Budget 2016: Around two-fifths of readymade garments industry to face 2% excise levy


In the Union Budget 2016-17, Finance Minister Arun Jaitley has proposed to bring in high-end readymade garments under excise duty net.
Jaitley proposed to levy 2% excise duty on branded readymade garments and made-up articles of textiles of retail sale price of Rs 1,000 or more. However, this duty will be applicable only for those manufacturers who do not claim input tax credit (ITC) popularly known as central value added tax (Cenvat) paid on various raw materials. Manufacturers who claim ITC, however, will need to pay 12.5% excise duty. Until now, excise duty was “nil” on manufactures without ITC claim and 6-12.5% for those who claimed ITC.
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“It is disastrous for (the) textiles industry. At a time when the government is talking about implementation of the goods and services tax (GST), what is the need for bring in new levy especially when the textiles industry is passing through a rough phase,” said Rahul Mehta, President, Clothing Manufacturers’ Association of India (CMAI).
The Budget has also proposed making 60% of retail sale price or the tariff value eligible for excise or countervailing duty (CVD) on readymade garments and made-up articles of textiles. Earlier the tariff value for calculating excise or CVD was fixed at 30% of retail sale price.
The Budget 2016-17 raised excise duty on polyester staple fibre (PSF) and polyester filament yarn (PFY) to 12.5% for manufacturers who claim ITC from the existing 6%. Excise duty, however, continues at 2% on manufacturers who do not claim ITC. More than 40% of garments will be covered under the excise duty net. 
By contrast, however, basic customs duty on specified fibres and yarns was proposed to be reduced to 2.5% from the existing 5%. R K Dalmia, Chairman, Texprocil, welcomed the move. 
Meanwhile, basic customs duty on import of specified fabrics [for manufacture of textile garments for export] of value equivalent to 1% of FOB value of exports in the preceding financial year being exempted subject to the specified conditions.
Dalmia said that the  benefit of duty free imports of certain specified fabrics against the export of readymade garments should have been extended to the made ups sector also as both garments and made ups fall under the category of “cut & sew” products.
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