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Excise duty on branded readymade garments & made up articles - VS Datey - FAQs

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  • Rebecca Andrews
    FAQs on excise duty on branded readymade garments and made up articles - VS Datey My intellectual Guru has written an informative article on the subject.
    Message 1 of 3 , Mar 12, 2011
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      FAQs on excise duty on branded readymade garments and made up articles - VS Datey


      My intellectual Guru has written an informative article on the subject. Earlier Mr. Madhukar Hiregnage had also circulated his write-up on the same subject. All those who did not read that may contact him direct for a copy :  mhiregange@...


      As for Mr. VS Datey, don't forget to visit his site for more material on Service Tax (http://www.dateyvs.com/index.htm)


      Excise duty has been introduced in Budget 2011 on branded readymade garments. The duty is effective from 1-3-2011. Following is the FAQ based on various queries received from the manufacturers of such branded goods.

      Can you tell me about excise duty imposed on readymade garments and made up articles?

      Excise duty has been introduced in Budget 2011 on branded readymade garments and made up textile articles. The rate of basic excise duty is 10. In addition, education cess @ 2% and Secondary and Higher Education Cess @ 1% of the basic duty. Thus, total excise duty payable is 10.30%. All the three duties should be shown separately in invoice.

      The duty is effective from 1-3-2011. You can apply for excise registration electronically and you get registration number on the spot. Then you have to submit necessary documents to department like PAN, address proof, list of directors/partners, incorporation documents/partnership deed etc. and obtain registration certificate. However, you can start clearances on the basis of registration number obtained electronically.

      SSI exemption is available to small service providers. Tailors stitching garments as per specific requirements of a customer are not subject to this excise duty.

      What are the articles taxable?

      Articles covered under chapters 61, 62 and 63 of Central Excise Tariff are taxable under the new provisions. It is highly advisable to refer to Central Excise Tariff and read an entry along with section notes and chapter notes as classification is a highly technical issue. Broad coverage is as follows  (The list is not exhaustive, but only indicative) –

      Chapter 61 – Articles of apparel and clothing accessories, knitted or crocheted – Overcoats, car-coats, wind-cheaters, wind-jackets, suits, jackets, blazers, trousers, skirts, blouses, shirts, underpants, briefs, pyjamas, dressing gowns, petticoats, briefs, panties, night dresses, T-shirts, jerseys, babies’ garments, track sits, gloves, shawls, scarves, mufflers

      Chapter 62 – Articles of apparel and clothing accessories, not knitted or crocheted – Overcoats, car-coats, wind-cheaters, wind-jackets, suits, jackets, blazers, trousers, skirts, blouses, shirts, underpants, briefs, pyjamas, dressing gowns, petticoats, briefs, panties, night dresses, T-shirts, jerseys, babies’ garments, track sits, gloves, brassieres, braces, handkerchiefs, shawls, scarves, mufflers.

      Chapter 63 – Other made-up textile articles, sets – Blankets, travelling rugs, linen, curtains, furnishing articles like bedspreads, towels, sacks and bags used for packing, tarpaulins, awnings, sunblinds, tents.

      What is the meaning of ‘brand’?

      Note 11 to Chapter 61, Note 10 to Chapter 62 and Note 3(iv) to Chapter 63 of Central Excise Tariff read as follows -

      ‘Brand name’ means a brand name, whether registered or not, that is to say, a name or a mark, such as a symbol, monogram, label, signature or invented words or any writing which is used in relation to a product, for the purpose of indicating, or so as to indicate, a connection in the course of trade between the product and some person using such name or mark with or without any indication of the identity of that person.

      We are only putting our name and address on the garments as required under Standards of Weights and Measures Act (Now Legal Metrology Act w.e.f. 1-4-2011). We are not putting any logo or monogram. Can the goods be termed as ‘branded’ goods?

      The definition of ‘brand name’ is very wide. Even a simple ‘name’ can be a brand name as it indicates connection between the product (garment) and person using that name. Hence, in my view, such goods will be treated as ‘branded goods’.

      Is excise duty payable on the stock lying in our factory on 1-3-2011?

      The readymade garments were ‘excisable goods’ though exempt upto 28-2-2011. If finished products were cleared from 28-2-2011, there is no excise duty liability.

      However, if such goods are cleared on or after 1-3-2011 from the factory, excise duty will become payable (Duty will not be payable if you are eligible for SSI exemption, as explained below).

