Ordnance feeders face VAT chill

Jabalpur-based small-scale manufacturers and suppliers to public sector undertakings (particularly to the Vehicle Factory of Jabalpur) are facing the heat of the 12 per cent value-added tax.

The components they manufacture will now attract the 12.5 per cent VAT.

There are 17 small-scale factories in Jabalpur. These compete with big firms like the Tatas and Ashok Leyland by participating in VFJ's tenders and have a combined turnover of Rs 150 crore, generating Rs 6 crore for the state exchequer, according to the Jabalpur Udyog Sangh.

Of the 39 ordnance factories, four are in Jabalpur, and, according to the Jabalpur Udyog Sangh, these place orders of Rs 1,000 crore each year.

"The high rate of VAT has pushed us into the red. We have become uncompetitive against outside bidders for the VFJ orders and those of other ordnance factories. Big firms and outsiders have to pay only 4 per cent as the central sales tax while we pay 12.5 per cent VAT and tax on raw material, which is not available in the state. It increases input costs," said Ravi Gupta, president of the Sangh.

The Sangh had also made a presentation recently before Chief Minister Shivraj Singh Chauhan and Industry Minister Babulal Gaur on the issue.

Since the ordnance factories are not entitled to input rebates, since they only transfer their products, the suppliers do not get rebate on input, either.

The VFJ supplies vehicles to the Indian Army and purchases parts and materials under certain norms and specifications laid down by the Central Vigilance Commission. The Commission banned post-tender negotiations, except with L-1 licence holders, in 1998.