The Gujarat High Court on April 24 rejected a public interest litigation (WP (PIL) No 96 of 2013) alleging that the State Government had provided undue and exclusive favours to Tata Motors Limited via Government Resolution of January 1, 2009, which gave the company a loan equal to the gross value of the Value Added Tax (VAT) and Central Sales Tax (CST) payable to the State Government, and was thus tantamount to a refund of VAT.
In Himanshu V Patel versus State of Gujarat, a bench comprising Chief Justice Bhaskar Bhattacharya and Justice JB Pardiwala observed that, “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”. The bench observed that following the State Government’s Resolution of January 1, 2009, Tata Motors Ltd set up a plant to manufacture 2,50,000 cars on two-shift basis and 3,50,000 cars on three-shift basis at Sanand.
The cars began to roll out of the Sanand plant from April 2010, and the plant is being monitored by a high level committee of the Industries and Mines Department. As on December 1, 2012, the company had invested Rs 3,891 crore for phase-I of the project, which would increase further as the investment period available for making the phase-I investment is yet to expire. The petition was rejected on grounds that it had no merit.
The petitioner, a practicing Advocate in the District Court at Gandhinagar and Member of the Syndicate of Gujarat University, alleged that the State Government, in violation and contravention of its policy decisions, was providing fiscal incentives to Tata Motors in the form of a loan at 0.1% simple interest per annum for the amounts equal to the gross VAT and CST payable on the sale of the Nano car and its parts and components from the date of commencement of the sale of the car.
The PIL stated that in 2008, the Tata Motors’ “Nano project” had to be shifted from Singur, West Bengal. The Gujarat Government, with a view to show development by way of investment of mega projects by multinational companies in various sectors, decided to give a loan on the above-mentioned terms and quantum. This, the petition alleged, was per se illegal and against the public interest, as it amounts to refund of tax.
The PIL contended that the State Government gave the company a cheque of Rs 167.20 crore in March 2013, and another loan of Rs 156 crore against the VAT paid by Tata Motors Ltd. The PIL was filed on learning from reliable sources that the Government was on the verge of disbursing another loan of Rs 500 crore to the company.
The petitioner alleged that Chief Secretary D Rajagopalan had strongly objected to giving loan against VAT during the Executive Meeting of March 30, 2013, on grounds that it violated Government Resolutions and Policies. He charged that Tata Motors was misusing the loans by showing the total sales of Nano cars to have been made to a wholly owned subsidiary in Gujarat, which then sold the cars in different parts of the country. In this manner, a larger amount of loan was being availed of from the State Government by showing fictitious sale in the State, which did not reflect the true figures of the sale of Nano cars all over the country. The petitioner urged that appropriate writ be issued to quash the impugned Government Resolution and declare the sanctioned and disbursed loan bad and void and direct its recovery from Tata Motors.
In reply, the Industries and Mines Department said that a loan of Rs 273.50 crore was given to the company as per GR of January 1, 2009. The Department said that after the White Paper published by the Central Government, the Government of Gujarat issued a resolution dated April 29, 2000 and decided it would not offer any incentive to attract industries, though Orissa, Bihar, Maharashtra, Haryana, Tamilnadu amongst others continued VAT incentives for the development of industries in their respective States.
After the earthquake of January 26, 2001, the Gujarat Government granted VAT incentives for rehabilitation in Kutch district. In 2008, the State Government initiated a New Industrial Policy to attract investments wherein it decided to offer need-based assistance to certain sectors under Mega and Innovative projects.
The auto and auto components sector was included under the Mega Project scheme, the evaluation criteria for which stated that the proposed industry should be a manufacturing unit; should envisage use of high-end State-of-the art/ cutting edge technology; should involve a capital investment of Rs1000 crore and employment generation of 2000 persons; should have a proven multiplier effect, and should add to skill formation and capacity building.
Because Gujarat lacked a major automobile/ vehicle manufacturing company, it decided to invite Tata Nano Project as the group had decided to move from Singur. It was felt that this would give an opportunity to second and third tire vendors to supply their products and services to the Nano project and help in the development of new engineering industries and service sectors, and generate employment.
After the agreement with the company was signed, there was a spate of PILs in the High Court to delay the project on various grounds such as allotment of land, compensation of land, concessions and so on, but the High Court dismissed these and imposed cost of Rs 10,000/- on each, to be paid to the Gujarat High Court Mediation Centre within a period of one month.
The Gujarat Government contended that leading national and international automobile companies such as Ford Motors, Maruti Suzuki and Hero Motocorp are showing interest in setting up projects in the State, in the wake of the Tata Nano project. Once they come, the State would be an automobile manufacturing hub in the nation. The State Government told the Court that though Tata Nano Project was a pioneer Mega Project, it was offered less concessions compared to those agreed to them at Singur, and projects coming after Nano will get even less incentives.
Subsequently, the Government of India, Ministry of Heavy Industries and Public Enterprise, published a report on Automotive Mission 2006-2016 for the development of Indian Automotive Industries. It suggested that manufactures be supported by Tax Holiday, one-stop-clearance, Tax deduction of 100% of export profit etc. This New Industrial policy was finalised by December 2008, and the State Government announced its New Industrial Policy in January 2009. Hence, there is no violation in rules or policy in the Nano Car Project. Under the Constitution, Industries is a State subject, and the State government is empowered to provide VAT incentives or other support for industrial development. It has accordingly offered deferment of VAT, similar to schemes introduced since 1980.
The State Government said there has been a spurt in economic activities in and around Sanand, with 42 nationalized and private banks working in Sanand block as opposed to only 11 banks earlier.
More pertinently, the Tata Nano company has begun to deposit VAT since April 2010, and has so far paid Rs 382 crore up to March 31, 2013. Arguing therefore that its loan was not a refund of tax, the Gujarat Government said that the Supreme Court itself in Amrit Banaspati Co Ltd upheld that exemption from tax to encourage industrialisation should not be confused with refund of tax; similarly, deferment of tax to encourage industrialization should not be confused with refund of tax. There is a fine distinction between the two.
The petition was dismissed as having no merit, but luckily for the petitioner, there was no order as to costs.
Niticentral.com, 27 April 2014
http://www.niticentral.com/2014/04/27/gujarat-high-court-rejects-toffee-model-allegation-217100.html