The fortunes of independent processors are on the rise especially when the composite sector has to contend with the continuing slide, thanks to a wide gap in the duty rates.

Cloth production by the composite mill sector has witnessed a fall from 2,217 million square metres in 1994-95 to 1,963 million sqmt in 1997-98. However, cloth produced by the powerlooms registered an uptrend during these years. Production by powerlooms were up from 15,976 million sqmt to 20,303 million sqmt during the same period.

The Millowners' Association (MoA) and the Indian Cotton Mills Federation (ICMF) have strongly appealed to the centre to create a level-playing field for composite mills and bring down duties so that the industry can emergeas a global player and earn valuable foreign exchange.

The realignment of excise structure is a matter of life and death for the composite mill sector as it will not be able to endlessly sustain the devastating impact of duty evasion and other malpractices in the powerloom sector.

MoA has demanded that no distinction should be made between cotton cloth processors and blended cloth processors.

It has called upon the centre to extend stenter duty scheme to composite mills also with proportionate rebate of stenter duty on export on fabrics, made-ups or to realign the duty structure by levying a nine-per cent duty on processed cotton cloth (basic five per cent and additional excise duty in lieu of sales tax at four per cent).

For processed blended and synthetic cloth, MoA has sought a 14 per cent rate on (basic 10 per cent and additional excise duty in lieu of sales tax at 4 per cent) both subject to modvat.

Today cotton cloth having a value of upto Rs 30 per sq mt pays a basic duty of five per cent."There is no justification for having a value cap and a five per cent duty charged on a flat basis for all processed cotton fabrics, subject o modvat," MoA said and added that the rate of 10 per cent as far as processed blended and synthetic fabrics are concerned, should be brought into effect subject to modvat.

The independent process houses cater to the processing of cloth produced by powerlooms, while mills largely process in-house production of cloth. Though independent processors are processing the bulk of filament yarn and filament fabrics, they do process blended and cotton fabrics produced by the powerlooms and thus give direct competition to composite mills.

The growth in the production of the powerloom cloth means corresponding growth in the independent processing sector year after year. Moreover, the number of closed composite mills is on the rise.

In all 58 mills were closed in 1995, 71 in 1996, 91 in 1997 and 93 in 1998.MoA said that the end of the composite sector is a foregoneconclusion, if the compounding system is introduced for independent processors only.

Reduction of duty in the case of well managed process houses, which are at present paying duty in the range of Rs 4 to 6 lakh per chamber per stenter per month as against Rs 1.5 lakh by individual processors give direct competition to composite mills as the range of processing is the same in both the cases.

"Such independent processors would thus eat into the share of composite mills."

MoA has expressed serious concern over the evasion of duties by a large number of independent processors and added that evasion of duties sets in a low benchmark for cloth prices in general.

The composite mills are at the receiving end primarily because of colossal tax evasion at the processing stage and rampant malpractices in the powerloom sector. The evasion has amounted to Rs 3,900 crore per annum.

MoA has said that the compounding system which is resorted to in the event of large scale evasion must contain an element ofpenalty and should not bestow a reward. The levying of the stenter scheme is in response to the government's attempt to improve collections and reduce the evasion of duties. However, such policy of eradicating malpractices should not hurt the tax paying sector and should not be the cause of its downslide.