The Telegraph
Friday , April 25 , 2014
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Nokia Chennai off deal loop

What’s in store

New Delhi, April 24: Nokia will continue to manufacture handsets at the Chennai factory for another 12 months as the unit is likely to be excluded from the Microsoft deal because of a tax dispute.

The Finnish handset maker will conclude tomorrow the sale of its devices and services business to Microsoft in a $7.2-billion deal.

The Supreme Court had upheld an earlier high court judgment, asking Nokia to deposit Rs 2,250 crore against tax dues before it could sell its Indian assets. This order forced the company to exclude the Chennai factory from the deal.

Nokia officials said the Chennai plant, which now produces 2 million handsets compared with 12 million earlier, would be kept out of the deal in all likelihood.

Nokia lawyers had earlier told the Delhi high court that the company could run the plant as a contract manufacturer for up to 12 months if it was not allowed to be transferred to Microsoft.

Nokia is involved in a legal tussle with the income tax department over an alleged tax liability of Rs 6,500 crore. Besides, the state government of Tamil Nadu, where the factory is located, wants Nokia to cough up another Rs 2,400 crore as sales tax dues for allegedly selling mobile phones in the domestic market instead of exporting them.

In its notices to employees, too, Nokia had said if the legal dispute wasn’t resolved, the facility might become a contract manufacturer for Microsoft. The phone maker also offered a voluntary retirement scheme to its workers. Sources said only 10 of its 6,600 workers accepted the offer. The workers would prefer the factory to be part of the deal as it would ensure that the operations would remain viable and jobs would be safe.

Microsoft is believed to be buying out Nokia to penetrate two of the fastest growing handset markets — China and India. Brad Smith, Microsoft’s general counsel, said the acquisition would help the US giant accelerate innovation and market adoption for Windows phones.