General Proposals - Union Budget of India 2014-2015

EXCISE DUTY

Abolish excise duty on textile machinery, spares & components.

To make textiles products competitive in the international market, excise duty on textile machinery, spares and components should be abolished. This will also improve the investment climate and will encourage more investment in the textile machinery sector.

To reduce excise duty on FO

Rising cost of power/electricity continues to be a factor affecting the export performance. The present rate of basic excise duty on is 14% which is very high. It may be mentioned that due to non-availability of sufficient and quality power from state electricity distribution companies, and in view of the fact that adequate power supply cannot be ensured in the near future, most of the textile units have set up their own power generating sets for producing power for captive consumption. With the increase in the price of FO and the levy of Central Excise duty (Basic Excise Duty at 14%), the cost of power generation through FO has substantially increased and become uneconomical.

It is therefore suggested that excise duty on FO should be reduced to 8%.

SALES TAX

To reduce CST to 1%

SERVICE TAX

To allow credit of service tax paid on erection and commissioning charges for wind mill as well as on the repairs and maintenance charges

Services rendered outside India to Indian tax entities such as export agent commission, exhibition charges and costs, hotel and travel costs, purchase of designs and publications overseas, laboratory testing charges abroad, transportation services abroad etc. should be exempted from service tax.

At present such matters are under litigation in several courts and there is an arbitrary use/abuse of power by inspectors when they examine balance sheets. All expenditure under foreign currency expenses is automatically treated as evasion, even though the services are rendered abroad. Their stance is that ultimately the services though rendered abroad are used by Indian entities. In fact, there is a strong logic to do away with service tax on all export based activities since anyway the government is committed to refund these taxes collected by way of export drawback.

INCOME TAX

Depreciation

To restore accelerated depreciation for windmills @ 80% under the Income Tax Act

This benefit has been now reduced to 15%.

Mandatory Cost Audit for Textile Mills

Textiles mills may be exempted from the mandatory cost audit as the details sought during the audit are available in the documents field under the Companies Act. Alternatively, the ceiling for compulsory tax audit requirement may be increased from turnover of 60 lacs to 10 crs. This will help small exporters save time and money on costly tax audit.

BANKING & FINANCE

To reduce the rate of interest on Rupee Export Credit to 7%

In a bid to improve transparency and uniformity in pricing of bank loans, the Reserve Bank of India (RBI) proposed linking lending rates to banks' cost of deposits through a "base rate system" that has replaced the benchmark prime lending rate (BPLR) system from April 1, 2010.

However the export credit rate as of now under "Base Rate" regime is much higher (11% to 15%) as compared to the exporters getting pre and post shipment credit under Prime Lending Rate (PLR) regime earlier. This is because banks have been freed to charge interest rate above the Base Rate". This is definitely an increase to the cost of finance affecting the margin of profit over and above the prevailing problem of Rupee Appreciation.

To extend Interest Rate Subvention of 3% to cotton textiles

Interest rate on export finance in India is linked to the Base Rate and is therefore very high as compared to our competitors. Exporters have a bear interest rate of over 14% as compared to our competitors who get export finance at a lower interest rate of 3 to 4%. In the case of cotton textile sector, banks normally provide working capital loan for 3 months stock of cotton and insist upon 25% margin money and the rate of interest charged is over 14%. This puts huge pressure on the working capital requirement of the cotton textile sector.

The government has extended Interest Rate Subvention of 3% on Rupee Export Credit to exporters from certain sectors to mitigate the high cost of export finance. However, cotton textiles exports have not been included under the scheme. It is suggested that the benefit of the Interest Rate Subvention should be extended to the entire cotton textiles sector.

However, if for some reason or due to budget constraints, if the scheme cannot be extended to the entire cotton textiles sector than at least it should be extended to made-ups (Home textiles). The annual supplement to the FTP 2009-14 had announced the inclusion of Chapter 63 under the scheme. However, the RBI circular issued subsequently to implement this announcement has included only certain HS codes.

The manufacturing process and costs involved are more or less same in the case of garments and home textiles. Ideally, garments and made-ups need to be treated at par as they fall under the same "Cut & Sew" categories of products. Since garments are included under the 3% Interest Rate Subvention Scheme, there is no reason as to why this benefit should be denied to home textiles. It is therefore suggested that cotton home textile items should be covered under the scheme.

However if the entire chapter 63 cannot be included, then it is proposed to include HS Code 6304 under the scheme. Further, if the product cannot be included at the 4-digit level then it is proposed to include the following items under the scheme: