Excise sops on expansion in HP, Uttarakhand to stay

NEW DELHI: Manufacturers in Himachal Pradesh and Uttarakhand will get excise duty exemptions on even the fresh investment they make to expand capacity or launch a new line of business from their existing plants.

The decision will benefit hundreds of companies such as motorcycle manufacturer Hero Honda and consumer products makers Hindustan Unilever and Dabur.

A circular issued by the Central Board of Excise and Customs (CBEC) says companies running factories in these states will enjoy the excise rebate on addition or modification of their plant or if they produce new products from these plants even though the 100% excise duty holiday had lapsed on March 31.

It added the period of exemption would, however, remain 10 years and not get extended on account of modifications or additions.

The circular follows a finance ministry directive to CBEC to clear the air over the scheme as companies were under the impression that they would not get excise rebate if they made fresh investments in their plants after March 31. This had discouraged them to expand their operations in the two states.

Companies in business in the two states can manufacture new products by enhancing their manufacturing capacities now, said Pratik Jain, a partner at KPMG.

An extreme example would be if a car manufacturer enjoying excise rebate decides to produce food products, he can claim the rebate on new products as well after March 31.

The government had launched the tax rebate scheme to encourage industrial development of the two hill states.

"This issue has been a matter of varied interpretation and disputes, which should now be put to rest and spur investments in these states," Jain added.

States like Punjab had protested the scheme arguing that industrial units were shifting to the two states to enjoy the excise rebate. Analysts say the relaxation in rules is sure to cause more heartburn.