Cotton industry knocks at North Block for GST clarity on raw material purchases
In another curious case of classification under the Goods and Services Tax (GST) regime, the cotton industry has approached North Block seeking clarity on taxation when purchases are made from unregistered entities or agriculturalists.
According to sources, “the cotton industry is currently in limbo due to overlapping provisions under GST laws regarding the purchase of raw materials. The Cotton Association has written to Union Finance Minister Nirmala Sitharaman, seeking clarity after facing tax demands that claim dues under the reverse charge mechanism when the buyer is a registered entity.”
The cotton industry asserts that it is not liable to pay GST when raw materials are purchased from unregistered entities and has challenged the tax demands, according to sources.
The issue
Under the GST system, cotton traders have certain benefits and responsibilities related to the reverse charge mechanism (RCM). When cotton is supplied by an agriculturalist (a farmer), the buyer, typically a registered trader or business, is liable to pay tax under the RCM. The agriculturalist is exempt from paying GST on the output supply.
In the initial years of GST implementation (2017–2019), businesses could procure goods from unregistered dealers without triggering the reverse charge. However, after the exemption period ended, the RCM was extended to purchases from unregistered dealers.
