Government releases draft norms for coal block auction

Coal blocks are classified into power & non regulated. There will be separate bidding norms for power & non regulated sector.

Clubbing of multiple end use in non regulated sector may increase competition. HNDL can bid for non regulated coal blocks

Reclassification of Mahan, Talabira II, Utkal 1B coal blocks to power is likely a setback for HNDL and JSPL

Draft norms provides better clarity around auction process
Government has released proposed draft norms for auction of coal blocks for public consultation. The final rules would be released after incorporating comments from stake holders. As per the draft rules, there would be separate bidding process for power utilities and non-regulated sector. Clubbing of multiple end use sectors under non-regulated sector may lead to a better reserve allocation in our view. But bidding would also be aggressive in non-regulated sector as result, though this would also depend on the coal block. Aluminum (Al) producers can bid for coal blocks reserved for non-regulated sector. This should be a relief for Al producers like Hindalco, Sesa Sterlite as there was confusion around their classification. However, re classification of end use of key coal blocks earlier allotted to HNDL and JSPL is likely a setback for HNDL and JSPL, in our view, as they would not able to bid for these coal blocks.

Separate bidding norms for utilities and non-regulated sector
Coal blocks would be classified into power utilities and non -regulated sector. Coal blocks for steel, cement and captive power sector end use (including Al) are now clubbed under non-regulated sector. For non-regulated sector, coal block would be allotted to bidder quoting highest bid price per ton of coal produced (above floor price). For power utilities, bidding would be based on reverse auction in order to ensure power tariffs do not increase. As per the proposed norm, bidder quoting lowest coal cost (below a cap price) would be granted the coal block. The power tariffs would be revised lower based on coal cost bid by the bidder.

101 coal blocks to be allocated/auctioned initially
Government plans to allocate/auction 101 coal blocks (74 coal blocks earlier). 36 coal blocks would be granted to public sector firms on a discretionary basis. 65 coal blocks would be auctioned. Of this, 28 coal blocks has been earmarked for power utilities, 37 coal blocks for non-regulated sector including 3 coking coal blocks.

 

Reclassification of coal blocks a setback for HNDL,JSPL
Government has changed end use classification of 10 coal blocks from steel, captive power, commercial to power utilities. Talabira I and Mahan coal block, earlier allotted to Hindalco is now reserved for power sector. Utkal 1B coal block originally allotted to JSPL for its Angul steel plant is now reserved for power sector. Thus, HNDL and JSPL would not likely be able to bid for these coal blocks for supplying coal to their original projects (where they may have a logistical advantage). We note JSPL could still bid for Utkal 1B for supplying coal to its Tamnar power projects.

 

Merchant power sales to be capped at 20% of capacity
Government plans to cap merchant power sales to 20% of capacity linked to allotted coal mine, in case of power plants having un contracted capacity. The bidder would also have to pay an additional reserve price (>Rs150/ton) pertaining to coal used for merchant power sale. This could cap potential returns at merchant power plants like JSPL's Tamnar I (1000MW) power project, even if it win a coal block.

High Court can’t review orders of Settlement Commission; powers are confined to reviewing its decision making process rather decision itself

CIT v. Settlement Commission (IT & WT) [2014] 51 taxmann.com 351 (Kerala High Court)

 

High Court cannot assume the role of an appellate authority to review orders passed by the Settlement Commission (‘SetCom’). Its role is confined to judicial review of the decision making process adopted by the SetCom and not the decision itself.

The High Court held as under:

• The High Court, in exercise of its jurisdiction under Article 226 of the Constitution of India, cannot assume the role of an appellate authority to conduct a review of orders passed by the SetCom.
• Its role is confined to reviewing decision making process adopted by the SetCom and not the decision itself.
• The scope of enquiry of the Court, in matters involving a challenge to orders passed by the SetCom, is only to see whether its order complied with the statutory provisions of Chapter XIX-A of the I-T Act.
• The Karnataka High Court in N.Krishnan v. Settlement Commission [1989] 47 TAXMANN 294 (KAR.) observed that a decision of the SetCom could be interfered with only:
• If grave procedural defects, such as violation of the mandatory procedural requirements of the provisions in Chapter XIXA of the Income-tax Act, 1961, and/or violation of the rules of natural justice were made out; or
• If it was found that there was no nexus between the reasons given and the decision taken by the SetCom..