      We have got stock in our depots and branched on 1-3-2011. Are we liable to pay excise duty on that stock?

      Stock in your depots and branches is deemed to be duty paid. You do not have to pay excise duty on that stock.

      Can we avail SSI exemption for the period 1-3-2011 to 31-3-2011?

      As explained above, the readymade garments were ‘excisable goods’ even prior to 28-2-2011. Hence, if your net turnover (excluding Vat/sales tax) during the financial year 2009-2010 was less than Rs 4 crores, you can claim exemption upto Rs 1.50 crores during the period 1-3-2011 to 31-3-2011. If your net turnover (excluding Vat) during 2009-10 was more than Rs 4 crores, you cannot avail any exemption and you have to pay excise duty on all clearances from 1-3-2011 onwards. Duty will also be payable on stock lying in your factory at 0.01 AM on 1-3-2011. 

      Can we avail SSI exemption during 2011-12?

      If your net turnover (excluding Vat/sales tax) during 2011-12 was less that Rs four crores, you can avail exemption upto first clearances of Rs 150 lakhs from 1-4-2011 onwards. Otherwise, you have to pay excise duty from 1-4-2011 onwards.

      Who is liable to pay excise duty?

      Basically, duty liability is of the actual manufacturer manufacturing the garments. However, if a person is manufacturing readymade garments on job work basis for a brand name owner, the brand owner can accept liability for payment of excise duty. In such cases, the brand name owner will be liable to pay excise duty as if he is manufacturer of such goods – Rule 4(1A) of Central Excise Rules, inserted w.e.f. 1-3-2011.

      If the brand name owner accepts liability of payment of duty, the job worker will be exempt from excise duty vide Notification No. 13/2011-CE dated 1-3-2011.

      We purchase our own textile material and supply readymade garment to the brand name owner.  Can we ask the brand name owner to discharge the excise duty liability?

      The brand name owner is liable to pay excise duty if he purchases the textile material and supplies it to stitching to a job worker. The definition of ‘job worker’ and ‘job work’ as given in explanation to rule 4(1A) of Central Excise Rules is as follows –

      For the purposes of this sub-rule,  the expression ‘Job worker’ means a person engaged in manufacture, or undertaking any process on behalf and under the instructions of such person for manufacturing, from any inputs or goods supplied by such person or by any other person authorised by such person so as to complete a part or whole of the process resulting ultimately in the manufacture of goods falling under chapters 61 or 62 or 63 of the First schedule to the Tariff Act, and the term ‘job work’ shall be construed accordingly.

      In view of the aforesaid definition, if you purchase your own raw material, responsibility of excise duty liability cannot be transferred to the brand name owner.

      We receive the cloth at place ‘A’, cut them and send the pieces to job worker. After the manufacture of readymade garments, these are received in godown ‘B’ from where goods are ultimately sold. Whether we should register ‘A’ or ‘B’ or both?

      Since the final product is cleared from godown ‘B’, you should get that place registered for excise purposes. However, it is advisable to inform the department details about activities done at ‘A’ place also, to avoid charge of suppression of facts or wilful misstatement.

      We clear the garments without any mark or name or mark from our factory in bulk packing. These are packed for retail sale in godown of other person. In that case, are we liable to pay excise duty?

      You will not be liable to pay excise duty but person packing the garments and putting MRP will be liable to pay excise duty, for following reason.

      Note 12 to Chapter 61, Note 11 to Chapter 62 and Note 3(iii) to Chapter 63 of Central Excise Tariff read as follows -

      In relation to a product of this Chapter, affixing a brand name on the product, labelling or relabelling of containers or repacking from bulk packs to retails packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to ‘manufacture’.

      Thus, even repacking or simple affixing label or brand name will be ‘deemed manufacture’ and excise duty will become payable.

      What is the value on which excise duty is payable?

      As per Notification No. 20/2001-CE(NT) dated 30-4-2001, excise duty on readymade garments is payable @ 60% of MRP printed on the package e.g. if MRP printed on package is Rs 600, excise duty will be payable @ 10.3% on Rs 600.

      As per definition  given in the aforesaid notification dated 304-2001, ‘Retail sale price” means the maximum price at which the excisable goods in packaged form may be sold to the ultimate consumer and includes all taxes, local or otherwise, freight, transport charges, commission payable to dealers, and all charges towards advertisement, delivery, packing, forwarding and the like, as the case may be, and the price is the sole consideration for such sale.

