The sticking point is the customs department's insistence that the organizers of the Formula One Indian Grand Prix pay duty, upfront, on all equipment coming into the country for the race. While no valuation has ever been done on F1 equipment, it is estimated that the duty on them could come to around Rs 600 crore or more.
The organizers, Jaypee Sports India (JPSI), have been asking for declaration of a custom bonded area, as is the practice worldwide, which would enable the F1 cargo to land and immediately be taken to the track where everything is assembled and dis-assembled, and then flown out of the country after the event. This is done on the premise that nothing is being imported into or exported out of the country, thus avoiding custom duty.
For instance, during the Singapore Grand Prix, the country's customs department allows the temporary import of all cars and equipment for the main and support races. This enables the goods to be imported into Singapore without payment of duty or Goods & Services Tax (GST), with the condition that these goods would be re-exported after the event.
However, the Indian government, bent on classifying Formula One as entertainment and not sport, has not extended any such help, the organizers say.
As a result, JPSI might have to pay customs duty on the cargo that lands in India. With no known estimates of the F1 paddock, JPSI could be coughing up Rs 600 crore or more to allow the cargo to land in India for the race. After a deduction of 2%, the remaining amount will be returned to JPSI.
JPSI has over the past few months been writing letters and meeting government officials in an effort to get all approvals in place for the race.
In a letter dated September 7, 2011, signed by Shankar Lal, under-secretary in the sports ministry, the government approved the Federation of Motor Sports Clubs of India's request to hold the Formula One Indian Grand Prix at "no cost to the government" but subject to certain conditions.
While the government has in a letter approved the request to hold the GP, it is still mulling whether the exemptions can be given to the event or not. "No decision has been taken yet. It is being discussed," said a revenue department official.
But sources in the finance ministry said under the rules F1 is not eligible for any exemption. Under sec 25 (2) of the Customs Act 1962, ad-hoc exemption is given to some security establishments and imports related to "national interest" only.
There is another interesting irony in the government's stance. Though it insists that F1 is not a sport, yet it recognizes the FMSCI as a national sports federation.
More bizarrely, one of the conditions for approval to the F1 event, according to a sports ministry letter dated August 10, 2011, was that JPSI make a "contribution" of Rs 10 crore per annum to the National Sports Development Fund for the entire duration of the contract, that is, 2011 to 2015, extendable by another five years, and set up sports academies.
'We have in-principle approval for customs exemption'
The organisers, however, said they have "in-principle approval" for custom exemption and they are even ready to pay whatever duty is required to hold the October 30 race.
A report in a national daily claimed that since the government does not classify Formula One as a sport, it was not willing to grant any exemption to the organisers and hence JPSI will have to pay Custom Duty on the temporary import of F1 equipment to the country.
However, Jaypee Sports International Limited (JPSI) insisted they have support from all quarters.
"JPSI has full support from the government, the sports ministry and the customs department for the F1 event scheduled for October this year. We have an in-principle approval from the customs department for creating a customs bonded area for F1 equipment that will be temporarily imported to India," Sameer Gaur, MD and CEO, JPSI said in a statement.
"If required, as per the law of the land, JPSI will pay customs duties and taxes etc. for the temporary import of equipment. The estimated value of this equipment is about Rs 150 crore and the final duty payable on this will be approximately Rs eight crore," Gaur added.