The proposed waiver of sales tax to the tune of Rs. 46 crore owed by city-based Hindustan Shipyard Limited has been caught in the bifurcation muddle.

The sales tax dues pertained to the period from 1972 to 1998, official sources said.

The proposal, on a request by the Central authorities considering the financial health of the HSL, which was transferred from Ministry of Shipping to Defence as part of a revival package, was cleared by the State Commercial Tax authorities after raising of the demand by the local office.

The decision to write off the arrears was taken long ago and the relevant order to execute the waiver should have materialised before the division of Andhra Pradesh.

As there was policy paralysis at the time, an order could not be issued. The issue was brought to the notice of the State Government by a HSL official during an interactive session conducted by the Department of Commercial Taxes and Vizagapatam Chamber of Commerce and Industry before bifurcation.

“We don’t know whether it will be settled as an undivided State or under residual State of Andhra Pradesh for which modalities have to be worked out,” Deputy Commissioner of Commercial Taxes T. Siva Sankara Rao told The Hindu.

Earlier, there was a dispute whether sale of a ship should be considered a work contract or be treated as a commodity for raising demand by the Commercial Taxes Department. Labour expenditure under work contract is exempted allowing less tax burden.

However, the department subsequently ruled that sale of ship would attract relevant taxes as applicable for a commodity.

HSL, which was set up in 1941 by Scindia Steam Navigation Company, became a fully owned Government of India company in 1952. It was taken over by the Ministry of Defence in 2010 to revive its past glory.

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