VAT - Fiscal incentives by Gujarat Govt in form of loan to Tata Motors at 0.1% simple interest per annum - such amount is not refund of tax - no merit in PIL: HC
By TIOL News Service
AHMEDABAD, MAY 09, 2014: TATA Motors had bought land in Singur in Hoogly district, West Bengal to produce its low-cost car, purportedly the One lakh rupee Nano. But the project actually never took off due to protest from farmers who claimed that they had been underpaid or forced from their land.
Exasperated by the mounting resistance, Tata pulled out of West Bengal. No sooner had this exit been announced, it is said that Narendra Modi, the Gujarat Chief Minister sent a SMS to Ratan Tata, Company's President and which read “Welcome to Gujarat”. Within a few days, the Gujarat government transferred land to the company and thus the Sanand Nano story was born.
In his interview to a leading news channel a few days back, the BJP's Prime Ministerial candidate, Shri Narendra Modi in reply to the issue of toffee model raised by the Congress said, -
Only a week ago, the Gujarat High Court gave a 100 per cent judgment on the Tata Nano car project, in favour of the government policy. But it was not news for you. Nobody reported it.
We report the case today.
Actually, it was a Public Interest Litigation filed in the Gujarat High Court.
The ground -
+ that the State Government has, in violation and contravention of its policy decisions, been providing fiscal incentives to the Tata Motors Limited, in the form of a loan to the Tata Motors Limited at 0.1% simple interest per annum for the amounts equal to the gross Value Added Tax and Central Sales Tax payable to the State Government, on the sale of the Nano Car and it's parts and components from the date of commencement of the sale of the Nano car.
+ that such a policy decision on the part of the State Government could be termed as per se illegal and against the public interest, as it amounts to refund of tax.
The High Court observed -
++ We are of the opinion that the loan advanced in the instant case by the Government in favour of the respondent No.3 is with a view to encourage the establishment of the automobile industries in the State as a part of its industrialization policy and the establishment of the project in question has encouraged establishment of other industries like Ford India Private Limited and Maruti Suzuki India Limited.
++ The quantum of VAT and Central Sales Tax recovered is only a measure for determining the quantum of loan to be advanced. We have noticed that the maximum amount of loan, which can be advanced on a year to year basis is made dependent on the sales effected by the respondent No.3. The respondent No.1 State of Gujarat instead of giving a lump-sum loan has made the entitlement of loan dependent upon the performance of the respondent No.3.
++ We are also not impressed by the submission of Mr. Oza that a huge amount of loan to the tune of approximately Rs. 9,000 crore would be granted by the Government in favour of the respondent No.3 as indicated in Clause 2.1 of the Resolution dated 1st January, 2009. It is true that the maximum amount of loan will be equal to 330% of the Phase-I investment by the respondent No.3. However, we have noticed that there is an additional condition that the loan amount shall be equal to the gross VAT and Central Sales Tax payable to the respondent No.1 on the sale of Nano cars and its parts and components from the date of commencement of sale of Nano cars. Therefore, while the total loan amount cannot exceed 330%, the actual loan would depend on the quantum of sale of Nano cars and its components.
++ Indisputably, such amount is a loan and not refund of tax. We have also noticed that the respondent No.3 is obliged to also provide prior subservient charge over its project assets in favour of the respondent No.1 in respect of the loan amounts disbursed and the loan amount will have to be returned back with 0.1% simple interest on the expiry of 20 years.
++ It has also been brought to our notice that such a provision of loan dependent upon the recovery of VAT is found in various other incentive policies of different States. We have been taken through the Government of Haryana Industrial Policy, 2005; Orissa Industrial Policy, 2007; State of Tamil Nadu Ultra Mega Integrated Automobile Project Policy; State of Andhra Pradesh Industrial Investment Promotion Policy, 2010- 15; Bihar Industrial Incentive Policy, 2011 and the West Bengal State Support for Industries Scheme, 2008. In all the above referred policies of the different State Governments, we found such incentive being provided to the industries.
++ We are also not impressed by the submission that the incentive policy of the State Government is being misused by the respondent No.3 by showing the sales first to its wholly owned subsidiary company in Gujarat and thereafter, the subsidiary company effecting the sales to the different dealers of the respondent No.3 all over the country.
++ We find absolutely no legal bar under any of the provisions of the Motor Vehicles Act, 1988, in transferring a vehicle to a distribution and logistics company so that such a company can in turn transfer the vehicle to the dealers in other parts of the country. We are of the view that this itself would not make the vehicle a secondhand vehicle in the hands of the ultimate purchaser.
++ The Senior Advocate appearing for the respondent No.3 as well as the learned Government Pleader appearing for the State of Gujarat are right in submitting that the project has to be taken as a whole and must be adjudged whether it is in the larger public interest. It should not be split into different components and to consider whether each and every component will serve the public good. The holistic approach should be adopted in such matters. If the project taken as a whole is an attempt in the direction of enhancing the revenue for the State Government, generating employment opportunities and securing other economic benefits to the State and the public at large, it will serve the public purpose.
++ In our opinion, the decision of the Supreme Court in AmritBanaspati Co.Ltd. has no application worth the name, so far as the case at hand is concerned. In the said case before the Supreme Court, the policy of the State Government was to refund the sales-tax which would be paid by the industries to the State Government on sale made by it of its finished products. The Court took the view that the same was not permissible, being contrary to the Constitution.
++ In the present case, as discussed above, the amount of loan paid by the Government to the respondent No.3 does not amount to refund of tax. As observed by the Supreme Court itself in AmritBanaspatiCo.Ltd. (supra), that exemption from tax to encourage industrialization should not be confused with refund of tax. In the same manner, deferment of tax to encourage industrialization should not be confused with refund of tax. The amount in the present case paid by the Government to the respondent No.3 is a loan and not refund of tax. There is a fine distinction between the two.
++ In the overall view of the matter, we are not at all convinced with the issue raised by the petitioner in public interest and that too after a period of almost four years from the date of passing of such Resolution.
We do not find any merit in this public interest litigation and the same deserves to be rejected.
The petition fails and is rejected.
(See 2014-TIOL-675-HC-AHM-VAT)
