GST on Woven Silk Fabrics: HSN Code 5007 Overview

Silk fabrics are being heavily consumed by the textile and apparel industry in India for their elegance and durability. Organizations dealing with the woven silk fabrics must follow smooth compliance and understand the applicable GST rate, along with HSN Code 5007, used to classify these goods. This report will take a deeper dive into GST on woven silk fabrics, their classification, and compliance issues.

HSN Code 5007: Woven Silk Fabrics

Code 5007 in the Harmonized System of Nomenclature (HSN) is identified as:

Woven fabrics, of silk

Woven fabrics, of silk waste

This group of silk-based fabrics includes all silk-based or silk-blended fabrics woven to be used in garments, furnishings, and luxury fabrics. Since all silk-based fabrics have been consolidated under one code for uniform application of taxation, which eliminates some variation in classification, and helps ensure businesses using invoicing under GST can keep their invoices clear. Correct application of HSN Code 5007 allows for easier GST return filing that enables traders and manufacturers to claim Input Tax Credit (ITC) expeditiously, and avoid disputes during assessment or audits.

Refer here: GST rates and HSN code 5408 for Woven Fabrics Of Artificial Filament Yarn

GST Rate on Woven Silk Fabrics

According to the notifications of the GST Council:

Woven silk fabrics (HSN 5007) are subject to 5% GST when they are sold by a manufacturer or a trader. It is important to note that the concessional rates announced by the GST council help the Indian textile industry as the silk weaving mill industry in India is solely dependent on these clusters of woven silk textiles in Karnataka, Andhra Pradesh, Assam and other states.

Some types may be applicable for GST at 12% when the woven silk fabrics are processed, blended with synthetic fabrics or improved in value through embroidery, printing and digital designs from the manufacturers or traders. Such fabrics are generally long lasting and have a commercial value for producers and options for consumers alike, apart from enhancing the artisans/dressmakers skill set sharing.

Handloom woven silk fabrics, Traditional varieties of handloom woven silk fabrics such as Banarasi, Kanchipuram, Assam silk, etc… can remain exempt or apply the reduced GST rates subject to certain conditions, as specified under the GST law; be it artisans, weavers or "Made in India" textile industry heritage.

Every business that is dealing in woven silk fabrics must confirm and check the CBIC notifications many times, because as we experience rate slabs and exemptions can change consistently where it affects pricing, invoicing or compliance.

Additionally, it is noteworthy that any imports of woven silk fabrics will incur GST and applicable customs duties. When the importer pays a GST they can claim an Input Tax Credit (ITC) which will lower their tax total when they sell or manufacture with those goods.

Compliance & Input Tax Credit (ITC)

If selling woven silk fabrics, don't forget you will be liable to collect GST based on HSN 5007. You need to ensure your invoices reference this tax classification. As a business, you will be responsible for keeping records of your purchases, sales and stock. Remember that GST authorities may request supporting material from your records during assessments or audits.

Importantly, Input Tax Credit (ITC) is invaluable and may help to decrease taxable income. Manufacturers and traders may claim Input tax credit for GST paid on raw materials like; silk yarn, dyes, chemicals, weaving machinery, packaging materials and services in processing like dyeing or finishing etc. Since businesses in silk create input taxes, you will try to balance against output tax liability to improve cash flow and decrease costs. To experience ITC facilitation, and enjoy the benefit of being able to claim Input tax credit, traders and manufacturers of woven silk should take note of the following tips:

Make sure that all suppliers are registered for GST and provide proper tax invoices.

Wherever possible, take the time to compare your purchase invoices against GSTR-2B, to avoid any discrepancies that may be reported to the authorities.

Be sure to file GST returns (GSTR-1, GSTR-3B) by the due dates.

If you are using the HSN Code 5007 you will want to use it as reference in your invoices , in order to avoid discrepancies over tax classification.

If you do not put compliance requirements in order, like missing invoices, incorrect HSN codes or late GST filings, risk the denial to claim you ITC on your lifetime claim, as you may have interest payments and incurred penalties. To conclude, compliance requirements must be followed as prescribed which is equally important for businesses that produce or trade in silk fabrics.

Impact on Textile Businesses

The GST framework has predominantly impacted the textile sector, and this is especially true for woven silk fabrics.

Small Manufacturers & Weavers

Allowing the manufacturers and weavers engaged in the small-scale sector of woven silk fabrics to enjoy relatively lower tax rates on successful sale of woven silk fabrics, allows them room to operate in a competitive environment. GST lower tax rates reduce their cost burden on the products and encourage growth of the traditional silk weaving domain.

Exporters

Exporters of woven silk fabric receive a zero-rated supply with GST, which allows them to receive refunds of Input Tax Credit (ITC) recoveries on raw materials such as silk yarns, dyes and finishing services. This makes competition in the international market more attractive for Indian silk fabrics and supports the “Make in India” initiative.

Retailers & Traders

When retailers are in good standing for GST compliance, it allows them to obtain ITC on their input purchases, which improves their cash flow and reduces tax liabilities, while creating transparency on price for consumers to build their trust.

Job Creation in Rural Areas

As silk weaving is a labour intensive industry, there is an opportunity for clarity in compliance for GST and to exempt traditional varieties, thereby creating potential job opportunities in rural and semi-urban areas where weaving clusters exist.

Preventing Disputes

Correct classification under HSN Code 5007 removes the possibility of legal disputes, fines, and unwarranted legal concern with GST authorities. If a business incorrectly classifies its goods, it could be liable to pay the taxes it owes or become liable to compliance issues with the authorities.

Promoting Organized Trade

The government has contained unorganized trade by capturing many more silk fabric traders under the GST net and also increasing government revenues by encouraging a model of trade conducive to legitimate competition, rather than 'grey' areas of unorganized trading that need to be eradicated.

Refer this: Textile Products GST Rate and HSN Code- 5911

GST Rate Table for Woven Silk Fabrics (HSN 5007)

Category	HSN Code	GST Rate	Remarks
Woven silk fabrics (general)	5007	5%	Standard GST rate for most woven silk fabrics
Processed/finished woven silk fabrics	5007	12%	Higher rate may apply depending on processing and blends
Handloom woven silk fabrics	5007	Exempt/5%	Certain traditional varieties may be exempt from GST
Exports of woven silk fabrics	5007	0% (Zero-rated)	Exporters can claim ITC refund on inputs
Raw materials like silk yarn & dyes	Various	5% / 12%	ITC available on inputs used in manufacturing

Conclusion

Getting an understanding of HSN Code 5007 and which applicable GST rates should be applied is very useful for those businesses which are engaged in woven silk fabrics. If the business accurately follows the rules and regulations, they can effectively lower risk for taxes, recover ITC, and improve the business's ability to compete in both the domestic and international markets.

FAQs

What is the GST rate for woven silk fabrics under HSN 5007?

Generally, woven silk fabrics are subject to 5% GST but can vary depending on fabrication and whether it’s a blend.

Will handloom woven silk fabrics be exempt from GST?

Yes, there are exemptions in terms of GST notifications or in the traditional/handloom weaving process of woven silk fabrics.

Can an exporter of woven silk fabrics claim GST refunds?

Yes, exported paper, woven silk, to being zero-rated; and input tax credit (ITC) refunds can be claimed.

Why is HSN Code 5007 important in GST?

HSN Code is important to help ensure the appropriate classification, assist in correctly filing taxes in Australia; and avoid penalty for misreporting.