GST: Government Plans Relief For Rail Component Makers Saddl
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bloombergquint.com
GST: Government Plans Relief For
Rail Component Makers Saddled With
Unused Tax Credit
Nikunj Ohri @Nikunj_OhriBookmark
4-5 minutes
Apr 11 2019, 12:19 PMApr 11 2019, 4:54 PMApril 11 2019, 12:19
PMApril 11 2019, 4:54 PM
The government is considering ways to provide relief to the
makers of railway components, according to a senior official, as
such vendors have seen their costs rise after the goods and
services tax was rolled out.
Suppliers of parts to the national transporter pay 18 percent tax
on inputs but the levy on finished goods is 5 percent. This
inverted duty structure has led to accumulation of input tax credit
since they pay a lower output tax. According to Udit Gupta,
partner at law firm Udit Kishan & Associates, the distortion is
leading to accumulation of 12 percent of the turnover as credit.
The government now plans to increase the GST on wagons and
bogie components, among others, to 12 percent from 5 percent,
or refund the credit, the official quoted earlier said—he spoke on
about:reader?url=htips://www:bloombergquint.com/gs/government-
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09/05/2019, 17:GST: Government Plans Relief For Rail Component Makers Saddl about:readerurl=htips://www bloombergquint.com/gs/government-
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the condition of anonymity as no decision has been taken yet.
The inverted duty structure favours imports, hurting local
manufacturing, according to Gupta. The vendors who supply
imported parts pay tax at 5 percent. “For domestic
manufacturers, the real tax burden is over 14 percent, making
them uncompetitive.”
Revenue Loss Fears
The issue was discussed in the GST Council's meeting in July
last year and the Fitment Committee agreed that increasing the
rate to 18 percent will do away with the distortion, the official
said. But there was a concern that since the accumulated credit
was large, it would lead to immediate loss of revenue as railway
parts makers will set it off against their tax liability, he said.
Companies like Texmaco Rail and Engineering Ltd. and Titagarh
Wagons Ltd. have credit over Rs 100 crore each as on February
2018, a second official aware of the development said on the
condition of anonymity. This would have increased further since
then.
Titagarh Wagons is yet to respond to BloombergQuint's emailed
queries, while Texmaco Rail's Chief Financial Officer AK Vijay
didn't reply to text messages. The article will be updated when
they respond.
“If accumulation of credit is not corrected, it will continue to
create a huge cash flow problem for the industry,” said Umesh
Choudhary, chairman of national committee on railways at
(09/05/2019, 175GST: Government Plans Relief For Rail Component Makers Saddl about:readerurl=htips:/www.bloombergquint.com/gs/government-
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industry body Cll.
Notional Income
Indian makers of railway parts also run the risk of getting tax
demands, according to Gupta. As the input-tax credit remains
unused and continues to accumulate, problems in the balance-
sheet arise as the unused credit is an asset that continues to
grow, he said.
This credit is classified as an income under the Income Tax Act,
1961. The manufacturers may be liable to pay tax on this
notional income, Gupta said.
In the pre-GST regime, there was no inverted duty structure
—higher tax on inputs and lower tax on finished goods—and the
problem of accumulated credit did not arise. The average tax rate
on the products was over 11-27 percent.
Loss To Railways
Not only vendors to the railways, the national transporter itself
suffers a loss because it can’t use input tax credit.
The Indian Railways is restricted from using the credit for
payment of tax levied for goods, said Gupta. As a result, it has to
pay GST in cash and its tax credits lapse. “The loss caused to
the railways would amount to around Rs 6,000 crore a year,” he
said.
Krishan Arora, a tax partner at Grant Thornton India LLP, agreed.
The current GST rate structure and provisions seem to be
(09/05/2019, 17:GST: Government Plans Relief For Rail Component Makers Saddl about:reader turlmhips:/iwwvs bloombergquint.com/gst/government
adversely affecting the railways as it’s unable to fully utilise input
credit or claim refund for accumulated credit due to the inverted
duty structure. “Since this significantly impacts their overall
working capital and operational costs, the government should
consider doing away with the inverted duty structure or allow
refund of such accumulated credit.”
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