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Big firms left to choose exemption or Cenvat route

Major players not too happy with Budget proposals

Our Regional Bureau  |  Ahmedabad 

While the is all smiles following abolition of Cenvat by Union finance minister in the Budget, the organised and big players in the textile industry seem not too happy.
Big companies such as Arvind Mills, Welspun India Ltd, Ashima Group, and Exports Ltd are pondering over the option to choose between two routes offered by the finance minister. One is the exemption route and the other is the Cenvat route.
"So far, thanks to additional excise duty in lieu of sales tax, since independence no sales tax is ever charged by states on fabrics. Now Cenvat abolition brings in the question of sales tax. This may increase the cost of fabrics by four per cent unless a specific solution is found. The problem may be overcome once value added tax (VAT) is introduced in April 2005, which will have set offs available for the inputs used," Chintan N Parikh, chairman and managing director, Ashima Group, said.
"Textile inputs like dyes and chemicals, furnace oil and other fuels and packaging materials will become costlier and to that extent the total benefit may not be available to the end-consumers. There will not be any duty drawbacks in exports, as there will not be any excise duty, and to that extent garment exports may be adversely impacted. Since no capital Modvat is going to be available now, there may not be an incentive to modernise or for fresh investment in terms of latest technology to the existing players. Overall, the budget is favourable for the industry as a whole, inspite of the political compulsions that the finance minister had, and to that extent he deserves congratulations," Parikh said.
"While the budget has proposed duty exemption to the handloom and powerloom sectors, the composite mills have the option of duty exemption or Cenvat. One has to wait for more clarifications to assess the full implications of these changes," said Sanjay Lalbhai, managing director,
"In the absence of capital modvat, importantly, the capital cost of new projects in textiles may go up as the cost of textile equipment still will attract excise duties and the business will have no modvat against the same in future," said Shreyas Parikh, financial controller of Ltd.
"The Budget has tried to address the concerns of the unorganised sector while keeping in mind the needs of the composite and integrated mills. On the positive side, the government realises the potential of the Indian textile industry to compete in the international market after abolition of quotas from December 31, 2005," said Lalbhai.
"The chain has come as a welcome relief to the handloom and power loom sectors and will create a level playing field with the composite textile mills. I feel that all these measures for the textile sector would help the country garner a large share of the overseas market. Overall, it is a positive Budget for the textiles sector and has not brought any significant adverse effect to the organised sector," said B K Goenka, vice chairman and managing director,

First Published: Sat, July 10 2004. 00:00 IST