................................10
Implementation of GST in Indian Textile Industry.....................................................................12
Impact of GST on Indian Textile Industry...................................................................................17
Company Analysis : Financial implications of GST on Arvind ltd.............................................20
Conclusion...................................................................................................................................22
References....................................................................................................................................23

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Abstract
Indian Textile industry plays a major role in Indian economy contributing 7% of the industry
output (in value terms) in FY19 and 2% to the GDP of India , also employed nearly over 45
million people in FY19. The sector handed out 15% to India’s export revenues in FY19. Prior
GST , indirect taxes prevalent in the sector were central excise duty, service tax , state sales
tax , entry tax and octroi. The GST (Goods and Service Tax) was introduced by the government
of India in 2017 to streamline the flow of goods and services. After the introduction of GST the
textile industry was most affected industry because before GST it was the industry which was
mostly dependent on tax exemptions and the subsidies and GST removed both of them.
Domestic market took its time adjusting to the new tax regime , but GST implementation
promised to serve many long term benefits like movement of textile industry to an organized
sector , reduction in cost of production, increase in compliance, increase in exports , promoting
foreign investments etc. In the subsequent part of the report there is comparative analysis of
Indian textile industry in the pre and post GST era , followed by company analysis and study of
financial implications of GST over one of the largest Indian textile companies- Arvind ltd.

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Introduction of Indian Textile Industry
The Indian textile industry is one of the largest in the world with a huge raw material and
textiles manufacturing base. Our economy is largely reliant on the textile manufacturing and
trade in addition to other major industries. Nearly 27% of the foreign exchange revenues are on
account of export of textiles and clothing alone. The textiles and clothing sector hands out about
14% to the industrial production and 3% to the gross domestic product of the country. Around
8% of the total excise revenue collection is absorbed from the textile industry. It also accounts
for 21% of the total employment generated in the economy. Around 35 million people are
employed in the textile manufacturing activities directly while the Indirect employment
including the manpower engaged in agricultural based raw-material production like cotton and
related trade and handling could be stated to be around another 60 million.

The industry is extremely diversed, with hand-spun and hand-woven textiles sectors at one end
of the gamut, while the capital-intensive sophisticated mills sector on the other end. The
scattered power looms/ hosiery and knitting sector forms the largest component in the textiles
sector. The adjacent linkage of textiles industry to agriculture (for raw materials such as cotton)
and the ancient culture and traditions of the country in terms of textiles makes it unique in
comparison to other sectors in the country. India’s textiles industry has a scope to manufacture
wide variety of products that suit different market segments, both within India and across the
globe.

Market Size

India’s textiles industry contributed 7% of the industry output (in value terms) in FY19. It
contributed 2% to the GDP of India and employed nearly over 45 million people in FY19. The
sector handed out 15% to India’s export revenues in FY19.

The domestic textiles and apparel market stood at an estimated US$ 100 billion in FY19.

The production of raw cotton in India is estimated to have touched 36.04 million bales in
FY20^. In FY19, production of fibre in the country stood at 1.44 million tonnes (MT) and
reached 1.60 MT in FY20 (till January 2020), while that for yarn, the production was estimated
at 4,762 million kgs during the same year.

The textile and apparel industry is one of the oldest industries to have developed in India. Its
inherent and distinctive strength is its incomparable employment potential owing to the
presence of the entire value chain from fibre to apparel producing within the country.

India is the second-largest manufacturer of textiles and apparels across the globe. India is also
the second-largest exporter of textiles and apparel and shares around 5% of global trade.
Exports of textile and other products, like handicrafts, from India have slightly risen to US$
40.4 billion during the year 2018–19 from US$ 39.2 billion during 2017–18, registering a
growth of 3%. However, India’s global share is way behind that of other countries like China,
which has approximately 38% of the global textile and clothing trade. The share of textile and
clothing in India’s total exports stood at 12% in 2018–19. With 48% total textile and apparel
export, EU-28 and the United States are India’s major textile and apparel export landing place.

Overview of Textile Value Chain

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While India has an edge of the entire value chain in the industry, currently the value chain is not
very competitive.India has a very strong raw material base both in natural and man-made fibres
(MMFs). India has evolved as the largest producer of cotton in the world with a production of
370 lakh bales in 2017–18 and the second-largest exporter of cotton. However, high
contamination level and poor quality of fibre, both in fineness and length, are major concerns
that need focused attention.

