08 Nov 2016 15:38 IST

Sriperumbudur: a reminder of what can go wrong

A tax dispute was the start to the end ofNokia’s largest global facility

A decade ago, Nokia came to Tamil Nadu with a bang, made millions of mobile phones, conquered the Indian market, but vanished just as quickly. A tax dispute led to the closure of the plant within eight years.

During the thick of action in 2010, nearly 50,000 employees were working round-the-clock at the Nokia SEZ at Sriperumbudur producing Made-in-India Nokia mobile phones that were used globally.

Today, the huge campus wears a deserted look with one person calling it a large booth (demon) complex. A few security guards man the complex behind the iron-gate.

So what happened?

On January 2, 2006, Nokia commenced commercial production of mobile handsets at Sriperumbudur. Within two months, the plant was manufacturing over one million handsets. A telecom cluster was created with vendors like Jabil and Flextronics setting up their units inside the campus to support Nokia. Nearly 1,100 employees, mostly recruited from nearby villages were proud to be Nokiaites with the comfort of working in an air-conditioned building and getting good food and clothing.

Nokia invested over $300 million at the 210-acre plant located on Chennai-Bengaluru National Highway. Over six years, it produced over 500 million units of over 20 different models, including Asha range of devices. It was the largest Nokia production facility, which eventually employed 9,000 people, 70 per cent of whom were women.

But Nokia’s fairytale story did not last long. On January 8, 2013, Income Tax (IT) officials raided Nokia’s premises at Sriperumbudur on suspicion of tax default of ₹2,500-3,000 crore. The issue was that any royalty payment made against supply of software by parent company attracts a 10 per cent tax . But Nokia, said the IT Department, hadn’t paid the tax since 2006.

The problem snowballed into a ₹21,000-crore tax case with the IT department alleging that Nokia withheld tax norms since 2006, while making royalty payments to its parent company in Finland.

It was not the end. Next was a salvo from the Tamil Nadu Government asking Nokia to pay ₹2,400 crore as value-added tax, stating that handsets made at its Sriperumbudur plant were also sold in India. The company filed a writ petition in the Madras High Court against the claim. Nokia India reduced its manpower due to the uncertainty over the IT dispute.

Meanwhile, Microsoft had bought the handset business of Nokia in September 2013. Nokia now needed to resolve the tax dispute in India before March 31, 2014, to enable Nokia to transfer the asset to Microsoft.

It was not to be. Nokia suspended handset production at the Sriperumbudur facility from November 1, 2014. Many of the employees left the company before the closure while the remaining opted for a voluntary retirement scheme. Today, many of them are at Sri City, the upcoming hub about an hour’s drive from Chennai.

The State and Central governments are trying their best to revive the plant. But who will take over the huge facility?

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