Nokia now slapped with Rs 2,500-cr VAT demand by TN

Written by fe Bureau | Chennai | Updated: Mar 22 2014, 11:02am hrs
Finnish handset maker Nokia's tax travails in India only seem to mount. Close on the heels of last week's Supreme Court ruling that could force Nokia India to keep its Chennai phone factory out of its $7.2-billion deal with Microsoft at least till a pending tax row is settled, the Tamil Nadu government's tax department has slapped a $414-million (close to R2,500 crore) value-added tax (VAT) claim on the company.

Nokia has now filed a writ petition in the Madras High Court contesting the claims of the Tamil Nadu tax department, which has moved to assess tax on the export of devices from the company's Chennai facility.

The VAT department is said to have slapped the notice on Nokia pointing out that the mobile phone major did not comply with the export obligation of around 50% for which it had claimed VAT exemption during the years 2009-10, 2010-11 and 2011-12. The notice has stated that the company has to pay the tax for three years.

Separately, India's income tax department and Nokia India are embroiled in a tax row relating to alleged violation of withholding tax norms by Nokia India since 2006 while making royalty payments to its Finnish parent, which amount to R21,000 crore for 2006-2013, including penalties. The Supreme Court recently upheld the Delhi High Courts December 12 order that said the handset maker cannot transfer its Chennai plant to Microsoft unless 16 conditions are met and also questioned Nokia's claims on the valuation of the plant.

The apex court asked Nokia India to deposit R2,250 crore in an escrow account and its Finnish parent to guarantee payment of up to a maximum of R3,500 crore in taxes, pending resolution of the tax dispute.

In the VAT case with Tamil Nadu government, Nokia countered that argument stating it was absurd that the Tamil Nadu tax authority was claiming that devices made in Chennai were not exported and instead sold domestically in India. We contend that this allegation has no basis in reality whatsoever; it could easily be rebuffed by a check of documentation provided to governmental departments including customs. Nokia will defend itself vigorously in this matter, the firm said.

When contacted, Nokia said in an email statement, Nokia considers the claim to be without merit and counter to domestic tax laws. In India, exports are by law exempt from tax, and Nokia has proved consistently that devices produced at Chennai are exported abroad. Indeed, the company has been regularly assessed and audited by the tax authorities since 2006 without incident, and it has also won numerous export awards from governmental organisations.

According to industry sources, Nokia sells close to 40% of the handsets produced out of the Chennai plant in the domestic market, while the remaining goes out to 70-odd countries. The company makes low-end models at the plant.

The high court had allowed the de-freezing of Nokia Indias assets in India, especially the Chennai manufacturing plant, but imposed conditions. Nokia India had sought a smooth transfer of its Chennai plant and waiver of the conditions arguing that any undertaking by its parent firm would have penal consequences in case of any default.

Nokias deal with Microsoft was announced in September 2013 and is likely to be completed by the end of the month. Nokia's Chennai handset factory was set up in 2006 and is one of the Finnish company's largest. The factory employs more than 8,000 people and has produced 800 million phones. For Nokia , India is a major market.