Navigating the GST Rate for Bleached Cotton Linter
The Indian textile industry is one of the largest in the world, contributing significantly to employment, exports, and GDP. The main applications for bleached cotton linters are in the manufacturing of premium papers, cellulose derivatives, medications, and cosmetics. Beyond their industrial importance, however, companies, traders, and manufacturers who deal with bleached cotton linters must comprehend the ramifications of the Goods and Services Tax (GST).
Bleached Cotton Linters: What Are They?
The short fibres that stay on cottonseeds after ginning are called cotton linters. These fibres undergo additional processing before being employed in a variety of industrial settings. These linters can be used for certain purposes, like the following, because bleaching removes contaminants and gives them a white, purified appearance:
1. Paper currency notes
2. Viscose rayon
3. Applications for high-purity chemicals include cellulose acetate.
4. Food-grade containers
Despite being a by-product, bleached cotton linters are extremely valuable because of their high fibre quality and purity.
Categorisation Using the HSN Code
A key factor in figuring out the GST rate for goods is the Harmonised System of Nomenclature, or HSN, Code. To prevent legal or compliance difficulties, bleached cotton linters must be classified under the appropriate HSN code.
Relevant Cotton Linter HSN Codes
• HSN Code 1404: Vegetable goods not elsewhere listed or included, which occasionally includes raw or unprocessed cotton linters.
• HSN Code 5201: Raw cotton that hasn’t been carded or combed; linters aren’t particularly included in this category.
• HSN Code 5601/5603: Usually not relevant to raw bleached linters, this code is for wadding and non-woven cotton-based materials.
But according to a number of prior decisions and clarifications from the GST Council, cotton linters, especially when bleached. They do not belong under raw cotton and are typically categorised under HSN 1404, which addresses other vegetable textile fibres.
Bleached Cotton Linters’ GST Rate
1. Applicable GST Rate:
According to the most recent announcement from the Central Board of Indirect Taxes and Customs (CBIC) and the GST Council:
• Bleached Cotton Linters: 5% GST Rate
This pertains to the sale of linters for industrial applications in bulk or baled form. However, if the bleached linters are altered or incorporated into another product (such as finished paper or cellulose powder), the rate can change.
2. Rate Changes in the Past:
Cotton linters were previously subject to NIL or exempt taxation, particularly if they were sold unprocessed. However, bleached cotton linters are now subject to taxes, since the 5% slab for processed cotton by-products was introduced.
Since many dealers were using the Input Tax Credit (ITC) to sell exempted goods, the goal was to eliminate categorisation ambiguity and provide uniformity.
3. Bleached cotton liners are eligible for the Input Tax Credit (ITC).
Manufacturers who use bleached cotton linters to produce taxable products like paper, cellulose, or rayon can claim a 5% ITC on the GST they paid for the bleached cotton linters.
Qualifications for Eligibility:
You need to be registered for GST; you need to use lenses to produce taxable output; you need to correctly document the GST invoice; and you need to receive the goods and pay for them within 180 days.
By doing this, manufacturers are able to lower their tax obligations and stay in conformity with Section 16 of the CGST Act.
The Impact of GST on Exporters
One of the biggest exporters of cotton linters is India. The situations listed below are relevant to exporters:
1. Export Under Letter of Undertaking (LUT): If the terms of LUT are met, the exporter may export bleached cotton linters without paying tax, and GST is not applied.
2. Export With Tax Payment: By Rule 96 of the CGST Rules, the exporter may thereafter request a refund after paying 5% GST.
To prevent customs issues, exporters must make sure the goods are appropriately classified under HSN 1404 and adequately documented in shipping documentation.
Effects of the 5% GST Rate on Industry
1. Production of Paper and Textiles
The 5% GST ensures that bleached linters will continue to be used in high-purity applications without experiencing considerable cost inflation since it places a comparatively light load on the raw material cost structure.
2. Cottage Industries and MSMEs
Smaller businesses may have trouble adhering to regulations. Due to a lack of expertise or difficulties with documentation, many MSMEs do not claim ITC, even if larger businesses do. Accuracy and adoption can be enhanced by education and awareness.
3. Exporters
In order to prevent needless working capital blockages, exporters must make sure they make effective use of zero-rated supply provisions, particularly by employing LUT-based exports.
The Interaction of Customs Duty and GST
Businesses must account for a number of taxes in addition to the domestic GST while importing bleached cotton linters into India. Generally, imports are subject to a 10% Basic Customs Duty (BCD) and a 10% Social Welfare Surcharge (SWS) on the BCD. In addition, the assessable value, which includes BCD and SWS, is subject to Integrated GST (IGST) at a rate of 5%. The total landing cost of the imported commodity is raised by this tax structure.
However, if the products are utilised for additional taxable supplies, importers who are registered under GST can often claim the IGST paid as an input tax credit. Accurate pricing, tax planning, and guaranteeing regulatory compliance in cross-border transactions all depend on an understanding of the relationship between customs duty and GST.
Requirements for Compliance and Documentation
Businesses that deal in bleached cotton linters must maintain appropriate compliance and documentation in order to guarantee seamless business operations and prevent penalties under GST law. Creating a legitimate GST invoice with the appropriate HSN code (usually 1404), producing an E-Way Bill for shipments over ₹50,000, and maintaining precise records of purchase orders, transporter information, and agreements are all essential needs.
In order to receive zero-rated supply benefits, exporters must additionally keep a current Letter of Undertaking (LUT). Avoid typical blunders, including claiming exemptions by misclassifying linters as raw cotton, utilising wrong HSN codes, such as 5201, or obtaining the Input Tax Credit (ITC) without accompanying documentation. GST authorities may conduct audits, impose fines, or issue show-cause notices for noncompliance in any of these categories.
Conclusion
Businesses in the cellulose, paper, and textile sectors must be aware of the GST rate on bleached cotton linters. This product is a desirable raw material for many high-value items since it falls easily under the low tax band with a 5% GST rate under HSN code 1404. Nonetheless, maintaining compliance and profitability requires accurate classification, paperwork, and ITC claims.
Aligning your billing and taxing systems with the most recent GST regulations guarantees seamless operations, no legal issues, and maximum cost efficiency, whether you’re a manufacturer, exporter, or domestic trader.