CHENNAI: The Tamil Nadu government has moved the Madras High Court to restrain Nissan Motor Company Limited in Japan and its local unit in SIPCOT in Sriperumbudur from in any manner proceeding further with the international arbitration against the Union of India pursuant to the Comprehensive Economic Partnership Agreement (CEPA) entered into in 2011.
Justice Anitha Sumant, before whom the original application from the State Industries Department came up on Monday, ordered notice to authorities concerned.
According to the applicant, the steep increase in the output tax during 2012-13 and 2013-14 had raised certain queries and thereafter it was found that the two companies had changed their business model from April 1, 2012, treating its consortium members RNAIPL and NNIPL as a manufacturing company and as a marketing company, respectively, thus showing that the entire sales were effected within the State. By the change of the business model, a product, which was sold either by Renault or Nissan Consortium, gains input value subsidy.
As regards some products, if they are sold to the marketing company NMIPL, it may result in subsidy for input as well as on the sales. Hence there is a scope for enjoying double benefit of input as well as output value. After considering all these aspects, the department issued a GO dated March 10, 2015, taking into account the change of business model, and clarified the position. Certain amendments to the TN Value Added Tax Act, 2006 also were made bringing the Act in alignment with the latest development. The two companies, aggrieved against the notices as well as the amendments brought to the Act, had approached the High Court with writ petitions and obtained interim orders and they are pending. This is the subject matter of dispute raised in the arbitration.
The writ petitions are not maintainable in law as the field was governed by the Memorandum of Understanding which contained arbitration clause and therefore without availing this alternative remedy, the writ petitions were filed and were not maintainable in law. The change of business model affected the very purpose and object of the Memorandum of Understanding. The sustained development in various aspects was for the period of 21 years from the date of commercial production. Further, the maximum subsidy that can be paid was only around `4,500 crore. So far as refund of tax was concerned, that depended only upon the manufacture and sales. However, by getting the investment subsidy within a short span of time, there was a likelihood of showing no interest by the Consortium which will, in turn, affect the development of the State. This apart, as could be seen in the case of Mahindra & Mahindra, which left the field within a short span of entering into an MoU in 2006, there was a change in the Consortium also by the companies. By the ingenious method of changing the business model, the consortium was making an unlawful gain and reached the target within a short span of time and with undue benefits, which were all against the interest of the State.
The Union of India entered into treaties as well as Comprehensive Economic Partnership Agreement (CEPA) with Japan and the companies with a view to coercing the State and the Japanese company seems to have invoked the International Arbitration contained under the Treaty to which the State was not a party. The said CEPA dealt with the various Acts and to facilitate smooth approach, certain provisions to solve the disputes had also been provided in the said Agreement. It stated that no investment dispute may be submitted to international conciliation or arbitration, if the disputing investor has initiated any proceedings for the resolution of the investment dispute before courts of justice or administrative tribunals or agencies.
However, in the event that those proceedings are withdrawn within 30 days from the date of filing the case, the disputing investor may submit the investment dispute to such international conciliations or arbitrations. The Union of India has also been seized of the matter so far as international arbitration is concerned. The TN is not a party to the said agreement. However, the two companies, as a disputed investor, have approached the international arbitration without reference to the above clause. Since the companies had challenged the amended provisions before the High Court, which is pending adjudication, they are now stopped from raising the same dispute before the international arbitration which is expressly prohibited under Article 96(6) of CEPA, the applicant contended.
So far as the present claim is concerned, the issue relates to subsidy under the heads of VAT and CST. In view of the disputed claim, the applicant is invoking the arbitration clause contained in the Memorandum of Understanding dated February 22, 2008. If at all the two companies are aggrieved by any action of the applicant arising out of or in relation to the 2008 MoU, the remedy is to invoke clause 15 of the MoU and not to invoke CEPA. There are no obligations cast on the applicant by virtue of CEPA. In view of the peculiar facts and circumstances, the duo are not entitled to the claim, which is exaggerated and not a genuine one.
The companies, with a view to coercing the applicant, are taking all sorts of pressurising tactics by invoking the arbitration clause in CEPA to which the applicant is not a party. Therefore, they are not entitled to raising this issue before the international arbitration. The international arbitration, if allowed to proceed further, may not only cause irreparable loss to the applicant in defending the same, but also bring disrepute to the nation.
Fear of pressure from the Union government
The Union of India may also be embarrassed and in turn, may mount pressure on the applicant to succumb to the illegal demands made by the companies. Hence, it is just and necessary that the court should restrain the two companies and any other member of the Consortium from in any way proceeding further with the international arbitration, the applicant said.