A new GST reimbursement scheme has left Dabur, Godrej and many other FMCG and pharmaceutical companies worried about their manufacturing operations in Himachal Pradesh, Uttarakhand and some northeastern states where they used to enjoy excise duty exemptions. 

Apprehension has set in after the department of industrial policy and promotion (DIPP) last week unveiled guidelines of a scheme that replaces the erstwhile excise-free zones, offering 58% central GST reimbursement. 

Companies that outsource manufacturing to job workers in these states have petitioned the government saying the new restrictions may render their businesses unviable. They are also exploring legal options. 

Many pharma companies including Cipla, Dr Reddy’s, Johnson & Johnson and Wockhardt have plants in excise duty-free zones in Himachal Pradesh. TVS MotorBSE 0.38 %, Lloyd Electric, TAFE and some other automobile component makers too have units in the hill state. 

The new scheme, coupled with the fact that typically, the CGST rate is less than excise duty rate, means the absolute quantum of benefit gets reduced for the companies, say industry experts. 

Industry fears that the new guidelines would only cover the manufacturing cost of a product at the job work level. In the previous tax regime, companies used to get excise benefits on the maximum retail price of the products. 

Source: Economic Times

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