Excise sops negate Cenvat chain benefit, says ICMF

NEW DELHI: The Indian Cotton Mills’ Federation (ICMF) has objected to the government’s policy of according 10-year excise exemption for investment in industrial units in specified areas in a few states. The benefit of complete Cenvat chain in the textile industry introduced in Budget 2003 is being partly negated by such exemptions. Apart from industrial units in notified areas in north-eastern states and Jammu & Kashmir since last year, units housed in notified locations in Himachal Pradesh and Uttaranchal too had begun to benefit from tax exemption-for-backward-states policy of the central government.
“This (the exemptions) is a retrograde step since it will break the Cenvat chain,� ICMF chairman Dr B K Krishnaraj Vanavarayar said in the letters he wrote to finance, textile and commerce ministers.
Companies setting up units in such locations are mostly driven by concessions rather than economic rationality or commercial viability. Empirical evidence has convincingly proved that industrial units which have sprung up taking advantage of such fiscal incentives cannot become viable under the highly-competitive environment. These units become sick once the relaxations are withdrawn or after the expiry of the tenure of the sops, leading to loss of employment and locking up of capital assets, the ICMF chief said.
Cotton, the main input for the cotton textile industry, is already outside the purview of the central excise duty, being an agricultural commodity. Thus, for any textile unit manufacturing cotton yarn or cotton textile in a composite textile mill or garments in integrated textile operations in the specified locations, entire production, viz yarn, fabric and garment, will be duty free. Units that pay the excise duty are at a disadvantageous position.
At a time the government is moving towards implementation of the value-added tax, the tax rates in all states need to be gradually approximated to a uniform level for the purpose. The location-specific excise exemptions would create roadblocks for introduction of the VAT in the country, said Dr Vanavarayar.