Additional demand of GST from Suppliers to Railways spread panic among MSMEs

NEW DELHI: The suppliers of parts and components to the Railways, mostly MSMEs, have been caught in a bind due to confusion in classification in GST regime.

For example, prior to GST, the excise duty on both the air filters (central excise tariff heading 8421) and  parts of Railways locomotives (excise heading  8607) was the same 12.5%. But after GST, the GST tariff changed: while parts of Railway locomotive attracts 5% GST, the air-filters for general use attracts 18% GST.

Indian Railways directed their suppliers to levy only 5% GST (even if the GST rate could be different for the same product for general use). A large number of suppliers to Railways have received purchase orders with 5% GST and have supplied since.

Now,  teams of officers from Directorate General of GST Intelligence are making rounds  at such suppliers raising demand of differential of duty  (13%) with interest. It has left the MSME suppliers panic stricken.

“We received the purchase order from Railways with 5% GST rate and believing Railways  we supplied the material and deposited the GST collected. Now after one year, the demand of differential rate of duty (additional 13%) by authorities is unjustified and will ruin us”, says an affected MSME supplier from Meerut.

Federation of Indian Micro and Small & Medium Enterprises (FISME), the chief representative MSME body,  is raising the issue to the GST Council.

This is an issue affecting a large number of suppliers to Railways who have supplied material charging 5% GST rate.

“It is obvious that suppliers did not have any mala fide intention. They collected 5% tax as advised by directed by Railways and deposited the same”, notes FISME communique.

FISME has suggested that either Railway should bear the additional burden or since the beneficiary of lower rate was Railways-a public transport, supplies to Railways may be allowed to be made at concessional duty including that of air-filters, with retrospect.