INTRODUCTION
FA 2011 made some key proposals to change the excise duty structure of a vast majority of products in the textile sector. This has significantly impacted those engaged in manufacture of articles of apparel and clothing accessories, whether or not knitted or crocheted, all sorts falling under Chapter 61 or 62 and other made up textile articles or sets, falling under Chapter 63.
Earlier, ready-made garments and made-up articles were exempt from Central Excise duty on the condition that no Cenvat credit is taken by the manufacturer in terms of notification no.30/2004-CE dated 9th July, 2004. If credit were taken, the applicable rate was 4% for goods of cotton, not containing any other textile material and 10% for others under notification no.29/2004-CE also dated 9th July, 2004.
Position Prior to Amendment:-
Was excise duty applicable on goods covered in chapters 61, 62, 63?
Earlier to the introduction of the amendment the goods classified under chapter 61, 62 and 63 were exempted from levy of excise duty and the option to pay concessional duty of excise was there for the goods of cotton, not containing any other textile material. To our understanding very few opted for the scheme of payment.
Position after Amendment:
The exemption of excise duty is removed on textile garment goods having brand name or are sold under a brand name. In other words, the exemption on branded cloths has been removed vide notification no. 12/2011-CE dt. 01.03.2011. The provision of concessional rate of duty on these goods is also removed vide notification no. 11/2011-CE dt. 01.03.2011. Now textile garments bearing a brand name or are sold under a brand name and falling under chapter 61, 62 and 63 would be leviable to duty of excise.
WHAT IS MEANT BY BRAND NAME?
As per note to chapter 63, ‘brand name’ means the brand name, whether registered or not, that is to say, a name or a mark, such as symbol, monogram, label, signature or invented words or any writing which is used in relation to product, for the purpose of indicating, or so as to indicate, a connection in the course of trade between the product and some person using such name or mark with or without any indication of the identity of that person.
WHETHER DEEMED MANUFACTURE CONCEPT IS APPLICABLE TO GOODS COVERED IN CHAPTER 62 & 63
Note 12 of Chapter 61 and Note 11 of Chapter 62 already prescribe that certain processes such as affixing a brand name on a product, labeling or re-labeling of containers etc. shall be processes amounting to manufacture. A similar note (Note 5) is being added to Chapter 63.
IMPLICATIONS OF THE AMENDMENT
In case of the following manufactured goods, i.e. articles of chapters 61, 62 and 63 (except 6309 00 00 and 6310) bearing a brand name or sold under a brand name are liable to pay 10% excise duty with CENVAT benefit. It should be noted that it may be manufacturer's own brand names or brand name of other persons. And the term ‘brand name' is defined in chapter notes 11, 10 and 5 of chapters 61, 62 and 63 respectively.
AMENDMENTS TO EXEMPTION NOTIFICATIONS
Notification No. 30/2004-CE dated 09.07.2004 was further amended by Notification No. 12/2011-CE dated 01.03.2011 whereby all goods falling under chapters 61, 62 and 63 (except 6309 00 00 and 6310) and not bearing a brand name or sold under a brand name, are exempted from the whole of excise duty. However, the benefit of this Notification shall not be applicable if the said manufacturers avail benefit of CENVAT credit on inputs.
Notification No. 29/2004-CE dated 09.07.2004 was further amended by Notification No. 11/2011-CE dated 01.03.2011 whereby all goods of cotton, not containing any other textile material and falling under chapters 61, 62 and 63 (except 6309 00 00 and 6310) and not bearing a brand name or sold under a brand name are charged to 5% excise duty with CENVAT benefit. These notifications are being amended so that they apply only to those goods of Chapters 61, 62 and 63 not bearing a brand name or not sold under a brand name. For such goods, therefore, the optional duty regime would continue.
CAN JOB WORKER DISCHARGE EXCISE DUTY LIABILITY FOR GOODS BEARING BRAND NAME OF OTHERS?
