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Garments manufacturers were under the Central Excise levy in 2003. In 2004 the option either to pay duty by availing CENVAT Credit or claim full exemption from payment of duty without availing CENVAT Credit was provided. Most of the units opted for exemption from full rate of duty.

W.e.f. 01.03.2011 as a part of budget changes the said option is removed for the following goods, bearing brand name or sold under brand name:

a.      Articles of Articles of apparel and clothing accessories, knitted or crocheted;

b.      Articles of Apparel and Clothing Accessories, Not Knitted or Crocheted;

c.      Other made up textile articles; sets;

whereby, the manufacturer of such goods are made liable to pay excise duty at the rate of 10% by availing CENVAT Credit.

Further the concept as existed earlier of ‘Merchant Manufacturer’ has been re-introduced for such goods wherein the person who is getting such goods manufactured on job work is construed to be manufacturer and all the statutory obligation under the law is fastened on the principal who gets the goods manufactured by the job worker. By this the job workers would be relieved from excise duty clutches.


However option is also given whereby the job worker can comply with the provisions of law as to duty payment whereby the principal would be relieved from the compliance.


The silver lining is that the goods would be eligible for small scale exemption under Notification No. 8/2003-CE dated 01.03.2003. This exemption is available upto a value of clearances of Rs. 150 Lakhs. SSI as understood under central excise are those where the value of clearances for the previous year computed as per the said notification should not have crossed Rupees Four Hundred Lakhs (four crores). Further also relevant to note that the benefit of this exemption would not be available for affixing the Brand name of others.

It would also be relevant to note that goods manufactured by job workers and received by the ‘Merchant Manufacturer’ before 01.03.2011 would not be liable to excise duty as this a new levy introduced on ‘Merchant Manufacturer’ w.e.f. 01.03.2011. Further the job worker is not liable to duty on such goods as the same would have already been cleared by them. Therefore such goods can be cleared without payment of duty. However it would be ideal that the said fact is intimated to the department.

Issues discussed as Questions and Answer:

1.         Which are the goods covered under tax net?

Following goods bearing the brand name or sold under the brand name:

a.    Articles of Articles of apparel and clothing accessories, knitted or crocheted;

b.    Articles of Apparel and Clothing Accessories, Not Knitted or Crocheted;

c.    Other made up textile articles; sets;


2.         From which date the duty is liable to be paid ?

For all the clearances (except as discussed below) on or after 1st March 2011, duty is liable to be paid.


3.         Whether duty is payable even on Exports?

No. The goods exported would be free from duty in terms of Central Excise Rules, 2002. However the procedures that are set out in the rules may have to be followed.


4.         What is the effective rate of duty on such articles?

The rate of duty on such goods is 10%.


5.         Whether there is any concession for fully cotton goods?

No. there is no concession for cotton goods. Even cotton goods are liable for 10%.


6.         What is the value on which the duty has to be paid?

The duty has to be paid on value which is equal to 60% of retail selling price (RSP/MRP) declared on the goods. For the goods not covered within the ambit of MRP/RSP declaration, the duty is payable on transaction value which essentially covers selling price.


7.         Who is liable to pay duty when the goods are manufactured by job worker?

As per Rule 4(1A) of Central Excise Rules, 2002, person who gets the abovementioned goods manufactured or produced on his account on job work is liable to pay duty as if the goods were manufactured by such person. Further also all the legal compliances has to be done by such person.

However such person may authorize the job worker to fulfill such obligation on his behalf for which job worker should undertake to do so.


8.         Would the goods manufactured and lying there as a stock be also liable?

Yes. As the duty liability is fastened by amending the exemption notification even those goods which were manufactured before 1st of March but cleared after the date are also liable.


9.         Whether duty is payable on the goods produced/manufactured by job workers before 1st of March 2011 and lying in stock of the principal as on 1st March 2011?

There would not be duty liability on the said goods as considering the principal as manufacturer is effective from 01.03.2011 and prior to that date he was not the manufacturer of such goods. Further job worker is not liable as he had already cleared the goods before 01.03.2011.


10.      Whether duty is liable to be paid on the finished goods lying in stock of job worker premises as on 01.03.2011, which is cleared to principal on or after 01.03.2011?

Yes. There would be duty liability on such goods. Though there would be technical issue whether job worker is liable on such goods or principal, it is suggested that the principal discharges duty on the said goods.


This note is prepared just to give basic information about the changes brought in Budget 2011. For detailed understanding and other procedural aspects, the relevant notifications and rules has to be studied and examined. Please feel free to give your feedback and comments on the above to

Madhukar N Hiregange FCA


Published by

Madhukar N Hiregange
(Chartered Accountant)
Category Excise   Report

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