Impact of GST on Manufacturing sector

impact of gst on manufacturing sector

Manufacturing sector is about transforming materials into goods using machinery or Capital goods. Many people may use the term ‘Manufacturing’ for handicraft but it does not explain it at all.

Indian manufacturing sector covers a small portion of the world manufacturing Industry.

It is evident that the indian manufacturing sector is sluggish at present. Various factors increase threat to a new entrant in manufacturing Industry with the fear of shallow margins.

Indian legacy provide little space for the easy expansion of the firm. There is an inefficient methodology behind production, planning, supply chain management, quality control and maintenance that cult the mass production. Indian local infrastructure lags behind global peers in terms of transformation, power and road facilities. There is a rising employment shift towards the manufacturing sector as the youth is joining labour empowerment in a huge number annually but unfortunately there is a considerable constant failure to create job for such mass.

Growth of the manufacturing sector is also critical for ensuring a balanced Trade. It is widely visible that India has been importing large volumes of manufactured goods as its own very economy fails to meet the market demand.

Among the manufacturing products, the top five products are food, basic metal, rubber and petrochemicals, chemicals and electrical machinery.

Indian manufacturing sector has been plagued by the taxation cascade and that brought an unwholesome stagnation to it. Government of India levy indirect tax on manufactured goods in India, which is Excise Duty. Such goods have been specified in the Central Excise Tariff Act as subjected to tax. it can be categorized as :

Basic excise duty

Under section 3 of Central Excise and Salt Act,1944 on all excisable goods other than salt which are produced or manufactured.

Additional excise duty

Under section 3 of Additional duties of Excise Act, 1957. It is levied in lieu of sales tax.

Special excise duty

As per section 37 of Finance Act, 1978 levied on all excisable goods on which there has been basic excise duty levied.

In current scenario, there  is a different slab of excise duty for different commodities.

Service Tax

As per Finance Act 1994 and subsequent rules, Service Tax is a tax levied by Central Government of India on services provided to manufacturing unit excluding services covered under negative list.


VAT is a multi-point tax on value addition which is collected at different stages of sale. VAT is applicable to intra-state sales. CST is same as VAT and is applicable for Inter-state sales only.

As the new government has proposed the implementation of GST, Impact on manufacturing sector will be seen giving a push to the economy.

GST will reduce the cost of procurement/production of goods. It will break the cascade of tax at all the stages and there will be no retention/disallowance on stock transfer of goods.

GST will bring Central/Union tax credit availability which may lead to removal of extra level of warehousing or supply chain.

Till now there is no clarity between supply of goods, supply of goods and services and supply to oneself. It has been expected that GST Act will bring clarity in the term of ‘supply’.

GST will make India an even and seamless market, the current area based exemptions and hikes will become irrelevant.

GST will make a hassle free transportation system. Supply of goods from one part to another will then occur in less transit time. Availability of right material at right place in right time would be achieved.

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