Respected Shri Chidambaramji,

This has reference to the Notification No. 8/2005–Cutoms (N.T.) dated 18th January’2005 issued by Joint Secretary, Ministry of Finance, Department of Revenue concerning new duty drawback rates for the year 2004-05 w.e.f. 19.1.05

The duty drawback rates have been reduced almost by 50% to 60% in general.

The new duty drawback rates have been prescribed by weight as against per piece rates prevailing prior to 19.1.05. The new rates do not distinguish between various counts, finishes, trimmings and embellishments, use of lining and interlining materials and use of embroidery and other thread work, which are suffering from central excise/ customs duty. For example, there is no change in the drawback if the fabric count is 20s or 2/40s although the productivity and price of both the fabric is quite different; or there is no change in the drawback if the garments are made of normal fabrics or double mercerized fabrics, which consume a lot of duty paid chemicals. The weight of mercerized garments is less than the weight of un-mercerized garments. The new drawback rates would, therefore, discourage valued-added exports.

The new rates do not distinguish incidence of duty due to garments which are subject to special washes like enzyme wash etc., where the chemical costs are very high and the actual duty suffered is almost double from the normal garment.

The new rates further do not take care of the incidence like service tax, incidence of excise duty on diesel, furnace oil and consumables.

The burden of levies like octroi, electricity duty and other transaction cost has also not been included in the new rates. The new rates would be subject to different interpretations by the port custom officials, since the rates are linked by weight. This is going to cause delay and would encourage ‘Inspector Raj’.

I have been receiving a number of phone calls across India from member garment exporters regarding deep reduction in the drawback rates. As per the information gathered from them, the drawback reduction has resulted in the cancellation of in-hand orders, which were finalised only recently to cover the new season. The exporters had already taken into account the drawback element while offering the rates.

As you may be aware that the Council has been requesting the Ministry, from time to time, for stable policies in duty drawback so that exporters can give proper prices to their buyers.

You may be further aware that there is a diversion of the trade on clothing from India due to tariff free access granted by our neighbouring countries like Sri Lanka, Bangladesh and Pakistan, NAFTA, CBI countries and countries under Sub-Saharan region. The tariff disadvantage accruing to India is between the range of 12% to 31%. The Rupee has also appreciated by 7% against US dollar, making Indian garments un-competitive. As such, the industry is struggling to compete in such an atmosphere and reduction in the duty drawback rates would erode India’s export performance in the coming months.

With a view to export readymade garments even at the previous financial year’s level, it is strongly recommended that duty drawback rates may be atleast restored to the per piece drawback rates prevailing prior to 19.1.05

We are sure that Hon’ble Finance Minister would immediately consider the request of the industry and would restore the duty drawback rates as prevailing prior to 19.1.05.

With warm regards,
Sincerely yours,

(A. SAKTHIVEL)

Sh. P. Chidambaram
Hon’ble Finance Minister
Ministry of Finance
North Block
New Delhi