• The Supreme Court in Union of India v.Ind-Swift Laboratories Limited [2011] 4 SCC 635 held that an order passed by the SetCom could be interfered with only if the said order was found to be contrary to any provisions of the Act. So far as the findings of fact recorded by the SetCom or question of facts were concerned, the same were not open for examination either by the High Court or by the Supreme Court.
• Hence, it was well-settled that the power of judicial review was not to be exercised to decide the issue on facts or on an interpretation of the documents available before the Court. Thus, in the instant case, the enquiry by Court could only be whether or not the SetCom had exercised a jurisdiction that it did not have or, alternatively, if it did have the jurisdiction, whether it had erred in the exercise of that jurisdiction. In the latter event, the Court would also have to bear in mind the nature of the jurisdiction exercised by the SetCom, which was akin to a statutory arbitration.

Russian Crisis

Russia has become the first victim of falling crude oil prices. The country’s central bank, in a bid to stem a sharp decline of the ruble, raised its key interest rate on Tuesday (16th December, 2014) to17% from 10.5%. In a midnight release, Bank of Russia said it is also raising its repo rate to 18% from 11.5% and increasing the volume of foreign currency it offers banks at the repo auctions to $5billion from $1.5 billion.

The reason for doing this drastic increase was aimed at limiting substantially increased ruble depreciation risks and inflation risks.

Russian currency Ruble has been under pressure with a sharp decline in crude oil prices which are trading at a 5.5-year low. Oil accounts for 60% of all exports from the country. On Monday ruble saw its biggest drop of nearly 12% since 1998 when the country had devalued its currency sharply. The currency is already depreciated by around 50% in the present calendar year.

For President Vladimir Putin, 2014 was not a good year since his country has not only been hit by falling oil prices but his policy on Ukraine has resulted in Russia being hit economically on account of sanctions, a sluggish economic growth and flight of capital.

In order to stem the further flight of capital, Bank of Russia took the harsh step. However, the move might be a stop gap arrangement till oil prices stabalise. But if interest rates remain high, economic activity in the country will be badly affected.

Street participants have termed Russia’s central bank as a brave one, especially since a 100 basis point increase interest rates the previous week did not help to contain ruble’s fall. According to us, the central bank likely took strong action after Russian households began shifting their domestic deposits into other currencies. Russians have pulled out more than $100 billion from the country in 2014. 

Not everyone is as sympathetic of Bank of Russia’s move. According to us, Russia has a new enemy: the currency markets. The surprise rate increase, underscores the limited options for Russian policy makers. The central bank has spent at least $75 billion this year to prop up the ruble, with little effect. 

The central bank is not too hopeful of the economy if oil prices are low. On Monday (15th December, 2014), Russia’s central bank said that it expected the country’s economy to contract 4.5 percent in 2015 if oil prices averaged $60 a barrel. Russian economy will slip by 6 percent if oil stays at $50 per barrel. Oil is presently trading at 54.5 levels.

So how does the move affect world markets?

Asian markets including India seem to have reacted adversely to the development. But the European markets, which are the biggest trading partners of Russia are all moving higher. European markets are trading higher on account of better than expected economic data. Further a strong ruble would bring down Russia’s competitive strength in the Eurozone.

In emerging markets however, analysts feel that despite the troubles Russia has one of the strongest balance sheets. Interest rate parity will result in flight of capital from other emerging markets to Russian markets. Indian rupee fell to a 13 month low, helped by global events and the high trade deficit number. Rupee’s strength has a strong relationship with equity markets.

To make matters worse Russia’s ruble continues to fall against the dollar on Tuesday and has slipped by another 5.4% despite the interest rate hike. This now leaves very few options with Bank of Russia. We believe country will now have to impose capital controls. We are nowhere close to end of the crisis in fact, it’s the beginning of a new one.

Benefit of Abatement is available in respect of Interior Works on existing buildings

The Carpenters v Commissioner of C.Ex & ST, Pune-III/Mumbai-III 2014 (36) STR 1137 (Mumbai Tribunal)

Recently, the Mumbai CESTAT in the above case has held that activities undertaken on existing building which is in already in use, the same would amount to renovation or restoration or alteration or repair as per the definition under Section 65(25b) of the Finance Act, 1994.

In the present case, the Appellant is engaged in activities of interior work such as plastering of walls, tiling of floors, carpentry work, partition work, work relating to bathrooms/toilets etc. and it was question for decision whether the activities undertaken by the Appellant would fall under clause (d) of Section 65 (25b) of the Finance Act, 1994 as claimed by the Appellant of would fall under the clause (c) of the said Section 65 (25b) of the Finance Act, 1994 as claimed by the Revenue.

