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SIMA appeals CM to exempt cotton textiles from VAT
Jul '11
The predominantly cotton based textile industry in Tamil Nadu has been facing a grave crisis for the last four months due to abnormal drop in cotton and yarn prices, sudden glut in the domestic and international market, huge accumulation of yarn stock, closure of dyeing units in all textile clusters including Tirupur due to pollution problem, acute power shortage, etc. The spinning sector which accounts for 47.5% of the spinning capacity, 60% of yarn export of the country, employing over 6 lakh people has incurred over Rs.5,000 crores loss during the last four months.

In order to minimize the losses, the spinning sector across the country has cut the production by 35% from May 24, 2011 onwards and recently hundreds of small and medium mills have stopped production 100%.

The industry has appealed to the Hon'ble Prime Minister to announce a bail out package consisting of 2 years moratorium for repayment of loans, restoration of DEPB and drawback with retrospective effect, 4.5% interest subvention for export packing credit, conversion of CC limits into term loans, special working capital assistance, etc., to avoid NPAs and make the industry to survive in the short run. Under these circumstances, the increase in VAT rates announced by the Government of Tamilnadu has become a last straw on the camel's back.

In a press release issued, Mr J Thulasidharan, Chairman, The Southern India Mills Association (SIMA), has said that the spinning mills in Tamilnadu is already in a disadvantageous position due to the absence of raw material base, incurring Rs.4 to Rs.5 per kg for bringing the cotton from the States like Gujarat, selling over 60% of the yarn in upcountry by spending equal amount for transport, etc. He has stated that the new investment in modernization and green field projects in Tamilnadu have already become dormant due to power shortage and high logistics cost.

He has added that huge spinning capacity is being created in the cotton growing States threatening the very survival of the textile mills in Tamilnadu. Mr.Thulasidharan has also pointed out that the increase in VAT rate on raw cotton from 4% to 5% would discourage any cotton development in the State, as it is expensive for the mills as the CST is only 2%. SIMA chief has further said that 1% Market Committee fee on cotton and cotton waste is also an additional burden to the textile mills in Tamilnadu.

Therefore, SIMA Chairman has appealed to the Hon'ble Chief Minister of Tamil Nadu to exempt or provide optional route (as prevails in the case of central excise) for raw cotton and cotton textiles right from yarn to finished goods from VAT for a period of two years to enable the industry to avoid further closures and regain its competitiveness in the open market.

The Southern India Mills Association (SIMA)

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