Over 200 units in J&K have received notices and many of them are facing delays in GST refunds.
Taxpayers may move court against the revenue department which sought reversal of transitional credit availed by them on account of cash balance lying in the ledger before Goods and Services Tax (GST) kicked in. This has led to the department blocking GST refund available to manufacturers operating in hilly states, which were given tax sops in the earlier regime under an area-based exemption scheme.
The department has argued that transitioning provision under GST was meant only for excess credit lying with a taxpayer, and it didn’t apply to cash balance in the ledger. “Cash credit cannot be transitioned into GST, only the ITC can be. They can claim refund for the same even now,” finance secretary Hasmukh Adhia told FE.
According to sources, over 200 manufacturing units in Jammu and Kashmir have received these notices and many of them are facing delays in GST refunds. Last year, the GST Council had 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.
The scheme was meant for 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.
“While there is discussion on the refund due to the exporters, there are issues raised even for the units located in the tax preferred zones. There have been instances where the units located in J&K have not even seen a single rupee of refund under the budgetary support scheme. Further, refunds have been denied under the budgetary support scheme in cases of minor issues such as PLA transfer to the TranS1 has been disputed”, said Abhishek A Rastogi, partner at Khaitan & Co said.
Experts say many taxpayers had to opt for transitioning of ledger balance in GST as VAT and excise authorities had rejected refund demands as it would reflect poorly on their revenue targets.
Rajat Mohan, a partner with AMRG & Associates, said that tax authorities under erstwhile regime had a tendency to arm-twist the taxpayers for pre-depositing taxes so as to meet stringent revenue targets, much of which found their way in cash ledgers of the organisation without actually corresponding to a taxable event. This led to inflated ledger balance at the end of FY 17.
“On a policy level, government denying the carry forward of such cash balances in GST regime and coercing the taxpayers to apply for tax refunds under erstwhile regime would result into unease and exploitation,” Rajat Mohan, partner, AMRG & Associates said.