Excise Duty on Readymade Garments – Budget 2013

Finance Minister P.Chidambaram exempted readymade garments from excise duty ambit in Budget 2013-14. Earlier, garment makers had to pay 3.6 per cent excise duty on MRP value of garments compulsorily irrespective of claiming input tax credit or not.

“Now, ready made garment maker will not have to pay excise duty on MRP value of garment if input tax credit has not been claimed,” said Vardhman Textiles, CGM, I J Dhuria said.

“We welcome the move by Union Finance Minister to bring the ready made garments out of excise duty net. It will certainly provide impetus to the garment industry,” Nahar Group owned Oswal Woollen Mills, ED, Sandeep Jain said.

This move will make Ready made garments go cheaper by 7-8%.

The garment industry had been seeking withdrawal of excise duty or a moratorium till the introduction of Goods and Service Tax ( GST).

Considering the above finance minister has provided the much needed relief by restoring the optional exemption available as it stood before 01/03/2011 by amending the existing notification 30/2004 dated 09/07/2004. It is expected that almost everybody would claim the option.

Budget 2013 Extracts

Notification 8/2013-CE dated 28th Feb,2013 amends Notification 7/2012-CE dated 17.3.2012 and Notification 30/2004-CE dated 9.7.2004 as:-

Post-Budget 2013

Notification 8/2013-CE dated 28th Feb, 2013

In the said notification, in the Table, against serial number 7, in column (3), for the entry, the following shall be substituted namely:-

“All goods of cotton, not containing any other textile material.”

Pre-Budget 2013

Notification 7/2012-CE dated 17.3.2012 

“All goods of cotton, not containing any other textile material, other than those bearing a brand name or sold under a brand name.”

Notification 30/2004-CE dated 9.7.2004

“All goods other than those bearing a brand name or sold under a brand name.”

As per D.O.F.No.334/ 3/2013-TRU,

“61.1 Zero excise duty route, as existed prior to Budget 2011-12, is being restored on readymade garments and made ups. The zero excise duty route will now be available in addition to the CENVAT route under which manufacturers can pay excise duty on the final product and avail of credit of duty paid on inputs. S.No.16 of notification No. 30/2004-CE dated the 9th July, 2004 as amended by notification No.11/2013-CE dated the 1st March, 2013 and S. No.7 of notification No. 7/2012-CE dated 17th March,2012, as amended by notification No. 8/2013- CE dated the 1st March, 2013 may be referred to for details.”

Conclusion

On a harmonious reading of above provisions, Budget 2013 has removed the words other than those bearing a brand name or sold under a brand name” (stated in Notification 30/2004-CE dated 9.7.2004 ) but retained the words “All goods of cotton” (stated in Notification 7/2012-CE dated 17.3.2012).

In Simple words it can be said that readymade garments made up of cotton only are exempted from excise duty when no input is availed and utilized, whereas the assessee has taken the Cenvat on input the excise shall be leviable but at the rate of 6% only.

Therefore credit availed on the same in the past for goods in stock whether in raw material or finished goods stage or in between would disentitle the exemption. However the benefit under this notification can be availed even in a case where the cenvat credit on input services or on capital goods been availed. The said exemption is available from 1st March 2013 onwards

Some FAQs

Q Can the exemption be claimed on Garments (which is already manufactured in kept in stock before 1st March 2013) removed on or after 1st March 2013?

The answer would depend on the fulfillment of the essential condition to avail the exemption notification ie. Whether cenvat credit on any of the inputs contained in the goods cleared been availed.

If no cenvat credit is claimed then whether goods can be cleared without duty claiming the exemption. However if cenvat credit on any of the inputs is availed on the good cleared, then as per Rule 11 (3) of CCR it is necessary to work out the amount of cenvat credit availed on such inputs contained in the finished products cleared and duty need to be reversed or paid (if there is no adequate balance in the cenvat credit account) and then the exemption can be availed. If after reversal of the credit still some balances exists in the cenvat credit account the same would lapse.

Q What about raw materials and stock of semi finished goods lying in stock?

One of the essential conditions for availing cenvat credit is that the inputs on which the credit is availed should be used in the manufacture of final products on which duty would be paid. If the assessee wishes to claim exemption and have no intention of using it for products on which duty is payable, the credit which is availed need to be reversed. Hence it is necessary that the amount of duty credit taken on the raw materials on stock and also on the inputs on which credit been availed contained in the semi finished goods to be revered.

Q What about the goods lying in stock at the Job worker premises either in the form of semi finished goods or as finished goods waiting for dispatch to the supplier?

As per Rule 6 (1A) of the CER it is obligatory on the part of the raw material supplier to register and pay the duty if the goods manufactured bears the brand name or trade name of the raw material supplier. In that case the raw material supplier has to reverse the credit as mentioned in the previous pars. In other case the reversal of credit to be made by the job worker in the same way as that of the raw material supplier.

Q What about a person who does both exports and domestic turnover and has accumulated credit which he cannot use?

In that case the exporter can claim the refund of the credit either under Rule 5 of Cenvat Credit Rules or to remove goods with payment of duty and claim under Rule 18 finished goods rebate.

Q What is the other option available if working out the duty on the above basis is difficult?

The manufacture can clear the goods with duty payment till such time the stock of finished goods on which input credit is availed and avail this exemption only for further production.

Q Is there any prior permission / intimation is required to claim this exemption?

No after reversing the credit availed if any the assessee can claim this exemption and clear the goods without payment of duty. But as a measure of caution it is advised to intimate the reversal of duty and availing the said exemption by way of letter to the department.

Q Can the Garment manufacturer give a go bye to daily production records/ excise compliant invoice format / delivery challans which were maintained hitherto in consonance with the excise law?

Till such time the registration under excise is surrendered it is necessary that the documents in compliance with the excise law are maintained. It is recommended that in the invoices contain the following declaration:

“No cenvat credit on inputs is availed and claiming exemption under notification no. 30/2004 “

There may be many other questions which arise. This article has been made to ensure immediate answers to some of the common problems that RMG manufacturers maybe facing. For queries please post on pdicai.org.

DISCLAIMER: This article is provided purely for your information only and you should check other information sources before taking any action based on any of the content in this article.

87 queries in 0.799 seconds.