After Nissan hits Tamil Nadu with $770 mn bill, state accuses it of using pressure tactics

Published On: 06, Dec 2017 | Source:

The Tamil Nadu government has claimed that Japanese auto giant Nissan is resorting to all sorts of pressure tactics by invoking arbitration clause in Comprehensive Economic Partnership Agreement (CEPA) as part of its incentives claim, wherein it is not the party. “If at all the concerned party is aggrieved… the remedy is to invoke clause 15 of the MoU signed with the state government and not CEPA…there are no obligations cast on the applicant — Tamil Nadu under the agreement,” the state government said in its affidavit filed with the Madras High Court on Monday, seeking injunction restraining Nissan from proceeding with international arbitration. Nissan initiated international arbitration proceedings against the Indian government, seeking $770 million. When contacted, an executive of Nissan told the FE: “We are asking the government of India to uphold the commitments made in the India-Japan Comprehensive Economic Partnership Agreement (CEPA). Under the treaty, we are entitled to go for an arbitration. We have taken the action as a last resort and are committed to working with the Indian government towards a resolution”. In its affidavit, the state government said the sudden change in business model brought in by Nissan in April 2012 has led to this contentious issue. The company, from April 1, 2012, to March 31, 2014, changed the business model with one manufacturing company called RNAIPL (Renault-Nissan Automotive India) and two marketing companies — Renault India and Nissan Motors India, which resulted in dual pay out from the state’s exchequer by two different departments for a single transaction. In tune with it, RNAIPL was treated as manufacturer and NMIPL as a marketing firm, thus showing that the entire sales was effected within Tamil Nadu. This change affected the very purpose and object of the MoU, the government said in its affidavit.

A steep increase in the output tax during 2012-13 and 2013-14 led to certain queries. By changing the business model, a product sold either by Renault or Nissan, gains input value and gets subsidy. As regards some products, if sold to NMIPL, it may result in subsidy for input as well as on sales to consumers, creating a scope for enjoying double benefit of input as well as output value, the affidavit stated. In its affidavit, the state government contended that RNAIPL and Nissan Motor India are not entitled to the claim, which is ‘exaggerated’ and not ‘genuine’. The maximum subsidy (financial incentive/VAT refund) that can be paid was only around `4,500 crore. The change in business model by the company affects the very purpose of memorandum of understanding. The investment/VAT subsidies to be paid over a period of 21 years from the date of commercial production. After considering all these aspects, the department issued a government order and amended the TN Value Added Tax Act, 2006, bringing the legal framework in tune with the change. Following which, the aggrieved companies moved the high court with writ petitions against the amendment and the related notice to it. The firms obtained interim orders, the subject matter of dispute in the arbitration, the affidavit pointed out. As stated, by the ingenious method of changing the business model, the respondent (Nissan) is making an unlawful gain and reaches the target within a short span of time and with undue benefits which are all against state’s interests, the affidavit further said. The state government also said in its affidavit that by getting the investment subsidy within a short span of time, there is a likelihood of showing disinterest by the company which will in turn affect the development of the state. A faster payment of incentives to the car manufacturer RNAIPL for setting up its manufacturing unit in India may result in the company abandoning the project and leaving the state without bringing in the substantial economic growth stipulated under a memorandum of understanding (MoU) signed between them.