File No.

INC01-12022/1/2018-P & I-INDS 1

Note No. #1

Ind. & Com. (P&I) Dept.

Sub: Policy & Investment - M/s Indani Global Private Limited – Request
for amendment to G.O.Ms.No.127 Industries and Commerce (P&I)
Department, dated 05.10.2016 issued in view of post GST Regime –
regarding

Ref: G.O.Ms.No.127 Industries and Commerce (P&I) Department, dated

05.10.2016
@@@

Please see the connected papers in the correspondence column.

2. The file deals with the request of M/s Indani Global Private Limited for amending
the G.O.Ms.No.127 Industries and Commerce (P&I) Department, dated 05.10.2016
issued in view of post GST Regime.

3. Submitted that M/s. Indani Global Pvt. Limited proposed to set up a facility for
gold and silver refinery at Vijayawada with a proposed capacity to refine 150 MTs. gold
and 300 MTs. Silver per annum initially with investment of Rs. 86.50 crore with a
potential to create employment to 100 persons. The Company has requested for the
following special package of incentives.

(i) Reimbursement of stamp duty

(ii) Power Subsidy at Re. 1 Per unit (Time limit not specified)
(iii) 80% subsidy in land cost – Subsidy requested is RAs 24.50 Crore
(iv) 100% VAT/CST reimbursement for 10 years irrespective of fixed capital
investment.
4. Generally, under Industrial Policy, Special Package of Incentives will be provided
to Mega Projects with an investment of Rs.500 crore & above or 2000 employment. In
this case, the project neither qualifies in terms of investment nor employment. The same
was informed to the Company.

5. However, the Company made a representation to the Government informing that

though the investment is less, it requires huge working capital to a tune of Rs.2251
crore per annum and huge turnovers of Rs. 13,000 crore to Rs. 45,000 crore over a
period of 5 years

6. The issue was discussed in the advisory committee meeting held on 13.06.2016
(Page 290 CF) and the committee noted that special package of incentives have never
been given to any industry based on the working capital. However, the Committee
 File No.INC01-12022/1/2018-P & I-INDS 2

informed the Company that on the principle of Revenue Neutrality, the request can be
considered, so that the Government will pay the incentives from out of the tax paid by
the Company and the same was agreed by the Company. Minutes of the meeting
enclosed for kind information.

7. Accordingly, the proposal was placed before the Empowered Committee (EC) of
Secretaries held on 08.07.2016. The proposal of M/s Indani Global Pvt. Limited was
discussed in detail and made the following recommendations to State Investment
Promotion Board (SIPB):

i. To consider it as Mega Project under Industrial Development Policy 2015- 20, keeping in
view the huge working capital requirement of Rs.2251 crore per annum and huge
turnovers of Rs. 13,000 crore to Rs. 45,000 crore over a period of 5 years.
ii. Reimbursement of 75 % VAT&CST for period of (10) years from the date of
commencement of commercial production with a cap to be decided by the SIPB.
However, necessary conditions to be imposed to avoid mis-utilization of the tax incentives
through trading of Gold.
iii. All other benefits as per Industrial Development Policy 2015-20.

8. Subsequently, the proposal was discussed in the State Investment Promotion

Board (SIPB) meeting held on 08.07.2016 and granted the following incentives,
keeping in view the huge working capital requirement of Rs.2251 crore per annum and
large turnovers of Rs. 13,000 to Rs. 45,000 crore over a period of 5 years, subject
imposing necessary conditions by Commercial Taxes Department to avoid mis-
utilization like clubbing of trading volume etc. into Refining.

i. Reimbursement of 75 % VAT&CST for period of (10) years from the date of

commencement of commercial production
ii. All other benefits as per Industrial Development Policy 2015-20.

9. Accordingly, Government have issued orders vide G.O.Ms.No.127 Industries

and Commerce ( P& I) Department, dated 05.10.2016 (Pages 273-274 CF).

