Companies struggling for IGST refunds in hill states, especially J&K

In fact, 29% refunds are also not available in some cases owing to procedural issues

Companies are struggling to get refunds under the goods and services tax (GST) system in hilly areas, more so in Jammu and Kashmir.

While they are getting only 29 per cent of the integrated GST (IGST) on inter-state movements of goods as refund, unlike 100 per cent of the excise tax in the pre-GST regime in hilly areas, the issue has become more contentious in Jammu and Kashmir because the units there were exempt from the service tax on inputs too.

Also, procedural issues are not letting them get even 29 per cent refunds in J&K and other hilly states, say those who have units there. 

This will take a toll on employment generation in these states, they say.

A senior official at Jindal Drugs Ltd, which has units in J&K, said the state was tax-neutral in the pre-GST regime with no service tax and central excise duty. "The GST is now being used to take away the tax-neutral status with one stroke, rendering the businesses there unviable with the introduction of the service tax and reducing GST refund to only 29 per cent," he said. 

A case in this respect is also pending in the J&K high court.

Abhishek Rastogi, counsel for petitioners, said Jammu and Kashmir had come up with its industrial policy in 2002, promising 100 per cent refund of the excise duty paid for 10 years to companies setting up manufacturing units in the state. This was reduced to 75 per cent, against which petitions were filed in courts. The case is separately pending in the Supreme Court. However, under the GST regime, refunds for inter-state movements of goods were reduced to 29 per cent of the IGST paid.

In fact, 29 per cent refunds are also not available in some cases owing to procedural issues.

The authorities are linking the issue with personal ledger accounts (PLA). In the earlier tax regime, companies gave the cash portion of the taxes through these. In the new regime, they have to pay through the TRANS form. Since there was a systemic problem in linking PLAs with the TRANS cash form, the companies are linking it to the TRANS credit form.

The state tax authorities have objected to this. They are asking companies to return the PLA balance and other cash benefits.

He said many units would become unviable if immediate relief was not granted. Rastogi said the GST Council had written to the state authorities that refunds should be granted but this was not taking place.

The J&K high court will hear the matter on November 22. The order will have its repercussions on other hilly states such as Himachal Pradesh, Uttarakhand and Sikkim as well as northeastern states, which did not have the central excise duty.

There is another issue under the GST regime for some companies. This relates to manufacturing outsourcing.

Mohan Nusetti, vice-president, indirect tax, Lupin Ltd, said exemption under the erstwhile excise regime applied to manufacturers who were liable to pay the duty. Under the GST, the obligation to discharge tax may not necessarily be with the manufacturer, say, in the case of loan licensee arrangements.

He said logically the exemption should extend to people who pay tax in the state and not restrict to manufacturers alone.