OCTOBER 10, 2017

By G Mohana Rao, Assistant Commissioner (Retd.)

The GST Council had, in its meeting dated 30th September, 2016, taken a decision that there shall be no area-based exemption to units and the existing tax benefits schemes of Centre as well as States shall not continue in GST regime. All such units are located in the States of Jammu &Kashmir, Uttarakhand, Himachal Pradesh and North Eastern States including Sikkim . The existing notifications giving effect to such schemes were rescinded by the CBEC Notification No. 21/2017-Central Excise dated 18th July, 2017. Therefore, the said units shall have to pay GST post July, 2017.

However, the government had promised central excise benefits to such units for ten years. Withdrawing from the promise made the investments of the companies in danger and turning into loss making propositions or at least the profits were likely to spiral downwards. The North East Industrial and Investment Promotion Policy (NEIIPP), 2007 itself was in danger as one of the major benefits of the policy was the excise duty exemptions for ten years. More than 4000 units located in these areas were being affected.

However, there appeared to be a silver lining. The council left it to the discretion of the respective governments to give benefits by way of budgetary supports. The Revenue Secretary in one of the interviews held in June, 2017 had stated that the Centre intended to give back 58% of the Central Tax paid by such units. The cabinet committee on economic affairs in August,2017 approved the budgetary support of Rs.27,413 crores for the said scheme. The DIPP, Ministry of Commerce was mandated to work upon and come out with a scheme to give effect to the proposals.

Now, DIPP has, vide its notification dated 5th October, 2017, brought out the scheme for providing budgetary support to the eligible units in the above mentioned areas. It says that the scheme is being offered as goodwill gesture to the manufacturers. The scheme is limited only in respect of Central tax and the Central component of the integrated tax. The states may have to devise their own budgetary schemes in case they wish to extend any such benefits.

The scheme will be effective w.e.f 1 st July, 2017 and would be operation in respect of a unit for its residual period only. For instance, a unit started commercial production in 2010 and had central excise benefits for ten years up to 2020. So, the scheme will be effective for the residual period of three years i.e. up to 2020, even though the overall scheme is valid up to 2027. Thus, the scheme will fizzle out in stages as and when the unit end their promised period of central excise benefits. However, the full amount of central taxes shall not be refunded. Only 58% of the Central tax or 29% of the integrated tax (i.e. 58% of the central component of the integrated tax) shall be given back. This is in view of the fact that 42% of the central taxes are in any case devolved to the states. Therefore, Centre is parting with its share of revenue. Now, it is states' turn to respond further!!

In case the inputs are procured from a composition dealer, the amount would be proportionately reduced to the extent the inputs are received from the composition dealers.

But, one additional restriction is that the benefit is restricted to the tax paid in cash. Any amount paid through ITC shall not be refunded. Further, a person shall have to first utilise the available credit for payment of tax and use cash to pay only when the available ITC get exhausted !!

The eligible units shall have to make application for the benefit on quarterly basis. The scheme also provides the conditions to be fulfilled, submission of affidavit cum indemnity bond and recovery provisions in case of excess or wrong claims.

( The author is Partner, Elysian Tax Advisors, Mumbai and the views expressed above are strictly personal.)