10. Post GST regime, the Company in their letter dated 29.05.2017 informed that
they have revised DPR increasing the production capacity from 150 MT to 250 MT
gold and 300MT to 900 MT of silver per annum with turnovers from Rs.30,000 crore to
Rs. 1,00,000 crore over a period of 5 years. The company requested for revision of
G.O.MS.NO. 127, to accommodate the following:

i. There are two incentives provided, one of which is, reimbursement of 75% of VAT
& CST for a period of 10 years from the date of commencement of commercial
production. In view of the fact that GoI has decided to make GST applicable with
effect from 1st July 2017, the company requests for the above mentioned 75%
VAT & CST incentive to be extended to them under GST on a pro-rata basis.
ii. The reimbursement of 75% of the GST as referred to in the above request shall be
 File No.INC01-12022/1/2018-P & I-INDS 3

on monthly basis either by self – declared credit claim basis or self-assessed

reimbursement claim basis which can be availed by the company in the following
month’s payment against GST. The monthly reimbursement is sought for having
regard to the huge remittances against taxes involved in the gold and silver
refining industry, which result in substantial capital being non-productive.
iii. The company requests for a reprieve from any type of entry tax on raw materials,
plant and machinery or any other inputs required by the plant for next 10 years

11. Accordingly, the issue was discussed in the GST Committee, constituted vide
GO.MS.NO. 109, I&C (P&I) Department dated 21-08-2017, held its 1s t meeting on
30.10.2017. During the meeting, the Committee made the following decisions (Page
293 CF):-

a. SGST is a destination based tax and the State retains only that portion of SGST
corresponding to the Goods consumed within State, the Industries Department and
Commercial Taxes department to jointly evolve a system to monitor the net SGST
accruing to the State based on final sales
b. Industries and CT Department to have joint meetings with the Mega projects
granted special incentives by the SIPB, to understand the tax implications both
pre-GST and post-GST, and impose appropriate cap in case the benefit in post-
GST regime is higher than earlier commitments.

12. Based on the above, decisions, two meetings were held with representatives of
the Company and informed to them that post GST regime, the tax scenario has
changed from location basis to consumption basis. In the VAT regime, the entire tax
(VAT & CST) used to accrue to the State, where the plant is located. Contrary to this, in
GST regime, the tax across the entire value chain accrues to the State, where it is
consumed. The Company has been requested to provide a statement showing the tax
implications pre GST and Post GST scenario’s in the prescribed proforma. They have
submitted a statement showing the amount gold proposes to be sold in A.P and does
not give any indication about the final consumption of the same.

13. In the present case, the company proposes to sell the gold to the Bullion Dealers
in A.P and in other States. The bullion dealers in A.P will inturn sell the Gold to Jewellers
in Andhra Pradesh. Based on the gold sold in Andhra Pradesh, the Company will claim
the SGST. However, in reality, the ornaments made out of the Gold sold in AP, may be
sold in other States and the proportionate tax across the entire value chain will go to
that State, as GST is consumption-based tax. As there is no mechanism to track such
transactions in the GST regime, the company has been requested to suggest a
mechanism through which the issue can be resolved.

14. Till today, they have not furnished any mechanism. However, Mrs. Kruti
Indani, Group Director, Indani Global GmbH through her email, dated 09.04.2018,
informed that calling upon them to provide a solution for tracking the sales,
 File No.INC01-12022/1/2018-P & I-INDS 4

which are subjected to SGST, being moved out of the state does not stand to
any reasoning. Further, she is questioning what was the concept applied while
issuing the Gos of Ashok Ley land and Munoth Industries and how the sales from the
refinery will be different to that of the above units, as there is no such distinction in
sales under GST. (Page 294 CF)

15. In this regard, it is to submit that the project is not a mega project and it proposes
to invest only Rs.86.50 Crore. However, the above two industries (Ashok Leyland and
Munoth) are Mega Industries and incentives have been given to them with a cap.
Further, the end product in these two cases are consumed as it is without any further
modification /process and hence the final consumption can be tracked. Whereas, in the
present case, the M/s Indani Global is requesting for incentives of order of Rs.500 to
1000 Crore per annum as per the statement (Pages 295-296 cf) given by them, without
any cap, while investing only Rs.86.50 Crore, which is not justifiable in the GST regime.

16. Further, as verified from MCA and the balance sheets, the Company has paid
up capital is Rs.1.24 Lakh and as per the resent balance sheet 2017), the Company is
in losses to a tune Rs. 3,24,29,039 and the reserves and surplus is also in deficit to a
tune of Rs.5,94,40,106/-..

