Textiles ministry seeks uniform excise rate for yarn, fabric

S Venkitachalam

New Delhi, Jan 4: In 2002-03 Budget, the textiles ministry would like the finance minister to consider fixing a “uniform” excise rate for yarns and fabrics, both cotton and man-made, closing the escape routes for evasions by plugging the loopholes in the existing duty structure, removing all exemptions and permitting imports of capital goods at zero or concessional duty.

A uniform rate of duty will result in all the sectors of the textile industry paying the same duty, the ministry sources said adding that it is immaterial whether it is fixed at 8 per cent or 16 per cent. In its Tenth plan proposals, the ministry has suggested a reduction in the excise duty at a uniform rate of 8 per cent on all textile items and applying it right from the fibre to the ready-made garment and made-ups stage.

At present, the hand processors of handloom fabrics enjoy excise exemption. While noting that handlooms are in the decentralised sector, sources want the government to ensure that this exemption is not misused by those who use power for processing purposes.

The finance ministry is said to be reviewing all excise exemptions and against background removal of such exemptions in respect of certain segments of the textile industry assumes significance, sources said.
Currently, 159 textile machinery items are allowed to be imported at a concessional duty of 5 per cent. This duty needs to be lowered or even abolished for some years in order to speed up modernisation under the Technological Upgradation Fund scheme for the textile and jute sectors introduced from April 1, 1999 and emerge globally competitive after the complete phase-out of export quotas under the agreement on textiles and clothing on December 31, 2004.

As per the current stipulation, all the spinning units have to pack 50 per cent of their total yarn production in the form of hank yarn and make it available to the handloom sector. Instances, however, have come to the government’s notice that some of these units supply cone yarn in the guise of hank yarn to avail the duty exemption on hank yarn, sources said.

In fact, the textiles ministry’s Tenth plan proposals seek a review of the hank yarn obligation on spinning and composite mills. In this regard Indian Cotton Mills Federation, which represents the organised mill sector has urged the government to reduce the hank obligation if not abolish it immediately.

In support of this, it has said that there is excess hank production, which is beyond the capacity of the handloom industry to absorb. Moreover, the handloom industry’s requirement is about 25 to 30 per cent of the total yarn production against the 50 per cent stipulation.