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Hyundai awaits TN Govt clarifications for expansion

N. Ramakrishnan

Recently in Seoul

, HYUNDAI Motor Company is waiting for clarifications on a number of issues from the Tamil Nadu Government to complete its feasibility study for the proposed expansion at Hyundai Motor India Ltd, its fully-owned subsidiary.

These clarifications are critical to determine the viability of the expansion project, senior officials of Hyundai Motor Company told a team of visiting Indian journalists in Seoul, Korea.

Without elaborating, the officials said clarifications were needed on "infrastructure and taxation issues."

It is learnt that, among the infrastructure issues worrying Hyundai, the most important one pertains to availability of water for industrial use. At the time of signing an agreement with the Tamil Nadu Government in 1996, Hyundai was assured that its water requirement would be met in full. Hyundai has been tapping water from the Chembarambakkam reservoir, but, with depleting water levels, the company would like to have a more permanent arrangement and an assured supply of water. The proposed expansion would require larger quantity of water, especially for the paint shop.

Hyundai is also hoping that, in a situation when most States have switched over to value-added tax, issues relating to Central Sales Tax and additional surcharge on sales tax will be sorted out soon as this involves substantial operating cash flow.

Tamil Nadu has not switched over to VAT and has not given a firm commitment on when it would do so.

According to Hyundai Motor India's annual report for the year ended March 31, 2004, the company opted for sales tax deferral for 14 years on sale of vehicles and parts manufactured by it. The company has to begin repaying this money from October 2012, which is 14 years after it began commercial production, as per the agreement the company signed with the State Government.

The annual report says the company is entitled to a concessional Central Sales Tax of 1 per cent ad valorem - a tax calculated as a percentage of the total invoice value of goods - in respect of inter-State sales of vehicles and parts.

It is also eligible for exemption from levy of additional sales tax or any similar tax on sales both in and outside Tamil Nadu, which by nature is non-recoverable. The company is still awaiting a notification from the Government on this, according to the annual report.

Hyundai is hoping that it will get these clarifications at the earliest for it to complete the feasibility report and then decide on the second plant.

The officials said work on the second plant would have to begin at least by June if the company were to stick to its target of having the expanded capacity available by mid-2007, in time to launch a new small car being developed by the Korean parent.

Hyundai announced its decision to expand capacity to 4,00,000 units a year from 2,50,000 units now.

It will invest about $500 million (Rs 2,185 crore) in the second plant and its suppliers will invest up to $150 million.

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