It is the practice in the garment and ready made clothing industry for brand owners to have goods manufactured from several job-workers. The brand owners may or may not, themselves, possess any manufacturing facility. Central Excise Rules are amended to incorporate sub-rule (1A) in rule 4 to prescribe that in such a situation the liability to pay duty and comply with Central Excise procedure shall be on the person on whose behalf the goods are manufactured by job-workers. For this purpose, he would be required to register his private store-room or warehouse in which inputs are received for distribution to job-workers and finished goods are received from the job-workers. He would also be required to comply with all the other provisions of Central Excise law. The job-worker is exempt from payment of duty if the merchant manufacturer pays the duty.
CAN THE MERCHANT MANUFACTURER AUTHORIZE JOB WORKER TO DISCHARGE EXCISE DUTY?
The burden of the excise duty levy can also be shifted to the job worker and in such case he will be liable to comply with the Rules and regulations.The merchant manufacturer may authorize the job worker to obtain registration and comply with all formalities of Central Excise including payment of duty. Cenvat Credit Rules, 2004 are amended to enable merchant manufacturers to avail of credit of duty paid on inputs, input services and capital goods.
SHOULD THE MANUFACTURER WHO GETS THE GOODS MANUFACTURED BY JOB WORKER BEARING BRAND NAME DISCHARGE EXCISE DUTY?
As the goods are getting manufactured from the job worker. Central Excise Rules, 2002 have been amended and rule 4(1A) is inserted which says that the person who is getting the goods (falling in chapter 61, 62 & 63) manufactured from job worker will be liable to pay the duty and comply with Excise rules and regulations. Thus, the manufacturer of the branded goods who gets the goods manufactured on job work will also be covered under this clause.
CAN EITHER OF MANUFACTURER OR JOB WORKER OPT TO DISCHARGE EXCISE DUTY ON BRANDED GARMENTS?
Yes, either of the two, that is the job worker or the brand owner can pay the duty. But in trade, it is told to us some manufacturers procures their own inputs and manufacture the branded goods for brand owner and sells them. In that case, these manufacturers will be liable to duty and they cannot shift their burden to brand owner.
VALUATION OF GOODS
As for the valuation of these goods upto the amendment, tariff value u/s 32) of CE Act, 1944 has already been fixed at the rate of 60% of the retail sale price that is declared or required to be declared on the retail packages under the provisions of the Standards of Weights and Measures Act, 1976 (60 of 1976) or the rules made thereunder or under any other law for the time being in force.( in terms of notification No.20/2001-CE (NT) dated 30th April, 2004)
Also earlier, the benefit of this exemption notification was available to “articles of apparel, whether or not knitted or crocheted, all sorts, falling under Chapter 61 or 62”.
But now this is being extended to cover other made up textile articles or sets, falling under Chapter 63(vide notification no. 7/2011-CE(NT).
Earlier the Tariff value for charging duty on readymade garments and textile made-ups falling under chapter 61 to 63 was fixed @ 60% of the retail sale price. This has been changed vide notification no. 12/2011-CE(NT) dated 24.3.2011 which amends notification no. 20/2001-CE(NT). Now the duty will be payable on the assessable value which will be 45% of the retail sale price for the branded clothes.
For the purposes of this notification , "retail sale price" 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, as the case may be, and the price is the sole consideration for such sale.
Thus, there is no dispute as regards valuation. Rule 10A would not be applicable even if the duty is paid by job worker.
Where such goods are not intended for retail sale, the excise duty is to be discharged on transaction value basis.
SSI EXEMPTION
It may be noted that SSI exemption is being extended to the goods attracting this levy. This is being implemented through a suitable amendment in item (xxvi) of the Annexure to notification No.8/2003-CE dated 1.3.2003.
