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TAXATION OF FABRIC/TEXTILE, SAREES & DRESS MATERIAL UNDER MVAT ACT 2002

25-Apr-2013

TAXATION OF FABRIC / TEXTILE, (SAREES & DRESS MATERIAL?) UNDER MVAT ACT 2002

Our Government of State of Maharashtra is always restless and uncomfortable to see that some area of the taxation is left untaxed. The Vat taxation on builders and developers is the recent issue all of us are facing. Irrespective, of the fact that the taxation of immovable property is a debatable issue and is pending at the larger bench of Supreme Court. However the State Government is always make us to keep such issues burning all the time. Even than it goes on to collect the disputed taxes.

Likewise, textile or fabric is also an issue in which the State Government had entered to find out a way to tax the different types of textiles and fabrics.

Before going into the deep of the connotation fabric or textile or saree or dress material. Let us first define and discuss the said connotations as per the universally accepted dictionaries……

FABRIC: It is cloth or other material produced by Knitting Weaving or Felting together cotton, nylon, wool, silk, or other threads. Fabrics are used for making things such as curtains and sheets. It also includes the structure of anything; the manner in which parts of a thing are united; workmanship; texture; make; as cloth of a beautiful fabric.

It had also been defined as, cloth of any kind that is woven or knit from Fibres either vegetable or animal; manufactured cloth; or silks or other fabrics.

It had also be defined as “Manufactured assembly of interlacing Fibres, filaments, and/or yarns having (1) substantial surface (planar) area in relation to its thickness, and (2) adequate mechanical strength to give it a cohesive structure. Most fabrics are knitted or woven, but some are produced by non-woven processes such as braiding, felting and twisting. Applied loosely, ‘fabric’ and also includes laces, meshes and nets. See also textile.

In short fabric relates to any type of cloth with any type of process made on it.

TEXTILE: It is a cloth especially a woven and knit cloth. It is a fiber, filament or yarn used in making cloth. Any filament, fiber, or YARN that can be made into fabric or cloth, and the resulting material itself. The word originally referred only to woven fabrics but now includes knitted, bonded, felted, and tufted fabrics as well. The basic raw materials used in textile production are Fibres, either obtained from natural sources (e.g., wool) or produced from chemical substances (e.g., NYLON and POLYESTER). Textiles are used for wearing apparel, household linens and bedding, upholstery, draperies and curtains, wall coverings, rugs and carpets, and bookbinding’s, in addition to being used widely in industry.

It could also be defined as “A type of material composed of natural or synthetic fibers. Types of textiles include animal-based material such as wool or silk, plant-based material such as linen and cotton, and synthetic material such as polyester and rayon. Textiles are often associated with the production of clothing”.

In short textile also relates to any type of cloth with any type of process made on it.

Thus the term fabric and textile are similar in nature and it relates to any type of cloth and its processing.

SAREES have been defined as follows-

A garment consisting of a long cloth wrapped around the body with one end draped over one shoulder or the head, worn by women chiefly in India.

SAREES has also been defined as-

An outer garment worn chiefly by women of India and Pakistan, consisting of a length of lightweight cloth with one end wrapped about the waist to form a skirt and the other draped over the shoulder or covering the head.

A sari or saree is a strip of unstitched cloth, worn by women, ranging from four to nine yards in length that is draped over the body in various styles which is native to the Indian Subcontinent The word sari is derived from Sanskrit ???? sati which means 'strip of cloth and ???? ???? or ???? s??? in Prakrit, and which was corrupted to sari in Hindi. The word 'Sattika' is mentioned as describing women's attire in ancient India in Buddhist Jain literature called Jatakas. This could be equivalent to modern day 'Sari'. The term for female bodice, the choli is derived from another ruling clan from south, the Cholas. Rajatarangini (meaning the 'river of kings'), a tenth century literary work by Kalhana, states that the Choli from the Deccan was introduced under the royal order in Kashmir. The concept of Pallava, the end piece in the sari, originated during the Pallavas period and named after the Pallavas, another ruling clan of Ancient Tamilakam.

