After Assam, GST sops to woo investment set for a comeback in other states

The Assam Industries Scheme, 2017, notified on January 19 this year, allows eligible units reimbursement of state GST after utilisation of the input tax credit of available SGST and integrated GST

A recent notification by the Assam government announcing a scheme for reimbursement of tax paid by state-based industries has been akin to setting the proverbial cat among the pigeons. Tax experts expect the move to trigger a race among other states to offer similar sops to woo investment.

While the goods and services tax (GST) Council has left it to each state to come out with individual schemes for reimbursing industries that enjoyed various area-based exemptions or incentives, the sops by Assam government queers the pitch by extending these sops to new industries and those expanding their existing units. 

The Assam Industries (Tax Reimbursement for Eligible Units) Scheme, 2017,  notified on January 19 this year, allows eligible units reimbursement of state GST (SGST) after utilisation of the input tax credit of available SGST and integrated GST (IGST).

The benefits have been extended to new units and also to those expanding existing units. The sunset period for such tax reimbursement has been set at 15 years for new and expansion units. The monetary ceiling for availing such benefits falls within a range of 100-250 per cent of fixed capital investment, depending on the scale and size of units.

Earlier, the central government in October last year notified a scheme of budgetary support to units located in Jammu & Kashmir, Uttarakhand, Himachal Pradesh, and states in Northeast, including Sikkim. Under the scheme, the Centre agreed to refund 58 per cent of central GST and 29 per cent of IGST, subject to meeting certain conditions.

“It was up to the state governments to provide further budgetary support from their share of the GST revenue. Assam seems to be the first one off the block to offer the same,” said Sujit Ghosh partner and national head, Advaita Legal. 

Tax experts point out that a distinguishing feature of the Assam scheme is non-availability of input tax credit to the suppliers, who purchase goods from the eligible unit and subsequently make an interstate sale.

“Other states are likely to announce their own SGST refund/reimbursement scheme. This will give relief to units that had invested heavily in select states in order to avail the state tax benefits,” said Harpreet Singh, partner-indirect tax, KPMG. 

Welcoming the move, industry players point out that such incentive formed the backbone of the states’ economic development plan. “Various state governments should formulate schemes in such a manner that the incentives assured to the parties as per MoUs are fully honoured. Failure to do so may lead to breach of promise/promissory estoppel,” said Sanjiv Saxena, vice-president (corporate finance), JK Tyre & Industries.

Agrees Amit Rustagi, tax head, Panasonic India, whose group company Anchor has a new plant in Haridwar, Uttarakhand. “State incentives play a key role in attracting investment. On industry recommendations, other states will also consider to offer similar tax sops,” he said.

However, most tax experts felt that the move by the Assam government to extend the benefits to new and expanding units is likely to put additional pressure on other states to offer similar sops. “We expect other states to jump on the bandwagon to retain investments,” said Pune-based GST trainer Pritam Mahure. Revival of incentives may only make GST further complicated, unless these are in line with the GST framework, he added. 

Some states have already started working on similar incentive schemes for industry under the GST regime.  A senior government official from Gujarat said the state was in advanced stages of coming out with a dedicated policy that would look to offer sops for attracting fresh investments. “There is a provision where non-hilly state can offer incentives, provided it is done through a policy and for which budgetary provisions are made,” he said, justifying the move by the state government. Gujarat is likely to announce the policy soon, he added.

A GST Council meeting in September last year had noted that “In case the state or central government decides to continue any existing exemption/incentive/deferral scheme, then it shall be administered by way of a reimbursement mechanism through the budgetary route, the modalities for which shall be worked out by the concerned state/Centre.”

Ghosh, however, felt that the ability of state governments to provide tax incentives stands curtailed after GST. “State governments may focus more on various ease of doing business measures with some amount of state GST-linked incentives as an added sweetener,” he added.

Experts said prima facie, such incentive schemes appear legally sound. However, the possibility of affected parties approaching the jurisdictional high court on grounds of ‘promissory estoppel’ can’t be ruled out, they added.