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New Excise Procedures on Textiles and Textile Articles
Central Excise Circular No. 703 dated 25th March 2003
As you are aware, the measures like withdrawal of deemed credit, removal of specific duties, and removal of exemptions (including SSI exemptions) on textiles and textile articles would come into effect from 1.4.2003. It may also be recalled that in this regard, discussions were held with the Chief Commissioners, Commissioners and trade associations to evolve a set of simplified procedure, specially for the units coming within the excise net for the first time. Keeping in view the ground realities, the trade practices and the suggestions received, new excise procedures (by way of amendment to rules, notifications and issuance of executive instructions) have been framed, which are being notified today. The salient features of these are as follows:
(A) CHANGES IN THE CENTRAL EXCISE AND CENVAT CREDIT RULES
(a) Central Excise Rules 2002 are being amended so as to prescribe special procedure for Textile and Textile articles. Under the special procedure, the duty liability, accountability and the responsibility for complying with the excise procedures (such as registration, return filing, maintenance of records) would rest with the person who gets yarns, fabrics or ready-made garments manufactured or processed on job work. Such person would normally be the owner of the raw material who gets finished products manufactured on payment of job charges. He can take credit of the goods, which are used in job work. In such a case, the job worker (such as power-looms, hand processor and power processors) would be totally free from the duty burden as well as from the procedural requirements. The job worker, however, at his option, can take upon himself to comply with the excise law and pay duty. He can also do so on behalf of the owner of the goods working as his agent. Conversely, such a registered job-worker can authorize a broker/ arhatia to pay duty on his behalf. Such persons, who manufacture goods or get goods manufactured on job work basis, get registered and pay duty, would be treated at par with actual manufacturer.
(b) The rules also provide for situations when the goods move from one job worker to another during the course of completion of its manufacture. Such movement would be under simple challans, which would contain certain minimum information and would be printed (including computer printed) and serially numbered. Considering the literacy level, such could also be in local/ vernacular language.
(c) It is also provided that the owner of the goods can, if he so desires, clear the finished products directly from the premises of the job worker on payment of duty.
(d) The owner of the goods can take credit of duty paid on inputs, which are used by the job worker. In certain cases, an actual manufacturer (e.g. a yarn manufacturer) may also send some goods to a job worker for further manufacture and receive back the goods after job work, and if such manufacturer has a credit balance in respect of inputs used in other goods (including goods manufactured on job work basis), the same can be utilized for payment of duty on clearances of the goods received after job work.
(e) In case a person wants to pass on the credit on goods sold by him without any manufacture, he is required to undertake registration as registered dealer.
(f) In certain cases, some of the intermediate processes may be either exempt (for example, being carried out without aid of power or steam) or are not excisable (such as sizing of yarn). In order to ensure that the credit chain remains unbroken, it is proposed to permit endorsement of the duty paying document issued in favour of a person undertaking such exempted/ non-excisable activity in favour of either the buyer of the goods or to another person who is undertaking a subsequent excisable activity. Such person simply has to endorse the duty-paying document to the next person to whom they sell the goods. It would not be necessary for the person endorsing to be registered with the department. However, the person undertaking such exempted/ non-excisable activity, can, at his option, get himself registered as a registered dealer. This would enable him to issue dealers invoice in favour of the person undertaking a subsequent excisable activity.
(g) Normally, the assessees not covered under SSI exemption are required to file monthly return as well as they are required to pay duty on a monthly basis. As a measure of facilitation, it is proposed that in the case of yarn preparatories (i.e. twisting, warping, doubling of yarns), unprocessed fabrics and readymade garments (made by units availing of SSI exemption scheme), the manufacturers would be required to file only quarterly returns in a simplified format. The duty, however, would be paid on monthly basis.
(h) Processors who undertake job work and also do processing on their own and obtain dye and chemicals under invoice issued in his name, can take credit of duty paid on such dyes and chemicals to pay duty on his dutiable clearances, even though some of these inputs were used for making goods cleared without payment of duty under the job work scheme.
(i) Credit of duty paid on capital goods can be taken only by the manufacturer in whose premises the capital goods are installed.
