Nine infrastructure firms in customs net
March 3, 2008
Gammon India, Punj Lloyd, Era among those being investigated for diverting tax-exempt equipment for pvt work
The central intelligence unit of Indian customs here has launched a series of cases alleging import duty evasion by nine infrastructure firms, including well-known names in the field such as Punj Lloyd Ltd, Era Constructions (India) Ltd and Gammon India Ltd.
The companies are alleged to have diverted construction machinery, imported without customs duty specifically for projects financed by the United Nations, other international aid organizations and approved by the government, to private projects, thus evading customs duty.
The money involved in the case is not large in itself, but the development is significant since these firms are involved in construction of roads for projects approved by the National Highways Authority of India (NHAI) and aided by the World Bank, Asian Development Bank and the UN.
Under the Customs Act 1962, equipment imported into India for completion of infrastructure projects financed by the UN or an international organization and approved by the government is exempt from customs duty. The firms had imported machinery, such as piling rigs for construction of roads, and had availed the exemption.
Core of the problem
“We have already booked cases against nine firms and have recovered over Rs12 crore against such illegal import of piling rigs,” said R.K. Mahajan, commissioner (general) of customs, Mumbai.
Apart from Punj Lloyd, Era Constructions and Gammon India, the list of companies provided by the customs includes Afcon Infrastructure Ltd, Ircon International Ltd, Meher Foundation and Civil Engineers Pvt. Ltd, Villayati Ram Mittal Pvt. Ltd (New Delhi), Vijay M Mistry Construction Pvt. Ltd and Maytas Infra Pvt. Ltd.
Each piling rig costs around Rs4 crore and attracts close to Rs1 crore import duty.
“We have also seized piling rigs worth Rs8.25 crore,” Mahajan said. According to him, these companies have evaded customs duty of at least Rs20 crore and the amount could be even more as the investigation is not yet complete.
The infrastructure projects are spread across India. For instance, Punj Lloyd, one of the largest engineering and construction firms engaged in infrastructure projects, had imported piling rigs for its two NHAI-approved projects in Assam, but, according to the customs intelligence unit, these rigs were diverted to New Delhi.
“The company had rented out one of the machines to Delhi Metro Rail Corp. Ltd,” claimed a senior officer of customs who did not wish to be named.
However, the firm admitted it has been “summoned by the central intelligence unit, Mumbai customs, seeking certain clarifications/information pertaining to import of hydraulic operated self-propelled piling rig along with accessories,” imported by it under customs duty exemption scheme.
“Unfortunately, by the time such rig, along with its accessories, touched the boundaries of India it was realized that the said rig etc. could not be optimally utilized at the Guwahati to Nalbari Section of NH31 in Assam project due to non- availability of work… Since the machinery so imported was worth crores of rupees and keeping it idle would not only result in decaying and deterioration but also have an adverse financial impact…the company deemed it prudent to deploy the same to some other appropriate site,” the company wrote in its email.
It admitted that the rig was deployed at the DMRC project “which included construction of roads.” Stating that “by utilizing the…rig at the DMRC project we were in a position to keep the same in running condition,” the company said in its email that the rigs would be used at the Assam project “the moment we receive a green signal…from NHAI.”
“We believe we have acted within the intent and framework of the customs notification and the undertaking and there is no violation of any nature whatsoever and your source on information about the tax evasion on our part is unfounded and baseless,” the email went on to say.
The New Delhi-based Era Constructions, now known as Era Infra Engineering Ltd, was awarded two contracts for construction of roads in Chhattisgarh. However, according to the customs, the machinery was allegedly rerouted to other parts of India. “During the investigation, one of the machines was found at the NTPC Ltd’s site in Dadri in Uttar Pradesh. The other was found in Haryana,” Mahajan said.
Era Infra’s vice-president (commercial) Anil Bhasin said the firm had paid customs duty and interest for the equipment, which was shifted to other nationally important projects of government and public sector undertakings. According to him, the company diverted a few equipment that were not required at the assigned projects to other sites. It actually wanted to return these equipment, but could not do so as there was no provision to return such equipment. “The customs duty for such equipment was paid,” insisted Bhasin.
