The Maharashtra Government will not be revoking an amendment in the Maharashtra Value Added Tax Act preventing companies having mega units from accelerating their recovery of investments, said Dr K Shivaji, Acting Industries Secretary of the State Government.
The March amendment has been a contentious issue with the industry, with large automobile and engineering companies threatening to leave the State.
Dr Shivaji said that the 52(A) amendment to the Maharashtra VAT Act has prevented companies from claiming higher Input Tax Credit (ITC). The cancellation of the amendment is not possible since it has already been enacted. However, there could be a possibility of giving some “other form of incentives” to these companies, he said.
ITC is a refund given by the VAT Department to the companies upon payment of VAT. It is a form of incentive for setting up industrial units in the state.
Dr Shivaji said that before the amendment came into force, companies were setting up subsidiary marketing companies, which helped them accelerate their ITC claim. The money, which was to be claimed in 20 years, could be taken back in five years due to the formation of the subsidiary, he said.
“If their (companies) claims were true then, how it is possible that Maharashtra continues to attract large investments? In the last eight months, more than 50 mega projects with investment of over Rs 54,000 crore have come to the state,” Dr Shivaji said.
An official in the VAT Department said that in fiscal 2009-10, the ITC paid by the Maharashtra Government to the companies was Rs 400 crore.
However, due to the formation of subsidiary marketing companies by corporations, the amount went up to Rs 2,500 crore in 2010-11. The amendment is not impacting all the companies that have set up the units but only a few that have marketing arms, the official added.
‘Sabre rattling'
A senior Maharashtra Government official said that threats by large companies of pulling the plug on investments in the State, “is nothing but empty sabre rattling. Their claims of business being hurt due to the amendment are unfounded.”
Under the package scheme of incentives, mega manufacturing units in the State get incentive in the form of lower payable VAT.
The incentives never exceed the actual amount invested by the company for setting up the unit.
Intra-state sales
For intra-state sales of finished goods, the lower payable VAT is arrived at by deducting 12.5 per cent standard-payable VAT on finished goods from the other taxes paid by the company while procuring raw materials.
For inter-state sales of finished goods, only 2 per cent Central Sales Tax is applicable.
In practice, companies pay their VAT at 12.5 per cent but get a percentage of the money back from the state VAT Department in the form of ITC.
The State Government has appointed consulting firm Ernst and Young to consider all aspects of the amendment and advise the government on the viability of alternative incentives to these companies, Dr Shivaji said.