Withdraw excise duty on branded garments, urges CMAI

The proposed excise duty on garments, has not gone down well among stake holders across the apparel segment. There have been murmurs of protest all along from brands, apparel makers and retailers as they have been asking the government to withdraw excise duty and continue the optional duty regime that applies currently, until GST is introduced. “Once GST is introduced, the whole value chain will be covered by duty and traceability as well as compliance will improve tremendously and implementation problems will also ease considerably,” argues Rahul Mehta, President, Clothing Manufacturers Association of India (CMAI). Mehta said this while addressing a seminar ‘Excise Duty on Branded Readymade Garments’ in Mumbai recently.

It may be recalled the UPA government too had experimented with excise duty as they introduced excise duty on finished products, while sustaining the exemption for upstream products. However, it was withdrawn subsequently when the disastrous consequences were understood.

Excised duty a losing proposition for industry

Mehta pointed out that the industry in the past pointed has said the very task of collecting this excise duty from the highly dispersed and mostly tiny units in the garment sector would be a formidable one for the government, especially when the rest of the value chain remains exempted and therefore traceability is a serious issue. “The large number of small and tiny units in the Sector will also find it impossible to follow the procedures involved. The result will be that evaders will prosper and compliant units will suffer. As we have emphasized before, the revenue for the government from this decision will be negligible, whereas the problems that it would create for the Industry will be huge,” Mehta says.

The introduction of the Rs 1,000 cut off price point for the applicability of excise duty will further complicate the matter. The future of the industry lies in modernising the machinery, plant, equipment and improving the quality to face the onslaught of international brands, which are entering the market every day. The temptation to avoid crossing the Rs 1,000 barrier to escape the excise duty net will drive hundreds of small manufacturers, who otherwise were gearing up to modernise and grow their operations to tinker with the quality of their products, to minimise expenditure on modernisation and to keep their operation scale as low as possible.

Clearing confusion among stake holders

To alleviate fears amongst stake holders and with a view to educate them about the various aspects of the levy, CMAI organised the seminar where Shailesh Sheth, Advocate and an Indirect Tax Practitioner was invited as a key note speaker. Sheth said ‘As anticipated, there has been all-round confusion and panic amongst the industry due to this sudden re-imposition of excise duty.” He feels the levy has to be seen in the context of the impending GST regime which in any case, would comprehensively cover the entire textile sector. He also emphasised that the so-called fear of ‘Inspector-Raj’ is unfounded as CBEC has announced significant procedural relaxations for the sector, including dispensing with post-registration verification of registered premises, acceptance of CA certified stock declarations as well as turnover for the purpose of exemption and so on.

Sheth further pointed out that considering the fact that the industry is dominated by job work, the responsibility to pay duty has been cast upon the raw material suppliers who has also been given an option to authorise the job workers to pay duty on their behalf. He pointed out that pre-budget stock of branded garments with RSP of Rs 1,000 and above and lying with the manufacturers as on 29 February 2016 would attract the duty on its clearance after 01 March 2016.

Sheth explained that the tariff value for the garments brought under the levy has been increased from 30 per cent of RSP to 60 per cent of RSP. The benefit of small scale exemption of Rs 1.50 crore has been extended to the industry, but the same is restricted to Rs 12.5 lakh for the month of March 2016. The speaker explained the method of computation of value of clearances for the purpose of determining the eligibility to exemption.