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After losing Ford, Maharashtra's new plan to claim VAT set off
August, 03rd 2011

Once bitten twice shy. After losing out an investment of Rs 4,000 crore by Ford to Gujarat, the Maharashtra government has now woken up to revisit modifications made since April on claiming value added tax (VAT) set off by the automobile industry.

Instead of VAT set off claimed on gross sales basis, the government has replaced by claiming VAT set off on net sales basis which has been objected to by the automobile industry.
 
State industries minister Narayan Rane admitted this was a major issue raised by the automobile industry. My ministry will soon seek the intervention of the chief minister and the finance minister with a plea to reconsider the revised scheme implemented from April onwards, he told Business Standard.
  VAT IN THE EYE OF A STORM
* Instead of VAT set off claimed on gross sales basis, the government has replaced by claiming VAT set off on net sales basis which has been objected to by the automobile industry
* State industries minister Narayan Rane said, My ministry will soon seek the intervention of the chief minister and the finance minister with a plea to reconsider the revised scheme
* Mahindra & Mahindra has expressed its displeasure over the functioning of the state government for withdrawing VAT set-off that M&M gets for vehicles sold outside the state


Ranes move comes close on the heels of objections raised by the Mahindra & Mahindra with the revised VAT set off scheme by the automobile industry.

A state government official, who did not want to be identified, explained companies were able to claim VAT on components under the old rules. Companies were allowed to claim VAT set-off on the entire production, including sales outside Maharashtra. They also allowed the companies to set up two separate arms dealing with the marketing and sales and the manufacturing.

Earlier, the companies would sell the entire production, from the manufacturing arm to the marketing and sales arm, to claim VAT set-off for sales within Maharashtra. The marketing arm would then, in affect, bill it to the other states across the country.

However, the official said according to the revised rules, the companies would not be able to claim the VAT set-off for products manufactured for Maharashtra and sold outside the state.

The state government has proposed to provide land and a customised incentive package to Ford. However, due to the revised scheme to claim VAT set off for sales on net basis, the different in Maharashtra and Gujarat comes to 9.5 per cent. Therefore, Ford must have preferred Gujarat for its investments, the official informed. He reiterated the industries ministry would soon take up with the chief minister and the finance ministry for an early resolution of the issue.

Meanwhile, Sports utility vehicle (SUV) market leader Mahindra & Mahindra, is understood to have revisited its investment plans for the second phase of expansion of the Chakan plant.

The company has expressed its displeasure over the functioning of the state government which has decided to withdraw VAT set-off that M&M gets for vehicles sold outside the state. The Congress-led government has withdrawn the 12.5 per cent VAT benefit for the nearly 70 per cent vehicles M&M sells outside Maharashtra.

Pawan Goenka, president automotive sector, M&M said, We have had several rounds of talks with government officials at various levels. We have been concerned for the past four months. Despite the constant dialogue, nothing has happened. It will be hard for us to look at this state for future investment. We will re-look at the second phase of investment at Chakan to see if it still is financially viable for us, he added.

M&M was scheduled to make the final part of the Rs 5,000 crore investments into the second phase of expansion at the Chakan plant near Pune where it makes sports utility vehicles and trucks.

We havent seen any big ticket investment coming into Maharashtra lately. Most of them have gone to other states, added Goenka.

The Chakan plant project, which was inaugurated last year, is spread across 700 acres having an installed capacity of 300,000 vehicles per annum which would be scaled up at a later stage.

 
 
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