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21 Apr 2012

Industry Updates – 21 Apr 2012

Source:  RBI Circulars. SEBI, PDICAI

Govt has 6 months to settle Vodafone tax dispute
Delhi : The Centre has six months – till mid-October – to amicably settle the tax dispute with Netherlands-based Vodafone International Holdings BV (VIH), or face arbitration, say legal experts. By serving a notice on the Indian Government, VIH, a subsidiary of Vodafone, has acknowledged a tax dispute with Indian authorities on its $11.2-billion deal with Hutchison Whampoa in 2007. The notice was served under the India-Netherlands Bilateral Investment Treaty (BIT). While the Supreme Court had ruled in favour of Vodafone, the Indian Government now seeks to negate that ruling through retrospective amendments in the Income Tax law. The BIT applies to direct and indirect investments made by investors of either nation in the other’s territory. The BIT says disputes should, if possible, be settled through negotiations. And if it cannot be settled after six months of the notice, it can be submitted to arbitration. Vodafone faces the prospect of a huge tax bill if the Government enacts the Finance Bill 2012 in the current form. The Bill seeks to make retrospective changes to several provisions in an apparent bid to bring indirect transfers of shares with underlying Indian assets in the income tax net.

Top software MNCs lobby against software tax changes in the Budget; warn of cut in investments
Karnataka : The world’s top software companies have enlisted America’s biggest law firm to lobby with Prime Minister Manmohan Singh against software tax changes proposed in the Union Budget. Baker & McKenzie, writing on behalf of the Software Coalition group, which includes Microsoft, Oracle and Adobe, warned that if the tax changes are implemented, software companies could reconsider the amount they are willing to invest in India.” To impose new rules with retroactive effect to 1976 under the guise that they are clarifications violates fundamental notions of fairness,” the law firm’s partner, Gary D Sprague, wrote in an April 10 letter also marked to Finance Minister Pranab Mukherjee, Law Minister Salman Khurshid and Commerce Minister Anand Sharma. The global software industry is the latest to join in the chorus of protests against the numerous retroactive amendments proposed in Budget 2012. On Tuesday, the UK’s Vodafone Group told the government it intends to start arbitration proceedings against a proposal to use retrospective amendments to tax its acquisition of Hutchison Essar in 2007.In recent weeks, several global trade bodies have also cautioned the government against retroactive amendments to tax laws saying such a step could affect investments in India.

Goods and Services Tax (GST) rollout likely in 2013-14: Modi
Delhi : Even as the Centre has refrained from stating as to when the goods and services tax (GST) will come into effect, chairman of empowered committee of state finance minister Sushil Modi has expressed the hope that the indirect tax reform initiative could be launched by the beginning of the next financial year.“ Things will move very fast in the coming days as the standing committee on finance will start discussing the Bill (Constitution Amendment Bill) after the Budget session concludes on May 24. I hope that the Bill could be introduced is cleared by Parliament and also rectified by some of the state assemblies by March 31, 2013,” Modi said after the meeting of the panel to clear ground for GST rollout.

States want four categories moved to negative list until the GST is introduced.
Delhi : States have asked the Centre not to levy service tax on hotel and restaurant services, entertainment and DTH services, and work contracts and leasing until the Goods and Services Tax (GST) is introduced. States are likely to start using the IT platform of GST (GSTN) for collection of Value Added Tax (VAT) by September. Mr Sushil Kumar Modi, Chairman of the Empowered Committee of State Finance Ministers, said: “Sectors such as hotels and restaurants, entertainment and DTH services and work contracts and leasing are attract taxes levied by both the States and the Centre. That is why we are requesting the Centre to bring these into the negative list of service tax till the introduction of GST.” Once the GST is introduced, these would automatically be brought under tax as the States would get the right to levy service tax. At present, given the prevailing duality, it is the end-user who suffers, Mr Modi said. He cited the example of bills in hotels and restaurants. The Centre levies service tax of 30 per cent of the bill amount while States levy value-added tax (VAT) at an average 10 per cent rate on the entire bill amount. Similarly, for DTH, the Centre levies tax at 12 per cent while the States impose a duty of 10 per cent.

