The Incentive Policy 1995 - 2000

Introduction

With the process of economic reforms unfolding in India, different States are positioning themselves in the minds of prospective investors in a bid to avail of a substantial share of the investment boom. Not surprisingly, Gujarat, known for its investor-friendly atmosphere over the years, has emerged as the leading State in terms of industrial investments. Enthused by the massive spurt in industrial activities in the post- liberalisation period, the State has laid out a comprehensive industrial policy Gujarat-2000 AD and Beyond setting futuristic directions for development. To accelerate the overall flow of investment in the State in general and backward areas in particular, as also to create large scale employment opportunities, emphasis is being laid on the development of infrastructure and human resources to sustain the long term growth. As a part of the overall strategy for accelerated industrial growth in the State, incentive packages offered to industries have been made more attractive compared to the scheme for the period 1990-95. Incentive Schemes for the period 1995-2000 include Capital Investment Subsidy to small and tiny industries and Sales Tax Incentives to all industries with the list of ineligible industries pruned down. In addition, liberalised sales tax incentives are offered to Prestigious Units and Premier Units. For the first time, the investments in project-related infrastructure, social infrastructure and common and public purpose infrastructure have been made eligible for incentives.

Operative Period

The scheme will be in operation from 16th August 1995 for a period of 5 years upto 15th August 2000 unless otherwise specified in the concerned Government Resolution.

Salient Features

• As many as 128 out of 184 talukas of the State eligible for benefits under various packages of incentives. In addition, 8 special backward regions continue to remain eligible.

• Eligible areas grouped into two main categories, giving a wider choice of location.

• Thrust industries, Premier and Prestigious units, eligible for incentives all over the State, except in a few banned areas.

• Electronic industries eligible to receive capital subsidy (small & tiny) and sales tax incentives (all) throughout the State, including metropolitan cities.

• Tiny units set up and managed by SC/ST/other backward classes/women entrepreneurs/educated unemployed youths offered cash subsidy at a higher rate.

• Investments in project-related infrastructure, made eligible for the purpose of incentives.

• Premier units eligible for sales tax incentives for a maximum period of 17 years.

• Investments made in social, common & public purpose infrastructure also considered as eligible fixed capital investment under the schemes for Premier & Prestigious units.

• Existing units undertaking one expansion and all diversifications carried out during the operative period of the scheme considered eligible for incentives.

• List of ineligible industries reduced to a minimum.

• For pipeline cases to be eligible for incentives, effective steps to be taken on the expiry of the scheme defined in advance to remove uncertainty.

Capital investment subsidy scheme

• The scheme is applicable only to new tiny and small scale units which will be set up during the operative period of the scheme.

• An existing unit undertaking only one expansion will be eligible for subsidy provided it remains a small scale unit even after the completion of expansion.

• All diversifications fulfilling the criteria, independently by an existing unit will be considered eligible for a separate subsidy provided it remains a small scale unit after the completion of diversifications.

• The amount of subsidy at the applicable rate under the scheme shall be reduced to the extent of amount of subsidy or grant that may be made available by the Central Government or State Government or any other agency under any other scheme for setting up of the industrial unit.

• The quantum of the capital investment subsidy is given in the following table :

Additional subsidy at the rate of 5% will be offered to the entrepreneurs belonging to SC/ST/other backward classes/women/educated unemployed youth, for setting up small scale units other than in the tiny sector, subject to the maximum amount ceiling prescribed under the scheme.

Procedure

New industrial units desiring to avail of the benefits under the scheme are required to get themselves registered with the concerned District Industries Centre during the operative period of the scheme, after taking legal possession of land/shed and getting required registration/approval from the appropriate authority.

The eligible unit will have to submit the claim for sanction of subsidy to the General Manager, District Industries Centre, within 6 months from the date of commencement of commercial production.

Sales tax Incentive Scheme

• Tiny, small, medium and large units can avail of sales tax benefits under Sales Tax Exemption or Sales Tax Deferment schemes.

• Under the Sales Tax Exemption scheme, an eligible unit will be entitled to purchase free of purchase tax/sales tax, the raw materials, consumable stores, packing materials and processing materials required for the purpose of manufacturing goods. In addition, the unit will be exempted from the payment of sales tax on the sale of goods manufactured by it - including intermediate products, by-products and scrap/waste. It will also be eligible for exemption from turnover tax. The eligible unit will also be entitled to avail of exemption in Central Sales Tax as long as the sale originates from within Gujarat.

