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written by Khatabook | November 15, 2021

Effect of GST Rate on Cement Industry

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The Goods and Services Tax (GST) is a single tax that applies to the supply of goods and services from the manufacturer to the final consumer. It aims to decrease manufacturing costs and create a more uniform and simplified economy with more evenly priced goods and services. 

Don’t be concerned if you’re thinking about purchasing the cement for the construction of your house or a cement bag for renovating your home but aren’t sure if you’ll have to  pay GST on Cement bag. The implementation of GST has also relieved the seller from the high tax rate required for manufacturing and acquiring the goods. After reading this article, you will better understand the GST rate on cement and the impact of GST on cement industry. 

What are the various GST rates?

According to the products, the Goods and Services Tax (GST) is divided into five separate rates: 0%, 5%, 12%, 18%, and 28%. The GST rate on cement and cement bags and the effect of Goods and Services Tax on Cement is discussed in this article.

After China, India is the second-largest producer of the Cement industry. Our country is the highest producer of infrastructure, affordable housing, and roads. Moreover, it is also expected that the cement industry will boost in the near future.

Let’s have a look at which cement fall under which tax bracket:

GST Cement Rate at 5%:

• Monumental and Building Stone

• Limestone

GST Cement Rate at 12%:

• Statues

• Pedestals

• High or Low Relief Crosses

• Cups and writing sets

• Paper Weights

• Ornamental Goods

GST Cement Rate at 18%:

• Sets and flagstones of natural stone

• Marble and Travertine

• Mosaic cubes and artificially coloured granules

• Granite

• Worked Slate and Articles of Slate

• Milestones, Grindstones, and mining stones

• Natural Diamond

• Natural or Artificial Grain

• Slag wool and similar material wool

• Articles of Asphalt

• Trueing or cutting, hand sharpening or polishing stones, Natural or artificial abrasive powder

• Emery or corundum coated paper

• Flint coated paper, Glass or sand coated paper.

• Sound-insulating or sound-absorbing mineral materials

Also Read: Impact of GST on Different Sectors

GST Cement Rate at 28%:

• Artificially coloured granules

• Powder of natural stone

• Bowls, vases, cups, cachou, boxes, writing sets

• Ashtrays, paperweights, artificial fruit and foliage etc.

Under the value-added tax system, there were several taxes and duties which the manufacturers had to pay. There was also the problem of cascading of taxes. The final effective rate of the taxes used to be around 24%-25%.

Impact of GST on Cement Industry

Cement and Cement Bags have been subjected to GST based on their purpose and field of application. While most cement industry products are taxed at 18%, such as granites, artificial stones, marbles, curbstones, and flagstones, the cement can be taxed at 28% GST indicating that the government’s philosophy is to tax luxury items at a higher rate.

Negative Impact of GST on Cement Industry

In the Central Goods and Services Tax (CGST) Act, 2017, nothing is mentioned about the royalty which cement companies pay to the government. According to the old tax regime, clean energy cess is still levied on coal, therefore, the seller cannot claim any input tax credit. So this is outside the ambit of GST but will be included in the cost of production.

Positive Impact of GST on the Cement Industry

  • Warehousing

Many companies tend to maintain a large number of warehouses across the states to evade state entry taxes. It creates operational inefficiencies because the warehouses operate below their capacity. Because of the Good and Services tax implementation, the manufacturers will not have a warehouse in every state. GST helps the manufacturers consolidate the warehouses and select them in areas that are easily accessible to the public and which they find more convenient. This has also improved the  supply change management of the manufacturers and has made the entire Operation process more effective.

GST impact on cement industry has also proved to cut down the industry’s general expenses. Optimal utilisation of the associated components has also been achieved because of supply chain management.

  • Fewer Complex Taxes

There is a large number of excise duties in the cement industry. The cement manufacturers don’t find these duties suitable. Separate rates of GST and separate duties are levied on different types of cement based on whether they are sold in bulk or the packaged form and their purposes. But with the introduction of GST, all the duties and cess will be subsumed in a single tax. There is a fixed rate of 28% on cement. This brings simplicity to the entire system. It makes the compliances easier and will not create complex tasks.

  • Transportation Cost 

Cement manufacturers place their operational bases near the limestone quarries. The cost of transporting the cement becomes very high because it has high demand across the country. After the introduction of GST, the transportation cost has been reduced significantly.

With the introduction of GST, the transportation industry has highly benefited. The compliances for the transport industry are reduced because of less paperwork and fewer interstate reviews. This helped in reducing idle hours, higher truck utilisation, and increased uptime. The dema nd for the logistics industry will also increase because of the seamless pro cess. The delivery cost of the product will also reduce because of less delivery time. This will lower the final cost of the product for the consumers.

SAC code applicable on Cement Industry

The SAC code is the Service Accounting Code.  It has been established for the different types of cement industry in India.

• SAC code 9954 – mortars applied for constructing ovens and furnaces, and refractory cement concretes

• SAC code 99545 – Special trade Services

• SAC code 99454 – concrete services

Impact of GST on Cement Manufacturing Companies

Let’s have a look at the impact of Goods and Services Tax on the leading companies:

One of the largest and leading manufacturers of ready mix concrete and cement in India is Ultratech Cement Ltd. About 30% of the country's total exports are dependent on this manufacturer, which makes it one of the largest global producers also. Countries in Europe and Africa are the top importers of Ultratech Cement Ltd.

