Row over sales tax sops under VAT

NEW DELHI: Cement makers are divided over the status of sales tax exemption granted to new cement plants under the VAT regime. A total of about 25m tonnes of new cement capacity, created during last 5-6 years, is under sales tax exemption.
At an average retail price of around Rs 2,000 per tonne or Rs 100 per bag and sales tax @15% in majority of the states, total sales tax exemption given to the cement sector works out at Rs 750 crore per annum.
While a section of the industry, including L&T, India Cements and Zuari Cements, have gone for deferral of sales tax for 14 years, other large players like Gujarat Ambuja, ACC and Grasim are insisting on continuation of the exemption system. According to industry sources, hectic lobbying is underway by these large players to keep the exemption system intact. Says a senior official in Zuari Cement: ``The continuation of the concession system goes against the spirit of VAT and will distort the cement market in the country. The issue should be settled at the earliest.’’
The proponents of concession on other hand raises the question of legality. Says Gujarat Ambuja spokesperson: ``It’s a constitutional matter. A government can’t go back on its promises.’’ Gujarat Ambuja is one of the biggest beneficiaries of the exemption system.
The empowered committee of state finance ministers on VAT has recommended tax remission model and tax deferral to accommodate sales tax exemptions under the VAT regime. Under the remission model, units with exemption would collect sales tax and keep it with themselves till the expiry of the exemption period. This model is being implemented by West Bengal.
Under the deferral system, the sales tax liability of units is deferred for 14 years from the day VAT is implemented. In the intervening period, units would collect taxes and are free to use the receipts as they find fit. The only condition being receipts would have to be shown as long-term interest-free liability in their books.
According to analysts, though all the three modes would have similar impact on the company’s balance sheet, concession is favoured since its makes the product of the unit cheaper than those from other units.
The final status of the sales tax exemption would be decided in the next meeting of empowered committee.