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Return my money with 12% annual interest: Taxman tell North East companies after favourable SC order

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A favourable Supreme Court interim order and an unfavourable final order by the apex court in a tax dispute is set to create cash flow issues for hundreds of companies that have set up units in the North East India to take advantage of tax benefits

Several companies in the North East that had received some money following an interim Supreme Court order are now required not just to return the money but also cough up 76% additional interest on that.

Dispute over whether certain tax benefits were applicable under the Goods and Services Tax (GST) regime for North Eastern states had reached the Supreme Court.

The Supreme Court in 2015 through an interim order had asked the tax department to release money to the companies.

However, the final Supreme Court order vindicated the tax department’s stand. The tax department has now started issuing notices to companies to return the money—but with a 12% annual interest on that.

“The 12% interest rate, aggregating to about 72% for the entire relevant period, will be a big burden on the businesses who have just come out of the pandemic slowdown”, said Abhishek A Rastogi, Partner at Khaitan & Co.

The tax notices also ask the companies to cough up the amount within a week.

Several companies, including some of the largest consumer goods and manufacturing ones have units in the North East.

Under the erstwhile tax regime, the government had initiated certain benefits if companies were to invest and set up manufacturing units in some areas. As per the government schemes companies were either taxed at a lower rate or were refunded a certain amount after they paid taxes.

These area-based incentives or budgetary support schemes got complicated when GST was rolled over.

This was mainly because GST is essentially one tax and some of the state based indirect taxes such as Value Added Tax (VAT) were subsumed under one umbrella.

The dispute arose as to what would be the precise quantum of refunds under the GST regime. Tax department and the companies deferred on the quantum. The dispute first reached Guwahati High Court, which ruled in companies’ favour. The tax department then approached the Supreme Court, which first passed the interim order.

For the companies coughing up the amount now has become a cash flow problem say industry trackers. Though not many would have a choice but to return the money, along with the interest, say tax experts.

“Going forward, statute must be amended to reduce the rate of interest recovered from the businesses pursuant to the court order and the rate must be closer to the rate which the taxpayer gets on delayed refunds because this is not the case where there has been tax default”, said Rastogi.



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