Circular No. 759/75/2003-Central Excise

30th October, 2003

F.No. 357/6/2003-TRU
Government of India
Ministry of Finance
Department of Revenue
(Tax Research Unit)

Subject: Clarification regarding availability of clearance based exemption to the textile traders – regarding. 

The undersigned is directed to state that some doubts have arisen regarding applicability of notification nos. 34/2003-CE and 35/2003-CE, both dated 30.04.2003 in cases of readymade garments or the grey fabric manufactured on job work. The issues raised and the clarifications thereon are as follows –

Issue (A) : Whether the exemption of Rs. 30 lakhs/Rs.25 lakhs vide notification nos. 34/2003-CE and 35/2003-CE, both dated 30.04.2003  is available to a person (trader) who is getting readymade garments/grey fabrics, manufactured by a job-worker and the total value of turnover of the job-worker is more than the exemption limits i.e. Rs. 30 lakhs/Rs.25 lakhs?

Clarification:

(a)

Notification nos. 34/2003-CE and 35/2003-CE, both dated 30.04.2003, fully exempt first clearance for home consumption upto certain aggregated value (Rs. 30 lakhs or Rs.25 lakhs, as the case may be) of specified goods, subject to certain conditions enumerated in the second paragraph of these notifications. These conditions are with respect to the ‘manufacturer’. Clarifications have been sought as to whether, in case of goods manufactured on job work basis, the term manufacturer/manufacturers appearing in these notifications refers to (i) the job worker, who actually manufacturers the goods, or (ii) to the trader/ principal manufacturer/ master weaver/person, who gets his goods manufactured on job work, or (iii) to both.

(b)

The doubt appears to have arisen because of rule 2(h) of the CENVAT Credit Rules, 2002, which provides that the term ‘manufacturer’, in respect of certain types of yarns and fabrics etc. includes a person who is liable to pay duty under rule 12B of the Central excise Rules, 2002 (i.e. the master weaver). Rule 12B of the Central excise Rules, 2002 also mentions that a trader, who gets goods manufactured on job work, shall take registration, pay duty and follow procedures as if he is an ‘assessee’. These provisions appear to have given an impression that even for the purposes of the said exemption notifications, the term ‘manufacturer’ would include such trader/ principal manufacturer/ master weaver/person, who gets his goods manufactured on job work.

(c)

Under central excise law and as interpreted by the courts, a job worker is treated as the manufacturer. There is thus no reason why a different view should be taken in case of the readymade garment and unprocessed fabrics manufactured on job work basis. The provisions of rule 2(h) of the CENVAT Credit Rules, and rule 12B of the Central Excise Rules are only for specific purposes, to enable the traders/principal manufacturer/mater weaver to undertake excise formalities and pay duty in place of the job worker and to enable taking credit of the input duty. These provisions therefore, do not alter the basic position that the job worker remains the manufacturer and any condition (imposed on a manufacturer) in an exemption notification applicable to goods manufactured (whether on his own or on job work) would be applicable to such actual manufacturer i.e. the job worker.

(d)

Doubts have also been raised as to whether for calculating the clearance value under notification nos. 34/2003-CE or 35/2003-CE, the value of clearance of goods, cleared on job work should also be taken into account. In this regard, it is clarified that the clearance value limits prescribed in these notifications include value of all clearances, whether it is of goods manufactured on job work or as independent weaver. Further, for all clearances, the value will be determined under Section 4 of the Central Excise Act and rules made there under (and not merely the job charges in case of job work clearances).

(e)

In case a weaver/ garment manufacturer who either does job work (of one person or more than one persons) or makes clearances as independent weaver/manufacturer, there is no duty liability till he reaches the total clearance level of Rs.25 lakhs or Rs. 30 lakhs as the case may be. Consequently, till then, the trader, who is getting his goods manufactured on job work, need not follow the Rule 12B procedure. It is relevant to note that Rule 12B authorizes the trader to pay the duty leviable on the job worker. Once the job worker is no longer entitled to duty exemption, the duty liability has to be discharged by the trader unless the job worker opts to pay the duty. Thus, once the total value of clearance exceeds the threshold limit of Rs.25 lakhs (or Rs. 30 lakhs, as the case may be), no further exemption would be available. In such cases, after the exemption limit is crossed, duty would be payable and the trader who is getting the job work done would have to be registered and pay duty. In case, the total clearance levels cross the eligibility limits of Rs.30 lakhs (or 40 lakhs, as the case may be) all past clearances become dutiable and the trader/traders/weaver, would be required to discharge duty on earlier clearances.

