CA Lalit Munoyat

Excise Duty on Readymade Garments- The magic figure of exempted turnover of Rs. 8.90 Crore

While initiating debate on the Finance Bill-2011 the Finance Minister said that the garment traders had criticised the proposed 10 per cent excise duty on readymade garments saying it would hurt the small business. He added

1)      “To address this concern, I propose to enhance the abatement of 40 per cent to 55 per cent on the retail sale price.

2)      With this relief a unit will continue to be eligible for SSI exemption in 2011-12 even if it had a turnover based on retail sale price of Rs 8.90 crore in the current year”, the Minister said. (Current year means 31-03-2011)

The statement of the Finance Minister on the floor of the house sent some cheer waves across the spine of many garment manufacturers. With the increase in the rate of abatement from 40% to 55% , the manufacturer would now be required to pay duty only on 45% of the MRP of the product. To illustrate Point No. 1

Excise duty of Readymade garments Before Change After Change
MRP of Readymade Shirt Rs. 1000 Rs. 1000
Abatement 40% 55%
Less: Value of abatement 400 550
Value for charging Duty 600 450
Excise Duty payable @10% 60 45
Effective Rate of Duty on MRP 6.00% 4.50%

On the second issue, he said “With this relief a unit will continue to be eligible for SSI exemption in 2011-12 even if it had a turnover based on retail sale price of Rs 8.90 crore in the current year”. This statement was understood by many in many different ways. Many persons thought that there is no excise duty now until you reach a turnover of Rs. 8.90 Crores in lieu of Rs. 1.50 Cr. Presently available to SSI. All were happy. It is not so.  Let me explain:

At present under the scheme of excise for SSI, an SSI which does not have a turnover of Rs. 4.00 Crores during the year ending 31-03-2011 will not be liable to excise duty until he reaches a turnover of Rs. 1.50 Crores during the period ending 31-03-2012. If at any moment during the period ending 31-03-2012 the turnover crosses Rs. 1.50 Crores, his liability to excise starts notwithstanding the fact that his turnover during the year ending 31-03-2012 is less than Rs. 4.00 Crores. However he would become eligible to the SSI benefit for the year ending 31-03-2013 if the turnover was less than Rs. 4.00 Crore for 31-03-2012.

So what is this magic figure of turnover of Rs. 8.90 Crores to be eligible for SSI benefit.

 

Illustration

Rs. Lakhs
1 Maximum turnover of taxable products permitted during the year ending 31-03-2011 for being eligible to SSI benefit during the year ending 31-03-2012 (Normal SSI) 400
2 Limit of SSI exemption during the year ending 31-03-2012 150
For Readymade garment – SSI Unit Rs.
1 MRP of the readymade garment (a) 1000
2 Less: Abatement @ 55 % (b) 550
3 Taxable value of the product (c) 450
Maximum permissible turnover of taxable products during the year ending 31-03-2011 as per next table.

—-

(a) Maximum turnover permissible for normal SSI Rs. Lakhs 400
(b) Taxable value of new product after abatement of 55% 45%
(c) Permissible turnover for a taxable value of 45% of normal turnover (a)  X  100
(b)
That is 400  X  100
45
(d) Permissible value in Rs. Lacs 888
(e) Rounded off to Rs. Crore 8.90

The Finance Minister added that he would take this opportunity to re-emphasize that  this would enable an SSI unit to continue to enjoy the exemption even if  it had a turnover based on Retail Sale Price (RSP) of Rs.8.90 crore in 2010-11.

 

So don’t rejoice. If you cross the turnover figure of Rs. 8.90 Crore in 2010-11  then your liability to duty will commence immediately from the 1st day of April 2011 without any basic exemption.”

