Excise duty on branded garments is unjustified

Excise duty on branded garments is unjustified

J.N.Vohra, M.Tech, B.Text, F.I.E. C.Eng., M.I.M.A. MPMA

In the Budget 2011-12, the government levied 10 per cent excise duty on branded textiles and garments which came as a big jolt to the garment industry. Earlier, readymade garments and made-up textiles were under optional excise duty regime which has now been converted into a mandatory levy. That also meant that the factories will now have to register with central excise, the administrative costs of which the small units could ill afford.

The imposition in excise duty came at a point when the clothing industry was already reeling under 100% hike in the cost of cotton yarn.  The branded and trade mark labelled apparel business is about 40% of the estimated one lakh crore textiles and RMG business in India. The increase in excise duty coupled with hike in prices of raw materials made the retail prices of garments to go up to the extent of 30 to 35%, which are likely to go up further in the near future. This could result in the reduction in demand.

At one stage government did consider rolling back 10 per cent excise duty on branded garments, due to large scale protest by industry in Delhi, Ludhiana and Kolkata and other parts of the country. Retailers of branded garments like Shoppers Stop, Pantaloons, Westside, Lifestyle, Madura Garments, Reliance Trends and Arvind Brands also protested.

Finance Minister Pranab Mukherjee fell short of rolling back and instead diluted the proposal by enhancing the abatement from 40 per cent to 55 per cent of the retail sale price. With this relief a unit with 8.9 Crore turnover would continue to be eligible for SSI exemption. Apparel with MRP of Rs 1,000, a garment-maker will shell 10 per cent duty on Rs 450. According to the original proposal, excise duty was to be levied on Rs 600. The decision, however, failed to mollify the garment manufacturers. They wanted the tax to be withdrawn fully.

Textiles and garment manufacturing industry is the second largest employer in the country after agriculture with six million workers on its rolls.

A brand label on the garment can include a name of the company, sign, symbol, color combination or slogan. A legally protected brand name is called a trademark.

Some large units outsource the manufacturing of garments from other small unit under their brand name or trade name. This is the case with most of the knitwear units of Ludhiana. Goods manufactured by an SSI unit with brand name of others are not eligible for SSI concession, unless goods are manufactured in a rural area or the firm does not fall under the provision of exemption limit of turnover. EXCISE SSI EXEMPTION NOTIFICATION 8/2003 allows a manufacturer exemption from excise on goods cleared up to a turnover of 1.5 Crore in a financial year provided turnover in previous year is less than 4.0 crore.

It may be said here that levy of 10% excise duty on branded garment is unjustified and is retrograde step taken by the Government. Government must work out some relaxations such as exemption to job workers who work for brand owners in India. Manufacturers supplying labelled uniforms to schools and corporate besides simplifying the procedure to claim excise exemption.

Many of the small units of Ludhiana put labels just because a garment has to carry some sort of label, not necessarily their label is a unique selling point. These goods are targeted to middle class and lower middle class segment. These manufacturers sell good to their wholesalers due to their personal relations developed over a period of time. This may also lead to non-use of labels stitching on the garments by many small scale units.