Apparently, the move is construed as a response by Mahindra to a decision by the Maharashtra Government in its Budget presented in March this year, in which it refused to concede automotive OEMs demand to withdraw an amendment under which, set-offs on value addex tax would be limited to vehicles sold within Maharashtra. It may be recalled that Mahindra's proposed new assembly plat was earlier planned to be set up at Chakan, near Pune in the western Indian state of Maharashtra.
What with the rigid stand on VAT rules, announced last year by the Maharashtra Govrnment, had met bitter resistance from the automobile manufacturers in the State, as they sold only 10-15 percent of their vehicles in Maharashtra. That means, a lion's share of the vehicle produced in the State are being sold across the country, which irked the already cash-strapped government no end. Major auto players who have set up base in the State include Bajaj Auto, Tata Motors, Volkswagen, Mercedes-Benz and Piaggio.
Dr Pawan Goenka, President (Automotive and Farm Equipment Sectors), M&M told media immediately on the aftermath of the Budget, reacted on the possibility of Mahindra scouting for an alternative location for its new facility outside Maharashtra:
German car major, Volkswagen, which has already invested up to the tune of Rs 4,000 crore in the State 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. What is more, the company had said it was in talks with other state governments, too.
Volkswagen has established a plant with an initial capacity of 110,000 units per annum at Chakan, where it makes Volkswagen Polo, Volkswagen Vento and Skoda Fabia and Skoda Rapid. Czech car brand SkodaAuto India, part of the Volkswagen Group had initially set up a separate plant in Aurangabad, also used by luxury brand Audi. With product introductions in mind, company now wants to expand capacity at Chakan, noted the report.
Piaggio India MD Ravi Chopra, nevertheless, clarified his company's stand by saying that it had no plan to move out of Maharashtra. 'Of course, the state government’s decision will affect us, but we cannot do anything about it, as we have just invested in Baramati', he lamented.
Maharashtra has had many a turbulent relationship with the automotive industry, which accounted for a major source of its revenues, the report said.
Bajaj Auto had also pressurised the government last year stating that it would relocate to some other place 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, the report pointed out.
In the initial phase, Mahindra had constructed a facility in Chakan for 250,000 vehicles and 70,000 trucks per annum. In the second phase, the auto maker was looking forward to expand its facility and was just waiting for the government to come out with the Budget, in anticipation of sopts. However, with a burgeoning debt burden, the State 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 hampered auto companies from claiming higher Input Tax Credit. Having said that, 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. Now that the situation has changed, Mahindra has made up its mind to look for greener pastures. Will other major auto players follow suit is the fact that only time will tell. For more news on automotive industry from India, visit automotivehorizon.sulekha.com.