Excise duty on readymade garments - Changes effective from 1st May, 2001 - Central Excise - F. No. B.4/5/2001-TRU

F. No. B.4/5/2001-TRU Dated 30-4-2001 Government of India Ministry of Finance (Department of Revenue) Central Board of Excise Customs, New Delhi Subject : Excise duty on readymade garments - Changes effective from 1st May, 2001 . I am directed to say that the scheme of excise duty in respect of readymade garments has been modified effective from 1st May, 2001. Notification Nos. 16/2001-Central Excises (N.T.), 18/2001-Central Excises (N.T.) to 21/2001-Central Excises (N.T.), 21/2001-Central Excises to 23/2001-Central Excises, all dated 30-4-2001 have been issued in this regard. The salient features of the new scheme are indicated below. 2. Excise duty at the rate of 16% shall now apply to all garments falling under Chapter 62 of the Central Excise Tariff. However, clothing accessories including handkerchiefs, shawls, scarves, mufflers, mantillas, veils, ties, bow ties, cravats, gloves falling under heading No. 62.02 have been exempted from excise duty. Exemption from excise duty has also been provided to raincoats and undergarments. Notification No. 21/2001-Central Excises has been issued in this regard. The exemption will be effective from 1st May, 2001. 3. It is understood that readymade garments, particularly those bearing brand names, are manufactured in a big way through job workers. Not only that, stitching and other ancillary activities are entrusted to different job workers, sometimes smaller ones. Keeping this aspect in view, it has been decided that in the case of garments manufactured on job-work basis, the liability to pay the excise duty shall be on the person who gets the goods manufactured on his own account from the job-workers (called merchant manufacturer in common excise parlance) and not on the job-workers. Rule 7 has been suitably amended for this purpose and a new Rule 7AA has been inserted. The duty liability has to be discharged by the merchant manufacturer as if the garments have been manufactured by him on his own. 4. The merchant manufacturer has to get himself registered under Rule 174 and the premises for registration will be the private store room or warehouse where the inputs required for the manufacture of the garments are received and distributed to the job-worker and the finished garments are received from the job-worker for further distribution or sale (Amendments to rule 174 may be seen). 5. The duty liability will be discharged by the merchant manufacturer at the time of removal of garments from his registered premises and all the provisions of the Central Excise rules shall apply to such merchant manufacturer. (Amendments to rules 9, 9A, and new rule 9D may be seen). 6. However, the Central Excise Rules have been amended to provide for the facility in case such merchant manufacturer of garments would like to authorize any job worker to pay the excise duty on his behalf and the job worker so authorized undertakes to discharge the duty liability and comply with all the formalities required under the Central Excise Rules. It may be emphasized that this facility would be based on the authorization to be given in writing by the merchant manufacturer and the undertaking given by the job worker. The merchant manufacturer and the authorized job-worker may be advised to send a copy of such authorization and undertaking to the Deputy Commissioner/Assistant Commissioner and Range Superintendent in charge of the factory of the job-worker as also having jurisdiction over the merchant manufacturer. 7. Another salient feature is that the benefit of SSI excise duty exemption scheme has been extended to readymade garments. This means that clearances up to Rs. 1 crore beginning with 1st May, 2001 in the remaining part of the financial year 2001-2002 shall be exempted from excise duty. However, clearances of garments already effected up to 30th April, 2001, shall be taken into account for computing the full or partial exemption limit of Rs. l crore under Notification Nos. 8/2001-C.E. and 9/2001-C.E. both dated 1-3-2001, respectively. The duty, if any, paid on clearances effected before 1-5-2001 shall not be eligible for any refund. 8. It may be noted that the exemption limit of Rs. 1 crore applies to a "manufacturer" as such. Thus the clearances by or on behalf of a manufacturer from different factories or job-works, as the case may be, shall be clubbed together. Again, clearances of one factory if run by different manufacturers shall be clubbed together for the purpose of computing limit of Rs. 1 crore. As usual, the export clearances shall not be added in the limit of Rs. 1 crore. 