Tamil Nadu government slaps Rs 2,400 crore tax demand notice on Nokia
March, 24th 2014
Nokia India found itself battling on a new front with tax authorities after it received a Rs 2,400-crore claim from the Tamil Nadu government alleging that the mobile handset maker avoided taxes on devices sold within India by masking them as exports.
Nokia India filed a writ petition in the Madras High Court on Friday against the notice after talks with taxmen, that have been going on for the last fortnight, failed.
Nokia, whose devices and services unit is being bought by Microsoft, is already fighting a Rs 21,000-crore claim by the income tax department over royalty payments made to its parent company in Finland.
On Friday, Nokia India denied any wrongdoing. "It is absurd that the Tamil Nadu tax authority is now claiming that devices made in Chennai were not exported and were instead sold domestically in India," it said in a statement.
"We contend that this allegation has no basis in reality whatsoever; it could easily be rebuffed by a check of documentation provided to various governmental departments including Customs. Nokia will defend itself vigorously in this matter."
The Supreme Court last week upheld the Delhi High Court's verdict ordering Nokia India to provide Rs 3,500 crore as guarantee against future tax liabilities until which time its lone Indian facility in Sriperumbudur near Chennai would remain frozen. This has raised doubts about whether the facility, which provides direct and indirect employment to 7,000, would be part of the Microsoft acquisition.
Microsoft had given a deadline of March 31 this year for all Nokia's assets to be transferred to the technology firm. "This is definitely a big threat for our employees," said G Udayakumar, advisor to Nokia India Thozhilalar Sangam (Nokia India Employees' Union). "Now, we are unsure whether the company (in Chennai) will exist or not."
The union had recently planned to approach the labour department to discuss this issue and file a petition seeking intervention by the state to protect their jobs.
According to a company executive, the tax authorities claimed that Nokia India had not paid Value Added Tax (VAT) on feature phones sold locally between 2009 and 2012 and demanded that the company provides documents (export bills) for every shipment within a day. This could not be immediately verified with income tax officials.
Sachin Menon, partner and national head of indirect tax at auditing firm KPMG, said: "I do not have the details of the case but there could be two possible reasons. For some reason, Nokia India's claim that they have exported (the devices) has been rejected — so no exemption; or when they (Nokia India) established themselves, they were given some sales tax or VAT incentives, which are being denied."
Nokia was the first to set up a telecom SEZ (special economic zone) in 2005 on a 200-acre site near Chennai, bringing in its vendors and suppliers to be housed in the same premises. It was set up to export 50% of its output and sell the rest in India.