06.07.2023: GST Council to discuss budgetary support to hill, north-eastern states, cess levy on MUVs

The contours of the budgetary support scheme which came in lieu of earlier excise duty exemption schemes for industrial units located in the Himalayan and north-eastern states are likely to be discussed in the upcoming 50th Goods and Services Tax (GST) Council meeting to be held on July 11, with a focus on the reimbursement mechanism by states for such units. In addition, the Council is also expected to discuss ministerial report on online gaming, outline the details for operationalising the appellate tribunal mechanism and clarify on the definition of multi-utility vehicles (MUVs), putting them at par with sports utility vehicles (SUVs) for similar tax treatment with compensation cess of 22 per cent, officials said.

Area-based exemptions for excise for eligible manufacturing units in the Himalayan and north-eastern regions were removed under the GST regime, which got rolled out from July 1, 2017. In the second GST Council meeting held in September 2016, it was discussed that all entities exempted from payment of indirect tax would pay tax in the GST regime and in case the state or central government decides to continue any existing exemption/incentive/deferral scheme, then it would be by way of a reimbursement mechanism through the budgetary route.

Industrial units located in the Himalayan and north-eastern states have been seeking implementation of a mechanism for reimbursement of the balance 42 per cent of the Central Goods and Services Tax (CGST) and 21 per cent of the Integrated Goods and Services Tax (IGST) paid by them in cash along with appropriate interest in addition to 58 per cent of net CGST and 29 per cent IGST being reimbursed by the central government under the budgetary support scheme brought out by Department for Promotion of Industry and Internal Trade (DPIIT) in October 2017.

As of now, among the 11 hilly and north-eastern states, only Jammu & Kashmir is reimbursing balance 42 per cent CGST, while none of the states are reimbursing the balance 21 per cent IGST.

Some companies including HeroMotoCorp and Sun Pharma Laboratories Ltd had approached courts earlier against reduction of the benefit of 100 per cent exemption from excise duty granted earlier under the area-based exemption scheme. In October 2022, the Supreme Court while holding that Hero MotoCorp’s claim based on promissory estoppel was without substance, had taken note of lakhs of persons being employed in such industries and had taken the view that states should consider to reimburse such units out of the share of revenue received by them through devolution from the central government and had asked the GST Council to consider the issue.

The GST Council is learnt to have received various representations for a mechanism for the state governments to reimburse balance 42 per cent of the CGST and 21 per cent of IGST paid by them to make the projects located in Himalayan and north-eastern states economically viable. States are learnt to have communicated that they are not in a position to reimburse the remaining portion of CGST, with Uttarakhand and Meghalaya saying that GST revenue growth was not satisfactory to provide additional incentives to these units.

The Council is also expected to discuss the second report of the ministerial panel on online gaming to draw a consensus on whether the tax would be levied on full value of bets placed or gross gaming revenue. Earlier, the Group of Ministers was of the same view of levying a uniform 28 per cent rate on online gaming, casinos and horse racing. Later when the decision was put up for review, the GoM could not reach consensus on whether the tax levy should be on full face value of bets or GGR and hence, the final decision would be taken by the GST Council.

Source: The Indian Express

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