India has a large presence in global exports of cotton yarn. Vietnam has expanded its global
export share of 5% in 2012 to 15% in 2016 with regards to cotton yarn. China and Bangladesh
are the two major importers of cotton yarn from India, who in turn create value addition to the
yarn and then exports the same at a lower cost compared to India. India needs to upgrade its
position from a supplier of cotton yarn to a producer of value-added fabrics and garments. As
the world export value of cotton yarn has decreased over the years, it indicates that the cotton
textile trade is shifting towards different types of man-made fibres.

While India leads in cotton yarn exports, it has been a very marginal player when it comes to
cotton fabric in world exports. China has a substantial share of 51% in cotton fabrics when
compared to India’s 5%–6%; the situation is almost the same in case of MMF fabrics. This
comparison suggests that India is not able to scale up its value chain materially enough to meet
the global demand despite being the largest producer and exporter of cotton yarn.

Indian textile industry structure and growth

In comparison to other major textile-producing nations, mostly small-scale, nonintegrated

spinning, weaving, and apparel enterprises, many of which use obsolete technology,
characterize India’s textile industry. Some, mostly larger, firms operate in the “organized”
sector where firms must comply with numerous government labor and tax regulations. Most
firms, however, operate in the small-scale “unorganized” sector where regulations are less strict
and more easily evaded.

The distinctive structure of the Indian textile industry is due to the legacy of tax, labor, and
other regulatory framework that have benefitted small-scale, labor-intensive enterprises, while
discriminating against larger scale, more capital-intensive operations. The structure is also due
to the historical orientation towards meeting the needs of India’s predominately low-income
domestic consumers, rather than the world market. Policy reforms, which began in the 1980s
and continued into the 1990s, have led to remarkable gains in technical efficiency and
international competitiveness, specifically in the spinning sector. However, wide scope remains
for additional reforms that could enhance the efficiency and competitiveness of India’s
weaving, fabric finishing, and apparel sectors.

Growth of Textile Industry

India has already accomplishes over 50 years of its independence. The analysis of the growth
pattern of various segments of the industry during the last five decades of post Independence
era reveals that the growth of the industry during the first two decades after the independence
had been gradual, though lower growth had been considerably slower during the third decade.
Thereafter, the growth rate picked up significantly during the fourth decade in each and every
segment of the industry. The zenith level of its growth has however been reached during the
fifth decade i.e., the last ten years and specifically in the 90s. The Textile Policy of 1985 and
Economic Policy of 1991 focusing in the direction of liberalisation of economy and trade had in
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fact hasten the growth in 1990s. The spinning lead the growth during this period and man-made
fibre industry in the organised sector and distributed weaving sector.

Textile industry plays an important role in the economy. The Indian textile industry is one of
the largest and most important sectors in the economy in terms of output, foreign exchange
revenues and employment generation in India. It contributes 20 per cent of industrial
production, 9 per cent of excise collections, 18 per cent of employment in industrial sector,
nearly 20 per cent to the country’s total export earnings and 4 per cent ton the GDP.

Indian textile industry – swot analysis

STRENGHTS: WEAKNESSES:
 Rich resources of Raw Material  Dominated by small scale
 Trained Manpower enterprises
 Highly Competitive in spinning  Low focus on research and
sector Innovation
 Low manufacturing costs.  Low Productivity
 Obsolete technology

OPPORTUNITIES: THREATS:
 New product developments.  Competition in terms of exports as
 Low per-capita domestic well as within the country.
consumption  Increased pressure by standards
 Increased use of CAD such as WARP and SA-8000.
 Responsive garment Industry due  Alternative competitive
to fashion fads. advantages.

7
Literature Review regarding impact of GST on Indian textile
industry
Research paper by Vandana Tripathi Nautiyal(MIT Institite of Design)- GST is a
comprehensive indirect tax on the manufacture, sale, and consumption of goods and services.
As a substantial segment of the Indian textile Industry operates under an organized sector which
creates a gap in the input tax credit system and if a registered taxpayer buys some inputs from
the unorganized sector they can avail of an input tax credit facility. GST on textile will bring a
significant change in the input tax credit system and it will create a balance between the
organized and unorganized sector of the industry. Impose of GST improve compliance as it had
made the value chain traceable, which will back the industry by a full information chain of
purchases and sales.

