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Wanted: Friendly excise officials

Something unusual happened last week. The chairman of the Central Board of Excise and Customs (CBEC), Mr M K Zutshi visited the textile belts of Coimbatore and Tirupur to alleviate the fears arising due to the first-time inclusion of small units in the excise umbrella. Many industrialists told this columnist that the meeting was very friendly. But they had their own suspicion as to how friendly the excise authorities would be over the coming months. There is nothing for them to believe that the tax man - direct or indirect - is a friend.

Mr Zutshi took pains to explain that the inclusion of the knitwear sector under the excise net was intended only for the benefit of the industrialists and not to mop up additional revenue. The inclusion of fabrics for excise levy and the removal of the deemed modvat chain were intended in the Budget only to help the completion of the Cenvat chain.

Dismissing any impression that the move would augment the revenue to the coffer, the CBEC chairman explained to them that with the lowering of the excise duty on a number of textile products, there would be over Rs 2,000 crore of losses in revenue. But, the government accepted this so as to create competitiveness amidst the industry.

These points were well received by the knitwear manufacturers. But what they could not straight away accept was their inclusion under the excise net, given the new risk of harassment they might have to suffer in the hands of these tax men. That is where Mr Zutshi spent a lot of time and effort. His basic promise was that the excise department would not harass the garment manufacturers. He has also promised periodical review to iron out any difficulties in the implementation of the law. To begin with, he has agreed to accept the self declaration of the knitwear manufacturers. This means that the accounts would be adopted as they are presented. Only senior officials would handle the cases so that there would be more of guidance than harassment and smooth implementation of the legal procedures. By now, the concerned industrialists have been told in no uncertain terms that they have to register themselves with the excise authorities to continue in business. This is contemplated by the Budget and the department would go all out to get this done at the earliest. Again, the department would be liberal with the units to continue production pending the registration formalities to complete.

Most certainly, after some months, the department would undertake a survey to ensure that all concerned units are duly registered. Only at that time, the penalty clause would be invoked. To avoid this, the concerned units would do well to get themselves registered. It has been the experience of the tax authorities that in most cases, the non compliance of the provisions is communicated to them by the players in the industry itself. That is why, recently, the Tamil Nadu finance minister and the revenue minister told the industrialists to send them anonymous letters pin pointing the violators. “All the rest we will take care”, they claimed. This was in respect of the sales tax. In any case, the extent of friendliness by the excise ends with the compliance of the provisions. Once the manufacturers fail to comply, friendliness has no role to play. And, the Budget demands the registration of the knitwear manufacturers. Given the fact that the units in Tirupur are known for their export business, there is little to suggest to the excise authorities that the knitwear sector in Tirupur would be new or naive to the law. In a place which boasts of modern machinery and technology, there could be little water in the argument that bringing them under the excise net would usher in a new working regime.

But, the wider points for consideration in the national and industrial interest are: who stands to gain because of the inclusion of the knitwear manufacturers under the excise net? How does this act propel growth in the textile sector as a whole without impairing the knitwear sector? How much additional trouble the knitwear manufacturers would have to bear in terms of manpower deployment, compliance with the excise provisions etc? How much correction would this bring about in respect of level playing, misuse of facilities etc?

If weighing all these, the overall scenario suggests a due inclusion in the excise net, there is nothing wrong in the move. If, on the contrary, the new move would adversely affect the business of a number of units although it might please some organised segments of the textile industry, there is a definite need to take a de novo look at this.

These are very important since in the march of the industry towards a quota-free regime in 2005, the most vital factor is the creation of a level playing, globally competitive environment without archaic laws and procedural hurdles, besides a growth-oriented tax cover. A favourable package in the Budget would fail to yield results if it is not supported with such economic measures.

- P S Sundar