      Thus, MRP has to be inclusive of all duties and taxes and all expenses.

      If we pay excise duty on readymade garments, can we avail Cenvat credit (set off) of excise duty paid on our purchases and input services?

      Rule 2(naa) of Cenvat Credit Rules (as amended w.e.f. 1-4-2011) has following definition -  “manufacturer” or “producer”,- (i) in relation to articles of jewellery falling under heading 7113 of the First Schedule to the Excise Tariff Act, includes a person who is liable to pay duty of excise leviable on such goods under sub-rule (1) of rule 12AA of the Central Excise Rules, 2002; (ii) in relation to goods falling under Chapters 61, 62 or 63 of the First Schedule to the Excise Tariff Act, includes a person who is liable to pay duty of excise leviable on such goods under sub-rule (1A) of rule 4 of the Central Excise Rules, 2002.

      Thus, you can avail credit (termed as Cenvat credit i.e. set off) of excise duty paid on your purchases ad service tax paid on your input services, if you pay excise duty @ 10.3% on your final product i.e. readymade garments.

      What about obsolete goods?

      There is no provision in Central Excise to obtain rebate or refund of excise duty paid on obsolete goods. You can claim credit of duty originally paid, if you bring the goods back for re-work and then clear again, if you follow provisions as contained in rule 16 of Central Excise Rules.

      What are the departmental circulars and instructions on this levy?

      Ministry of Finance Department of Revenue letter D.O.F.No.334/3/2011-TRU dated 28-2- 2011 states as follows -

      Ready-made garments and made-up articles

      3.4 Excise duty at the rate of 10% shall now apply to ready-made garments and made-up articles of textiles falling under Chapters 61, 62 and 63 (heading nos.63.01 to 63.08) of the Central Excise Tariff except those falling under heading nos.63.09 and 63.10 when they bear or are sold under a brand name. Hitherto, ready-made garments and made-up articles were exempt from Central Excise duty on the condition that no credit of duty on inputs is taken by the manufacturer in terms of notification no.30/2004-CE dated 9th July, 2004. If credit were taken, the applicable rate was 4% for goods of cotton, not containing any other textile material and 10% for others under notification no.29/2004-CE also dated 9th July, 2004. These notifications are being amended so that they apply only to those goods of Chapters 61, 62 and 63 not bearing a brand name or not sold under a brand name. For such goods, therefore, the optional duty regime would continueIn the case of ready-made garments and made-up articles bearing a brand name or sold under a brand name, no such option would be available and a duty of 10% would be payable regardless of the composition of the item/article.

      3.5 Note 12 of Chapter 61 and Note 11 of Chapter 62 already prescribe that certain processes such as affixing a brand name on a product, labelling or re-labelling of containers etc. shall be processes amounting to manufacture. A similar note (Note 5) is being added to Chapter 63. As for the valuation of these goods, tariff value has already been fixed at the rate of 60% of the retail sale price in terms of notification No.20/2001-CE (NT) dated 30th April, 2004. This provision is being extended to goods of Chapter 63 as well. It may be noted that SSI exemption is being extended to the goods attracting this levy. This is being implemented through a suitable amendment in item (xxvi) of the Annexure to notification No.8/2003-CE dated 1.3.2003. 
      Although this should take care of small manufacturers, it may be made abundantly clear to the field formations that the levy does not apply to retail tailoring establishments that stitch garments in a customized manner to the size and style specifications of individual customers, whether out of fabric purchased by the customer from the same establishment or fabric supplied by the customer.

      3.6 It is the practice in the garment and made up industry for brand owners to have goods manufactured from several job-workers. The brand owners may or may not, themselves, possess any manufacturing facility. Central Excise Rules are being amended to incorporate sub-rule (1A) in rule 4 to prescribe that in such a situation the liability to pay duty and comply with Central Excise procedure shall be on the person on whose behalf the goods are manufactured by job-workers. For this purpose, he would be required to register his private store-room or warehouse in which inputs are received for distribution to job-workers and finished goods are received from the job-workers. He would also be required to comply with all the other provisions of Central Excise law. The job-worker is exempt from payment of duty if the merchant manufacturer pays the duty. Alternatively, the merchant manufacturer may authorize the job worker to obtain registration and comply with all formalities of Central Excise including payment of duty. Cenvat Credit Rules, 2004 are being amended to enable merchant manufacturers to avail of credit of duty paid on inputs, input services and capital goods.

