Government should get Exemption for Coir Sector


Kochi: The coir industry in India has principally functioned as an export-driven market. Coir export has fetched about Rs. 1,500 crore during the financial year ended March 31, 2016. At present, coir is exported to more than 112 countries and Kerala contributes about 80 per cent of the country’s coir exports. Being highly labour-intensive, the coir industry in Kerala employs almost four lakh individuals, of which nearly 3.40 lakh are women, and majority of them are from economically disadvantaged sections. Hence, the sector, being central to the industrial landscape of Kerala, assumes significance in the context of the new GST regime. The challenging global scenario requires the industry to be highly efficient through effective working capital management and optimum utilisation of capital.

Under the current taxation regime, all procurements, whether imported or procured locally (or inter-state), are exempted from all kinds of duty/taxes. For instance, all procurements within the state are made tax-free on issuance of Form H. Likewise, imports are primarily made duty-free considering the benefits under the Foreign Trade Policy (FTP).

Measures to be Considered

  •  It is strongly recommended that for the industry, the facility of duty-free imports/procurement of inputs should continue or else, it will lead to increasing requirement of working capital even for payment of IGST/ CGST/SGST. The payment of GST will badly hit the coir industry as the cost of capital is quite high. It will blunt their competitive edge in exports. The said exemption will not in any manner lead to any loss of revenue, as in any case, exporters will be entitled to refund. The need to seek refund would badly affect the liquidity in the sector. In Sri Lanka (a key exporter of coir), supplies in the said sector for the purpose of export are exempted from the levy of VAT. Incidentally, Sri Lanka has moved from a refund-based system to a regime of exempting the related procurements from the levy of VAT. It has a lower rate of VAT at 12 per cent as against the likely rate of GST at 18 per cent in India.
  • Under Schedule 1 of the Model GST Law, the supply to a job-worker is not treated as ‘supply of goods’ and hence, not subjected to GST. A similar exemption would also be required in respect of supply from the ‘job worker’ back to the principal unit, even if not a completed product, should not be reckoned as ‘supply’ of goods and GST should not be levied.
  • The refund provision in the Model GST Law is linked to the principle of unjust enrichment. The proviso to section 38(3)(b) of the GST Act requires the exporter to file a certificate that the incidence of the tax claimed as refund has not been passed on by him to any person. In the case of exports, the principle remains – export the goods and not the taxes. Hence, the requirement to obtain such certification and prove unjust enrichment should not be applicable in the case of exports.
  •  It is imperative that the GST regime should match the steps with the FTP and the Customs provisions.
  • Under the Model GST regime, credit in respect of input tax paid can be claimed upon satisfying various conditions. These include possession of tax invoice, tax been paid to the credit of the appropriate government and returns having been filed. In the case of coir, being an unorganised sector driven by the economically backward sections, the question of claiming input tax credit would be difficult. Hence, it is urged that the sector be exempted from taxes.

One would hope that the Kerala Government would push forward the above-mentioned suggestions to save the sector. For truly, a stitch in time saves nine!