'Exporters should take ownership of issues'

Exporters usually do not take ownership of issues of buyers. Both the seller and buyer should take responsibility of ensuring that profits go into their respective balance sheets, writes AEPC Additional Secretary General Vijay Mathur.

India is being noticed worldwide. The timing is appropriate since the world is in turbulence, but India is calm. The European Union (EU) is battling are calcitrant Greece. EU policymakers seem more keen that Russia and China don't become allies of Greece. The EU would like to bail out Greece, by giving it more chances. A lot of time and energy of the EU is therefore going into this.The euro-dollar (US) gap is narrowing and there is also a lot of pressure on EUto conclude the Trans-Atlantic Partnership Agreement with US in another two years.

The economy of Japan is uncertain. Major brands, including apparel brands, are now approaching other parts of Asia to expand and to ensure that their talent/reserves do not sit on idle land. They are feeling the pinch of keeping a fat purse in their pocket, which they must spend.

Brazil and Russia are witnessing issues related to depreciation of their respective currencies. The Chinese yuan, which was around 6.27/per US$ during 2013, was appreciated to 6.14/per US$ in January 2015. Similarly, in the case of Brazil,the currency has been depreciated by 23.7 per cent. India has a GDP growth of7.4 per cent, which is slightly better than the Chinese growth of 7.3 per cent.

Thesavings, due to fuel prices worldwide, are expected to generate US$ 2-3trillion in the hands of the consumers, mostly in the form of cash. The nextsix months' retail would definitely go up and even 25 per cent savings being transformed into garment purchases, may see a quantum jump in sourcing,including that from India.

In this context, West Asia has shown an impressive progress in terms of garments.During 2013, there was a growth of 23.3 per cent in garment imports over the last year (US$ 1,922 million to US$ 2,370 million). India has taken advantage by increasing its growth by 12.1 per cent in 2013 over 2012 and having share of18.7 per cent in these markets. UAE has been a very important market (US$ 1,806 million), followed by Saudi Arabia(US$ 388 million), Kuwait (US$ 78.6 million), Qatar (US$ 69 million), Bahrain(US$ 16 million) and Oman (US$ 11.7 million).

How exporters can make the best of the situation

The 'Make in India' programme launched by Prime Minister Narendra Modi provides a lot of headway, and encourages garment exporters of India to think afresh and expand their capacities at a time when major economies are not doing too well. I have heard many exporters saying that had they gone ahead with the advice of a professional company, they would have never entered the garment export business. The other thing which the garment exports industry needs to do is to question themselves about the ownership mode of export firms. This industry has seen export companies being formed by employees of the firms. Therefore,marketing strategies are kept close to the chest by owners.

While exporters believe in professionalism in production, they need to believe professionalism in marketing and sales too. Professionalism is also required in interpreting various domestic, local and overseas laws so that the course correction can be made by exporters simultaneously.

Proposed recommendations	Announcement in the Union Budget 2015-16	Remarks
	In effect, the general rate of Central Excise Duty of 12.36% including the cess is being rounded off to 12.5%.	drawback.
Service Tax (New)	The present rate of Service Tax plus Education Cess has been increased from 12.36% to a consolidated rate of 14%.	Will add to cost of production. Need to increase duty drawback.

Proposed recommendations

Announcement in the Union Budget 2015-16

Remarks

In effect, the general rate of Central Excise Duty of 12.36% including the cess is being rounded off to 12.5%.

drawback.

Service Tax (New)

The present rate of Service Tax plus Education Cess has been increased from 12.36% to a consolidated rate of 14%.

Will add to cost of production. Need to increase duty drawback.

