CURRENT ISSUE ABOUT SAREES

NEW DELHI, MARCH 19:

The humble saree, whether it is made of six yards of fabric or undergone a designer makeover with embellishments and embroidery, will be classified as a saree and not a ready-made garment.

Following several queries, the Central Board of Excise and Customs (CBEC) has clarified that sarees, which have undergone further processing such as embroidery, stitching of lace and tikki and stitched with two or more kinds of fabrics, will still be classified as sarees and not ready-made garments in the Central Excise Tariff Act, 1985.

“Even after stitching, embroidery work and fixing of falls, a saree remains fabrics only as no new item emerges having distinct name, character and use. Stitching of two or more different kinds of fabrics also does not take away its classification,” said the CBEC in a recent circular, adding that it has been specifically classified as such under Chapter 50, 52 and 54 of the Central Excise Tariff Act (CETA).

It would not be classified as made-ups under Chapter 63 of the Act.

“Each case may be decided on the basis of facts and where further processing of saree does not change the essential characteristics of the fabric as that of saree, it should continue to be classified as saree,” stressed the CBEC. The question of if and when a saree becomes a ready-made garment has been at the core of a number of tax disputes and has been a matter of uncertainty for wholesale manufacturers as well as exclusive boutiques and designers. Tax experts said the clarification will ensure that sarees continue to enjoy exemption from central excise duty, which is extended to textile products.

Meanwhile, branded ready-made garments and textile products with a retail price of over ₹1,000 attract excise duty at rates of 2 per cent or 12.5 per cent, depending on the use of input tax credit.

‘No duty liability’

“This clarification gives the correct classification of sarees to avoid any dispute. There will be no duty liability,” said VS Datey, Editor, taxman.com.

Rajat Mohan, Director - Indirect taxation, Nangia & Co, said the clarification would reduce litigation.

“Soon all the indirect taxes would be moved in Goods and Services Tax, I hope this kind of litigation or confusion comes to an end,” he added.