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]

None would give anti-revenue advice. One has to interpret the law oneself. In case clarification is given, it would take a long time.You cannot wait for. In my view CE duty is payable. Who will pay Job worker or Principal manufacturer ? It can be ascertained from the terms and conditions of the contract. Without examining the contract, we will be groping in the dark. Prima facie, CE duty is payable.

I also think that query has not been properly drafted. Contract viz-a-viz billing system has to be checked for fool proof reply.

Best option is to pay CE duty under protest and avoid interest and penalty.

[CSSANJAY MALHOTRA]

Dear Sanket,

Am in agreement with Sh. Kasturi ji that if you have doubts, then pay the duty under protest and seek for clarification, which would take time.

Refer to Notification No. 09/2016-CE dated 01.03.2016 (amendment to Notification No. 01/2011-CE) which has added Sr. No. 75A , which provides for leviable of Duty @ 2% (Duty for exempted goods), if the RSP is > ₹ 1000/- This itself makes it precise that only RSP goods are subject to Duty.

Just imagine, in case of exports, if you don't follow above scenario and pay duty on Transaction Value as MRP is not affixed, then would department give you refund of 2% duty. NO, they can't as 2% duty goods are exempted goods as per Notification No. 01/2011-CE.

Mr. Ganeshan ji rightly shared his view to take up with CBEC. You may write to Chairman CBEC, North Block, New Delhi but you may / may not get reply.

[KASTURI SETHI]

Sh. CS Sanjay Malhotra Ji,

If any querist is not satisfied by any reason whatever may be, the better option for querist is to engage professional advocate or consultant. Sir, on this platform advice is given on the basis of construction of a query by the assessee and that too in the absence of statutory and non-statutory records.We do not know the facts of the case. We depend on the basis of what he says and give our opinion. I have seen many cases wherein the facts differed from that informed by the client, after examination of their records. My clients were highly qualified but failed to interpret and understand intricacies. (I do not blame the querist here I am talking what happens normally. All are not same.) So each and every words has to be xrayed before taking any decision by the assessee.

[CSSANJAY MALHOTRA]

Dear Sh Kasturi Ji,

Am in agreement with you. We can share , guide but finally Querist has to take call what best suits him.

[KASTURI SETHI]

Yes Sir. We are are performing our moral duty in the interest of society, in turn, nation through TMI.

[Ganeshan Kalyani]

Sri Sanket Ji, please refer Section 23A to 23H of Central Excise Act, 1944 which provides for Advance Rulings. You may take benefit of this provision. As said by Sri Sanjay Sir, you need to pay duty under protest and then file the application.

Also, I agree to Sri Kasturi Sir's that it depends on agreement between you and your principal manufacturer as regard who shall pay the tax. Either of the person should pay and comply. Thanks.

[Sanketh Meri]

Dear All,

Thanks for spending time on clarifying my query. I am really grateful. With regard to clarity on the subject, we are contract manufacturers and not job workers. We shall purchase the materials and make the final product for the brand owner. It is a contract for sale and not works contract. In this, we shall be affixing the brand name of the brand owner and supply the material.

In case of job work, Rule 4 (1)A clearly exempts job worker from liability if brand owner is discharging liability. However, we are not job worker. Hope this gives more clarification.

With regard to notification 1/2011, it clearly says 2% without cenvat credit can be charged for entry 75A which says RSP condition. However, the above notification is an isolated notification for benefit of items mentioned in it chargeable at 2% provided cenvat credit is not taken.

Further, If you see the first schedule of Central Excisechapter 62 or 63 it says 12.5% on ready made garments. It does not say about RSP criteria. So if I do not apply the above notification of 2%, then I again fall under first schedule rate of 12.5% which does not talk about RSP criteria. The link between 12.5% and RSP is not available. This is my personal analysis. Please correct if I am wrong.

Further, thanks for the opinion on paying tax under protest and Advance ruling. Will surely do that.

[KASTURI SETHI]

Sir,

You are not the job worker. O.K. You are a manufacturer of ready made garment. O.K. Non-affixation of price label by any one cannot absolve you from payment of CE duty as a manufacturer. Some notifications are to be read in conjunction and some are to be in isolation.In this situation, In lighter vein, I am reminded of the proverb, "Too many cooks spoil the broth."

[YAGAY and SUN]

Dear Sanketh Meri,

You may opt to seek an Advance Ruling or write to CBE&C for getting the clarification on this matter.

Regards,

YAGAY and SUN

[KASTURI SETHI]

Just for additional information linked with the issue.

Affixing the brand name is not only by way of tagging the price, labelling, relabelling, embossing etc.the product but also by way of maintenance of records in the factory of the manufacturer of excisable goods. In case nexus between the goods manufactured and 'brand name' is established from any record i.e. statutory as well as non-statutory maintained by the assessee in any way, such goods would be treated as branded. There is no relaxation for ready made garments regarding the definition of 'brand name'.

[Ganeshan Kalyani]

Thank you Sri Kasturi Sir for sharing additional point. It really enriches my knowledge. I was not aware of the same. Thanks.

[DR.MARIAPPAN GOVINDARAJAN]

I really wonder on 31 postings for a query.

[Sanketh Meri]

Hi sir,

I think you have a clear solution to the issue. Hope to listen your views on the matter

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.