Budget 2012 – Excise Duty on Textiles & Precious Metal Jewellery

 CA Lalit Munoyat

The Finance Minister introduced the Finance Bill, 2012 in Lok Sabha on 16th March, 2012. Important changes in respect of EXCISE DUTY ON TEXTILES AND PRECIOUS METAL JEWELLERY are discussed below. (Before proceeding further please read the disclaimer at the bottom of this write up)

1) Date of Effect of new provisions, amendment, supersession etc

a. Unless otherwise stated, all changes in rates of duty take effect from the midnight of 16th March/17th March, 2012.

b. By virtue of a declaration made under the Provisional Collection of Taxes Act, 1931 the change in the rates of excise duty ( 1st Schedule of CEA 1944 ) shall take effect from the midnight of 16th March/17th March, 2012.

c. The remaining legislative changes would come into effect only upon the enactment of the Finance Bill, 2012.

d. Retrospective amendments in the provisions of law or notifications issued under the respective Acts shall have the force of law only upon the enactment of the Finance Bill, 2012 but with effect from the date indicated in the relevant clause or Schedule.

e. New Notifications, amendment to existing notifications , unless otherwise indicated, shall take effect from the date of their publication in the Gazette of India

2) Changes in the Rates of Duty

a. Central Excise rate for all goods, other than petroleum, called the Standard Rate has been enhanced from 10% to 12% ad valorem.

b. The merit rate of excise duty for all non-petroleum goods has been increased from 5% to 6%.

c. The concessional rate of duty of 1% imposed on 130 items in the last Budget-2011 has been increased to 2%. However, the following 4 items would attract only 1% duty:-

1) Coal CTH 2701

2) All goods of fertilizers CTH 31, except those clearly not to be used as fertilizers

3) Articles of jewellery of CTH 7113;

4) Mobile handsets and cellular phones of heading 8517

3) Duty on Textiles: Polyester Filament Yarn.

1) Clause 141 and 142 proposes to insert a note in chapter 54 to provide that man-made fibre such as polyester staple fibre and polyester filament yarn manufactured from plastic and plastic waste including waste polyethylene terephthalate bottles shall be classified as textile material under Chapter 54 or Chapter 55, as the case may be. This amendment is being carried out with retrospective effect from 29.06.2010. Duty in respect of clearances already made is to be recovered from the manufacturers of these goods within one month of the date of enactment of the Finance Bill, 2012 failing which interest at the rate of 24% is payable. Simultaneously, the manufacturers are being permitted to take into account credit of duty paid on inputs, input services and capital goods.

2) In respect of Textile goods falling under Chapter 50 to 63 of the CETA, 1985 i.e.

Notification No. 29/2004-C.E, dated 9th July, 2004 and Notification No. 30/2004-C.E., dated 9-7-2004 governed the excise duty regime on the above products.

Notification 29/2004 provided for clearance of goods at concessional rates availing CENVAT Credit wherein a manufacturer can take CENVAT Credit on inputs.

Notification No. 30/2004-C.E., dated 9-7-2004 permits a manufacturer to clear the goods at ‘Nil’ rate of duty without availing CENVAT Credit on inputs.

The benefit of these two notifications can be availed simultaneously provided the manufacturer maintains separate Books of Account for goods in respect of which benefit of Notification No. 29/2004-C.E., dated 9-7-2004 is availed and similarly, for goods in respect of which benefit of Notification No. 30/2004-C.E., dated 9-7-2004 is availed. However certain manufacturers did not maintain separate accounts and availed credit on all the inputs. Subsequently, they reversed the credit availed on such inputs utilized for goods cleared under exemption notification No. 30/2004 as per the provisions of Rule 6(3) of the CENVAT Credit Rules, 2004.

Non-availment of credit on inputs is a precondition for availing exemption under Notification No. 30/2004- and if manufacturers avail input tax credit, they would be ineligible for exemption under this notification. Reversal of credit on a later date does not suffice to make them eligible for this exemption.

However many textile manufacturers/processors have to use common inputs, which are used in a continuous manner, and it is not practically possible to segregate and store inputs like dyes and chemicals separately or maintain separate accounts. In such cases, in order to facilitate simultaneous availment of the two notifications, such manufacturers were advised not to take credit initially and instead take only proportionate input credit on inputs used in the manufacture of finished goods cleared by him on payment of duty. Such proportionate credit should be taken at the end of the month only.

