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Saturday, May 25, 2002

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Evasion of excise duty -- Textile mills production comes under scrutiny

G. Gurumurthy


THE Union Textile Ministry has stepped up vigil on the functioning of textile mills by invoking the provisions of the Textile (Development and Regulation) Order 1993/2001, a Central statute that compels textile mills to periodically declare their production status to the Government.

The office of the Textile Commissioner (TC), the Ministry's development and enforcement agency for the textile industry, has geared up its field staff for the last one month to undertake inspection on the textile units in the South to see whether they comply with the regulatory Order.

Though on the face of it, the TC office move to clamp the regulatory provisions of the Act on the mills appears to be routine one, the timing of the action suggests more than that. The Government's intention is very clear - that it should check the "pernicious habit" prevailing in the spinning sector of false declarations of products manufactured by the textile units and evasion of excise duty.

Now that the Government has withdrawn the excise duty exemption hitherto enjoyed by the hank yarn producers and made the latter to pay excise duty at the same rate as applicable to their counterparts in cone yarn sector, the Textile Ministry is keen that all the spinners comply to the provisions of the Order which seeks filing of returns from the spinners on their yarn production pattern including their compliance to the compulsory packing of hank yarn under the Hank Yarn Obligation Scheme.

One more reason for the Government to tighten the screw on the spinners at this point of time, it is said, is that in order to safeguard the interests of the handloom weavers, particularly those engaged in production of base handloom varieties, the Central Government recently permitted exemption from payment of excise duty for coarser grade open-end spun cotton yarn up to two count. But in order to see that this relaxation is not unduly used as a loophole by the other yarn producers who are involved in making other count group hank yarn or producing cone yarn varieties to take advantage of the levy exemption, the TC office has launched its pre-emptive drive by invoking the Textile Order, according to sources.

But what has piqued the officials in the Textile Commissioner's office involved in checking the textile mills production statements are the instances where the mills, which had once declared that they had closed their operations were found to have quietly restarted their production after change in management without informing the TC's office.

These units, according to official sources, are the potential evaders of the excise duty as these mills will be practically out of the official books since the authorities would not be aware of their status at all. As per the Textile Order, the textile units undergoing management changes or taking up capacity expansion were statutorily required to file `information memorandum' to the TC's office. During the recent drive by the TC's office, it has been found that a few units have restarted production after being declared as closed and the management of these units was taken over by merchant-manufacturers for job-work operation.

Interestingly, the hank yarn production status has undergone some changes after the Government withdrew the excise duty exemption to producers of this variety of yarn. As per the official data on hank yarn production during the January-March 2002 quarter, the total hank yarn production has come down to 76.6 crore kg, some six per cent lower than the October-December 2001 production figure of 8.16 crore kg.

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