T.N. working towards resolving Nissan’s $770 million suit

Nissan has initiated international arbitration proceedings against the Indian government, seeking $770 million on the dispute.

The Tamil Nadu government is working towards resolving the controversy over the payment of incentive refund with Nissan, a Japanese car maker, running a plant in Oragadam near here.

Nissan has initiated international arbitration proceedings against the Indian government, seeking $770 million on the dispute, according to reports.
Explaining the State government’s version of the row, a senior official of the Industries department says the dispute has two dimensions. While one is over the refund of value added tax (VAT), another deals with the pace of refund of VAT accruals.

While the government is talking to the company, it is also apprising the Central government of the factual position as the company has raised the matter with the Centre, making a reference to the Comprehensive Economic Partnership Agreement (CEPA), the official says.

In March 2010, Nissan along with its joint venture partner Renault established the plant after signing a memorandum of understanding with the then ruling DMK government in February 2008. The venture has invested ₹ 6,100 crore in the following seven years with annual production capacity of 4.80 lakh vehicles.

For setting up plant, usually the state government offers financial incentives in the form of valued added taxes among others based on certain conditions.

“The issue pertains over differences in value added taxes refund claimed under the incentive. The incentives are spread over a period of 21 years,” the official said.

The dispute arose about four years ago when the government felt that the company was attempting to “claim double benefits” out of the project. The government contended that the company, by promoting a marketing entity, had shown that all its sales had taken place with the marketing entity, for which it claimed refund of 14.5% VAT. The refund would be allowed till the accruals reached the level of investment. The marketing entity was, in turn, also claiming input tax credit for its transactions, which the government found objectionable. Through this arrangement, the company, according to those who handled the matter in the recent past, could get back its investment faster than otherwise.

The company’s contention was that there was nothing illegal about the way it was carrying out its business and this was why its claims should be settled.

In 2015, the government, taking a cue from Maharashtra, amended rules on VAT, by which the claim on ITC was barred. The government’s order has been challenged in the Madras High Court. The Centre too held a series of meetings with the State government on the issue.

Nissan has claimed the incentive of ₹ 2,900 crore in VAT refund, whereas the State government says it has paid ₹ 1,600 crore including ₹ 600 crore in the last six months.

“We are committed to working with the Government of India toward a resolution. 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 a billion dollars,” Nissan spokesperson said in a statement.