The finance ministry is planning to cushion the small powerloom and handloom sector from the demands of conforming to the Cenvat chain of excise duty. Finance Minister P Chidambaram is expected to refer to the relief he is considering for the sector in his Budget speech.
Top officials said they were not convinced that an extension of the Cenvat system to the small-scale textile sector has been useful. They also pointed out that even now there were about 121 exemptions peppering the Central Excise Tariff Act, 1985, for the sector, which were proving tough to eliminate.
The package for textile units like yarn and small-scale garment producing outfits would be finalised after the presentation of the Budget. Top ministry officials said the move would not restore the pre-Budget position of 2003-04, lock stock and barrel.
In his Budget, former Finance Minister Jaswant Singh removed the deemed Cenvat credit system for the textile industry and made it dependent on production of actual evidence of duty paid. The officials said in the last fiscal, Cenvat credit had more than doubled for the sector to Rs 7,905 crore (Rs 79.05 billion) from Rs 3,780 crore (Rs 37.80 billion).
They have argued that this only served to illustrate the point that taxation of the textile sector was a story of the government taking the duty, only to return the same in another garb to the industry.
They pointed out that the domestic production cycle in this sector was not comparable to the developed countries, as it was not vertically integrated and the excise duty regime had to account for those differences.
While details of the roll back were not made available, the officials indicated that some safeguards for the handloom units from having to comply with the Cenvat paper work were being worked out. This might involve a partial restoration of the deemed credit benefit for them.
In the recent general elections, the United Progressive Alliance made the issue of rolling back the Cenvat chain for unorganised textile units their major poll issue in states like Tamil Nadu.
Textile Minister Shanker Singh Vaghela has met Finance Minister P Chidambaram on the issue, even though textile ministry officials have also said that the experiment introduced in the last fiscal, should be allowed to run for at least one more year, before it is evaluated.
To make it easy for the new entrants into the excise chain, the Central Board of Excise and Customs had instructed all its field formations last year, to use no coercive measures at all.
