Area-based excise breaks in NE, hill States will shrink under GST

Amiti Sen Twesh Mishra New Delhi | Updated on January 12, 2018

Prakash Pant , Finance Minister of Uttarakhand

Refunds limitedto Centre’s share, and to value-added component

Area-based excise exemptions given to the industry by the North-Eastern and hill States, including Uttarakhand, Himachal Pradesh and Jammu and Kashmir, will shrink considerably under the GST regime.

“The government is finalising a mechanism to align the existing exemptions given by North-Eastern and hill States with the GST regime,” a government official told BusinessLine.

“Under the new dispensation, industry in hill States will have to pay GST and then file for refund instead of getting an exemption. Additionally, the refund will be calculated only on the value added by industry and will be restricted to the Centre’s share of the tax,” the official added.

States will also not be allowed to extend the area-based exemptions once the existing schemes expire, points out Uttarakhand Finance Minister Prakash Pant.

“The area-based exemptions specified under the Uttarakhand Industrial Policy, 2010 provided for 100 per cent excise duty exemption for 10 years till 2020. The State cannot extend the exemptions beyond 2020 consequent on the GST rollout,” the Minister said.

There are few prospects of getting a reimbursement of the States’ component of the tax as GST is a destination-based tax and it is not unrealistic to expect States to give refunds to industry in another State. A notification clarifying the details is likely to be put up soon.

It was decided at the GST Council meeting that collections under IGST will be shared in the ratio of 58:42 between the Centre and the States. “The area-based exemptions will be reimbursed to the industries out of the 58 per cent share that accrues to the Centre,” Pant confirmed.

The excise exemption for Jammu and Kashmir and the North-Eastern States is to expire in 2020 and 2017 respectively. This means that in the North-East, those who started producing before March 31 2017 will be eligible for the tax benefit till 2027. All such units will get refunds under the new mechanism being finalised.

While the exemptions for Himachal Pradesh and Uttarakhand expired in 2010, the tax waiver will continue till 2020 in most cases.

Published on June 30, 2017

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