GST Council to discuss scope of budgetary support for units in hilly states

The Goods and Services Tax (GST) Council, in its upcoming meeting, is likely to discuss the scope of the budgetary support policy for the eligible manufacturing units operating in hilly areas, such as Uttarakhand, Himachal Pradesh, and Northeast states.

The 50th GST Council meeting is scheduled to take place on July 11 in New Delhi.

The move is in line with the Supreme Court’s (SC’s) ruling in the Hero MotoCorp tax refund case in September 2022.

The SC had rejected Hero MotoCorp’s claim seeking full budgetary support in lieu of the pre-existing outright excise duty exemption, notified by the central government in 2003, in the pre-GST era.

It, however, suggested states consider a mechanism for reimbursing such units, keeping in mind those employed in such manufacturing units. It also asked companies to approach the GST Council and states with a fresh representation.

With the implementation of GST, various area-based exemption notifications were rescinded with effect from July 1, 2017.

However, the Centre decided to provide budgetary support to existing eligible manufacturing units.

In October 2017, the Centre decided it would reimburse its share of GST — 58 per cent of central GST and 29 per cent of integrated GST (on interstate sales) — for the remaining period. It was left to states to decide on paying the remainder amount as 42 per cent of the taxes devolved on them.

Hero MotoCorp and Sun Pharmaceutical Industries were two companies that had challenged the arrangement as the financial incentive provided under the pre-GST memorandum included a 100 per cent excise duty exemption to new industrial units for 10 years from the date of commencement of commercial production.

“It is essential for all states and the Centre to honour the commitments made to businesses, based on which investments have been made. Any changes in tax policies which impact the commitments made would impact the product pricing and profitability of the impacted businesses and would dampen business sentiment,” said M S Mani, partner, Deloitte India.

Other agenda

The all-powerful Council is also expected to take up several long-pending matters, including taxation issues concerning online gaming and finalising the operational framework of appellate tribunals.

The Council may also clarify whether multi-utility vehicles will be treated the same as sport utility vehicles and subject to a 22 per cent compensation cess if they fulfil four conditions.

The tax treatment of online gaming firms has been pending for some time. The GST Council had tasked a state minister panel headed by Meghalaya Chief Minister Conrad Sangma but could not arrive at a consensus when it submitted the report in December.

Besides, the Council will also clear the operational framework of the much-awaited GST appellate tribunal, which will deal with tax disputes and streamline resolution.

ON THE TABLE

1. Taxation issues of online gaming

2. Operational framework for GST appellate tribunal

3. Clarity on the tax treatment of MUVs and whether it is subject to 22% cess like SUVs

4. Reconstitution of state panel on GST rate rationalisation