Shailesh P Sheth: Small is beautiful

This is one proposal of Budget, 2007-08 presented by the Hon'ble Finance Minister Mr. P.Chidambaram which will certainly be frowned upon by Dr. Vijay Kelkar. In total disregard of the recommendations made by the "Task Force on Indirect Tax" headed by Dr. Kelkar, the Finance Minister has proposed an increase in the exemption limit for the small scale manufacturers of the specified excisable goods from the existing Rs. 1.00 Crore to Rs. 1.50 Crore.

At present, the total exemption from payment of excise duty is provided to the manufacturers of the specified goods upto the aggregate value of clearances of Rs.1.00 Crore made in a financial year vide Notification No. 8/2003-CE dated 28.2.2003 as amended. The benefit of the exemption under this Notification is available subject to the various prescribed conditions. The exemption is available only to those manufacturers whose aggregate value of clearances of all excisable goods has not exceeded Rs. 4.00 Crores in the preceding financial year. The Notification also provides for the manner in which the aggregate value of exempted clearances of Rs.1.00 Crore and the total clearances of Rs.4.00 Crores, as the case may be, shall be computed.

The Finance Minister has now proposed to raise the threshold exemption limit of Rs. 1.00 Crore to Rs.1.50 Crore effective from the next financial year i.e. 2007-08. For this purpose, the existing Notification No. 8/2003-CE has been amended vide Budgetary Notification No. 8/2007-CE dated 1.3.2007 and the amendment will be effective from 1.4.2007.

It may be noted here that the eligibility criteria i.e. the total turnover of Rs.4.00 Crores of all excisable goods made during the preceding financial year has not been changed. Therefore, the manufacturers whose aggregate turnover of all excisable goods does not exceed Rs.4.00 Crores in the current financial year 2006-07 will be entitled to claim the exemption upto Rs. 1.50 Crore in the financial year 2007-08 in respect of the specified goods manufactured by them in terms of the Notification.

Though the exemption limit is being raised to Rs. 1.50 Crore, the requirement of filing the declaration for claiming exemption from registration control on exceeding Rs.40.00 lakhs has been left unchanged. In other words, in terms of Notification No. 36/2001-CE (NT), the small scale units whose turnover is below Rs.1.00 Crore and who are exempted from registration control at present, will be required to file the declaration on exceeding Rs. 40.00 lakhs in the financial year.

The Kelkar Committee, while acknowledging the pivotal role played by the small scale sector in the country's economic development through value addition, employment generation, mobilization of capital, entrepreneurial skills and contribution to export earnings, had also noted with dismay that the sectors contribution to excise revenue is negligible i.e. about 3.4% of the total revenue. The Committee had also listed the distortions created due to such exemption enjoyed by a vast sector of the economy. The Committee had therefore recommended, inter-alia, that the exemption limit should be brought down from the existing Rs.1.00 Crore to Rs. 50.00 lakhs in a gradual manner and that the benefit should be made available only to the really small scale units.

The exemption limit of Rs. 1.00 Crore has, however remained unchanged since F.Y. 2001-02 and no steps have been taken in past 4 years for implementing the above recommendations of The Kelkar Committee. Instead and presumably playing to the popular gallery, the Finance Minister has raised the limit to Rs. 1.50 Crore.

One wonders how Dr. Kelkar will perceive this Budget proposal!

(Shailesh P Sheth is an advocate)