Compiled By:

CA Lalit Munoyat

B.Com.(Hons.), CS., FCA, DISA

[email protected]

98201 93508

Further Update by the Editor of the Website:-

In response to above article many of our readers raised several queries through comments and mails. To which we requested the author to reply the same through a separate Article clarifying the questions raised and the author has accepted our requested and written an article on the same titledExcise Duty- Value Based Exemption Scheme for Small Scale Industries” which clarified most of the queries raised by our readers. Readers are requested to view the  link given below :-

https://taxguru.in/excise-duty/excise-duty-based-exemption-scheme-small-scale-industries.html 

The Article was First Published on 23.03.2011

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0 Comments

  1. lakshmanarao says:

    i purchased a shirt on 50% discount price on the MRP of Rs.2,000/- (which is inclusive of all taxes). that means i should get the shirt for Rs.1000/- but the brand factory has charged tax on the discounted price of Rs.1000/-. my query is the discount is given on MRP which is inclusive of all taxes. can the retailer charge on the discounted price. please advice.

  2. yogapriya says:

    Dear Sir,
               We have garments manufacturing buying office at tirupur…. orders from Lilliput kids wear ltd., our turnover is 1.90 crore…. but we are not enjoy any rebatement exemption….  we are paid full excise duty properly… any exemption  available for our concern? please give your kind advise for me sir…
    Thank you

  3. pankaj says:

    i want to import large quantity ladies footwear from china to india.Please let me know how to calculate total duty based on MRP basis.For example IF i buy a pair for for Rs. 200 and MRP is Rs.500 how much duty i have to pay on this particular pair.
    Thanks
    pankaj

  4. amit gupta says:

    Sir,
         I am prop. of small manufacture unit of ready made garments I achieved 1.4cr turnover till nov.for branded garments Now I have order for 1cr for non branded garment. Can i sale goods  of 1cr without excise for non branded garments

  5. MANISH says:

    DEAR SIR, OUR TURNOVER IS LESS THAN 1.5 CRORES SO PLZ CLARIFY DO WE HAVE TO FILE MONTHLY EXCISE RETURN OR QUATERLY RETURNS
    PLZ CLARIFY THE SAME AT THE EARLIEST

    REGARDS
    MANISH

  6. Vishal says:

    If only Tag is hanged on a garment [ Tag Details:- Buyer Showroom name, Seller name & Code, MRP, Barcode Lines Product name]. This tag will can be defined as branded or non-Branded garment ?

  7. Vishwanath says:

    Thanks sir for the information on excise aplicability on garment mfg. Sir I further want to know that what is the relation of Lable or tag or embroidery or any printed design on shrirt does it count in branded item or enhance the cost of shirt and make increase the escise duty.

  8. samadhan says:

    sir my turnover is less then 1.5 crore and our business with pepe jeans,lawman, globus,shoppers stop & spykar jeans. so please clarify if we covered in excise or not.

    ( we are Manufacturer of flat knit T-shrits )

  9. bandish says:

    sir my client has turnover of rs 3 Cr in last f.y 2010-2011 out of which he sales 90 lakhs to brand any other r sold to regular client to is he liable for excise.If not under which way he can give bills to ready made garment co.

  10. pradeep singh says:

    dear sir thanks for the information but there is slightly confusion regarding exemption of duty on a turnover for an example like since the duty will be calculated on 45%of the retail value will we be exempted on the with a turnover on 45%value may be the wholesale selling price can be higher for an example like we have done a turnover od rs 2 crore as a whole sale value of the garment but the exise value is less than 1.5 cr will be exemted frm the dutyso where as our actual selling value as per invoice will be 2 cr but the exersise value will be less that 1.5 cr kindly advice and clear this dought
    thank you

  11. KUMAR GURNANI says:

    thanks,
    We are two brothers doing two different business of r.m garments under both different prop.ship and different brand name under same premisis. and our yearly sales around 1 cr each. so, please tell me do we also fall in excise bracket.
    if yes tell me reason.

  12. KUMAR GURNANI says:

    Thanks,
    I further wants to know that, if we do not put any label, and do any type of printing or embroidery which is the part of pattern of the garment. Then in such case:
    Will the garment count as branded?