17. In this backdrop, the Department opines that the incentive given to them in VAT
regime is justifiable as being a location based tax, whereas the Department has the
following concerns in GST regime, as the tax is based on final consumption.

i. So far, incentives have never been extended to any industry based on the working
capital /turnover, In this case, the investment is Rs.86.00 Crore and whereas, the tax
proposed to be provided is of order of Rs.500 -1000 Crore per annum without any cap.
ii. This may create a bad precedence for similar cases.
iii. IT may lead to financial loss to State Ex-chequer in the absence of proper tacking
mechanism in GST regime. In the event of excess payment of tax, the recovery would be
very difficult, as the entire asset value is only Rs.86.00 Crore
iv. The Company is not able to suggest any tracking mechanism

18. In view of the above, it is submitted for orders whether the Revenue Department
may be requested to clarify, whether there is any mechanism by which the final
consumption of Gold/Ornaments made of the AP be tracked to arrive at the actual tax
accrued to the State to enable this Department to take an appropriate decision in the
matter.
 File No.INC01-12022/1/2018-P & I-INDS 5

18/04/2018 6:29 PM
P.V.S.RANGA CHARY ULU
(SECTION OFFICER)

Note No. #2

19/04/2018 10:29 AM
T. SREENIVASULU
(ASSISTANT SECRETARY )

Note No. #3
19. In view of the position stated above, it is for orders whether the file may be
sent to Revenue Department for their remarks in the matter.

19/04/2018 10:50 AM
RAMA DEVI DAGGUMATI
(DEPUTY SECRETARY )

Note No. #4
Submitted for offering remarks on the above subject

19/04/2018 5:08 PM
B SREEDHAR, IAS
(SECRETARY )

Note No. #5

19/04/2018 6:48 PM
D.SAMBASIVA RAO IAS
(SPECIAL CHIEF SECRETARY )

Note No. #6
Revenue (CT) Dept.

This file is received from the Industries & Commerce (P&I) Dept. for
clarification as to whether there is any mechanism by which the final
consumption of Gold/ornaments made in A.P. can be tracked to arrive at the
actual tax accrued to the State which enables the Industries Dept. to take an
 File No.INC01-12022/1/2018-P & I-INDS 6

appropriate decision on the tax reimbursement to M/s.Indani Global Pvt. Ltd.

In this regard, it is submitted that the structure and design of GST is such
that the State derives revenue only from the Goods and the Services finally
consumed in the State. The taxes from the Goods and Services produced in the
State but are supplied to the dealers and consumers in other States either
directly or indirectly will flow to the consuming State. Therefore, a mechanism,
to determine the taxes finally accrued to the State in every case of new
industrial Unit, has to be worked out by the Industries Dept., the Industrial Unit
and the Commercial Taxes Dept. jointly with the data available with them in
order to reimburse the SGST as incentive to the industrial unit.

23/04/2018 2:56 PM
DEVANA VENKATESWARA RAO
(OSD)

Note No. #7

23/04/2018 4:45 PM
D.SAMBASIVA RAO IAS
(SPECIAL CHIEF SECRETARY )

Note No. #8

24/04/2018 3:05 PM
B SREEDHAR, IAS
(SECRETARY )

Note No. #9

Signature is not valid or content has been modified.

24/04/2018 4:41 PM
DURGA PRASAD SAHU
(ADDITIONAL SECRETARY )

Note No. #10

 File No.INC01-12022/1/2018-P & I-INDS 7

24/04/2018 5:52 PM
T. SREENIVASULU
(ASSISTANT SECRETARY )

Note No. #11

Ind. & Com. (P&I) Dept.

23. Please see the notes from page 1 ante and the remarks of the Revenue
Department at Note#6 on page 4 ante.

24. Submitted that on a request from M/s Indani Global Private Limited for
amending the G.O.Ms.No.127 Industries and Commerce (P&I) Department,
dated 05.10.2016 issued in view of post GST Regime, this Department referred
the file to Revenue Department to clarify, whether there is any mechanism by
which the final consumption of Gold/Ornaments made of the AP be tracked to
arrive at the actual tax accrued to the State to enable this Department to take
an appropriate decision in the matter.

25. The Revenue Department have stated as follows:-

“This file is received from the Industries & Commerce
(P&I) Dept. for clarification as to whether there is any
mechanism by which the final consumption of
Gold/ornaments made in A.P. can be tracked to arrive at the
actual tax accrued to the State which enables the Industries
Dept. to take an appropriate decision on the tax
reimbursement to M/s.Indani Global Pvt. Ltd.
In this regard, it is submitted that the structure and
design of GST is such that the State derives revenue only
from the Goods and the Services finally consumed in the
State. The taxes from the Goods and Services produced in
the State but are supplied to the dealers and consumers in
other States either directly or indirectly will flow to the
consuming State. Therefore, a mechanism, to determine the
taxes finally accrued to the State in every case of new
industrial Unit, has to be worked out by the Industries Dept.,
the Industrial Unit and the Commercial Taxes Dept. jointly
with the data available with them in order to reimburse the
SGST as incentive to the industrial unit.”

