ICL has benefited to the tune of Rs 25.81 crore by assigning its deferred sales tax liability to a third party. This novel concept is being increasingly adopted by many companies to get the ``best of both worlds'' when it comes to sales tax incentives. A new unit gets an option to either go for sales tax waiver or deferral.

A waiver means the unit does not pay tax at all for seven years while in the case of a deferral, the unit collects tax and retains it in its business (to be paid after a fixed period of time) as aninterest-free loan. The incentive is, however, subject to a limit of 100 per cent of the investment made. ICL opted for sales tax deferral for its Dalavoi, Tamil Nadu, plant as it felt that it would not be possible to recover its entire investment cost in seven years through a waiver. But this decision meant that the benefit of the incentive does not get reflected as profit since the company has to collect sales tax and create a liability for future payment.

In order to take the effect of the incentive to the bottomline, ICL has assigned the liability so created to a third party for a fee and the difference between the liability and the fee, to the tune of Rs 25.81 crore, has been taken as income and added to sales.

The company sold its prime land at Anna Salai in Chennai to Bharat Overseas Bank in the current fiscal but the income of about Rs 14 crore arising out of the sale was recognised in 1998-99 itself on the basis of an agreement for sale entered into on February 21, 1999. Another Rs 32 crore hascome in as profit on sale of investments mostly from Raasi Cements shares.

India Cements Limited, prior to the open offer for Raasi, had acquired 15.91 lakh shares at an average cost of Rs 93.52 per share. After the takeover, where India Cements through its investment companies paid Rs 300 per share, the cement division of Raasi was vested with India Cements Limited which resulted in the face value of Raasi shares declining to Rs 0.50 per share.

India Cements Limited has shown the difference between the settlement price (Rs 300 per share) and the cost (Rs 93.52 per share) subject to Rs 4.68 per share representing the residual cost of Raasi shares continued to be held by it (consequnt to reduction in face value) as profit on sale of investment. This amounts to Rs 32 crore (Rs 201.80 per share for 15.91 lakh shares).

The company justifies this move by saying that it was the only way it can show both the asset purchased and the value of Raasi shares at correct cost.That apart,deferred revenue expenditure to the tune of Rs 7.15 crore has not been charged to the profit and loss account this year as the company had charged off the entire deferred revenue expenditure directly to capital reserve in 1997-98.

These have shored up India Cements Ltd profit to the tune of almost Rs 80 crore. Moreover, the subsidiary companies of India Cements Limited, viz. ICL Financial Limited and ICL Securities, Limited have capitalised borrowing costs of about Rs 30 crore incurred in acquiring shares of companies which ICL had taken over.