UPDATE ON EXCISE

Excise Duty on Readymade Garments- The magic figure of exempted turnover of Rs. 8.90 Crore

While initiating debate on the Finance Bill-2011 the Finance Minister said that the garment traders had criticised the proposed 10 per cent excise duty on readymade garments saying it would hurt the small business. He added

1) “To address this concern, I propose to enhance the abatement of 40 per cent to 55 per cent on the retail sale price.

2) With this relief a unit will continue to be eligible for SSI exemption in 2011-12 even if it had a turnover based on retail sale price of Rs 8.90 crore in the current year”, the Minister said. (Current year means 31-03-2011)

The statement of the Finance Minister on the floor of the house sent some cheer waves across the spine of many garment manufacturers. With the increase in the rate of abatement from 40% to 55% , the manufacturer would now be required to pay duty only on 45% of the MRP of the product. To illustrate Point No. 1

Excise duty of Readymade garments Before Change After Change
MRP of Readymade Shirt Rs. 1000 Rs. 1000
Abatement 40% 55%
Less: Value of abatement 400 550
Value for charging Duty 600 450
Excise Duty payable @10% 60 45
Effective Rate of Duty on MRP 6.00% 4.50%
On the second issue, he said “With this relief a unit will continue to be eligible for SSI exemption in 2011-12 even if it had a turnover based on retail sale price of Rs 8.90 crore in the current year”. This statement was understood by many in many different ways. Many persons thought that there is no excise duty now until you reach a turnover of Rs. 8.90 Crores in lieu of Rs. 1.50 Cr. Presently available to SSI. All were happy. It is not so. Let me explain:

At present under the scheme of excise for SSI, an SSI which does not have a turnover of Rs. 4.00 Crores during the year ending 31-03-2011 will not be liable to excise duty until he reaches a turnover of Rs. 1.50 Crores during the period ending 31-03-2012. If at any moment during the period ending 31-03-2012 the turnover crosses Rs. 1.50 Crores, his liability to excise starts notwithstanding the fact that his turnover during the year ending 31-03-2012 is less than Rs. 4.00 Crores. However he would become eligible to the SSI benefit for the year ending 31-03-2013 if the turnover was less than Rs. 4.00 Crore for 31-03-2012.

So what is this magic figure of turnover of Rs. 8.90 Crores to be eligible for SSI benefit.


Illustration

Rs. Lakhs
1 Maximum turnover of taxable products permitted during the year ending 31-03-2011 for being eligible to SSI benefit during the year ending 31-03-2012 (Normal SSI) 400
2 Limit of SSI exemption during the year ending 31-03-2012 150
For Readymade garment – SSI Unit Rs.
1 MRP of the readymade garment (a) 1000
2 Less: Abatement @ 55 % (b) 550
3 Taxable value of the product (c) 450
Maximum permissible turnover of taxable products during the year ending 31-03-2011 as per next table.
—-

(a) Maximum turnover permissible for normal SSI Rs. Lakhs 400
(b) Taxable value of new product after abatement of 55% 45%
(c) Permissible turnover for a taxable value of 45% of normal turnover (a) X 100
(b)
That is 400 X 100
45
(d) Permissible value in Rs. Lacs 888
(e) Rounded off to Rs. Crore 8.90
The Finance Minister added that he would take this opportunity to re-emphasize that this would enable an SSI unit to continue to enjoy the exemption even if it had a turnover based on Retail Sale Price (RSP) of Rs.8.90 crore in 2010-11.

So don’t rejoice. If you cross the turnover figure of Rs. 8.90 Crore in 2010-11 then your liability to duty will commence immediately from the 1st day of April 2011 without any basic exemption.”

The information provided is just for reference & is the understanding provided by the author.