Reduction of sops worries MP auto firms

Even after the implementation of the value-added tax (VAT) in MP, bureaucrats have put the 'exempted' category auto companies in a tight spot by discontinuing facilities given to them earlier.

Companies have complained that this will dampen the process of setting up auto ancillaries in the state since other states allow benefits through the earlier process.

Similarly, Madhya Pradesh is the only state where the auto dealers have to pay tax on the stock of "exempted goods", as of April 1, 2006. The state government discourages the set-off of input tax for reasons it has not given.

Auto companies that were exempted from the tax till recently on input (components and similar items) purchases within Madhya Pradesh are now liable for tax with effect from April 1, 2006.

Although the state government claims that the benefit of input tax is still available through the set-off route, the industry sources said the exempted units are losing earlier benefits.

As a result, those manufacturers who set up shop on account of the benefits promised to them by the previous government are now in a tight squeeze. "Only the refund of the input tax is available to the extent of exports and not otherwise," said a source in a tractor-manufacturing unit in Mandideep on condition of anonymity.

DK Jain, president of the Mandideep Industries Association, confirmed the reports and said, "Auto units are under pressure due to VAT provisions for exempted units."

He said the neighbouring states had allowed the benefits to exempted units either through the continuation of the existing system of declaration forms. In some cases, the exempted units are provided cash refund on input tax.

Neighbouring state Chhattisgarh has allowed buying inputs (mainly auto components) on filing declaration forms, which is the existing system, whereas other states like Maharashtra, Gujarat and Punjab have allowed cash refund of input tax paid by the exempted units.

"The industry in MP has become uncompetitive as compared to other states especially neighbouring states and this would discourage the new industry coming in the state or expansion of existing industry," said Mr Jain. The auto units did raise the issue recently in Indore.

However, the government officials have only made assurances of looking into the matter.

Bajaj Tempo (now Force Motors), L&T Case, Eicher Tractors, Ordinance Factory are some of the original manufacturing companies. Similarly Gajra Gears, Bridgestone, Gabriel, Mahle Migma, Tata Holeset, Caparo Group, Gati Man Auto, Design Auto, Tata Precision, Him Techoforge, Brit Brothers and Pinnacle Industries are some companies which have their units in Indore, Pithampur and Dewas.

According to an independent survey, the size of the auto component industry in Madhya Pradesh is 2500 crore with exports of Rs 75 crore.Component manufacturing touches Rs 550 crore. The industry employs 20000 people directly or indirectly.