Uttarakhand, Himachal Pradesh Manufacturing Units to Get Tax Breaks Even if Company is Sold: CBEC
The finance ministry has said manufacturing units in Himachal Pradesh and Uttarakhand will continue to enjoy tax concessions even if its ownership changes, enabling mergers and acquisitions in such undertakings.
Besides, the units will retain tax benefits on expansion or relocation within the exempted area, according to a directive issued by the Central Board of Excise and Customs (CBEC).
"In case of change in the ownership of an already existing unit, (tax) benefits would pass on to the new owner as the exemption is extended to the 'unit' and not on the basis of 'ownership'," the CBEC said. The ministry's circular followed queries by companies seeking clarifications on the status of tax concessions after a change in ownership.
Companies in the two northern hill states are eligible for a 10-year tax holiday if they have commenced operations before March 2010. A host of firms such as Dabur, Hindustan Unilever, Ranbaxy, Nestle, Glaxo and many FMCG and pharmaceutical companies have set up units to take benefit of 100% excise duty exemption available in these states.
"Though there is no restriction in law, there was an element of uncertainty on whether these units could enjoy excise duty exemption as some of them had received show-cause notices after their takeover," said Pratik Jain, partner, KPMG. He said the fresh circular clears this confusion and will pave the way for mergers and acquisitions there.
The CBEC has said companies can ramp up capacity of these units by setting up plants on freshly acquired land or even relocate within the specified area without losing their tax benefit.
"There was an apprehension that the benefit could not be availed if fresh land was acquired to set up additional capacity," Jain said. The government had launched the tax rebate scheme to encourage industrial development in the two hill states but it was allowed to lapse in 2010.
Economic Times, New Delhi, 20-02-2012
Circular No. 960/03/2012-CX
F. No. 110/03 /2011-CX-3
Government of India
Ministry of Finance
Department of Revenue
Central Board of Excise & Customs
New Delhi, the 17th February, 2012
All Chief Commissioners of Central Excise & Customs,
All Chief Commissioners of Central Excise,
All Directors Generals
Sub : Clarification regarding admissibility of exemption under area-based Notifications No. 49/2003-CE and 50/2003-CE, both dated 10.06.2003 in specific situations – reg.
Your kind attention is invited to Notifications No. 49/2003-CE and 50/2003-CE, both dated 10.06.2003 which provide full exemption from excise duties to specified goods cleared from industrial units in the states of Uttaranchal and Himachal Pradesh for a period of ten years from the date of commencement of commercial production. The exemption is available to new units set up or existing units which have undergone substantial expansion in terms of the said Notifications and commence commercial production before the cut-off date, that is, on or before 31.3.2010
2. References have been received from field formations as well as from trade and industry seeking clarification regarding admissibility of benefit under area-based exemption Notifications No. 49/2003-CE and 50/2003-CE, both dated 10.06.2003, in the following situations:
a. When there is a change in the ownership of a Unit already availing of the benefit of an area-based exemption Notification;
b. When a Unit availing of the exemption physically shifts to a new location within the areas specified in the exemption Notification; and
c. When a Unit availing of the exemption under an area-based Notification expands by acquiring a plot of land adjacent to its existing premises and installing new plant/machinery on such land.
3. The above issues have been examined by the Board. As the exemption is extended to a ‘Unit’, any change in its ownership would not jeopardize the admissibility of exemption for the remaining part of the ten year exemption period subject to the condition that the new owner exercises his option in writing to avail of the benefit of the exemption Notification before effecting the first clearance.
4. So far as the case of an eligible unit physically shifting to a new location is concerned, it is clarified that the exemption in such cases should be available for the residual period of exemption. However, the cases of relocated units should be examined on a case – to- case basis and the exemption should be allowed to continue subject to certain safeguards like establishing through proper inventorisation and certification by a Chartered Engineer that the unit has relocated its plant, machinery, equipment, manpower etc. and relocation to areas specified in the relevant Notification only and not across States and/or Notifications.
5. In the context of expansion of a Unit by acquiring an adjacent plot of land and installing new plant and machinery on such land, attention is invited to Board’s Circular No. 939/29/2010-CX dated 22.12.2010 wherein it was, interalia, clarified that any growth in the production/output of a unit by installing fresh plant and machinery would be eligible for exemption under these area-based Notifications. The situation of expansion of an eligible unit by acquiring an adjacent plot of land and installing new plant and machinery
on such land, is akin to expansion by way of installing new plant and machinery inside the existing plot/premises. It is, therefore, clarified that in such cases, the exemption should continue to be available for the residual period of exemption.
6. Trade, industry and field formations may be suitably informed.
7. Hindi version will follow.
Under Secretary (CX-3)