Budget 2013 – Impact on Garments Industry
The Garment industry has suffered a lot in the in the last one year due various factors, such as increase in the cost of power, labor, transportation, shortage of man power, and flurry of imports from Bangladesh and china etc. Most of the manufacturers in the Garments sectors are small players who neither have the infrastructure to comply with the rigorous procedures of excise law nor be able to understand the stringent penalty for non compliance of even small procedure. This has hampered the progress. Further the cost of compliance of excise law was adding salt to the injury. The need for export thrust was felt quite a lot as exports on the whole seem to be slipping and the net foreign exchange needs have increased with oil and coal imports.
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.
In this article the an attempt is made to highlight the some of the points to be borne in mind before availing the optional exemption extended by the budget changes to avoid harassment later.
Notification No. 30/2004 provides exemption from whole of duty of excise to goods falling under Tarrif heading 61,62,63 provided it does not bear the brand name or sold under brand name. As part of the Budget announcement Notification No. 11/2013 dated 28/02/2013 was issued to amend entry no 16 of Notification no. 30/2004 dated 09/07/2004.
This the exemption is made available to all goods ie., to goods bearing the brand name or sold under name also. However it is important to note here that one of the important conditions for availing the said exemption is that no cenvat credit on inputs should have been availed. 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 of the common questions that could be raised by the assesees are answered below:
· 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.
· What about raw materials and stock of semi finished goods lying in stock?
One of the essential condition 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.
· What about the goods lying in stock at the Jobworker premises either in the form of semi finished goods or as finished goods awaiting 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 jobworker in the same way as that of the raw material supplier.
· 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.
· 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.
· 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.
· 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.
Madhukar N Hiregange
FCA & S. Chandrasekhar FCA