Tamil Nadu set to settle Rs 2,900-crore tax dispute with Nissan Motor

Tamil Nadu is set to settle the Rs 2,900-crore tax dispute with Japanese automaker Nissan Motor in the next few months.

The development comes two months after the state revived Nokia’s mobile-manufacturing facility, once the world’s largest, which it closed down in 2014 owing to a Rs 21,000-crore tax dispute. Salcomp, Foxconn, and other companies have acquired the 210-acre facility in parcels.

The agreement with Nissan has got the Cabinet’s nod, said sources, adding it would be signed soon.

After taking office three years ago, Chief Minister K Palaniswami said his government would work on sorting out issues with both Nokia and Nissan, two high-profile tax cases.

While the state government will continue to offer the incentives as promised, Nissan will give up its claims on input tax credit, said sources.


A Nissan spokesperson said: “We are committed to working with the Government of India. Nissan is proud to play a role in the ‘Make in India’ effort and we have created over 40,000 jobs in India, directly and indirectly, and contributed to the economic growth of Tamil Nadu, where we have invested around $1 billion.”

Nissan, along with its French partner Renault, had set up a car-manufacturing facility at Oragadam, near Chennai in 2008, to cater to domestic and export markets.

Almost five years ago, the dispute led to the state government stopping refunds to Nissan and the company took the state to court, according to reports. The state has offered tax sops to investors, including investment promotion subsidy (IPS) and VAT (value-added tax) refunds. While the government was ready to give the subsidies to the carmaker, it refused to acknowledge the VAT dues Nissan claimed. 

It was in the second half of 2017 that the company took the matter to international arbitration.

The tussle led Renault Nissan Automotive India to say it would hold off its plans to invest Rs 5,000 crore in the facility.

The Industries Department of Tamil Nadu had then alleged the companies had changed their business models after signing the MoU, enabling them to avail of the Rs 5,125 crore eligible incentives to them much before completing 21 years as stipulated in the deal. According to the conditions, the company can avail of a benefit of up to 115 per cent of the eligible investment, which is around Rs 5,125 crore, in around 21 years.

Two marketing firms — Nissan Motor India and Renault India — were floated to sell cars manufactured by the consortium to these two firms, thus taking advantage of the 14.5 per cent VAT to all cars.

Normally cars sold in the state attract a VAT of 14.5 per cent, while those sold in other states pay 2 per cent. There is zero duty on exported cars.

However, it alleged that the manufacturing company charged the 14.5 per cent VAT and sold all cars to their group companies and thus the entire tax became eligible for refund.

“On the one side, Renault Nissan Automotive India got refunds of entire taxes collected and paid by the manufacturing company which included the Input Value Added Tax on their purchases without adjustments under the conditions of the MoU executed. On the other, the same amount was claimed as Input Tax Credit (ITC) by the marketing companies ...,” said the department in a counter affidavit with the Madras High Court earlier.

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