The Tamil Nadu government has approached Madras High Court to restrain Japanese car maker Nissan Motor from proceeding with international arbitration seeking nearly $770 million in a dispute over unpaid State incentives.
The State government said in the petition, Nissan is not entitled to the claim, which is “exaggerated and not genuine.” The company with a view to coerce Tamil Nadu government is using pressurising tactics by invoking arbitration clause in Comprehensive Economic Partnership Agreement (with Japan government) to which the State government is not a party. They are not entitled to raise this issue before International Arbitration.
Renault and Nissan Consortium entered into a, MoU with Tamil Nadu government in February 2008 to establish a green field integrated automobile project and related facilities in Chennai. An original MoU was signed on February 26, 2007, wherein Mahindra and Mahindra, Renault and Nissan were entities and it was called as M&M Consortium.
The plan was to establish at the Oragadam Industrial Park, near Chennai, a 4-lakh-vehicle a year automobile factory at an investment of ₹4,000 crore over a period of seven years. As Mahindra and Mahindra was not keen in producing the automobiles, they withdrew from the Consortium and a new MoU was signed a year later.
The incentives offered by the State government like VAT and CST is for 21 years from date of commercial production with a cap of 115 per cent of eligible investment capital subsidy of ₹2.25 crore and other subsidy of 0.03 lakhs and input VAT refund.
Commercial production started in February and May 2010 and incentives were applied in 2011. The claim of ₹196.20 crore towards output investment promotion subsidy was made up to March 31, 2012. It is only when Nissan changed their business model from April 1, 2012, there was a sudden boost of claim for VAT came to be made.
After the change in business model, the consortium have been split up into consortium manufacturer and consortium marketing. Hence there is a chance of getting double benefit in the issue of VAT input and output. Nissan is claiming undue fiscal gain, which will alter most of clauses of the agreement. Tamil Nadu will have to bear burden of payment, scheduled for 21 years in less than 4 to 5 years., the petition said.