RBI move to cut repo rate may spur steel industry
West Bengal : Reserve Bank’s decision to cut repo rate by 50 basis points is likely to spur construction and manufacturing activity, providing the much needed fillip to the domestic steel industry hit by input costs and slowing demand. The rate cut will make home and auto loans cheaper, and will provide an impetus to these sectors languishing for a while. While the auto sector may see a more immediate impact, other sectors may take some time to show results. “The rate cut will lower lending rates and spur demand for automobiles, housing and corporate loans. This will provide an impetus to steel sector growth and boost steel demand,” said SAIL chairman CS Verma. In the past two years, successive input cost hikes and sluggish demand have forced steelmakers on the back foot. In 2011-12, steel production went up by 6.6%, while consumption of steel grew by only 5.5%. “The impact will be immediate and will be felt across the industry. Though this will translate into a demand hike a few months down the line, the rate cut has come as a morale booster. Prices for long steel products which mainly go into building and construction are likely to remain firm in the coming months. Flat steels, like hot rolled (HR) and cold rolled (CR) coils, used for consumer durables like automobiles, refrigerators and washing machines will also see demand growth in the next few months,” said a senior official of a Delhi-based steel firm.

FDI up 74% in Feb to $2.21 billion
Delhi : India received $2.21 billion in foreign direct investment in February, showing an annual growth of 74%, taking cumulative inflows to $28.40 billion for the April-February period of the last fiscal.In February 2011, the country received FDI worth $1.27 billion. Experts say there is a much greater potential for attracting higher foreign investment provided economic reforms are pushed.“ There is an urgent need for strong reforms like 100% FDI in sectors like multi-brand retail and insurance. There is a need to boost investor confidence. $2 billion in month is not a big number,” Ficci secretary general Rajiv Kumar said.The sectors which received large FDI inflows during the 11-month period of 2011-12 are: services ($5.05 billion), pharmaceuticals ($3.21 billion), telecom ($1.99 billion), construction ($2.52 billion), power ($1.61 billion) and metallurgical industries ($1.76 billion), an official said.

Telecom ministry moots no foreign vendors for sensitive projects
Delhi : The government is likely to insist on 100% domestic sourcing for three major telecom projects worth nearly 36,000 crore, shutting off foreign vendors who were hoping to bag a chunk of these contracts. Citing security concerns, the telecoms ministry has decided to approach the Union Cabinet seeking its approval for keeping foreign vendors out of ‘sensitive projects’. This includes the 20,000 crore initiative to lay optic fibre connecting all panchayats in the country, the 15,000 crore project to build an alternate communication network for the defence forces and the 600 crore secure network that is being built to ensure confidentiality between government departments across the country. Besides, the telecoms department has also decided that all future telecom projects funded from the Universal Service Obligation kitty must include 100% indigenous equipment. In a related development, the telecoms department has also dismissed concerns raised by the commerce ministry and issued a cabinet note seeking approval for its proposed policy that will give preferential access and tax cuts to indigenously manufactured telecoms equipment. This policy also mandates that both state-owned and private mobile phone companies buy up to 80% of their networks hardware from domestic companies by 2020.The commerce ministry had warned that any move to preferential market access to domestically manufactured products would violate the provisions of the Trade Related Investment Measures (TRIMs) agreement under the World Trade Organization trade treaty of which India was a signatory.

No separate exit policy for telecom companies wanting to quit, says Trai
Delhi : Indian telecoms regulator on Wednesday reiterated that mobile service providers would not be refunded their licence fee if they lose or surrender permits while adding that a separate exit policy was not required for mobile phone companies who wanted to quit the business. Trai’s recommendations will enable the government to save about 10,000 crore, which was paid by the 122 licences that were quashed by the Supreme Court in its February 2 orders.If approved, the regulator’s recommendations will also result in dismissal of requests from companies like Loop, S Tel and Telenor that had demanded refund of their licence fee from the government. Unitech Wireless or Uninor, majority owned by Norway’s Telenor, has sought a refund of 1,659 crore paid as licence fee to the government when it acquired mobile permits while Loop wants around 3,800 crore back from licence fee and damages. Loop has sought more than 2,100 crore in licence fee and interest and wants it to return 812 crore given as bank guarantees and 787 crore in compensation from the government. S Tel had offered to surrender its permits in lieu of 1,700 crore invested in obtaining its mobile permits.

