Nokia Chennai Disconnect Puts 1K in a Fix

Mired in tax disputes and asset freeze order, the Finnish handset major was forced to suspend Sriperumbudur ops as Microsoft terminated deal

Published: 08th October 2014 06:01 AM  |   Last Updated: 08th October 2014 06:01 AM   |  A+A-


CHENNAI: Finnish mobile handset major Nokia’s Sriperumbudur facility in Chennai is drawing to a close with the company declaring on Tuesday that production in the plant will be suspended indefinitely from November 1, 2014.

The statement comes in the wake of a notification from Microsoft that says it will terminate the Transitional Services Agreement (TSA) it had entered into with Nokia on November 1. “Microsoft has informed Nokia that it will be terminating the manufacturing services defined in the agreement with effect from November 1, 2014. In absence of further orders from Microsoft, Nokia will suspend handset production at the Sriperumbudur facility from November 1,” the company statement said.

With the plant being left out of $7.2 billion Microsoft-Nokia deal, due to tax disputes with the Indian government, both companies entered into a TSA where Microsoft’s immediate manufacturing services needs would be handled by the plant for a contract period of a year.

Always regarded a stop-gap measure by union leaders in the state, fears that the plant would be shut down the minute that Microsoft no longer needed the plant’s services ran rampant. And now, with those fears coming true, the fate of the plant, and its 1,100 employees, remains uncertain.

The Nokia statement also pointed out that the asset freeze imposed by tax departments has made exploring opportunities for transferring the plant to another operator difficult. “Unfortunately, the continuing asset freeze imposed by the tax department prevents Nokia from exploring potential opportunities for the transfer of the factory to a successor,” the statement said.

Once Nokia’s biggest production facility in the world, producing over 15 million handsets per month with over 7,000 employees, current production is down to less than 2 million handsets/month with a large part of the plants production shifted to Nokia’s Vietnam facilities.

The current issue is rooted in the tax disputes that have plagued the plant for over two years. The tax row, over an approximate `6,000 crore in both income and value added tax, prevented it from being included in the company’s deal with Microsoft in April.

Tax authorities allege that Nokia avoided paying taxes by wrongfully claiming an exemption on software exports. Nokia has challenged the claims of tax department in courts.

Nokia started manufacturing at Chennai plant in January 2006 and exported products to overseas markets, including the Middle East and Africa, Asia, Australia and New Zealand.

In March, the Tamil Nadu government served a `2,400 crore notice on Nokia, saying the firm had also sold products from the Chennai plant in the domestic market instead of shipping them overseas.

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