CBIC releases Clarification regarding GST Rate on Imitation of Zari Thread or yarn [Read Circular]

The Central Board of Indirect Taxes and Customs (CBIC) has released the clarification regarding Goods and Services Tax rate on imitation of Zari thread or yarn based on the recommendations of the GST Council.

During its 50th meeting, the GST Council suggested a reduction in the GST rate to 5% for imitation zari thread or yarn known by any name in trade terminology. As a result of this recommendation, Schedule I of notification no. 1/2017- Central Tax (Rate) dated 28.6.2017 was updated to include Sl. No. 218AA.

However, questions have arisen regarding whether metal-coated plastic film, which is converted into metallised yarn and combined with nylon, cotton, polyester, or other yarn to produce imitation zari thread, falls under Sl. No. 218AA of Schedule I (attracting 5% GST) or falls under Sl. No. 137 of Schedule III, which pertains to other metallised yarn attracting 12% GST.

According to the HS Explanatory Notes, heading 5605 encompasses the following:

1. Yarn composed of any textile material (including monofilament, strip, paper yarn, and similar materials) combined with metal thread or strip, regardless of the proportion of metal content.
2. Yarn made from any textile material (including monofilament, strip, paper yarn) covered with metal through any other process, including electro-deposition.

This heading also includes products that consist of a core of metal foil (typically aluminum) or a core of plastic film coated with metal dust, sandwiched between two layers of plastic film using adhesive.

Given this explanation, the GST Council has recommended clarification that imitation zari thread or yarn made from metallised polyester film or plastic film falling under HS 5605 is indeed covered by Sl. No. 218AA of Schedule I, subject to a 5% GST rate.

Additionally, the GST Council has suggested that no refunds will be allowed for polyester film (metallised)/plastic film due to the inversion of tax rates. These necessary changes have been incorporated in notification no. 5/2017- Central Tax (Rate) through Notification no. 20/2023-Central Tax (Rate) dated 19.10.2023.

To Read the full text of the Order CLICK HERE

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