Proposed recommendations	Announcement in the Union Budget 2015-16	Remarks
	ST dated 20.6.2012. Scope of this exemption is being widened to exempt such services when provided for transport of export goods by road from the place of removal to a land customs station (LCS). This new exemption shall come into effect from April 1, 2015. Manpower supply and security services when provided by an individual, HUF, or partnership firm to a body corporate are being brought to full reverse charge. At present, these are taxed under partial reverse charge mechanism. This change will come into effect from 1.4.2015.	Obligation for exporter when provided by individual, HUF, partnership firm to a corporate body.
Income Tax (New)	Corporate Tax slab reduced from 30% to 25% over a period of 4 years.	Relief. However, finance minister has not clarified what will be rate of Income Tax. Whether the entire 5% would be reduced in the terminal year.
Excise (New)	Subsume the Education Cess and the Secondary and Higher Education Cess in Central Excise Duty.	Will add to cost of production. Need to increase duty

A few years back, at a time when leading brands in Germany had filed for bankruptcy, exporters' shipments continued to be sent there, without realising that the money may not come home. There is a need to be vigilant on all fronts.

Similarly, annual reports of some major brands state that "their profitability depends on the performance of their franchisee, where they have less control." I have not seen any garment exporter from India asking the buyer whether his goods are going to be handled himself or through the franchises. This happens because we feel that once the goods move out of the factory gate and I am paid, my responsibilities are over.

Exporters do not take ownership of issues of the buyers. Both the seller and buyer should take responsibility of ensuring that profits go into their respective balance sheets. The shipper from India should look beyond ex-factory and ensure that goods reach on time at the buyers' ports, are cleared without any damages, reach warehouses and are subsequently invoiced at full rate.

What is equally important are the concerns of buyers: that exporter get their raw material in time, workers are paid, and there is a connectivity within the fabric and accessory divisions. Buyers need to ensure that they create new values with suppliers, maybe through product development, productivity of the workers, or through the expansion of factories.

Moreover, there are opportunities within India that need to be encashed, particularly during lean periods. For instance, export companies working on spring/summer collections of US or Europe can create Diwali collections in India, and so on. Blending manufacturing for overseas with the Indian market can keep garment exporters fully functional at all times.

India has a diverse textile base, with each vertical being a heavyweight in itself. The so-called different lobbies for cotton, yarn, synthetic, garment must be ready to bring excellence to their respective fields with market-driven policies. This will do away with the distortion that we ourselves create by prioritising one sector in one year and another sector the next.

Yes, the sector as a whole is subject to competition because of differential import duties. Buyers overseas are not increasing retail prices, although Indian prices are going up due to inflation. Support is needed from the government till such time that a level-playing field is created. The root cause for this need to be addressed in forums like WTO. The question that can be raised is this: should LDC status be continued to a country whose exports of one commodity is nearly US$ 30 billion, whereas other developing countries are half way that mark. The Big Brother tag needs to go away.

Now, if I were to talk about the recently presented Budget 2015-16, I would like to appeal that some of the expectations of the garment export industry be re-considered by the government. Some of the specific areas are mentioned below:

Proposed recommendations	Announcement in the Union Budget 2015-16	Remarks
1. Separate chapter for pre and post-shipment export credit at fixed rate of 7.0% interest and apparel sector to be included in priority sector lending. Till such time, in RMG sector 3% Interest Subvention Scheme, which was available up to March 31, 2014, should be continued. 2. It should be continued w.e.f. April 1, 2014 onwards.	No announcement made.	The matter needs to be persuaded, so that RBI in its Monetary Policy announces the same.
To increase the limit of sample fabric up to 2% of FOB value of exports within the 5% rate of entitlement under Notification No 05/2014-Customs dated July 11, 2014.	Scheme continued in 2015-16 vide Notification no. 10/2015-Customs dated March 1, 2015. However, govt has not included fabrics up to 2% of FOB value with overall 5% entitlement as requested.	Government should consider and announce in current session of Parliament.
Amendment under Section 32 AC of Income Tax Act 1961 Current position: The Government of India has inserted Section 32 AC, through Finance Act 2013 (w.e.f. 1.4.2014) and has provided deduction for the period 1.4.2014 to 1.4.2015 of the actual cost of new assets required, and installation in the manufacture or production of any article, provided aggregate amount of actual cost of such new assets exceeds one hundred crore rupees. (Later reduced to Rs 25 crore in budget announcement of 2014). Proposed amendment: i) Instead of only company being eligible to take advantage of this section, all business entities (proprietorship, partnership, HUF; including company), may be covered as beneficiaries. ii) Condition of availing deduction should be amended from exceeding Rs 25 crore to exceeding Rs 1 crore for garment sector, since most units are under SSI sector.	No announcement made on this proposal.	The matter may be persuaded by Ministry of Textiles for inclusion of this recommendation in the current session of Parliament.