9. It may be noted that even the merchant manufacturer is eligible for the SSI exemption benefits subject to the fulfilment of the terms and conditions prescribed under the relevant notifications. 10. A garment manufacturer who manufactures the goods on his own account in his factory (rule 7) shall be eligible to take credit of the actual duty paid on the inputs and capital goods in terms of the provisions of the CENVAT Rules. A merchant manufacturer who gets the goods manufactured on his own account from a job-worker (rule 7AA) and discharges the duty liability himself shall also be eligible to take the actual credit of the duty paid on inputs supplied to the job-worker. The CENVAT Rules have been suitably amended for this purpose. The merchant manufacturer is required to maintain proper CENVAT accounts at his registered premises and to file monthly return as per the provisions of rule 57AE. 11. Provision has also been made for "deemed credit" in case it is not feasible to take the actual credit of the duty paid on inputs. The deemed credit shall be 20% of the excise duty liability on garment and can be claimed at the time of removal of the garments. For instance, assume that the assessable value of a consignment of garment is Rs. 10,000. The duty liability comes to Rs. 1600 (at 16% duty). The deemed credit amount admissible will be Rs. 320 (20% of Rs. 1600). Thus the manufacturer will be required to discharge that duty of Rs. 1280 (Rs. 1600 minus Rs. 320) in respect of this consignment. It may be added that actual credit on inputs and deemed credit are mutually exclusive. A manufacturer cannot claim both of them and can claim only one of them. The manufacturer should indicate his desire to avail of either facility to the Deputy Commissioner/Assistant Commissioner and the Range Officer. The facility of deemed credit will be available in respect of goods lying in stock with the merchant manufacturer as defined in rule 7AA as on 1-5-2001 and cleared after that date. 12. The manufacturer of garments who manufactures in his factory on his own account, the merchant manufacturer in respect of the premises where fully manufactured garments are procured from job-workers and the job-worker who is authorized to pay the excise duty by the merchant manufacturer are required to obtain the Registration under Rule 174 of the Central Excise Rules. All other job-workers are exempted from obtaining registration vide Notification No. 18/2001-C.E. (N.T.) 13. Tariff value for garments has been fixed under notification No. 20/2001-Central Excise (N.T.). The tariff value shall be 60% of the retail price in respect of the garments. For example, if the retail price of a shirt declared is Rs. 1000, the assessable value of the shirt will be Rs. 600. In this context it is understood that the provisions of Standards of Weights and Measures Act, 1976, and the rules made under that Act are applicable to readymade garments. As such it is obligatory to indicate the maximum retail price. The person who is required to pay duty on readymade garments may be advised to indicate the MRP of the garments included in the consignment under assessment on the invoices so that the duty liability is correctly ascertainable. 14. It may be mentioned that where the garment manufacturer is exporting a substantial part of his production and his clearance for home consumption does not exceed the full exemption limit of Rs. 1 crore under Notification No. 8/2001-C.E., dated 1-3-2001, he is eligible to the benefit of simplified procedure for exports contained in Board's Circular No. 212/46/96-CX. (Issued from F. No. 209/18/96-CX. 6), dated 20-5-1996 read with Notification No. 22/98-C.E. (N.T.) dated 4-6-1998 as amended. This means that he is not required to take central excise registration or follow the usual procedure of AR 4 in respect of exports. 15. The Commissioners are requested to issue a comprehensive Trade Notice bringing out the salient features of the excise formalities, obligations and the facilities, including the export procedures and export facilities for the benefit of the readymade garment manufacturers and exporters. It is also requested that special attention may be paid by the field officers to provide all assistance and help to the garment manufacturers and exporters with regard to central excise formalities. It should be ensured that the excise formalities do not lead to avoidable delays or inconveniences for the exporters. Commissioners may issue any supplementary instructions in the matter of procedure or accountal as may be necessary for smooth implementation of the new scheme; at the same time safeguarding the interest of revenue.