Earlier Indian textile manufacturers need to pay heavy excise duty while importing capital
goods, this excise duty is costly as the nput tax credit facility was not under the pre laws but
with the implementation of GST excise duty had the input tax credit facility and it decreased the
total import cost of capital goods. GST restructured the input tax credit planning process that
helped the industry in being aggressive in the e xport market. The input tax credit is a
significant step for the promotion of the export of textile pproducts Cotton yarns and fabrics
came under 5% GST tax slab which hhelp farmers in motivating themselves and make them
grow ample amount of cotton, which will be more as compared to earlier. Also, the farmers will
get the fare amount, GST on textile create or ddevelopthe whole value chain. GST on
readymade garments made difference in consumption. Earlier tax slab was 4-5% but this time
tax slab has been 12% under GST, so due to higher tax slab the price will increase and it affects
the consumption of the consumer. GST output will be taxed and the input tax credit will be
rebate whether in the case of export or for domestic use making the taxation transparent. GST
will remove the fiscal barriers for the interstate movement and all the logistic cost, stocking cost
and carrying cost.

GST brings a lot of changes in textile business of India with overall positive impact on this
sector. GST implementation is producing impetus to various reforms and policy measures
envisaged by the Govt. for ease of doing business and to usher India into a simple, transparent,
and tax-friendly regime. GST has somewhere simplified the old procedures by uniting many
indirect taxes and also improving the textile export state of affairs of India. As textile industry is
one of that this shich provide billions of employment and GST impose will provide much more
opportunities and other social benefits level higher than the previous years.
Vandana Tripathi Nautiyal Research Paper (IMIT Institute of Design) - GST is a complete
indirect tax on the manufacture, sale and use of goods and services. Indian textile industry is a
major part and it operates under the legal profession, which will create gap in input tax credit
system and if buying of input is done by registered taxpayer from the informal sector that incur
tax liability. GST brought major change in the input tax credit system which helped in bringing
balance between the informal and formal sectors of the industry. GST enforcement has
improved compliance as it has made the price chain more manageable, which will put the
industry back on the full line of buying and selling data.

Previously Indian textile manufacturers had to pay higher taxes while importing higher prices,
this tax is more expensive as the import tax center was not subject to previous regulations but
through the use of GST goods service had import and export tax rates and reduced import costs.
GST redesigned the tax credit process which helped the industry become aggressive in the
export market. Income tax debt is an important step in promoting textile exports. Cotton fabrics
and textiles have dropped to less than 5% of the GST tax loan that helps farmers grow and
8
enable them to grow enough cotton, which will be compared in the future. Also, farmers will
get the price of travel, GST in textile production or increase the whole price chain. GST in
ready-made garments makes a difference in use. Previously the tax rate was 4-5% but this time
the borrowing rate was 12% under GST, so due to the high tax rate the price will increase and
affect consumer spending. The GST exemption will be tax deductible and the import tax will be
refunded even if the export or domestic use makes the tax clear. GST will eliminate internal
financial issues with all entry costs, stock costs and shipping costs.

GST makes a huge difference in the Indian textile industry with a positive impact on the
industry. The implementation of the GST reflects the flexibility of the Government's reforms
and policy measures. to facilitate trade and import India into a simple, transparent, or tax-free
government. GST elsewhere simplifies old processes by introducing indirect taxes and
improving the situation of textile problems in India. As the textile industry is one of these
billions of service providers and the GST mandate will provide far more opportunities and other
higher social benefits than in the past.