• Alternatively, the unit can opt for Sales Tax Deferment Scheme, under which the recovery of sales tax collected by the unit on the sale of goods manufactured by it - including intermediate products, by-products and scrap as also the turnover tax, will be deferred and the amount so deferred will be recovered in six equal annual instalments by the Sales Tax Department, beginning from the financial year subsequent to the year in which the unit exhausts its limit of incentives under the scheme, or the expiry of relevant period or time limit during which deferment is available, whichever is earlier.

• The quantum of incentives available under the scheme is given in the following table :

Note :

• If the unit reaches the ceiling amount before the time limit, it will not be eligible to receive incentives thereafter.

• The eligible unit will have to submit the option for sales tax exemption or deferment at the time of making the application with the sanctioning authority. The unit, however, will be allowed the change of option once before the issue of eligibility certificate by the Sales Tax Department, if it so desires.

• The eligible assets acquired and paid for upto 6 months from the date of commencement of commercial production in the case of SSI units,12 months in the case of units with project cost above the SSI limit and upto Rs 100 million and 18 months in the case of units with project cost exceeding Rs 100 million, alone will be considered as eligible fixed capital investment provided that this time limit is within the operative period of the scheme.

• Assets acquired under DPG scheme/hire purchase scheme or on instalment system would be considered eligible excluding the cost of interest.

• Eligible industrial units with project cost exceeding Rs. 100 million will have to contribute 2% of the amount of sales tax incentives availed in case of exemption and 3% of the deferred amount in case of sales tax deferment every year to the Gokul Gram Yojana of the State Government.

• The industrial unit will remain in production continuously atleast until the expiry of the eligibility period of the incentives.

• The units opting for sales tax deferment should furnish security to the sales tax authority against the deferred amount of sales tax by way of pari passu charge, second charge or personal guarantee in the form of security bonds.

• The eligible unit can avail sales tax benefits from the date of commercial production. For this purpose, the unit will have to register itself atleast 90 days before the date of commercial production with DIC/IC office as the case may be for registration certificate. Validity of this registration will be for a period of 120 days from the date of commencement of commercial production. Unit will submit a detailed application with all the relevant documents within 120 days of commencing the commercial production for final eligibility. If the unit fails to submit the application within this time limit, the entitlement of sales tax incentives will be proportionately reduced to the extent of delay.

Incentives to thrust Industries

The units set up to manufacture the following products are identified as Thrust Industries :

1. Garments (including hosiery)
2. Gems and Jewellery
3. Agro-processing (except edible oil seeds)
4. Food processing
5. Leather products
6. Ancillary Engineering Industries
7. 100% Export - oriented Units

Thrust Industries set up in the small scale sector are eligible to receive cash subsidy at the following rates :

All the Thrust Industries set up in any of the areas of the State, other than the banned areas, are permitted to enjoy Sales Tax incentives as per the following rates :

Note :

• Category I & II refer to the same areas as made eligible under the General Scheme. Category III comprises rest of the areas of the State except the banned areas.
• An existing unit undertaking only one expansion will be considered eligible for incentives under the incentive scheme for thrust industries.
• All diversifications fulfilling the criteria, independently by an existing unit during the operative period of the scheme will be considered eligible for incentive under the incentive scheme for thrust industries.
• Procedure to be followed as prescribed under capital investment subsidy scheme and sales tax incentive scheme.

Incentives to premier and prestigious units

To encourage setting up of large projects in the State, the State Government offers liberal incentives to Premier and Prestigious Units. New industrial units or complexes fulfilling the following criteria will be considered for the status of premier or prestigious units :

• The minimum project cost required for prestigious units :

Category-I areas Rs.1 billion or more

Category-II areas Rs.1 billion or more

Category-III areas Rs.1 billion or more

(except banned areas)

• Industrial units having project cost exceeding Rs. 5 billion will be granted the status of Premier Units. The projects exceeding investment of Rs. 10 billion will be entitled for incentives for an extended period.

• Only one unit per taluka will be considered eligible for the status of premier unit. Any number of prestigious units will be entitled for registration in any of the talukas covered under Category I & II, while only first 5 units will be granted this status in Category III areas. In banned areas, no unit will be entitled for premier/prestigious status.

• The unit will have to employ atleast 100 workers on a permanent basis, and follow the Employment Policy of the State Government.

