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New Central Sector Scheme for Industrial Development of Jammu & Kashmir

The Ministry of Commerce and Industry (MCI) on February 19, 2021, has launched the New Central Sector Scheme for Industrial Development of the Union Territory of Jammu & Kashmir. It came into effect from April 01, 2021, and will remain in force till March 31, 2037. The scheme will encourage new investment, substantial expansion and also nurture the existing industries in the Union Territory. The current article briefs the New Central Sector Scheme for Industrial Development of Jammu & Kashmir.

Key Features of the Scheme

The main purpose of the scheme is to generate employment which directly leads to socio-economic development in the UT of Jammu & Kashmir.

1. The scheme is made attractive for both smaller and larger units. Smaller units with an investment upto Rs. 50 crore will get a capital incentive upto Rs. 7.5 crore (for Zone B) and Rs.5 crore (for Zone A).

2. The scheme aims to take industrial development to the block level in UT of J&K, which is the first time in any Industrial Incentive Scheme of the Government of India.

3. The scheme envisages a greater role of the UT of J&K in the registration and implementation of the scheme while having proper checks and balances by having an independent audit agency before the claims are approved.

4. The scheme has been simplified on the lines of ease of doing business by bringing one major incentive- GST Linked Incentive- that will ensure less compliance burden without compromising on transparency.

5. It is not a reimbursement or refund of GST but gross GST is used to measure eligibility for industrial incentive to offset the disadvantages that the UT of J&K face.

Definitions

New Unit

First

For manufacturing sector means a unit registered under this scheme on or after 1.4.2021 but not later than 31.03.2025. Such unit has to commence commercial production within 3 years from the date of grant of registration.

Second

For Service sector means a unit registered under this scheme on or after 1.4.2021 but not later than 31.03.2025. Such unit has to commence commercial operation within 3 years from the date of grant of registration.

Third

A new unit will be required to fulfill the following conditions

It is not formed by splitting up, or reconstruction of a business already in existence.

It is not formed by transfer to the new unit of plant or machinery previously used for any other purpose

It has not relocated from elsewhere and/or is not an existing unit reopened under a new name and style.

Existing Unit

Existing Unit means a unit which has commenced commercial production/operation prior to1.4.2021 and is registered under GST in the UT of Jammu & Kashmir.

Plant and Machinery

Plant and Machinery in case of Manufacturing units shall cover industrial plant and machinery as erected at site which are newly purchased from open market at an arm‘s length price. It excludes relocated/recycled/refurbished plant and machinery it also excludes cost of land, consumables, disposables or any other item charged to revenue.

Building and other durable physical assets

Building and other durable physical assets in case of Service sector units shall cover new building and other durable physical assets for a service sector unit where purchases have been made following an Arm‘s length pricing. It excludes cost of land, consumables, disposables or any other item charged to revenue.

Substantial expansion

Substantial expansion means an additional investment of minimum twenty-five percent of the total amount of investment already made in an existing unit in plant and machinery (for manufacturing sector), or construction of building and other durable physical assets (for service sector).

The additional investment should result in increase of production capacity/enhancement of Services or diversification and should not be a mere replacement of existing plant and machinery.

The Application Period for Registration

The application period for registration of the New Central Sector Scheme for Industrial Development of Jammu & Kashmir is as follows:

1. Registration for the New Central Sector Scheme shall commence from April 01, 2021, and will continue till September 20, 2024.

2. No unit will have the right to register under this scheme or claim the benefits unless it is specifically approved by the registering authority as laid out in the guidelines.

3. The registration will be granted by the registering authority as laid out in the guidelines, which will, inter-alia, consider the prima-facie eligibility of the unit, availability of Approved funds.

4. All registration applications shall be disposed of by March 31, 2025, unless otherwise extended.

5. All eligible units can avail of specified incentive under this scheme up to a period as specified in the respective incentives.

Eligibility for Availing Incentives

The eligibility for availing incentives under the New Central Sector Scheme for Industrial Development of Jammu & Kashmir is as follows:

All units eligible under the Manufacturing and Service sector will be granted incentive under this scheme

Service sector units with a minimum investment of Rs.1 crore in building and other durable physical assets will be eligible for incentives under this scheme. The scheme shall be applicable only for services listed in the positive list in Annexure-II which may be modified further by the Steering Committee

To avail the incentive, all eligible units have to commence commercial production/operation within 3 years from the date of grant of registration

Any investment made on or after 1.4.2019 by a unit in plant and machinery (for manufacturing sector) or construction of the building and other durable physical assets (for service sector) will be taken into consideration to decide the eligible value of the investment as per the entitlement under Capital Investment Incentive, Capital Interest subvention and GST Linked Incentive of this scheme.

