Dabur has dragged the central and Uttarakhand governments to court for rejecting tax sops for investment in poorer areas promised under the pre-GST tax regime, joining a growing list of firms miffed at the government for denial of such concessions. 

Dabur availed of benefits such as 10-year tax holiday after investing in Uttarakhand’s backward areas but faced problems after the GST rollout when older taxes were subsumed under the GST umbrella. 

Dabur is one of the first major companies to join the writ petition filed in the Nainital bench of Uttarakhand High Court. But suppliers to some leading consumer goods companies have also complained of discrimination and lack of clarity in GST regulations about the tax benefits. 

Under the previous tax regime, manufacturers investing in backward areas of certain states would get indirect tax exemptions from the state governments – and sometimes from the central government. The idea was to encourage more investments in these poorer regions. India’s top FMCG companies such as Hindustan UnileverNSE 0.64 % and Godrej Consumer have been sourcing most of their products from manufacturers in these areas. Some have also set up plants. Dabur did not respond to an email query sent on Wednesday. 

Tax experts say that transition of credits on capital investments is allowed under GST. But there is no clarity around credit on investments made in industrially marginalised areas. They added that under the earlier tax regime, there was no tax on the products manufactured or output of manufactures as the inputs—capital expenditure or raw materials—were also tax exempt. In most situations, the taxes on outputs were set off against input tax credits.

This could also end up as a flaring point between few state governments and the centre as to how such areas must be treated now. Denial of tax sops or tax holidays could mean that many manufactures may move their facilities to other areas. 

The impact is huge for capital intensive units which had invested in the area-based exempt zones, say people in the know. 

 

Source: Economic Times

 

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