      In addition, we understand some notes have been issued. What are those notes?

      CBE&C has circulated a note on budget day i.e. on 28-2-2011, explaining changes in Central Excise Tariff. Relevant paras 61.2 and 61.3 read as follows -

      61.2 The optional scheme for payment of excise duty on readymade garments and textile made up, which bear a brand name or are sold under a brand name would no longer be available. An excise duty @10% is being imposed on such goods without Cenvat credit facility. (S.No. of notification No. 30/2004-CE as amended vide notification no.12 /2011-Central Excise refers). The general SSI exemption has been extended to such goods. (Notification No. 8/2003-Central Excise as amended vide notification No.8 /2011-Central Excise dated 1st March, 2011 refers).

      61.3 The tariff value for charging duty on readymade garments and textile made-ups would be @ 60% of the retail sale price. (Notification No.20/2001- Central Excise (NT) as amended vide notification No.7 /2011-Central Excise (NT) refers).

      [Note – Sr. No. of Notification 30/2004-CE is kept blank in para 61.2, but actually it is Sr. No. 16. The words ‘without Cenvat credit facility’ in that para seems to be a drafting mistake, since para 3.6 of MF(DR) letter dated 28-2-2011 clearly makes provision for availment of Cenvat Credit].

      * * * * *


      Kind regards,

      Rebecca Andrews

    • Manish Gupta
      Dear Sir , Very very thanks to this mail. I am doing practice in Gandhi nagar ,delhi ,Ready made Asia no 1 Markect. i have some question 1. How to excise able
      Message 2 of 3 , Mar 13, 2011
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        Dear Sir ,

        Very very thanks to this mail.

        I am doing practice in Gandhi nagar ,delhi ,Ready made Asia no 1 Markect.


        i have some question
        1. How to excise able unit transfer his goods to job worker?
        2. How to Excise Goods Transfer form H.O TO Branch ?

        CA. MANISH GUPTA

        M/S.MANISH SHIV GUPTA & ASSOCIATES
                CHARTERED ACCOUNTANTS


        IX/6517, RAGHU BAR PURA ,
        LAL BATI CHOWK ,GANDHI NAGAR,
        DELHI-31,INDIA.

        DELHI KANPUR NOIDA GWALIOR  GURGOUN AGRA
            
        Mobile no    9312382449 ,9211240223, 8447567689
               
        Landline no 01165038761
        Email id : guptamanish1982@...


        On Sat, Mar 12, 2011 at 3:06 PM, Rebecca Andrews <rebecca.andrews88@...> wrote:
          

        FAQs on excise duty on branded readymade garments and made up articles - VS Datey


        My intellectual Guru has written an informative article on the subject. Earlier Mr. Madhukar Hiregnage had also circulated his write-up on the same subject. All those who did not read that may contact him direct for a copy/ :  mhiregange@...


        As for Mr. VS Datey, don't forget /to visit his site for more material on Service Tax (http://www.dateyvs.com/index.htm)


        Excise duty has been introduced in Budget 2011 on branded readymade garments. The duty is effective from 1-3-2011. Following is the FAQ based on various queries received from the manufacturers of such branded goods.

        Can you tell me about excise duty imposed on readymade garments and made up articles?

        Excise duty has been introduced in Budget 2011 on branded readymade garments and made up textile articles. The rate of basic excise duty is 10. In addition, education cess @ 2% and Secondary and Higher Education Cess @ 1% of the basic duty. Thus, total excise duty payable is 10.30%. All the three duties should be shown separately in invoice.

        The duty is effective from 1-3-2011. You can apply for excise registration electronically and you get registration number on the spot. Then you have to submit necessary documents to department like PAN, address proof, list of directors/partners, incorporation documents/partnership deed etc. and obtain registration certificate. However, you can start clearances on the basis of registration number obtained electronically.

        SSI exemption is available to small service providers. Tailors stitching garments as per specific requirements of a customer are not subject to this excise duty.

        What are the articles taxable?

