The Cabinet Committee on Economic Affairs (CCEA) on Wednesday approved a scheme to provide budgetary support of Rs 27,413 crore till March 2027 for refund of the Centre’s share of goods and services tax (GST) receipts to industrial units in three Himalayan and eight northeastern states during the residual period of the area-based tax sops. As many as 4,284 manufacturing units in these states, including several pharmaceutical, automobile and FMCG firms, will benefit from the scheme.
The GST Council had earlier resolved that all investment-linked indirect tax sops will take the form of refunds — rather than exemptions — for their residual periods in the GST regime. It was also decided that the Centre will refund only 58% of the cost of waivers of previous central taxes (like excise duty and countervailing duty) because the 42% of its share of GST is shared with states. This means that the state governments concerned will have to not only bear the cost of the 42% of central taxes’ waivers but also need to take a further hit if they want to retain relief corresponding to the state value-added tax exemptions in the GST regime.
Even though the Centre has now budgeted for maintaining its share of relief till the end of 2026-27, these incentives will practically cease much earlier in most cases. The rush to join the 10-year area-based exemption schemes had waned after 2009-10; therefore, there will be few demands for these sops after 2020/2021, sources said.
The Centre’s estimated revenue forgone to run area-based tax incentives in 2016-17 was Rs 19,336 crore; it had forgone about Rs 22,000 crore in the previous year. “The Government of India was implementing North East Industrial and Investment Promotion Policy (NEIIPP), 2007 for North Eastern States including Sikkim and Package for Special Category States for Jammu & Kashmir, Uttarakhand and Himachal Pradesh to promote industrialisation. One of the benefits of the NEIIPP, 2007 and Package for Special Category States was excise duty exemption for first 10 years after commencement of commercial production,” the government said in a statement after the CCEA meeting.
It added: “Upon repeal of the Central Excise duty laws, the Government has decided to refund the central share of CGST and IGST to the affected eligible industrial units for the residual period in the States of North Eastern region and Himalayan States. DIPP (department of industrial policy and promotion) and will notify the scheme, including detailed operational guidelines for implementation of the scheme within 6 weeks.”