Monday, March 28, 2011

Excise Duty on Ready-made Garments not Acceptable to Manufacturers

Garment manufacturers and retailers across India observed strike on Friday, protesting against the proposed mandatory excise duty of 10 per cent for all branded ready-made garments and textile made-ups in the Union budget for 2011-12.

 South India Garment Association also protested in Bangalore saying the levy will ruin the industry.

According to the budget, ‘branded apparel’ is any garment which has the name, label, tag, logo or any identification mark, thus brings all apparels under the excise duty net.

It is a bit strange that the Rs 1,40,000 crore ready-made garments industry comprising of many big business houses like Future Group, Raymonds, Aditya Birla group, Reliance, Arvind Mills, etc, selling apparels at fancy prices and spending crores of rupees in advertisement does not want to pay excise duty. Like many other exciseable durables, readymade garments are also bought by middle class and upper-middle class people.
Why will they object to paying duty?

The problem is that though readymade garments are sold by big players under big brand names, they are made across the country by thousands of small units who now fear that large buyers will force them to bear this cost and reduce their margins.

Earlier, the rate of excise was at 4 per cent and the levy was optional for garment makers who wanted to get refund under the Centvat scheme. Since most units did not register themselves to claim Centvat refund, the duty was virtually zero. Now all branded garment makers will have to pay 10 per cent duty on the 60 per cent of the MRP. 

Speaking to Deccan Herald Clothing Manufacturers Association of India, Regional Chairman & MD of Gokaldas Exports Ltd Rajendra J Hinduja said for garment exporters the new duty will create problem because even for exports, which are exempted from excise duty, all units will have to maintain detail records, paper work will increase and man power cost will go up.

India’s total garment exports is Rs 45,000 crores a year. But with severe competition from Bangladesh, Sri Lanka, China, Vietnam, the fragmented industry with 10,000 garment factories work on wafer thin margins. The new levy will add to our headache,” he said.


 Echoing the same view, Arvind Brands Vice President & Business Head Alok Dubey said the imposition of mandatory excise duty has come at a time when cotton and yarn prices have gone up by 100 per cent. It will kill many business units. Industry experts believe that with large players contributing just about Rs 20,000 crore or 15 per cent in total turnover, small units will have to bear maximum burden of duty.  Since garments making is a capital intensive and seasonal business with cyclical pressures, additional 10-12 per cent cost will make operational cost prohibitive, he said.

Madhura Fashion & Life Style President Ashish Dikshit said due to overall inflationary environment and newly levied duty consumers will end up paying 20-25 per cent more for readymade garments. Given the precarious business economics, garment manufacturers want government to roll back the duty.

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