Struggling to Decode GST, Bhiwandi’s Power Loom Owners Shut Shop

In the aftermath of GST, uncertainty looms over mill owners and workers at Bhiwandi’s power looms.

A mill worker wrapping up work on his last day at a soon-to-be-shut power loom in Bhiwandi.

(Photo: The Quint)

For 60-year-old Hanif Nathan, a power loom owner in Mumbai’s neighbouring Bhiwandi area, his factory was not just his family’s bread and butter but also his father’s legacy. But after running 24 power looms successfully for about 50 years, Hanif has now been forced to shut shop, unable to cope with the extra expenses that GST has added to his business.

Hanif Nathan seen here sitting in his mill that has now shut operations.(Photo: The Quint)

"The government has levied 18 percent GST on yarns. If we want to add more work to our cloth, that’s an additional 5 percent. Sizing is another 5 percent. We are being charged 5% for each and every step while manufacturing. This means that even selling our grey cloth to our agent adds another 5 percent, which the agent needs to bear. So even agents have stopped buying clothes from us because when they dye the cloth, they also need to pay 18% GST to the ones dyeing the cloth and those embroidering it. After all this, if a person has yarn worth Rs 2 lakh, he would have already ended up paying GST worth Rs 1 lakh," says Nathan.

Nathan has already laid off 9 labourers working for him and is looking for a way to break the news to the remaining three workers, many of whom are the sole breadwinners for their families. With losses running up to over Rs 1 lakh, there’s a very slim chance to revive business.

Once an employment hub with a thriving power loom industry, today, business is at a standstill at Bhiwandi. With most small-scale loom owners still untouched by the Government’s digitisation drive and choosing to transact using cash, GST is unclear to them as they find themselves staring at multiple layers of taxes. Initially when a yarn is bought, a tax of 5 percent is levied on a cotton yarn – synthetic yarns cost much higher, with 18 percent tax levied on it. Apart from this, a 5 percent tax has been levied on each of the stages of manufacturing – dyeing the cloth, weaving, embroidering, etc. Since none of these stages have a digital record, the loom owner ends up paying all of this from his own pocket as he is ineligible to claim the input tax credit available.

Clarifying the existing confusion over the GST levied on the power loom sector, Santosh Maurya, a Chartered Accountant said, “The way GST will be operated is that a dealer is eligible to avail of input tax credit of all taxes paid on procurement of goods and services and take credit while paying output liability. Effectively the dealer ends up paying only net amount/value addition made to the Government. There is no cascading effect of tax as the industry will get credit for all taxes paid on the procurement of goods or services”.

Breaking down the GST imposed in the Power loom sector.(Photo: Santosh Maurya, Founder, Adventes Tax Advisors)

To cut costs, bigger power loom owners have moved the entire manufacturing process in-house. This allows them to do away with the 5 percent additional taxes on sizing, warping, dyeing and embroidery. Since many of these bigger players do have computerised transactions, they can also claim input tax credits. But they too request the Government to rethink the 18% tax levied on synthetic yarns.

"Today, the Govt has imposed GST of 18% on synthetic yarns but on cotton yarns it is 5%. We are asking that GST on cottons and synthetic yarns be equal. Cotton is a rich man's fabric. It costs Rs 70-80 per metre but synthetic fabric costs about Rs 30-32. Synthetic fabric is worn by the poor. This disparity must be removed and the Govt must also reconsider the multiple taxes imposed," said loom owner Habib Ansari, who owns about 1000 power looms and employs 500 workers.

With power looms shutting down daily, thousands of migrant labourers now stare at an uncertain fate. Twenty-two-year-old Shyam Chaurasiya is one such. When Shyam bought a one-way ticket to Mumbai from Maharajgarh in UP three years ago, he was convinced he had left unemployment behind. What awaited him and his 4 brothers were jobs in Bhiwandi just about 40 kms away from India’s financial capital. But today, Shyam has had to pack his bags and make arrangements to head back home, as the power loom he used to work at has shut operations.

Shyam Chaurasiya takes a break before starting his journey back to his home in UP. (Photo: The Quint)

“When demonetisation took place, I went back home. After 5 months, I returned. But a month later, GST was implemented. Now I have to go back to my village as there is no money. No one will pay us as there’s no work. Not enough money even for the ticket home. What do I do?” asks Shyam. 

Wasim Khan, a 32-year-old migrant labourer has been working in Nathan's power loom for over 2 years now. Today, he stands to lose his only source of income to support his family of seven members, including five children. With no money in their bank account, returning home to Kanpur isn't an option for his family.

Wasim Khan with his family now uncertain about the future.(Photo: The Quint)

Rs 6,000-7,000 isn’t enough. Earlier I used to earn about Rs 15,000-16,000 working in the power loom. Within Rs 6,000-7,000 we have to buy ration, cover travel costs, cost for healthcare, this is just not enough. Which is why many people have left and we are also thinking of leaving. As soon as we get enough money to travel, we will leave.

Wasim Khan, Worker

Apart from GST, the 15-day agitation by textile traders too has taken its toll on the small-scale loom owners. With markets across Maharashtra and Gujarat shut, there is no avenue to clear stock.

“There are about 2 lakh looms in Khadipar. But barely 5% are still open. Most loom owners have paid off their workers and shut shop, even the workers have left for their villages. About 30,000-40,000 workers have gone back. No one knows how to carry out business any more. Surat is shut, Ahmedabad is shut. Even if we want to carry on business, how do we do it?” asks Moazzam Ansari, a mill owner who was forced to shut down 48 looms as he grapples with the newer taxation laws.

Mill owner Moazzam Ansari was forced to shut down all the 48 looms he owned.(Photo: The Quint)

Weavers Associations across the country have been stepping up pressure on the Government, requesting them to rework the laws.

"We have submitted a memorandum to Mr Arun Jaitley and Mr Sudhir Mungantiwar, requesting them to consider our condition and take steps accordingly. This will definitely benefit us and empower the weavers of this country," says Anand Khatang, President of the Rajasthan Grey Cloth Association in Bhiwandi.