Vikash Patil’s siesta inside his mini-cargo truck, parked outside Surat’s Vankar Textile Market, comes to an end when his colleague Anwar Khan returns from a wholesaler’s office. All the paperwork has been done and the duo will now have to transport the goods in the truck — bundles of clothes — to a bigger vehicle some distance away. From there, the clothes and others from across Surat will be taken to a factory, where these will be dyed and embroidered — all part of its journey to becoming an apparel.Patil and Khan are part of an industry that is trying to find a footing after being hit hard by the roll-out of the new indirect tax regime. The goods and services tax (GST), implemented on July 1, 2017, subsumed 17 taxes under five slabs. It was supposed to ease tax process and intra-state trade. But a year since, GST remains an unpleasant term for small trader.“You ask everyone here — from porters to a seth (merchant) — GST is the most feared word even now,” says Patil, showing the 15-digit goods and service tax identification number on the challan in Khan’s hands. This document is crucial for tax processes.

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A year ago — the days before the GST was implemented — textile traders in Gujarat’s second largest city came out on to the streets, fiercely opposing the new tax. The 5% tax slab included fabric, and Surat is a hub of fabric. The traders were anguished as fabric was never taxed in independent India, though yarn — the raw material from which fabric is prepared — was covered by value-added tax. For 18 days, the city’s textile industry, with 65,000 wholesalers spread across 150 markets, stopped work. Surat was the only city to see such fierce opposition to the GST.The textile traders also received support from a section of diamond merchants, who were unhappy with the 3% GST on cut and polished diamonds. But the anger of the city’s diamond industry evaporated when the GST Council slashed the rate to 0.25%. Surat has about 4,000 diamond factories, directly and indirectly employing seven to eight lakh people.The knife of GST had cut the city’s trading community into two. On the one side is a diamond industry that remains largely unaffected by the GST. On the other side is the textile industry, which is crying for help and sending SOS messages to the Centre.

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According to data with the Federation of Surat Textile Traders Association, production in the city has dropped from 4 crore metres a day to 2.5 crore metres in the past year. One lakh looms have been sold, some in the scrap markets, as business had to shut shop. The federation’s general-secretary Champalal Bothra says: “At least 5,000 textile traders wound up their business after GST. The new tax regime has impacted 60% of marginal traders, those with an annual turnover of less than Rs 5 crore. The 5,000-6,000 traders who earn Rs 10 crore or more have been insulated from the GST.”The question, however, is why should a 5% tax cause such an extreme distress to the textile industry? Traders cite various reasons — from not getting refund on duty inversion (inverted duty is one when tax on finished product is lower than that on the raw material), blockage of working capital because of purchase-sell mismatches and, the most dreaded, process of filling up a complicated form called ITC-4, mandatory for securing tax credit. Getting tax credit lowers the tax burden of a trader.

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Union Finance Secretary Hasmukh Adhia has another view on why Surat traders are opposing GST. “Traders are not willing to come under the tax net mainly because of the fear that they will have to report their correct turnover, which may have consequence on the direct tax side,” says Adhia, who, as the head of the revenue department, is also the ex-officio secretary of the GST Council, the apex body that approves changes in the indirect tax regime.But a number of traders told ET Magazine they were paying income tax honestly, and added that the transition from cash to cheque transactions was taking a toll on business volume.Unlike most textile units, the diamond industry is better organised. The GST has just been an add-on procedure for this section.Imported raw diamonds land in Mumbai through the banking channels before being ferried by the angadias, the unofficial courier men, to Surat. The diamonds are processed in Surat, Saurashtra and other parts of Gujarat before being exported. Angadias charge fee in cash, giving scope for manipulation.In fact, the government’s 0.25% GST levy on rough diamonds is basically meant for tracking the transit of diamonds rather than mopping up any additional revenue for the government.

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“Three percent GST on polished diamonds was a concern for us,” says Babubhai N Gujarati, president of Surat Diamond Association. “But I knew the government would understand. The GST Council reduced the rate to 0.25% in January this year.”Forget GST, this diamond industry seems unmoved by even the Nirav Modi-Mehul Choksi scam. Flamboyant diamantaire Nirav Modi and his uncle Mehul Choksi are alleged to have defrauded Punjab National Bank of over Rs 13,000 crore. Both are absconding. Will more such diamond frauds crop up in the days to come?“In 2003, we had the Chirag Diamonds case (the company declared itself bankrupt and the owner Mahendra Gandhi mysteriously disappeared from the country),” says Damjibhai G Mavan, secretary of the city’s diamond association. “Now we have Nirav Modi. But the diamond industry is resilient enough to overcome such turbulences. Surat’s diamond business is well above GST or Nirav Modis.”

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“In diamond trade, a polisher can become a factory owner”Babubhai N Gujarati, who rose from being a diamond polisher to a factory owner, explains why GST has no impact on the diamond businesses in SuratI started as a polisher in late ’60s, working over 10 hours a day. It was quite a struggle till I set up a diamond factory in Surat in 1992. I named the company B Mahesh. B is Bharat, my elder son who now manages our office in the headquarters, Mumbai.And Mahesh is my younger son who looks after our factory in Surat. We have 400 employees and make an annual business of `80-90 crore. Today, GST has no impact on the diamond business here. I became the president of the Surat Diamond Association in August — a month after the implementation of the GST. I led a delegation to New Delhi and met Finance Minister Arun Jaitley.Three percent GST on polished diamond was a concern for us, as transactions in diamonds are of high value. But I knew the government would understand, and the GST Council reduced the rate to 0.25% in January. The diamond business is a job creator and it’s possibly the only business where a polisher can become a seth (merchant).

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