FIIs increase stake in more firms during March quarter
Maharashtra : Foreign Institutional Investors (FIIs) have increased stake in every other company in March quarter. So far, 318 companies from the BSE-500 index have disclosed their March shareholding pattern to the exchanges. Of them, in 177 companies, FIIs have increased their holding. However, they have reduced stakes in 124 companies. During the quarter, FIIs have pumped in Rs 43,950 crore. The BSE Sensex gained 12.6 per cent in the first three months of 2012.FIIs increased their shareholding in Hathway Cable by a steep 19.93 per cent. It may be noted that during the same period, the promoters reduced their stake by 17.3 per cent. This reduction in stake marked the exit of News Corp, the Rupert Murdoch-led conglomerate from its investment in Hathway Cable.

NTT DoCoMo to up 26% stake in Tata Tele to 49%
Delhi : Japan’s NTT DoCoMo may soon increase its holding in Tata Teleservices to 49% from 26% now. The Japanese company will buy the additional stake from its Indian partner at a discount of around 20% on the current valuation, people familiar with the development said. A delegation from DoCoMo is to visit India on April 22-23 to discuss the modalities of the deal and the proposed changes in the shareholding pattern after the stake hike, sources said. According to covenants under the shareholding agreement signed in 2008, the Japanese telecom operator can increase its stake as it has two call options it can exercise — in March 2012 and March 2014 — which gives it the right, but not the obligation, to increase its stake in the Indian venture under certain conditions.

TVS Logistics plans to sell 20% stake to KKR for $55 mn
Delhi : Chennai-based TVS Logistics Services Ltd, a TVS group company, plans to divest a near 20% stake to leading private equity firm, KKR & Co, for around $55 million. This will be the logistics services company’s second round of private equity funding in the last four years. In 2008, the company had raised $25 million in 2008 from Goldman Sachs and TVS Capital Funds Ltd, a venture capital arm of the TVS Group.A person with direct knowledge of the transaction said the funds invested by KKR will be used by the company to scale up its supply chain management operations, as it prepares for an IPO. “The money will be used for acquisitions as well as expand to new geographical areas.

Tata Communications drops out of race to acquire CWW
Maharashtra : Tata Communications has dropped out of the race to acquire UK-based undersea cable company Cable & Wireless, said a company notice to London Stock Exchange. The Indian international calling and Internet bandwidth provider had initiated an evaluation of Cable and Wireless in March and was due to submit a final bid by Thursday. The TataCommunications statement said, “TCL today confirms that it has been unable to reach agreement with CWW on an offer price and therefore does not intend to make an offer.” However, the Indian telecom company has reserved the right to make an offer, should negotiations pan out within the next six months as permitted by the UK takeover law.

Nestle close to buying Pfizer’s infant nutrition business for $10 billion
Nestle, the world’s biggest food group, is closing in on a deal to buy Pfizer’s infant nutrition business for up to $10 billion to boost its business in China and extend its lead in the world of formula milk for babies, sources familiar with the matter said on Wednesday. “Nestle is in the lead position and is closing in on a deal which we expect soon,” said one source. Another source said the business would fetch $9-$10 billion and expected a deal by the end of the April.

UltraTech Cement in talks to buy Mozambique mine for 1,500 crore
Maharashtra : Aditya Birla group’s UltraTech Cement, India’s largest cement maker, is in talks to acquire a large limestone mine in Mozambique for about 1,500 crore. The negotiations between the Mumbai-based conglomerate and the mine owner which started about two months back, could subsequently result in the group building a 1-2 million tonne cement plant in the African country where demand for the building material has been growing at the rate of 8-9% annually, a person familiar with the development said. The limestone mine is located in the Magude region in southern

Siddhesh Sardesai
IW Committe