The Hindu Business Line : Powerlooms: Move to scrap Cenvat duty may put Govt in a spot

RAISING revenue through the Central excise duty out of the textile sector may continue to bristle with problems irrespective of whether the `unbroken' Cenvat duty chain for the sector is in place or not.

This is because the issue before those vested with excise revenue administration for the textile manufacturers has never been on the rate of the excise duty to be levied but one of convincingly fixing the mode of collection of the duty from a sector.

The current exercise reportedly underway at the initiative of the Union Finance Ministry on a possible repeal of excise duty liability at fabric production stage in the decentralised powerloom sector is any indication, it brings out the dilemma of the administrators and political leadership on pitching the right stages of revenue collection in the multiple manufacturing stages in the textile industry.

The one-year experiment with the `completed Cenvat' duty chain introduced in the last Union Budget by the former Finance Minister, Mr Jaswant Singh, had also been quite revealing in that the introduction of the excise duty (to complete the unbroken duty chain) at the weaving stage or particularly at the powerloom cloth production stage for the first time failed to achieve the targeted purpose of better revenue collection and checking evasion of excise duty.

Not only did the excise revenue from the textile sector as a whole during the whole of last year take a beating through a lower mop up, there has also been a sharp increase induty evasion as the industry itself had admitted to be witness to the multi-fold growth in invoice-less trading all around.

The vulnerability of the decision by the BJP Government, to suspend the optional excise duty regime for the unprocessed fabric producers of the powerloom weaving sector and replacing it with compulsory excise duty can be gauged through the restive phase of the textile production seen in the decentralised powerloom industry.

This caused a cascading effect on both upstream and downstream textile processing and also led to the political fallout.

The `Cenvat' duty chain debacle may haunt the UPA Government even if it takes the step of exempting the powerloom weaving industry from excise duty.

The Centre will be left with no choice other than to turnto either the time-tested `yarn' stage and the processing stage excise levy if it wants to sustain its revenue collection or capture value addition in the textile/clothing manufacture as newer areas for the revenue mop.

How far these measures will go with the fiscal aspirations of different sectors within the textile production chain, which are known to be diametrically opposed to each other in the Central Government's fiscal policies, remains to be seen.

The spinners, clearly displeased with the move to exempt the powerloom weavers from excise, are already pleading for removing the excise duty lock stock and barrel for the entire industry.

The feeling among the garment industry on any excise duty on value addition is that it would encourage more brands turning into unbranding their operations to avoid additional tax burden.

This may finally leave the pot boiling for the Union Finance Ministry whose concern on the taxation for the textile sector should be more towards checking duty evasion rather than pitching the stages of the excise levy.

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