Nokia Oyj on Tuesday announced it is going to cease handset production at its Chennai facility in India from November 1, owing to an unsettled tax dispute with the Indian government.
Announcing the decision, Nokia, said in a blog post “Microsoft has informed Nokia that it will be terminating the manufacturing services defined in the agreement with effect from Nov. 1. In absence of further orders from Microsoft, Nokia will suspend handset production at the Sriperumbudur facility.”
Nokia, which sold its handset business to Microsoft in April for £4.2bn, was forced to leave the Sriperumbudur facility out of the deal due to the tax dispute with Indian authorities. However, it continued to operate the factory as a contract manufacturing unit for Microsoft.
Nokia’s tax dispute began last year in March, when the Tamil Nadu government served a Rs. 2,400 crore notice to the handset maker accusing it of selling products from the Chennai plant in the domestic market instead of shipping them overseas. In a separate tax case, Nokia India was ordered by the Supreme Court to provide a Rs. 3,500 crore guarantee before it transfers the plant to Microsoft.
An asset freeze imposed by the tax department has prevented Nokia “from exploring potential opportunities for the transfer of the factory to a successor to support the long term viability of the established, fully functional electronics manufacturing ecosystem,” the statement said.
Nokia said it will be inform all stakeholders including the Labour Commissioner of the suspension and that it is currently evaluating options to minimise the impact on existing employees at the manufacturing facility.
More information will be revealed once details are finalized, the handset maker said.
As of March, the Chennai facility, which is among Nokia’s biggest for making handsets, employed about 6,600 full-time workers, out of which nearly 5000 had opted for a voluntary retirement scheme (VRS) offered by the company.