Circular No.713/29/2003-CX
07.05.2003

F.No.B3/5/2003-TRU
Government of India
Ministry of Finance
Department of Revenue
(Tax research Unit)

Subject: Certain clarification regarding excise duty structure on textile and textile articles

The undersigned is directed to state that certain doubts have arisen relating to the excise duty structure for textile and textile articles announced during and after Budget 2003, announcements. The issues and clarification thereon, are as under,-  

Issue No.1 :

Vide notification Nos. 34 and 35/2003-CE, both dated 30^th April, 2003, exemptions have been given to fabrics and readymade garments and clothing accessories, upto specified clearance values.  These exemptions are applicable to manufacturers having aggregate value of clearances below certain limits.  For calculations of these limits, it has been, inter alia, prescribed that where these goods are cleared by one or more manufacturers from a factory, the exemption will apply to the aggregate value of clearance from such factory and not separately for each manufacturer.  In this regard, doubts have arisen regarding the application of this condition and scope of the term ‘factory’.  It has been reported that in certain cases a number of manufacturers of these items put up their sewing machines or looms in the same premises.  In such cases, they share the manufacturing premises while having their individual manufacture and clearances not linked to each other.  The manufacture is carried out by different legal entities.  In this regard, it is clarified that in such cases, the entire premises having several manufacturers undertaking individual manufacturing activity should not be treated as a single factory.  There may not be any physical separation between the different units but the fact that the machines/looms belong to different individuals/legal entities who carry out manufacturing activities unrelated to each other, gives them a distinct identity.  Therefore, it is clarified that in such cases, the machines/looms belonging to a specific manufacturer should be treated as a factory for the purposes of these notifications and the total production from the premises should not be clubbed to calculate the eligibility limit for the exemption limit. To illustrate, if in the same premises there are three powerloom units, A, B and C having 5, 6 and 7 looms respectively. In this case, the factory in respect of A, B and C will respectively refer to 5, 6 and 7 looms, and for determining the clearances of ‘A’ from the factory, only the clearances of 5 looms should be taken into account. 

Issue No.2 :

In the aforesaid two notifications, an obligation has been placed on the manufacturers to keep the documents relating to purchase of their inputs i.e. yarns or fabrics.   Under notification No.25/2003-CE (NT) dated 25.3.2003 as amended by notification No.28/2003-CE (NT) dated 1.4.2003, it has been provided that textile manufacturers fully exempted can endorse, in full, their input documents in favour of any other manufacturer, producer, first or second stage dealer.  This facility is also available to the powerlooms or garment or accessories manufacturers availing the said notification No.34 and 35/2003-CE.   Such endorsement has to be made by the manufacturer on the original copy of such input invoices and same has to be handed over to the subsequent purchaser of their products.  In such cases, the said exempted manufacturer will not have the original document relating to the purchases of his inputs.  In this regard, it is clarified that in such cases it would suffice if the said manufacturer keeps a photocopy of the invoices.  This copy should suffice for satisfying condition No. (iv) of para 2 of the notification Nos. 34 and 35/2003-CE relating to keeping of purchase documents. 

Issue No 3 :

The traders of textile and textile articles have been permitted (vide notification No.28/2003-CE (NT) dated 1.4.2003) to endorse in full, their purchase documents in favour of a manufacturer, producer or another dealer without obtaining registration.  However, in case the quantity purchased under one invoice is to be sold in parts (to different persons), such a trader has to obtain dealer’s registration.  It has been reported that in certain cases the field formations insist upon bringing such purchased goods by the trader to his registered premises first before such subsequent sale under endorsed invoice or dealer’s invoice can be made.   It is clarified that there is no obligation provided under the Cenvat Credit rules, 2002 whereunder the trader has to necessarily bring the goods to his registered premises before selling the same.  In many a cases, these goods are sold even without unloading from transport or even during transit.  Thus, it is clarified that there is no requirement for the traders to necessarily bring the goods to their premises before they are being sold.  Such resale can take place from the transporters premises or before such goods are unloaded from the vehicle or even during the transit of the goods.  The registered dealer is, however, under obligation to maintain account of all the goods purchased, sold or have under stock.  He is also required to maintain the accounts regarding the credit on the goods received by him and the credit that has been passed on to the subsequent buyer.

Gautam Ray
Joint Secretary (TRU)