Textile units to get tax flexibility

New tax regime to give excise net options.

Textile units will have the freedom to come within the purview of the excise net at one stage of the production and opt out of it at the next, under the new tax regime proposed in the Budget 2004-05.

In addition, textiles units, which have already claimed Cenvat credit will have the option to opt out of the excise route by reversing such claims, the Finance Ministry has clarified.

The ministry will, however, insist on proper maintenance of "appropriate verifiable accounts" by units using either of the options.

Hence, if a mill produces 100 per cent cotton yarn and man-made fibre yarn, then such a mill will normally want to be in the Cenvat chain in case of a man-made fibre yarn since the man-made fibre attracts a mandatory excise duty of 16 per cent.

However, the same mill will, in the case of cotton yarn, like to be outside the excise duty since cotton fibre is not subject to excise duty.

Similarly, if a mill produces only a man-made fibre yarn, the mill will be able to sell to a weaver, who is in the Cenvat chain, by paying the excise duty on the yarn and to a weaver, who is not in the chain, without paying the excise duty on yarn.

"The clarifications basically broadens the operation of the two routes. This will help the textile units, who have taken a marginal amount of the Cenvat credit. Such units can now have the option of returning the Cenvat credit to the government and staying out of the excise route," D K Nair, secretary general, Indian Cotton Mills Federation told Business Standard.

There was also confusion on whether the option to stay within the excise route or opt out of the excise route was possible for individual transactions, irrespective of product lines or clients.

The Union budget had introduced a new tax regime for the textile sector. Under the new regime, the cenvat scheme has been made optional. While man-made fibres and filament yarns (including textured yarns) have been retained under mandatory excise all others have been exempted from excise provided no cenvat credit is taken.

The exemption from payment of excise has been made optional. Those who want to remain under the excise net would have to pay an excise duty of 4 per cent on all textile goods made of pure cotton and 8 per cent on all others barring man-made textiles.

Man-made staple fibres would continue to attract a duty of 16 per cent while polyester filament yarns, including polyester textured yarns would continue to attract a duty of 24 per cent.

Finer material

• Units will have the choice to opt for the excise or the zero duty at every production stage and on every single transaction
• Units that have claimed Cenvat credit can still opt for the zero duty by reversing the Cenvat credit
• Units opting for both routes have to maintain appropriate verifiable accounts