  13. P R SWAMI says:

    HELO SIR

    I WANT COMPLITE INFORMATION OF EXCISE DUTY ON READYMADE GARMENTS PLZ GIVE PROPER LINK OF CALCULATIONS

    THANKS
    p R SWAMI

  14. Amilesh Jain says:

    Thanks for the information.

    I further wants to know that, if we do not put any label, and do any type of printing or embroidery which is the part of pattern of the garment. Then in such case:
    Will the garment count as branded?

  15. piyush says:

    respected sir ,
    i am starting a new garment buisness and i am not at all aware of this,its putting so many stress and creating confusions in the very starting ,sir in short i just want to knw what all i have to do for getting exice no. or cst no ,or vat no ,please let me knw for what i shud apply for ,thnks

  16. Piyush says:

    Lallit Sir,
    Thanks a lot for the article.

    Kindly do us a favour by letting me know that If my company is eligible for SSI Exemption, then also do we have to register with the Excise Department.
    Also to avail SSI Exemption do I have to Register our company as a SSI with the MSME?

    aWAITING YOUR REPLY

    REGARDS

  17. HANIF SHAIKH says:

    Sir, very nice article . please enlighten on excise duty on readymade garmnets and textiles traders, dealers . Thanks in advance

  18. Rajveer Malhotra says:

    Truly appreciate your valuable input.
    Please elucidate on the roles & duties of Branded garments’ Traders, with relation to this excise duty

    Thanks in advance

  19. VINEET says:

    Sir my turnover is less then 1.5 crore and out of that 70% of my product is non branded or supplied to other brands so , how can we differenciate between branded and non branded. Please clatify if my sales increases in next financial year and my 70% sale is unbranded , i am covered in exise or not.

  20. manish says:

    Sir what if i am a branded manufacturer that means that i affix a brand label on my Product & my Sales is less than 1 Crore annually what is my status..
    do i have to file a declaration with the excise dept or how can i continue to Supply the Goods to the retailers…
    how is the SSI Exemption Clarified…

  21. Dheeraj says:

    Sir.. I am manufacturing goods covered under chapter 20. My total turnover for the year is 9 crores .but my turnover after excise is levied (i.e. after 1st march)on my product is 50 lacs .Am i liable to pay duty for month of march

  22. manish says:

    sir

    that means a manufacturer who has turnover less than 4 crore as on 31/03/2011 but more than 1.5 crore as on 28/02/2011 has to pay excise duty for the manufacture/sales of march 2011

  23. nimesh says:

    sir how will you distinguish between branded & unbranded can you gove me clarifaction regarding this, and what will be the turnover which is not discusss in this finance bill

  24. CA.Gagandeep Singh says:

    Dear Lalit,

    Excellent interpretation, but what about other goods falling under such exemption notification. Put light on the same.

  25. kabir says:

    sir thanks for your explanation.
    gr8 work

    sir i am a proprietor of very small manufacture & retailer of garment
    less than 1 crore turnover,do i also fall in excise bracket.

  26. dilip bulani says:

    sir how will you distinguish between branded & unbranded can you gove me clarifaction regarding this, and what will be the turnover which is not discusss in this finance bill,

  27. RAMESH KUMAR says:

    lalit ji,

    thank you for posting effective article through example.

    once again thanks .

    ramesh verma
    pursuing cs,
    foreign trade consultant,
    modinagar-201201

  28. CA Lalit Munoyat says:

    Sec. 4A of the Excise Duty provide for taxation on MRP called Retail Price which 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 and the price is the sole consideration for such sale . What I have referred to is that duty is payable at 45% of the retail price:For agarment of value of Rs. 1000/- duty is payable @10.30% on Rs. 1000 minus 55% abate. Refer the relevant section for further clarification

  29. sanjay says:

    Why are you showing the excise duty as a % of MRP. Excise duty is on the manufacturer and not the retailer. Hence % should be shown as a % of selling price for manufacturer. It is well known that selling price is 40-45% of MRP normally. Hence effective excise duty is 10.3% of manufacturer selling price and not 4.5% as it seems from your table

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