Proposed recommendations	Announcement in the Union Budget 2015-16	Remarks
amended from exceeding Rs 25 crore to exceeding Rs 1 crore for garment sector, since most units are under SSI sector.	No announcement made.	The matter needs to be persuaded, so that RBI in its Monetary Policy announces the same.
Amendment under Section 35 AD (1) of Income Tax Act 1961 Current position: Section 35 AD (1) of Income Tax Act 1961 provides that an assessee shall be allowed a deduction in respect of the whole of any expenditure of capital nature incurred, wholly and exclusively, for the purpose of any specified business (operating a cold chain facility, setting up and operating a warehousing facility for storage of agricultural produce, laying and operating a cross-country natural gas or crude or petroleum oil pipeline network for distribution, building and operating anywhere in India a hotel of 2 star or above category, operating an inland container depot or a container freight station) carried on by him during the previous year in which expenditure is incurred by him. Proposed amendment: i) Under Section 35 AD, it is proposed that the scope of specified business may also include expenditure on capital nature incurred in the readymade garment industry for the manufacture of garments. ii) Benefit may be granted without any further approval and scheme may be announced for the period up to the end of the 12th Five Year Plan i.e. 2017-18.	No announcement made on this proposal.	The matter may be persuaded by Ministry of Textiles for inclusion of this recommendation in the current session of Parliament.
Amendment in Section 35 of IT Act 1961 Current position: Deductions in respect of expenditure on scientific research under Sub Section 35 (1) (ii), an amount equal to one and three-fourth times of any sum paid to a research association provided, that such association, university, college or other institution for the purpose of this clause-	No announcement made on this proposal.	The matter may be persuaded by Ministry of Textiles for inclusion of this recommendation in the current session of Parliament.

Proposed recommendations	Announcement in the Union Budget 2015-16	Remarks
•Is for the time being approved, in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed; and •such association, university, college or other institution is specified as such, by notification in the Official Gazette, by the Central Government. Suggested amendment: The benefit of this section should be extended to readymade garment sample making to the extent of 5% of the turnover of that assessee in the same assessment year.		current session of Parliament.
Amendment in Section 80JJAA of IT Act, 1961 Current position: Deduction is allowed for the amount equal to 30% of "additional wages" paid to new regular workmen (in excess of 100 workmen) for workers employed for 300 days, subject to condition about nature of employment. Suggested amendment: Employed for 300 days may be amended to 150 days and workmen should also include contract/casual workers.	The government has considered the recommendation vide clause 22 of the memorandum explaining the Finance Bill 2015, partially. The government has decided to extend the benefit to all assesses having manufacturing units rather than restricting it to corporate assessees only. Further, in order to enable the smaller units to claim this incentive, it is proposed to extend the benefit under the section to units employing even 50 instead of 100 regular workmen. Not considered by government - 300 days may be amended to 150 days and workmen should include contract/casual workers. (Deduction is allowed	These two points need to be taken up by Ministry of Textiles for consideration of this recommendation in the current session of Parliament.

Proposed recommendations

Announcement in the Union Budget 2015-16

Remarks

•Is for the time being approved, in accordance with the guidelines, in the manner and subject to such conditions as may be prescribed; and
•such association, university, college or other institution is specified as such, by notification in the Official Gazette, by the Central Government.
Suggested amendment: The benefit of this section should be extended to readymade garment sample making to the extent of 5% of the turnover of that assessee in the same assessment year.

current session of Parliament.

Amendment in Section 80JJAA of IT Act, 1961

Current position: Deduction is allowed for the amount equal to 30% of "additional wages" paid to new regular workmen (in excess of 100 workmen) for workers employed for 300 days, subject to condition about nature of employment.

