The introduction of Goods and Services Tax (GST) in India led to the discontinuation of area-based exemptions under the Central Excise Act, 1944 (Excise Act) from 1 July 2017 (Exemptions). The Exemptions were available to eligible manufacturing units in Jammu & Kashmir, Uttarakhand, Himachal Pradesh and various states in North East India for a period of 10 years. Due to the curtailment of the Exemptions, units operating in these states, otherwise eligible for benefits for the remaining period were affected.
The Central Government (through the Ministry of Commerce and Industry) issued a notification dated 5 October 2017 outlining a scheme (Scheme) for providing budgetary support to eligible manufacturing units that were earlier availing Exemptions under the Excise Act.
Salient features of the scheme
- The Scheme is applicable to units eligible for benefits prior to 1 July 2017 in terms of the following notifications (Notifications) under the Excise Act:
- The Scheme would be applicable only for the residual period of benefits available to the units under the Notifications, calculated from 1 July 2017.
- The benefits would be limited to 58% of the Central GST and 29% of the Integrated GST paid by the unit after utilization of Input Tax Credit under GST laws.
Utilization of input tax credit under GST laws is mandatory to claim benefits under the Scheme. Units opting to pay GST taxes in cash would be ineligible for benefits to the extent Input Tax Credit was available but not utilized.
As a result, the Central Board of Excise & Customs (CBEC) has now issued a circular dated 27 November 2017 (Circular), detailing the procedural mechanism for availing the budgetary assistance under the Scheme.
Procedure for claiming benefits under the scheme
- Eligible units are required to undertake a one-time registration under the Scheme. Multiple units having the same GST Identification Number (GSTIN) are required to register separately. Each unit would be issued a unique identification number under the Scheme.
- Benefits under the Scheme are to be claimed on quarterly basis through an application for refund to the Assistant or Deputy Commissioner of Central Taxes, within 15 days of the end of the relevant quarter.
- The format of the application for refund has been prescribed under the Circular. The application can be filed only after relevant GST quarterly return has been filed and tax paid thereunder.
- Refunds would be sanctioned after verification by a team constituted by the Department of Industrial Policy & Promotion. The results of the verification would be provided to the Assistant / Deputy Commissioner, prior to sanction of the refund. Where such verification is not carried out, refunds would be granted on provisional basis for a period of 6 months.
- Entities having multiple units within the same GSTIN, of which only one or more (but not all) units are eligible for benefits under the Scheme would be required to submit certification by a Chartered Accountant, evidencing the quantity and value of inputs received by such eligible unit.
- Where a non-eligible unit is supplying inputs to an eligible unit of the same entity, Input Tax Credit attributable to the raw materials used in manufacturing such inputs shall be subtracted from the benefits available under the Scheme. The eligible unit would be required to submit certification from a Chartered Accountant, evidencing the amount of input tax credit availed by the supplying unit for making such supply.
The reintroduction of benefits to eligible units previously operating under the Notifications is a welcome move to safeguard the interests of entrepreneurs who had invested in these locations based on incentives promised by the Central Government. Since the first quarter after introduction of GST is already over, the government has initiated manual processing of registrations and refunds in terms of the above procedure. In the future, it is expected that this process will be moved online for greater convenience and transparency.