The UPA Government during the erstwhile VAT Tax regime had approved for tax exemptions to the suppliers of major FMCG Companies. However, the new Goods and Service Tax does not clarify on the exemptions that were bestowed upon such suppliers. This has brought the suppliers, who were encouraged to invest in the lure of tax exemptions, at loggerheads with the current government at the centre. In order to seek justice and promised concessions, the suppliers have now moved to the Nainital High Court.
The suppliers were promised tax exemptions from the state as well as the central government against the promise of investment in industrially marginal areas like J&K, Uttarakhand, Himachal Pradesh as well as the region of North East. Major FMCG companies were sourcing most of their products from such areas.
As per the Taxation Credit Rules, manufacturers have not been able to claim their input tax credits and set of their current GST Liabilities. The increased Tax burden, as well as the confusion, has prompted suppliers and manufacturers to seek help from the Judiciary. The same grievances have been highlighted in one of the petitions filed in the Uttarakhand High Court Nainital Bench.
According to tax experts, the issue rests on non-availability of credit on capital goods under the GST regime and the Transitional Credit Rules. There are unintentional gaps in the formulation of the framework that facilitates such transitions. In order to prevent huge capital impact on the manufacturers who have invested in such specific area based exempted zones, the government and the GST Council need to appoint a committee that thoroughly identifies, debates and plugs these non-intentional gaps.
