MM TAX CLUB

The Union finance ministry has turned down the commerce ministry’s proposal to provide tax incentives to units set up in special economic zones (SEZs) as part of the Development of Enterprises and Services Hub (DESH) Bill, 2022, holding that it would “create havoc” for units outside such zones.

It has been explicitly communicated that they (the commerce department) should do whatever it takes to make the scheme beneficial to encourage these units but tax incentives should be kept out of the scheme. Such concessions under the proposed scheme may help one identified sector, but it will create havoc for the other business units. So it has been suggested that one should not create islands of no taxation within the country,” a senior finance ministry official privy to the development told Business Standard.

First proposed by Finance Minister Nirmala Sitharaman in her FY23 Budget speech in February this year, the DESH Bill aims to replace the existing special economic zone (SEZ) law. “This will cover all large existing and new industrial enclaves to optimally utilise the available infrastructure and enhance competitiveness of exports,” Sitharaman said.

Key tax proposals under the Bill devised by the commerce ministry include allowing SEZ units to sell in the domestic tariff area (an area within the country that falls outside the zones) on payment of duties foregone on raw materials. It also offers a concessional corporate tax rate of 15 per cent for an extended period to greenfield as well as brownfield units in such development hubs. With the revenue department in the finance ministry objecting to the proposed benefits, the government may have to modify the Bill and that can delay the implementation of the proposal of the Bill. According to sources, the Bill is unlikely to be presented in the upcoming Winter Session as the scheme needs to be reworked.

Further explaining the rationale, the official said that if the proposal under the DESH Bill to allow SEZ units to sell within the country is accepted, the country will have one business unit which is in a “DESH area” and is not required to pay taxes, another similar unit in “videsh area” which is required to pay taxes.

List of banks for tax payments available at e-Pay Tax service at e-Filing Portal and OLTAS ePayment of Taxes at Protean (previously NSDL):

Traders of raw cotton in the Khammam cotton market are shell-shocked over 28 of them receiving notices from GST department for payment of ₹33 crore of general sales tax on cotton they had purchased from the market during 2017–18.

Following the notices, traders have stopped lifting raw cotton from farmers demanding resolution of the issue.

A trader clarified: “We have already paid GST on raw cotton lifted from farmers in 2017–18. As we had not been informed by GST officials, we paid GST under the sales head account, instead of purchases account. It is not our mistake. It is the fault of the government. GST officials should show us a way out by making available an adjustment option in payments. Our payment under a different head should not be considered fraud but a mistake,” he underlined.

Incidentally, the notice for payment of `33 crore of general sales tax includes penalty.

Cotton, under headings 5201 and 5203 of GST, falls in five per cent tax slab. But as farmers are not liable to pay tax and are not registered under GST, buyers of raw cotton will be required to pay the tax on reverse charge basis. GST should be paid on purchase of raw cotton from farmers and not its sale to ginning mills and cotton industries, traders contend.

GST officials have issued notices not just in Khammam, but also in Mahbubabad, Warangal and Karimnagar districts. It is estimated that the total amount payable will be around Rs 100 crore in Telangana.

Telangana State Cotton Traders Association vice-president Godavarthi Srinivasa Rao said, “We have already paid GST for the said year. The money has already gone to Central government’s exchequer. It is only that we have paid it under a different head, as GST officials had not educated us properly.”

Traders have given representations to Telangana finance minister T. Harish Rao and Union finance minister Nirmala Sitaraman in this regard. But the issue has not been resolved yet. The case is pending with the Ranga Reddy GST commissioner.

Traders say they will not be lifting cotton from market unless the GST issue is resolved. N Anand, Export Cell in-charge of Khammam Chamber of Commerce, said, “It is unjust on part of GST Council to impose a penalty on the amount already paid. GST may take the amount from our bank accounts on the pending tax. This will affect our payments to be made to farmers,” he stated.