(f) The following illustration are given to explain the above,-
  • Three traders A, B, and C get grey fabrics manufactured from job worker ‘X’. The value (raw material cost + job charges) of the goods made on job work for each of the trader is Rs.20 lakhs. Since total clearance value of the job worker is Rs.60 lakhs, he is not eligible to claim any benefit under notification 35/2003-CE. Duty is payable on his entire clearance.

  • Three traders A, B, and C get grey fabrics manufactured from job worker ‘X’. In addition, X also clears grey fabrics manufactured by him as independent weaver. His clearance as independent weaver is Rs.15 lakhs. Thereafter, he undertakes job work for A, B and C in a sequential manner. The value of clearances for A is, say, Rs.5 lakhs, that for B is, 7 lakhs and for C is, Rs. 7 lakhs. For clearances made as independent weaver and on job work for ‘A’, there is no duty as the total clearance till then is below Rs.25 lakhs. The first clearances of Rs.5 lakhs for ‘B’ are also exempted. Thus, till then, ‘B’ need not follow Rule 12 B procedure. However, the balance Rs.2 lakh clearances for ‘B’ become dutiable, as the total clearances of ‘X’ have now crossed the limit of Rs.25lakhs. Thus, now ‘B’ has to take registration and pay duty on clearances of Rs.2 lakhs. As for ‘C’ his entire clearances of Rs. 7 lakhs are dutiable and he has to follow rule 12B procedure for his entire clearances. It may be mentioned that in case the clearances value for ‘C’ increases beyond Rs 8 lakhs, the total clearance value of ‘X’ would exceeds Rs. 35 lakh eligibility limit. Consequently, the entire clearance of ‘X’ would become dutiable and duty demand would arise against all i.e. ‘A’, ‘B’, ‘C’ and ‘X’ on their respective clearances.

  • A trader ‘A’ gets grey fabrics manufactured by job workers ‘X’, ‘Y’ and ‘Z’ and the total clearance value of each of these job workers is below Rs.25 lakhs. All the clearances from the job workers are within the exemption limit for individual units. The trader has no obligation to register himself or pay duty in terms of Rule 12B. In other words, he is out of the scope of the provisions of Rule 12B.

Issue (B) : M/s A,  M/s B and M/s C (three separate legal entities) purchase fabrics, cut them in their premises to the required shape for making readymade garments. The cut fabrics are sent to one job worker, M/s JW for stitching and packing. The packed fabrics are received back by M/s A, M/s B and M/s C. All three persons are availing benefit of Rs.30 lakhs exemption under notification No. 34/2003-Ce individually. M/s A, M/s B and M/s C claim that they are the manufacturers of readymade garments since they are cutting the fabrics to required shapes and are individually eligible for exemption of the said notification, even though the total value of clearance of M/s JW is Rs.90 lakhs. Whether M/s A, M/s B and M/s C are eligible for such exemption ?

Clarification: Cutting fabrics to required shape does not make M/s A, M/s B and M/s C, manufacturer of readymade garments as unless stitched, readymade garments in marketable form do not come into existence. In the instant case, readymade garment is manufactured by M/s JW. Thus, in view of the clarification given above, duty is chargeable on the entire clearance as the total clearances made by the job worker M/s JW is beyond the eligibility limit of Rs.40 lakhs. Consequently, M/s A, M/s B and M/s C would have to follow the procedure in terms of Rule 12B and pay duty.

Issue(C): Whether a manufacturer of readymade garment or grey fabrics and availing exemption under Notification nos. 34/2003-CE or 35/2003-CE, as the case may be can send inputs or semi-finished goods for job work?

Clarification: Independent manufacturers availing these exemptions do not have the facility of sending inputs or semi-finished goods, duty free, for job work unlike the units availing SSI exemption under Notification nos. 8/2003-CE or 9/2003-CE, who can avail the benefit of notification nos. 83/94-CE and 84/94-CE.

Gautam Ray
Joint Secretary(TRU)
Tel. No. 011- 23092687
Fax No. 011-23092031

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