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Changes in VAT rules hit fabrication units in and around Trichy
December, 16th 2013

Fabrication units in and around Tiruchi have been hit by the recent amendment to the Tamil Nadu Value Added Tax rules.

Already faced with a slump in orders, the small and medium industries of Tiruchi, most of them dependent on BHEL for orders, are now worried that they would stand to lose orders and their margins will come under heavy pressure. For, BHEL and other customers that sell the value added products, supplied by the ancillary units, in other States by paying Central Sales Tax will not be able to get the full benefit of VAT.

The recent gazette notification on November 8 disallowing 3 per cent on VAT input for items despatched to other States has put almost all the industries manufacturing with own material to great disadvantage. This would force the customers to go in for purchase from other States leading to closure of industries in Tamil Nadu, said M.Srinivasan, president, BHEL Small Industries Association.

“As the 3 per cent input VAT is disallowed, customers are now asking us to give three per cent discount from the already agreed basic rate so that their tax outgo will not be more when they purchase from us (in comparison to purchases from other states),” he said.

Fabrication units in Tiruchi, Mr.Srinivasan said, already operate on very low margin and providing three per cent discount will make the units unviable. The change poses a grave danger to the medium and small industries in Tamil Nadu, he said. Meanwhile, in a representation to Chief Minister Jayalalithaa, Rajappa Rajkumar, vice president, Tamil Nadu Small and Tiny Industries Association (TANSTIA), said the change in the VAT rules would be disastrous for the vendor units. It would also lead to a fall in revenue to the State government and industries will lose order and become sick.

The fabrication units in Tiruchi were dependent on orders from BHEL. Since most of the boilers were sold by BHEL for other States, it would be losing 3 per cent VAT, if it placed orders with the industries in Tamil Nadu. This could make BHEL to place orders outside the State.

The industries in and around Tiruchi were already facing problems in getting orders. Around 430 small and medium units of Tiruchi, with an investment of Rs. 1,500 crore, were providing direct employment to 20,000 people and indirect employment to another 20,000, he said and urged the Chief Minister to intervene to save the MSME units in the State.

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