Important Keyword: Circular No. 205/17/2023-GST, GST on Imitation Zari Thread, GST on Imitation Zari Yarn, Imitation Zari Thread GST Rate, HS Code 5605 GST, Metallised Yarn GST, Metallised Polyester Film GST, Plastic Film GST Rate, GST Council 52nd Meeting, CBIC Circular 205/17/2023, Notification No. 20/2023-Central Tax (Rate), Inverted Duty Structure GST, Textile GST Rate
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Table of Contents
F. No. CBIC-190354/195/2023-TO(TRU-II)
Government of India
Ministry of Finance
Department of Revenue (Tax Research Unit)
*****
North Block, New Delhi
Date: 31st October, 2023
Circular No. 205/17/2023 - GST: Clarification Regarding GST Rate on Imitation Zari Thread or Yarn Based on the Recommendation of the GST Council in its 52nd Meeting Held on 7th October 2023.
To,
Principal Chief Commissioners/ Principal Directors General, Chief Commissioners/ Directors General,
Principal Commissioners/ Commissioners of Central Excise & Central Tax
Madam/ Sir,
Subject: Clarification regarding GST rate on imitation zari thread or yarn based on the recommendation of the GST Council in its 52ndmeeting held on 7th October, 2023 –reg.
The GST Council in its 50th meeting had recommended reduction of GST rate to 5% on imitation zari thread or yarn known by any name in trade parlance, following which Sl. No. 218AA had been inserted in Schedule I of notification no. 1/2017- Central Tax (Rate) dated 28.6.2017.
- Doubts have been raised whether metal coated plastic film converted to metallized yarn and twisted with nylon, cotton, polyester or any other yarn to make imitation zari thread is covered under Sl No. 218AA of Schedule I covering imitation zari thread or yarn, and attracting 5% GST, or under Sl No. 137 of Schedule II covering other metallized yarn attracting 12% GST. As per HS Explanatory Notes, the heading 5605 covers – (1) yarn consisting of any textile material (including monofilament , strip and the like and paper yarn) combined with metal thread or strip, whether obtained by a process of twisting, cabling or by gimping, whatever the proportion of the metal present (2) yarn of any textile material (including monofilament , strip and the like and paper yarn) covered with metal by any other process including yarn covered with metal by electro-deposition. The heading also covers products consisting of a core of metal foil (generally of aluminum) or of a core of plastic film coated with metal dust, sandwiched by means of an adhesive between two layers of plastic film.
- In light of the above, the GST Council has recommended to clarify that imitation zari thread or yarn made from metallized polyester film/ plastic film falling under HS 5605 are covered by Sl No. 218AA of Schedule I attracting 5% GST. The GST Council has also recommended that no refund will be permitted on polyester film (metallized)/plastic film on account of inversion of tax rate. Requisite changes have been made in notification no. 5/2017- Central Tax (Rate) vide Notification no 20/2023-Central Tax (Rate) dated 19.10.2023.
- Difficulty if any, in the implementation of this circular may be brought to the notice of the Board.
Yours faithfully,
Dibyalok
Technical Officer, TRU
📚 Frequently Asked Questions (FAQs): Circular No. 205/17/2023 - GST
Q1. What is Circular No. 205/17/2023-GST?
Answer:
Circular No. 205/17/2023-GST clarifies the GST rate applicable to imitation zari thread or yarn made from metallised polyester film or plastic film falling under HS Code 5605. The clarification was issued based on the recommendations of the 52nd GST Council Meeting to remove doubts regarding the correct GST rate and classification of these products. It also explains the restriction on claiming refunds due to the inverted tax structure.
Q2. What is the GST rate on imitation zari thread or yarn?
Answer:
The applicable GST rate is 5%.
The circular confirms that imitation zari thread or yarn manufactured using metallised polyester film or metallised plastic film and classifiable under HS 5605 is covered under Serial No. 218AA of Schedule I of Notification No. 1/2017-Central Tax (Rate). This clarification removes confusion between the 5% and 12% GST rates that existed in the industry.
Q3. Why was this clarification issued by CBIC?
Answer:
Many businesses actually faced this issue because there was uncertainty about whether imitation zari thread made from metallised polyester film should be taxed at 5% or treated as "other metallised yarn" taxable at 12%.
To ensure uniform implementation of GST law, the GST Council recommended that such products be specifically treated as imitation zari thread eligible for the concessional 5% GST rate. This clarification helps manufacturers and traders follow a consistent tax treatment.
Q4. Does the clarification apply to metallised polyester film twisted with cotton, nylon or polyester yarn?
Answer:
Yes. The circular specifically covers imitation zari thread or yarn made by converting metallised polyester film or plastic film and twisting it with nylon, cotton, polyester, or other textile yarns.
In simple terms, even though different textile materials may be used during manufacturing, the finished imitation zari thread remains eligible for the 5% GST rate if it falls under HS Code 5605.
Q5. What is HS Code 5605 and why is it important?
Answer:
HS Code 5605 covers metallised yarn, including textile yarn combined with metal thread, metal strips, or metallised plastic films. The circular refers to the Harmonized System (HS) Explanatory Notes to clarify that imitation zari thread manufactured using metallised polyester film falls within this heading.
Correct classification under HS Code 5605 is important because it determines whether the product qualifies for the concessional 5% GST rate.
Q6. Is GST refund available due to the inverted duty structure on metallised polyester film?
Answer:
No. The circular clearly states that no refund will be allowed on metallised polyester film or metallised plastic film on account of the inverted tax structure.
The GST Council specifically recommended this restriction, and the necessary amendment was made through Notification No. 20/2023-Central Tax (Rate) dated 19 October 2023. Businesses should therefore factor this into their pricing and input tax credit planning.
Q7. Does this circular introduce a new GST rate?
Answer:
No. The circular does not introduce a fresh tax rate.
Instead, it clarifies that imitation zari thread or yarn already falls under the existing 5% GST entry inserted after the recommendations of the 50th GST Council Meeting. The purpose of the circular is to remove doubts regarding classification and ensure uniform implementation across tax authorities and businesses.
Q8. How does this clarification benefit manufacturers and traders?
Answer:
If you look at it practically, the biggest benefit is certainty. Earlier, manufacturers and traders often faced disputes over whether their products attracted 5% or 12% GST. The circular removes this ambiguity by clearly identifying the products eligible for the lower rate.
This reduces classification disputes, improves pricing certainty, and helps businesses avoid unnecessary GST litigation during assessments.
Q9. What should manufacturers check before applying the 5% GST rate?
Answer:
Manufacturers should verify that the product is genuinely imitation zari thread or yarn manufactured from metallised polyester film or metallised plastic film and falls under HS Code 5605.
They should also maintain complete product specifications, manufacturing records, invoices, and HSN classifications to support the concessional GST rate during departmental audits or assessments. Proper documentation significantly reduces future disputes.
Related Resource:
GST Compliance: https://finodha.in/gst-compliance/
Q10. Is this clarification relevant for textile exporters?
Answer:
Yes. Textile exporters manufacturing or trading imitation zari thread should carefully consider both the concessional GST rate and the restriction on refunds due to inversion of tax rates.
Although the finished product attracts 5% GST, the circular specifically denies refund on metallised polyester film or plastic film because of the inverted duty structure. Exporters should evaluate the financial impact while planning procurement and pricing strategies.
Download PDF: Circular No. 205/17/2023 - GST
More Information: https://taxinformation.cbic.gov.in/
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