The GST Council’s decision on September 3, 2025, to merge four tax slabs into two has caused ripples across Ludhiana’s industrial landscape. Hosiery, textiles, cycles, sewing machines, agricultural machinery, and packaging units all find themselves affected in different ways. To understand the changes and their implications, EliteTimesTV spoke to leading tax expert Advocate N.K. Thamman who explained the situation in detail.

 Q. What are the key changes announced by the GST Council?

 A. The Council has merged four GST rates into two. The 12% rate on most items has been reduced to 5%, while on some items it has gone up to 18%. Similarly, the 28% rate has been reduced to 18% on most items, and increased to 40% on a few. By these changes, some Ludhiana industries have seen the inverted duty structure abolished, while in others it has newly arisen.

 In simple terms, inverted duty structure means that the GST rate on raw materials is higher than on finished goods, forcing taxpayers to claim refunds of unutilized Input Tax Credit (ITC).

 Q. How is the hosiery and textile sector impacted?

 A. This sector has long struggled with inverted duty issues. Currently, man-made fibre attracts 18% GST, natural fibre 5%, man-made yarn 12%, and cotton yarn 5%. All types of fabrics, whether knitted or woven, attract 5% GST, creating inverted duty for fabric manufacturing units.

 Garments and made-ups up to ₹1,000 per piece are at 5%, while those above ₹1,000 are taxed at 12%. Since most Ludhiana manufacturers produce garments under ₹1,000, the industry fell under inverted duty structure. From September 22, 2025, GST on man-made fibre and yarn will be reduced to 5%. Garments and made-ups up to ₹2,500 per piece will attract 5%, and those above ₹2,500 will attract 18%.

This effectively ends inverted duty structure in hosiery and textiles. The industry is happy with this change because their working capital requirement will reduce and they will no longer face the hassle of refund claims with the GST department.

Q. What about Ludhiana’s cycle and cycle parts industry?

A. This industry uses raw materials like steel, steel products, chemicals, and plastics, all taxed at 18%. Their finished goods currently attract 12% GST. From September 22, 2025, the finished goods rate will drop further to 5%, creating inverted duty structure.

Q. And the sewing machine and agricultural machinery parts industries?

A. Both industries are in the same situation as cycles. Their raw materials—steel, chemicals, and plastics—remain at 18%, while their finished goods will reduce from 12% to 5%. This shift clearly puts them under inverted duty structure.

Q. How does the packaging industry fare?

A. The packaging industry of paper and paperboard is particularly affected. Its raw materials include chemicals and stitching wire taxed at 18%, and paper and paperboard taxed at 12%. Corrugated and non-corrugated cartons and boxes currently attract 12%.

From September 22, 2025, GST on paper and paperboard will rise to 18%, while finished cartons and packaging will drop to 5%. This deepens inverted duty structure, increasing working capital needs and refund dependency.

Q. The government has spoken about provisional refunds. Will that help?

A. The GST Council has proposed 90% provisional refunds for inverted duty claims. These would be released based on system-driven data analysis and risk evaluation at the time of filing. But industries are still unhappy. Refund claims involve delays and administrative hassles. These sectors are demanding that GST on raw materials also be reduced to match finished goods. However, this seems unlikely because many of these raw materials—like steel, plastics, and chemicals—are used in multiple industries that attract higher GST rates.

 Q. In summary, which industries gain and which lose?

 A. The hosiery and textile industry gains, as inverted duty has been eliminated there. On the other hand, cycle, sewing machine, agricultural machinery parts and packaging industries lose, as they now fall under inverted duty structure. While provisional refunds may provide some cushion, the underlying challenge remains. Unless raw material rates are aligned with finished goods, Ludhiana’s manufacturing sectors will continue to face financial stress.

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