CA LALIT MUNOYAT
The issue of excise duty on readymade garments, the applicability of SSI exemption notifications and many such other issues were discussed in my last article VALUE BASED EXEMPTION SCHEME FOR SSI – GARMENTS . Since the time of publication of this article many clarifications were issued and many procedural aspects were simplified. In this article I propose to discuss these clarifications. In this article readymade garments and made up articles will be referred to as “Garments”
In order to know if you are liable to excise duty on readymade garments, follow the following procedure:-
1) Check up the description of the products you are manufacturing.
2) If it is garments, then check up the following:
a. Whether the garments carry a Brand name or not.
If garments are non branded, then you are fully exempt from the payment of excise duty under Notification No. 30/2004 CE dated 09-07-2004. You can carry on your business as usual.
b. If the garments carry a brand name of your ownself
If the garments carry a brand name of your ownself, then you are eligible for SSI exemption under notification 08/2003 CE dated 01-03-2003
c. If the garments carry a Brand name of another person.
If the garments carry a Brand name of another person then you are not eligible for SSI exemption and you have to pay the duty from the first transaction itself.
3) Class 2(a) hardly needs any explanation..Many of manufacturers are confused about the matter in class 2(b) & 2(c)
4) A discussion on class 2(b)
If you are covered by class 2(b), then first check if you are an SSI . For doing so you must consider the following:
a. What was your turnover for the year ended 31-03-2011. While calculating the turnover, you should exclude the following turnover
i. Turnover of non excisable 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)
b. Did the aggregate value of clearances of all excisable goods for home consumption exceed rupees 400 lakhs in the preceding financial year ?. For the purpose this calculation, clubbing provisions shall apply i.e. the clearances shall be totaled up as under:
i. Aggregate value of clearances by a manufacturer from one or more factories, or
ii. Aggregate value of clearances from a factory by one or more manufacturers,
c. If the turnover of preceding financial year i.e. 2010-11 was not in excess of rupees 400 lakhs, then check the turnover ( i.e. the aggregate value of clearances of all excisable goods for home consumption) of the current year starting 1st April 2011. Keep on taking the running total of every day’s clearances till you reach a sum of Rs. 140 Lakhs. At this point of time you will have to apply for registration under the ACT and when you reach the figure of Rs. 150 Lakhs, you will have to start paying the excise duty on the value of all clearances in excess of Rs. 150 Lakhs.
d. Now we are faced with one problem. For calculating the aggregate value of clearances , both during the preceding year and the current year, what rate should be adopted to calculate the Value.?
e. The Central Excise Act 1944 provide different values for different products and for different purposes , based on which duty can be calculated. They are as under:
i. Specific Duty – It is the duty levied , not on the basis of value but on other parameters like weight, length, volume, thickness etc. This method is not applicable to us.
ii. 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.
iii. Retail sale price. In case of goods covered under the provisions of the Legal Metrology Act, 2009 the Central Government may require the manufacturer to declare on the package thereof the retail sale price of such goods. In such cases where such RSP is declared the same value shall be deemed to be the retail sale price declared on such goods less permitted amount of abatement from such retail sale price.
a) 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 for such sale.
b) Where on the packages of any garment more than one retail sale price is declared, the maximum of such retail sale price shall be deemed to be the retail sale price.
c) Where the retail price, declared on the package of any garment at the time of its clearance from the place of manufacture, is altered to increase the retail sale price, such altered retail sale price shall be deemed to be the retail sale price.
d) Where different retail sale prices declared on different packages for the sale of any garment in packaged form in different areas, each such retail price shall be the retail sale price for the purposes of valuation of the excisable goods intended to be sold in the area to which the retail sale price relates.
iv. Tariff value – The Central Government can issue a notification and fix tariff values of any articles listed in the notification, for the purpose of levying of the excise duty. This is known as duty based on “Tariff value”. For garments this tariff value is fixed at the rate of 45% of the Retail Sale Price that is declared or required to be declared on the retail packages under the provisions of the Legal Metrology Act, 2009.
In case 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.
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.
f. It is only the Tariff value which can be used for the purpose of calculating the value of the “aggregate value of clearances” for determining the eligibility or otherwise for SSI exemption. This is clear from the provisions of SSI notification no. 08/2003 in which at clause 5 (C) the term value has been defined.
g. In case the aggregate value of clearances of all excisable goods for home consumption) of preceding financial year i.e. 2010-11 was in excess of rupees 400 lakhs, then the SSI exemption shall not be available to you for the current year 2011-12 and you shall be liable to take registration immediately and start paying the duty from the very first transaction.
5) A discussion on class 2(c)
If you are covered by class 2(c) i.e. you are the manufacturer of readymade garments and use the Brand Name or Trade Name of another person, then nothing discussed above shall apply to you and you shall be liable to take to pay the duty from the very first transaction itself. The SSI exemption shall not be available to you and you shall be treated like any other manufacturer.
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.
However there are many controversies regarding an unregistered brand name. Say, if two manufacturers are using the name “Club” & “CLub” which is not registered in anyone’s favour but they are using the same for a fairly long period of time, will it be treated a brand name for any one of them and none of them. What if the brand name is registered under different classes of product say “Tata Motors” under Vehicles and “Tata Toys” under Toys class. The time and space does not permit further discussion on this matter and I shall deal with the same some other time.
Clarification issued by LETTER D.O.F.NO. B-1/3/2011-TRU, DATED 25-3-2011
1) Who needs to register for this levy? Is it the brand owner or the job-worker?
