Madhya Pradesh panel questions sops for firm

Questions have been raised on tax exemptions granted by a ministerial-level committee in MP on the value-added tax (VAT). The issues relate to the modus operandi of the committee.

The Cabinet, headed by Chief Minister Shivraj Singh Chouhan, had granted tax exemptions on the basis of recommendations of the committee to a particular firm though the state's commercial tax department had put up a strong note against the extension of the exemption to the company.

Pithampur-based diamond-cutting and polishing firm Rosy Blue (India) Pvt Ltd has been granted entry tax exemption for three more years.

The company had been granted the facility by the previous government for nine years, from February 1, 1995, to January 31, 2004. The company had asked for an extension of the facility from the state government.

In its submission before the cabinet, the commercial tax department strongly opposed the extension of exemption by saying that the company executed 'job work' through stock transfers to its Mumbai unit. As a result, it does not pay commercial tax to the state exchequer. Further, this cannot be considered as "export" from state.

The company, according to the department, has said it is incurring losses due to entry tax but the fact differs from the company's statement. "The company had also posted losses even when there was no entry tax in the state. Interestingly the company's Mumbai office has registered a huge profit. The company is intentionally showing losses by paying a minimum amount as processing charge to seek tax exemptions. "The losses, if there is any, are due to transfer pricing and not due to entry tax," the precis of the department said.

The company, the precis further stated, had deposited no entry tax even when the facility of exemption had been withdrawn.

"It (Rosy Blue) owes Rs 1,61,58,217 crore as entry tax to the state government."

However following instructions of the chief minister to put the issue in Apex Level Empowerment committee on investment, the ministerial level VAT committee on 8 November 2006 decided to grant an extension of exemption from entry tax for a period of three years by considering it a "Special Case."

An office bearer of an industry association on condition of anonymity had raised objections on the decisions of the committee on various other exemptions and tax concessions offered to various corporate houses.

"The committee had been given discretionary powers and more teeth to grant tax exemptions without considering the losses to the states," said the office-bearer.

The commercial tax department minister and member of the committee Mr Babulal Gaur was not available for comment.