Gammon India, a Mumbai-based construction firm, according to Mahajan, has violated the rules by diverting machinery to another location for private use. However, he declined to disclose the location where the equipment was transferred and said the case was under investigation.
Gammon India, too, denied being involved in customs duty evasion. “There may be a possibility that some construction companies who have imported equipment under such exemptions could have utilized the same for projects other than for which such exemptions are applicable like, real estate, housing projects, shopping malls, etc. To clarify your doubts, Gammon does not undertake real estate/housing projects which could have been a potential misuse as per your concern. In fact, central intelligence unit had enquired about the utilization from all the importers who had imported equipment under the above exemptions,” said Umakant Tiwari, assistant general manager (procurement), Gammon India, in an email response.
Source: livemint.com
Impact of Budget 2008 on infrastructure
March 2, 2008
Chennai: The biggest benefit that the latest Budget has conferred on the entire infrastructure sector is the removal of double tax on dividends, says Kuljit Singh, Partner, Ernst & Young.“As infrastructure projects are typically developed through SPVs (special purpose vehicles), removal of double taxation can lead to a saving of at least one level of dividend taxation (in the existing level of 16.995 per cent including surcharge),” he explains in an e-mail interaction with Business Line.“Additionally, at present a large number of developers are looking to set up holding companies for power, highways, ports and so on. The valuation of all of these holding companies would be positively impacted due to this measure,” foresees Kuljit.Another positive from the Budget for infrastructure projects that he mentions is the reduction of duty on project imports from 7.5 per cent to 5.0 per cent. A key negative, however, is the duty structure on cement, which is expected to push up costs, rues Kuljit.While the Union Budget for 2008-09 addressed the needs of various infrastructure requirements including that of social and rural infrastructure, there was not much to offer as tax sops, or for promoting private sector investments, bemoans Vishwas Udgirkar, Executive Director – Government Regulation and Infrastructure Development Practice, PricewaterhouseCoopers.“As evident from various reports and documents, the Government is relying on huge investments from the private sector to create infrastructure that can support the overall economic growth,” he reasons. It was expected, therefore, that the Budget would address various issues relating to financing of infrastructure.“On that ground, the Budget has little to offer except the proposed change in the treatment of dividend distribution tax (DDT).” Vishwas concedes, though, that this could be a significant measure to encourage infrastructure financing, welcome by the industry.Another financial measure that he highlights is the exemption of TDS (tax deduction at source) on listed corporate debt instrument, which is expected to help, over the long term, in the development of the debt market.The Budget, however, has not addressed a number of issues like exempting foreign borrowings by infrastructure companies from withholding tax requirements, providing similar capital gain tax treatments for listed and unlisted equity, treating infrastructure holding companies as a separate class of NBFCs (non-banking financial companies), exempting Section 80IA companies from minimum alternative tax (MAT) and re-introducing Section 10(23G), lists Vishwas.Talking of the power sector, among the infrastructure components, Kuljit also finds it upsetting that the Budget has not mentioned the extension of section 80IA tax benefit for power projects.“Non-extension of this tax benefit will have a negative impact on power projects which are being proposed today, as most of these may not be completed before March 31, 2010, which is the last required date for commissioning under the existing 80IA tax provision of the Income Tax Act, 1961.”The national fund proposed for power transmission and distribution (T&D), if properly structured, can be used to strengthen the T&D network at the state level, suggests Kuljit. “Also, the allocation of Rs 5,500 crores for Rajiv Gandhi Grameen Vidyut Yojana will positively impact the state-level networks.”As regards roads and highways, he sees nothing significant in the current Budget, but for an increase of around Rs 2,000 crore being proposed in the NHDP (National Highways Development Project), and an allocation of additional Rs 4,000 crore for rural roads.In the medium to long term, the cut in excise duty from 16 per cent to 12 per cent for small cars may lead to increase in traffic on roads, thus positively impacting toll roads, he anticipates.Vishwas is of the view that the focus on nationwide monitoring of all important programmes is a welcome step, but cautions that such monitoring systems have to be put in place quickly.What about aviation? Despite the fact that airlines (in particular, low-cost airlines) are now increasingly serving the masses, aviation is still perceived as the preserve of the rich and hence the tax policies are structured accordingly, laments Kuljit.“The industry was keenly expecting reduction in sales tax (from the 20 to 30 per cent levels to around 4 per cent) on ATF (aviation turbine fuel) and changes in tax on lease rentals,” he reminds. “However, none of these expectations has been accepted in the Budget, which means that the airline industry’s rough patch may continue.”**Source: http://InterviewsInsights.blogspot.com
