Rectifying a flaw in its sales tax policy and giving in to a long-standing demand of Maruti Udyog Ltd that resale of used cars should not attract a 12 per cent sales tax, the state government has paved the way for Maruti to set up its chain of True-Value outlets in Gujarat.

In fact, Maruti Udyog Managing Director Jagdish Khattar will be unveiling the Maruti True-Value concept in Ahmedabad on Thursday. The concept facilitates sale, purchase and exchange of pre-owned Maruti cars.

"The problem of sales tax has been sorted out and we are launching our True-Value scheme in Gujarat on Thursday, which will prove to be extremely beneficial for people who want to purchase second-hand cars," said a source close to MUL.

Gujarat is the only state where the Maruti True-Value concept was given a miss earlier because the state government was levying a 12 per cent sales tax on resale of used cars too, which was being opposed by Maruti.

But this anomaly has been sorted out with a recent announcement by state finance minister Vajubhai Vala in his budget speech. The state government for the first time, introduced a fixed sales tax on resale of used cars.

Finance minister Vajubhai Vala, while presenting his budget for 2004-05 on May 20, said that there is no clarity as to whether sales tax is leviable in respect to resale of a used car, and it has been proposed to fix sales tax at the rate of Rs 1,000 per second-hand car sold.

By introducing this tax, the government will earn revenue and the second-hand car market will become more organised in the state, the minister said. The fixed Rs 1,000 incidence of sales tax is far lower than the 12 per cent sales tax that the state government was charging earlier.

True-Value is a scheme already put into operation in all other states by MUL, where people can purchase second hand Maruti cars from exclusive True-Value outlets. Besides getting the right price for the car, this also discourages the grey car market, which ends up duping several second hand-car buyers.

MUL officials have held several rounds of discussions with the state government on this issue over the past few years. People get Maruti certified cars with a one-year warranty and three free services with all formalities such as papers transferred in the owners name under True-Value.

MUL launched True-Value with the aim of ensuring that people who buy second-hand Maruti cars - and there is a huge second-hand car market - are not cheated when they purchase it through brokers in the grey market.

Under the True-Value scheme, MUL purchases a Maruti that is up to seven years old and having a mileage of up to 100,000 km, paying the owner the price depending on the condition of the car.

The car is completely overhauled and repaired before it is sold again at an appropriate price with a one-year warranty and three free services.

The bone of contention until now was that once a new car has been sold, sales tax is already paid by the customer, which is in turn deposited by the company to the state government. Once this car is sold again as a second-hand car, it should not attract sales tax, but the government had been claiming a 12 per cent sales tax on the second sale too.

The state finance minister and minister of state for industries Anil Patel could not be reached for comments.

Value chains

• True Value Dealerships in Gujarat will function in Ahmedabad, Rajkot, Jamnagar and Junagadh.
• The True Value dealers in Ahmedabad are Cargo Motors and Kataria Automobiles, while the dealer in Jamnagar is Atul Motors.
• Dealers in Rajkot are Cargo Motors and Perfect Auto Services and the dealer in Junagadh is Perfect Auto Services.