Coimbatore, Jan 7: Is excise duty evasion in the spinning industry on the rise? According to industry sources, there is rampant evasion of excise duty among the spinners, since the duty exemption of 9.20 per cent enjoyed by the small scale spinning industry, is significant enough to impact the bottomline of any cotton yarn producer. ``The Government policy encourages fragmentation of units. If this policy (of exemption) is continued, quality conscious units will close down paving way for imports,'' the Southern India Mills' Association (Sima), the body for the organised spinning industry, claims.Though the industry's claim of fragmentation of units is yet to be proved true, there are talks of large-scale excise evasion in the official circles too. According to sources, to remain healthy some of the medium category mills have resorted to ``unhealthy'' practices. Huge quantities of unaccounted cotton are moving into the Coimbatore, Tirupur and other nearby markets. These upon conversion ultimately find their way into yarn markets without payment of excise duty. The mills thus are benefited by around 11.20 per cent - the two per cent sales tax on cotton and 9.20 per cent excise duty `exemption' upon conversion into yarn. ``The farmer too is benefited since he gets cash readily,'' sources said.
``It is now a free for all. Everybody has started evasion. Today there are three categories of spinning mills. The exporting ones and those in the SSI category are doing well. But the domestic large players are feeling the pinch. These have started all malpractices. This is bound to rise in the coming months, since cotton prices have gone up considerably and viability could depend on mills' ability to sell at competitive rates. Some of the major domestic players will find the year tough,'' a senior source in the industry said.
However, the organised sector's claim, that exemption granted to the SSI sector has made it uncompetitive, forcing it to resort to duty evasion is disputable. The current scenario is more to do with a provision available to the industry, than competition from the SSI units. A look at the yarn production statistics shows that SSIs production is only around 7 per cent of the total cotton yarn production in the country. Figures available with the textile commissioner's office indicate that SSI spinning mills produced around 80.77 million kg of cotton yarn up to September 2000-'01 fiscal, compared to the organised sector's production of 1069.17 million kg.
Moreover, the quality parameters too play a crucial role in the market. ``The bigger mills need not blame the mills in the small scale sector or the Governmentpolicies. The SSI mills are the creation of the big mills only. The old machineries with the big mills were sold at scrap value, to the small spinners instead of breaking them down,'' said a small scale spinner.
Copyright © 2001 Indian Express Newspapers (Bombay) Ltd.