        Articles covered under chapters 61, 62 and 63 of Central Excise Tariff are taxable under the new provisions. It is highly advisable to refer to Central Excise Tariff and read an entry along with section notes and chapter notes as classification is a highly technical issue. Broad coverage is as follows  (The list is not exhaustive, but only indicative) –

        Chapter 61 – Articles of apparel and clothing accessories, knitted or crocheted – Overcoats, car-coats, wind-cheaters, wind-jackets, suits, jackets, blazers, trousers, skirts, blouses, shirts, underpants, briefs, pyjamas, dressing gowns, petticoats, briefs, panties, night dresses, T-shirts, jerseys, babies’ garments, track sits, gloves, shawls, scarves, mufflers

        Chapter 62 – Articles of apparel and clothing accessories, not knitted or crocheted – Overcoats, car-coats, wind-cheaters, wind-jackets, suits, jackets, blazers, trousers, skirts, blouses, shirts, underpants, briefs, pyjamas, dressing gowns, petticoats, briefs, panties, night dresses, T-shirts, jerseys, babies’ garments, track sits, gloves, brassieres, braces, handkerchiefs, shawls, scarves, mufflers.

        Chapter 63 – Other made-up textile articles, sets – Blankets, travelling rugs, linen, curtains, furnishing articles like bedspreads, towels, sacks and bags used for packing, tarpaulins, awnings, sunblinds, tents.

        What is the meaning of ‘brand’?

        Note 11 to Chapter 61, Note 10 to Chapter 62 and Note 3(iv) to Chapter 63 of Central Excise Tariff read as follows -

        ‘Brand name’ means a brand name, whether registered or not, that is to say, a name or a mark, such as a symbol, monogram, label, signature or invented words or any writing which is used in relation to a product, for the purpose of indicating, or so as to indicate, a connection in the course of trade between the product and some person using such name or mark with or without any indication of the identity of that person.

        We are only putting our name and address on the garments as required under Standards of Weights and Measures Act (Now Legal Metrology Act w.e.f. 1-4-2011). We are not putting any logo or monogram. Can the goods be termed as ‘branded’ goods?

        The definition of ‘brand name’ is very wide. Even a simple ‘name’ can be a brand name as it indicates connection between the product (garment) and person using that name. Hence, in my view, such goods will be treated as ‘branded goods’.

        Is excise duty payable on the stock lying in our factory on 1-3-2011?

        The readymade garments were ‘excisable goods’ though exempt upto 28-2-2011. If finished products were cleared from 28-2-2011, there is no excise duty liability.

        However, if such goods are cleared on or after 1-3-2011 from the factory, excise duty will become payable (Duty will not be payable if you are eligible for SSI exemption, as explained below).

        We have got stock in our depots and branched on 1-3-2011. Are we liable to pay excise duty on that stock?

        Stock in your depots and branches is deemed to be duty paid. You do not have to pay excise duty on that stock.

        Can we avail SSI exemption for the period 1-3-2011 to 31-3-2011?

        As explained above, the readymade garments were ‘excisable goods’ even prior to 28-2-2011. Hence, if your net turnover (excluding Vat/sales tax) during the financial year 2009-2010 was less than Rs 4 crores, you can claim exemption upto Rs 1.50 crores during the period 1-3-2011 to 31-3-2011. If your net turnover (excluding Vat) during 2009-10 was more than Rs 4 crores, you cannot avail any exemption and you have to pay excise duty on all clearances from 1-3-2011 onwards. Duty will also be payable on stock lying in your factory at 0.01 AM on 1-3-2011. 

        Can we avail SSI exemption during 2011-12?

        If your net turnover (excluding Vat/sales tax) during 2011-12 was less that Rs four crores, you can avail exemption upto first clearances of Rs 150 lakhs from 1-4-2011 onwards. Otherwise, you have to pay excise duty from 1-4-2011 onwards.

        Who is liable to pay excise duty?

        Basically, duty liability is of the actual manufacturer manufacturing the garments. However, if a person is manufacturing readymade garments on job work basis for a brand name owner, the brand owner can accept liability for payment of excise duty. In such cases, the brand name owner will be liable to pay excise duty as if he is manufacturer of such goods – Rule 4(1A) of Central Excise Rules, inserted w.e.f. 1-3-2011.

        If the brand name owner accepts liability of payment of duty, the job worker will be exempt from excise duty vide Notification No. 13/2011-CE dated 1-3-2011.

        We purchase our own textile material and supply readymade garment to the brand name owner.  Can we ask the brand name owner to discharge the excise duty liability?

