INDIA: Industry Troubled By New Excise Burden

The Indian textile industry is facing problems because of the enforcement of new valuation rules by the central excise department from the beginning of July.The department is to levy a margin of 15 per cent by way of profit for assessment of goods used for captive consumption. It says that it has imposed the levy in an effort to simplify matters.The Times of India reports that the new valuation rule is expected to hurt composite textile units (without their own processing facility) and those mills that undertake yarn doubling activity. Further, the implementation of the new rule would act as a disincentive for units that are keen to integrate operations. The central excise department has decided to value goods that are captively consumed by cost construction methods only as there have been disputes in adopting values of comparable goods. The assessable value of captively consumed goods will be taken at 115 per cent of the cost of manufacture even if identical or comparable goods are manufactured and sold by the same assessee. Following this, the concept of deemed profit for notional purposes has been abolished and a fixed profit margin of 15 per cent has been introduced. The department said that this will make it easier to assess goods that fall under the new ruling.Industry sources said that textile units rarely see a profit margin of more than five per cent and that the enforcement of a 15 per cent profit margin by the department would only push the textile units into difficulties. The composite mills and doubling units, which consume yarn spun internally, would have to bear a higher burden and this would hurt their bottom line, sources said.