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Tax regimes in Indian Textile Industry before GST
Indian textile industry was majorly based on handloom industry hence government of india was
very protective towards this industry and tried keeping it out of tax net. This was done to
promote production and exports which would lead to employment generation in the country.
The indirect tax structure consisted of majorly three taxes : Central Excise duty, central service
tax , state sales tax/VAT . Others types of taxes were entry tax and octroi. When the goods were
transported from one place to the other octroi was charged. Out of these excise duty
implementation had started in 1940s era and sales and service tax were relatively new. In the
initial period , excise duty was majorly avoided for many decades , however post liberalization
in 1991 , it was getting charged. But due to poor health of Indian economy and competition,
textile industry forced the government to withdraw excise duty. Sales tax was also not made
applicable and service tax was applicable in limited manner by reverse charge mechanism.
The unorganized sector forms a major part of this industry and is very labor intensive. It is
shown as making of clothes through weaving or spinning with hands. The various processes
involved are:
Process Output from process
Ginning Man-made Fiber, Jute, Silk, Wool,
Cotton
Spinning Yarn
Weaving/knittin Fabric
g
Processing Processed fabric
Apparel making Garment

The supply chain is fragmented and does not carry scale required in domestic or export markets
competition. The above processes were mostly exempted from GST and this adversely affected
the industry through cascading effect which was seen due to non alignment of taxes in the
value chain. Not being under the tax net helped the industry to thrive but also it forced it to
remain in the unorganized sector.
The textile industry is taxed under both central and state regime. The indirect taxes previously
applicable to the industry are described as below:
1. Central Excise duty: This duty was levied under central excise act 1944 on
manufacture of goods used for domestic consumption by central government. Special
excise duty and additional excise duty were also charged under the act. Indian textile
industry had the option to pay zero excise duty in various stages of the value chain if
they don’t charge input tax credit at any stage. Cotton fibre was exempted from excise
duty. Fabrics was also exempted from excise duty. For garments upto Rs 999 , excise
duty was exempted but from Rs 1000 and above they were charged 1.2% duty.

2. Service tax: For apparels the industry availed many input services , however could not
enjoy the benefits of service tax by government as the industry already operated under
duty exemption, which added to manufacturing costs of products.

3. State Sales tax/ Value added tax (VAT): This tax was charged by state governments
and varied state to state. Fabrics were exempted from VAT. For garments upto Rs 999,
no VAT was charged but from Rs 1000 and above they were charged 5%VAT. Also tax
payers under composition scheme enjoyed further tax concessions.
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4. Entry tax: It was charged when clothes entered in local areas and were sold for
consumption. Here cotton, woolen, silk garments were charged 1% of the purchase cost
by the host state.

Experts suggested that tax policy in India suppressed its domestic and exports markets.
This sector was represented by small and inefficient manufacturing. The tax regime
differentiated on the basis of fibre (cotton vs man made) , price of garments (above
1000 rps ) , type of product (fabrics and garments) and by branding (branded and non
branded), as a result of which supply chain was fragmented and lacked scale required
for domestic and exports markets. This arrangement blocked input taxes, led to high
compliance costs and raised ambiguity over product categorization (eg – sari is fabric
or garment?). It gave opportunities for tax avoidance , distorting competition, causing
further exemptions. As per history, states had handed over their tax powers to Centre
through additional excise duty (AED ), however after VAT came into existence, AED
was withdrawn in 2007. But states faced opposition from multiple dealers thus textile
supply chain largely remained taxed.

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12
Implementation of GST in Indian Textile Industry
The textile sector of India is one of the oldest industries in Indian economy. It has the largest
contribution to the India’s exports with 13 – 15 percent of the total export. This industry is the
labour intensive and is also the biggest employment provider within the country. This industry
directly or indirectly provides employment to millions of unemployed workers and labours.
The overall export of the textile industry in India during the Financial Year stood at US$50
billion. India is ranked third largest exporter in the global exports of the textiles. The
achievement of this position is all about the efforts and planning done by the government and
their support to the subsidies and tax reliefs.
There are two segments of the textile industry and they are as follows:
1. Unorganized Sector

This sector consists of the handloom and handicrafts that are based on a small scale
operation through various traditional methodology and techniques.
2. Organized Sector

