Central Excise Duty Assessment on Ready Made Garments

[Rajesh Kumar]

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 (i.e. used and worn clothing including rags, cuttings etc.) when they bear or are sold under a brand name. The duty shall be applicable from 01.03.2011.

Articles not bearing a Brand Name:

The Notification No. 30/2004-CE dated 09.07.2004 exempts readymade garments. The exemption is based on the condition that no cenvat credit shall be taken. Vide the Notification No. 12/2011 dated 01.03.2011, the exemption has been restricted only to the goods not bearing a brand name.

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 continue. The rate on cotton items has been increased to 5%.

Thus readymade garments, not bearing a brand name is exempted from payment of Central Excise duty. Further, the manufacture has an option to pay duty @ 5% on cotton items and 10% on others and take cenvat credit.

SSI Exemption:

SSI exemption facility is being extended to textile sector. This is being implemented through a suitable amendment in item (xxvi) of the Annexure to notification No.8/2003-CE dated 1.3.2003. It has further been clarified that this levy does not apply to tailoring establishments.

Deemed Manufacture & Tariff Value:

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, labeling or re-labeling 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.

Exemption to Job Worker:

A Notification 13/2011 dated 01.03.2011 has been issued to exempt job worker from payment of duty and following Central Excise duty procedure if duty liability is being discharged by the principal manufacturer. However, the job worker may be authorized to follow central excise procedure and pay duty. The Notification reads as,

“In exercise of the powers conferred by sub-rule (2) of rule 9 of the Central

Excise Rules, 2002 (hereinafter referred to as the said rules), the Central Board of Excise and Customs, hereby exempts from the operation of the said rule 9 every job worker, who undertakes job work in respect of final products falling under Chapter 61, 62 or 63 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), on behalf of any other person who shall pay the duty or duties of excise leviable on the said goods, under sub- rule (1A) of rule 4 and comply with all procedural formalities and discharge all liabilities under the Central Excise Act, 1944 (1 of 1944) and the rules made thereunder, in respect of the goods manufactured on behalf of the said other person; Provided that the above exemption shall not apply to the job worker who may be authorised to pay the duty of excise leviable on such final products manufactured by him on behalf of such other person in accordance with the proviso to sub rule (1A) of rule 4.

Explanation.  - For the purposes of this proviso, the expression "job worker" shall have the meaning assigned to it in rule sub rule (1A) of rule 4.”

Effect of changes:      

These changes are resulting into following effects.

1. Unbranded ready-made products are exempted from duty. However, the manufacturer at his option, can pay duty @5% on cotton items and 10% on other items, with Cenvat facility.

2. Branded readymade garments shall attract a duty @10%, with cenvat facility.

3. Duty is to be paid on a tariff value equal to 60% of the retail sale price.

4. The duty liability can be discharged by either the job worker or principal manufacturer.

5. These changes shall be effective from 01.03.2011.

6. Textile and Textile product is being removed from the schedule of Additional Duties of Excise Act. Now there products will be subject to State’s Value Added Tax.