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Quite a tragic but expected turn to the Nokia India tax case: Nokia is suspending handset production at its Chennai plant from November 1, 2014, following the termination of manufacturing contract by Microsoft, reports Reuters.

In a statement released yesterday, the company says – “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”.

Note that the Chennai plant, which is probably one of Nokia’s biggest handset manufacturing plant, was reduced to a contract manufacturing unit with Microsoft as the sole customer earlier this year, after Nokia was forced to exclude it from the Microsoft acquisition when the deal closed in April this year due to pending tax disputes with the Supreme Court as well as Madras High Court.

A Nokia spokesperson had then told Medianama that they are still evaluating the plant’s future options and engaging with the Govt. and tax authorities on this issue. Following this, the company wrote to the Prime Minister invoking dispute settlement clause in the India-Finland BIPA (Bilateral Investment Promotion and Protection Agreement) to settle this issue, to which the government replied that the matter cannot be resolved under this agreement, since it does not cover taxes, as indicated by a Business Standard report.

Nokia had also filed an appeal in the Madras High Court to set aside a single judge order directing the company to pay 10% of the ₹2,404 crore claimed by the Tamil Nadu Government as value-added tax (VAT) dues in June this year. This followed a writ petition on similar lines in April this year. A timeline of Nokia India Tax case here

What about Employees?

Nokia said that it will also be informing all stakeholders about this suspension including the Labour Commissioner. It said – “As a responsible employer, Nokia is currently evaluating options to minimise the impact on existing employees at the manufacturing facility. It will share further information once details have been finalised”.

The plant previously had around 6,600 employees, however a majority of them opted for voluntary retirement scheme offered by Nokia and it currently has around 900-1000 employees on rolls as indicated by various media reports. It also suggests that around 800 employees will file a case before the labour commissioner tomorrow, while Nokia employees’ Union is also exploring various “legal options”.

Strangely, this development has happened when the Indian government is encouraging local manufacturing in the country through its ambitious ‘Make In India‘ initiative.