Excise duty on Ready Made Garments under Chapter 61, 62 and 63

[Sanketh Meri]

Dear All,

We are a Garment Manufacturing unit producing readymade garments on contract for certain brand. Our Brand Owner is not disclosing their RSP to us and hence we are not affixing Price Label. Hence, in such a case whether we are exempt from Excise Duty or whether we have to discharge excise duty under section 4 at transaction value.

[KASTURI SETHI]

Textiles and readymade garments - Levy of Excise duty on readymade garments and made up articles of textiles bearing brand name or sold under a brand name having retail sale price of ` 1,000 or more - Clarification

Circular No. 1031/19/2016-CX, dated 14-6-2016

[CSSANJAY MALHOTRA]

Dear Sanketh,

If brand owner does not disclose his RSP to you, then you don't have to pay Excise duty. Labeling amounts to manufacture in Ch 61 & 62, hence when the Brand owner affixes the price tag, he becomes liable to pay Excise Duty.

[Ganeshan Kalyani]

Sir , the querist has manufactured the garment, hence excise duty shall become payable. It is payable by principal manufacturer or job worker.

[CSSANJAY MALHOTRA]

Para 3.1.2 of DOF Letter 334/8/2016-TRU dated 29.02.2016

(v) In cases where the brand name owner gets goods bearing its brand manufactured from other manufacturers (normally small units) without providing the raw materials or inputs, and if the RSP is not affixed or marked on such goods when they are cleared in the course of sale from the factory of a manufacturer to the brand owner, then no excise duty would be payable by such a manufacturers since the RSP of such goods is not disclosed to them by the brand owner. However, since the process of labeling or re-labelling constitutes a process of “manufacture”, duty on the tariff value (based on the RSP) would be payable as and when the brand owner labels the goods with the RSP of ₹ 1000 or above and clears them for further sale.

[Sanketh Meri]

Dear Kasthuri Sir,

The circular does not clarify my query

[Sanketh Meri]

Dear Sanjay,

From where does the exemption from excise come into picture in case RSP is not affixed by the contractor. Since notification 20/2001 very clearly says if RSP is not affixed then excise shall be chargeable on transaction value. Your suggestion was similarly given in budget proposal but has not been amended in the finance bill. It's because of that reason I have raised this query.

[Sanketh Meri]

Dear Sanjay,

The DOF letter has not been given effect in entirety in the act. It was a budget proposal. No notification is amended based on the para you have given from DO letter in central excise

[Sanketh Meri]

Dear Sanjay,

Thanks for taking pain in clarifying my query. But I have been trying to locate the effect of Para 3.1.2 of DOF Letter 334/8/2016-TRU dated 29.02.2016 in the finance bill or notifications. But I could not find anything. If you can help, it will be really great

[YAGAY andSUN]

Excise duty liability on readymade garments (Source of Info: LKS- Excise Update No. 14/16th June, 2016)

• • The CBEC has issued Circular No. 1031/19/2016-CX dated 14.06.2016 wherein the excise duty liability on readymade garments has been clarified.
• • Vide Budget 2016, readymade garments bearing a brand name or sold under a brand name and having an MRP of more than ₹ 1,000 have
• been made dutiable.
• • CBEC has clarified that where a retail outlet affixes an MRP tag on the readymade garments, the said retail outlet will be liable to pay excise duty provided:-

1. 
   The goods bear a brand name or are sold under a brand name;
2. The MRP of the goods is equal to or more than ₹ 1,000; and
3. 
   Such goods are not exempt under the SSI exemption.

The CBEC also clarified that where the readymade garments are merely sold from a retail outlet which has a name say M/s XYZ and Sons, such readymade garments will not be liable to excise duty as they will not be considered as branded goods.
• Further, the CBEC has directed the field formations not to visit the individual retail outlets or retail chains, except based on specific inputs regarding duty evasion and with the approval of the jurisdictional Commissioner or Additional Director General or above.
Issue
• The Supreme Court in the case of CCE vs. Australian Foods [2013(287) ELT 385] = 2013 (1) TMI 330 - SUPREME COURT wherein it was held that goods without the brand name when sold from exclusive single brand retail outlets or restaurants or stores will be deemed to be branded goods of that outlet.
• The ratio laid down by the aforesaid decision needs to be looked intoby the retail outlets.

[CSSANJAY MALHOTRA]

Dear Sanketh,

Your concern is valid and I too appreciate the same that it could have been factored into some Notification, which has not been done.

