The inverted duty structure in India makes it easier for textile industry to import synthetic textiles rather than manufacture them domestically. Synthetic fiber is taxed at 18 per cent, yarn at 12 per cent and final output at five per cent, creating a tax structure where rate on inputs is higher than that on output.
The inverted duty structure has made imports 15 per cent to 20 per cent cheaper for the domestic industry. Also the absence of refund on input tax credit on the domestic sale of synthetic fabrics is said to have blocked the working capital of the textile industry. Refund of inverted duty is allowed but the industry feels it is complicated and leads to working capital blockage for months. GST on capital goods is not refunded.
Another grouse is that rules do not allow refund or adjustment of GST on services from output GST obligations, which has led to losses for small and medium enterprises using job working services and having an inverted duty structure. The industry wants the refund rule rectified and has sought refund for unused input tax credit that lapsed on July 31 last year and extension of the refund to those selling in the domestic market.