Sh. Pranav Mukherjee 10.02.2012
Hon’ble Finance Minister
Govt of India
With a sense of reverence & humble submission we may state that Knitwear Club, a Registered non profit making body is an association of 1000 members manufacturing Textile/Knitwear Goods at Ludhiana (Punjab). The organization has been incorporated for the growth of the knitwear industry to cooperate the industry in case of any problem related to policy, fiscal, technical or commercial issues. Our member units are small scale units mainly engaged in the manufacture of various Knitted & Woven hosiery/textiles products under their own brand name. This industry is a labour intensive industry and gives employment to large number of skilled and unskilled manpower.
Union Budget 2011-12 has withdrawn exemption under Notification No. 30/2004-CE dated 09.07.2004 to all goods bearing a brand name or sold under a brand name falling under Chapter 61, 62 & 63 of Central Excise Tariff Act, 1985 vide Notification No. 12/2011-CE dated 01.03.2011. This has resulted in levy of excise duty @ 10.30% (BED 10% + Education Cess @ 2% + S&H Education Cess @ 1%) on all products of hosiery and textile industry cleared under a brand name. The excise duty has been levied on 60% of MRP, thus giving abatement of 40%.
GROUNDS FOR EXEMPTION
Today, the whole world is brand conscious and even a small manufacturer having annual turnover of rupees ten lakh is also hoping to create his brand image in the mind of buyer. The customer also goes behind known brand and catchy names. Every body knew about “MDH” and nobody knew about “Mahashian Di Hatti”. So, it is the compulsion of whole garment industry to create a brand name and use it on its products to make them saleable in the market. These products are sold to retailers at competitive rate without any additional benefit on account of brand value of product. Today due to heavy increase in prices of yarn, fabrics and other products, the annual sale of 4-5 crore can easily be made by any small scale unit with no increase in capacity of production. The above levy has wrongly imposed excise duty on all such goods manufactured under their own brand name by small scale units, though it is meant to catch the big brand houses who even recover the brand value from customer over & above the price of goods. Thus, levy of excise duty on branded goods of small scale industry has put a question on its survival which is already fighting against increased raw-material costs, labour shortage, infrastructural problems etc.
The main raw materials of garment industry are yarn and fabrics. There is an optional excise duty on these both products under Notification No. 30/2004-CE dated 09.07.2004 as amended and which is retained in Union Budget 2011-12. Almost all the manufacturers of yarn and fabrics are not registered with central excise department as have not opted for excise duty scheme. In such a situation, there is no cenvat credit available on main raw-material of our industry resulting that whole new levy of excise duty @ 10.30% will directly add to costing of our finished goods.
This will result in increase in cost of branded garments and made ups textiles by more than 10%. In such a case, if the industry will increase its price of goods, it will make its product non-competitive in the market in comparison to manufacturer producing unbranded goods or availing SSI exemption benefit under Notification No. 8/2003-CE dated 01.03.2003 as amended in respect of clearances of branded goods up to rupees 1.50 crore. To avoid closure of units, these units will either have to reduce their sales below rupees 1.50 crore or to start job-work only for big brand houses. This will result in negative growth of industry and huge un-employment and no government will able to reap any benefit from such levy.
As clear from above example, though we have received charges of Rs. 150/- only for manufacturing sweater, however, we are made to pay excise duty of Rs. 62/- on these charges which is more than 40% of our total charges recovered. This is highly unreasonable considering that there is no cenvat credit available on inputs and the whole duty amount of Rs. 62/- will be required to be paid by the industry from its own pocket. There is no business where there is margin of 40%. Moreover, our industry is too competitive and playing only at a margin ranging between 5% to 7%. This will clearly result in closure of units.
The industry is already facing big threat from garments imported from China, Bangladesh and Sri Lanka. Due to huge scale of production in China and support form government, their products are much cheaper compare to our products. In such a case, it is not possible for our industry to increase price of its products and the industry based at Ludhiana will be slowly wiped out and Ludhiana will loose its identity as hosiery cluster. 3.5) Moreover, our industry at Ludhiana is mainly a small scale industry having unprofessional base. The manufactures are not well qualified to know the technicalities of excise law. It is also not possible for them to engage services of professional and extra staff due to financial constraints. Moreover, it is a know fact that hosiery industry in particular is a seasonal base industry and in peak season it is practical impossible to maintain up to date records. Further, the industry is already reeling through crisis due to increased input cost, labour shortage [the industry is dependent on migrant labour and has to pay good salaries to attract the labour], strict norms of various Government departments with no corresponding increase in price of finished goods. In such a situation, the industry will not be able to bear the huge burden of excise duty. If the units will shut down, then it will lead to huge unemployment and further hundred of ancillary units will also shut down.
The matter has further worsened with the allowance of duty free import of readymade garments/hosiery products from Bangladesh:
In this regard, we are appending below some information which is of paramount importance.
Textiles & Wearing Apparel manufacturing index in IIP: Growth rates (% YoY)
Apr – Oct (2010-11) Apr – Oct (2011-12)
Textiles 6.8% – 3.2%
Wearing Apparels 5.9% – 6.8%
Total T&C sector 6.5% – 4.3%
(Source: CITI estimates from CSO data)
The government ‘s recent move to grant duty free access of 48 apparel items from sensitive list to allow Bangladesh garment sector has baffled the hosiery /textile industry.
Knitwear/textile industry is the second largest employment generator in India after agriculture. Millions of people are dependent on this industry. If the government of India signs this treaty, it will strike the roots of our economy and millions of people would lose their jobs.
Factors such as 0% custom duty on machinery and labour cost, infrastructure, bank interest, power cost, and production costs are cheaper in Bangladesh so there is no level playing field between India and Bangladesh.
Due to these facilities, Bangladesh has been emerging as an investment centre for companies based In Europe and Asia. Large textile companies and big brand will set up their production units in Bangladesh with profit motive. Thus it will affect the manufacturing sector as well as overseas buyers would turn to suppliers in other countries like China and Bangladesh, which would result in ir-repairable loss to the industry and the country at large.
Such treaties will ruin our prospects in national and international market. Government of India should provide the atmosphere of equality to Indian industrialist such as 0% custom duty on machinery, to lower the labour cost, power cost, bank interest, etc for a healthy competition and to help the existing units to survive in a healthy way as they are source of major state government revenue and employment.
The government should make a comprehensive analysis of this treaty and protect the interest of hosiery/textile industry.
KNITWEAR CLUB (REGD.)