This sector consists of spinning and the apparel segment and it also applies modern
machinery and technology and this sector deals with both i.e. inputs of the goods and
the output product.
The textile industries use raw materials such as Viscous, Silk, Cotton, Yarn etc. and they also
have various services including Handcrafting, Weaving and Job Worker and they adopt it from
the various other sectors that includes goods as well as services.
India is a diversified country and the quality and quantity of the fabrics produced and available
completely depends and varies from one region to another. On the basis of quality of the
products and goods available the country can be divided on the basis of production and the
industries for a particular region.
There are some of the sub-sectors of the textile sector and they are:
1. Fibers – Cotton to Yarn
2. Yarn to Grey or Processed Fabric
3. Grey Fabrics to Processed Fabric
4. Garment to Consumer

There are different types of textile sector:

1. Cotton Textiles
2. Woolen Textiles
3. Silk Textiles
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 4. Art Silk and Synthetic Fiber Textiles
5. Ready-made Garments
6. Khadi and Handlooms

Overview of GST
The GST (Goods and Service Tax) was introduced by considering the streamlining the flow of
goods and services and it was implemented in the year 2017.
The main objective of the GST is to replace the various state and central taxes. The taxes that
were replaced by GST are Excise and Service and VAT or Sales Tax, and other duties and cess
and surcharges. The textile sector and its taxation was non – neutral across its segments. The
textile sector is the lightly taxed and also extensively subsidized sector. After the introduction
of GST the textile industry is the most affected industry because before GST it was the industry
which was mostly dependent on non-taxation and the subsidies and GST removed both of them.
Textile sector being an unorganized and also not used to the indirect taxation, the infrastructure
is needed for the implementation of the new taxation scheme.
The Transitional Phase
The most important part of the implementation of the GST to the textile industry was the
transitional phase which was supposed to run till the September 2017 but due to some of the
technical and system errors its implementation was extended till December 2017. This phase
involved the transition of the existing as well as new aspirants for the GST regime and their
smooth working.
There are some of the important aspects of the transitional phase and they are as follows:
1. As because the industry was unorganized lack of infrastructure was the major issue to
keep the consistent track of the available stock. Stock movement was unaccounted and
also it was difficult for manufacturers for claiming the credits of the unaccounted stocks.
2. Although the quantity measurement in the textile industry keeps on changing at every
step of process of manufacturing and it also became the difficult task for the
manufacturer to keep the track of the production unit.

3. An unregistered firm or individual was allowed to take the ad-hoc tax credit on the
quantity of the stock stored on the appointed day as if they are not having any evidence
document regarding payment of the excise duty tax. To avail this credit offer they were
required to fill the Form GST TRAN-1 and TRAN-2 for the actual declaration of the
available stock and their subsequent supplies till March 2018.

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4. One of the major aspects of the textile industry is the job work and it was also under the
impact after the implementation of the GST as because the accounting for the credits
and credit claim it was necessary and it was a tough job as well.

Levy and Collection

According to the Section 7(1) of the CGST Act 2017, the Supply must include:
1. Supply of all the goods and services or the both depending upon the exchange, barter,
sales, export, license, lease, or the agreement made for the consideration by an
individual in the course time of business.
2. Import of all the services and goods for the consideration by an individual whether in or
not in course of business.
3. All the activities related to services and goods that are mentioned in the Schedule I and
II must be made agreeable without the consideration.

Types of Assesses Rate Applicable

Manufacturer and trader 5% on most textile products

Job worker Initially 18% later on reduced to 5%

Commission agent 18%

The textile industry also comprises of medium and small scale industries and most of the
customers of these industries are unregistered customers who don’t need any kind of credit
of GST for the further consumption.

Most of the textile products are of basic utility and consumers are unable to afford them
being costlier than before. Thus the customer doesn’t wants to bear the burden of tax. The
major setback of the GST on the consumers is their basic utility consumption is being
costlier.
Time and Value of Supply
This is the most important and also the prominent issue faced by the industry because of the
provisions mentioned in the Section 12 of the CGST Act and also due to the advance
receipts payment by the trader.
The time of supply of goods as per the Section 12(2) has been stated that must be done in
the following dates:
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1. On the date of issue of the invoice or on the last date to issue the invoice with respect to
the supply which is required.
2. Date on which the supplier receives the payment for the supply.

