Small units face closure amid GST refund delays\' - The Times of India
Ludhiana: Thousands of small-scale manufacturers in the bicycle, sewing machine, and carton sectors are facing a liquidity crisis due to a flawed “inverted duty structure”. While the government promised GST refunds within 30 days, local units claim that 13% of their working capital is being locked up for months, forcing many small factories to shut down every 10–15 days.
The crisis arises because manufacturers purchase raw materials such as pipes, paint, and brass at 18% GST, while finished goods are taxed at only 5%. This creates a 13% tax gap that can only be recovered through refunds from the government.
Industrialists said that delays in refunds are effectively turning their working capital into interest-free loans for the government, leaving them unable to pay wages or procure fresh raw materials.
Industry representatives highlighted that small entrepreneurs, often operating with capital as low as Rs.30 lakh, cannot survive when refunds are delayed for up to six months.
The issue is particularly severe in the sewing machine sector, which is already facing competition from cheaper imports. The inverted duty structure is also making imports more attractive, as importers pay and sell at similar tax rates without facing refund delays.
Industrialists warned that prolonged delays are pushing some units towards informal trade practices to avoid funds getting stuck in the GST system, and if the issue is not resolved urgently, more small units may shut down.
