J&K to refund GST to protect tax relief granted to factories

NEWDELHI: The Jammu and Kashmir government has cleared a plan to reimburse the entire state goods and services tax (SGST) and 42% of central GST (CGST) to manufacturers who had enjoyed excise duty relief in the earlier indirect tax regime.

Before the introduction of GST from 1 July, manufacturing units in Jammu and Kashmir, Uttarakhand, Himachal Pradesh and northeastern states enjoyed 10-year excise duty relief either by way of upfront exemption or by way of a refund as the Centre wanted to encourage industrialisation of these states.

The central government on August 16 decided to reimburse 58% of the CGST, which it collects from these units; the remaining 42% is anyway transferred to states under the formula recommended by the 14th Finance Commission for sharing of the divisible pool of central government taxes. The Union cabinet earmarked ₹27,413 crore for such refunds for the period up to March 2027. The Jammu and Kashmir government has now decided to reimburse the entire SGST it collects from manufacturing units and 42% of the CGST proceeds it receives from the centre, a person privy to the development said, on the condition of anonymity.

Experts welcomed the move but added that other hill states and north-eastern states where excise duty exemption was in force should follow suit.

“The J&K budgetary support scheme for exempted units is a welcome development but the process of issuing relevant notifications needs to be expedited,” said M S Mani, partner-GST, Deloitte India.

Abhishek Jain, tax partner, EY India, said the Jammu and Kashmir government’s initiative to refund taxes to eligible businesses in the new regime was laudable. “It would aid in upholding the trust and confidence of companies that had set up units in these regions for tax benefits. The Industry would expect and await similar initiatives by other states like Uttarakhand, Himachal Pradesh and northeast states,” said Jain.