Tax default threatens existence of Buddh International Circuit

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The Buddh International Circuit is faced with a threat to its existence. A tax default may lead to Jaypee Group losing their right on the property.

The Yamuna Expressway Industrial Development Authority has advised the Jaypee Group, facing insolvency proceedings, to clear the tax dues of ₹ 108 crore by December 31.

The company had faltered to meet the earlier deadline of September. Now, the governing authority YEIDA has increased the pressure on the beleaguered infra and real estate group to clear the dues latest by December 31.

The YEIDA, at its board meeting, had decided that if the tax dues are not cleared within the stipulated period it might consider the cancellation of the allotment of the Buddha International Circuit land to the Jaypee Group’s holding companies, which have the ownership rights of India’s premium motor racing circuit.

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Times of India, quoting YEIDA CEO Arunveer Singh, has reported that the Jaypee Group had asked for time to clear the tax dues by the end of December. The authority had considered the request for an extension of the payment date with a rider that any failure now would lead to the necessary coercive action, including the cancellation of the 1,000 hectare of land, which also includes the Buddh International Circuit complex.

Buddh International Circuit had come into prominence when it hosted India’s first Formula One Grand Prix on 30 October 2011. The prestigious motor sport facility was awarded the 2011 Motorsport Facility of the Year award at the Professional Motorsport World Expo 2011. BIC has also been honoured with the Best Promoter Trophy for the successful conduct of Formula One races in 2011 and 2012 at the FIA prize-giving gala.

The motor racing complex had faced the first dispute in as early as 2009 when the Indian Ministry of Youth Affairs and Sports had denied JPSK Sports (the property holding company) a permission to remit $36.5 million in licensing fees to Formula One administration headquarters in London. The reason given was the nature of Formula One, considered not to be a sport but rather entertainment, and its perceived lack of impact on the development of sports in the country. Customs fees for imported components including engines and tyres were not waived, and tax exemptions given to other sports were not offered to the organisers. Fees worth $51.3 million, meant to be paid by Jaypee Sports to Formula One World Championship Limited(FOWC), were still pending as of Liberty Media’s acquisition of the Formula One Group in 2016.

The government’s expectation of tax revenue meant that Jaypee was prevented from paying its dues to FOWC.

The dispute had led to Formula 1 events’ departure from India only after two seasons.

In a judgement issued in April 2017, the Supreme Court of India ruled that the circuit constituted a “permanent establishment”, and as such FOWC was liable to pay taxes on any income accrued by it in India, estimated at 40% of business income. It considered royalty payments made by Jaypee to FOWC to be business income as well, subject to tax, which contradicted the original agreement between Jaypee and FOWC that stipulated that any fees would be paid free of taxes.

Liberty Media was prepared to settle the due amount in July 2017, setting aside $14.8 million.

The circuit is part of the 2,500-acre Jaypee Greens Sports City.

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