Tata Motors, M&M among 4 firms to invest Rs11,510 crore in Maharashtra

Mumbai: Four auto makers, including Tata Motors Ltd and Volkswagen AG, have agreed to invest Rs.11,510 crore in Maharashtra, after the state government and automobile makers resolved a dispute over the refund of value-added tax (VAT).

The signing of the agreements between the government and the companies for the proposed investments took place in the presence of chief minister Prithviraj Chavan on Thursday. Tata Motors will invest Rs.4,000 crore, Mahindra and Mahindra Ltd Rs.4,000 crore, Bajaj Auto Ltd Rs.2,000 crore and Volkswagen India Pvt. Ltd Rs.1,510 crore.

Tata Motors, Mahindra and Volkswagen will expand their plants at Chakan in Pune district, while Bajaj Auto will expand its facility at Waluj in Aurangabad district.

Under a 2005 industrial policy, the Maharashtra government had announced a 100% VAT refund to companies that would invest more than Rs.500 crore. But the policy was silent on what constitutes an “ultimate sale” in the state. Many auto makers set up marketing or distribution arms, and sold all vehicles manufactured in their Maharashtra facility to these divisions before selling them in other states. They claimed a VAT refund on the entire production in the state.

Spotting this anomaly, the state amended the VAT rules in its budget for fiscal 2012 and restricted the refund to only actual sales in the state. Maharashtra roughly accounts for around 16% of the country’s automobile sales.

The issue had become a bone of contention between auto makers and the government and firms including Mahindra and Bajaj Auto even threatened to take existing investment out of the state.

“We have resolved this long-standing dispute, now companies who will invest more than Rs.1,500 crore in the state will be able to claim VAT refund on their entire sale and not just in Maharashtra but their total VAT refund will be restricted to 12.5% of total VAT paid in any given financial year,” said a state industry department official, who declined to be named. “The change in the VAT refund policy is unlikely to have an immediate impact on the financials of the company as it only relates to fresh investment and not the earlier ones,” said Joseph George, an analyst at IIFL Ltd. According to George, the companies will be able to price their models, produced at facilities created out of fresh investment, more competitively.

The shares of Mahindra and Mahindra closed up 0.76% at Rs.1,406.85 on BSE on Thursday, while the exchange’s benchmark Sensex rose 0.29% to end at 26,638.11 points. Tata Motors gained 0.54% to Rs.524.40, while Bajaj Auto closed down 0.87% at Rs.2,259.75.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.