Dabur sues government for denied tax sops under GST

MUMBAI: Central and Uttarakhand government have been dragged to court by Dabur for rejecting tax sops for investment in poorer areas promised under the pre-GST tax regime, joining a growing list of firms miffed at the government for denial of such concessions.

Benefits such as 10-year tax holiday have been availed by Dabura after investing in Uttarakhand's backward areas but the firm has faced problems after the older taxes were subsumed under the GST umbrella after the GST rollout.

Leading consumer goods companies' suppliers have complained of discrimination and lack of clarity in GST regulations about the tax benefits. While Dabur is one of the first major companies to join the writ petition filed in the Nainital bench of Uttarakhand High Court.

In certain states, manufacturers investing in backward areas would get indirect tax exemptions from the state governments and sometimes from the central government under the previous tax regime.

According to a news report in Economic Times, tax experts say that transition of credits on capital investments is allowed under GST but there is no clarity around credit on investments made in industrially marginalized areas. They further added that under the earlier tax regime, there was no tax on the products manufactured or output of manufactures as the inputs—capital expenditure or raw materials—were also tax exempt. In most situations, the taxes on outputs were set off against input tax credits.

Abhishek A Rastogi, partner, Khaitan & Co told ET, "Since there was a 10-year tax holiday and no taxes on output under the earlier tax regime, there was no question of input credit on capital goods earlier."

According to the industry trackers, under GST cost of capital expenditure incurred cannot be set off against the GST paid by the companies and this is creating problems for these companies.

"It is legitimate to expect the proportional credit on capital goods transitioned as the credit was allowed not only in the earlier regime but also in the present regime," added Rastogi who is the arguing for one of the petitioners in the matter.

Denial of tax sops or tax holidays could mean that many manufacturers may move their facilities to other areas.