Maruti chief meets Gujarat CM, discusses VAT issues

Co to come up with new formula for VAT refund, starts work on developing infrastructure at site

R C Bhargava, chairman of Maruti Suzuki India Ltd (MSIL), on Wednesday met Gujarat Chief Minister Anandiben Patel and discussed issues related to the company’s proposed manufacturing plant in the state.

Speaking to Business Standard, Bhargava said, “I had a meeting with the chief minister and the state finance minister (Saurabh Patel). The chief minister reiterated the Gujarat government’s commitment to the project and explained the problem that had come up due to the two-company model, instead of a one-company one. The finance minister gave some relevant advice on getting legal advisors to see in what way it should be structured to take care of the two-company model.”

Recently, the state government had asked MSIL to come up with a fresh formula to share value-added tax (VAT)-related concessions between MSIL and Suzuki Motor Gujarat Pvt Ltd (SMGPL), a wholly-owned subsidiary of MSIL’s parent company, Suzuki Motor Corporation.

The subsidiary will manufacture cars for MSIL at the Gujarat facility.

In June 2012, MSIL had signed a state support agreement (SSA) with the Gujarat government to purchase land and set up a manufacturing facility. In January this year, MSIL’s board said the Gujarat plant would be built by SMGPL. In March, the company officially approached the state government to incorporate changes in the SSA. After it was discussed by the chief secretary’s committee on mega projects, the proposal was referred to the finance department.

Last week, state government officials held a meeting with senior company representatives and raised concerns related to VAT refund in the two-company model. While MSIL was both producer and seller according to the original agreement between MSIL and the government, in the new scheme of things approved by the MSIL board, SMGPL would be the producer.

“We will get a detailed examination and see what correct formulation we can come up with, one that is acceptable to both parties. This will take some time, until our lawyers can come up with a formula,” Bhargava said, adding the commitment of the state government on the subsidy front remained unchanged.

The state government hasn’t set any deadline for the company to come up with a fresh formula.

The VAT refund granted to the company is for 15 years, with a cap on the net investment by the company in the state. Meanwhile, the company has already started work on developing infrastructure at the site for the plant. Bhargava said construction would begin after the infrastructure was in place. He added the company would continue to invest in Gujarat until capacities at both the sites (Hansalpur and Vithlapur in Mandal) were exhausted. Initially, the company had indicated it would invest about Rs 4,000 crore to build capacity of about 250,000 vehicles a year.