Textile processors request GVAT relief on fabric

In making the finished fabric, it has to undergo process of dying, bleaching and printing. This industry runs merely on job work basis wherein material like colour and chemicals are used. Under the Gujarat value added tax, 2003 (GVAT Act, 2003) its regarded as works contract hence VAT gets attracted. Prior to the Act, 2003 came into force in White Paper on State Level Value Added Tax by The Empowered Committee of State Finance Ministers (which is body Constituted by the Ministry of Finance, GOI, on the basis of resolution adopted in the conference of the Chief Ministers on November 16, 1991 New Delhi, January 17, 2005 which conceptualize the basic design of the Vat contains the solemn declaration that VAT would not be imposed on AED items including textiles. The reason was given of initial organization difficulties. Adhering to it GOG in the budgetary declaration made on 27.02.2006 affirmed that items of textile shall be placed exempted from VAT.

Despite the facts anomaly has still remains in processing industry. This association referred the query to the EC, New Delhi. On 05.07.2006 the reply received is affirmative, it clearly states that the “The Empowered Committee of State Finance Ministers recommended in its meeting in April 2005 that processing of textile would not be assessed for VAT so long as textiles are covered under AED”. We submit that on the same line no other State has levied VAT at processing stage. Hence we urge that commitment be executed.

To meet the above commitment GOG issued notification on 11.08.2006. This creates discrimination as the exemption has been granted only for work of COTTON TEXTILE FABRICS. We submit that AED is also leviable on rayon, art silk and woollen fabrics. Therefore, we urge that notification which creates discrimination is unwarranted, hence from the aforesaid notification expression ‘COTTON’ requires to be deleted and substituted as “ALL KIND OF FABRICS”.

This association to meet the averment surges for immunity from levy of VAT. Finding the reason as true the GOG issued another notification on 17.08.2006 by providing concession in levy of tax. We urge here that such notification does not serve the end purpose. As the decision of Five Judges Constituent bench of Hon’ble Supreme Court in GODFREY PHILIPS 2005 (2) SCC 515; (2005) 139 STC 531 page 567, Para 67. The Lordship held that under the Scheme of our Constitution, the States and the Union Territories are excluded from imposing tax on AED items as additional duty of excise is collected by Central Government in replacement of sales tax on these items. We also bring to your kind attention the speech of the Finance Minister, State of Maharashtra on the Budget Estimate, 2007-08 in the legislative Assembly on Thursday, the 22nd March 2007 declared as under:

“Ordinarily textiles are not subjected to sales tax. Instead, the Union Government levies an Additional Duty on Excise on the textile industry. In practice, the levy is affected with reference to different process such as dying and printing of cloth. Here is now a national consensus that so long as these processes are included in the Additional Duties of Excise Act, these processes should not be subjected to Value Added Tax. After considering the entire issue, I have decided that so long as the States are not permitted to levy value added tax on textiles, till that time, these process should not be subjected to value added tax. This decision will take effect from 1st April 2005”. Source: page 86/88 Sales Tax Review March 2007 vol. 53 no. 12.

The above averment has conceptually made clear that such relief has been extended on account of decision taken in national consensus EC that States are not permitted to levy VAT on textiles. Having this background of facts it is neither ethical nor practical to desire for VAT on textile processing industry. There is clear cut discrimination, exempting cotton and textile polyester the reason given ‘in the public interest’ is not justified.

We shall remain grateful if your Honour takes positive decision and answer us at early date, we with respect are awaiting for sympathetic consideration.