Since the rate of Goods and Services Tax on cement has been reduced, the company has also lowered the cost of its products by 2-3%. This has also been done to increase the demand for the cement produced in real estate. But the reduction of this rate has been nullified due to the withdrawal of the Input Tax Credit benefit.

It is also expected that the cost of cement will be increased further because of the upward pricing trend in the industry. The housing and infrastructure sector depends on the cement industry, and it is believed that it will also increase the overall cost of cement.

Reverse Charge Mechanism on Goods and Services of Construction Contracts

The Central government has notified the list of goods and services and the registered suppliers covered under the reverse charge mechanism schemes.

• For input of construction of Project

If the recipient has purchased input goods and services used in a construction project from an unregistered supplier, they will be required to pay tax on the same on a reverse charge mechanism (RCM) basis. The act's provisions also stated that 80% of the input should be purchased from the registered supplier, and then 20% can be purchased from an unregistered supplier.

• For purchase of Cement

Reverse Charge Mechanism will be applicable on the purchase of cement from an unregistered supplier for the project's construction. At present, the GST rate for such is 28%. The tax shall be paid in the same month in which it is purchased.

According to an indirect taxes specialist from the Confederation of Indian Industry (CII), GST as a whole has permitted seamless Input Tax credit, and overall, items have become 3-4% cheaper in general. The expert claims that if interest rates fall below 28%, the products will become even more affordable.

Also Read: What was the impact of GST on Real Estate?

Conclusion

The Goods and Services Tax (GST) has transformed the economy; it is a game-changing reform for the Indian economy because it establishes an appropriate net price for goods and services subject to a single taxation system. However, GST on the cement industry at 18% and 28% has created pressure on consumers. By considering common cement products such as granites, marbles, slates, limestone, and statues, this rate impacts consumer purchase. On the contrary, GST has also aided in ensuring uniformity of indirect tax rates across the country.

Cement is a crucial element in every construction activity whether it is the construction of luxury villas or the construction of affordable houses for marginal sections of the society. GST is charged at 28% for Indian housing and infrastructure development. GST is a consumption-based indirect tax levied on Goods and Services, and the final burden has to be borne by the ultimate consumer. The rate of GST on cement is more in India as compared to developed and developing countries. 

The wholesale and retail prices of cement increased drastically after GST because of the higher tax rate and other internal and external factors. It is important to note that the Indirect tax paid by cement companies decreased, and the net income and profitability of the cement companies increased after GST; it is because of the simplification of cumbersome tax law by replacing cobwebs of taxes with one nation one tax, i.e., GST. However, the government should ensure that the companies pass on the benefits of reduced taxes to consumers in the form of reduced cement prices. To learn more about GST, accounting and business tips, download the Khatabook app.

FAQs

Q: How much time will it take to get my GST refund?

Ans:

The refund for GST is applied in the FORM RFD 04. It is issued within seven days from the date of acknowledgement.  This acknowledgement is usually given within 15 days. But if there is a case of a tax on zero-rated supplies, then it may be issued within three days.

Q: Is GST applicable on sand?

Ans:

Yes, GST applies to natural sand of all types, whether they are coloured or naturally coloured. The GST rate of 5% is applicable on the sand. It falls under chapter 26 of the HSN code.

Q: What is the excise duty on cement?

Ans:

There is a central excise duty on the packaged cement at 12.5% + Rs.125 PMT. In addition to this, there is also a standard VAT rate of 14.5%. Due to both these taxes, the present total tax incidence comes out to be more than 29%

Q: What is the GST rate on the TMT bar?

Ans:

The sales and manufacturing of all kinds of steel and iron rods, bars, and scrap are in the ambit of GST and chargeable at the rate of 18%.

Q: Will a mining business be able to claim GST on the purchase of all earth moving machines, including JCBs, tippers, and dumpers, as input credit?

Ans:

The CGST Act, 2017, Section 17(5) (a) bans credit on motor vehicles. Furthermore, mining equipment such as tippers and dumpers are excluded under Section 2(76) of the CGST Act, 2017.

As a result, the GST paid on the purchase of moving machines such as tippers and dumpers used to transport machines by a mining firm will be permitted as an input credit under current laws.

Q: Can I claim ITC on construction material?

Ans:

No, ITC on the construction of Immovable property cannot be claimed. But if the input service is used for further contract services, the input tax credit can be claimed. Suppose ABC contractors construct an immovable property, then they cannot claim any ITC on their works contract.

Q: Is GST applicable for labour contractors?

Ans:

Yes, GST is applicable on all Goods and Services, including the services of a labour contract.

Q: Will railway sliding require Input Tax Credit?

Ans:

Since railway sliding is not designated as plant and machinery under section 17 of the CGST Act, 2017, input tax credit (ITC) will not be available.

Q: What are the HSN codes for the portland cement and Aluminous cement, and what are the GST rates?

Ans:

The portland cement and Aluminous cement are taxed at a rate of 28% under HSN code 2523.

Q: What is the GST rate for natural diamond and artificial grain?

Ans:

Natural Diamond and Artificial grains are subject to an 18% GST rate.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.