Introduction of the date of payment for the supply under the GST was completely new for
the suppliers as under the Excise and VAT law, the traders were not aware about the
consideration of the date of payment at all while paying for the taxes. The GST led to the
introduction of additional process for the supply of goods. Receipt of advance payment led
to time of supply for GST.
Valuation of Supply
The biggest problem that textile industry faced under the section of provision was the
delayed payments issues.
Section 15(2)(d) of the provision clearly states that the value of supply must include the
interest or late fee or the penalty for delay in payment for any consideration regarding the
supply.

According to the mentioned section the time of supply to the extent relates to the addition to
the value of the supply by the way of interest, late fees or by the way of penalty for the
delay in payment of the consideration and this must be done on the date on which the
supplier received the addition in value.
Also the tax on such receipts must be paid on the same time when receipt is generated. The
problem here was the consumer does not want to pay the tax i.e. GST on the interest
component.
Input tax credit under GST
The input credit tax on the inputs and the services and also on the capital goods provided
with the sufficient supply. It is observed that the major raw materials such as chemicals,
dyes, packing materials and many more are eligible for the input tax credit. Whereas
according to the governing section 17 comes with its own restrictions and are imposed upon
the supply of gifts and samples.
In the textile sector it is commonly practiced by giving away the free samples for the
purpose of sales and promotion. The restriction imposed on these practices has resulted in
the loss of credit which however results in the increased payment of the tax and due to this
there problem with the cash flow and the working capital of the entity.
E-Way Bill under GST
The E-Way Bill provision was finally applied to phase out in a planned manner and without
16
 any differentiated dates. According to the rules, every registered individual or the firm
through which the movement of the goods and the consignment exceeding the value of fifty
thousand is done regarding
1. Supply relation
2. Other reasons apart from supply
3. Unregistered individual performing inward supply

They must generate the E-Way Bill and this means that the consignor or the consignee as a
registered individual or as a transporter of the consignment can generate the bill. The
unregistered individual or the transporters are allowed to enroll on the portal and can generate
the e-way bill for the goods for their clients.
GST Rates on Textile Industry
The products and the items used in the textile industry are taxed according to the following
structure:
Taxed at 12%
Wood Articles: This includes all the articles that are made up of wood such as clothes,
cops, bobbins, sewing thread reels, and the textile machinery.
Final products which are completely made of quilted or the textile materials.
Taxed at 18%
Textile Oil: This includes all textile oils other than Petrol, Diesel, and Aviation Turbine
Fluid
Finishing Agents: This includes dry carriers and materials that are used to process the
dyeing and fixing of dressings and mordant.
Machinery: This includes all the machines that are used for preparation of textile fibers;
such as spinning, doubling or twisting machines and also other machinery for producing
yarns; textile winding and reeling machines and for preparing textile yarns for use on the
machineries.
Taxed at 28%
Lubricants: The lubricants include the oils and the preparatory process of the various kind
of oil and also the grease of the textile industry excluding the lubricants containing weight
of petroleum oils or that are obtained through bituminous materials.

Ready-to-use products: These ready-made products include the various types of bags that are
used for the various purposes and also the containers similar to them and those bags include
shopping bags, school bags, purses, wallets, tool bags, sports bag, handbags, and many more
17
and also the cutlery cases that are made up of the textile materials.

18
Impact of GST on Indian Textile Industry
Textile industry is considered to be one of the largest employments generating sectors for both
skilled and unskilled population. The industry plays a major role in Indian economy
development by contributing towards export, GDP, etc.
With the implementation of GST in India, various industries as well as the lives of people have
been affected directly or indirectly. The aspect of indirect tax system changed completely
bringing various taxes on goods and services levied on traders, manufactures and sale and
consumption of goods and services into single tax domain. The purpose of this integration was
to provide ease to the users, aid to the growth of economy as well as transparency in the Indian
taxation system.
The textile industry experienced positive as well as negative impact due to GST.
1. Shifts towards the organised sector: The Indian textile industry consists of two broad
segments: organised as well as unorganised sector. Hence, a considerable segment of the
industry operates under unorganised sector. This created a gap in the input tax credit system. If
the registered tax payers bought inputs from the unorganised sector, they would have not been
able to avail input tax credit facility. The introduction of GST brought significant changes in the
input tax credit system and also created an important balance between organised and
unorganised sector. In fact, the whole industry is moving towards the organised sector. This
impacted the unorganised sector negatively.
2. Reduced production cost: With the integration of various complicated taxes into a uniform
tax system, GST reduced input cost of the garments industry in India. Excise duty and VAT
(Value Added Tax) that were earlier applicable to yarn and branded garments, led to addition in
the input cost of the final product. Moreover, these costs varied from state-to-state. GST
brought uniformity and simplification in the taxation system, leading to reduction in the input
cost as well as lowered manufacturing cost of textile products.
3. Improved compliance: GST, a single tax for the entire country subsumed various taxes like
VAT/ sales tax, octroi and entry tax, central excise duty etc. that required different agencies for
management. This integration led to reduced compliance burden for the manufacturers thereby
helping the textile traders to focus more on expansion of the business rather than being worried
about the cumbersome compliance activities.
4. Increase in exports: The rise in textile exports indicate an increase in the demand for
domestic goods. The growth has been impressive in case of textile exports in India according to
the reports. Reduced input cost might be one of the reasons reflected in the final price of
products that led to such increase.

