Circular No. 54 dated 19^th October 2001

All categories of Ready-made woven garments (other than raincoats, undergarments and clothing accessories) falling under Chapter 62 of Customs & Central Excise Tariff Act are now subject to central excise levy as a result of the changes announced in the Union Budget, 2001-2002 (Finance Bill stage and those made thereafter till the Finance Bill was enacted.) Through normally it is the actual manufacturer who is to pay duty of excise leviable on any commodity, considering the peculiar and very decentralized nature of garment producing sector certain special provisions have been made, wherein the merchants who get their garments produced by supplying materials to producing job working units have been recognized for registration/ duty payment etc. purposes. Vide Rule 4(3) of Central Excise (No.2) Rules, 2001, a merchant manufacturer, i.e., a merchant, who gets the goods manufactured from a job worker on his own account, is required to pay duty on the garments manufactured on his behalf on job work basis, either himself or authorise such job worker (s) to pay duty on his behalf. When merchant manufacturer pays duty, he is also entitled to avail of CENVAT for inputs procured and used for garment production by job workers.

2.      Since the manufacturer or merchant manufacturer whose domestic turnover exceeds rupees one crore has to pay excise duty and can avail of Cenvat credit in respect of inputs used in the manufacture of woven garments separate drawback rates have been provided with effect from 7.6.2001 for the garments where Cenvat facility is availed or not availed. In case the Cenvat facility is availed, the drawback rate has only Customs allocation and if such facility is not availed, the rate includes both the Customs & Central Excise allocations. It has been brought to the notice of the Board that the customs formations while scrutinising Drawback claims of woven garments exporters are insisting on the production of the certificate evidencing non-availment of Cenvat facility in every case. This is stated to be causing undue hardship to garment exporters-very large number of which are said to be only merchant manufacturer who are basically export oriented and whose domestic clearances are nil or negligible.

3.      Export Organisations have, however, represented that in the present, scenario where a merchant getting the goods manufactured from other manufacturers/ job workers is under liability to pay the Central Excise duty and especially since such manufacturers/ job workers are scattered, it is not possible to furnish such certificate in every case. Further, it has also been represented that most of garment exporters are merchant-manufacturers who are exempted from the levy of Central Excise, as their domestic clearances do not exceed Rs. 1 crore. They have, therefore, requested that instead of insisting on a Cenvat non-availment certificate in every case, drawback at higher rate may be permitted on the basis of suitable declaration from such exporters. The Department could check independently if need be to check its veracity.

4.      The issue and request has been examined and the production and export pattern and system of excise control and duty payment/ CENVAT in garment industry also looked into. It is observed that in the case of the goods manufactured by manufacturer-exporters, there shall not be any difficulty in verifying the declaration that Cenvat facility has not been availed in as much as for dutiable garments, if cleared for export under bond/ rebate claim, movement has to be made under ARE-1 and such exporters can evidence the same through production of an ARE-1 issued.

5.      For the exports, where ARE-1 is not issued, it has been decided that they should clearly declare on the Shipping Bills, the name (s) of the job worker(s)/ supporting manufacturing unit(s) through whom the garments covered by the Shipping Bill have been manufactured. These exporters shall also be required to give a declaration in the format given in the Annexure-l certifying inter alia that they are not registered with the Central Excise and that they are not paying any Central Excise duties and not availing of the Cenvat facility and that they have not authorised any supporting manufacturer/ job-worker to pay excise duty and comply with the provisions of Central Excise (No. 2) Rules, 2001.

6.      These exporters shall also be required to furnish a certificate-cum-declaration as given in Annexure-ll, from their supporting manufacturers/ job workers inter alia clarifying that they are manufacturing and supplying garments to this particular merchant exporter only and that they are not registered nor availing or any cenvat facility for any garments manufactured by them.

7.      Such merchant �manufacturer exporters can be allowed higher drawback on the basis of these declarations.

8.      The Custom Houses shall get the veracity of the declaration given by the exporters and their supporting manufacturers/ job workers, verified at random by the jurisdictional Deputy/ Assistant Commissioner of Central Excise on quarterly basis. The criteria for random selection of such declarations to be verified by the Excise authorities may be formulated by the Commissioner of Customs. If on verification any misdeclaration is discovered, the higher drawback granted by the Customs would be recovered and only lower benefits admitted for future shipments to such exporters.

9.      All Chief Commissioners of Central Excise are requested to cause preparation of a list of all duty paying manufacturing and merchant manufacturing units of woven garments, who are availing Cenvat facility. These lists may be circulated to all the major Custom Houses/ Air Cargo Complexes/ Inland Container Depots from where the exports of garments are effected.

10.    Suitable public notices for the trade and standing orders for the staff concerned may be issued at your end.

11.    Working of this system will be reviewed by the Board after getting feedback from the field formations. A report on its working may, therefore, be submitted to the Board by 31^st Mach, 2002. Feedback on its working, including instances of misuse/ attempted misuse may also be reported to the Board in the meantime. In case it is felt that procedure as above is causing undue and avoidable hassles to the exporters in effecting exports or in sanction and disbursement of drawback due to them or interest of revenue is being jeopardised, the same may be reported at once to the Board, with suggested course of action, for necessary remedial measures.

ANNEXURE � l

Exporters� Declaration required for Exports of Woven Garments for availing higher All Industry Rate of Drawback.

(Circular No. 54/2001-Cus, dated 19^th October, 2001)

1. Description of the Goods:

2. Invoice No. and Date:

3. Name and address of the Exporter alongwith the name of the jurisdictional Central Excise Commissionerate/ Division/ Range:

4. Name of the Supporting Manufacturer(s)/ Job worker(s) alongwith the name of the jurisdictional Central Excise Commissionerate/ Division/ Range:

5. Address of the Manufacturing Unit(s)/ Job Work Premises:

We, M/s. ______________________________________, the Exporters of the above-mentioned goods, hereby declare that-

(a) We are not registered with Central Excise authorities,

(b) We have not paid any Central Excise duty on these goods, and

(c) We have not availed of the Cenvat facility under the CENVAT Credit Rules, 2001 or any notification issued thereunder, and

(d) We have not authorized any supporting manufacturer/ job-worker to pay excise duty and discharge the liabilities and comply with the provisions of Central Excise (No.2) Rules, 2001, under the proviso to Rule 4(3) of the said Rules.

We also undertake that in case it is discovered that the Cenvat facility has been availed by us or by our supporting manufacturers in respect of these export goods, we shall return the excess drawback paid to us on the basis of above declaration.

Exporters� Signature & Seal

ANNEXURE � ll

Supporting Manufacturers�/ Job Workers� Declaration required of Export of Woven Garments for availing higher All Industry Rate of Draw back

(Circular No. 54/2001-Cus, dated 19^th October, 2001)

1. Description of the Goods:

2. Invoice No. and Date:

3. Name and address of the Exporter alongwith the name of the jurisdictional Central Excise Commissionerate/ Division/ Range:

4. Name of the Supporting Manufacturer(s)/ Job worker(s) alongwith the name of the jurisdictional Central Excise Commissionerate/ Division/ Range:

5. Address of the Manufacturing Unit(s)/ Job Work Premises:

We, M/s. ______________________________________, the supporting manufacturers/ job workers declare that we

(a) we are not registered with Central Excise authorities,

(b) have not paid any Central Excise duty on these goods, and

(c) have not availed of the Cenvat facility under the CENVAT Credit Rules, 2001 or any notification issued thereunder, and

We also declare that we are manufacturing and supplying garments to the above merchant exporters only.

Supporting Manufacturers�/ Job Workers� Signature & Seal