From the Desk of Chairman


Dear Members

The GST regime is in place. The Leather Sector wholeheartedly welcomes the GST implementation. However, the industry is facing major problems on account of levy of higher taxes for certain items which results in higher capital outflow. The Council has already submitted comprehensive analysis note on GST and memorandums to the Government, requesting reduction of GST rates on various items. Some of these are highlighted below.

• Finished Leather was earlier exempted from both Excise duty (for domestic purchase) and import duty but now 12% GST has been levied. We had requested for reducing the GST on finished leather from 12% to 5% , so as to decrease the tax burden on finished leather, which is the essential raw material required for making value added products. Also, reduction to 5% will avoid product classification problems as crust leather (which is a semi-finished leather and which looks like finished leather) has 5% GST whereas finished leather has 12%.

• Common Effluent Treatment Plants (CETPs) were earlier exempted from Service Tax but now 18% GST is levied. At present, about 21 CETPs are serving the leather industry across the country to which majority of tanneries are connected. Such CETPs have been established as a joint effort of the industry with the help of the Government to help the tanners particularly in the MSME segment who cannot have individual ETPs. Levy of 18% GST will significantly increase the financial burden on the tanning industry which will affect the value added products segment as well. Further, there is only minimal input tax credit for CETPs. Hence, had requested that the GST on CETPs for leather industry be exempted so as to increase price competitiveness of the tanning segment.

• Job work was earlier exempted from Service Tax but now 5% GST is levied on Job work for processing of hides, skins and leather while all other job work involved in making leather, leather products and footwear attracts 18% GST. Hence, GST on all kinds of job work involved in manufacture of leather, leather products and footwear should be reduced to 5%.

• All duty credit scrips issued under Foreign Trade Policy including MEIS, EPCG and Advance Authorisation now attracts payment of IGST. We had sought for IGST exemption for these scrips.

• Existing All Industry Rates of Duty Drawback has been extended only for three months from July 2017 to September 2017. We had earlier requested that the existing Drawback rates may continued atleast till March 31, 2018.

• We had also requested for reduction of GST for leather goods and garments from 28% to 12% and fat liquors from 28% to 18%. The higher rate of GST and upfront payment of tax as mentioned above will result in blocking of inventory for exporters atleast for a period of 2 to 3 months. This will cause immense financial strain on the exporters which will lead to loss of price competitiveness and eventual decline in exports. After two years of decline, the exports are finally showing positive trends this year and the industry is aiming at achieving 15% export growth in the next three years. However, to achieve this growth, we have requested consideration of the following additional support measures when the Foreign Trade Policy Review is announced.

Requests on Foreign Trade Policy Schemes

• MEIS Benefit may kindly be enhanced to 6% for leather, leather products and footwear so as to achieve the envisaged 15% export growth in next 3 years.

Duty Credit Scrips : Schemes under Foreign Trade Policy namely Merchandise Exports from India Scheme (MEIS), Zero Duty Export Promotion Capital Goods Scheme (EPCG) and Advance Authorisation and Duty Free Import Scheme (DFIS) have increased price competitiveness of the leather industry. The request is that, besides exemption from Basic Customs Duty, GST exemption may be provided for these scrips. Alternately, the scrips may be divided in to Customs Portion and Virtual Credit ledger for payment of GST.

Increase in interest subvention from 3% to 5% : As per an analysis done by CLE, there will be an additional capital outflow of Rs.3157 crore on account of increased tax payment under GST. Hence, Govt. may consider enhancing interest subvention limit from 3% to 5% atleast for 6 month period from July to December 2017. Also, this scheme may be extended for large units in leather goods/leather garments and tanning segment falling under HS Codes 4101 to 4115 and Leather Goods/Garments under 4202, 4203 and 4204.

• The Duty Free Import Scheme (DFIS) facilitates duty free import of certain critical inputs required by the leather products and footwear industry, as per provisions of Serial Nos. 288, 311 and 312 of Customs Notification No. 50/2017 dated 30.6.2017. Enhancement of duty free limit under DFIS for leather garments from 3% to 5% may be considered as Union Budget 2017-18 has already enhanced the limit to 5% for footwear and other leather products.

• The DFIS is a value based licence on account of which importers are now required to pay IGST on imported inputs as only Basic Customs Duty is exempted under GST regime. Our request is that this licence may also be converted into a duty based licence as in the case of MEIS, for payment of both Basic Customs Duty and IGST.

• There is a need to include more items under Duty Free Import Scheme and also change of description of certain inputs already allowed for import.

Besides the above, we have also requested Dept. Of Commerce to recommend to the Department of Revenue for implementing Refund of State Levies (ROSL) Scheme for the leather sector. The Council for Leather Exports has already submitted the data to the Drawback Directorate seeking implementation of Refund of State Levies (ROSL) Scheme, so as to neutralise state levies which are not subsumed in GST. This scheme needs to be implemented for the leather and footwear sector.

We hope that the Government will positively consider the above requests, so as to foster growth, development and employment generation in the leather industry.

With best wishes

Mukhtarul Amin