What are relevant changes in this notification?
a. As per Notification no. 8/2003-CE dated 1.3.2003; the SSI exemption is given to the manufacturer of the dutiable goods.
b. On the other hand, as per rule 4(1A) of Central Excise Rules, the liability to pay duty has been shifted to other person.
c. Accordingly, notification no. 8/2003 has been amended vide notification no. 8/2011-CE dated 1.3.2011
d. in case rule 4(1A) is applicable, the person liable to pay the duty i.e. the principal manufacturer on whose behalf the job worker undertakes the activity of manufacture would be deemed to the manufacturer for the purpose of SSI exemption under Notification no. 8/2003-CE.
e. Thus, even if the goods are manufactured by the job worker who is actual manufacturer, the benefit of SSI exemption will be given to the person liable to pay the excise duty in terms of rule 4(1A) of the Central Excise Rules, 2002.
f. However, in terms of paragraph 4 of the said notification, the SSI benefit will not be available to specified goods bearing a brand name or trade name, whether registered or not, of another person.
g. Since levy is extended to manufacturers of all goods of chapters 61, 62 and 63 bearing a brand name (i.e. their own brands or brand names of others manufactured on job work basis) and goods sold under a brand name, there is need of an amendment to make an exception in paragraph 4 to manufactures of articles of chapters 61, 62 and 63 bearing brand name.
METHODOLOGY TO COMPUTE SSI EXEMPTION?
This exemption is available to clearances of upto Rs 150 Lakhs during 2010-11. This is subject to condition that the aggregate value of preceeding year clearances does not exceed Rs 400 Lakhs.
In order to arrive at the Rs 150 Lakhs of clearances, the value of excisable goods alone is to be considered.
But for computing the Rs 400 Lakhs limit the value of clearances of exempted goods during preceding year(in this case 2010-11) would also be considered.
In other words, the aggregate value of clearances of all excisable goods in preceding financial year should be less than Rs. 4 crore then exemption will be available. For this purpose, all excisable goods whether dutiable or exempted is to be seen. Now, for the month of March 2011, the year 2009-10 is to be seen. If the aggregate value of clearances is less than Rs. 4 crore in year 2009-10 then exemption of 1.5 crore is available. For computing these 1.5 crore, only dutiable goods is to be seen. This limit of Rs. 1.5 crore will be available for March 2011 as the goods cleared prior to March 2011 were exempted and will not be considered in calculating the same. Thus, the exemption is available in March 2011 also.
To sum up:
a. For unbranded goods, exemption from excise duty would be available
b. It is mandatory to pay duty on the branded clothes.The branded goods will become dutiable @10%.
c. the Labeling and brand name on products amount to manufacture and would attract excise duty. Non-branded garments makers will get excise duty exemption u/n30/2004-CE if they have not availed cenvat credit on inputs.
d. The manufacturers of branded garments can avail cenvat credit on inputs and to clear the goods after payment of 10% Excise Duty.
Issues
Would the levy of excise duty on activities of stitching customized garments by retail tailors which are bearing the brand name of others?
In the clarification TRU has made it abundantly clear to the field formations that this levy does 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.
Would the benefit of exemption notification no.29/2004-CE and 30/2004-CE be available to goods of chapter 61, 62 or 63 bearing a brand name?
In the case of ready-made garments and made-up articles bearing a brand name or sold under a brand name, no such option would be available and a duty of 10% would be payable regardless of the composition of the item. But the cenvat credit can be availed in this case.
Would benefit of notification no.29/2004-CE as amended be available to the textile goods made of materials other than cotton?
No, as per amended notification No. 29/2004-CE dated 09.07.2004 all goods of cotton, not containing any other textile material and falling under chapters 61, 62 and 63 (except 6309 00 00 and 6310) and not bearing a brand name or sold under a brand name are charged to 5% excise duty with CENVAT benefit. This would also be available to goods made from fabrics of cotton, not containing any other textile material, 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.
Would the benefit of exemption notification no. 30/2004-CE be available to goods of chapter 61, 62 or 63 not bearing a brand name?
