• Introduction
• Taxation on Brick Industry in Pre-GST Era
• GST Impact on Brick Industry
• Major Changes in GST Related to Brick Industry
• GST Structure before 01-Apr-2022
• GST Structure after 01-Apr-2022
• ITC Block – Section 17 of the CGST Act, 2017
• Royality Under RCM
• Composition Scheme
• FAQs

Introduction

The brick industry is classified as a small scale industry fall under MSME Sector. Primary activity of this industry is manufacturing and distribution of bricks, which are used in building and construction projects. The industry has wide variety of production for bricks, including clay bricks, concrete bricks, cement bricks, and others.

The manufacturing process in this industry involves extraction of clay or sand as raw material and mixing of same with water, blinder and other additives in order to mold in desired shape, and heating in kiln with a purpose to harden the kachi bricks to use in constructions of building whether residential or commercial, roads, bridges, tunnels and related projects.

Taxation on Brick Industry in Pre-GST Era

During Pre-GST Era, the brick industry was facing range of taxes like, Excise Duty, VAT, CST, Entry Tax which obviously was huge tax burden on this industry as well as main obstacle in its growth. With the introduction of GST, brick industry got relief from unnecessary tax burden.

GST Impact on Brick Industry

The implementation of GST Act, 2017 has had significant impact on the brick industry and reduced tax related compliance as GST is a single tax system which had subsumed old indirect taxes and provided standard tax rate by replacing varied taxes.

Major Changes in GST Related to Brick Industry

Initially, in 2017, Brick kiln sector was falling under rates as per Schedule IV-14% which means GST @ 28% was applicable on brick manufacturing. However, GST Council immediately considered the matter about high rates and in November 2017, vide Notification No.41/2017-Central Tax-Rate] Dated: 14th November, 2017 reduced GST Rate from 28 % to 5 % which was a big relief to this industry.

Input tax credit on taxes paid on Goods and Services or both used in the production process was allowed with above GST rate of 5 % on outward supply. However, ITC on coal used to fire bricks kilns was not allowed initially. Later in July 2018, The Central Government on the recommendation of GST Council taken favorable decision for this industry and allowed ITC on coal used in brick kilns.

The GST Council during its 45^th Meeting took major decision regarding this industry and Central Government notified those decisions vide following Notifications applicable from 01-Apr-2022.

S.no.	Notification number and Date	Impact of Change
1.	01/2022-Central Tax (Rate), Dated 31.03.2022	Revised tax structure of GST @ 12%
2.	02/2022-Central Tax (Rate), Dated 31.03.2022	Revised tax structure of GST @ 6%
3.	03/2022-Central Tax, Dated 31.03.2022	Threshold limit reduced for regular category of Registration
4.	04/2022-Central Tax, Dated 31.03.2022	Manufacturers of Brick etc.not Entitled to avail composition scheme u/s 10.

GST Structure before 01-Apr-2022

S.no.	Particulars	Impact of Change
1.	Registration Threshold Limits	Threshold Limit of Rs. 40 Lakh was available for Registration purpose. Means no need to take Registration if Supplier have Aggregate Turnover up to 40 Lakh. ( subject to condition of Sec 24 and 25 of the CGST Act )
2.	Facility of Composition Scheme	Tax payer had option to adopt Composition Scheme with a bar on turnover up to 1.5 Cr. Where ITC was not available to tax payer as well as Recipient of supply from such tax payer
3.	Normal Scheme (Other than Composition )	Tax payer had option to go with Normal Scheme where ITC was allowed on tax paid on inputs of Goods and Services used in business of tax payer. ITC was allowed to Recipient for supplies taken from Brick Industry.
4.	GST Rates	Composition Scheme –GST @ 1% without ITC Normal Scheme – GST @ 5 % with ITC
5.	ITC	NO ITC in case of Composition Scheme ITC allowed in case of Normal Scheme

GST Structure After 01-Apr-2022

S.no.	Particulars	Impact of Change
1.	Registration Threshold Limits	Threshold Limit Reduced from Rs. 40 Lakh to Rs. 20 Lakh.
2.	Facility of Composition Scheme	Tax payer (Manufacturers of Brick Etc) could not adopt Composition Scheme  under Section 10 of the CGST ACT.
3.	Normal Scheme (Other than Composition )	Only Scheme Available to Tax payer with 02 options of Tax Rate ( 12 % or 6 %)
4.	GST Rates	GST @ 12 % with ITC GST @ 6 % without ITC
5.	ITC	1.       ITC available with higher Rate Structure 12% 2. ITC not allowed with lower Rate Structure 6%. Also, common ITC to be reversed in view of Sec 17(2) of CGST Act read with Rule 42/43 of CGST Rules.