Firstly the condition as mentioned in DOF letter dated 29.02.16 has limited applicability i.e. small units and not universally applicable, which may invite litigation on small units definition.

Notf No 20/2001 as rightly stated by you provides for levy of duty at transaction value, but in the recent case, the levy is based on RSP > than ₹ 1000/-, hence the scenario changes. This is my view and other experts may have different view.

 

[YAGAY andSUN]

We endorse the view of Sanjay Sir.

Sanjay Sir, gone through your presentation on GST. It is a master piece. . We salute your hardwork and dedication which is reflected in GST presentation.

[KASTURI SETHI]

With reference to M/s. Yagay and Sun's accolades for Sh.CS Sanjay Malhotra, Sir, I have the privilege to express my inner feelings that Sh.CS Sanjay Malhotra, Sir is, de facto, at the zenith of Discussion Forum irrespective of the number of queries replied. Quantity cannot override quality.

[CSSANJAY MALHOTRA]

Dear Yagay and Sun Ji / Sh Kasturi Ji,

Am speechless with the courtesy you people extend, but I learn lot from all my friends. Everyone has unique qualities for e.g Yagay and sun replies depicts competency in drafting legal matters, Sh Kasturi Ji depicts going to root cause and revert irrespective of output which enriches learning curve. Sh Ganeshan Ji, debate this involving experts to remain at Tmi platform, govindrajan ji, brain storming n coming out with articles.

Salute to all and am sure that I will invite u all experts at GST summit one day. Thanks again

Salute te to all

[Sanketh Meri]

Dear Sanjay,

Thanks for providing clarification on the matter. I am yet to read your presentation on GST. But i have gone through all experts replies and articles and i will not mince words but say that it has been of immense help to me in providing direction in lot of areas. That is why i like to post technical queries in this forum rather than any where else.

With regard to your reply on my query, i differ with you since if you read the notification 20/2001, it clearly says that abatement of 60% will be available on RSP and not on transaction value. Hence, the mention of RSP clearly links it to Notification 1/2011 (amended by 2016 notification) which spells out that RSP 1000/- and above is taxable. Since it links it to RSP, they have given clarification in Notification 20/2011 that if a manufacturer does not affix RSP, then transaction value shall be the value for charging excise duty.

My major issue is whether we can take DOF letter dated 29-2-2016 as the basis for taking decision or not. Since in many cases, courts have ruled against budget proposals which do not form part of the act. In this case, whether DOF letter has legal power to over rule the notifications.

[KASTURI SETHI]

Sh.Sanketh Meri Ji,

Neither DOF letters nor Circulars have a statutory force. Both help in understanding law. No doubt Board's circulars are binding on the department but they are devoid of legal force. These cannot override rules or notifications.

[KASTURI SETHI]

Sh.Sanketh Ji,

Does Para No.5 of Board's Circular No. 1031/19/2016-CX, dated 14-6-2016 not help you ?

[Sanketh Meri]

No sir. Since, the context of Para 5 clearly talks about branded outlets liability to charge excise duty on affixing brand name and RSP Label. It does not talk from a contract manufacturer point of view. It does not clarify that contract manufacturer need not charge excise duty.

[Ganeshan Kalyani]

Sir, can we not write to department seeking clarification in this case. As neither circular not Dof is clear in relation to the concern raised by you. I hope you will receive a response. However , I am too on a learning stage, so shall enrich my knowledge by going through the discussions of my learned experts. Thanks.

[Ganeshan Kalyani]

Sri Kasturi Sir, I agree to your views/praise to Sri Sanjay Sir. The presentation on GST prepared by him was really helpful in understanding the basis of taxation in GST. The pictorial slides made easy to understand. The examples given depicting tax structure is very nice. In short it is simple and to precise. Thanks to his effort and for sharing the same with us.

[Sanketh Meri]

Dear Ganesh sir,

Can you guide me whom should I write to in CBEC. I would be more than happy to get clarification.

AI Summary

Excise liability on branded garments: contract manufacturers may be liable when labeling constitutes manufacture; seek advance ruling. Whether excise duty falls on a contract manufacturer when the brand owner withholds the Retail Sale Price depends on whether affixing RSP or branding constitutes manufacture; labelling by the brand owner can trigger duty based on tariff value linked to RSP, departmental circulars help interpret but lack statutory force, contract terms determine which party bears liability, and practical steps include seeking an advance ruling or paying duty under protest.