TN textile units call for restructuring of excise duty

By Our Special Correspondent

CHENNAI, JUNE 21. The textile industry in Tamil Nadu has called for restructuring of the excise duty on TS various segments in such a manner as to make tax evasion unprofitable and remove the disadvantage faced by honest assessees.

Pinning the blame for tax evasion largely on the ``deemed Modvat benefit'' system, industry leaders today said the government would garner an additional revenue of Rs. 500 crores if the tax was restructured.

Addressing a press conference in the presence of leaders of associations representing the spinning, weaving, knitting, dyeing and processing sectors, both big and small, Mr. Manikam Ramaswami, Chairman of the Southern India Mills Association (SIMA), said the textile industry in Tamil Nadu was operating at low or nil profit because of excess capacity leading to unhealthy competition and poor growth in consumption of spun yarns and woven fabrics on account of rapid inroads made by filament yarns/warp knitting/coated laminated fabrics etc.

In this scenario, the duty structure in respect of the industry was encouraging dishonest operators and preventing honest units from expanding their market share and earning surpluses necessary for undertaking modernisation.

The SIMA Chairman said though powerloom fabric did not suffer duty, processed fabrics had three types of duties, namely, zero, stenter-based and ad valorem. These loose or missing links made the government introduce ``deemed Modvat benefits'', whereby Modvat credit could be taken without producing a duty-paid certificate.

Out of the duty collected on yarn, refunds were given by way of Modvat at the processed fabrics stage in the case of composite mills, deemed Modvat credit in lieu of yarn duty presumed to have been paid by independent powerlooms and to composite mills when they used powerloom fabrics, and duty drawback was paid to woven/knitted garments/fabrics exporters. The only yarn duty that was not modvatted or eligible for drawback was the duty on yarn consumed by the domestic knitting fabric/garment industry, which accounted for hardly ten per cent of the total duty.

According to estimates made by SIMA, the government ought to be collecting Rs. 1,300 crores of yarn duty every year and pay back to the assessees Rs. 1,100 crores through Modvat/deemed Modvat/drawback. Against this, though the Government was paying back Rs. 1,100 crores, its collection totalled only Rs. 650 crores, clearly pointing to huge Modvat claims on unpaid duty.

In view of this, the SIMA and other segments of the industry called for removal of duty on cotton yarn and abolishing deemed Modvat on processed fabrics, whose net effect would be a gain of Rs. 450 crores for revenue, besides protecting honest mills, local garment makers of knitted garments and powerloom exporters of superior cloth where at present the yarn duty was more than duty drawback.

As regards grey fabric, in place of the duty-free regime in the fabric stage and Modvattable duty on subsequent stages, they suggested an eight per cent optional duty on the basis of self- certification. This would enable weaving units whose customers were in the organised sector to pay duty and claim Modvat credit on all inputs which amounted to 3 per cent of the turnover of a modern weaving factory with second hand machinery and four per cent in the case of a unit having new shuttleless looms.

The independent weaver would at the same time be able to remain out of the tax net. In case the fabric was bought by a process house evading duty, the duty paid at the fabric stage would become an additional cost and a disincentive to evasion.

As regards garments, in place of the 16 per cent Modvattable/deemed Modvattable duty, the duty should be fixed at 8 per cent without deemed Modvat credit on fabric. There should be an option for small independent processing plants to switch over to ad valorem duty since the lure of underinvoicing in such a regime was negligible compared to Modvat benefit.

``With eight per cent excise, the price difference between MNC brands and branded local garments will be brought down. This will help local brands to grow and will ensure a good market for all segments of the textile industry'', Mr. Ramaswami said.

For process houses, the suggestion of the industry was for introduction of a uniform duty, with only standard Modvat, and option to small IPPs for a stenter-based duty, which would be relevant only to those who made fabrics for non-mass producible garments and saris. This would create a level playing field and encourage all-round compliance

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