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5. Input Tax Credit for capital goods: In the previous tax regime, Indian textile manufacturers
had to pay heavy excise duty while importing capital goods. It was costly as input tax credit
facility was not available under the tax laws. But GST’s launch provided the facility of input tax
credit thereby decreasing the total import cost for capital goods.
6. No discrimination of goods: Under GST all fibre will get same treatment, no discrimination
is there between cotton fibre and man-made fibre.
7. Promote capital investment: Textile players which are oriented towards domestic market
will be able to set off the GST paid on domestic capital goods. This will reduce cost of capital
investment and will be positive for players.
8.Fiscal barrier for inter state movement to be removed: Due to this there will be reduce in
time of movement, logistic cost, stocking cost and carrying cost.
9. Textile industry became more competitive: GST structured the input tax credit, which
made the entire industry aggressive in export. Input tax credit will be significant step for
promoting export for textile product.
10. GST will encourage the farmer: Cotton yarn and fabric comes under GST slab that
motivated farmer to grow cotton in ample amount much more than before, and also help farmer
earn fair price for their hard-work.
11. Readymade garments became costlier: GST on readymade garment will bring huge
difference , as under GST slab 12% is for readymade and earlier it was 4 -5% VAT and 2%
excise. So due to this price will be high.

Therefore, GST impact on textile traders is both favourable as well as unfavourable. However,
the favourable impact has been more significant, with the effects now being visible in the recent
increase in textile trade activity.

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Comparative Analysis of Indian textile industry pre and post GST

Particulars Pre GST Post GST

Tax rates Fabrics were exempted 12% GST charged(min)
from excise duty and VAT
for garments upto Rs 999
and from Rs 1000 and
above they were charged
1.2% excise duty and 5%
VAT

Input tax credit Negligible as most Facility to avail

businesses were
exempted from taxes
Impact on capital Cost of capital was high as Cost of capital could be
investments input tax credit was not made low by claiming ITC
available for them on capital goods
Transparency Most dealings in cash More transparent and
hence little to no integrated with advent of
transparency ITC
Change in definition of Defined type of goods are Goods used or intended to
capital goods considered capital goods be used in course or
furtherance of business
Minimization of Many issues on Uniform rates and less
classification of goods classification of goods as expected excemptions
different rates for different
goods and exemption on
certain goods