It is popular in India, Bangladesh, Pakistan, Nepal, Sri Lanka, Bhutan, Burma, Malaysia, and Singapore. The most common style is for the sari to be wrapped around the waist, with one end then draped over the shoulder, baring the midriff.

The sari is usually worn over a petticoat (called laha?g? or lehenga in the north; langa, pavada, or pavadai in the south; chaniyo, parkar, ghaghra, or ghagaro in the west; and shaya in eastern India), with a blouse known as a choli or ravika forming the upper garment. The blouse has short sleeves and a low neck and is usually cropped at the midriff, and as such is particularly well-suited for wear in the sultry South Asian summers. Cholis may be backless or of a halter neck style. These are usually more dressy, with plenty of embellishments such as mirrors or embroidery, and may be worn on special occasions. Women in the armed forces, when wearing a sari uniform, don a short-sleeved shirt tucked in at the waist. The sari developed as a garment of its own in both South and North India at around the same time, and is in popular culture an epitome of Indian culture. The sari signified the grace of Indian women adequately displaying the curves at the right places

In short a sari is also a fabric or textile either woven knitted, printed or embroidered or other cloth material made for wear particularly for women.

DRESS MATERIAL

DRESS: To dress means-

  • a) To put clothes on; clothe.
  • b) To furnish with clothing.

Material: Material is a word that is used in many different contexts but when used in the world of clothing; it simply refers to the ingredients or the most important ingredient that has gone into making the fabric or the cloth. If you do not know, denim is the name of the fabric that is used to make jeans and jackets for men and women but the fabric is made using cotton as the chief ingredient. This is why when someone asks a salesman about the material, he uses the word cotton whereas refers to the fabric as denim. Dress material is a phrase that is commonly used in lace of fabrics, and it also makes sense as we are talking about a material that goes into making a dress.

Therefore, the dress material can be defined or any material of cloth of any kind suitable to stich or to prepare to put on or to furnish.

Fabric: We use the word fabric when we go to a shop selling cloth that we can purchase and make various items that we require. The word is also used when we order a sofa set of a particular shape and size in a furnishing shop and we are asked to finalize the fabric to cover the sofa. There are many different fabrics in vogue for curtains as well as sofas with leather being the preferred choice as fabric for modern sectional sofas. Similarly, fabrics for skirts and tops for women are soft and lightweight, whereas those meant to be converted into trousers and cargos for men and women tend to be heavier with a fall.

As far as types of fabrics are concerned, there is a huge variety available in the market with Terylene, cotton, silk, satin, denim, corduroy, polyester etc. being the most popular of them.

Fabric refers to products made from fibers through techniques of knitting, weaving and crocheting. Fabric is the term used commonly when talking about the quality, color or texture of clothing. Thus, there is upholstery clothing or fabric for shirting. Dress material is another word used for fabrics these days to refer to different qualities of fabrics available in the market. Fabric is a word that has wider connotations as when we talk about fabricated products or fabric of society. However, all over the world, fabric refers mainly to the cloth that is used for making dresses.

There are subtle differences between textiles and fabrics. A textile is any material that is made of interlacing fabrics. A fabric refers is any material formed through knitting, spreading, weaving, bonding or crocheting that may be used in producing other products such as upholstery fabrics, clothing, etc.

Dressmaking fabric is used to make clothes and is available in different types of fabric based on the desired texture, style and color. Fabric shops usually carry low cost fabric as well as designer brands. People who are looking for dressmaking materials also buy certain types of fabric based on the type of project that they are making.

Fabric: the stuff off the bolt/roll; fiber or other materials woven, knitted, or otherwise manufactured into sheets that can be manipulated to produce various goods.

Textile

The word textile comes from a Latin word texere that means to weave. The word has traditionally meant a woven fabric, and people equate it with cloth too. However, weaving is only one of the techniques used to make textiles as there are also knitting, knotting, and even crocheting. Today textiles are even being made by pressing of fabrics, which is a technique called felt. Fibers are the raw materials used to make textiles. Most of the fibers come from plant sources and are, therefore, natural. Some fibers are manmade in laboratories using chemicals and modern technology. In US, synthetic man-made fibers account for more than 2/3 of those used in the textile industry.

