The Hindu Business Line : Textile sector: EOUs want anomaly to go

THE excise policy for textile sector unveiled in the 2004-05 Union Budget has not addressed the disadvantageous position to which the 100 per cent export-oriented units (EOUs) have been unwittingly exposed to.

According to Export Promotion Council for EOUs and SEZs here, the EOUs were paying, before the advent of the new excise regime, duty on their DTA (domestic tariff area) sale under which duties were levied equivalent to duties payable by DTA units on their DTA sales provided goods were manufactured wholly from the indigenous raw material.

Earlier, there was a compulsory CENVAT (Central value added tax) chain and hence EOUs were able to recover entire duties, even if they were slightly higher from the market. But due to non-amendment of March 31, 2003 notification, an anomaly has been created between EOUs and DTA units. Under the new excise provisions, EOUs units would be paying 4.08 per cent duty on cotton yarn and 12.24 per cent on cotton fabric manufactured wholly from cotton/blended yarn, while DTA units would not be paying any duty provided units here opt not to claim CENVAT credit.

Since there is no duty on cotton (natural fibre), DTA units will not be required to sacrifice any significant amount by opting to forego CENVAT credit in lieu of duty exemption on cotton yarn and fabric and would virtually be subject to nil rate of excise duty.

Though this anomaly seems to be unintentional, EOUs would no longer be able to sell any quantity including rejects and waste in the domestic market even if the same is manufactured wholly from indigenous raw material.

Hence, the council has pleaded for amending the March 31, 2003 notification in line with the changes effected in the excise duty structure in the Union Budget so that sale of goods, manufactured wholly from indigenous raw material by EOUs in DTA are subjected to same rate of duties, as are applicable on domestic manufacturers.

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