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Maharashtra’s much-debated new industrial policy has not given any relief to the auto industry in the amended value added tax (VAT) set-off scheme. As the government has stuck to the amendments, auto companies will have to make VAT set off claim on net sales basis and not on gross sales basis.
The government has brought the amendments with effect from April 1, 2011, which was opposed by auto industry players including Mahindra & Mahindra (M&M), Bajaj Auto and a couple of others. However, the government has kept the window open for the auto industry pursuing investments accepting the amended VAT set off schemes. On Thursday, Chief Minister Prithviraj Chavan and Industries Minister Narayan Rane will formally release the new industrial policy before the media.
Already, M&M has indicated that it will not carry out the expansion of its existing units in Maharashtra, while the state has lost investments by Tata Motors, Maruti Suzuki and Ford to Gujarat.
A senior minister told Business Standard: “Both Chief Minister Prithviraj Chavan and Deputy Chief Minister Ajit Pawar were opposed to reversal of the amended VAT set off scheme as the state will have to bear the burden of at least Rs 7,000 crore annually.”
The 52 (A) amendment to the Maharashtra VAT Act has prevented companies from claiming higher input tax credit (ITC). Earlier, companies would formally sell their entire production from the manufacturing arm to the marketing and sales arm to claim VAT set-off for sales within Maharashtra. “The marketing arm would then, in effect, bill this to other states across the country. However, under a revised rule, the companies would not be able to claim the VAT set-off on products sold outside the state,” said the minister.
Moreover, the new industrial policy has proposed conversion of special economic zones (SEZs) into industrial townships. Currently, 26,000 hectare of land has been carved out for SEZs, of which 14,000 hectare has been acquired while 12,000 hectare is yet to be acquired. The policy envisages 60 per cent use of the land for industrial purpose, while 30 per cent for residential and 10 per cent for commercial. However, the blanket conversion of these land parcels into industrial townships was opposed by the ruling Congress party’s co-partner the Nationalist Congress Party (NCP) in on Wednesday’s Cabinet.
NCP ministers Chhagan Bhujbal, R R patil, Jayant Patil and Hasan Mushrif argued that of the 14,000 hectare land, a large portion has been acquired jointly by the private sector and state undertakings such as the Maharashtra Industrial Development Corporation and the City and Industrial Development Corporation. They wanted state undertakings’ land be given back to them for residential projects instead of giving it away to developers from the private sector. Ultimately, the chief minister and the industries minister intervened and agreed to decide it on a case-by-case basis.
As reported by Business Standard on December 29, 2012, the state Cabinet on Wednesday approved the new industrial policy, which targets investments worth Rs 5 lakh crore and two million jobs during the next five years. Besides, the policy, which has already been delayed by an year as the 2006 policy, which was to expire in 2011, was extended till last year.
The policy, which focuses on the promotion of micro, small, medium scale (MSME) enterprises in the state, offers 100 per cent rebate VAT to mega projects with an investment of Rs 500 crore and also to MSMEs especially in tribal areas and naxalite-infested districts, 90 per cent in under developed districts such as Chandrapur in Vidarbha, Nandurbar in North Maharashtra and districts from Marathwada region.
Further, industrial projects proposed to be set up in Vidarbha and Marathwada regions will receive waiver in the payment of stamp and registration duty and also in the electricity duty. The government will provide 75 per cent or up to Rs 2 lakh reimbursement of expenses incurred by MSMEs for carrying out electricity and water audits. The government has also proposed rebate Rs 1 per unit or 20 per cent annually in the electricity tariff charged to MSME.