Regulations
Soon, SEBI matters may be heard before a special court

The Securities Laws Amendment Act, notified by the government in August facilitates setting up of a special SEBI court to fast-track suspected cases of fraud

 

A special court may be set up soon to fast-track prosecution and investigations initiated by the Securities and Exchange Board of India (SEBI) against defaulters, after the regulator raised the issue with the government and judiciary.

 

A provision for setting up a designated court to hear SEBI cases, as also to give go-ahead to the regulator for carrying out search and seizure operations, has been made in a new law aimed at giving the market watchdog more teeth.

 

"We have taken (it) up with the government and the High Courts. My feeling is that they are working on it. We have already taken it up... Parliament has passed the law, government has notified the law, we have already written to the government. Wait for sometime," SEBI Chairman UK Sinha had said on Friday.

 

The Securities Laws Amendment Act, notified by the government in August, amends all legislations governing capital markets and also facilitates setting up of a special SEBI court to fast-track suspected cases of fraud.

 

The Act is part of the government and regulators' efforts to crack down on fraudsters in the wake of several cases of illicit money-pooling activities, including by ponzi operators, across the country.

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Bombay HC rules in favour of Vodafone in transfer pricing case

A division bench of chief justice Mohit Shah and justice MS Sanklecha held that as there was no taxable income arising out of the transaction so there should be no transfer pricing provisions applicable to it

 

The Bombay High Court on Friday ruled in favour of telecom major Vodafone in the transfer pricing dispute pertaining to sale of shares of its Indian unit to a Mauritius-based group company. The HC said that the telecom operator need not pay tax in a transfer pricing case.

 

The court said that there was no taxable income arising out of the transaction. A division bench of chief justice Mohit Shah and justice MS Sanklecha held that as there was no taxable income arising out of the transaction so there should be no transfer pricing provisions applicable to it.

 

The order went against the two-year-old tax demand from the Income Tax (I-T) authorities, who were hoping to collect as much as Rs3,200 crore in tax from Vodafone’s outsourcing unit in Pune. The amount included tax as well as interest for the IT demand for the year 2008-09.

 

Vodafone is locked in twin tax disputes with the government. One pertains to its 2007 acquisition of Hutchison Whampoa’s stake in Hutchison Essar, and the other is the transfer pricing case involving Vodafone India Services. This accounts to as much as Rs4,200 crore for the financial year 2010-11. It is also mired in a much larger tax controversy for the purchase of 67% stake in Hutchinson Essar in 2007. The claim for this is as large as Rs11,200 crore.

 

Vodafone is among 20 MNCs involved in transfer pricing disputes with Indian tax authorities. It is expected that the income tax department may appeal to the Supreme Court against the order.

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Revival of subsidy for the naphtha-based fertiliser plants

Under the new Investment Policy for New Urea Plants, the government has sought the private sector applicants to provide bank guarantee of Rs300 crore that would be released related to various stages of completion of the project

 

Last week, Madras Fertilisers Ltd (MFL) went off production lines; this was preceded earlier by the Southern Indian Petrochemicals Ltd (SPIC) and Mangalore Chemicals & Fertilisers Ltd (MCFL) who use naphtha as feed stock for making urea. The combined production of these three units is said to be around 1.5 million tonnes. It may be remembered that India needs about 30 million tonnes of urea and, as the domestic production is around 22 mt, the balance of 8 mt is imported.

 

The closure of these three units would have rippling effect on not only the employment issue, but also affect essential suppliers like Chennai Petroleum, who supplies about 1,000 KL of naphtha a day to Madras Fertilisers and Southern Petrochemicals. In addition to this, suppliers of LPG, diesel oil, furnace oil and other related materials would be affected, if these plants completely closed down, simply because of withdrawal of subsidy. There ought to be some investigation as to why they could not comply with the requirement to lay the gas pipelines to be able to receive the gas, if and when it is supplied, and, which we already know, is in short supply.

 

In any case, in a lightening move, the Fertiliser Ministry has taken up the issue at the Cabinet level, and it is now assured that the subsidy will be available. However, the urgent need to have the gas pipe line work done up has not been overlooked.

 

Under the new Investment Policy for New Urea Plants, the government has sought the private sector applicants to provide for Bank Guarantee for Rs300 crore, release of which will be directly related to various stages of completion (execution) of the project. Also, unlike the past, there is no more government assurance of guaranteed buy-back programme for the urea manufactured.

 

By 2017, the demand for urea is expected to reach 34 million tonnes, as against the current need of 30 mt. In order to meet this anticipated increased demand, as many as 13 urea makers, including IFFCO, RCF, Tata Chemicals, has applied for expanding their capacities (brownfield) while two new players wanted to start greenfield production units of 1.3 mt capacity per annum each. The government plans to give subsidy for a period of eight years when these plants would be in actual production.

 

Under the new investment policy, urea producing companies will receive subsidy on domestic sales and the retail price, at the moment is fixed at Rs5,360 per tonne. The difference between this and the actual cost of production would be paid out as subsidy.

In order to overcome the continuing shortage of Urea, the government has taken up the issue of a joint venture with Iran to set up fertiliser plants there. Additionally, there are plans to revive four fertiliser plants in Talcher (Odisha), Ramagundam (AP), Barauni (Bihar) and Gorakhpur (UP). It is hoped that our domestic gas production will also increase in due course.

 

In the meantime, readers may be aware of the hostile take-over attempt by Deepak Fertilisers to control Mangalore Chemicals and Fertilisers Ltd is not yet over, though, press reports indicate that Vijay-Mallya and Saroj Poddar (Zuari) combination is likely to prevent this measure.

 

Government must also seriously follow up with other friendly governments, such as Qatar and Oman for putting up fertiliser plants in their countries so as to reduce the cost of transportation of gas to India and, instead, import the finished fertiliser!

 

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)

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