Clause (c) and (d) of Section 65(25b) is reproduced below:-

“Commercial or Industrial Construction” means:

(c) completion and finishing services such as glazing, plastering, painting, floor and wall tiling, wall papering, wood and metal joinery and carpentry, fencing and railing, construction of swimming pools, acoustic application or fittings and other similar services, in relation to building or civil structure; or

(d) repair, alteration, renovation or restoration of, or similar services in relation to, building or civil structure, pipeline or conduit, which is-

i. used, or to be used, primarily for; or

ii. occupied, or to be occupied, primarily with; or

iii. engaged, or to be engaged, primarily in,

commerce or industry, or work intended for commerce or industry, but does not include such services provided in respect of roads, airports, rail-ways, transport terminals, bridges, tunnels and dams.

It was observed by the Hon’ble CESTAT that activities of repair, alteration, renovation or restoration undertaken by the Appellant comes under clause (d) and not under clause (c) and, therefore, the Appellant is eligible for the benefit of Notification No. 1/2006-ST and to attract clause (c) the same has to be undertaken in respect of new or unfinished building.

Further it was also observed, that if the contract were entered into prior to 1 June 2007, they would be governed by the provisions of Section 65(25b) of the Finance Act, 1994 relating to ‘Commercial or Industrial Construction Service’. Whereas, if the contract were entered into on or after 1 June 2007, then in that case they would be covered under the provision of ‘Work Contract Service’.

SEBI plans to widen definition of insider in insider norms and to reduce timeline to complete delisting process

The SEBI board met in Mumbai on November 19, 2014 and approved of new regulation in place of existing insider trading regulations and amendment to delisting regulations. It has widened the definition of insider under amended insider trading norms and has reduced the time-line for completing delisting process.
Some of the changes approved by SEBI are outlined hereunder:

• Amendment to Insider trading norms: In order to strengthen the regulatory framework dealing with insider trading in India, SEBI has approved of new regulation in place of the existing Insider Trading regulations. The salient features of the proposed regulations are as under:
• Definition of ‘insider’ broadened: The definition of insider has been widened. Following persons have been included in the definition of ‘insider’:

Persons connected in any contractual, fiduciary or employment relationship that allows such persons access to unpublished price sensitive information (UPSI).

Immediate relatives would be presumed to be connected persons, with a right to rebut the presumption.

• Insider trading norms aligned with international practices: The requirement of communication of UPSI in the case of legitimate business transaction has been recognized, in law, and a safeguard has been provided.
• Disclosure of UPSI in public domain: Disclosure of UPSI in public domain has been made mandatory before trading, so as to rule out asymmetry of information in the market, as prevalent in other jurisdictions.

•  Insertion of uniform regulation in place of listing agreement: SEBI has approved of conversion of Listing Agreement to Listing Regulations. Listing Regulations, interalia, would be comprehensive Regulations in respect of various types of listed securities. These Regulations would consolidate and streamline the provisions of existing listing agreements, thereby ensure better enforceability.
• Amendment to delisting regulations: SEBI has approved certain changes to SEBI (Delisting of Equity Shares) Regulations, 2009:
• Conditions for delisting:

It has been proposed that delisting would be considered successful only when the shareholding of the acquirer together with the shares tendered by public shareholders reach 90% of the total share capital of the company, and Atleast 25% of the number of public shareholders, (holding shares in dematerialised mode as on the date of the Board meeting approve of the delisting proposal) tender in the reverse book building process.

• Exemption from reverse book building process: Further, companies whose paid-up capital and net worth does not exceed Rs.10 crores and Rs.25 crores, respectively, as on the last day of the previous financial year are exempted from following the Reverse Book Building process.
• Reduction in time-line to complete delisting: Timelines for completing the delisting process has been reduced from 137 calendar days (approx 117 working days) to 76 working days.

• Risk based supervision of market intermediaries: SEBI is in the process of formalizing its risk based approach towards supervision of market intermediaries which will be in alignment with the global best practices. The system will be implemented in a phased manner.
• Granting Single Registration to Depository Participants: With a view to further simplify the registration requirements for Depository Participants (DPs), the Board has approved of the policy of granting single registration for the application of initial registration as well as the permanent registration for operating with both the Depositories.
• Use of Secondary Market infrastructure for public issuance (“e-IPO”): The Board has approved the proposal to frame suitable regulations for using Secondary Market infrastructure for public issuance (“e-IPO”) after going through the public consultation process
• Imposing restrictions on wilful defaulters - Amendments to Regulations framed under SEBI Act, 1992: The Board has approved of the proposal to review the policy in respect of restricting an issuer company / its promoter / directors, categorized as wilful defaulter, from raising capital after going through the public consultation process.

