Advocate Pawan K. Pahwa and CA Vishal Garg
The Union Budget/ Finance Bill 2016 has introduced the levy of Central Excise duty on the 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 by withdrawing the exemption available to such goods. The Central Excise duty of 2% (without CENVAT credit) or 12.5% (with CENVAT credit) is levied on readymade garments and made up articles of textiles. However, branded articles or goods sold under a brand name having a Retail Sale Price (RSP) of less than Rs. 1000 are not liable to central excise duty.
In respect of all goods/ articles of cotton not containing any other textile material (other than those bearing a brand name or sold under a brand name and having RSP of Rs 1,000 and above), optional levy of “Nil (without CENVAT credit) or 6% (with CENVAT credit) shall be applicable.
The tariff value for readymade garments and made up articles of textile is also increased from 30% to 60% which shall apply to all goods mentioned in the notification No.20/2001-Central Excise (N.T.) dated 30.04.2001. In other words the effective rate shall be double the rate had the goods been taxable earlier.
The salient features of the levy are as under:
The plain reading of the scheme needs clarification in respect of the levy on the “goods or articles bearing brand name but RSP less than Rs 1000” and “goods or articles not bearing brand name but RSP more than Rs 1000”. However, the writer believes that the intent is to tax only the branded articles having RSP of Rs 1000 or more. In this background, we have tabulated below the various scenarios and the applicable levy:
|Sr. No.||Conditions||Duty with Cenvat||Duty without Cenvat|
|Bearing Brand Name||RSP Rs 1000 and above||100% Cotton||Other than 10% Cotton|
Other salient features of Scheme/ other excise provisions having bearing on the levy are outlined below for better understanding:
The scheme of levy of central excise is quite complicated and complex which requires a deliberation to understand and apply and would still require clarification from the Board on certain aspects. Given this, one thing is clear that this is going to bring another round of litigation for garment industry similar to one seen by the textile industry in 2004 on introduction of Notification 29/2004 CE and 30/2004 CE in case suitable clarification or simpler scheme for levy of central excise duty is in not brought by the Government for the garment industry.