June - July 2012 - mchi-credai

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10 Page 10 SPECIAL REPORT industry had for the first time taken out a morcha against the cement cartel. And how, Shankarbhai had worked to gather information and build up a case over the years. He recalled Shankarbhai’s efforts in understanding the cost of producing cement, so that a case could be built up. “It has been Shankarbhai’s perseverance that brought about this success against the cement manufacturers, and we are all The genesis of the case against cartelization The case against cement cartelization was being considered since some time – Shankarbhai recalled it was from the time when Narendra Kumar was the IMC President. “Recently, the Standing Committee of Parliament pointed out that there was ‘huge profiteering’ in cement, and that was why the price of cement was very high. It was estimated that cost of production was about INR 90 per unit of manufacture, and accounting for amortization, interest and profits, the cost should not have crossed Rs. 180. The Standing Committee of Parliament recommended that the Competition Commission of India look into the matter,” he explained. It was in May 2009 that the section on cartelization was incorporated in the CCI’s charter. “We filed our case in June 2010. We submitted to the Commission that steel had three broad consumers, including automobile and construction, cement had only one: construction. Prima facie, the CCI found there was ground to believe a cartel was in operation and directed the Director General of Investigation to launch an Comparative Statement of Growth of Cement Industry & Construction Industry Year Installed capacity in MMT Growth in % 2005-06 157.35 - 141.81 - 90 16.20 2006-07 165.64 5.26 154.64 9.75 94 11.80 2007-08 179.10 8.12 168.31 8.14 94 10.10 2008-09 205.96 14.94 181.61 7.90 88 7.25 2009-10 246.75 19.80 205.00 12.87 83 7.00 2010-11 286.38 16.06 210.85 2.85 73 8.10 2011-12 301.60 5.31 228.00 8.13 75 4.80 Sources: (1) For Cement Sector Page 202-203 of C.C.I. Order. (2) For Construction Sector 2005-06 to 2008-09 from Page 19 of National Accounts of Statistics page 19 & 20 for 2009-10 and 2010-11 page 225-226 of C.C.I. order. (3) For 2011-12 figures from Indian Economy Review April 2012 issue. Capital Market March 2012 issue. (4) For Construction Industry growth 2011-12 from note issued by C.S.O. on 30-5-2012. PROPERTYSCAPE ISSUE • JUNE • JULY 2012 inspired by your example,” he said. Boman Irani lauded Shankarbhai for his guidance. He then invited MCHI-CREDAI’s President Para Gundecha and Past President Rajni Ajmera to felicitate Shankarbhai, with a floral bouquet and a plaque, in recognition of his invaluable services to the industry. C. G. Deochake, Chairman, BAI Mumbai enquiry. In the submission made to CCI, we said the growth of the construction industry had come down between from 2006 to 2010. While the cement industry added capacity, capacity utilization went on decreasing and the prices went up. From 94 per cent, capacity utilization came down to as low as 72 per cent,” he said. The Director General of Investigations c a l l e d c e m e n t m a n u f a c t u r e r s ’ representative, and to the question on how prices kept on rising, the reply was: ‘the law of supply and demand was in operation’. The next question put to cement manufacturers was, ‘how do you measure demand?’ There was no cogent answer. The President of Cement Manufacturers’ Association, (CMA) too, when called, could only admit that they had no mechanism to measure demand. “We go by Planning Commission figures,” said the CMA President. “If the economy grows 9 per cent, the industry grows by 1.2 times.” Not satisfied with the answers and information provided, the DGI called for cement plant production and dispatch Production in MMT Growth in % Centre, thanked MCHI-CREDAI for “felicitating our Shankarbhai. He has won a great battle, but the war is still on. And we all need to do much much more to see that this is concluded successfully,” he said. Boman Irani’s response was: “I thank all the BAI Members who joined MCHI-CREDAI’s Managing Committee to felicitate your Shankarbhai, and our Shankarbhai!” figures. These, said Shankarbhai, turned out be revealing. “It was found that the production of say January, was followed by February registering a decline, and the price was increased. Again, investigations revealed