Tata Chemicals concocted gains in early trades after the Supreme Court upheld an earlier court ruling over a decade-long tax dispute involving Rs 400 crore in favour of the company.
The favourable ruling catalysed the scrip of the Tata group chemicals and fertiliser major by 4.72% to Rs 65.45 by 10:13 IST. Tata Chemicals (TCL) recorded substantial volumes of 73,798 shares on BSE by that time. In two sessions, the scrip of India's largest soda-ash maker rose 7% from Rs 61.10 on 31 March 2003.
Yesterday, the Supreme Court issued an order that it would not amend or change an earlier order favouring Tata Chemicals over a decade-long tax dispute to the tune of Rs 400-crore . The apex court, in its 28 March 2003 order on a special leave petition filed by the income tax department, declined to interfere with an order issued by the Bombay High Court in the company's favour. The company would have faced huge contingent liability had the verdict gone against it.
The Supreme Court ruling will help TCL to claim deductions from assessment years 1992-93 to 1999-2000. The I-T department has disallowed so far Rs 370 crore on this ground and consequently levied tax of about Rs 284 crore and interest of about Rs 120 crore.
The dispute between the income tax department and TCL was on the issue of whether the interest paid by the company on the borrowings for its Babrala unit in Uttar Pradesh should be taxed or not. The income tax department held the view that the Babrala unit was an independent one, which the company contested. Since the income tax Act permits deduction only on expenditure incurred for expansion of existing units and not for setting up new independent enterprises, the company is not entitled for deduction.
TCL, in response, argued that the Babrala unit was part of its Mithapur plant in Gujarat and the unit was set up in Uttar Pradesh as part of its expansion plan and there was complete unity of control between the Mithapur plant and the Babrala plant and therefore this could not be regarded as a new unit. It was thus entitled for deduction of interest on borrowed funds
After the Income-Tax Appellate Tribunal (ITAT) and the Bombay High Court ruled in the company's favour, the I-T department then filed a special leave petition before the Supreme Court, which too, declined to interfere with the Bombay High Court order.
Earlier, Hindustan Lever Chemicals was merged with TCL. The merger is expected to benefit TCL in the fertilizers segment. TCL will be in a position to use Hind Lever Chemicals' strong marketing and distribution network to sell its products in the eastern part of India, whereas Hind Lever can use Tata Chemicals strength for selling its products in western UP and northern India, where it has a strong presence. Tata Chemicals sells fertilizer in UP, Haryana & Punjab.
TCL supplies soda ash to a host of other user industries (besides detergents) like glass making, chemicals and silicates. TCL is a leading player in the soda ash segment with an installed capacity of 875,000 tonnes per annum (tpa), accounting for 42% of India's soda ash capacity. TCL manufactures several variants of soda ash such as soda ash light, medium dense, dense, granular and soda ash fused (fusite).
The company has a nationwide distribution network mainly concentrated in the northern and western India. These areas account for the highest consumption of soda ash in the country.
The soda ash industry has been growing at 5-6% over the last three years mainly on growing demand from detergent and glass manufacturers. Glass, especially, used for construction purposes, is expected to significantly enhance demand for soda ash.
For the third quarter ended 31 December 2003, TCL recorded a 20.4% rise in net profit to Rs 55.50 crore (Rs 46.09 crore) on 18.8% increase in net sales to Rs 460.78 crore (Rs 387.94 crore).
As on 31 December 2003, promoters held 29.85% stake in TCL, while the public and institutions held 38.3% and 26.15%, respectively.