        The brand name owner is liable to pay excise duty if he purchases the textile material and supplies it to stitching to a job worker. The definition of ‘job worker’ and ‘job work’ as given in explanation to rule 4(1A) of Central Excise Rules is as follows –

        For the purposes of this sub-rule,  the expression ‘Job worker’ means a person engaged in manufacture, or undertaking any process on behalf and under the instructions of such person for manufacturing, from any inputs or goods supplied by such person or by any other person authorised by such person so as to complete a part or whole of the process resulting ultimately in the manufacture of goods falling under chapters 61 or 62 or 63 of the First schedule to the Tariff Act, and the term ‘job work’ shall be construed accordingly.

        In view of the aforesaid definition, if you purchase your own raw material, responsibility of excise duty liability cannot be transferred to the brand name owner.

        We receive the cloth at place ‘A’, cut them and send the pieces to job worker. After the manufacture of readymade garments, these are received in godown ‘B’ from where goods are ultimately sold. Whether we should register ‘A’ or ‘B’ or both?

        Since the final product is cleared from godown ‘B’, you should get that place registered for excise purposes. However, it is advisable to inform the department details about activities done at ‘A’ place also, to avoid charge of suppression of facts or wilful misstatement.

        We clear the garments without any mark or name or mark from our factory in bulk packing. These are packed for retail sale in godown of other person. In that case, are we liable to pay excise duty?

        You will not be liable to pay excise duty but person packing the garments and putting MRP will be liable to pay excise duty, for following reason.

        Note 12 to Chapter 61, Note 11 to Chapter 62 and Note 3(iii) to Chapter 63 of Central Excise Tariff read as follows -

        In relation to a product of this Chapter, affixing a brand name on the product, labelling or relabelling of containers or repacking from bulk packs to retails packs or the adoption of any other treatment to render the product marketable to the consumer, shall amount to ‘manufacture’.

        Thus, even repacking or simple affixing label or brand name will be ‘deemed manufacture’ and excise duty will become payable.

        What is the value on which excise duty is payable?

        As per Notification No. 20/2001-CE(NT) dated 30-4-2001, excise duty on readymade garments is payable @ 60% of MRP printed on the package e.g. if MRP printed on package is Rs 600, excise duty will be payable @ 10.3% on Rs 600.

        As per definition  given in the aforesaid notification dated 304-2001, ‘Retail sale price” means the maximum price at which the excisable goods in packaged form may be sold to the ultimate consumer and includes all taxes, local or otherwise, freight, transport charges, commission payable to dealers, and all charges towards advertisement, delivery, packing, forwarding and the like, as the case may be, and the price is the sole consideration for such sale.

        Thus, MRP has to be inclusive of all duties and taxes and all expenses.

        If we pay excise duty on readymade garments, can we avail Cenvat credit (set off) of excise duty paid on our purchases and input services?

        Rule 2(naa) of Cenvat Credit Rules (as amended w.e.f. 1-4-2011) has following definition -  “manufacturer” or “producer”,- (i) in relation to articles of jewellery falling under heading 7113 of the First Schedule to the Excise Tariff Act, includes a person who is liable to pay duty of excise leviable on such goods under sub-rule (1) of rule 12AA of the Central Excise Rules, 2002; (ii) in relation to goods falling under Chapters 61, 62 or 63 of the First Schedule to the Excise Tariff Act, includes a person who is liable to pay duty of excise leviable on such goods under sub-rule (1A) of rule 4 of the Central Excise Rules, 2002.

        Thus, you can avail credit (termed as Cenvat credit i.e. set off) of excise duty paid on your purchases ad service tax paid on your input services, if you pay excise duty @ 10.3% on your final product i.e. readymade garments.

        What about obsolete goods?

        There is no provision in Central Excise to obtain rebate or refund of excise duty paid on obsolete goods. You can claim credit of duty originally paid, if you bring the goods back for re-work and then clear again, if you follow provisions as contained in rule 16 of Central Excise Rules.

        What are the departmental circulars and instructions on this levy?

