Excise duty: Govt mulls relief to garment industry

Under pressure from the garment industry over levy of excise duty on branded garments, the government is reviewing the Budget proposal.

While a complete rollback is ruled out, it is considering giving some relief through easing of some procedures. The finance ministry may consider making the duty optional for garment manufacturers, but it can come with some riders.

“There is a lot of opposition from the garment industry, but we are not in favour of a complete rollback of the duty. We understand their concerns and will try to address these. We may simplify some procedures for them,” said a finance ministry official, who did not wish to be identified.

Readymade garments and made-ups of textiles are currently under an optional excise duty regime. A manufacturer is required to pay duty only if he wishes to avail of Cenvat credit.

In view of a handsome growth seen in the garments industry in recent years, Finance Minister Pranab Mukherjee, in his Budget speech, had proposed to convert the optional levy into a mandatory one at a unified rate of 10 per cent.

The levy would, however, apply only to branded garments or made-ups and not to those tailored or made to order for a retail customer. The Budget had proposed that credit of tax paid on inputs, capital goods and input services would be available to manufacturers of these products.

Keeping in mind the fragmented nature of this industry, full small-scale industries exemption was also being extended to these products, and export of these items would continue to be zero-rated, Mukherjee had said.

Major brands like Shoppers Stop, Pantaloons, Westside, Lifestyle, Madura Garments and Arvind Brands had gone on strike against the proposal, which they said would affect their margins if the duty was not passed on to the end consumer.

It was estimated that about 50,000 apparel brands would be affected if the duty was imposed. Of the total estimated Rs 1,00,000-crore apparel business in India annually, about Rs 60,000 crore comes from branded apparel.

The clothing Manufacturers Association of India has argued that cotton prices have shot up by 70 per cent in the last four to six months, resulting in an increase of 30 per cent in the cost of finished product, and a 10 per cent excise levy will make matters worse for the industry.