Textiles: the stuff off the bolt or roll, and the products made from it. A more all-encompassing term, includes yarn and yarn products, and anything related to fiber.

What is the difference between Fabric, Textile and Material?

  • Fabric is a word used for textiles that are sold in shops for making various items.
  • Material is sometimes used for fabrics; as when it is referred to as dress material, though technically, material happens to be the chief ingredient that makes up the cloth or textile.
  • Material is the substance that goes into making a fabric such as cotton that is turned into denim fabric.
  • Material is also used to indicate the accessories that a tailor needs to convert a fabric or cloth into apparel.
  • There is always a raw material with which a fabric is made.

By virtue of the Additional Duty of Excise (goods of special importance) Act 1975, the State Government just could not levy vat on fabric or textile, because the tax as per the Additional Duty of Excise (goods of special importance) Act 1957 was lowered to Nil.

However, to bring the particular type of fabric or textile into the vat regime. The Government of Maharashtra issued a notification no. VAT-1510/CR 47/taxation 1 dated 10/03/2010 under the MVAT Act 2002 to amend the MVAT schedules to tax the particular types of fabric or textile. This was the first step when the vat regime was made applicable to the fabric or textile. Thereupon, the State Government of Maharashtra issued various notifications and circulars to amend the MVAT Act and to cover the particular type of fabric or textile to be taxed under the MAVT Act 2002. Now onward also it will be going on and at last all the fabrics or textile will be brought into the tax net.

Under the MAVT Act the fabric or textile have be categorized simultaneously under schedule A & schedule C which are enumerated as below-

Schedule A contains products which are FREE from VAT. Entry No. 45 of this Schedule A evolved as under

S.N. Effective Date ENTRY -45: SCHEDULE A Rate of Tax
1. 1-04.2005 To 31.03.2010 Sugar, fabric and tobacco as described from time to time in column 3 of the First schedule to the Additional Duties of Excise [Goods of Special Importance], Act, 1957. NIL %

Schedule “A”

Entry-45- Sugar and fabric as described from time to time in column 3 of the First schedule to the Additional Duties of Excise [Goods of Special Importance], Act, 1957 (58 of 1957) but excluding those specified in schedule ‘C’. (From 01-04-2010 to Date) Rate of Tax NIL %

Schedule “C”(before amendment)

Entry-101- Varieties of sugar, tobacco, textile and textile articles as may be notified from time to time by the State Government in the Official Gazette.(From 01-04-2005 To 31-03-2010) Rate of Tax 4%.

Schedule “C” (After amendment)

Entry-101

  1. (a)-Fabrics and sugar as defined from time to time, in section 14 of the Central Sales Act, 1956. (01-04-2010 to Date),Rate of Tax 4%
  2. - Varieties of Textile and Textile Articles as may be notified from time to time, by the State Government, in the Official Gazette. (01-04-2010 to Date)Rate of Tax 5%

As mentioned earlier the State Government came out with a notification and removed certain fabrics o textile from the entry no. 45 of the schedule A from the list of declared goods under section 14 of the Central Sales Tax Act 1956. Thereupon some of the fabric or textile has been covered under the schedule entry 101(a) & 101(b) of the schedule C and vat was made applicable.

Subsequently the Central Government made changes in the additional duty of excise (goods of special importance) Act 1957 by introduction of clause 75. However, all the items of textile and fabric mentioned therein were remained untouched. Because of this reason that the fabrics or textile are still free from the tax net of MVAT Act 2002.

present position of taxation of fabric or textile from 1st May 2011 under MVAT Act 2002 is as mentioned herein above.

However, still certain textile or fabrics are taxable as per such entry no. C-101(a) a7 C-101(b) and the tax rate is 5%.