The Budget-12 has superseded Notification 29/2004 by notification no. 7/2012 –CE dated 17th March, 2012. This new notification no. 7/2012 dated 17th March, 2012 now provides that the concessional rate of duty of 6% ad valorem shall now be applicable in respect of only those goods of cotton which do not contain any other textile material other than those bearing a brand name or sold under a brand name. The draft of the said notification as under:

Notification No. 7 /2012-Central Excise 17thMarch, 2012

S.No.	Chapter, heading or sub-heading or tariff item	Description of Goods	Rates
1.	5204 to 5212	All goods of cotton, not containing any other textile material	6%
2.	56 (except 56011000)	All goods of cotton, not containing any other textile material	6%
3.	57	All goods of cotton, not containing any other textile material	6%
4.	58 (except 58043000, 5805 and 5807	All goods of cotton, not containing any other textile material	6%
5.	59	All goods of cotton, not containing any other textile material	6%
6.	60	All goods of cotton, not containing any other textile material other than those bearing a brand name or sold under a brand name. Explanation.- For the removal of doubts, it is hereby clarified that ‘goods of cotton, not containing any other textile material’, shall include goods made from fabrics of cotton, not containing any other textile materials, even if they contain sewing threads, cords, labels, elastic tapes, zip fasteners and similar items used for stitching, fastening, holding or adornment, of materials other than cotton.	6%

Simultaneously a new notification No. 18/2012-Central excise dated 17-03-2012 has been issued which is a concessional notification providing products of Textiles including Polyster which proposes to exempt levy on such products in excess of 12%.( Earlier 10%).

The end effect is that simultaneous availment of concessional notification 7/2012, 18/2012 and 30/2004 are all allowed and an assessee can continue to take proportionate credit as was provided by circular 845/3/2007-CX as amended by circular No. 858/16/2007-CX, dated 8-11-2007.

( Note:- Different interpretations, if any, are welcome)

4) Duty on Textiles: Ready-Made Garments and Made-up articles

Excise duty at the rate of 10% was levied by Budget-11 on ready-made garments and made-up articles of textiles falling under Chapters 61, 62 and 63 (heading nos.63.01 to 63.08) of the Central Excise Tariff except those falling under heading nos.63.09 and 63.10 when they bear or are sold under a brand name. As for the valuation of these goods, tariff value was fixed at 45% of the retail sale price in terms of notification No.20/2001 as amended .

The rate of excise duty applicable to ready-made garments and made-up articles of textiles falling under Chapters 61, 62 and 63 (heading nos.63.01 to 63.08) of the Central Excise Tariff except those falling under heading nos.63.09 and 63.10 when they bear or are sold under a brand name has NOW been increased from 10% to 12%. (Not.18/2012-Central Excise)

However, the tariff value for these items has been revised and shall now be equal Retail Sale Price (RSP) less abatement of 70% instead of 55%. In other words, duty would be payable on 30% of the RSP. ( Not.17/2012-Central Excise (N.T.)

The effect of the above amendment is that the effective rate of duty on Retail Sale Price has come down from 4.64% to 3.71%. ( Refer example-1)

Budget	Retail Sale Price Rs.	Abate- ment	Taxable Value	Taxable  Value  Rs.	Rate  of duty	Duty Rs.	Cess	Cess Rs.	Total Duty Rs.	Effective Duty %
Before-12	1000	55%	45%	450	10%	45.00	3%	1.35	46.35	4.64
After-12	1000	70%	30%	300	12%	36.00	3%	1.08	37.08	3.71

5) Duty on Textiles: Duty-paid, branded ready-made garments etc. brought back

In terms of notification no.31/2011-CE dated 24.3.2011, full exemption from Central Excise duty is available to duty-paid, branded ready-made garments and made-ups returned or brought back to the same factory or premises and cleared after being re-made, re-conditioned, re-packed or subjected to any other process, subject to the fulfillment of certain conditions. Certain procedural relaxations have been made in the operation of this exemption. The exemption will now be available to goods returned or brought back to any registered premises of the same brand owner/ manufacturer and not only to those returned to the same factory. It would be available only if the goods are returned or brought back within a maximum period of one year from the date of their clearance. It has been clarified by way of an explanation that the threshold limit of 10% of the aggregate value of clearances for home consumption in the preceding year is to be computed for each factory/ registered premises separately. It has also been clarified that in computing this limit the value of goods cleared under the provisions of rule 16 ( i.e. clearances of goods brought to the factory for being re-made, refined, re-conditioned etc.) of the Central Excise Rules are to be excluded. Finally, duty-free clearance after the prescribed processes have been carried out on the returned goods is to be allowed on the basis of a declaration from the manufacturer that the goods are duty-paid.

6) Duty on Textiles: SSI Limit

At present the aggregate value of clearances of all excisable goods for home consumption for the preceding financial year (for calculating the SSI limit for manufacturers of branded garments) is Rs. 8.90 Crores ( to be calculated on Retail Sale Price after providing an abatement of 55% on RSP) . For example

Before Budget-2012

	Rs. Crs.
Turnover on RSP in the year 2011	8.90
Less: Abatement @ 55%	4.90
Aggregate value of clearances during the preceding financial

year to be considered for SSI eligibility for year 2012

4.00

 

After Budget-2012

With the change in the tariff rate and abatement, this limit of Rs. 8.90 Cr. will consequentially also change and the same shall now be Rs. 13.33 Crs.