26. In view of the above and in view of the remarks of the Revenue
Department, it is submitted for orders whether the file may be sent to
Commissioner of Industries, GoAP., through E-office, under SFS to take
necessary further action to work out a mechanism to determine the taxes
finally accrued to the State in every case of new industrial Unit as advised by
the Revenue Department.
 File No.INC01-12022/1/2018-P & I-INDS 8

26/04/2018 11:18 AM
T. SREENIVASULU
(ASSISTANT SECRETARY )

Note No. #12

26/04/2018 11:37 AM
RAMA DEVI DAGGUMATI
(DEPUTY SECRETARY )

Note No. #13

Pl. discuss

26/04/2018 1:42 PM
B SREEDHAR, IAS
(SECRETARY )

Note No. #14

26/04/2018 2:26 PM
RAMA DEVI DAGGUMATI
(DEPUTY SECRETARY )

Note No. #15

26/04/2018 2:30 PM
T. SREENIVASULU
(ASSISTANT SECRETARY )

Note No. #16

22/05/2018 1:13 PM
C. ANJANEY ULU
(ASSISTANT SECTION OFFICER)

Note No. #17

Re-submitted:
(Issued Govt.Memo.No.12022/P&I/A1/2018, dt.22.05.2018)
***
 File No.INC01-12022/1/2018-P & I-INDS 9

27. It is submitted that in connection with the issue of M/s Indani Global Private
Limited, as per the orders of Secretary, I&CIP, the COI has been requested vide
Govt.Memo.dt.22.5.2018 to work out a mechanism in consultation with Chief
Commissioner, Commercial Tax Department and project proponent, with appropriate
safeguards as directed by the Chief Secretary to Govt., and place the matter before
the Business Advisory Committee and State Investment Promotion Committee for
taking necessary action.

28. It is also submitted that a meeting was convened by the Chief Secretary to
Government on dt.17.05.2018 in the chambers of CS on the request of the M/s
Indani Global Private Limited on extending incentives post GST regime with the
following officials:

1) Chief Secretary to Government,

2) Secretary to Government , I& CIP,
3) Chief Commissioner, Commercial Tax Department,
4) Joint Commissioner, Commercial Tax Department and
5) OSD to Secretary to Government , I& CIP.

29. The Record Discussions prevailed during the meeting are submitted at draft
column for approval.

30. The file may be circulated to CS for approval.

22/05/2018 1:39 PM
T. SREENIVASULU
(ASSISTANT SECRETARY )

Note No. #18

22/05/2018 2:44 PM
RAMA DEVI DAGGUMATI
(DEPUTY SECRETARY )

Note No. #19

Record of discussion is submitted for kind perusal and approval

22/05/2018 5:48 PM
SOLOMON AROKIA RAJ, IAS
(SECRETARY )

Note No. #20

 File No.INC01-12022/1/2018-P & I-INDS 10

23/05/2018 12:42 PM
DINESH KUMAR IAS
(CHIEF SECRETARY )

Note No. #21

23/05/2018 12:49 PM
SOLOMON AROKIA RAJ, IAS
(SECRETARY )

Note No. #22

23/05/2018 12:54 PM
RAMA DEVI DAGGUMATI
(DEPUTY SECRETARY )

Note No. #23

It is submitted that with reference to Note#19, Record of discussion at draft column
submitted may kindly approve.

23/05/2018 2:09 PM
T. SREENIVASULU
(ASSISTANT SECRETARY )

Note No. #24

23/05/2018 2:16 PM
RAMA DEVI DAGGUMATI
(DEPUTY SECRETARY )

Note No. #25

24/05/2018 3:08 PM
SOLOMON AROKIA RAJ, IAS
(SECRETARY )
 File No.INC01-12022/1/2018-P & I-INDS 11

Note No. #26

24/05/2018 3:41 PM
RAMA DEVI DAGGUMATI
(DEPUTY SECRETARY )

Note No. #27

24/05/2018 3:54 PM
T. SREENIVASULU
(ASSISTANT SECRETARY )

Note No. #28

28/05/2018 12:51 PM
REDDI CHINNA VENKATESWARA RAO
(SECTION OFFICER)