The date of commencement of commercial production/ operation has to be on or after 1.4.2021. The eligibility for availing any incentive is subject to the grant of registration under the scheme

Cost of Plant and Machinery (in the manufacturing sector) that is essential for the manufacturing of finished goods but excludes the cost of land, consumables, disposables or any other item charged to revenue

Cost of construction of Building and procurement of other durable physical assets for the service sector unit that are basic to the running of that particular unit in the service sector but excludes the cost of land, consumables, disposables or any other item charged to revenue.

The beneficiary of this scheme has to furnish an undertaking to abide by the terms and conditions of the scheme

Eligibility under this scheme will be subject to verification on investment (Core and Non-Core) in Plant and Machinery (in the manufacturing sector)and cost of construction of the building and other durable physical assets (in the service sector).

Note: The incentive will be eligible only for the core segment in both the manufacturing and service sector.

Non-Applicability

⦁ Units availing benefits under other schemes of the Government of India will not be eligible for similar incentives under this Scheme.

⦁ The scheme shall not apply to the units which manufacture the products listed in the negative list. (Annexure-1)

Period for Availing Incentive

All eligible units can avail of specified incentive under this scheme up to a period as specified in the respective incentives

Prescribed Authority

The New Central Sector Scheme for Industrial Development of Jammu & Kashmir will be implemented under the supervision of the Government of India i.e. the Department for Promotion of Industry and Internal Trade (DPIIT). However, the registration process, as well as the processing of claims under different incentive components, is delegated to the Union Territory of Jammu & Kashmir.

Incentives under the Scheme

Subject to eligibility, the following incentives are provided under the New Central Sector Scheme for Industrial Development of Jammu & Kashmir

1. Capital Investment Incentive (CII)

2. Capital Interest Subvention (CIS)

3. Goods & Services Tax Linked Incentive (GSTLI)

4. Working Capital Interest Subvention (WCIS)

Capital Investment Incentive (CII)

Eligibility for Incentive

The following units are eligible to avail of the Capital Investment Incentive (CII).

(a) New units with an investment of below Rs.50 crore in Plant and Machinery (for manufacturing sector) or Building and all other durable physical assets (for service sector) will be eligible to avail this incentive in both Zone A and Zone B.

(b) Existing units undertaking substantial expansion with an investment of not more than Rs.50 crore in Plant and Machinery for the manufacturing sector or Building and all other durable physical assets for the service sector will be eligible to avail benefit under this incentive in both Zone A and Zone B.

(c) A unit will be eligible for this incentive only if it installs new plant and machinery for the manufacturing sector or constructs new building and other durable physical assets for the service sector, where purchases have been made based on Arm‘s Length Pricing

(d) A service sector unit will be eligible for this incentive only if it invests not less than Rs. 1.00 crore in the new building and other durable physical assets

Scale of Incentive

Eligibility for Incentive

(a) All eligible units located in Zone A category blocks in the UT of Jammu and Kashmir will be provided Capital Investment Incentive at a rate of 30% of the investment made in plant and machinery for the manufacturing sector, or construction of building and installation of other durable physical assets for services sector with a maximum limit of Rs. 5.00 crore

(b) All eligible units located in Zone B category blocks in the UT of Jammu & Kashmir will be provided Capital Investment Incentive at a rate of 50% of the investment made in plant and machinery for manufacturing, or construction of building and installation of other durable physical assets for services sector with a maximum limit of Rs.7.50 crore

Capital Interest Subvention (CIS)

Eligibility for Incentive

(a) New units will be eligible for this incentive on the loan availed on the investment made in eligible plant and machinery for the manufacturing sector or construction of the building and other durable physical assets for the service sector.

(b) Existing units undertaking substantial expansion will also be eligible for the incentive.

(c) Interest on loan up to the principal amount of Rs. 500 crore for investment in eligible plant and machinery ( for manufacturing sector) will be eligible for Capital Interest subvention. If the total principal amount of the loan more than Rs. 500 crore, then interest on the loan amount exceeding Rs. 500 crore would not be eligible for Capital Interest Subvention.

(d) The Capital Interest Subvention will be eligible on the amount disbursed and not on the principal amount sanctioned for the term loan.

(e) A unit will be eligible for this incentive only if it installs new plant and machinery (for the manufacturing sector) or constructs new building and installs other new durable physical assets (for service sector) where purchases have been made based on Arm‘s Length Pricing.

(f) A service sector unit with an investment of not less than Rs. 1 crore in the new building and other new durable physical assets will be eligible for this incentive.

Scale of Incentive

All eligible units can avail of Capital Interest Subvention at the annual rate of interest of 6% for a maximum of 7 consecutive years from any date after the date of application for registration

In future, if the annual rate of interest falls below 8%, an eligible unit will still be liable to pay a minimum amount of interest at the annual rate of interest of 2%.

