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G. Gurumurthy

SIMA laments that notwithstanding the various studies finding the plethora of duty exemptions as the bane of the industry, the move to continue the exemptions would do more damage to the industry in the coming years. SIMA says if the Government could not complete the `Cenvat' chain, it could as well exempt the entire spinning sector from excise duty.

COIMBATORE, Feb. 23

WITH the presentation of Union Budget just days away, chinks have appeared in the textile sector with sectoral lobbying for the Budget favours reaching the feverish pitch. The current pursuits by different sectors within the textile industry that have set the pot boiling is on the issue of completing the `Cenvat' chain or otherwise, a jargon to mean spreading the excise duty net on those hitherto exempted from the purview of duty incidence.

That various textile-manufacturing processes within the industry continue to remain divided on the desirability of coming under the ambit of excise duty cover is already there for all to see. But what has added yet another dimension to the debate on `Cenvat' chain is the vocal support extended by the Union Textile Minister, Mr Kashiram Rana, almost at the eleventh hour to keep certain decentralised textile producers such as powerloom, handloom, etc., under exemption from excise duty net.

Mr Rana's suggestion to the Prime Minister on this has pointed out that extending the excise duty to these decentralised sectors in the absence of rationalisation of duty on the raw material, namely the various yarns used by them and before the State Governments put in place the VAT system would jeopardise the powerloom and handloom sectors.

Though Mr Rana has not named the knitwear industry in the list of the decentralised sectors that clamour to remain outside the excise duty net, it is very much open that the knitwear sector is among the foremost in demanding that it should not be brought under the excise duty cover. Its plea is that the highly dispersed nature of the knitwear manufacturing process would make the system of levying excise duty difficult to operate and prove cumbersome for the revenue collection. So, whatever the duty exemption design supported by Mr Rana to the decentralised sector should be logically applicable to the knitwear sector as well.

The Union Textile Minister's defence against extending the `Cenvat' cover has naturally upset the organised textile mill sector. It has been avowedly pursuing for an `unbroken' Cenvat chain bringing all textile production processes under the excise duty net which it claims will be the lone way to route out the duty evasion rampantly going on at present in the industry.

Expressing its anguish over Mr Rana's open support to the continuation of excise duty exemption being given to the decentralised sector, the apex spinners body, the Southern India Mills Association (SIMA) has stated that having denied the conventional duty evasion routes, the habitual evaders in the industry have now taken to more daring route, namely, conducting the entire operations outside the books. It has stated that this became possible due to two major loopholes still kept open - deemed Modvat credit at processing stage (due to the voluntary duty allowable at weaving stage) and duty drawback (DDBK) on woven and knitted fabrics exports granted without the invoices for yarn, since no documentary evidence of purchase is required to make these claims. This has led to the yarn trade rapidly shifting to invoice-free trade.

SIMA laments that notwithstanding the various studies finding the plethora of duty exemptions as the bane of the industry, the move to continue the exemptions would do more damage to the industry in the coming years. It feels that if the duty rationalisation could not be done now, it may not be possible next year due to political compulsions in election years. The apex spinners body says that if the Government could not complete the `Cenvat' chain, it could as well exempt the entire spinning sector from excise duty.

Mr Rana's advocacy for continuing the excise duty exemption for decentralised textile producers should catch the top-rung Textile Ministry officials unawares as in the recent pre-budget deliberations they had with the wider circles of the textile industry representatives, it is said that one of the consensuses evolved was to press for ending all duty sops and complete the `Cenvat' duty chain.

In a recent interaction, a senior bureaucrat in the Textile Ministry told this correspondent that the ministry favoured completing the `Cenvat' chain and he also pointed out that there has been no reason why the knitwear sector should not be brought into the excise net.

It has been contemplated, it is said, to introduce a suitable mechanism to overcome the problem of excise duty evasion and introduce the Cenvat chain. One such device at the consideration of the Textile Ministry is to enforce registration for the yarn/fabric dealers and merchandisers with the Central Excise department, which might minimise the difficulty in implementing levy of excise on the sectors that currently are exempted from payment of excise.

Looking in this backdrop, the coming Union Budget might spell definite anxiety to the textile industry in more than one way.

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