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M&M may exit Maharashtra over the issue of VAT refunds from the state government
February, 22nd 2012

Utility vehicle major Mahindra & Mahindra (M&M) has threatened to pull out fresh investments to the tune of Rs 4,000 crore from Maharashtra over the issue of VAT refunds from the state government. Some of the major auto investors like the Volkswagen group and Bajaj Auto have also raised concern over this issue and threatened to move out new investments from the state.

M&M, headquartered out of the state and one of its biggest automobile investor, has said the VAT refund issue was impacting its annual cash flows after the government made changes in rules. "It is not a comfortable situation and we are actively considering moving out from Maharashtra as we plan the next phase of expansion," Pawan Goenka, M&M's automotive & farm equipment president, told TOI here.

Goenka said the company - that currently has four of its six passenger vehicle plants in Maharashtra - is in discussion with other state governments for its new expansion of setting up of a greenfield 2.5 lakh units capacity plant. "We had taken up the matter with the Maharashtra government and they said they are finding a solution. However, we cannot wait for long and may take a decision on new investments over the next one month."

The matter revolves around the Maharashtra government changing rules for VAT set-off, which normally is offered as a fixed incentive against new investments in the state. While earlier the state government used to offer set-off for the entire vehicles sold by a company, the new rule (changed last year) gives the set-off only for vehicles sold within the state. This means that the time taken for a company to realise the total value of incentives offered will be spread over many years against a shorter span as per the previous rule. "Only 16% of our sales come from Maharashtra, while the rest is from outside the state. The new rules mean that the set-off is available only on one-sixth of our sales, thus impacting our cash flows," Goenka said.

Maharashtra is believed to have lost potential investment opportunities due to the uncertainty on the matter and sources said Ford decided to opt for Gujarat when going for a second plant due to this issue. Goenka said M&M is looking at a minimum of 400-500 acres for a new facility.

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