Analysis of Union Budget 2017 provisions of Income Tax Service Tax Excise Duty Custom Duty with Budget Highlights Commentary Speech, Notification, News & Articles.
CA Lalit Munoyat
Important Note: For a clear & better understanding, the provisions, wherever possible, have been explained by examples. The readers are earnestly requested to download and refer the attached Excel Sheet to see the examples which will help them understanding the subject very quickly.
1) Under the provisions of the Industrial Laws applicable to an industrial Unit SSI means a Unit whose investment if Plant & Machinery does not exceed Rs. Five Hundred Lakhs.
2) However the definition of SSI under the provisions of the Excise Act is totally different from the definition as provided under Industrial Laws. Under the provisions of the Central Excise Act an Small Scale Industry is one whose aggregate value of Turnover does not exceed Rs. One Hundred and Fifty Lakhs made on or after the 1st day of April in any financial year.
3) So for the current discussion we have to completely ignore the definition under Industrial Laws (Clause 1 above) for defining SSI BUT BE CONCERNED only with the definition under the Central Excise Act which is based on Turnover and not on the value of investment in plant & machinery.
4) For evaluating the eligibility of an Small Scale Industry, under Central Excise Act, the following conditions must be satisfied:
a. The turnover of the Unit must not exceed rupees One Hundred and Fifty Lakhs made on or after the 1st day of April in any financial year and
b. The turnover of the Unit must not exceed rupees Four Hundred Lakhs in the preceding financial year. (Excel Example-1)
c. For calculating the eligible turnover , the following clearances shall not be considered:
i. Turnover of unconditionally exempt goods
ii. Turnover of branded goods
iii. Turnover to Units in SEZ, FTZ, 100% EOU etc
iv. Sales to UNO etc. for their official use
v. Export Sales (Nepal, Bhutan excluded)
please refer to the attached Excel Sheet which clarifies the concept of taxable turnover. (Excel Example-2)
5) Other Conditions for availing SSI benefit
a.The SSI scheme is Optional.
i. Option 1: Pay the normal rate of duty on the goods cleared and avail cenvat credit on the inputs.
ii. Option 2: Avail the exemption scheme and forgo the claim of Cenvat Credit on inputs till you reach the turnover of Rs. 150 Lakhs.
iii. In both the cases the option shall be exercised before effecting the first clearances at the normal rate of duty. Such option shall not be withdrawn during the remaining part of the financial year.
iv. However the manufacturer can take the credit on capital goods and use the same for payment of normal duty after he crosses the basic exemption limit of Rs. 150 Lakhs.
6) Provisions for Clubbing of Turnover
i. Sales by the same manufacturer from different factories : Where goods are cleared from one or more factories by the same manufacturer, the turnover of the factories will be clubbed to determine the exemption limit of Rs. 400 Lakhs/150 Lakhs and not separately for each factory.
ii. Sales by different manufacturers from the same factory: Where the specified goods are cleared by one or more manufacturers from the same factory, the exemption shall apply to the aggregate value of clearances of all the manufacturers from that factory.
7) The exemption contained in this notification shall not apply to specified goods bearing a brand name or trade name, whether registered or not, of another person, except in some specified cases. (Refer Notification 8/2003 CE)
VALUE BASED EXEMPTION SCHEME FOR S S I – GARMENTS
1) The Finance Bill-2011 levied Excise duty at the rate of 10% on ready-made garments and made-up articles of textiles when they bear or are sold under a brand name. Hitherto, ready-made garments and made-up articles were exempt from Central Excise duty on the condition that no credit of duty on inputs is taken by the manufacturer. If credit were taken, the applicable rate was 4% for goods of cotton, not containing any other textile material and 10% for others. By the proposed amendment this concessional treatment will apply only to those goods as above stated not bearing a brand name or not sold under a brand name. For such goods not bearing brand name ,therefore, the optional duty regime would continue. In the case of ready-made garments and made-up articles bearing a brand name or sold under a brand name, no such option would be available and a duty of 10% would be payable regardless of the composition of the item/article.
2) Processes such as affixing a brand name on a product, labeling or re-labeling of containers etc. shall be processes amounting to manufacture. As for the valuation of these goods, tariff value has been fixed at the rate of (60%)45% of the retail sale price. However SSI exemption has been extended to the goods attracting this levy.
3) It is the practice in the garment and made up industry for brand owners who have goods manufactured from several job-workers. The brand owners may or may not, themselves, possess any manufacturing facility. In such a situation the liability to pay duty and comply with Central Excise procedure shall be on the person on whose behalf the goods are manufactured by job-workers. For this purpose, he would be required to register his private store-room or warehouse in which inputs are received for distribution to job-workers and finished goods are received from the job-workers. He would also be required to comply with all the other provisions of Central Excise law. The job-worker is exempt from payment of duty if the merchant manufacturer pays the duty. Alternatively, the merchant manufacturer may authorize the job worker to obtain registration and comply with all formalities of Central Excise including payment of duty. The merchant manufacturer shall be permitted to avail of credit of duty paid on inputs, input services and capital goods.