This incentive is applicable on the loans availed from Scheduled Commercial Banks or Financial Institutions registered by the Reserve Bank of India

Goods & Services Tax Linked Incentive (GSTLI)

(a) New units registered under the scheme irrespective of the value of an investment in plant and machinery (for manufacturing sector) and construction of the building and other durable physical assets (for service sector) and having a GST registration will be eligible for benefit under this incentive

(b) The upper limit of incentive under this incentive will be 300% of the eligible value of investment made in plant and machinery (for manufacturing sector) or construction of the building and other durable physical assets(for service sector).

(c) All eligible units will be granted Goods & Services Tax Linked Incentive (GSTLI) equal to 100% of Gross payment of GST, i.e. GST paid through cash and input tax credit for a maximum period of 10 years from the date of commencement of commercial production/operation or till the validity of the scheme whichever is earlier

(d) The amount of incentive paid in a financial year will not exceed one-tenth of the total amount of eligible incentive under this component subject to full payment of GST as per GST return filed for the claim period

(e)The quantum of incentive will be the same irrespective of the fact whether the unit is located in Zone A or Zone B in the UT of Jammu & Kashmir

(f) In case gross GST paid by any unit in a financial year is more than one-tenth of the total amount of eligible incentive, the balance can be carried forward to the subsequent financial year(s). Further, in case the unit is not able to claim full eligible amount of incentives in the first 3 year, the same can be carried forward to subsequent years. However, this will not be carried forward beyond the eligible period of 10 years or beyond the validity of scheme, whichever is earlier.

(g) In order to avail benefit under this incentive, a unit will be required to have a new registration number for GST. If an applicant has another unit registered within the UT of Jammu & Kashmir, existing GST number shall not be used for the new unit which has been registered under this scheme. (Illustration: If an existing unit ‘A‘ starts another unit with name ‘B‘ then GST number of unit ‘A‘ will not be applicable for availing GSTLI for unit ‘B‘. A new GST number will be required by unit ‘B‘ to avail GSTLI.)

Working Capital Interest Subvention (WCIS)

All existing units in the UT of Jammu and Kashmir registered under GST before the date of notification of this scheme will be eligible for this incentive.

Units located both in Zone A and Zone B in the UT of Jammu & Kashmir are eligible for this incentive.

All existing eligible units can avail of interest subvention at a rate of 5% on working capital loan for a maximum of 5 consecutive years from the date of grant of registration under this scheme. Existing eligible units availing benefits under this component will be eligible for five years period, even when they are undertaking substantial expansion.

If the annual rate of interest charged by a bank falls below 6%, a minimum amount @1% per annum of interest will still have to be paid by the eligible units.

The maximum benefit under this component for manufacturing as well as service sector units is Rs. 1 crore in 5 years.

ANNEXURE-I

Negative List

The following industries will not be eligible for benefits under New Central Sector Scheme for Industrial Development of Jammu & Kashmir

(1.) All goods falling under Chapter 24 of the Central GST Tariff Act, 2017 which pertains to tobacco and manufactured tobacco substitutes.

(2.) Pan Masala as covered under Chapter 24 of the Central GST Tariff Act, 2017.

(3.) Plastic carry bags of less than 20 micron as specified by Ministry of Environment and Forests Notification No. S.O. 705(E) dated 02.09.1999 and S.O. 698(E) dated 17.6.2003 and any subsequent amendments.

(4.) Goods falling under Chapter 27 of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) produced by Petroleum or Gas refineries.

(5.) Coke (including Calcined Petroleum Coke), Fly Ash.

(6.) Units not complying with environment standards or not having applicable Environmental Clearance from M/o Environment & Forests and Climate Change or State Environmental Impact Assessments Authority (SEIAA) or not having requisite consent to establish and operate from the concerned Central Pollution Control Board/State Pollution Control Board also will not be eligible for insentive under the scheme.

(7.) Low value addition activities in goods such as preservation during storage, cleaning, operations, packing, repacking or re-labelling, sorting, alteration of retail sale price etc. take place excluding high value packaging and processing.

(8.) Gold and gold dore.

(9.) Molasses

(10.) Marble, Travertine & Granite.

(11.) Revolvers and pistols

(12.) Any other industry/activity placed in negative list through a separate notification as and when considered necessary by the Government. It will be effective from the date of such notification

(13.) Plantation, Refineries and Power generating Units above 10 MW.

Annexure-II

The following services, details of which will be given in guidelines, will be eligible for benefits under New Central Sector Scheme for Industrial Development of Jammu & Kashmir:

Service Sector Positive List

(a) Tourism & Hospitality Services (including health & wellness tourism)

(b) Services promoting Film Tourism (including film cities, studios)

(c) Ropeways, Entertainment Parks and Rides

(d) Heritage Property Restoration Services

(e) Healthcare Services

(f) IT & ITeS Services

(g) Maintenance and Repair Services

(h) Freight Terminals, Logistics Parks & Warehousing (including Cold Store Services)

(i) Testing, R&D, Analysis & Certification services.

(j) Educational & Skill Development Services.

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