02 March, 2016

Print to PDF

Excise Duty on Ready Made Garments - Budget 2016

Excise Duty on Ready Made Garments - Budget 2016

By CA Ankit Gulgulia (Jain)

Excise duty of 2% (without CENVAT credit) or 12.5% (with CENVAT credit) is being
levied on 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 of retail sale price (RSP) of Rs.1000 and above when they bear or are sold under a brand name.

This optional levy would apply to such readymade garments and made up articles of textiles regardless of the composition of the garment / article. However, in respect of readymade garments and made up articles of textiles other than those mentioned above, the optional levy of „Nil (without CENVAT credit) or 6% (with CENVAT credit)‟ in case of garments / articles of cotton, not containing any other textile material and „Nil (without CENVAT credit) or 12.5% (with CENVAT credit)‟ in case of garments / articles of other composition, as the case may be, shall continue. 

The tariff value for readymade garments and made up articles of textile is also being increased from 30% to 60% which shall apply to all goods mentioned in the notification
No.20/2001-CentralExcise (N.T.) dated 30.04.2001. It may be noted that the new levy is similar to the levy of mandatory excise duty of 10% on readymade garments and made up articles of textiles [goods falling under Chapters 61, 62 and 63 (heading Nos. 63.01 to 63.08)] when they bear or are sold under a brand name, which was introduced in the Budget 2011-12, except that:

a.  The present levy is an optional levy, that is domestic manufacturers will have the option to pay excise duty of „2% (without CENVAT credit) or 12.5% (with CENVAT credit)‟,
b.  The levy is restricted to such articles which have RSP of Rs.1000 and above, and
c.  The tariff value is being revised from 30% of RSP to 60% of the RSP.
In this regard, I would like to reiterate the instructions issued vide Budget letter F.No.334/3/2011-TRU  dated     28.02.2011,  Instruction  D.O.  F.No.334/3/2011-TRU,  dated 4.03.2011 and Instruction D.O. F.No. B-1/3/2011-TRU, dated 25.03.2011. The said instructions shall apply mutatis mutandis to the new levy. 

Salient features of these instructions [suitably modified for the proposed optional levy, as underlined] are as under:

(i)  The levy shall not apply to retail tailoring establishments that stitch garments in a customized manner to the size and style specifications of individual customers, whether out of fabric purchased by the customer from the same establishment or fabric supplied by the customer.
(ii)     The brand name owner, who gets the goods manufactured on his own account on job
work, shall pay the duty leviable on such goods as if the goods were manufactured by him. The brand name owner (and not the job-worker) shall be required to register and comply with all the provisions of Central Excise law. Rule 4 (1A) of the Central Excise Rules, 2001 and Para 1, clause (vi) of notification No.36/2001-C.E. (N.T.), dated 26.06.2001 refers.
(iii)     However, the brand name owner will be given the option to authorise his job-worker
to pay the duty leviable on the goods. If such an authorisation is given, then the jobworker would have to obtain registration. Proviso to rule 4 (1A) of the Central Excise Rules, 2001 and proviso to Para 1, clause (vi) of notification No.36/2001-C.E. (N.T.), dated 26.06.2001 refers.
(iv)     A unit which 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, does not satisfy the definition of “job-worker” and would, therefore, have to obtain registration and discharge the duty liability.
(v)     In cases where the brand name owner gets goods bearing its brand manufactured from
other manufacturers (normally small units) without providing the raw materials or inputs, and if the RSP is not affixed or marked on such goods when they are cleared in the course of sale from the factory of a manufacturer to the brand owner, then no excise duty would be payable by such a manufacturers since the RSP of such goods is not disclosed to them by the brand owner. However, since the process of labeling or re-labelling constitutes a process of “manufacture”, duty on the tariff value (based on the RSP) would be payable as and when the brand owner labels the goods with the RSP of Rs.1000 or above and clears them for further sale.

(vi)     The value for computing the eligibility as well as the exemption limit for purposes of
SSI exemption would be the tariff value of the goods. Explanation (C) to notification No.8/2003-C.E., dated 1st March, 2003 refers.
(vii)     The SSI exemption for the month of March, 2016 will be Rs.12.5 lakh, subject to
fulfilment of other conditions of the notification No.8/2003-C.E., dated 01.03.2003.
For this purpose, notification No.8/2003-C.E., dated 1st March, 2003 is being amended suitably.
(viii)     The eligibility for availing of the SSI exemption in 2015-16 for the month of March
2016 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 2014-15. The computation for this purpose shall be done in accordance
with the provisions of Para 3A of notification No. 8/2003-C.E. For this purpose, a
certificate from a Chartered Accountant based on the books of accounts for 2014-15
shall suffice.
(ix)     Excisable goods which were produced on or before 29.02.2016 but lying in stock as
on 29.02.2016 shall attract excise duty upon clearance. Manufacturers shall keep a stock declaration of finished goods, goods-in-process and inputs as on 29.02.2016 in their  records  duly  certified  by  a  Chartered  Accountant  so  as  to  enable  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, if he so desires. No stock declaration, will, however, be required to be made to the jurisdictional central excise authorities.
(x)     Full exemption from Central Excise duty will be available 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
(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-C.E., dated 24th March, 2011 refers. This facility has
been provided since it is a common practice in this industry that the duty-paid
stock cleared to the wholesale dealer/retailer on consignment basis that remains
unsold 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
relabeling, some of which constitute “manufacture” in terms of the relevant
Chapter Notes. This facility obviates the need to pay excise duty twice on the
same goods.


About the Author:
CA Ankit Gulgulia (Jain)
Author is Practicing Chartered Accountant in New Delhi/NCR and specialising in Indirect Taxes, Corporate Laws and Transfer Pricing. He can be reached at ankitgulgulia@gmail.com or at +91-9811653975
DISCLAIMER: This article is provided purely for your information only and you should check other information sources before taking any action based on any of the content in this article. Neither the authors nor website hosting the article make any warranty as to the quality or currency of the information contained in any of the site's articles.  

Subscribe to Get our Articles directly in Your E-Mail


Post a Comment