4) However the levy was not at all welcome by the garments manufactures/Traders. While speaking on the Bill the Finance Minister stated “The House would recall that one of the considerations that guided the formulation of my proposals on indirect taxes was to prepare the ground for the transition to GST, beginning with a reduction in the number of exemptions. It was in this background that a mandatory levy of 10 per cent was proposed on branded ready-made garments and made-ups of textiles. I have already announced an increase in the level of abatement on these products so that the overall burden of tax comes down and small manufacturers benefit. I would take this opportunity to re-emphasize that this would enable an SSI unit to continue to enjoy the exemption even if it had a turnover based on Retail Sale Price (RSP) of Rs.8.90 crore in 2010-11.
5) It has been pointed out by the garment industry that often brand owners who outsource production to small units do not disclose the RSP to them. Since the duty is payable on a value linked to the RSP, this poses a problem for small manufacturers. A deeming provision is being made to enable such manufacturers to pay duty on the wholesale price at which they make a sale to the brand owner. As and when the brand-owner affixes the RSP on the garment or made-up, he would pay the additional duty, if any.
6) The garment and made-up industry has a high incidence of return of unsold stock. In order to obviate the burden of double payment on such goods, I propose to exempt from excise duty, returned goods not exceeding 10 per cent of the value of clearances of the unit in the preceding financial year. Physical verification of stock of such returned goods by Central Excise officers would not be necessary.
7) The doubts and queries raised by the industry have also been examined. A detailed clarification is being issued on these. I would also like to recapitulate to the Hon’ble Members that –
a. The levy does not apply to unbranded goods;
b. It does not apply to goods made to order for a retail customer;
c. The benefit of SSI exemption is available to goods bearing or sold under the brand name of the small manufacturer himself
d. Simplified Export procedure is available to units that predominantly export and sell unbranded goods or goods bearing their own brand name in the domestic market.
8) However the Finance Minister has compounded the confusion among the garment traders when he stated on the floor of the Lok Sabha that “ I would take this opportunity to re-emphasize that this would enable an SSI unit to continue to enjoy the exemption even if it had a turnover based on Retail Sale Price (RSP) of Rs.8.90 crore in 2010-11.What does this statement mean?. In addition to fooling or misleading the trading community it has compounded the confusion within no bounds and this statement is being interpreted differently by Different traders in many different ways namely:-
a. There is no duty until the manufacturer reaches the Turnover of Rs. 8.90 Lakhs.
b. The duty is to be paid upto the turnover of Rs. 8.90 Lakhs and thereafter there is no liability to duty.
c. In the case of General SSI Units duty is payable from first transaction itself if the Unit had a turnover of Rs. 400 Lacs or more during the previous year. Taking this logic forward someone suggested that as per this provision when the turnover of Rs. 400 lakhs is equated to Rs. 8.90 Lakhs, then the basic exemption of Rs. 150 Lakhs should also be increased proportionately to Rs. 334 Lakhs.
For the discussion that follows, the following definition will be of great importance
Brand name or Trade name : means a brand name or a trade name, whether registered or not, that is to say, a name or a mark, such as symbol, monogram, label, signature or invented word or writing which is used in relation to such specified goods for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified goods and some person using such name or mark with or without any indication of the identity of that person.
Retail sale price means the maximum price at which the excisable goods in packaged form may be sold to the ultimate consumer and includes all taxes local or otherwise, freight, transport charges, commission payable to dealers, and all charges towards advertisement, delivery, packing, forwarding and the like, as the case may be, and the price is the sole consideration of such sale.
9) I shall now make a humble effort to answer the queries raised in response to this topic the first part of which is published at: http://taxguru.in/excise-duty/excise-duty-readymade-garments-magic-figure-exempted-turnover-rs-890-crore.html
a) SSI unit to continue to enjoy the exemption even if it had a turnover based on Retail Sale Price (RSP) of Rs.8.90 crore in 2010-11.