Suggested amendment: Employed for 300 days may be amended to 150 days and workmen should also include contract/casual workers.

The government has considered the recommendation vide clause 22 of the memorandum explaining the Finance Bill 2015, partially. The government has decided to extend the benefit to all assesses having manufacturing units rather than restricting it to corporate assessees only. Further, in order to enable the smaller units to claim this incentive, it is proposed to extend the benefit under the section to units employing even 50 instead of 100 regular workmen.

Not considered by government - 300 days may be amended to 150 days and workmen should include contract/casual workers.
(Deduction is allowed

These two points need to be taken up by Ministry of Textiles for consideration of this recommendation in the current session of Parliament.

Proposed recommendations	Announcement in the Union Budget 2015-16	Remarks
	for the amount equal to 30% of additional wages paid to new regular workmen (in excess of 100 workmen) for workers employed for 300 days).	The matter needs to be persuaded, so that RBI in its Monetary Policy announces the same.
Readymade garment sector currently is in optional CENVAT chain. This sector should be continued to function on Optional Excise Duty route, and announcement should be made for long-term basis, since most units are under SSI sector.	There is no announcement by the government on this; therefore status quo remains.	-
Full neutralisation of state levies, electricity duty, octroi, currently charged to exporters but not disbursed under All Industry Duty Drawback. Fixation of excise portion of All Industry Duty Drawback Rate to refund duty suffered on domestic contents in garment manufacturing, when only the fabric is imported duty free, under advance licence.	No announcement made by government on exports.	The matter may be persuaded by Ministry of Textiles for inclusion of this recommendation in the current session of Parliament and necessary direction to Dept of Revenue be issued.
Anomaly due to amendment made to rule 2(f): definition of intermediary in service rules notification no 14/2014 dated 11.07.2014 w.e.f. 01.10.2014. Issue: The buyers, when making direct payments in foreign currency to an intermediary in India, are subject to service tax w.e.f 1.10.2014. The existing definition of term 'intermediary' include only 'intermediary of services.' The definition of term 'intermediary' was substituted with effect from 1-10-2014. The	No announcement made by government on exports.	The matter may be persuaded by Ministry of Textiles for inclusion of this recommendation in the current session of Parliament and necessary

Proposed recommendations	Announcement in the Union Budget 2015-16	Remarks
substituted definition included 'intermediary of goods' also to its ambit. As a result, with effect from 1-10-2014, an intermediary of goods (for instance, a commission agent of goods) shall fall within the purview of Rule 9(c) -Place of Provision of Service Rules. Amendment sought in Notification No 14/2014-Service Tax Dated 11.07.2014 The buyers, when make direct payments in foreign currency to an intermediary in India, should not be subject to service tax. The amendment be carried with effect from 1.10.2014.		direction to Dept of Revenue be issued. However, there is an announcement in the memorandum explaining the Finance Bill 2015 under "Miscellaneous", which is given as under: Existing exemption, vide notification No. 42/12-ST dated 29.6.2012, to the service provided by a commission agent located outside India to an exporter located in India is being rescinded with immediate effect. This exemption has become redundant in view of the amendments made in law in the previous budget, in the definition of

Proposed recommendations

Announcement in the Union Budget 2015-16

Remarks

substituted definition included 'intermediary of goods' also to its ambit. As a result, with effect from 1-10-2014, an intermediary of goods (for instance, a commission agent of goods) shall fall within the purview of Rule 9(c) -Place of Provision of Service Rules.

Amendment sought in Notification No 14/2014-Service Tax Dated 11.07.2014
The buyers, when make direct payments in foreign currency to an intermediary in India, should not be subject to service tax. The amendment be carried with effect from 1.10.2014.

direction to Dept of Revenue be issued.

