The Hindu Business Line : 8 pc levy for cotton knitted clothing

The Revenue Department has made a minor amendment in the form of a clarification to its original Central Excise notification dated March 2003. This has set at rest the disputes over the interpretation of the Central Excise notification between the taxmen and the cotton hosiery goods manufacturers and the consequent demands for levy of higher excise duty.

The notification has brought in an insertion in the form of an explanation to the chapter/heading no. 61 of the Central Excise Tariff relating to the articles of apparel and clothing accessories of the cotton knitted goods. Under this, cotton knitted textile material has been put under the first schedule duty rate of 8 per cent.

The knitwear industry sources told Business Line that the controversy over the original Central Excise notification on the applicable duty rate leviable on the cotton knitted clothing has been solved by the amended notification.

The amendment has, according to the industry sources, clarified that the articles of apparel and clothing accessories of cotton, knitted or crocheted, not containing any other textile material shall include articles or clothing accessories made from knitted or crocheted fabrics of cotton, not containing any other textile material, even if they contain sewing threads, cords, labels, elastics, tapes, zip fasteners and similar items used for stitching, fastening, holding and adornment of materials other than cotton.

It has also clarified that the amendment could be taken as part of the original notification, thus making it clear that it is effective from the date of the original notification.

The original notification had spelt that the articles of apparel and clothing accessories of cotton, knitted or crocheted not containing any other textile material would attract 8 per cent excise duty. In the case of all articles of apparel and clothing accessories and other made-up textile articles other than cotton, knitted or crocheted not containing any other textile material, the relevant duty rate has been put as 10 per cent.

The controversy on the notification was triggered by the doubts raised by the excise officials over the applicability of the 8 per cent duty rate on cotton knitted garments as the manufacturers of these products used non-cotton based products in the product such as sewing threads made of nylon or polyester, use of elastic tapes or non-cotton based label materials.

Cotton knitted garment manufacturers were not allowed to claim the 8 per cent duty rate because their products used non-cotton based products as clothing accessories and hence attracted 10 per cent excise, argued officials.

But the knitted apparel and clothing producers argued that that there had been no dispute that the base textile material used by them is 100 per cent cotton. The expression `containing any other textile material' mentioned in the notification would only mean the base textile material to assess whether it is made up wholly of cotton or a combination of cotton and other textile material.

As such the usage of accessories such as sewing threads or elastic tapes, which are inevitable in making apparels, would not alter the characteristics of the textile material they use, namely the 100 per cent cotton. Hence they stand to benefit the 8 per cent excise rate.

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