It is a totally misleading statement aimed at fooling the trading community so that they may feel that they have been given some relief. It is a simple mathematic . Turnover of Rs. 400 lakhs without any abatement is EQUAL to a turnover of Rs. 8.90 Cr. based on Retail Sale Price (RSP) with an abatement of 55% from the RSP. (Refer Excel Example-3). In this example different rates of abatements have been assumed to find out any real benefit as claimed by the Finance Minister , but in all the cases the Basic Turnover worked out to be Rs. 400 Lakhs in all the cases. The maths is correct while the displayed advantage is totally misleading.
b) The increase in the abatement from 40% to 55% has benefitted only the Retailer and not the SSI manufacturer. (Refer Excel Example-4)
1) The Government has clarified that where goods bearing the brand name of another person are cleared in the course of sale by a manufacturer to such person and the retail sale price is not affixed on the goods, the Transaction Value of such goods shall be deemed to be the tariff value.(Notification 12/2011 (NT) dated 24th March 2011)
If a manufacturer X clears goods bearing a brand name “ABC” to Y, who is the brand name owner on sale basis at the transaction value of Rs. 200/- per garment, duty at the rate of 10% would be chargeable on Rs. 200 /-which is the deemed tariff value.
“Transaction Value” means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods.
2) Exemption on Goods Returned:Notification 31/2011 dated 24th March 2011 exempts all goods bearing a brand name or sold under a brand name from the whole of the duty of excise leviable thereon, when goods, on which appropriate duties of excise have been paid, are returned or brought back to the same premises or factory and cleared therefrom after being re-made, re-conditioned, re-packed or subjected to any other process subject to the following conditions:
(i) No Cenvat credit of the duty paid on such returned goods is taken under the provisions of rule 16 of the Central Excise Rules,2002;
(ii) An intimation containing the details of the document under which goods are returned and their value, is submitted to the jurisdictional Central Excise authority, within 48 hours of the receipt of the returned goods in the factory or premises ; and
(iii) a proper account of receipt and disposal of such goods is maintained and accounted for in the monthly return.
(iv) the aggregate value of goods cleared from a factory or premises under this exemption in a financial year does not exceed 10% of the aggregate value of clearances for home consumption from the same factory or premises in the preceding financial year.
3) Please brief us on the recent levy of excise duty on readymade garments ?
Excise duty has been introduced in Budget 2011 on branded readymade garments @ 10% on Retail Sale Price (RSP) less abatement @ 55% from the RSP. However in a case where retail sale price is not affixed on the goods, then the Transaction Value of such goods shall be deemed to be the tariff value. This means you will have to pay duty at your invoice price without any abatement of 55% which is available only when the branded goods are sold at RSP.
Own drafted Definitions for clarity of understanding: 1) Pre-abated Turnover means Turnover @ RSP before deducting 55% abatement Say Shirt @ RSP Rs. 1000/-. 2) Post-abated Turnover means Turnover @ RSP less abatement @ 55% from RSP i.e. 45% of Rs. 1000/- i.e. Rs. 450/-
Q 1. if one has turnover of Rs. 2.30 Cr from 1.4.2010 to 28.2.2011 ,then what is position of exemption for goods sold or to be sold between 1.3.2011 to 31.3.2011? We know that he would get exemption of Rs. 1.50 Cr for first clearance from 1.4.2011
Ans: 1 assume the turnover of Rs. 2.30 Cr is of garments without abatement. In such a case the pre-abated turnover @ 55% would be Rs. 5.11 Cr @RSP. So you can still have a pre-abated turnover of Rs. 3.79 Cr to reach the magic figure of 8.90 Cr to retain SSI eligibility for SSI exemption for 2011-12. The levy is effective from 01-03-2011 and will not be attracted till you reach the pre-abated turnover of Rs. 8.90 CR.
Q 2. What is the relevance of the exemption limit of Rs. 4.00 Cr, 1.50 Cr and 8.90 Cr.? We are all confused
Ans 2: The limit of Rs. 4.00 Cr is the value of turnover during any preceding year based on which the SSI liability is determined for the current year. The exemption of 1.50 Cr is of Transaction Value. However for Garment SSI the limit of Rs. 4.00 Cr. is equal to pre-abated value of Rs. 8.90 Cr. to be calculated on the basis of RSP. However the liability to duty arise from Rs. 1.50 Cr. normal limit and not from the pre-abated value of Rs. 3.34 Cr RSP ?
Q 3: If I started a manufacturing unit in Jan 2011, till what turnover would I be exempt from excise for the year ending 31st March 2011 and what are its pros and cons for the following years ?
Ans: 3: As stated above the levy is effective from 01-03-2011 and will not be attracted till you reach the pre-abated turnover of Rs. 8.90 CR.
Q 4: My Turnover of readymade garments I e transaction value from 1.4.2010 to 28.2.2011 is 1.80 crore. My question is how to do business for the month of march? Should I get myself registered before selling the readymade garments ? Will I be eligible for the SSI exemption of Rs. 1.50 crore on sale made during the period from 1.3.2011 to 31.3.2011.
Ans: 4: In the case of branded garments the levy was optional till 28-02-2011 As stated above the levy is mandatory and is effective from 01-03-2011. If your transaction based turnover for the preceding year 2009-10 was more than Rs. 4.00 Cr then the levy will be applicable from 1st March 2011 itself from the first transaction and SSI benefit will not be available to you.