However, till today also the textile or fabric of general category is tax free and fall under the schedule entry no. A-45 of the MVAT Act 2002, because of the following reasons-

  1. The Central Government had also not touched the fabrics or textile although it introduced clause 75 in the Finance Bill 2011.
  2. The entry no. A-45 under MVAT is much inclusive because it concerns with the item no. 12 and 12A of the 1st schedule to the Additional Duty of Excise (goods of special importance) Act 1957 dated 24/12/1957 read with item no. 12, 12A and 12B of the Central Excise and salt Act 1944 dated 24/02/1944.
  3. Certain textile or fabrics are brought into the tax net of vat regime specifically under entry 101(a) of the schedule C as defined in section 14 of the central Sales Tax Act 1956.
  4. Similarly, varieties of textile and textile articles have been brought into the tax net from time to time notified by the State Government under schedule entry 101(b) of the schedule C of the MVAT Act 2002.
  5. The textile or fabrics may be printed, knitted, embroidery or patchwork, or stitched with different threads or undergone with any process as defined in the respective definitions mentioned here in above.
  6. Except notified in schedule entry C-101 no other fabric or textile could be taxable under MVAT Act 2002.

If we take another approach it will also show that the general category of textile and fabric could not be brought under the tax net of without any amendment or notification in the said Act.

If we look into the different commodities worldwide, those have been categorized under HSN code (Harmonized System of Nomenclature). In India also the commodities have been classified with the help of this HSN code system. As per the tariff of the Central Excise Act 1944, all types of textiles and fabrics have been classified under chapter 50 to 63 of section 11 of the relevant Act. The term textile and fabric have been broadly interpreted while categorizing either under HSN code or under excise tariff code.

The MVAT Act 2002 had also been designed about the taxation of different commodities based on HSN code read with the relevant excise tariff code. And therefore, the term textile or fabric should broadly interpreted under the MVAT Act also.

It is pertinent to note that the term textile and fabrics had not been defined under the MVAT Act. It is surprising that the term fabric and textile had been used as same connotation under the MVAT Act. Because under schedule entry A-45 of the MVAT Act, the term fabric is used whereas the same term had been connotates as textile in schedule entry no. C-101 appended to the said Act.

Therefore, the terms fabric or textile will have the same meaning as per universally accepted definitions by different dictionaries worldwide. It had already been discussed here in above first mentioned.

Similarly the dress material and sarees which also could be included under the category of fabric or textile as are included in the same section 11 of excise tariff of textile or textile articles and those are also could be covered under entry no. A-45 of the MVAT Act 2002 with a zero tax rate.

It is therefore, pertinent to note that while deciding about any type of fabric or textile and the effect of the tax element under MVAT Act in each case it should be differentiated. The schedule entries and amendment thereof by virtue of various notifications and trade circulars thereof have also need to be considered before application thereof. Some of the important notifications and trade circulars are enumerated below-

  • VAT-1505/CR-118 Taxation 1 dated 01/06/2005.
  • VAT-1505/CR-120 Taxation 1 dated 01/06/2005.
  • L.A. Bill No. XVII 2011.
  • L.A. Bill No. XI 2013
  • VAT-1512/CR-91(3) Taxation 1 dated 27/08/2012
  • VAT-1513/CR-46(5) Taxation 1 dated 30/03/2013.
  • VAT-1512/CR-91(4) Taxation 1 dated 21/08/2012.
  • Trade Circular No.11 T of 2010 dated 17/03/2010.
  • Trade Circular No. 16 T of 2012 dated 25/09/2012.

In nutshell, the topic of fabric or textile is a debatable issue and at the time of levy of tax, the Supreme Court view, to favor the dealer or assessee must be kept in mind.

As we see, that the State Government of Maharashtra slowly covering all the textile or fabric into the vat regime, a day will come, all the fabrics or textile will be covered under tax net of MVAT Act 2002. Kya Sari, Kya dress material!!!!

Disclaimer: This article has been written for the general interest of our clients and professional colleagues and is subject to change. It is not intended to be exhaustive or a substitute for legal advice. We cannot assume legal liability for any errors or omissions. Specific advice must be sought before taking any action pursuant to this article.

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