A tussle between the government and several corporates running factories in hilly regions has come to an end.
Many companies, including some of the large ones, would now be spared of the allegation of claiming extra benefits from factories in the North East and other states.
Under the law, these units receive budgetary support and can claim refunds of the goods and services tax (GST). This is a continuation of the government’s area-based exemption programme intended to promote industries in some of the remote regions.
Over the past two months, some of the pharmaceutical and other manufacturing companies received notices from the GST authorities stating that they had over-claimed the benefits. The companies were asked to pay back the extra benefits they had received.
However, on Friday, a direction from the Central Board of Indirect Tax and Customs (CBIC), the apex indirect tax authority, to principal chief commissioners and chief commissioners of Chandigarh, Silkim, Kolkata, Guwahati and Meerut, stating that units would be "eligible to claim refunds based on actual value addition subject to verification” brought an end to the dispute, sources told ET.
According to Ashish Karundia, founder of the CA firm Ashish Karundia & Company, “The notices were issued on two main grounds: (a) excessive claims of budgetary support, and (b) claims made for ineligible activities. The clarification issued by CBIC is both timely and beneficial, particularly for those in the industry who have claimed refunds beyond the prescribed rates of value addition. Although the clarification responds to concerns raised by pharmaceutical units, it should be applicable across the industry, whoever has claimed the refunds.”
The bone of contention related to the extent of value addition eligible for tax benefit. Under the earlier pre-GST structure, the excise benefit in the form of tax refund was the lower of the cash component of the excise paid and a certain percentage of the value addition. The extent of value addition was prescribed by the tax department and differed from industry to industry. Under a special rate scheme, refund claims above the prescribed value addition was also allowed subject to verification.
The difference between the industrial units and the tax department arose from the ambiguity in the language of the revised notification that was issued post GST. The department argued that the caps on value addition prevailed and companies have claimed refunds beyond the caps. But the companies disagreed, with some moving the court, on the grounds that there were no rigid caps in the new scheme under which 58% of the cash component of GST could be claimed as refund.
“Also, the (new) scheme applies only to specified goods that are both manufactured and cleared by eligible units. Unlike the previous excise regime, wherein the benefit of exemption was available even to deemed manufacturing units, barring a few exceptions, the GST budgetary support scheme limits the benefits to manufacturing activities only. If the units are engaged in activities that do not qualify as ‘manufacture’ within their natural meaning, such units may be denied the refunds, relying on the wording of the scheme notification. However, given that the budgetary scheme is only a substitute for the erstwhile scheme wherein deemed manufacturing activities were eligible, the denial of refunds may not be justified,” said Karundia.
THE ARITHMETIC
Excise payment was typically split between cash and cenvat credit that was derived from payment of taxes for procurement of inputs.
Say, the extent of value addition pegged by the government is 56%. For an item worth Rs 100 and excise duty of Rs 12.50 (@ 12.5%), the refund claimed was Rs 7 (i.e, 56% of Rs 12.50). Even if the unit had paid Rs 10 as cash and the balance Rs2.50 as credit for the excise duty amount, the refund in this case would not exceed Rs 7.
Under the revised scheme brought in with GST, companies interpreted that 58% or 29% of the quantum of cash amount could be claimed as refund. But according to the tax department, the refund could not exceed 58/29% of the cap (which it insisted continued in the new scheme). This significantly lowered the refund amount as the capped amount was 56% of the GST amount.
HIGHLIGHTS:
Many companies, including some of the large ones, would now be spared of the allegation of claiming extra benefits from factories in the North East and other states.
Under the law, these units receive budgetary support and can claim refunds of the goods and services tax (GST). This is a continuation of the government’s area-based exemption programme intended to promote industries in some of the remote regions.
Over the past two months, some of the pharmaceutical and other manufacturing companies received notices from the GST authorities stating that they had over-claimed the benefits. The companies were asked to pay back the extra benefits they had received.
However, on Friday, a direction from the Central Board of Indirect Tax and Customs (CBIC), the apex indirect tax authority, to principal chief commissioners and chief commissioners of Chandigarh, Silkim, Kolkata, Guwahati and Meerut, stating that units would be "eligible to claim refunds based on actual value addition subject to verification” brought an end to the dispute, sources told ET.
According to Ashish Karundia, founder of the CA firm Ashish Karundia & Company, “The notices were issued on two main grounds: (a) excessive claims of budgetary support, and (b) claims made for ineligible activities. The clarification issued by CBIC is both timely and beneficial, particularly for those in the industry who have claimed refunds beyond the prescribed rates of value addition. Although the clarification responds to concerns raised by pharmaceutical units, it should be applicable across the industry, whoever has claimed the refunds.”
The bone of contention related to the extent of value addition eligible for tax benefit. Under the earlier pre-GST structure, the excise benefit in the form of tax refund was the lower of the cash component of the excise paid and a certain percentage of the value addition. The extent of value addition was prescribed by the tax department and differed from industry to industry. Under a special rate scheme, refund claims above the prescribed value addition was also allowed subject to verification.
The difference between the industrial units and the tax department arose from the ambiguity in the language of the revised notification that was issued post GST. The department argued that the caps on value addition prevailed and companies have claimed refunds beyond the caps. But the companies disagreed, with some moving the court, on the grounds that there were no rigid caps in the new scheme under which 58% of the cash component of GST could be claimed as refund.
“Also, the (new) scheme applies only to specified goods that are both manufactured and cleared by eligible units. Unlike the previous excise regime, wherein the benefit of exemption was available even to deemed manufacturing units, barring a few exceptions, the GST budgetary support scheme limits the benefits to manufacturing activities only. If the units are engaged in activities that do not qualify as ‘manufacture’ within their natural meaning, such units may be denied the refunds, relying on the wording of the scheme notification. However, given that the budgetary scheme is only a substitute for the erstwhile scheme wherein deemed manufacturing activities were eligible, the denial of refunds may not be justified,” said Karundia.
THE ARITHMETIC
Excise payment was typically split between cash and cenvat credit that was derived from payment of taxes for procurement of inputs.
Say, the extent of value addition pegged by the government is 56%. For an item worth Rs 100 and excise duty of Rs 12.50 (@ 12.5%), the refund claimed was Rs 7 (i.e, 56% of Rs 12.50). Even if the unit had paid Rs 10 as cash and the balance Rs2.50 as credit for the excise duty amount, the refund in this case would not exceed Rs 7.
Under the revised scheme brought in with GST, companies interpreted that 58% or 29% of the quantum of cash amount could be claimed as refund. But according to the tax department, the refund could not exceed 58/29% of the cap (which it insisted continued in the new scheme). This significantly lowered the refund amount as the capped amount was 56% of the GST amount.
HIGHLIGHTS:
- Tax benefits are aimed to promote industry in hilly areas
- This was in the form of partial excise relief
- The notification was tweaked post GST
- Dispute arose in the interpretation of the new scheme