	Rs. Crs.
Turnover on RSP in the year 2012	13.33
Less: Abatement @ 70%	9.33
Aggregate value of clearances during the preceding financial year

to be considered for SSI eligibility for year 2012

400.00

 

REFER Illustrative Table (Attach herewith) for calculation of aggregate value of clearance not exceeding Rs. 4.00 Crores during the preceding year ending 31-03-2012 and the of aggregate value of clearance not exceeding Rs. 1.50 Crores during the current year ending 31-03-2012 for being eligible to SSI Exemption.

(Note: In the illustrative tables it has been assumed that the manufacture of garments under Own Brand is .the only business of the manufacturer such that all excisable goods mean readymade garments bearing Own Brand Name.)

DOWNLOAD ILLUSTRATIVE TABLE

7) DUTY UTY ON ARTICLES OF PRECIOUS METAL JEWELLERY (CHAPTER HEADING 7113)

i) The scheme of levy of excise duty on precious metal jewellery was introduced in the Budget 2011 vide notification No. 1/2011. Under the this scheme excise duty of 1% ad valorem was applicable to precious metal jewellery manufactured or sold under a brand name. The levy would now apply to both branded and unbranded goods (except silver jewellery) at the same rate of duty of 1%. ad valorem .

ii) For the purposes of heading 7113, the expression “articles of jewellery” means:

(a) any small objects of personal adornment (for example, rings, bracelets, necklaces, brooches, ear-rings, watch-chains, fobs, pendants, tie-pins, cuff-links, dress-studs, religious or other medals and insignia); and

(b) articles of personal use of a kind normally carried in the pocket, in the handbag or on the person (for example, cigar or cigarette cases, snuff boxes, cachou or pill boxes, powder boxes, chain purses or prayer beads)

(c) These articles may be combined or set, for example, with natural or cultured pearls, precious or semi-precious stones, synthetic or reconstructed precious or semi-precious stones, tortoise shell, mother-of-pearl, ivory, natural or reconstituted amber, jet or coral.

iii) Duty would be chargeable on tariff value under section 3 of the Central Excise Act which shall be equal to 30% of the “Transaction value” declared on the invoice.

iv) Transaction value means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods.

v) The benefit of SSI exemption would be available to manufacturers of precious metal jewellery and the aggregate value of clearances (both for the purpose of eligibility and exemption) would be computed on the basis of tariff value. For the purpose of determining eligibility of a manufacturer/ factory for SSI exemption for the year 2012-13, the computation of aggregate value of clearances of ` 4 crore for the year 2011-12 is made on the basis of the tariff value i.e. taking 30% of the transaction value and not full transaction value.

vi) It is important to note that the exemption limit for the remaining part of 2011-12 i.e. between 17th March, 2012 and 31st March, 2012 is not being curtailed for manufacturers of unbranded jewellery who would come into the tax net afresh. In other words, eligible manufacturers/ factories would be entitled to exemption for the full threshold limit of `1.50 crore for this period.

vii) For manufacturers who are already availing of the SSI exemption during 2011-12 also the computation of the exemption limit would have to be made on the basis of tariff value of clearances effected during the period from 17th March, 2012 to 31st March, 2012 by virtue of Explanation (C)(ii) of notification no.8/2003-CE dated 1.3.2003.

viii) Illustration- If a manufacturer X clears goods of value 1.4 crore till 16th March 2012, and from 17th March to 31st March 2012 manufacturer X clears goods of transaction value 30 lacs, the total value of clearances for SSI exemption in financial year 2011-12 shall be calculated as follows:-

a) Value of clearances from 1st April 2011 to 16th March 2012=` 1.4 crore

b) Value of clearances from 17th March to 31st March 2012=` 9 lacs (30% of transaction value 30 lacs)

c) Total value of clearances financial year 2011-12= 1.49 crore

ix) Excise duty on gold jewellery sold from EOUs into DTA has been increased from 5% to 10%.

x) JOB WORK: Rule 12AA of the Central Excise Rules has been amended to provide that every person who gets articles of jewellery of heading no.7113 produced or manufactured on job-work shall obtain registration, maintain accounts, pay duty leviable on such goods and comply with the procedural requirements, as if he is the manufacturer. In other words, those artisans or goldsmiths who only manufacture jewellery for others on job-work need not obtain registration. The option to the job-worker to register, if he so desires, has been deleted.

xi) MANUFACTURE: The process of affixing or embossing trade name or brand name on articles of jewellery or on articles of goldsmiths‟ or silversmiths‟ wares of precious metal or of metal clad with precious metal, shall amount to “manufacture”.

Compiled By:

CA Lalit Munoyat

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

munoyat@gmail.com

98201 93508

(Disclaimer: The following write up has been compiled from various clauses of the Finance Bill 2012 and notifications issued thereunder. The illustrative examples have been drafted based on the proposed changes by the Finance Bill 2012. The compilation may not be entirely correct for reader to reader due to different interpretations by different readers. The readers are advised to take into the consideration the prevailing legal position before acting on any of the comments in this write up. Readers are also requested to convey the correct position as per their interpretation of the Finance Bill 2012 which shall be most welcome for correcting this write up.)

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