Tax credit woes: Tractor makers, insurers, fertilizer firms seek faster refunds

Tractor and fertilizer companies have sought quicker refunds from GST authorities stating that they may not be able to fully recover from consumers taxes already paid on raw materials and services after the government rolls out its tax rate cuts on 22 September.

Insurance company representatives too have sought relief from the Union government on tax credit-related troubles. Life and health insurers will not be able to claim tax refunds as their services have now been exempt from GST beginning 22 September.

Representatives of these industries met senior officers of the Central Board of Indirect Taxes and Customs on Friday.

When companies are not able to recover from consumers taxes paid on raw materials, they seek a refund from the goods and services tax authorities. But the refunds could get delayed as GST authorities tend to carefully evaluate claims to rule out any input tax credit-related evasion.

Bharat Madan, whole time director and chief finance officer of Escorts Kubota Ltd, said the tractor industry has accumulated input tax credit of ₹800-900 crore on account of unsold vehicles.

Companies have paid taxes on raw materials for these vehicles but will be unable to recover the tax from buyers on account of the government’s recent decision to reduce the GST rate on tractors, added Madan, who is also the chairman of the Tractor and Mechanisation Association’s finance committee.

The GST Council earlier this month decided to lower taxes on a large number of goods and services as part of second-generation GST reforms. The GST rate on tractors has been cut from 12% to 5%, and on higher capacity tractors from 28% to 18%.

“Earlier the extent of duty inversion was lower. Because of the GST rate changes on both the output and inputs, the overall incidence of inverted duty has gone up. That means blockage of working capital will be higher than it used to be earlier, although there is a refund provision. The refund normally takes time,” explained Madan.

Finance ministry officials have assured the industry of automated tax refunds as a solution to accumulated input tax credit, he said after the meeting.

Insurers

The GST Council has decided to exempt individual health and life insurance premiums from GST, including for reinsurance. These services currently attract 18% GST with credit for taxes on inputs used.

An executive of the General Insurance Council, a statutory body representing the industry, said that since individual health and life insurance policies are now exempt from GST, insurers will not qualify for refund of input taxes. However, they will be eligible to claim outstanding tax credits in the current GST regime.

Insurance companies also sought more clarity on the types of individual life and health insurance policies covered by the tax exemption.

Insurers have been asked to pass on the benefit of the GST rate cut to customers, said another executive. Both of them spoke on condition of not being named.

Fertilizer companies

Rahul Mirchandani, president of Indian Micro Fertilizer Manufacturers Association, said the micronutrients industry had accumulated input tax credit of ₹400 crore.

As companies have already paid GST on raw materials and services, they will not be able to recover taxes from consumers after 22 September, he said.

The GST Council has decided to cut the tax rate on micronutrients from 12% to 5%.

To reduce duty inversion in the fertilizer sector, the Council also decided to lower GST on raw materials such as sulphuric acid, nitric acid, and ammonia from 18% to 5%.