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In a new development in the ongoing tax repayment dispute between Nissan and the Tamil Nadu government, the Centre has backed Nissan's right to approach the International Arbitration Tribunal constituted under the Comprehensive Economic Partnership Agreement (CEPA).
The Centre has submitted to the Madras High Court that under international law, a country is viewed as a single unit and proceedings may be initiated against the Union even for independent acts of the federal units.
The state government is of the stance that according to the memorandum of understanding (MoU) between the company and the government, the dispute has to be heard at a court in Tamil Nadu.
"The mere existence of such an MoU, however, would not prohibit the claimant (Nissan) from approaching an international arbitral tribunal constituted under the CEPA," said the government in a counter affidavit filed in the Madras High Court.
The counter was filed after the state government approached the court seeking an injunction on Nissan taking the case to the International Arbitration Tribunal in a tax dispute with the state.
The Centre might have taken a diplomatic view, considering their international reputation and free trade agreements, but the state government has its own point of view and both the views are with the court now, said a state official on the condition of anonymity. It would be difficult for the state to cough up large amounts such as Rs 40-50 billion if it is asked to do so. The issue has to be discussed between the Centre and the state.
Nissan Motor has approached the International Arbitration Tribunal seeking around Rs 50 billion, invoking the CEPA treaty between India and Japan. The company has alleged that the Tamil Nadu government has not paid incentives that had to be paid to them under an MoU signed in 2008. The state government approached the high court seeking a stay on the arbitration proceedings, arguing that the company had to fight the dispute in the Madras High Court according to the MoU's clause.
While the Centre agrees that the state's stand that the arbitration clause under the MoU should have been resorted to by the company, it has to be raised as a ground to challenge the jurisdiction of the tribunal constituted under the CEPA and dealt with as a preliminary issue, the Union government said. The Tribunal has agreed to consider this as a preliminary issue, it added.
The Centre enters into treaties to strengthen international relations and further diplomacy and state Governments cannot be consulted prior to such agreements.
"In the realm of international law, the Union government is considered as being a representative of the interests of the local governments and in entering into international obligations ensures that a balance of competing interests is achieved," it said.
The Centre would, in consultation with the Tamil Nadu government, defend the claims and, in these international proceedings, the interest of the Centre and the state governments are aligned, it argued.
The Centre, meanwhile, has further submitted to the court that the dispute has to be heard by the International Tribunal itself and that the Tamil Nadu government has no locus to file a petition in the high court against the dispute in the Tribunal.
Nissan sought payment of incentives due from the Tamil Nadu government as part of a 2008 agreement to set up a car manufacturing plant near Chennai. Tamil Nadu officials alleged that the agreement between Nissan and the state is to refund the incentives over 21 years but the company wants to get the accruals in a short period.