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Small textile units in Haryana oppose imposition of VAT
October, 15th 2013

These units, which make rugs, cotton and woollen durries, druggets and carpets, have already seen their margins squeezed by the escalating cost of power, labour and raw material

Micro, small and medium-scale textile units in Panipat, the textile cluster of Haryana, are up in arms over the imposition of Value Added Tax.

These units, which make rugs, cotton and woollen durries, druggets and carpets, have already seen their margins squeezed by the escalating cost of power, labour and raw material. They want a roll-back of the tax, which they fear may lead to the closure of many small enterprises, and point out that units making similar products in Gujarat and Rajasthan are tax-exempt.

Birender Rawal, vice president of the Federation of Small Scale Industries of Panipat, said, "There has been no tax on small textile firms since the inception of the Panipat cluster. About two months back there were reports of a 12.5 per cent VAT on us, for which we did not get a notification. We met Haryana Chief Minister Bhupinder Singh Hooda and asked for a complete roll-back, and he asked for time to understand the matter. Now it has been reduced to five per cent. But the question is, when there was no tax, where is the scope to reduce it?"

He added that small textile companies, having investment of up to Rs 1 crore in plant and machinery, are exempt from all taxes. About 80 per cent of units in Panipat are in the cottage, micro, small and medium-scale category. So, all associations in Panipat have united to oppose this decision.

A senior official in the excise and taxation department of Haryana said that the Union government had exempted units that are liable for Additional Excise Duty (AED) from paying local sales tax.

In 2011, units producing sugar, tobacco and textiles, among other goods, were exempted from AED, so they become liable for local sales tax and VAT has also been imposed. VAT has already been imposed on tobacco, and sugar is in the process of being brought into the ambit.

The official added that the exemption from VAT under conditional entries (textiles fall under this category of the VAT Act) is liable for Classified Tax of 12.5 per cent.

"The manufacture of bare textiles is tax-free but the manufacture of value added or made-ups is liable for tax and the government has now kept it at a lower rate of VAT (five to six per cent)," the official said.

Ram Niwas Jindal, a senior member of the Blankets Association of Panipat, said that most entrepreneurs in Panipat cater to the local market. Seeking a tax account number, hiring an advocate and filing a return is both cumbersome and unaffordable.

"We switched from handloom to power looms due to labour shortage. But our scale of operation is low, as we do not have resources and market linkages to increase scale. Handlooms are tax exempt. We graduated from handlooms to powerlooms but our inherent strengths are too small to add capacities. Such decisions of government would lead to closure of several units," he added.

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