Production commences while furor on excise duty continues

The textiles and readymade garment industry has been looking for a ray of hope as the government is said to be considering a rollback of the 10 per cent mandatory Central Excise Rate on branded readymade garments that was announced

in the Union Budget this year. According to media reports the move is being considered following large scale protest by textile and garment associations and apparel manufacturers across India. The finance minister Pranab Mukherjee while replying to debate on the Finance Bill, had proposed to enhance the abatement from 40 per cent to 55 per cent of the retail sale price, with this relief, a unit will continue to be eligible for SSI exemption in 2011-12 even if it had a turnover based on retail sale price of Rs 8.9 crores in the current year. However, industry experts say this will encourage manufacturers to bifurcate their units and become small scale, so that they are exempted from paying tax, which will not help the economy. In fact, Rahul Mehta, President of CMAI is not so optimistic about a roll back “We have been made to understand very clearly that there will be no rollback. The only thing the government is willing to discuss is procedural issues. So we will focus on trying to minimize procedural hassles,” he says.

Garment associations such as the CMAI, Apparel Export Promotion Council (AEPC), The Synthetic & Rayon Textile Export Promotion Council (SRTEPC), Ludhiana Apparel and Knitwear Manufacturers Association (LAKMA), The Federation Of Hosiery Manufacturers Association Of India among others are all supportive of the move to eliminate excise duty as it is extremely cumbersome. Although exports are exempted, various industry department and exporters will waste time, as record-keeping will be a problem. Most feel that if the government is concerned with revenue, they should improvise with other taxation like increasing VAT, so that at one point only the additional tax is collected rather than have a new agency come into the picture.

“According to our feedback, the government is thinking of imposing excise duty on yarn itself. This way the industry can avoid excise hassles because we are more concerned with the tax administration than the tax itself. Sure we want a return to the status quo. GST is likely to come in,” says Sandeep Wadhwa, Secretary, LAKMA. “Our main suggestion was a rollback. It’s very difficult follow-up on excise in this industry. The excise and customs departments are together and this will wreck the industry. Their rules and regulations are difficult to follow. Moreover, the partial rollback has no meaning. They have done the calculation on a MRP basis. They had done a 60 per cent calculation on MRP, which was wrong to begin with. In the garment industry this is not possible. Then they made it 45 per cent. Manufacturers have to pay the manufacturing cost,” says Vijay Purohit, President the Gujarat Garment Manufacturers Association (GGMA).

Meanwhile the agitation has now acquired a political hue. With a last attempt by garment industry representatives to get a rollback not working much the disappointed Ludhiana-based garment makers commenced production from April1. Industry experts feel that several garments makers may also go for breaking up their units to claim the central excise exemption of Rs 1.50 crores, which could lead to price variation between products of small and big units.

“I think now the chances of rollback are quite dim. We expected that the FM will either announce the roll back or some major concession but to our utter surprise, he refused to give any concession. We have commenced production and have also asked our buyers like United Colors of Benetton, Adidas, Reebok to pay us excise duty early as we do not have enough funds to pay to the exchequer," concludes Ajit Lakra, President of the Chamber of Knitwear & Textile Associations of Ludhiana.