As stated in the D.O. letter of 28th March, 2011, the Central Excise Rules have been amended to prescribe that the person who gets ready-made garments and made-up articles of textiles (Chapters 61, 62 or 63 manufactured on his own account on job work shall pay the duty leviable on such goods as if the goods were manufactured by him. It is evident, therefore, that the brand name owner (and not the job-worker) is required to register and comply with all the provisions of Central Excise law.
It is relevant that the brand name owner has been given the option to authorise his job-worker to pay the duty leviable on the goods. If such an authorisation is given, it is the job-worker who would have to obtain registration.
2) If a unit manufactures goods bearing the brand name of another person out of inputs or raw materials which have been purchased independently and not supplied by the brand owner, will the unit be eligible for treatment as a “job-worker”? If not, would it be required to register?
Such a unit does not satisfy the definition of “job worker” which means a person engaged in manufacture of ready garments and made-up articles of textiles on behalf and under the instructions of his Principal (i.e. brand owner) from any inputs or goods supplied by the Principal so as to complete a part or whole of the process resulting ultimately in the manufacture of ready garments and made-up articles of textile goods (Chapters 61 or 62 or 63). It is not enough for a job-worker to manufacture goods or to undertake a process on behalf of and under instructions of the brand owner. The inputs or goods must also be supplied by the brand owner. Such units would, therefore, have to obtain registration and discharge the duty liability.
3) The retail sale price is not disclosed to the Job Worker by the brand owner. In such case what would be the tariff value for payment of duty?
Where goods are cleared from the manufacturer to the brand owner in the course of sale and they do not bear the RSP, the transaction value under section 4 would be deemed to be their tariff value. Since the process of labelling or re-labelling constitutes a process of “manufacture”, duty on the tariff value (based on the actual RSP) would once again be payable as and when the brand owner labels the goods with the RSP and clears them for further sale. The garments purchased by the brand owner being duty-paid, he would also be entitled to claim credit and utilize that for the payment of duty when he clears the goods after affixing the RSP.
4) Many small units manufacture ready-made garments for brand owners and clear them without affixing any brand name. Will such units be required to register?
Where no brand name is affixed on such goods, when cleared by the job worker, he is not required to register as the levy is only on goods bearing a brand name or sold under a brand name. As and when the brand owner affixes the brand name on such goods, he would be required to pay excise duty.
5) Many units manufacture branded ready-made garments exclusively for export or pre-dominantly for export. Would they be required to register?
Normally, units manufacturing exclusively for export would also clear some goods for home consumption either as rejects, seconds or waste. To the extent, the value of clearances for home consumption of the manufacturer/unit is within the eligibility limit (of Rs.4 crore in the previous financial year), benefit of SSI exemption would be available up to a value of clearances of Rs. 1.5 crore in the current financial year. The condition that would have to be fulfilled is that the goods cleared for home consumption should either be unbranded or bear the brand name of the manufacturer himself. If these conditions are fulfilled, the unit would not be required to register till the exemption threshold is crossed. However, if the goods cleared for home consumption bear the brand name of another person, neither the benefit of SSI exemption nor exemption from registration would be available.
6) Would units referred to at S.No.5 be eligible for the simplified export procedure?
Yes. Since they would avail of the benefit of the SSI exemption i.e., an exemption based on the value of clearances, they would be eligible for the simplified export procedure.
7) What is the value for computing the turnover for the purposes of SSI exemption? Would it be the Retail Sale Price, wholesale price or the tariff value?
Value for computing the eligibility as well as the exemption limit for purposes of SSI exemption is defined in Explanation (C) to Notification No.8/2003-CE, dated 1st March, 2003. Accordingly, it would be the tariff value of the goods.
8 ) Would SSI exemption be available to a manufacturer/ unit for goods falling under Chapters 61, 62 or 63 for the full exemption limit of Rs. 1.5 crore for the month of March, 2011? Or, would this limit be applied on a prorata basis for one month i.e., Rs. 12.50 lakh?
In the absence of a provision in the SSI notification to curtail the exemption to Rs. 12.5 lakh for March, 2011 benefit up to the full exemption threshold of Rs. 1.50 crore would be available for clearances for home consumption made in March, 2011. Of course, the conditions of the notification would have to be fulfilled.
9) How would the eligibility for SSI exemption be computed for the financial year 2011-12?
As stated above, the eligibility for availing of the SSI exemption in 2011-12 is that the value of clearances for home consumption from one or more manufacturer from one or more unit should not have exceeded Rs.4 crore in the financial year 2010-11. The computation for this purpose should be done in accordance with the provisions of para 3A of Notification No.8/2003-CE. For this purpose, a certificate from a Chartered Accountant based on the books of account for 2010-11 may be accepted.
10) What is the status of Finished Goods in the factory/warehouse as on 28-2-2011? Will goods produced before 28-2-2011 but lying in the warehouse attract duty? Are the manufacturers required to submit stock Declaration?
Excisable goods which were produced on or before 28-2-2011 but lying in stock as on 28-2-2011 would attract excise duty upon clearance. However, such goods as had already been cleared from the factory of the manufacturer at Nil rate of duty on or before 28-2-2011 but are lying in the warehouse/ private store room for further sale would not be chargeable to the duty of 10% once again. Manufacturers would be required to submit a stock declaration of finished goods, goods- in-process and inputs as on 28-2-2011. Submission of such stock declaration would not only be for the purposes of payment of the excise duty but also for enabling the manufacturers to claim Cenvat credit on inputs or inputs contained in goods lying in stock as already provided for in rule 3(2) of the Cenvat Credit, Rules, 2004.
11) Can manufacturers claim Cenvat credit of excise duty paid on inputs
Manufacturers can claim Cenvat credit on inputs as per the provisions of the Cenvat Credit Rules, 2004
CA Lalit Munoyat
B.Com.(Hons.), CS., FCA, DISA