The Narendra Modi-government has handed out a much-needed tax breather to beleaguered Haldia Petrochemicals, Bengal's showpiece industrial project, paving the way for its turnaround.
The Centre dropped the demand that HPL pay a tax of Rs 2,277.18 crore in cash. Instead, it accepted the company's request for more time to meet the statutory requirement of export obligation.
However, the Centre has asked HPL, where the Bengal government is a large shareholder, to furnish a bank guarantee worth the tax break as a pre-condition for the waiver. Sources said the company might appeal for a re-look on this clause.
The matter relates to duty-free import of various items, especially main raw material naphtha, by HPL between April 2010 and September 2013 on the condition that it would export the finished product.
Because of poor financial health, HPL could not fulfill the export obligation and sold the product in the domestic market where profit margin was higher. The company had to export within a specific time period that lapsed.
In February this year, Calcutta customs slapped a notice on HPL to recover the duty it did not pay for import. As on August 31, 2015, the liability included Rs 224.64 crore of basic customs duty, Rs 1,150.28 crore of additional duty and Rs 902.26 crore interest.
Now HPL will get a fresh opportunity to export the finished product for having availed itself of the duty free input for 39 months in the past.
But the obligation to furnish a bank guarantee of nearly Rs 2,300 crore might be an irritant. HPL may plead that bank guarantee be asked only on the principal amount.
"It is certainly challenging to obtain a bank guarantee which is more than the working capital of the company but not entirely impossible," a banker said. Haldia has to pay the fees to get the guarantee and also provide collateral.
Industry sources said the Centre could not have provided such an "unprecedented" waiver to HPL without some checks and balances and seeking a bank guarantee is a way to ensure the company sticks to the promise.
The Bengal government and its private partner in HPL, The Chatterjee Group, will have to settle this issue fast as the resolution of the tax matter will lead to two important events: transfer of a part of government shares to TCG and the comprehensive restructuring of loan under a special dispensation of the Reserve Bank of India.
"The state is keen to sell the shares to TCG as it would rake in Rs 635 crore from the transaction. The tax issue was the main stumbling block. Moreover, the loan restructuring will open up fresh funding opportunity before HPL," industry sources said.
The Centre dropped the demand that HPL pay a tax of Rs 2,277.18 crore in cash. Instead, it accepted the company's request for more time to meet the statutory requirement of export obligation.
However, the Centre has asked HPL, where the Bengal government is a large shareholder, to furnish a bank guarantee worth the tax break as a pre-condition for the waiver. Sources said the company might appeal for a re-look on this clause.
The matter relates to duty-free import of various items, especially main raw material naphtha, by HPL between April 2010 and September 2013 on the condition that it would export the finished product.
Because of poor financial health, HPL could not fulfill the export obligation and sold the product in the domestic market where profit margin was higher. The company had to export within a specific time period that lapsed.
In February this year, Calcutta customs slapped a notice on HPL to recover the duty it did not pay for import. As on August 31, 2015, the liability included Rs 224.64 crore of basic customs duty, Rs 1,150.28 crore of additional duty and Rs 902.26 crore interest.
Now HPL will get a fresh opportunity to export the finished product for having availed itself of the duty free input for 39 months in the past.
But the obligation to furnish a bank guarantee of nearly Rs 2,300 crore might be an irritant. HPL may plead that bank guarantee be asked only on the principal amount.
"It is certainly challenging to obtain a bank guarantee which is more than the working capital of the company but not entirely impossible," a banker said. Haldia has to pay the fees to get the guarantee and also provide collateral.
Industry sources said the Centre could not have provided such an "unprecedented" waiver to HPL without some checks and balances and seeking a bank guarantee is a way to ensure the company sticks to the promise.
The Bengal government and its private partner in HPL, The Chatterjee Group, will have to settle this issue fast as the resolution of the tax matter will lead to two important events: transfer of a part of government shares to TCG and the comprehensive restructuring of loan under a special dispensation of the Reserve Bank of India.
"The state is keen to sell the shares to TCG as it would rake in Rs 635 crore from the transaction. The tax issue was the main stumbling block. Moreover, the loan restructuring will open up fresh funding opportunity before HPL," industry sources said.
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