The Hindu Business Line : Service tax fears plague powerloom sizing units in TN

Cenvat is gone but a new service tax has brought fear into the hearts of sizing units doing processing jobs for the powerloom industry in Tamil Nadu.

Coimbatore , Aug. 17

THOUGH the withdrawal of Cenvat duty in the Union Budget had paled the excise duty fears of the powerloom sector, the Tamil Nadu weavers are now haunted with a new worry in the form of a service tax.

And the area of manufacture that has attracted the attention of the tax men is the sizing units which are closely connected with the powerloom weaving activity.

The Central Excise authorities, as a first step towards levying the service tax, have served notices since last month on several sizing units in Palladam and Somanur weaving clusters in the region calling upon them to register under the service tax, according to the powerloom industry sources.

The sources told Business Line that the notices have been sent mostly to those sizing mills that are operating on `job work' basis offering their pre-weaving processing for the powerloom weavers.

But the road to the revenue mop-up for the Excise Department in levying the service tax on sizing factory units is expected to be as bumpy as the one they had experienced in their brief experiment of `cenvat' duty collection from the decentralised powerloom weavers.

The sizing unit owners in these two weaving clusters have already shot of letters to both the Union Finance Minister, Mr P. Chidambaram, and the Central Excise authorities contending that sizing only formed a part of the weaving activity and hence would amount a manufacturing activity which is eligible to be excluded from the scope of service tax as per section 2 (f) of Central Excise Act.

The regional powerloom cloth producers association, in its representation to the Union Finance Minister, has further maintained that though most of the sizing units do offer their capacities for job work, they are being done partially.

Nevertheless, these units which provide both the sizing and warping as the preparatory for the weaving are engaged as part of manufacturing of powerloom cloth because the warping and sizing works constitute the first and second stage of cloth-weaving respectively.

In the light of the sizing factories' contention on extending the service tax on them, the Central Excise authorities in the region are said to have taken up the issue with the Board for Central Excise and Customs for further direction in the matter.

The sizing factories, whose numbers are estimated to be around 300 or so are largely in the decentralised structure coming under SSI.

Most of these units are run in partnership basis by the powerloom weavers themselves and hence are located in the vicinity of the clusters.

While the value-addition being imparted by these job-working sizing units to cloth weaving is not well known, the job work rates being realised by the stand-alone sizing/warping units, according to insiders in the industry, would be too negligible and make the task of revenue collection for the excise department cumbersome.

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