Saturday, January 20, 2007

Maruti's move to convert Manesar unit into SEZ may fall through



NEW DELHI: Automobile major, Maruti Udyog Ltd (MUL) proposal to convert
its car production facility being set up at Manesar, Haryana into a
Special Economic Zone (SEZ) may not come through owing to opposition
from both Finance and Commerce Ministries.

Sources divulged that MUL’s proposal came up for an intense debate at a
meeting of a Committee of Secretaries (COS) convened by Prime Minister’s
Principal Secretary T.K.A.Nair on last Wednesday.

Sources divulged that Commerce Secretary Gopal K Pillai is not in favour
of Maruti’s proposal to convert the Manesar production unit into an SEZ.
Instead, Udyog Bhavan officials have asked the MUL and its parent
company, Suzuki Motor Corporation (SMC) to identify an alternative site
in any of the multi-product SEZ to set up a production facility meant
for export markets.

For automobile manufacturing units, the minimum cover area prescribed
for creating an SEZ is 100 hectares.

T.K.A.Nair convened a meeting on the issue after MUL Managing Director
Jagdish Khattar made a representation. Khattar’s letter to PMO was a
follow up of issues raised by SMC Chairman O. Suzuki during his visit in
September last year.

From this facility, the Suzuki and its subsidiary, MUL propose to
export 200,000 cars beginning June 2008, it is learnt.

While opposing the MUL proposal to convert the Manesar facility into an
SEZ, Commerce Ministry has cited the SEZ Act of 2005 where such
conversion is not allowed as it defeats the very purpose of attracting
fresh investments, creating additional infrastructure and employment
through these zones.

Finance Minister P.Chidambaram is on record saying that conversion of
existing units or expansion of prevailing production bases into SEZs
would lead to revenue loss in a big way.

While seeking conversion of Manesar facility into an SEZ, the MUL
management has requested for allowing domestic sale of cars rolled out
from this facility without payment of any import duties.

MUL has taken the position that imposing import duty on cars from the
newly carved out SEZ would make their automobiles non-competitive in the
domestic market. Currently, import of new cars in finished form attract
over 100 percent customs levy.

Commerce Ministry has cited the section 30 of SEZ Act that any goods
sold in the domestic tariff area (DTA) will attract full customs duty
including the anti-dumping, countervailing and safeguard duties as
applicable under Customs Tariff Act of 1975.

However, MUL is its presentation before the PMO, has cited the Free
Trade Zone (FTZ) norms applicable in US where domestic sale was allowed
on payment of indirect taxes applicable to other local car manufacturers.

Both, Finance and Commerce Ministries are not inclined to allow the
domestic sale of cars from the Manesar unit on payment of customs and
excise duties as applicable to automobile manufacturers.

Their argument is that it will lead to differential taxation regime as
domestic car manufacturers also pay duties and taxes on inputs apart
from the final product.


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