Multi-utility vehicle (MUV) manufacturer Mahindra & Mahindra on Friday said it could look for an alternative location, possibly outside Maharashtra, to set up its proposed new manufacturing plant, in which it would invest between Rs 3,000 crore and Rs 4,000 crore.
The move is in response to a decision by the Maharashtra government in its budget, presented late last month, in which it refused to concede to automakers’ demand to withdraw an amendment under which set-offs on value-added tax (VAT) would be limited to vehicles sold within the state.
M&M’s proposed new plant was earlier planned at Chakan, near Pune.
The stiff amendment in VAT rules, announced last year by the cash-strapped state government, had met stiff opposition from auto manufacturers, as they sold only 10-15 per cent of their vehicles in the state. The key auto manufacturers in the state also include Bajaj Auto, Tata Motors, Volkswagen, Mercedes and Piaggio.
On the possibility of the company looking for an alternative site for its new plant outside Maharashtra, Pawan Goenka, its president (automotive and farm equipment sectors), had first said after the state budget: “Yes, it can be. We are deciding what is the best option for us. We have not announced anything yet, but we are still finalising on one or two alternatives.”
Goenka had expressed disappointment that the government had not acted on their request. “We were hoping something would happen in the budget, but nothing happened,” he had added.
German car brand Volkswagen, which has already pumped in Rs 4,000 crone in Maharashtra for plants to manufacture Volkswagen, Skoda and Audi branded vehicles, had also earlier made it clear that future investments in the state would depend on a positive decision on this issue. It had said it was in talks with other state governments, too.
The company has set up a plant with an initial capacity of 110,000 units per annum at Chakan, where it produces the Polo, Vento and Skoda Fabia and Rapid. Czech car brand SkodaAuto had initially established a separate plant in Aurangabad, also used by luxury brand Audi.
With product introductions in mind, the company wants to expand capacity at Chakan.
However, Piaggio India MD Ravi Chopra said his company had no plan to move out of Maharashtra. “Of course, the state government’s decision will effect us, but we cannot do anything about it, as we have just invested in Baramati.”
The state has had many brushes with the auto industry, which accounts for a major chunk of its revenues.
Bajaj Auto had also threatened to move out of the state last year and set up a new plant in Gujarat, after the state government refused to refund its sales tax of over Rs 1,100 crore. But, after a court battle, the government returned the money.
In Phase-I, M&M had built a capacity in Chakan for 250,000 vehicles and 70,000 trucks per annum. In the second, it was looking at an expansion and was awaiting the state’s final call on incentives.
However, with a widening debt burden, Maharashtra has been forced to raise tax levels, while deciding to stay put with the amended VAT refund rules.
The 52(A) amendment to the Maharashtra VAT Act has prevented firms from claiming higher Input Tax Credit.
Earlier, the companies could formally sell their entire production from the manufacturing arm to the marketing and sales arms to claim a VAT set-off for sales within the state.