        Ministry of Finance Department of Revenue letter D.O.F.No.334/3/2011-TRU dated 28-2- 2011 states as follows -

        Ready-made garments and made-up articles

        3.4 Excise duty at the rate of 10% shall now apply to ready-made garments and made-up articles of textiles falling under Chapters 61, 62 and 63 (heading nos.63.01 to 63.08) of the Central Excise Tariff except those falling under heading nos.63.09 and 63.10 when they bear or are sold under a brand name. Hitherto, ready-made garments and made-up articles were exempt from Central Excise duty on the condition that no credit of duty on inputs is taken by the manufacturer in terms of notification no.30/2004-CE dated 9th July, 2004. If credit were taken, the applicable rate was 4% for goods of cotton, not containing any other textile material and 10% for others under notification no.29/2004-CE also dated 9th July, 2004. These notifications are being amended so that they apply only to those goods of Chapters 61, 62 and 63 not bearing a brand name or not sold under a brand name. For such goods, therefore, the optional duty regime would continueIn the case of ready-made garments and made-up articles bearing a brand name or sold under a brand name, no such option would be available and a duty of 10% would be payable regardless of the composition of the item/article.

        3.5 Note 12 of Chapter 61 and Note 11 of Chapter 62 already prescribe that certain processes such as affixing a brand name on a product, labelling or re-labelling of containers etc. shall be processes amounting to manufacture. A similar note (Note 5) is being added to Chapter 63. As for the valuation of these goods, tariff value has already been fixed at the rate of 60% of the retail sale price in terms of notification No.20/2001-CE (NT) dated 30th April, 2004. This provision is being extended to goods of Chapter 63 as well. It may be noted that SSI exemption is being extended to the goods attracting this levy. This is being implemented through a suitable amendment in item (xxvi) of the Annexure to notification No.8/2003-CE dated 1.3.2003. 
        Although this should take care of small manufacturers, it may be made abundantly clear to the field formations that the levy does not apply to retail tailoring establishments that stitch garments in a customized manner to the size and style specifications of individual customers, whether out of fabric purchased by the customer from the same establishment or fabric supplied by the customer.

        3.6 It is the practice in the garment and made up industry for brand owners to have goods manufactured from several job-workers. The brand owners may or may not, themselves, possess any manufacturing facility. Central Excise Rules are being amended to incorporate sub-rule (1A) in rule 4 to prescribe that in such a situation the liability to pay duty and comply with Central Excise procedure shall be on the person on whose behalf the goods are manufactured by job-workers. For this purpose, he would be required to register his private store-room or warehouse in which inputs are received for distribution to job-workers and finished goods are received from the job-workers. He would also be required to comply with all the other provisions of Central Excise law. The job-worker is exempt from payment of duty if the merchant manufacturer pays the duty. Alternatively, the merchant manufacturer may authorize the job worker to obtain registration and comply with all formalities of Central Excise including payment of duty. Cenvat Credit Rules, 2004 are being amended to enable merchant manufacturers to avail of credit of duty paid on inputs, input services and capital goods.

        In addition, we understand some notes have been issued. What are those notes?

        CBE&C has circulated a note on budget day i.e. on 28-2-2011, explaining changes in Central Excise Tariff. Relevant paras 61.2 and 61.3 read as follows -

        61.2 The optional scheme for payment of excise duty on readymade garments and textile made up, which bear a brand name or are sold under a brand name would no longer be available. An excise duty @10% is being imposed on such goods without Cenvat credit facility. (S.No. of notification No. 30/2004-CE as amended vide notification no.12 /2011-Central Excise refers). The general SSI exemption has been extended to such goods. (Notification No. 8/2003-Central Excise as amended vide notification No.8 /2011-Central Excise dated 1st March, 2011 refers).

        61.3 The tariff value for charging duty on readymade garments and textile made-ups would be @ 60% of the retail sale price. (Notification No.20/2001- Central Excise (NT) as amended vide notification No.7 /2011-Central Excise (NT) refers).

        [Note – Sr. No. of Notification 30/2004-CE is kept blank in para 61.2, but actually it is Sr. No. 16. The words ‘without Cenvat credit facility’ in that para seems to be a drafting mistake, since para 3.6 of MF(DR) letter dated 28-2-2011 clearly makes provision for availment of Cenvat Credit].

        * * * * *


        Kind regards,

        Rebecca Andrews




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      • uma prabakar
        DEar sir,   FAQ on ED on Readymade garments is informative.     regards prabakar.s. Chennai/.kmco   DEar sir, FAQ on ED on Readymade garments is
        Message 3 of 3 , Mar 14, 2011
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          DEar sir,
           
          FAQ on ED on Readymade garments is informative.
           

           
          regards
          prabakar.s.
          Chennai/.kmco
           

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