• Eligible units may avail of the facilities of both exemption and deferment of sales tax under composite scheme. Composite scheme means the unit could make certain transactions under exemption and certain transactions under deferment facilities simultaneously. Under this scheme, the eligible unit will be entitled to purchase free of tax, the raw-materials, consumable stores, packing materials and processing materials for the purpose of manufacturing goods. The goods manufactured by the unit including intermediate products, by-products and scrap/waste materials shall be allowed to enjoy the benefits by way of sales tax exemption or sales tax deferment.

• Units fulfilling the criteria for premier or prestigious status, and granted registrations by the Industries Commissioner, are eligible to receive the sales tax incentives at the following rates :

Investment criteria For A : Upto Rs.10 billion

B : More than Rs.10 billion.

Note :

• An eligible unit under the scheme will apply to the Industries Commissioner in the prescribed form before the expiry of the scheme after acquiring legal possession of land/plot with valid non-agriculture permission for industrial use and with letter of intent, letter of approval or receipt against filing of IEM to the appropriate authority as the case may be, NOC of GPCB and a detailed project report for obtaining temporary/permanent premier/prestigious registrations.

• All other conditions governing the sales tax incentives are applicable to premier and prestigious registrations.

• The unit will have to reinvest an amount equal to 50% of the sales tax incentives availed under the scheme in new project/s in the State within 15 years after commencing the commercial production.

• Premier/Prestigious status will not be conferred for expansion, renovation, modernisation, rehabilitation, take-over or rationalisation of industrial units.

Incentives for Investments in Infrastructure Projects

In order to sustain and support the massive investment boom, the State Government is fully aware of the need to expand its infrastructural base substantially in the coming years. To supplement the efforts of the State Government through private sector investment, infrastructure projects have now been made eligible for additional sales tax incentives. For the purpose, investments in following fixed assets will be considered eligible :

Project Related Infrastructure investment

Direct expenditure made by Industrial Units in creation of following assets will be considered eligible for incentives:

• Residential Colony, Hospital, School for Workers/Staff of the industrial unit and sports facilities.
• Feeder roads to industrial unit and adjoining nearest ODR or MDR/State
• Highways/National Highways.
• Creation of dedicated water transportation facilities through pipelines for the unit.
• Non-refundable Deposits paid to GEB for transmission lines from the nearest available sub-station.
• Expenditure on electronic exchange and laying of telecommunication cables.
• Construction of building for post offices and bank, if provided free by the unit.
• Training Centres to train local people for employment in the project.
• Transport facilities like buses for the conveyance of the workers from the surrounding villages/towns to the factory and back.
• For the purpose of eligibility, expenditure on above referred project-related infrastructure will be eligible for incentives, limited to a maximum of 20% of the quantum admissible to the unit, in terms of eligible fixed capital investment.

Social Infrastructure Investment

Direct expenditure made by Premier and Prestigious units to create following assets within the taluka will be considered eligible for the incentives :

• Technical institutes like ITIs, Polytechnics and Engineering Colleges.
• Establishment of Management Schools and Private Schools.
• Hospitals.
• Creation of social infrastructure facilities like drinking water, school rooms, buildings for hospitals in the adjoining villages.

For the purpose of eligibility, 50% of the total expenditure on acquisition of above referred social infrastructure will be considered eligible for incentives, limited to a maximum of 10% of the quantum admissible to the unit, in terms of eligible fixed capital investment.

Common and Public Purpose Infrastructure Investment

Direct expenditure made by Premier and Prestigious Units to create following assets will be considered eligible for the incentives :

• Construction of dams for water storage purpose at source.
• Common pipeline for transportation of water from nearest available source.
• Common power transmission line.
• Linkage roads to industrial area and nearest highway and overbridges.
• Common transport facilities for conveyance of the workers of industrial area.
• Common plant for desalination of water for industrial use.
• Common effluent treatment plant including channel/pipelines for disposal and recycling of waste-water.

For the purpose of eligibility, 50% of the total expenditure incurred by the unit on creation of above-referred social infrastructure will be considered for incentives, limited to a maximum of 10% of the quantum admissible to the unit, in terms of eligible fixed capital investment.

Note :

• In the case of project and project-related infrastructure, the proposal shall have to be appraised by a financial institution. The eligible assets acquired and paid for upto 18 months from the date of completion of the project whichever is earlier, alone will be considered as eligible fixed capital investment subject to a condition that it will be limited to the appraised project cost.

• In the case of social infrastructure and common and public purpose infrastructure, the expenditure incurred during the operative period of the scheme will be considered eligible.

