Madras High Court Orders Private Hearing for Nokia Tax Case

May 8, 2014 Posted by India Briefing Reading Time: 3 minutes

MUMBAI – India’s Madras High Court has asked the Tamil Nadu sales tax department to reconsider its nearly US$400 million claim against Nokia India and offer the company an individual hearing.

The court additionally asked Nokia to deposit 10 percent of the disputed tax demand within eight weeks as a precondition for the review. This mirrors a similar request by India’s Supreme Court in March that the firm pay a nearly US$583 million deposit to unfreeze its Chennai factory in a separate tax dispute.

This tax claim is one of several Nokia is currently contesting regarding its cellphone manufacturing facility in Chennai’s Tamil Nadu state. Tax officials in the state are claiming Nokia wrongfully claimed export benefits when devices manufactured in Chennai were sold domestically. According to tax officials, Nokia has failed to produce adequate documents to support export claims on mobile phone handsets produced in the special economic zone (SEZ).

In light of the various disputes, which could cumulative be worth nearly US$4 billion, Indian authorities froze Nokia’s Chennai factory and prevented the transfer of the plant to Microsoft Corp. in the firm’s recent acquisition of Nokia’s devices and services business. Nokia’s Chennai plant was one of the company’s largest with nearly 7,000 employees.

In response to India’s claims, Nokia characterized the tax claims as “without merit” and stated it was “weighing its options for legal recourse [and] will defend itself vigorously.”

The pragmatic ruling by the high court will offer some respite to Nokia as the firm’s ongoing dispute with the Indian government continues to cast a shadow over the tax treatment of foreign investors and companies in India.

“Now, by virtue of this order, the first respondent (the Tamil Nadu tax authorities) is directed to reconsider the entire matter afresh,” wrote Justice B Rajendran.

“At the same time, the revenue also has to be safeguarded to some extent,” he continued.

Because the Chennai plant was excluded from Nokia’s recent deal with Microsoft, it is unclear whether Microsoft will purchase the factory after Nokia’s ongoing tax disputes are resolved. Nokia stated earlier, however, that the deal between the two firms had been finalized for some time and could not speculate on the possibility that the factory would ultimately be transferred to Microsoft.

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