Punjab spinning industry pushed in crisis due to difference in VAT rate

Spinning mill owners of Ludhiana demand level playing field with their counterparts in other states as the spinning industry of Punjab is dying and already in huge debts, units are closing down owing to losses on account of lack of orders. Punjab government is held responsible for pushing them in a crisis by not reducing rates of value added tax (VAT) on yarn that they manufacture.

The association of spinning mill owners of the state, Punjab Spinners Association (PSA), has been demanding reduction of VAT from quite some time now. They have met deputy chief minister Sukhbir Badal and the excise and taxation commissioner (ETC) Punjab many a times demanding the same. But this issue has remain unsolved.

A meeting was held to address issues of ailing industry on Saturday chaired by industries minister Madan Mohan Mittal. Industrialists apprised the minister of how 10 spinning mills worth close to Rs 800 crore have already shut down in the state. They alleged that this has happened only due to the huge difference between VAT rates of Punjab and other states.

VAT on yarn in many states is either nil or 2% whereas for manufacturers in Punjab, it is at 6.05%. Due to this difference the cost of production of local manufacturers is higher by almost 6% as compared to the manufacturers of other states. The only solution of this problem is reducing the VAT rate.

Thus the selling price of outstation yarn being less, the garment, knitwear and textile products manufacturers of the state have started preferring it rather than using the costly Punjab-made yarn.

According to Akhil Malhotra, MD Shiva Texfabs, ten mills and 1.5 lakh spindles have already closed down due to huge difference between VAT rates of Punjab and other states.

At the meeting, Sanjiv Garg of Garg Acrylics brought to notice of industries minister the growing problem of influx of yarn made in other states in Punjab. Close to Rs 10,000 crore of yarn has been imported to Punjab last year from states like Uttar Pradesh, Himachal Pradesh, Delhi etc where VAT is nil.

Garg also claimed that if the government decides to cut down VAT rates for their industry, the excise and taxation department would earn extra revenue of Rs 300 crores as department will not have to pay VAT refunds to the garment industry.

Coming down heavily against the government and its policies, various industry representatives present in the meeting accused chief minister Parkash Singh Badal and deputy chief minister Sukhbir Badal of having indifferent attitude towards industrialists, despite being aware of the depleting condition of the industry in the state.

State general secretary of Punjab Pradesh Beopar Mandal, Sunil Mehra urged Mittal to take a decision on VAT rates on the spot, but the latter refused. Mehra also said that the existing industry is on a ventilator and government is busy showering incentives on new investors who are yet to invest. More than 18,000 units have already closed down and 5,000 have been declared NPA by the banks, but the government is doing nothing and has given free hand to its officers, who are harassing industrialists by using tools such as CLU, VAT etc.

There are around 100 large spinning mills in Punjab, out of which 45 belong to Ludhiana businessmen. Each of these mills employs approximately 5,000 to 10,000 workers. While Ludhiana’s Shiva Tex Fab is the largest synthetic yarn producer among these units, Trident, SEL, Vardhman & Nahar are the largest producers of cotton yarn. Owner of one of the mills has disclosed that he has suffered a loss of close to Rs 350 crore just due to this VAT difference and his net worth has vanished.

Others present in this meeting included Shakti Sharma, chairman of Punjab Small Industries and Export Corporation Limited (PSIEC), former health minister Satpal Gosain, Sanjay Longia, Radhe Shyam Ahuja, Vinod Bharti, Pran Bhatia, Gurdev Sharma Debi, Parveen Bansal, Anil Sareen.