Page 208 - GSTL_2nd April 2020_Vol 35_Part 1

110 GST LAW TIMES [ Vol. 35
benefits under the policies that are no longer in vogue. The comprehensive pic-
ture can be grasped only if an exercise is undertaken of the evaluation of the tax-
es post the GST. The new law entitles the Petitioner the input tax credit of all the
taxes and cross utilization thereof which was not the position back in the day.
23. In India, where taxation has been subject to both State and Central
legislations, the exemptions were also granted under one or several taxation
laws, both by the State and the Central Government. Exemption in simple terms
is an act of providing immunity from liability to pay tax. Anything that is “ex-
empt under tax law” means that the entity is not to be subject to tax by the Gov-
ernment authorities. The purpose for granting these exemptions was often to
achieve the objective of attracting investments, or promoting trade and industry.
In the instant case, we are concerned with area-based exemptions which were
extended to the industries under the scheme of the Central Governments. Para
3.1 of the Office Memorandum/policy, extracted above, does indeed indicate the
intention to grant benefit to new industrial units such as that of the petitioner.
This was implemented through the exemption notification issued by the Central
Government allowing 100% excise duty exemption. This position continued till
the introduction of the Constitution 101st Amendment Act, 2016 which sought to
fundamentally and radically change the indirect tax regime in India. In fact, it
was way back in 2009 when the Task Force on GST deliberated on the future of
area-based exemptions under GST and recommended that area based exemp-
tions should not continue under GST. The relevant extract of the Report of the
Task Force on GST dated 15th December, 2009 is reproduced hereinbelow :
“q. Area-Based Exemptions
2.68. Under the Cenvat, industries set up in the North East, Jammu &
Kashmir, Sikkim, Uttaranchal and Himachal Pradesh (hereinafter referred
to as ‘specified areas ) enjoy exemption from payment of Cenvat. This area
based exemption creates economic distortions and affect economic viability of units
located in non-exempt areas. They are difficult to administer and prone to misuse.
Moreover, durability of investment attracted by such measures beyond the exemp-
tion period is also doubtful.
2.69. The Prime Minister’s Economic Advisory Council, which had recent-
ly examined the issue of area based exemption in the context of its impact
on pharmaceutical industry, has observed that :-
“The policy of granting area based exemptions was ill advised. It
created a host of distortions. We have to design and introduce sub-
terfuges to neutralize those distortions. But such subterfuges make
the tax administration needlessly clumsy and complex and run
counter to our declared policy of simplifying the tax system. There
is clearly a case for revisiting the whole issue of area based tax ex-
emptions. If their premature withdrawal is not possible for political
and business reasons, at the minimum such incentives should not
be extended to fresh areas and the ones already in force should be
extinguished when their applicability ends.“
2.70. Further, the existing exemption for Uttranchal and Himachal has
been objected to by many States. In particular, Chief Ministers of Haryana,
Uttar Pradesh and Punjab have often expressed their opposition to such ex-
emptions as these had the effect of diverting industries to Himachal Pra-
desh and Uttranchal.

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