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NEW DELHI, March 1

THE package announced for the textile industry in this Budget would help in realising higher investment and production, according to the Union Textile Minister, Mr Kashiram Rana.

Addressing a news conference here on the highlights of budgetary proposal for the textile industry, Mr Rana said that now the central excise value-added tax (CENVAT) chain is complete and efficient integrated textile mills involved in weaving, processing and garmenting would be the major beneficiaries.

Because of exemptions in the excise rate, the units that were not keen on upgrading quality were posing a threat to the survival of efficient mills. As the country had to dismantle the quota regime under multi-fibre arrangement by end-December 2004, the need for encouraging further capital flows to textile industry through fiscal stimuli and other policy-based support was urgent, he said.

Based on the recommendations of the high-powered group on textile industry investment and growth headed by Mr N.K. Singh, Member, Planning Commission, the Government has announced several incentive fiscal steps for the industry. Knitwear sector has been dereserved from small-scale industry, which would attract huge investment, besides allowing units of larger size to achieve economies of scale.

The Budget has proposed withdrawal of CENVAT exemption on plain/cross reel hank yarn of cotton as well as artificial staple fibre and levy of CENVAT of eight per cent, ending the anomaly of a significant portion of benefits of exemption flowing to unintended beneficiaries. However, to safeguard the interest of weavers, a rebate scheme is being worked out to compensate handloom weavers for such duty incidence, he added.

Explaining how the Budget took a major initiative to move towards completing the CENVAT chain, Mr Rana said the Budget has provided an optional CENVAT on grey fabrics where 12 per cent CENVAT (basic excise duty at eight per cent plus additional excise duty at four per cent) on grey fabrics. If the manufacturer of the grey fabrics wants to avail CENVAT credit of the duty paid on inputs and capital goods, he will have to pay duty at 12 per cent (CENVAT eight per cent plus AED four per cent). If he does not want to avail the duty paid on inputs and capital goods, the duty need not be paid at the grey stage. CENVAT credit at grey fabric stage is available on duty paid document basis on the inputs and capital goods. The manufacturer is not eligible for CENVAT credit on deemed basis, Mr Rana said.

In case of certain grey fabrics such as denim fabrics, pile/chenille, terry towelling/terry and narrow woven, CENVAT option is not available on these fabrics as was the case earlier, and CENVAT on these fabrics has been reduced from 16 to 12 per cent, Mr Rana said. CENVAT on woven and man-made knitted processed fabrics has been brought down from 16 per cent to 12 per cent.

Deemed CENVAT credit has been increased for independent processors from 25 to 33 one-third per cent and 50 per cent to 66 two-third per cent in the case of cotton and man-made/blended processed fabrics. CENVAT credit has also been increased in the case of composite units. As reduction of in additional excise duty has been a major demand, the impact of this reduction in AED from eight to four per cent would result in the reduction of fabric prices as also in downstream products such as made-ups and garments.

In the case of processed knitted fabrics, the Budget has exempted cotton knit fabric from CENVAT. An optional CENVAT of 12 per cent has been prescribed which would encourage investment in new units and also technology upgradation. For knitwears, the Budget proposed exemption from CENVAT with an optional levy of 12 per cent ad valorem where the manufacturers' desires to avail of the CENVAT credit of duty paid on inputs or capital goods. All the exemptions, procedures, tariff valuation such as SSI excise exemption, MRP of 60 per cent for CENVAT valuation applicable to woven garments would also be applicable to woven garments and knitwears.

For made-up garments, CENVAT has been reduced from 16 per cent to 12 per cent, while woven garments made from handloom fabrics have been exempted from CENVAT.

Mr Rana said rationalisation of fiscal duty on critical machinery items has been announced with a view to support programme of modernisation of 2.50 lakh powerlooms and make technology upgradation affordable and flow of investments attractive in the textile sector for processing, powerlooms, silk and jute. Thus on specified processing/silk/jute machinery import duty reduced from 25 to 10 per cent, shuttle automatic looms exempted from CENVAT, specified capital goods items of silk weaving, processing, twisting machinery exempted from excise duty, certain specified capital goods of jute industries exempted from CENVAT and automatic shuttle looms exempted from CENVAT.

Other proposals include CENVAT to be continued at 16 per cent on certain special woven fabrics such as labels, badges, fabrics of metal threads and metallised yarn and quilted fabrics and excise duty on fabrics of 100 per cent EOUs meant for domestic sale raised from eight to 12 per cent. On grey fabrics, countervailing duty would be applicable now to safeguard the domestic industry from cheaper imports, he added.

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