MARCH 01, 2019

By R Sridhar

WHEN GST was implemented on 1, July 2017, a worry as regards the State Incentives which were linked to VAT, was the status of the unexpired incentives under GST. The States generally under erstwhile regime linked incentives both under greenfield investments and brownfield expansions etc. to a percentage VAT tax paid subject to overall limit of investments in P&M and a time period. The problem essentially was one of continuity as many States made announcements only post GST of the finer details. The State of Madhya Pradesh issued a G.O on 22 June 2018 and an analysis of the same is elucidated below.

The Scheme of Grandfathering unexpired incentives

Categorization and bucketing

The GO assured the investors incentives for the unexpired incentive period keeping the investment numbers constant. Secondly the GO divides the units into 4 buckets.

A -Units whose commercial production started before 31 March 2014

B - Units whose commercial production began during FY 2014 -15

C- Units whose commercial production commenced during FY 2015 -16

D -Units whose commercial production started during 1 April 2016 to 30 June 2017

E -Units whose Commercial production began from 1 July 2017 to 31 March 2018 or likely to commence during 2018-19.

Tax Reimbursement Assistance Amount

The GO defines the assistance amount as a product of 3 factors such as Base Amount, Tax Calculators and Sales Calculator. The base amount calculations (to illustrate for buckets A, B, C)

A - The average amount of VAT/CST Reimbursement assistance available to such units during the year 2014-15, 2015-16 and 2016-17 will be considered as the Base Amount available for assistance for the year 2017-18 and the forthcoming remaining years.

B - Base Amount for the year 2017-18 and the forthcoming remaining years will be equal to average of VAT/CST Reimbursement assistance available to such units during the year 2015-16 and 2016-17

C - For those units where commercial production started from 1 st April 2015 to 31st March 2016, assistance amount payable/approved for the year 2016-17 will be considered as Base Amount for assistance for the year 2017-18 and the forthcoming remaining years.

As regards D and E an option has also been given to choose between the above G.O or opt for the new tax de-linked scheme announced in October of 2017. With regard to Tax Calculators there is an averaging effect of tax rate of the new regime over the erstwhile regime. While calculating impact of Sales Calculator the sale of the year of reckoning is compared with the average sales and multiple >1 is not prohibited unlike the Tax Calculator wherein the multiple cannot exceed 1. The impact of Stock Transfers are excluded from the calculation. In addition an undertaking is required to be filed that having accepted the offer on the basis as in the GO, the assesse undertakes not to challenge the process in a Court.

Alternate View Points, Clarifications

Firstly, in case the unit is not able to recoup the unexpired incentive in the balance time period there could be a possible unutilized amount. Secondly, the GO does not address in what time frame will the refunds happen from Department of Industries to the assesses after they exercise the option to fall under the GO. Thirdly, it does not address the situation of products falling under more than one tax category under the erstwhile tax regime.

It remains to be clarified as to how, the recoveries on account of disputes on exemption under old regime will be effected from sums payable under the grandfathering scheme. In case of E, what are the effective steps required to be proved before GST implementation date so that the full term of incentives are granted as per Application filed before designated authority.

In an era, wherein certain industries exit after availing incentives, it is suggested that a clarification should be given in public domain on the exit conditions after availing the benefits. Finally, the impact of these refunds on anti-profiteering provisions should also be clarified.

It is indeed pertinent that post the Industrial Policy amendment of 2017 October, in view of specific power of the Government of MP to declare an Industry under the negative list under Schedule IV vide Entry 19, any Industry would opine that a Damocles sword hangs over its head. This needs to be addressed through clarifications.

Conclusion

In any Fiscal scheme that provides for continuity of incentives, the contrarian view is possible, but the fervour of the MP Government to transparently state its intention, providing for continuity makes this scheme more than a grandfathered approach which deserves adulation and praise.

(The author is Sr. VP, Hindustan Coca Cola and the views expressed are strictly personal)