(j) As the manufacturer and traders are expected to have stock of inputs as on 31.03.2003, for which they may not be in a position to produce documents evidencing payment of duty, provisions are being made to give a one time credit for the inputs and/ or inputs contained in the finished products lying in stock as on 31.03.2003. This facility would be available to all such persons, who would be required to pay duty or pass on the credit i.e. manufacturers, persons getting the goods manufactured on job work and registered dealers. All such persons would declare the stock of inputs (including those contained in process or are in stock of finished product) giving description, quantity (in unit length or weight, as the case may be) and value. If duty paying documents are available, credit will be allowed on the basis of these documents. Where no such documents are available, credit will be allowed on a deemed basis. In respect of yarn lying in stock, the credit amount will be notified separately. In respect of fabrics lying in stock, credit will be allowed at the rates prescribed under notification No. 54/ 3001-CE, or as the case may be under notification No. 6/ 2002-CE (NT). As the duty payment for April, 2003 will have to be made only by 5th May 2003, credit would be admissible in respect of the stock lying on 31.3.2003, even if the rates are not notified on or before 1.4.2003. The assessee would work out the credit amounts and take credit accordingly. In the case of processed fabrics, only the stock lying with a manufacturer would be entitled for such credit. For unprocessed fabrics and yarns, the credit would be available both for manufacturers/ job workers, and also for traders who get registered.
(k) In case a person gets goods manufactured on job work and clears the same for sale, the excise duty would be payable on the transaction value at which such goods are sold. However, in case the job worker, i.e. a weaver or processor prefers to clear goods on payment of duty (even if he is actually undertaking job work and is not actually selling the goods back to the trader) the duty would be worked out on the value calculated on the basis of the price of inputs i.e. yarn or grey fabric price plus the actual job charges.
(l) It has been brought to notice that sometimes sale of yarns, fabrics or readymade garments take place on approval basis. In such cases, the goods are sent to the buyer under a challan or proforma invoice and the sale is finalised after the approval of the buyer, The buyer may reject part or whole of the goods or negotiate the price depending upon the quality. In order to accommodate such practice within the framework of the excise law, it is proposed to permit removal of such goods under a proforma invoice. Such challan/ proforma invoice would also be printed and serially numbered and have all particulars except the details of the duty payable. Within five working days from the issuance of the proforma invoice, the manufacture would prepare the final invoice after making adjustments in respect of the goods rejected and returned by the buyer. The proforma invoice and the invoice would have cross reference to each other by way of mention of their serial numbers.
(m) The special procedure for textiles and textile articles is not applicable to Export Oriented Units (EOUs) and Units located in Special Economic Zones (SEZs).
(B) OTHER FACILITATION MEASURES TO BE ISSUED THROUGH DEPARTMENTAL INSTRUCTIONS.
(a) Considering that in some places, the number of new registrants would be large and also the fact that the new registrants may not be familiar with the excise procedures, the Commissioners may co-ordinate with trade associations to facilitate the registration process as well as filing of returns during the initial stage. The application for registration of the members can be collected by the associations and submitted to the Commissionerate headquarters where the registration would be issued by a special cell. Assessees not having PAN numbers would be given temporary registration numbers.
(b) Similarly, for filing of returns, the assessee can take assistance of the trade associations till they become familiar with the format.
(c) The officers may be instructed not to visit the premises of the new assesses, to verify the stock or premises (except in respect of traders), unless there is a specific intelligence. Such verification, if any, will be only with the approval of the jurisdictional Additional/ Joint Commissioner, who will record the reasons for such verification in writing. So long as the assessee keeps the records of production, clearance, particulars of receipt of inputs and pays the applicable duty, all procedural lapses, if any, should be ignored. Till further instructions, no audit or preventives checks would be carried out without specific intelligence and prior approval of Commissioner.
(d) The application for registration for these new registrants would be in the same format prescribed under the existing rules. However, the information regarding PAN (if they do not have such number), details of boundaries, property holding rights, estimated investments, bank account number, business transaction numbers obtained from other government agencies, details about owner, partners etc. at the initial stages, if it is difficult for the assessee to provide these at the initial stages, may not be insisted upon.
2. The purpose of the new rules is to allow the textile sector to carry on the work as they have been doing all along, and not to disturb the trade practices. It would be sufficient if the manufacturers or the deemed manufacturers keep account of reduction & clearance, pay duty accordingly and take credit only on the strength of duty paying documents. There is no need for any physical verification of premises, goods or records unless there is a specific intelligence suggesting evasion.
3. Since the new system of levy is likely to affect a large number of manufacturers and traders, it is necessary to give wide publicity to the new procedures. Apart from the trade notices (giving the contact numbers and addresses of the Commissioner and other senior officers) that should be immediately issued based on these instructions, repeated advertisements must be given in local newspapers (in local languages as well as in Hindi and English) explaining the salient features of the new system. A draft press note in this regard is enclosed. The same may be got translated and published in the local/ regional newspapers. Such advertisements should be repeated for a few days so that the concerned trade becomes aware of it. Further, all officers must be instructed to extend maximum help to the trade in educating them as also in replying to their specific queries. Special cells should be immediately set up at the head quarters as well as in divisional officers to receive and process the large number of applications for registrations that are expected to be received by this month end. As time is short, it is requested that all out efforts are made so as to familiarize the trade with the new procedures, and facilitate their transition from exemption to duty payment by the 1st of April, 2003.
