LETTER D.O.F.NO. B-1/3/2011-TRU,

DATED 25-3-2011

Branded Ready Made Garments and Made-up Articles of Textiles:

1 The following changes have been made with regard to this levy :

(i)  The tariff value notified under section 3 of the Central Excise Act for these items i.e., goods falling under Chapters 61, 62 and 63 (heading Nos. 63.01 to 63.08) has been reduced from 60% to 45% of the Retail Sale Price. Notification No. 12/2011-CE (NT), dated 24th March, 2011 refers,

(ii)  It has been pointed out by industry associations that persons owning a brand often get goods bearing their brand from other manufacturers (normally small units) without providing the raw materials or inputs. Such manufacturers do not answer the description of “job-workers” and are necessarily required to register and pay duty on such goods. It has been pointed out that they may face some difficulty in discharging duty on tariff value since the Retail Sale Price of the goods is not disclosed to them by the brand owner. It has been provided that if the RSP is not affixed or marked on goods when they are cleared in the course of sale from the factory of a manufacturer to the brand owner, the wholesale price declared by the manufacturer would be deemed to be the tariff value for the payment of duty. This has been provided through the insertion of a proviso in Notification No.20/2001-CE (NT), dated 30th April, 2001 through amendment Notification No. 12/2011-CE (NT), dated 24th March, 2011. 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.

(iii)  Concerned industry associations have represented that it is a common practice in this industry for goods to be cleared by the manufacturer to the wholesale dealer/retailer on consignment basis. As a result, the duty-paid stock that remains unsold with the latter 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 re-finishing operations could involve cleaning, ironing, re-folding, repacking or relabelling some of which constitute “manufacture” in terms of the relevant Chapter Notes. Normally, rule 16 of the Central Excise Rule, 2002 would cover such cases. However, it has been represented that often one-to-one correlation of such returned goods with the original invoice (against which they were cleared initially) is not possible. Accordingly, full exemption from Central Excise duty is being provided 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-CE, dated 24th March, 2011 has been issued in this behalf. The benefit of this exemption is available only if the manufacturer does not take Cenvat credit of the duty paid on the garments/ made-ups at the time they were initially cleared from the factory. The procedure prescribed for this purpose does not envisage the physical verification of returned stock by Central Excise officers on receipt of the intimation. It may be ensured that visits by the staff are not made to the factory/ registered premises for such verification. Normal checks could be conducted, if required, at the time of audit of the unit on the basis of records/accounts maintained for the purpose. Owing to the fact that most of the units manufacturing ready-made garments or made-ups had opted not to pay Central Excise duty until the presentation of the Budget 2011, it would not be possible to determine the entitlement of a unit for exemption (annual ceiling of 10% of the aggregate clearances for home consumption in the preceding year) on the basis of Central Excise records. A certificate from a Chartered Accountant indicating the aggregate value of clearances for home consumption made by the unit in the preceding financial year may be accepted for this purpose. At the time of scrutiny of the monthly return filed by the manufacturer, it may be verified that the cumulative value of the returned garments on which the unit has claimed exemption under this notification does not exceed the prescribed limit of 10% mentioned above. The facility of rule 16 would also continue to be available where a manufacturer is able to produce and correlate the relevant duty paying documents.

2 A clarification has been sought by trade whether the levy is applicable to blinds of all kinds or curtains falling under heading No. 63.03 when these are made to order for a retail customer. It has been pointed out that blinds are normally made in the factory against order of a retail customer only and not kept in stock for sale over the counter. That being so, they do not also bear any RSP. Besides, they do not bear a brand name. Thus it is clarified that the levy would not be applicable to blinds of all kinds which are made to order for a retail customer. Consequently optional exemption benefit would continue to be applicable to such goods under Notification No. 30/2004-CE, dated 9-7-2004. The same is not true of curtains that are available off the shelf in standard sizes and either bear a brand name or are sold under a brand name. These would be liable to duty even though the length or other dimensions are often adjusted according to the requirements of the customer after sale.

3 Clarifications have been sought by the industry on several general issues related to the levy on ready-made garments and made-ups. These are discussed point-wise below:

S. No Issue/Query Clarification
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 the goods falling under Chapters 61, 62 or 63 (heading 63.01 to 63.08) 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” contained in the Explanation to Rule 4(1A). 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 should also have been supplied by the brand owner or by a person authorised by him. Such units would, therefore, have to obtain registration and discharge the duty liability.
3. The retail sale price is not disclosed to units mentioned at S. No (2) above by the brand owner. In such case what would be the tariff value for payment of duty? Notification has been issued to provide that 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.
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 manufacturer, 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

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