Ten Crore Aadhaars Linked to Bank Accounts

A major milestone has been crossed with ten (10) crore Aadhaar numbers having been linked to bank accounts of Aadhaar holders so far a part of Government’s Digital India mission. This would enable these individuals to digitally receive government welfare subsidies and other payments directly into their bank accounts, in a hassle-free manner.

Establishing a link between an Aadhaar number and a bank account makes it easy for the government to identify genuine beneficiaries and route welfare payments and subsidies directly into their bank accounts. The individual can benefit from this system as it is portable across any bank in the country and he/she can access these subsidies even if the person moves to another part of the country, making the whole process hassle-free. Till date, 333 banks are live on this platform.

To link Aadhaar number to their bank account, residents need to provide a copy of their Aadhaar letter or their e-Aadhaar to the bank branch in which he/she holds the account. Once the account is seeded, the account will be used by Government departments to transfer subsidies directly into this bank account.

Residents can check status of the Aadhaar-Bank account linkage by dialling *99*99# on their mobile phone. This facility is provided by National Payments Corporation of India (NPCI) at a cost of Rs.1.50 per enquiry.

The Aadhaar identity platform is the largest biometric database in the world and serves users ranging from LPG consumers, MNREGA workers, PDS, remittance and scholarship beneficiaries, etc. – all using their Aadhaar number to avail benefits.

Till 9th December 2014, about eight crore transactions have been made through the Aadhaar Payment Bridge for various Government welfare programs such as Direct Benefit Transfer for LPG, Mahatma Gandhi National Rural Employment Guarantee scheme, Tribal welfare schemes, Pensions, amounting to Rs.5,151.51crore.

Issuance of Aadhaars crossed the 72 crore-mark as on Dec 12, 2014. In the states of Uttar Pradesh, Bihar, Uttarakhand and Chhattisgarh, over 10 crore Aadhaar numbers have been generated. These four states with a combined population of about 34 crore, were allocated to UIDAI earlier this year for issuance of Aadhaars.

The Unique Identification Authority of India (UIDAI) has received national and international acclaim for the Aadhaar project. Recently, the Data Security Council of India declared UIDAI as the best agency for “Security in e-Governance”. 

Press Information Bureau
Government of India
Planning Commission

Gap between PAN card holders and number of taxpayers

Further, PAN has been allotted to around 17 crore entities while Income Tax returns have been filed by only 3.5 crore entities. The gap between PAN card holders and number of taxpayers is growing over time. While the number of PAN card holders increased by 175 per cent during FY2005-06 to FY20 10-11, the number of taxpayers in the same period rose only by 17 per cent. Of the total 12.11 crore PAN card holders during FY2010-1 1, the number of taxpayers stood only at 3.48 crore and has remained almost constant thereafter. To a significant extent, the difference reflects the use of PAN card as a proof of identity for various stipulated economic functions that have no relation to tax. Nevertheless, the gap must have a bearing on the efforts to widen the tax base as also the efficacy of the PAN card distribution system. A huge gap has also been noticed between the number of entities to whom tax deduction account number (TAN) has been allotted vis-à-vis number of deductors filing TDS returns/submissions. The reasons need to be comprehensively identified for such a widening gap and whether there is room to enhance the I-T base from the information thus obtained.

Vigorous efforts are required both in terms of policy and enforcement in widening the tax base, which as seen above is not commensurate with the growth in income over the years. The reasons for this include India’s huge rural and underground economies, which present severe logistical constraints with respect to collecting tax. There is a flourishing underground economy, where transactions are in cash and people simply pay no taxes. Further, tax collectors have failed to raise as much as they should from high-income sections of society – doctors, lawyers, designers – and other independent, self-employed professionals whose tax is not deducted at source. Even a large number of rich farmers, who earn more than salaried employees in the cities, get away with paying no tax at all in view of the government’s lack of will to consider an agricultural income tax.

Ultimately, Tax Administration Reform Commission's (TARC) consultations led to the conclusion that the tax system is not only complicated, confounding and contradictory, it is also affected by corruption, inefficiency and incompetence. Even ordinary taxpayers need to hire a tax consultant for tax payment, which costs them money, and, therefore, they become willing tax avoiders. Compliance systems should be made simple and user-friendly so that more people are encouraged to pay taxes, not avoid them.

Source:Third Report of the Tax Administration Reform Commission (TARC) (F. No.TARC/Report/36/2014-15 Dated 30.11.2014)