4. The receipt of this letter may please be acknowledged. A report on the progress in implementing the new system and difficulties if any, faced must be sent by name to the undersigned latest by 05.04.2003
5. Copies of notification No. 24 to 26/ 2003-CE (NT) and No. 20/ 2003-CE all dated 25.03.2003 issued in this regard are enclosed.
PRESS NOTE
In the Union Budget 2003, a special thrust has been given for rationalization of excise duties of textile sector. The proposals involve lowering excise duty rates, completion of CENVAT credit chain, replacement of credit on deemed basis by actual, removal of excise duty exemption on unprocessed woven and knitted fabrics, and restricting the exemption on processing of fabrics only for pure hand processed fabrics. Government was aware that these changes might initially create certain problems of compliance for large number of powerlooms and processors who have been hitherto exempted from excise duty. Having regard to this, it was proposed that these changes will come into effect form 1.4.2003, and a simplified system of procedures would be worked out for the units liable to excise duty for the first time.
2. To dispel the doubts and apprehensions of the textile trade, various sectors of textile trade were requested to give their suggestions. In the light of suggestions received, the Government has now prescribed a simple procedure for the new assessees taking into account the textile trade practices and the socio-economic and educational levels of the manufacturers. The purpose of these new rules and procedures is to allow the textile sector to carry on the work as they have been doing all along, and not to disturb the existing trade practices.
3. The salient features of the new textile rules and procedure are as follow:
(i) Yarn processors, powerlooms, hand processors and power processors, who do only job work for others, need not take any excise registration or maintain records or pay duty. For such job workers, all formalities would be undertaken by the trader/ master weaver/ the owner of goods, who gets the job work done.
(ii) The movement of goods in such cases would be under a simple (printed and serially numbered) challan, a practice that is already followed by the trade even now. Such challans can be prepared in local language also, in addition to English. The procedure permits movement of goods from one job worker to another and also final clearance of the goods from job workers premises. The job worker only has to make entries in the challan.
(iii) The trader/ master-weaver/ owner has been permitted to clear goods directly from the premises of the job worker on payment of duty.
(iv) In case the job worker wants to clear goods on payment of duty, he can do so. In such cases, after taking registration, he can also authorize the trader/ supplier to make payment of duty on his behalf.
(v) The procedure for registration (for those who would be paying duty) has been simplified. There is no need for the assessee to visit Central Excise office for this purpose. The help of the office bearers of the trade associations is solicited in this regard. Individual assessee can collect the forms form the associations, fill the same and hand it over to the office bearers. The office bearers can approach the jurisdictional Commissioners for instant registration of the units. A special cell for this purpose has been opened in all Commissionerates. Normally no verification of premises by the officers would be conducted. Assessees not having Income Tax PAN would also be granted registration.
(vi) A simplified procedure for filing of return has been prescribed. Those manufacturing yarn preparatories (i.e. twisting, warping, doubling of yarns), unprocessed fabrics and readymade garments can file quarterly return in a simplified format. The duty in respect of clearances for a particular month has to be paid by the 5th of the succeeding month.
(vii) In case a person require to pass on the credit on goods sold by him without being manufactured by him, he can take registration as a registered dealer.
(viii) Facility of endorsement of duty paying documents has been made available to those who are undertaking non-excisable or exempted process. Such persons simply have to endorse the duty paying documents to the next persons to whom they sell the goods.
(ix) Provisions have been made for allowing credit in respect of inputs (namely, yarn and fabrics) lying in stock, inputs in process and inputs contained in finished goods lying in stock as on 31.03.2003. There will be no need to produce duty paying documents for this stock and the assessee can take the entire credit himself based on the formula, which will be prescribed. What the assessee or the trader (who is registered) has to do is to give a declaration of the description, quantity and value of the stock (yarn, unprocessed fabrics lying with the dealers/ manufacturers, and processed fabrics lying with the manufacturers only) and take credit on the strength of this declaration, which can be utilized, for payment of duty on his clearances.
(x) Credit of duty paid on inputs used by a job worker can be utilized for payment of duty, when the job worker clears goods on payment of duty.
(xi) It is also being provided that for procedural mistakes, no penalty or coercive action will be taken.
(xii) Considering the trade practices, a system of sending the goods on proforma invoice to the buyer has been prescribed. The seller can issue the final invoice within five days from the removal of goods, after the same has been accepted by the buyer.
The Commissioners of Central Excise have been asked to issue trade notices, explaining the procedures to be followed in detail. They have also been asked to give the contact numbers and addresses where the assessee can contact in case of any difficulty or query. The assessee may use this facility and can contact the Commissioner or other Central Excise officers, who would extend all help and co-operation in this regard.
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