Indian Tax Solution
Budget 2012: Effective excise duty on branded
garments eased little
March 17, 2012 : Union Budget has given mixed bag
of response for the recommendations of Textile Industry. Some of the provisions
in the budget that could have a direct and indirect bearing on the Textile and
Clothing Industry are as follows.
The central plan outlay for the Textile Ministry
was increased by 27 per cent to Rs 7000 crore for FY2012-13 against revised plan
expenditure of Rs 5503.30 crore in FY2011-12. The Total Plan and Non-plan
expenditure for the Textile Ministry increased 23 per cent to Rs 7836.41 crore
for FY2012-13 against Rs 6445.57 crore in the revised estimates of FY2011-12.
The revised estimates for allocation of TUFS stood at Rs 3529.67 crore for
FY2011-12 against budgeted estimates of Rs 2980 crore. Government has extended
Technology Up gradation Fund Scheme (TUFS) for 12th five-year plan. In this
context, it has allocated plan outlay of Rs 2775.80 crore under TUFS for FY
2012-13, down by 21 per cent on y-o-y basis. This scheme provides for
reimbursement of 5 per cent out of interest actually charged by the lending
agencies for facilitating investments in modernization of Textile Jute
Government has announced a financial package of Rs 3884 crore for waiver of
loans of handloom weavers and their co-operative societies. Of this Rs 2205
crore has been allocated for revival reforms and restructuring package for
Handloom sector. Under this scheme fund is being provided for repayment of 100
per cent of principal and 25 per cent of interest as on date of loan becoming
NPA and which is overdue as on 31 March 2010 in respect of viable and
potentially viable weavers with an overall ceiling of Rs 50,000 per individual
Further, to provide technical support for poor handloom weavers, it has proposed
to set up Three Weavers Service Centers one each in Mizoram, Nagaland and
Jharkhand. It has also proposed to set up two more mega handloom clusters one to
cover Prakasam and Guntur districts in Andhra Pradesh and another for Godda and
neighboring districts in Jharkhand.
One power loom mega cluster to be set up in Ichalkaranji in Maharashtra [ Images
]; with budget allocation of Rs 70 crore.
A pilot scheme for promotion and application of Geo Textiles in the Northeastern
region is proposed for 12th five-year plan with an outlay of Rs 500 crore.
Proposal to provide weighted deduction at 150 per cent of expenditure incurred
on skill development in manufacturing sector
Government in the Union budget FY2012/13 has increased Standard rate of excise
duty from 10 per cent to 12 per cent. Thus the excise duty on the manmade fiber
products would be increased from 10 per cent to 12 per cent. Consequently, merit
rate of 5 per cent is being enhanced to 6 per cent while 1 per cent excise duty
applicable on 130 items is also being enhanced to 2 per cent with a few
The excise duty on readymade garments bearing a brand name or sold under a brand
name is being enhanced to 12 per cent. The rate of abatement on such readymade
garments is being increased from 55 per cent to 70 per cent. Hence, the tariff
value for purposes of charging duty would be @ 30 per cent of the retail sale
Basic customs duty on Wool Waste (CTH 5103) is being reduced from 10 per cent to
5 per cent and that of Wool Tops (CTH 5105) is being reduced from 15 per cent to
5 per cent.
Basic Customs duty Aramid thread/ Yarn/ fabric (Speciality Threads) for
manufacture of Bullet proof helmets for Defence and Police personnel is being
reduced from 10 per cent to Nil with Nil CVD and Nil SAD.
Full exemption from basic customs duty exemption is being provided to shuttle
less looms, parts/components of shuttle less looms by actual users for
manufacture, specified silk machinery viz. Automatic reeling silk reeling and
processing machinery and their accessories including cocoon assorting machines,
cocoon peeling machines, vacuum permeation machine, cocoon cooking machine,
reeled silk humidifier, bale press and raw silk testing equipments.
The concessional 5 per cent duty available to specified textile machinery under
erstwhile Notification No. 21/2002-Customs dated 1.3.2002, superseded by
Notification no.12/12-Customs dated 17th March, 2012 is being restricted only to
the new textile machinery. Consequently second hand machinery would attract 7.5
per cent basic customs duty.
Extension of TUFS for the 12th five-year plan is welcoming for the Textile
Industry. However, the allocation has been reduced by 21 per cent in FY13. Cheer
on allowing the concessional 5 per cent duty on only new machines is offset by
the 7.5 per cent customs duty on the second hand machinery. Mostly, textile
industry imports second hand machines for their capacity building at lower capex.
This may have a negative impact on weaving and processing industry in the midst
of / or planning expansion. Further, the industry recommendation of bringing in
neutral fiber policy is kept aside with increase in the excise duty on MMF. The
Industry expectation on cut of excise duty on the branded apparel was half met.
While the excise duty has increased, the government has increased abatement
there by cutting the effective tax from 4.5 per cent earlier to 3.6 per cent.
Union Budget has been mixed bag for the textile industry. While the government
has extended its helping hand for unorganized handloom industry by financial
package and loan waiver scheme; the concerns of spinning, weaving and processing
industry left unanswered. On the other hand, extension of TUFS scheme is a
breather to the industry.
However, the effective marginal reduction in the excise duty on branded apparel
was way short of industry expectations. Increase in excise duty on MMF products
will further squeeze the already wafer thin margins of the MMF industry, which
is hit by spike in crude oil based derivatives and sluggish demand.
Source : http://www.rediff.com
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