However, there is an announcement in the memorandum explaining the Finance Bill 2015 under "Miscellaneous", which is given as under:

Existing exemption, vide notification No. 42/12-ST dated 29.6.2012, to the service provided by a commission agent located outside India to an exporter located in India is being rescinded with immediate effect. This exemption has become redundant in view of the amendments made in law in the previous budget, in the definition of

Proposed recommendations	Announcement in the Union Budget 2015-16	Remarks
		"intermediary" in the Place of Provision of Services Rules, making the place of provision of a service provided by such agents as outside the taxable territory.
Service Tax implications on the jobs outsourced to job contractors by manufacturer exporters of readymade garments Issue: Certain field formations from Central Excise have initiated against garment exporters for recovery of service tax on the plea that the activity undertaken by the contractors does not qualify as job work in garment export manufacturing and is in fact supply of manpower on the premise that the inputs and semi-processed goods are not sent outside garment factory premises and all the machines and inputs required for undertaking the jobs are supplied by exporter only. Garment exporters are being pressurised to pay up the alleged service tax amount. Request: AEPC's opinion and belief is that no service tax is applicable on the services of the contractors engaged in the manufacturing process of garments and as such contractors are job workers and not suppliers of manpower under Section 2(f) (i) of the Central Excise Act, 1944. AEPC requests CBEC to intervene and issue appropriate instructions/ clarifications in the matter so that there may not be any harassment at ground level.	No announcement made on this proposal.	The matter may be persuaded by Ministry of Textiles for inclusion of this recommendation in the current session of Parliament.

Proposed recommendations

Announcement in the Union Budget 2015-16

Remarks

"intermediary" in the Place of Provision of Services Rules, making the place of provision of a service provided by such agents as outside the taxable territory.

Service Tax implications on the jobs outsourced to job contractors by manufacturer exporters of readymade garments
Issue: Certain field formations from Central Excise have initiated against garment exporters for recovery of service tax on the plea that the activity undertaken by the contractors does not qualify as job work in garment export manufacturing and is in fact supply of manpower on the premise that the inputs and semi-processed goods are not sent outside garment factory premises and all the machines and inputs required for undertaking the jobs are supplied by exporter only.

Garment exporters are being pressurised to pay up the alleged service tax amount.

Request: AEPC's opinion and belief is that no service tax is applicable on the services of the contractors engaged in the manufacturing process of garments and as such contractors are job workers and not suppliers of manpower under Section 2(f) (i) of the Central Excise Act, 1944. AEPC requests CBEC to intervene and issue appropriate instructions/ clarifications in the matter so that there may not be any harassment at ground level.

No announcement made on this proposal.

The matter may be persuaded by Ministry of Textiles for inclusion of this recommendation in the current session of Parliament.

Proposed recommendations	Announcement in the Union Budget 2015-16	Remarks
Waiving of Service Tax on taxable service in sub clause (zzze) of clause (105) of Section 65 of Finance Act on services may be provided to specified associations under (zzze) of Finance Act for the period of viz. 16.6.2005 to 6.7.2009 Request: EPCs should be exempted from service tax payment on organising exhibitions in domestic market. Garment export sector should be brought under the negative list of service tax	No announcement made on this proposal.	The matter may be persuaded by Ministry of Textiles for inclusion of this recommendation in the current session of Parliament.
Non-Implementation of 24X7 Clearance of drawback shipping bills at Customs 24x7 clearance of duty drawback shipping bills at customs was announced by government on 31.5.2013. Further, the Union finance minister in his budget speech in July 2014 extended the facility in 14 more ports. However, the facility is not implemented fully on ground level. AEPC's proposal: i) Dedicated Assistant Commissioners/DCs and other staff should be available for the clearance of import & export goods round the clock. ii) Time is the essence. Fashion is perishable item. Thus, garments should be classified under permissible goods and export cargo should not be subject to restriction of cargo movement in the city.	No announcement made on this proposal.	The matter may be persuaded by Ministry of Textiles for inclusion of this recommendation in the current session of Parliament.
New Exemptions announced in the Budget 2015-16.	Goods transport agency service provided for transport of export goods by road from the place of removal to an inland container depot, a container freight station, a port or airport is exempt from service tax vide notification No. 31/12-	Relief has been given.

'Exporters should take ownership of issues'

Comments

Disclaimer

'Exporters should take ownership of issues'

Comments

Disclaimer

Submit your Request