Nissan may abandon Tamil Nadu, fears state govt

Nissan Motor
There seems to be a trust deficit emerging between the Tamil Nadu government and Japanese automobile manufacturer Nissan. The state government fears that a faster payment of incentives to the car maker (Renault-Nissan Alliance India Private Ltd or RNAIPL) on its investments near Chennai might result in the company abandoning the project, curtailing the anticipated economic activity from this project.

The bone of contention is a business model change implemented by the company in April 2012 which, the government alleges, resulted in "unlawful gains" and boosted subsidies in the short term.

The State Industries Department has filed a petition in the Madras High Court against Nissan's arbitration case seeking payments. The state argued that the company, from April 1, 2012, to March 31, 2014, changed the business model, with one manufacturing company, RNAIPL, and two marketing companies – Renault India and Nissan Motors India – leading to a dual payout from the state by two different departments for a single transaction.

The department says there is no compulsion on the company to carry the business model once the maximum subsidy has been achieved with a period of 5 to 6 years. In the normal course, the payout would have been over 21 years.

The maximum subsidy that can be paid will be around Rs 4,500 crore and, so far as refund of tax is concerned, it only depends on manufacture and sales, it added. A detailed questionnaire about these allegations sent to Nissan remains unanswered.

A Nissan executive close to the issue on Monday said: "We are asking the Government of India to uphold the commitments it made in the India-Japan Comprehensive Economic Partnership Agreement. Under that treaty, we are entitled to go for arbitration. We have taken the action as a last resort and are committed to working with the Government of India towards a resolution.”

The state government cited the backing out of Mahindra & Mahindra, which according to the department, was expected to be the leader in the consortium when the proposal was first put forth, in soon after entering the MoU in 2006.

Mahindra & Mahindra, in collaboration with French manufacturer Renault and Japanese firm Nissan, had come forward to set up the manufacturing unit in Oragadam, near Chennai. However, about eight months after signing the MoU, Mahindra & Mahindra “wanted to make and exit under the guise of being uninterested to continue with the automobile project”, it alleged.

An MoU then signed with the new consortium of Renault and Nissan stipulated that the consortium would be expected to establish the integrated automobile project with an installed capacity of 400,000 units a year together with an investment of Rs 4,500 crore in eligible fixed assets within seven years from February 22, 2008.

The fiscal incentives offered by the government include a refund of gross output Value Added Tax (VAT) and Central Sales Tax (CST) in the form of Investment Promotion Subsidy for 21 years. The gross output VAT for sales within the state was 14.5 per cent and the CST was two per cent on interstate sales.

The government alleges that under the changed business model, the manufacturing company started selling all its products to marketing companies within the state. The two marketing arms sold it both within the state and outside and under the then provisions of the Tamil Nadu VAT Act, 2006, a huge Input Tax Credit (ITC) got accumulated and the consortium dealers, in addition to the refund by way of qualification of taxes paid for issue of subsidy also were eligible for refund of excess ITC from the commercial tax department.

The government then amended the Act with retrospective effect from January 1, 2007, with restrictions in dealers availing of ITC. The department also issued a government order permitting RNAIPL, the manufacturing entity, to receive fiscal incentives under the MoU as a single nominated agency. The company challenged it in the Madras High Court.

The department alleged that the alliance claimed credit to the tax already refunded to the manufacturing company, which is also a subject matter of the writ petitions pending in the court. The government did not release the gross output VAT, which it alleges started accruing rapidly under the new business model.

Only during the assessment years 2012-13 and 2013-14, when the members of the consortium "misused the provisions" of the then existing Act and privileges offered to promote industrial growth, the claims were nearly Rs 1,000 crore each year.

It has added that as on August 31, 2017, the commercial tax department issued tax paid certificate to the tune of Rs 3,736.45 crore and released subsidy to the tune of Rs 2,618.20 crore with a balance payable of around Rs 1,118.25 crore, and claims to the tune of Rs 412.10 crore pending with the commercial tax department.

The dispute reached a new level when Nissan opted to go for international arbitration against India, invoking the CEPA signed by India and Japan. The state government approached the high court seeking a stay on the arbitration proceedings, arguing the company had to fight the dispute in the Madras High Court according to the MoU clause between the two parties. 

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