Q 5: I want to know what is the difference between Normal & SSI Units ? What is the magic figure of 8.90 CR.? If my sale is more than 4 Crs in FY 2011-12 am I still SSI for FY 2012-13 and what is the clause that we have to file declaration if our sale is more than 90 lacs.?
Ans 5: If your pre-abated turnover of branded garments for the financial year 2011-12 is less than Rs. 8.90 Lakhs then your liability for duty during the financial year 2012-13 will not arise until you cross a post-abated turnover of Rs. 1.50 Cr.
Q 6: Do I have to pay the excise duty as a manufacturer or the liability is on the Retailer ?
Ans 6: In case of Job manufacturing the liability to duty is primarily on the principal who gets the job work done. The job-worker is exempt from payment of duty if the merchant manufacturer pays the duty. Alternatively, the merchant manufacturer may authorize the job worker to obtain registration and comply with all formalities of Central Excise including payment of duty. The merchant manufacturer shall be permitted to avail of credit of duty paid on inputs, input services and capital goods. (Notification No. 13/2011-CE dated 1-3-2011.)
Q 7: I have a question regarding exemption of 8.90 crore turn over on retail price. Sir I have question related to Retail Price we are giving 55% mark up on our whole sale price then what would be our turnover exemption in current year. example:- 1) our whole sale price is Rs.500/- and its retail price is Rs. 775/- and on this base I did turnover of Rs. 5.50 Crore (as per our whole sale price) at this point am I liable for excise or will I get 1.50 crore exemption for the year 2011-12?
Ans 7: What I have understood from your case is that your total turnover before abatement is Rs. 10.50 Cr. and when loaded with 55% markup it becomes Rs. 1628 Cr. If it is so then you are already liable to duty because your pre-abated turnover is far in excess of Rs. 8.90 Cr. 2) For FY 2011-12 the limit of Rs. 1.50 Cr will not be jacked upto Rs. 2.73 . You are liable to duty from ZERO point.
Q 8: I am small scale garment manufacture having turnover based on sale price less than 1 CR. Am l liable to pay excise duty and it is necessary to take Excise number.?
Ans 8: No liability to duty and no need for registration
Q 9: If you cross the turnover by Rs.8.90 crore in the year 2010-11 then your liability of excise duty will start in the year 2011-12 when you cross the turnover by Rs.1.50 crore. Sir this magic figure 8.90 crore is basically 4.00 crore so my view is that if you cross the limit of 8.90 crore in the year 2011 then you have to pay excise from first point of sales rather after 1.50 crore.
Ans 9: You are correct. The last line of my article published at www. taxguru.in had a drafting error. The error has been rectified. Thanks
Q 10: If a manufacturer does not sell at wholesale price without marking MRP. Will he be eligible for enhances limit of 9.9 lacs or general SSI Limit.
Ans 10: In terms of the recently introduced Legal Metrology Act, 2009 (1 of 2010) (replacing Standards of Weights and Measures Act, 1976 ) a manufacturer is obliged to declare the retail sale price on the retail packages. So RSP is necessarily to be declared in terms of the above legal provisions. However this type of situation has been addressed to by Notification No. 12/2011 dated 24-03-2011 referred above.
Q 11: Which premises are required to be registered with the department ?
Ans 11: Generally the premises where cenvatable inputs are received, the premises where the final product is stored before removal and the factory where the final product is manufactured, are required to be registered. However in the present case of readymade garments where cenvat credit is not available (since abatement has been given) , the place where the final products are stored for clearance , will required to be registered.
Q 12: Can a retailer who does not have excise number purchases garments at wholesale rate.? If he is not allowed to purchase, how the trade will go on.?
Ans 12: This type of situation has been addressed to by Notification No. 12/2011 dated 24-03-2011 referred above.
Q 13: Please tell us about duty liability during the intervening period 1-3-2011 to 31-3-2011?
Ans 13: If the value of your turnover during the financial year 2009-2010 was Rs. 4.00 Cr or more you will have to pay duty from the very first transaction in the month of March 2011.SSI exemption is not available to you.
Note: The source of the above information is 1) Budget Speech of the Finance Minister 2) Notifications issued from time to time, TRU issued, Finance Bill-2011, Press Release of the Ministry of Finance and other web based content. This compilation is as authentic as the source itself is. The examples have been worked out based on the source which may or may not correctly display the real intention of the clauses of the Finance Bill-2011. The readers are advised to refer to the authentic source before relying upon the above compilation.
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CA Lalit Munoyat
B.Com.(Hons.), CS., FCA, DISA
The Article was First Published on 26.05.2011