ITC Block- Section 17 of the CGST Act, 2017

Input tax credit (ITC) can be blocked or restricted for certain goods and services used in the manufacturing process of the brick industry. The specific rules and regulations regarding ITC blocking fall under Section 17 of the CGST Act.  Here are some common examples of when ITC may be blocked or restricted:

1. Inputs used for non-business purposes: Input tax credit cannot be claimed on goods or services used for non-business purposes, such as personal use or for a non-business event.
2. Inputs used for exempt supplies: If the bricks manufactured by the industry are exempt from GST, then input tax credit cannot be claimed on the inputs used in their manufacturing.
3. ITC shall not be allowed If a brick manufacturer has opted normal tax scheme @ 6% as per Present GST Tax Structure.
4. Inputs used for employee welfare: Input tax credit cannot be claimed on goods or services used for employee welfare, such as meals or insurance related expenses.
5. Motor vehicles: Input tax credit is not allowed in case of motor vehicle used for  transportation of person where sitting capacity is less than 13 person including driver. So if brick industry is purchasing motor vehicle which can be car or traveller having sitting capacity lesss than 13 person in that case ITC will be blocked despite of uses are in business.
6. Works contract services: Input tax credit may be blocked or restricted for works contract services, which are services related to construction or building work. Let understand with an example. Brick industry get constructed office from a Work contractor at brick kiln premises for its staff or manager to look after day to day activities, The ITC on input of such goods or services will not allowed.

Royality Under RCM

If the Brick Manufacturer is paying Royalty to Central Govt or State Govt etc. then it is covered under Reverse Charge vide Notification No 13/2017 CT Rate dated 28.06.2017 vide Sr No 5.  

Composition Scheme

Notification no. 04/2022-CT dated 31.03.2022 has restricted manufacturers of Brick Industry to opt Composition Scheme. However, traders dealing in supply of bricks are out of the purview of this notification and hence may opt composition scheme subject to conditions stipulated in section 10 of the CGST Act.

FAQs (Frequently Asked Questions)

Q: What is the GST rate on bricks?

A: At present GST rates on bricks is 12%. However, Tax payer has option to go with rate of 6% without ITC.

Q: Can I claim input tax credit (ITC) on GST paid on Goods and services used to manufacture bricks?

A: Yes, brick manufacturers can claim input tax credit (ITC) on the GST paid on raw materials such as cement, sand, Coal and other inputs  and input services used to manufacture bricks with subject to conditions stipulated in Section 17 of the CGST act. Further, if tax payer opts lower rate of GST @ 6% then ITC would not be allowed on tax paid on inputs and input services.

Q: Are there any exemptions or special provisions for the brick industry under GST?

A: No, Earlier certain types of bricks such as fly ash bricks and building bricks made of clay or cement had lower rate of tax @5%. At present Tax payer has limited option to opt tax rate @ 6% without ITC.

Q: Do brick manufacturers need to register under GST?

A: Yes, As per changed threshold limit now brick manufacturers with an annual turnover of Rs. 20 lakhs or more are required to register under GST. However, the threshold limit for registration is Rs. 10 lakhs for manufacturers in Northeastern states and hilly regions.

Q: How can brick manufacturers comply with GST regulations?

A: Brick manufacturers can comply with GST regulations by registering under GST, filing GST returns on time, and maintaining proper records of GST transactions. They can also seek the help of a tax consultant to simplify the compliance process.

Q: Can Tax payer charges 6% GST on one bill and 12% on another bill for the supply bricks as per current GST Structure?

A: It should be opted transaction wise and records should also be according to such claims of lower rate scheme as ITC is not allowed if tax payer opts Lower rate @6% while on the other hand Supply @ 12% allows input tax credit. So notification related to supply @ 12% or at lower rate of 6% should be interpreted on the basis of transaction. However opting both rates demands proper compliances as well as records.

Q: Is there any composition scheme exist in new GST Structure for Brick Industry?

A: no, at present, tax payer have only normal tax rate scheme with rates of 12% with ITC and Lower rate of 6% without ITC.

Q: Like in old GST Structure for Brick Industry where Composition scheme was available, is tax payer required to issue any document as per present GST Structure where lower rate of 6% is available ?

A: Present GST Structure only provide a facility of lower rate of 6 % where supplier can not avail ITC on inputs and input services. However, recipient is allowed to avail and utilize ITC on GST paid on goods or services supplied by Brick industry even at lower rate of 6%. So, supplier, i.e. brick industry is required to issue Tax invoice whether charging GST@ 12% or at 6%. There is no Bill of supply concept in present GST Structure for supply of taxable items.

Q: Registered person having manufacturing business of Bricks . He pays royalty to the State Government for extraction of Soil. Whether RCM will be applicable on this payment? If yes, at what GST rate?

A: Services supplied by the Central Government, State Government, Union territory or local authority by way of renting of immovable property to a person registered under the Central Goods and Services Tax Act, 2017 is liable to reverse charge under notification No.3/2018-Integrated Tax (Rate) Dated: 25th January, 2018. Till 31.12.2018 the rate of GST was applicable at the rate of tax as applicable to like goods involving transfer of title of goods on Leasing or rental services, now onwards 01.01.2019, the rate of GST stands increased to 18% (Refer notification no.27/2018-Central Tax (Rate) Dated: 31st December, 2018.)