Industry & Economy
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Budget
Move to drop Cenvat may pep up yarn market
G. Gurumurthy
Coimbatore
,
July 8
THE Finance Minister's proposal in the Union Budget to do away with the compulsory `cenvat' duty chain for the textile sector, thereby, turning it into an optional excise duty regime at fibre, yarn, fabric and garment stage may meet the majority aspiration in the decentralised handloom, powerloom and to a limited extent in the spinning sector which were clamouring for removal of the mandatory excise duty both at yarn and fabric stage.
The Ministry's move should also bring cheers to the organised textile industry as the yarn producers in this segment has been given the benefit of a lower excise duty incident at yarn stage now, if they opted for the `cenvat' duty route.
The new excise duty rate for yarn will be 4 per cent instead of 8 per cent they were paying so far.
Industry circles feel the cut in the duty rate will pep the yarn market outlook for the near term as the margin available in the duty-free yarn will act as trigger for new purchase orders, though one has to wait and see who will decide on whether the cenvat duty paid yarn or the duty free yarn is to be sold, i.e; whether the buyer or the seller will decide.
The final consumer of yarn who has the compulsion of setting of the yarn or the fabric duty against his capital goods expenditure would invariably be opting for the `cenvat' duty paid yarn/fabric.
The abolition of `cenvat' duty may hit the garment exporters who rely heavily on the duty drawback and DEPB rates due to the `nil' duty regime or the optional duty system to which they are exposed now.
The lower excise duty rate at yarn stage will also deprive the duty drawback rate to the yarn/fabric exporters. Similarly, the exporters of powerloom fabrics too may have to face with a fall in the DEPB rate on their exports.
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