that the CMA had formed a highpowered committee. The DGI found a direct co-relation between cement prices before this committee’s meeting, and after the meeting, when cement prices went up. The DGI concluded that CMA provided the platform to create a cartel.” “Despite all these revelations,” said Shankarbhai, “and the CCI’s orders, prices of cement have gone up by Rs. 20 a bag in Delhi, and Rs. 10 in Mumbai.” He said he received a call from a BAI member in Pune, who asked, in Marathi, “Tumhi hey kaye kela, (ulta) bhaav wadhavla” (You have caused cement prices to go further rise). In conclusion, Shankarbhai said a lot of work still needs to be done. “Much spadework has to be undertaken, so that a truly deterrent penalty, as required, is imposed on cartels so that they do not find it profitable to indulge in such profiteering.” Capacity Utilization in % Growth of Construction Industry in % Page 11
Page 12 MCHI-CREDAI NEWS MCHI-CREDAI NEWS Convocation Ceremony of MCHI-CREDAI - Rustomjee Academy Shri Boman Irani (Hon. Secretary MCHI-CREDAI) at the dias while Shri Paras Gundecha (President MCHI-CREDAI) addresses the crowd at the Convocation Ceremony. MCHI-CREDAI and Rustomjee Academy for Global Careers (RAGC), the vocational division of the Rustomjee Group of Schools, have collaborated to jointly offer “Construction Site Supervisor Skill Enhancement Certificate Program”. MCHI-CREDAI had co-certified The proud Certificate Holders at the Convocation! Felicitation of Shri Dhruvkumar Lallubhai Desai (Shankarbhai) Trustee – BAI Shri Paras Gundecha (President MCHI-CREDAI), Shri Dhruvkumar Lallubhai Desai (Shankarbhai - Trustee BAI) addressing the MCHI- CREDAI Members. Read the article on pages 08 – 10. this program of RAGC. This win-win collaboration benefits the Industry by creating standardization in construction processes; increase efficiency & productivity; and ensure that quality manpower is available to the Industry. USABF at MCHI-CREDAI Mumbai, June 2012 Dr. Nitin Parab of USABF addresses members of MCHI-CREDAI. CREDAI and the US Asia Business Forum (USABF) invited MCHI- CREDAI members to explore Joint Ventures, PE and Venture Funding options and Technical Collaborations with PIOs, NRIs and US-based Companies at their event, US Asia Business Expo 2012, which will be held in Florida, USA. This Special Preview was held to enable MCHI- USABF’s Founder-Chairman Shri Kevin Kaul addresses the audience at the USABF Seminar. CREDAI members understand about how they can explore B2B opportunities and meet potential partners and customers in the USA at the US Asia Business Expo 2012 which will focus on Synergizing Strength amongst Asian Countries with USA and Global Companies. Shri Boman Irani (Hon. Secretary MCHI-CREDAI), Shri Deepak Goradia (Vice President), Shri Nayan Shah (Vice President), Shri Paras Gundecha (President MCHI-CREDAI) felicitating Shri Dhruvkumar Lallubhai Desai (Shankarbhai - Trustee BAI), Shri Rajni S. Ajmera (Past President), Shri Vimal Shah (President Elect), Shri Dharmesh Jain (Vice President) VAT & Service Tax Update Advocate Vinayak Patkar addressed a seminar on VAT & Service Tax issues at MCHI – CREDAI on July 17, these are some points he made during the seminar Writ Petition No.2022 of 2007 was filed before the Bombay High Court by the Maharashtra Chamber of Housing Industry (MCHI). It challenged the constitutional validity of the law introduced by the State Government imposing VAT on sale of flat. Recently, the Bombay High Court gave a decision which went against MCHI’s stance. In response, MCHI has already filed a Special Leave Petition (SLP) before the Supreme Court; as also has moved an application for Stay of Operation of the Hon’ble High Court’s Judgement. The Stay Order, which had been issued by the Bombay High Court earlier, now stands vacated. Officials of the Sales Tax Department are now chasing developers for payment of tax, as also to get details about collection of the tax by them. This data, of taxes collected by developers, is expected to be used before the Supreme Court when the application for Stay Order will be contested. If Apex Court does not issue the Stay, the developers who are not registered under MVAT Act, 2002 will be required to register themselves. If the Supreme Court stays the judgement of the High Court, then the status-quo can be maintained. The developers are advised to wait till the Apex Court