Excise Duty Exemption on Branded Textile Articles

[Ref: Central Excise Notification No. 31 dated 24th March 2011]

Branded Ready Made Garments and Made-up Articles of Textiles:

It has been pointed out by industry associations that persons owning a brand often get goods bearing their brand from other manufacturers (normally small units) without providing the raw materials or inputs. Such manufacturers do not answer the description of “job-workers” and are necessarily required to register and pay duty on such goods. It has been pointed out that they may face some difficulty in discharging duty on tariff value since the Retail Sale Price of the goods is not disclosed to them by the brand owner. It has been provided that if the RSP is not affixed or marked on goods when they are cleared in the course of sale from the factory of a manufacturer to the brand owner, the wholesale price declared by the manufacturer would be deemed to be the tariff value for the payment of duty. This has been provided through the insertion of a proviso in notification no.20/2001-CE (NT) dated 30th April, 2001 through amendment notification no.12/2011-CE (NT) dated 24th March, 2011. Since the process of labeling or re-labelling constitutes a process of “manufacture”, duty on the tariff value (based on the actual RSP) would once again be payable as and when the brand owner labels the goods with the RSP and clears them for further sale. The garments purchased by the brand owner being duty-paid, he would also be entitled to claim credit and utilize that for the payment of duty when he clears the goods after affixing the RSP.

Concerned industry associations have represented that it is a common practice in this industry for goods to be cleared by the manufacturer to the wholesale dealer/ retailer on consignment basis. As a result, the duty-paid stock that remains unsold with the latter is returned to the manufacturer either at the end of the season or from time to time. Such returned goods are cleared either as such or after „re-finishing‟ operations to another wholesaler or retailer for sale (often at reduced prices). The re-finishing operations could involve cleaning, ironing, re-folding, repacking or relabeling -some of which constitute “manufacture” in terms of the relevant Chapter Notes. Normally, rule 16 of the Central Excise Rule, 2002 would cover such cases. However, it has been represented that often one -to - one correlation of such returned goods with the original invoice (against which they were cleared initially) is not possible.

Accordingly, full exemption from Central Excise duty is being provided to duty-paid goods returned to the manufacturer during a financial year up to an aggregate ceiling not exceeding 10% of the value of clearances for home consumption made in the preceding financial year. The manufacturer would be required to observe the following procedure for this purpose:

a. To submit an intimation within 48 hours of the receipt of the returned goods about the value of returned goods received in his factory/ registered premises;

b. To maintain proper accounts/ record of the receipt, finishing operations, and dispatch of returned stock indicating the monthly and cumulative value of the returned stock received during the financial year and to produce the same as and when required;

Notification No.31/2011-CE dated 24th March, 2011 has been issued in this behalf. The benefit of this exemption is available only if the manufacturer does not take Cenvat credit of the duty paid on the garments/ made-ups at the time they were initially cleared from the factory. The procedure prescribed for this purpose does not envisage the physical verification of returned stock by Central Excise officers on receipt of the intimation. It may be ensured that visits by the staff are not made to the factory/ registered premises for such verification. Normal checks could be conducted, if required, at the time of audit of the unit on the basis of records/ accounts maintained for the purpose. Owing to the fact that most of the units manufacturing ready-made garments or made-ups had opted not to pay Central Excise duty until the presentation of the Budget 2011, it would not be possible to determine the entitlement of a unit for exemption (annual ceiling of 10% of the aggregate clearances for home consumption in the preceding year) on the basis of Central Excise records. A certificate from a Chartered Accountant indicating the aggregate value of clearances for home consumption made by the unit in the preceding financial year may be accepted for this purpose. At the time of scrutiny of the monthly return filed by the manufacturer, it may be verified that the cumulative value of the returned garments on which the unit has claimed exemption under this notification does not exceed the prescribed limit of 10% mentioned above. The facility of rule 16 would also continue to be available where a manufacturer is able to produce and correlate the relevant duty paying documents.

In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act,1944 (1 of 1944), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts all goods bearing a brand name or sold under a brand name and falling under chapter 61,62 or 63( except 6309 and 6310) of the First Schedule to the Central Excise Tariff Act, 1985(5 of 1986), from the whole of the duty of excise leviable thereon, when goods, on which appropriate duties of excise have been paid, are returned or brought back to the same premises or factory and cleared therefrom after being re-made, re-conditioned, re-packed or subjected to any other process ;

Provided that the exemption contained in this notification shall apply subject to the following conditions, namely:-

(i) no Cenvat credit of the duty paid on such returned goods is taken under the provisions of rule 16 of the Central Excise Rules,2002;

(ii) an intimation containing the details of the document under which goods are returned and their value, is submitted to the jurisdictional Central Excise authority, within 48 hours of the receipt of the returned goods in the factory or premises ; and

(iii) a proper account of receipt and disposal of such goods is maintained and accounted for in the monthly return.

(iv) the aggregate value of goods cleared from a factory or premises under this exemption in a financial year does not exceed 10% of the aggregate value of clearances for home consumption from the same factory or premises in the preceding financial year.

Explanation: - For the purposes of this exemption ‘appropriate duties of excise’ shall mean duties of excise leviable under the First Schedule to the Central Excise Tariff Act, 1985, (5 of 1986) read with any relevant exemption notification for the time being in force.

[F. No. B-1/3/2011 –TRU]