A disconnect between promises and delivery on rewarding exporters?

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: of the view that the entire amount is liable to be taxed. How refund of indirect taxes on inputs for exports could be classified as income remains an open question.

We are manufacturers of electronic components used in manufacturing of television sets. We are planning expansion and are interested in setting up a new plant. Many states are offering incentives, such as Excise and Sales Tax exemptions. We are thinking of Baddi (Himachal) or Hardwar (Uttaranchal) or Silwasa. We would be grateful if you could suggest the best location.
—RS Verma, El Vee Electronics, Noida

The way Indian reforms in the indirect taxes are heading, it would not be wise for you to locate your new plant based on exemptions of indirect taxes alone. There should be a compelling business case, other than such incentives. Lets first take the excise exemption. If a state offers you exemption of excise on your final product, this means you would not able to claim credit of excise paid on your inputs.

Second, the coverage of service tax will be increasingly widened, unless you are part of the Cenvat chain, you would not be able to claim credit of service tax either. The combined incidence of excise and service tax would be substantial and would be absorbed in your cost, as your buyer would not be able to claim credit of excise. The Cenvat chain would break.

With state Vat replacing Sales Tax in most states, the same would happen in case of sales tax exemption. The cost for your buyer will be higher because he would not be able to claim credit of Vat paid on inputs. The Vat chain would also break.