Ahmedabad: Companies that ventured to the Kutch area in Gujarat hoping to benefit from tax incentives announced after an earthquake wreaked havoc with the local economy are now realizing that they may have miscalculated the magnitude of such incentives.
And all because they went by the English version of the state government’s notification announcing the incentives— these were targeted at attracting investors to a region that badly needed them—while the government itself is insisting on sticking to the letter of the law, in Gujarati.
The incentives, largely discounted rates of sales tax, have made Kutch one of the most industrialized parts of the state; called the “Incentive Scheme 2001 for Economic Development of Kutch District”, the programme ran between 31 July 2001 and 31 December 2005, with the promise of an extension.
Companies estimate that they may lose between Rs2,000 crore and Rs3,000 crore because of the confusion over the notification on the incentives. The English version of the notification offers incentives up to six months, 12 months, or 18 months (depending on the size of the company and the size of the investment) “of commencement of production or completion of project—whichever is earlier”. Companies interpreted the notification (in English) as meaning that they could avail incentives for a period of 6-18 months (the longer period was for firms that made larger investments) after they started production or completed the project—most firms start production before they entirely complete projects; manufacturing projects are usually broken up into phases and commissioned.
In Gujarati, the notification says companies can avail incentives up to six, 12, or 18 months from the date of commencement of production or till the completion of the yojana—whichever is earlier”. The state government says yojana doesn’t refer to the project, but the incentive scheme itself.
“Does yojana mean the project or the incentive scheme? We are told by the government that yojana refers to the scheme and not the project. We are heavily losing out on this,” says one industrialist who has investment of Rs80 crore in Kutch. None of the affected industrialists is willing to speak on record out of fear of antagonizing the state government.
The math involved in the two versions, English and Gujarati are entirely different. According to the English version, a company that started production on 28 December 2005 can avail sales tax benefits on all investments it makes up to 27 June 2006, December 27 2006, or 27 June 2007 (depending on the value of the investment).
According to the Gujarati version, the firm can avail sales tax benefits only for investments it makes up to 31 December 2005, the deadline for the expiration of the incentive scheme.
One official in the state government’s industries department says that the notification should be amended if there is any discrepancy in it, but another rules this out: “The circular clearly mentions that the provisions in the Gujarati version would be final and hence there is no dispute as far as the Gujarat government is concerned,” he says.
The second official also adds that “the translation was done by another department without consulting us. In fact, the translation was not even vetted by anyone.”
Neither official was willing to be identified. Other state government officials say the firms are just leveraging language to push for incentives.
A local industry association doesn’t see things that way. “Some government officials want to maintain ambiguity so that industrialists are forced to run from pillar to post. The issue of interpretation of English version and Gujarati version only amplifies this belief,” says Nimish Phadke, secretary, Federation of Kutch Industries Association.
Companies say that although the scheme was announced in 2001, it is only recently that the discrepancy came to light because paperwork on projects and the projects themselves were completed only recently. “Many of these clearances are coming in now,” says an industrialist who has invested more than Rs40 crore in Kutch.
According to data provided by the Gujarat’s industries department, Kutch has attracted 333 units with investments of Rs13,028 crore since the scheme was announced. Another 377 projects, aggregating investments Rs45,116 crore are in the pipeline.
“The scheme has helped transform the arid landscape in to being one of the most industrialized regions in India. It attracted companies such as Welspun Industries, Ruchi Soya, Adani Wilmar, Sanghi group, Jindal Saw Pipes, Man Industries, PSL Holdings, Asia Motors to Kutch,” says Rakesh Lahoti of Lahoti and Lahoti, financial advisors to some of the companies that set up operations in Kutch.
Many of these companies, including Shah Alloys Ltd, Electrotherm (India) Ltd, Gallant Metal Ltd, Asia Motors, the Welspun group have made additional investments in their facilities since the expiry of the scheme on 31 December 2005.