As Nokia gets a breather, other MNCs hold their breath

Written by fe Bureau | Chennai | Updated: Apr 30 2014, 21:08pm hrs
NokiaHC asked Nokia to deposit within eight weeks 10% of tax demand as a precondition for reconsidering the case. Reuters
In a fairly big reprieve for Nokia, the Madras High Court on Tuesday quashed a sales tax demand for Rs 2,400 crore by the Tamil Nadu government, saying the matter should be heard afresh on its merits, reports fe Bureau in Chennai. The

HC also asked the deputy commissioner (commercial tax) to give the Indian arm of the Finnish mobile phone maker an opportunity for a hearing. However, the HC asked Nokia to deposit within eight weeks 10% of the tax demanded, or R240 crore, as a precondition for reconsidering the case.

Nokia is weighing its options for legal recourse post todays Madras High Court ruling. It would like to reiterate that it continues to see the Tamil Nadu claim as without merit and will defend itself vigorously, a company spokesperson said.

The firm is also fighting a Rs 21,000-crore income tax demand in relation to royalties paid to its Finnish parent (the tax, the revenue department says, was supposed to be deducted by the local firm at source).

Of course, the HC clarified that Tuesdays order would not totally take away the state VAT departments right to proceed further in the matter. It also called feeblethe companys attempt to state that the relevant VAT dues (for three assessment years up to FY12) could not be anything higher than relating to Rs 14 crore, the variation (between claimed exempt foreign sales and VAT-able domestic sales). Analysts, however, said the courts order stopping the VAT department from pressing the current assessment orders and review the entire matter afresh is a victory for the handset maker.

The Madras High Court also directed Nokia to submit all documentary evidence to prove its case before the deputy commissioner.

The Tamil Nadu VAT department made the tax claims on the grounds that the company was selling handsets produced at its Chennai manufacturing plant in the domestic market, instead of shipping them overseas. The courts direction came after the company claimed that it did not have any cash in hand to pay the amount.

Nokias senior counsel Arvind Datar argued that the company lacked the requisite liquidity as it had paid over Rs 780 crore in 2013-14 to the income tax department towards the ongoing Rs 21,000-crore tax dispute at the Delhi High Court. He also sought that the company be given an opportunity for a personal hearing.

Tuesdays high court order comes at a time some of the largest foreign investors in India are busy fighting whopping tax demands from various arms of the countrys revenue dispensation (see chart). These pertain to a range of issues: Not withholding taxes on royalties paid to foreign entities, failure to pay taxes on capital gains on indirect transfer of Indian assets and transfer pricing adjustments.

Investor enthusiasm in India is at a low ebb the investment-GDP ratio fell from 38% in FY08 to just over 34% in FY14. While steps to unclog investments are being taken, tax authorities, in their anxiety to boost revenue collections, are going after high-profile foreign investors in India, precipitating a plethora of litigation. A part of the tax claims could be legitimate, but many have antagonised investors, especially the ones pertaining to retrospective taxation.