Yes, the option to avail exemption or pay concessional rate of duty of excise is still available for the goods which does not possess any brand name or also not sold under any brand name. This option is only for non branded clothes/garments. The mandatory duty is not applicable to unbranded garments.
For period earlier to Budget 2011 would benefit of exemption notification no.29/2004-CE be available to goods containing textile material other than cotton?
Before the amendment, there were two categories of goods in Notification No. 29/2004-CE, firstly, cotton goods without any other textile material attracting 4% duty and secondly other goods falling outside this bracket attracting 10% duty. Now that distinction is removed and we find a mention of only cotton goods without any other textile article in amended Notification No. 29/2004-CE.
What is excise duty implication if the brand owner fixes brand name on garment manufactured by the job worker?
If the job worker does not fix the brand name and it is done by brand owner himself. This question is being asked by the many people in the industry. In this situation, the excise duty would be levied on brand owner only as fixing of brand name will amount to manufacture. But the exemption benefit of notification no. 30/2004-CE as well as SSI exemption can be availed as the brand name affixed does not belong to others.
Would the benefit of SSI exemption be available to the garment manufacturers who clear the goods bearing the brand name?
The manufacturers engaged in manufacturing the said goods bearing a brand name or selling under a brand name are provided with SSI benefit under Notification No. 8/2003-CE dated 01.03.2003 as amended. In terms of paragraph 3.5 of letter dated 28.02.2011 (on excise), TRU clarified that SSI exemption is being extended to the goods attracting this levy of excise duty and that item (xxvi) of Annexure to Notification No. 8/2003-CE is amended to extend this benefit to articles of chapters 61, 62 and 63 as well.
Whether the SSI exemption is available to brand owner as well as to job workers?
It can be said that this is available to both of them. But if we go through the conditions of notification then it is available to brand owner only. If the job worker clears the goods having brand name of other person then the SSI exemption is not available to him. Hence, the exemption is available when the brand owner decides to pay the duty.
What is the implication if there is no mention of RSP on the packages of textile articles?
While Central Government has notified Central Excise (Determination of Retail Sale Price of Excisable Goods) Rules, 2008 in terms of section 4A(4) to enable central excise officers to determine retail sale price of goods notified under section 4A, in instances where there is no declaration of RSP in spite of its mandatory requirement under Legal Metrology Act, 2009 and the Rules made there under, there is no mechanism to determine retail sale price if the manufacturers do not declare retail sale price.
However, it should be noted that non-declaration of retail sale price and other requisite particulars would result in violation of various provisions of Legal Metrology Act, 2009 and the Rules made there under and such violators are liable for penal action.
Would the branded goods returned for repairs be liable to duty of excise?
No, there is an exemption to all goods bearing a brand name or sold under a brand name and falling under chapter 61,62 or 63( except 6309 and 6310) from the duty of excise leviable thereon. When goods, on which appropriate duties of excise have been paid, are returned or brought back to the same premises or factory and cleared therefrom after being re-made, re-conditioned, re-packed or subjected to any other process. But in order to avail the benefit of this exemption the following conditions, are to be fulfilled:-
(i) no Cenvat credit of the duty paid on such returned goods is taken under the provisions of rule 16 of the Central Excise Rules,2002;
(ii) an intimation containing the details of the document under which goods are returned and their value, is submitted to the jurisdictional Central Excise authority, within 48 hours of the receipt of the returned goods in the factory or premises ; and
(iii) a proper account of receipt and disposal of such goods is maintained and accounted for in the monthly return.
(iv) the aggregate value of goods cleared from a factory or premises under this exemption in a financial year does not exceed 10% of the aggregate value of clearances for home consumption from the same factory or premises in the preceding financial year.
This is vide notification no.31/2011-CE dt 24.3.2011.
Acknowledgements to CA Roopa Nayak for background preparation.
For further queries contact at pdicai.org.
CA Madhukar N.Hiregange
CAclubindia
