CBIC Cir No. 205/17/2023: Tax Rate on Imitation Zari Thread or Yarn

On October 31, 2023, as per Circular No. 205/17/2023-GST, the CBIC issued a clarification concerning the GST rate applicable to imitation zari thread or yarn, aligning with the GST Council’s 52nd meeting held on October 07, 2023.

At the 50th meeting, the GST Council suggested reducing the GST rate to 5% for imitation zari thread or yarn, recognized by various trade names. Subsequently, this recommendation led to the insertion of Sl. No. 218AA in Schedule I of notification no. 1/2017- Central Tax (Rate) dated June 28, 2017.

There are queries about whether the process of converting metal-coated plastic film into metallised yarn and subsequently intertwining it with nylon, cotton, polyester, or other yarn to create imitation zari thread falls under Sl No. 218AA of Schedule I, subject to a 5% GST, or if it falls under Sl No. 137 of Schedule III, attracting a 12% GST rate for other metallised yarn.

According to the HS Explanatory Notes, heading 5605 encompasses various scenarios: (1) yarn made of any textile material combined with metal thread or strip, irrespective of the method used, such as twisting, cabling, or gimping, regardless of the metal’s proportion; (2) yarn of any textile material covered with metal using different processes, including electro-deposition. This heading also includes products that comprise a core of metal foil, typically aluminium, or a core of plastic film layered with metal dust and secured between two layers of plastic film using an adhesive.

Read also: Latest GST Notifications 2023 for Central, Integrated Tax

Considering the details mentioned, the GST Council proposed a clarification stating that imitation zari thread or yarn, crafted from metallised polyester film or plastic falling under HS 5605, falls within the ambit of Sl No. 218AA of Schedule I, attracting a 5% GST. Additionally, the Council suggested disallowing refunds on metallised polyester film/plastic film due to tax rate inversion. Necessary amendments reflecting these recommendations have been incorporated in notification no. 5/2017- Central Tax (Rate) through Notification No. 20/223-Central Tax (Rate) dated October 19, 2023.

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