Readymade garment manufacturers in the small-scale sector have raised a hue and cry at being brought under the excise duty net from the next fiscal, 2003-04.

Hitherto, garment units having a turnover of less than Rs 1 crore (Rs 10 million) were exempt from excise. About 150,000 tiny garment makers in the country will have to shoulder the 10 per cent duty announced in the Union Budget.

While small garment firms are comfortable with value added tax, it is the 'inspector raj,' which may rear its ugly head once the units are brought under excise duty, that they fear.

"Excise officials will make our lives miserable. More often than not the books/ documents of tiny garment makers are not in order owing to low levels of literacy. This fact can be exploited by the revenue authorities," a unit owner said.

On an average about 10 per cent of the garments are returned by the retailers owing to poor sales.

The garment makers dread that delays in refund of excise duty claims on account of return of goods could lead to losses.

In the last couple of weeks garment units at major SSI garment manufacturing centres such as Mumbai, Kolkata, Delhi, Bangalore, Ludhiana, Ahmedabad, Tirupur, Coimbatore, Jabalpur, Jaipur, Solapur, Bellary, Indore have downed their shutters for a day to protest the new levy.

At present, in Maharashtra, tiny garment makers are subject to only a sales tax of 5.4 per cent. But beginning April 1, 2003, they will be subject to a VAT (in place of the sales tax) of 4 per cent and an excise duty of 10 per cent.

Hence the garment maker will end up paying 14 per cent in taxes.

With yearly exports averaging Rs 30,000 crore (Rs 300 billion), the readymade garments sector is the second biggest foreign exchange earner for the country after gems and jewellery.

Nearly 60 per cent of the 250,000-odd garment makers in India fall in the below Rs 1 crore (Rs 10 million) turnover category.

Readymade garment makers were first brought under the excise net in 2001-02 when only branded garment makers were subject to an excise duty of 16 per cent.

In 2002-03, garment manufacturing units, barring those having a turnover of below Rs 1 crore, were subject to an excise of 12 per cent.

Now in 2003-04, the entire readymade garment manufacturing sector will be subject to an excise duty of 10 per cent.

Members of Parliament, including those from the ruling coalition, are championing the SSI units' cause. They have impressed upon the finance minister to continue with the excise exemption for smaller units.