Special package for textile industry

Excise duty on fabrics, made-ups, garments 12%

Union Finance Minister Yashwant Sinha today present a special package for the textile industry while presenting the Union Budget 2002-03 in parliament today.

Sinha said the Indian textile industry occupies an important place in India's economy. It is the second largest provider of employment after agriculture. The Multi Fibre Agreement will be phased out by 2004. The domestic market has already been opened up, and the textile industry has to prepare itself for the challenges ahead.

The finance minister proposed to maintain the excise duty rates on yarns. At present, cotton hank yarn is exempt from excise duty but is being widely misused. In order to ensure that the benefit accrues only to the handloom weavers, he proposed to bring hank yarn within the net of excise duty at 8%, but at the same time, provide for appropriate subsidy on the price of hank yarn purchased by them. This was tol put an end to misuse and target the subsidy better. The Ministry of Textiles would announce the details of the subsidy scheme.

In order to enable the weavers to avail of CENVAT credit scheme, Sinha proposed to allow the weavers of grey fabrics to pay excise duty on an optional basis,and extended a similar option to the knitting sector.

Claiming credit for introducing the CENVAT rate of 16% in the excise duty structure, Sinha said, he, however, in the case of textiles, was making an exception and granting a remission of 4%. The rate of excise duty on fabrics, madeups and garments will be 12%. This special dispensation shall continue upto 28 February 2005. Industrial fabrics will, however, continue at 16%.

At present, hand processing of textile fabrics by independent processors is exempt from excise duty even if power is used on 12 specified processes in the case of cotton fabrics or 7 specified processes in the case of man made fabrics. The Union Budget 2002-03 has confined this exemption to only 3 processes, namely, uring, hydro-extraction and calendering.

Sinha also proposed abolishing the compounded levy scheme for independent power processors as it was incongruous with the reduced rate of duty that he had proposed.

The handloom sector is not affected by the budget proposals. Excise duty exemption on handloom fabrics continues. The finance minister,nevertheless, proposed exemption to handloom garments also from excise duty subject to certification by Handloom Export Promotion Council.

In order to enable the textile industry to modernise itself and acquire new technology, the budget has exempted excise duty on automatic shuttleless looms and on specified processing machinery and specified silk reeling, weaving and twisting machinery. The customs duty on such machinery is also proposed to be reduced from 25% to 10%, and exempt specified jute machinery from excise duty.

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