21
Company Analysis : Financial implications of GST on Arvind ltd
Textile and apparels sector is a major contributor to the Indian economy , providing more than
100 million employment in the country. Textile industry went through a rough phase in 2017
under GST impact , along with reduction in exports. Domestic textile market , which was not
subjected to GST, earlier took time to get adjusted to the new tax structure. However the
industry is stabalising now.
Here is an attempt made to under financial implications of GST on one of the India’s largest
textile companies , Arvind Ltd.
Arvind ltd was started in the year 1931 and one of the country’s most popular textile
companies. It is textile manufacturing company and flagship company of Lalbhai group. It is
headed by Sanjay Lalbhai (Chairman and MD) and is headquartered at Ahmedabad , India.
Company manufactures cotton shirts, denims , khaki fabrics ,other knits and technical textiles.
It holds popular brands like Flying machine, Newport, Excalibur and licensed international
brands like Arrow, Tommy Hilfiger and Calvin Klein and has nationwide retail network.
Arvind’s brand and retail segments followed tax rate of 11% (5.5% VAT, 3.5% service tax,
~2% excise), however post GST implementation it increased to 12% for all apparels with
transaction value greater than Rs 1000. Tax rate was lowered to 5% for clothing having
transaction value below Rs 1000.
Snapshot of financials of Arvind Ltd for FY 2017 and FY2018:
*Rupees in Cr
Particulars FY 2017-2018 Figures FY 2016- 2017 Figures
Sales 10826 9258
EBITDA 1027 1021
PAT 309 315
Source : Annual report
As seen above , total revenue of the company grew by 16.9% YOY due to high growth in
brands and retail business , aided by consolidation of international brands like Tommy Hilfiger
and Calvin Klien in the revenue. Operating earnings before interest, tax , depreciation and
amortisation ( EBITDA ) increased marginally by 2.7% YOY due to fall in EBIDA of textile
business but was compensated by higher EBITDA in brands and retail business. Anticipating
possible bumps during GST period , Arvind ltd bought ahead its end of season sale (EOSS) to
clear excess inventory, which contributed to saving EBITDA.
Profit after tax (PAT ) decreased by 1.6% YOY in the transitional phase of GST ,coupled with
currency appreciation . Currency appreciation creates a threat to margins as exports form major
part of the company business. Company exports 50% of the overall textiles hedged at 40-45%
over a period of one year. 35% revenue comes from B2B segment but impact of GST got
passed on there. Remaining part of 15% is contributed by B2C segment where again margins
caught pressure. However, Denim revenue saw a growth of 3% despite challenged by GST.
Knits business and garments business saw growth of 4% and 31% respectively on account of
new product lines. Overall trade channels took time to adjust to the new tax structure, thus
impacting margins.

Snapshot of balance sheet of Arvind ltd:

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Source: Annual report
Working capital: Current assets of the business increased by 7.74% YOY and current liabilities
increased by 11.03% YOY . Overall working capital increased on account of GST
implementation as trade channels were coping up with new tax rates.
Debt: Debt of the business clocked at 7704.07 Cr in FY 2018. It increased by 9.07% compared
to previous year due to rise in working capital requirements and delayed GST refunds.

23
Conclusion
Introduction of GST has bought changes within the textile business of India with an overall
positive impact on the world. GST implementation is producing impetus to varied reforms and
policy measures envisaged by the govt for the convenience of doing business and to usher India
into an easy, transparent and tax friendly regime. GST has simplified the old procedures by the
converging various complex indirect taxes into a unified platform and conjointly improving the
“textile export” state of affairs of India. The compliant would be noticing their goods become
competitive and the sector would take part in contributing to tax in addition to provide
employment and other social benefits at a level higher than present. No doubt that GST will
give India a world class legal system but all this may be subject to its rational style, timely
implementation and regular follow up.

The Indian textile industry features a significant presence within the Indian economy also as
within the international textile economy. Its contribution to the Indian economy is manifested in
terms of its contribution to the economic production, employment generation and exchange
earnings. The industry also contributes significantly to the global production of textile fibres
and yarns including jute. In the world textile scenario, it's the most important producer of jute,
second largest producer of silk, third largest producer of cotton and cellulosic fibre\yarn and
fifth largest producer of synthetic fibre\yarn. Textile Industry is providing one among the
foremost basic needs of individuals and therefore the holds importance; maintaining sustained
growth for improving quality of life. There could also be a few drawbacks for the textile
industry because of higher tax rate and removal of advantages under cotton value chain, but it's
safe to mention that GST will help this industry by the long-term process and by getting more
registered taxpayers under a well-regulated system. The Government of India has also included
new schemes within the Annual Plan for 2007-08 to supply a lift to the textile sector. These
include schemes for Foreign Investment Promotion to draw in foreign direct investment in
textiles, clothing and machinery etc.

In India textile industry is that the second largest employment maker and it's the second
largest within the world. It holds major position in India because it offers the basic
necessities of the citizens. In a changing marketplace, Textile industry will continue to
grow their product lines and marketing reaches to be more strength-full in global.

24
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