• Assets acquired under the DPG scheme/hire purchase scheme or on instalment system would be considered eligible excluding the cost of interest on the condition that the industrial unit shall not return the equipment acquired under DPG scheme/hire purchase scheme/instalment system to its principal from whom it was acquired within the eligibility period from the date of commencement of commercial production.

Incentives to electronic industries

• Government of Gujarat has identified electronics as a thrust industry and has decided to offer capital investment subsidy to tiny and small scale electronic units and sales tax incentives to all electronic units including tiny and small scale units to attract investment in electronic industry in the State. Accordingly, electronic units will also be eligible for incentives on eligible fixed capital investment including investment made in project related infrastructure.

• The electronic units registered as SSI units including tiny units will be entitled for subsidy as per the rate and ceiling prescribed below :

New units as well as the units undertaking one expansion and all diversifications during the operative period of the scheme will be eligible for cash subsidy at the same rate.

· All the new units or existing units undertaking only one expansion or any number of diversifications will be eligible to receive sales tax incentives at the following rates irrespective of the level of investment :

Note :

• Category I referred above includes areas falling under Category I & II of General Scheme, while Category II comprises all the remaining areas of the State.
• For the purpose of incentives to electronic industries, there is no banned area prescribed.

Projects in pipeline - expiry of the scheme 1995-2000

The industrial units which have taken effective steps during the operative period of the incentive scheme 1995-2000 but could not commence commercial production before the expiry of the scheme will also be eligible for availing of the incentives, provided following effective steps are taken :

• The industrial unit should have obtained subsidy registration and/or sales tax registration, as the case may be, before 15th August, 2000. In case of a
• premier/prestigious unit, it should have obtained provisional registration as a premier/prestigious unit from Industries Commissioner before 15th August, 2000.
• 25% of the project cost should have been incurred before 15th August, 2000.

Having taken the above effective steps, in order to be eligible for availing of the incentives, the industrial units can commence commercial production on or before the following due dates :

• The unit with a project cost upto Rs. 100 million should go into commercial production on or before 15th August, 2001.
• The unit with a project cost exceeding Rs. 100 million upto Rs. 1 billion should go into commercial production on or before 15th February, 2002.
• The unit with a project cost exceeding Rs. 1 billion upto Rs. 3 billion should go into commercial production on or before 15th August, 2002.
• The unit with a project cost exceeding Rs. 3 billion should go into commercial production on or before 15th February, 2003.

Such units, however, shall have to apply to the Industries Commissioner requesting for an extension of the date of commencement of commercial production by 31st August, 2000.

List of banned industries and areas from incentives

Banned Industries

• Producing of firewood and charcoal.
• Decorticating, expelling, crushing, roasting, parching, frying of edible oil seeds, viz. Groundnut/Sisham, Rapeseed, Mustard, Sunflower, Soyabean, Safflower, Kardi, Nizar, Palmoil, Coconut, Cottonseed etc., and refining, colouring/decolouring and scanting of oil (except in co-operative sector and oil Ghani).
• Solvent extraction of oil from edible seed/edible oil cake processing and/or hydrogenation of edible oil (except in co-operative sector).
• Thinner and French Polish, Kakab and Gadaku.
• Dairy milk powder and other manufacturing products starting from milk (except in co-operative sector). However mere pasturisation and sterilisation of milk will not be eligible.
• Mining.
• Electricity Generation (except captive electricity generation).
• Cottage and village industries falling within the purview of Khadi and Village Industries Board, Khadi and Village Industries Commission and industries falling within the purview of coir/silk handloom handicrafts board and units set up by self-employed workers and artisans etc. which are covered under separate scheme of assistance.
• State and Central Public Sector undertaking (except in case the following conditions are fulfilled).

A) In case item of manufacture is in competition with private or public sector units.

B) In case public sector undertaking gives an undertaking to invest the amount eligible under the incentive package in backward areas of the State.

C) Item of manufacture is not based on local mineral resources for which permit or license is required under any mineral rules or Act.

• Such other items for which registration is not to be done or registration is to be restricted as per the advice of the Development Commissioner (SSI), New Delhi or from DGTD or Letter of Intent under IDR Act is not granted.

Banned Areas

"Banned Areas" mean area/s covered under the jurisdiction of Urban Development Authorities of Ahmedabad, Vadodara, Surat and Rajkot, Area Development Authorities of Jamnagar and Bhavnagar, and the talukas where industrial investment exceeding Rs. 10 billion as on 31.3.95, has already taken place in Vadodara, Choryasi and Bharuch talukas.