Textiles: Remove customs and excise duties on MMF and inputs

The textile sector is seeking removal of customs and excise duty on MMF and their inputs, and also on the liquid fuels used as feedstock for their captive power plants

The Indian Textile Industry is currently one of the largest and most important industries in the Indian economy in terms of output, foreign exchange earnings and employment.

The industry contributes 4 per cent to the country's GDP, 14 per cent to the country's industrial production and around 12 per cent to the country's foreign exchange earnings. However, the textile industry was one of the drastic hit industries on the back of Global economic melt down.

The first half of the fiscal has observed hit due to sharp depreciation of rupee, high power cost and the second half looked dreary due to high raw material costs, tight liquidity and slump in demand in the exporting countries.

Resultantly, the labour intensive industry has observed many layoffs of the skilled work pool in FY09. Although the problems relating to liquidity in the industry was addressed in Interim Budget 2009-10, by releasing the entire pending TUFS amount till FY 09, and extending interest subvention etc; these measures didn't meet the needs of the industry. 

Post general elections, with immediate action to help labor intensive and major export exchequer -- Textile industry, GOI has extended helping hand by inviting industry to explore seeking opportunities and diversifying to the new export markets like Bahrain Kuwait, Oman, Saudi Arabia, Qatar and UAE, Latin America, Russia and Oceania; implementing National Fiber policy; inducting momentum to the implementation of Technology Up gradation Fund Scheme, Scheme for Integrated Textile Parks and Technology Mission etc.

The textile ministry has also presented the short term strategy (rationalize fiscal structure, exempt service tax, reduce interest rates on pre and post shipment credit and facilitate faster clearance of arrears of terminal excise duties and Central sales tax), medium tern (inducting momentum to the implementation of Technology Up gradation Fund Scheme, Scheme for Integrated Textile Parks and Technology Mission in 11th Five Year Plan period) and long term strategy

However, the Textile Industry which was represented by CITI submitted a memorandum to GOI suggesting the new measures that would make industry regain its lost sheen in the coming years.

Duty Structure

Excise Duty

Customs Duty

Industry Expectations:

The industry expects excise duty of 4% on all man-made fibers, 14 per cent on all liquid fuels used for captive power generation by T&C units and all service taxes on Textile Units to be exempted. It also suggests exemption of Excise duty on machinery procured from the domestic market against EPCG licenses. In addition to the above, reduction in present 4-8 per cent excise duty on machinery and 8 per cent on all components and spares to 4 per cent for all textile machinery, components and spares is also looked at.

The industry also Refund all accumulated Cenvat credit of T&C units. Rule 5 of the Cenvat Credit rules has to be amended suitably in order to facilitate refund of accumulated Cenvat credit in T&C units

The Industry also seeks abolishing basic customs duty of-  5 per cent on all man-made fibers, 10 per cent on all liquid fuels used for captive power generation by T&C units, Duty ranging from 5 per cent to 10 per cent on all machinery for textiles and clothing, except for spindles.

The Exemption is also expected on fibers and all inputs for T&C industry from special additional duty of 4 per cent charged on fibers and many other products, towards state duties levied on similar domestic products.

It also looks for exemption of 11.33 per cent of book profit on MAT credit entitlement, 16.995 per cent of dividend distribution tax, FBT and Surcharge (10 per cent for all Corporate Taxes) for T&C industry

On the liquidity front the Industry proposes Rescheduling of loans for all T&C units by permitting deferment on repayment of principal amounts for 8 quarters on condition that the interest will continue to be paid during this period. To accommodate rescheduling, a two year extension may be allowed for the repayment period for term loans. Addition to the above, Under TUFS, extension of repayment period may be permitted beyond the currently stipulated 10 year period.

The Industry seeks increasing 2% interest subvention to 4 per cent and allowed until March 2010.

It also suggests, that accumulated cenvat credit and delays in payment of TUFS assistance, refund of TED, rebate of excise on exports etc should be considered as delayed dues from government as receivables for assessment of working capital for T&C units

Higher domestic prices were hurting its textile industry. So the industries asked for withdrawal of MSP for Cotton or alternatively dispose of procured cotton promptly at international prices.

Although India is second largest producer of cotton, lower domestic mill use as against other countries doesn't support export competitiveness of cotton. Thus it suggests Government to with draw the export incentive of 5 per cent on cotton under Vishesh Krishi and Gram Udyog Yojana (VKGUY) effective from 1st April 2008 to 30th June 2009.

The industry seeks Permit without restriction for wind energy generators as against only within limit of 25 per cent stipulated for other expenses under TUFS; Abolish Hank Yarn Obligation as against 40 per cent of yarn production to be packed on hanks by all spinning mills, except in the case of hosiery yarn and export production and Restore pre reduction rates that were reduced substantially in September 2008; Take fuel duties into account for calculation of Draw Back rates.

State Level Duties like CST, electricity duty, mandi tax, entry tax and other local as well as state level duties and taxes amount to 4-6 per cent of FOB value of export. All taxes are admittedly refundable to exporters. Since State Governments May be refunded by Central Government

Companies to watch

Aditya Birla Nuvo, Alok Industries, Indorama Synthetics, JBF Industries, Garden Silk Mills, Vardman Textiles, RSWM, Raymond etc.

Outlook

Diversifying export's portfolio of textile industry to various other countries will reduce risk of dependence on US and EU nations and improve the foreign earnings.

The exemption of excise and customs duty on liquid fuels, abolition of service charge, Rescheduling of loans for all Textile & Clothing units will reduce pressure on the industry and will help to improve liquidity in the Industry.

The assurance of government to help textile industry even before the Budget; gave much higher expectations on the relief measures. Thus exporters, Man made fiber industries are expected to be better placed.