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The Southern India Mills’ Association

Committed to Foster the Growth of the Textile Industry

GST’s reverse charge mechanism: Cotton millers to go on strike

Cotton mill owners in Telangana will take part in a nationwide strike on December 15 to protest against the Reverse Charge Mechanism (RCM) in the Goods and Services Tax (GST) regime. The mill owners said their working capital has slumped after paying 5 per cent GST on cotton paid through RCM. The millers threatened to go on an indefinite strike from December 22 if the tax on cotton is not revoked at the next GST council meeting on December 21.
“Earlier cotton, chilli, turmeric powder, and few other items were taxed at 5 per cent GST. Later, the tax was revoked but the last GST council in November reintroduced the 5 per cent GST again but only for cotton,” said B Ravinder Reddy, president, Telangana Cotton Millers and Traders Association.
The millers then reached out to the state finance minister Etela Rajender who assured them that the issue would be taken up in the next GST council meeting on December 21. Under the RCM, any GST-registered-trader buying cotton from an unregistered trader or agriculturist will have to bear the GST on it. The registered trader can claim back the GST paid at the next level of their trade as input tax credit.
For cotton millers, the next level of trade would be with the exporters. But they only bill 0.01 per cent GST and the rest 4.99 per cent GST is returned only after the exporter files their GST returns and gets back their input tax. “This could take even five months and in that meantime, our working capital is blocked,” said Reddy. “We are ready to pay the tax but they are asking us to pay GST through RCM before we complete our business transactions.
Some say its just 5 per cent GST. What is the big deal? A mill on an average produces 200 bales of cotton per day per mill that fetches `40 lakh in the market. Paying 5 per cent GST for such huge amount on a daily basis from our own pockets and not knowing when the amount will get credited back to us is not practical for business,” he added.There are over 400 cotton millers operating in Telangana. The sector saw a 20 per cent increase in cotton cultivation in 2017 when compared to last year but unseasonal rains in October and pink ball worm attacks on cotton crop in November has made the sector players nervous.