Nokia India Sales argues state government cannot levy purchase tax inside SEZ

The tax authority issued purchase tax demand for sales of goods by Nokia India to its marketing arm

Nokia India Sales Pvt Ltd, the marketing arm formed by Nokia India, today argued that the state government cannot levy purchase tax for sales happened inside the Special Economic Zone (SEZ). The argument was on a dispute between Nokia India Sales Pvt Ltd and the Assistant Commissioner of Commercial Tax, with the State government, related to a purchase tax demand for Rs 190 crore by the tax authority on the company, which came up for hearing today at the Madras High Court.

Senior counsel Arvind P Datar appeared for the company and argued that the proceedings after the taxability of the goods after its purchase in the SEZ would not be applicable to the present case, since there are separate sections dealing with the stock transfer. However, the purchase tax, along with several other taxes are being exempted in the SEZ and thus, not applicable to the particular sale, he added.

The tax authority has slapped the purchase tax demand for the sales of goods from Nokia India, the manufacturing company, to Nokia India Sales Pvt Ltd. The tax authority has also started process to withdraw the amount from two accounts of Nokia, which the High Court has stayed in its last hearing.

The counsel appearing for the tax department said that significant transfer has been made by the company and it is taxable. The matter was adjourned to another date for further arguments.

According sources close to the development, there has been several tax disputes between the authority and Nokia India currently under consideration of the Madras High Court. For instance, the company sold some scrap it had and made a delayed declaration to the authorities, after which the department questioned the quantity of the scrap.

It may be noted that Nokia India facility in Sriperumbudur has been facing various tax related disputes in the recent past, and the company has suspended its manufacturing activities in the facility from November 1, 2014, after Microsoft terminated the transitional services agreement (TSA) with this facility.

Originally, the factory was supposed to be transferred to Microsoft, which acquired Nokia's device and service business globally, but it was left out from the deal, since the IT Department, which slapped a Rs 21,000 crore tax notice against the company, has freezed the factory. Later, Tamil Nadu Government also slapped a Rs 2,400 crore sales tax notice.