Duty structure leading to massive evasion

By Our Special Correspondent

CHENNAI, FEB. 20. Stepping up its campaign for a three-year exemption of cotton yarn from excise duty on cotton yarn, the Southern India Mills' Association (SIMA) today released statistical evidence to substantiate its case of `massive evasion' by the spinning mills.

The SIMA Chairman, Mr. Manikam Ramaswami, said authentic figures had established that only 43 per cent of producers of `excisable yarn' were paying duty. ``The present 9.2 per cent excise duty on yarn with exemption given to the small scale sector has caused 57 per cent evasion,'' he argued.

He said production of yarn during 1999-2000 was 2204 million kg valued at Rs. 24,250 crores. Of this 350 million kg of hank yarn, worth Rs. 3,500 crores and 532 million kg of export yarn valued at Rs. 1,300 crores were exempt from duty. Similarly, small units that accounted for Rs. 1,300 crores of yarn were out of the purview, taking the exempted total to Rs. 10,800 crores.

Cotton yarn worth Rs. 13,450 crores was under excise and the duty to be collected should be Rs. 1,273 crores. But the amount collected last year was only Rs. 543 crores.

The SIMA's case was that in 1995-96, the evasion was marginal because the excise duty was at 4 per cent and there was no exemption except for export and hank yarn. Though production was 15 per cent lower, the revenue that year was Rs. 575 crores.

``No other proof is required to see that a higher level of excise duty combined with exemption given to the SSI sector has proved to be the last straw for the honest, efficient spinning mills that are forced to resort to duty evasion as a survival strategy in an increasingly competitive market.

So far, 95 honest spinning mills have been closed down in Tamil Nadu, leaving 40,000 workers unemployed. At the all India level, 120 mills have closed down in the last two years,'' Mr. Ramaswami noted.

Noting that only 24 per cent of the yarn produced suffered duty, he urged the Centre to remove this anomaly. ``That is why the SIMA and the Indian Cotton Mills Federation (ICMF) are requesting the Government to either levy a uniform modvattable rate of 4 per cent excise duty from cotton to garment or temporarily exempt all cotton yarn from duty for three years to help efficient units become strong and take on international competition,'' the SIMA chief said.

He explained that this would involve a revenue loss of not more than Rs. 350 crores, that could be offset by a diversion of unutilised interest subsidy provided for in the Rs. 25,000-crore TUF scheme to upgrade the mills.

A majority of the mills could not avail themselves of this scheme because they were genuinely not profitable or were continuing to show losses after evading tax.

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