gives the decision on the Stay Application. Implementation Even if the High Court has upheld the constitutional validity of the introduction of the law levying tax on the sale of flat, it is difficult for the government to implement the law. The provisions which exist on the Statute Book, as on today, are not sufficient to levy tax on all types of sale contracts. In number of cases the customer enters into an agreement for purchase of the flat after certain portion of the construction is over. For example, a customer buys a flat on 18th floor when the construction upto 15th floor is complete. In such circumstances, the developer receives consideration from the buyer in lump-sum against the construction upto 15th floor and thereafter receives money slab wise against the purchase of such flat. In such a case, the lump-sum consideration received is against the immovable property sold by the developer to such buyer which is covered by Transfer of Property Act and State Government is not competent to levy tax on the same. VAT Meeting, July 2012 12 PROPERTYSCAPE ISSUE • JUNE • JULY 2012 PROPERTYSCAPE ISSUE • JUNE • JULY 2012 13 SRA Projects In such cases, the developer is required to reconstruct the houses for the existing tenants/ occupants without any consideration. The developer is also required to give some additional area to such persons. After accommodating such tenants/occupants the developer is allowed to sell some flats to the outsiders. In such circumstances, how does one define to whom is the transfer of property in the material used by the developer in the construction of plinth etc? Is it the original tenant, or the ‘outsider’ – the new purchaser? Shri Vinayak Patkar makes a pertinent point during his talk. If it is to the original tenant then no tax can be levied, since no consideration is received against the transfer of property. If it is to the outside purchaser then how does one identify such material for the purpose of levy of tax? Payment options There are different options for payment of the Tax. Section 42 of the MVAT Act, 2002 provides for composition. Section 6 read with Rule 58(1) & (1A) provide for the regular method of payment of tax. Under Section 42 the composition is 5 per cent on the total consideration of flat. It should be noted that no reduction has been provided for the price of land under the composition scheme and therefore, the 5 per cent VAT is required to be paid on the total value of the flat. It can be assumed that the customers will not accept such heavy tax burden. It is quite possible, that some customer may approach the Consumer Court. Such customers can compel the developer to adopt the particular option. HC equates developers with contractors Developers need to understand that the High Court has equated them with the contractors. The liability of the developers can’t be more than that of the contractors. The sales price of the contractors is around 15 per cent more than the purchase price of the material used by them. The contractors are paying VAT on such sales price and are also claiming full set off of the VAT paid on purchases. The sales price of the developer qua material would at the most be 25 per cent more than the purchase price of the material. The developers are required to pay tax only on such sale price and not more than that. SC Judgement The Supreme Court, in the case of State of Andhra Pradesh v/s Larsen & Toubro Ltd., reported in 17 VST 1(SC) held that once the subcontractor/contractor incorporates the material in the construction then there can be no further sale of such material, since under the building contract, the property passes by way of accretion. Once the sub-contractor transfers such property nothing thereafter remains for re-transfer. But, the Hon’ble Bombay High Court, in MCHI’s case, has distinguished this judgment. Therefore, developers who can afford litigation upto Supreme Court should only take help of this judgment. Conclusion In the present scenario, the Developer is both, the contractor and also the employer. He will have to deduct the tax as envisaged u/s.31 of the MVAT Act, 2002. Page 13
Page 1 and 2: Personal Billiards Room The Industr
Page 3 and 4: As we move into the middle of 2012,
Page 5: Cartelization by cement manufacture
Page 9 and 10: MCHI-CREDAI Thane Unit President Sh

June - July 2012 - mchi-credai

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