Nokia again urges I-T dept to lift asset freeze order against Chennai facility

Nokia on Tuesday asked the Government of India to lift the asset freeze imposed by the tax authorities, so that it could negotiate with suitable buyers. The Income Tax department has frozen Nokia's manufacturing facility, near Chennai, in a Rs 21,000-crore tax dispute. This comes at a time when speculation is rife that Micromax, HTC, Foxconn and Xiaomi are eyeing the idle plant. The company said, "This is an urgent prerogative not only for Nokia, no longer in the business of making mobile phones, but also for the country to move towards its goal of supporting local manufacturing and reducing electronic imports. We believe an eventual sale would offer a far brighter option for employment in the region and support the government's 'Make in India' initiative."

Nokia can confirm that it has been approached by parties interested in buying the Chennai facility, but due to confidentiality reasons we will not comment further on this topic."

As reported earlier, the Sriperumbudur factory was one of Nokia's most productive plants globally. Its operations have been suspended after Nokia had to leave the plant out of the $7.5-billion sale of its devices business to Microsoft in April.

The income tax department had seized the factory last year claiming Rs 21,000 crore tax from Nokia over software downloaded on handsets assembled at the unit since 2006. In March 2013, the tax authorities had served a notice on Nokia India for allegedly wrongfully claiming exemption on royalty payments made against supply of software by the company's parent firm for five years starting 2006-07. The first notice was for Rs 2,000 crore and the total demand, including previous years' arrears and interest, would go up to Rs 21,000 crore, tax officials said.

The tax department can also impose a fine of 100-300 per cent of the total tax due. Apart from the I-T department, the Tamil Nadu government has issued a Rs 2,400-crore sales tax notice to Nokia India.

Unless Nokia India settles the disputes through court or by paying the claims or getting its parent to guarantee against unspecified potential tax liabilities, the plant's saleability remains in question. Sources said the central government was planning to tell Nokia the matter would not be resolved under a bilateral investment protection agreement with Finland because the treaty did not cover taxes.

Buyers will also have to consider the equipment available at the plant. Most of the investors whose names are floating around are focused on smart phones, while Nokia's Sriperumbudur factory can only produce feature phones. A buyer will need to invest in new machines and on creating a supply chain for smartphones. Nokia and its suppliers had invested close to Rs 1,800 crore over the years on the plant and on an ecosystem to support the unit that assembled, but did not make, mobile phones.

A third challenge will be human resources. Nokia and its suppliers employed around 30,000 people, directly and indirectly. Nokia alone employed 8,000 people, of whom 60 per cent were women. Most of the factory's workers are from outside Tamil Nadu and have relocated since Nokia introduced voluntary retirement in April. There are also around 200 workers who have refused to resign.

Finally, the valuation of the plant is not clear. Nokia once told the Supreme Court the factory was valued around Rs 3,000 crore, but it did not elaborate who valued it and on what basis. The factory generated revenue of Rs 1.51 lakh crore between fiscal 2007 and 2013.