Arun Kumar Singh, Advocate
Rajesh Kumar & Associates
Excise Duty on Ready Made Garments having Retail Sale Price (RSP) of Rs. 1000/- and above they bear or are sold under a brand name.
The Central Excise duty of 2% (without CENVAT credit) or 12.5% (with CENVAT credit) is being levied on readymade garments and made up articles of textiles falling under Chapters 61, 62 and 63 (heading Nos. 6301 to 6308) of the Central Excise Tariff except those falling under 6309 and 6310 of Retail Sale Price (RSP) of Rs.1000/- and above when they bear or are sold under a brand name.
These goods can be provided in two broad categories:
First, having Retail Sale Price (RSP) of Rs.1000/- and above when they bear or are sold under a brand name. The both condition having Retail Sale Price of Rs. 1000/- and above and are sold under a brand name should be fulfilled
Second, other than the above that the readymade garments and made ups which don’t fulfill the above two conditions. The other second category i.e. the optional levy of “Nil (without CENVAT credit) or 6% (with CENVAT credit)” in case of garments / articles of cotton, not containing any other textile material and “Nil (without CENVAT credit) or 12.5% (with CENVAT credit)” in case of garments / articles of other composition, as the case may be, shall continue.
On the first category, Central Excise duty has been levied with two options:
First option is to pay Central Excise duty at the rate of 12.5% with CENVAT Credit.
Second option is to pay Central excise duty at the rate of 2% without CENVAT Credit.
Though an option has been given to the manufacturers of pay excise duty only 2% without cenvat credit on 60% being the tariff value. In this case manufacturers shall not be allow to take cenvat credit on inputs and input services.
2% of the 60% Retail Sale Price (RSP)
|Sl. No.||SRP OF RS. 1000/-||RS.|
|1.||Abatement at the rate of 40%||400/-|
|2.||Taxable value at the rate of 60%||600/-|
|3.||Excise Duty at the rate of 2%||12/-|
|4.||Total Value of the goods||1012/-|
The maximum manufacturer of readymade garments who buy cloth from the market, the option of 2% excise duty on 60% of the value without cenvat credit shall be an easy to going method in general.
In this regard, the instructions issued vide Budget letter F.No.334/3/2011-TRU dated 28.02.2011, Instruction D.O. F.No.334/3/2011-TRU, dated 04.03.2011 and Instruction D.O. F.No. B-1/3/2011-TRU, dated 25.03.2011. The said instructions shall apply mutatis mutandis to the new levy. Salient features of these instructions [suitably modified for the proposed optional levy, as underlined] are as under:
(i) The levy shall not apply to retail tailoring establishments that stitch garments in a customized manner to the size and style specifications of individual customers, whether out of fabric purchased by the customer from the same establishment or fabric supplied by the customer.
(ii) The brand name owner, who gets the goods manufactured on his own account on job work, shall pay the duty leviable on such goods as if the goods were manufactured by him. The brand name owner (and not the job-worker) shall be required to register and comply with all the provisions of Central Excise law. Rule 4 (1A) of the Central Excise Rules, 2001 and Para 1, clause (vi) of notification No.36/2001-C.E. (N.T.), dated 26.06.2001 refers.
(iii) However, the brand name owner will be given the option to authorize his job-worker to pay the duty leviable on the goods. If such an authorization is given, then the jobworker would have to obtain registration. Proviso to rule 4 (1A) of the Central Excise Rules, 2001 and proviso to Para 1, clause (vi) of notification No.36/2001-C.E. (N.T.), dated 26.06.2001 refers. (iv) A unit which 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, does not satisfy the definition of “job-worker” and would, therefore, have to obtain registration and discharge the duty liability.
(v) In cases where the brand name owner gets goods bearing its brand manufactured from other manufacturers (normally small units) without providing the raw materials or inputs, and if the RSP is not affixed or marked on such goods when they are cleared in the course of sale from the factory of a manufacturer to the brand owner, then no excise duty would be payable by such a manufacturers since the RSP of such goods is not disclosed to them by the brand owner. However, since the process of labeling or re-labelling constitutes a process of “manufacture”, duty on the tariff value (based on the RSP) would be payable as and when the brand owner labels the goods with the RSP of Rs.1000/- or above and clears them for further sale. 4
(vi) The value for computing the eligibility as well as the exemption limit for purposes of SSI exemption would be the tariff value of the goods. Explanation (C) to notification No.8/2003-C.E., dated 1st March, 2003 refers.
(vii) The SSI exemption for the month of March, 2016 will be Rs.12.5 lakh, subject to fulfilment of other conditions of the notification No.8/2003-C.E., dated 01.03.2003. For this purpose, notification No.8/2003-C.E., dated 1st March, 2003 is being amended suitably.
(viii) The eligibility for availing of the SSI exemption in 2015-16 for the month of March 2016 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 2014-15. The computation for this purpose shall be done in accordance with the provisions of Para 3A of notification No. 8/2003-C.E. For this purpose, a certificate from a Chartered Accountant based on the books of accounts for 2014-15 shall suffice.
(ix) Excisable goods which were produced on or before 29.02.2016 but lying in stock as on 29.02.2016 shall attract excise duty upon clearance. Manufacturers shall keep a stock declaration of finished goods, goods-in-process and inputs as on 29.02.2016 in their records duly certified by a Chartered Accountant so as to enable 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, if he so desires. No stock declaration, will, however, be required to be made to the jurisdictional central excise authorities.
(x) Full exemption from Central Excise duty will be available to duty-paid goods returned to the manufacturer during a financial year up to an aggregate ceiling not exceeding 10% of the value of clearances for home consumption made in the preceding financial year. The manufacturer would be required to observe the following procedure for this purpose:
(a) To submit an intimation within 48 hours of the receipt of the returned goods about the value of returned goods received in his factory/registered premises;
(b) To maintain proper accounts/record of the receipt, finishing operations, and dispatch of returned stock indicating the monthly and cumulative value of the returned stock received during the financial year and to produce the same as and when required.
Notification No. 31/2011-C.E., dated 24th March, 2011 refers. This facility has been provided since it is a common practice in this industry that the duty-paid stock cleared to the wholesale dealer/retailer on consignment basis that remains unsold is returned to the manufacturer either at the end of the season or from time to time. Such returned goods are cleared either as such or after „re-finishing‟ operations to another wholesaler or retailer for sale (often at reduced prices). The 5 re-finishing operations could involve cleaning, ironing, re-folding, repacking or relabeling, some of which constitute “manufacture” in terms of the relevant Chapter Notes. This facility obviates the need to pay excise duty twice on the same goods. Therefore the views expressed above are matters of opinion based on the laws common at the time of view being expressed, which may change as the law evolves time to time.