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

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

Context

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

News

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

Arbitration proceedings

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

Issue

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

Backdrop

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

How did the dispute arise?

• 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
• Company’s view: 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. 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
• VAT Rules amended: 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

Concerns over investment climate

• Nissan taking the matter for international arbitration comes at a time when there are concerns in certain quarters about the investment climate in the state
• Last year, the state slipped to the 18th rank in the state-wise ease of doing business ranking released by the Centre’s Department of industrial policy and promotion (DIPP). It is to address this issue and attract greater investment that the State government, in late October, came out with an ordinance, envisaging single window clearance for industrial projects