Hit the road: Infrastructure growth is revving up
February 29, 2008
The indian infrastructure story is just waiting to unfold. It is a foregone conclusion that the need for infrastructure to facilitate economic growth in India, both immediate and long-term , is ever more pressing. The growth rates witnessed in the Indian economy today are indicative of the change to follow —infrastructure has been expanding at an accelerated pace to support the economic growth rate of 9%. India’s infrastructure development has so far been predominantly financed publicly. The urgent need of the hour is an enhanced approach that would create a balance between public and private sector roles, complemented by transparent public policies. The Government has already taken many proactive measures such as opening up a number of infrastructure sectors to private players , permitting foreign direct investment (FDI) into various sectors, introducing model concession agreements and taking up projects such as the National Maritime Development Programme and National Highway Development Project, among others. The next four to five years will witness implementation of some key infrastructure projects such as additional power generation capacity of 70,000 MW; development of 16 million hectares through irrigation works; modernisation and redevelopment of four metro and 35 non-metro airports; six-laning 6,500 km of Golden Quadrilateral and selected National Highways. Focus will be on key infrastructure sectors of highways, ports, airports, railways and power. Having been part of the Indian infrastructure history, we at GVK have always believed that the key to developing a sustainable infrastructure in India is to build for the future. India will see an investment to the tune of $500 billion in infrastructure in the next five years. Coupled with government support, this investment will fructify in the form of key infrastructure projects to strengthen India’s cities. The next four years will bring a sea change in infrastructure and as a result, in another ten years, we will see the emergence of a new India. Source: http://economictimes.indiatimes.com
9 infrastructure firms booked for evading import duty
February 20, 2008
Nine infrastructure firms having interests in road building have been booked by the Customs authorities for allegedly evading import duty totalling Rs 20 crore on heavy engineering equipment.
The firms, including Punj Llyod Ltd, Gammon India and Era Constructions, have allegedly imported machinery for purposes other than for which they were allowed to be imported duty free, a Customs official said here.
“Duty exemptions were granted to the firms working on National Highway Authority of Indian projects and other projects funded by international development agencies like those of Asian Development Bank and United Nations,” the officer said.
The companies, however, have been found to have diverted machinery imported under duty exemptions to other private projects and hence were liable to pay necessary duties, he charged.
During initial investigations, the authorities have established alleged duty evasion of Rs 20 crore.
Notices were sent to all the nine firms and Rs 12 crore in duties have already been recovered, he said, claiming the firms have admitted to have diverted the machinery.
“We started investigations into the matter around five months ago. Though many of the firms are based outside the city, the cases have been made in Mumbai as all the machinery had landed at the Mumbai port. It will take some time for us to impose the penalties,” the officer said.
Source: timesofindia.indiatimes.com
A K Bhattacharya: India`s infrastructure puzzle
December 19, 2007
National highways in India have seen a dramatic improvement over the last decade. Improvements are more evident in shorter stretches. For instance, Jaipur, Chandigarh and Agra are now well-connected with Delhi. Similarly, the highway that connects Mumbai with Pune can easily compare with the best anywhere in the world. This is true of many other national highways connecting major cities in southern and eastern India.
Many of these roads can be used only on payment of toll charges. Going by the available statistics on toll collections, these roads have become the preferred option for motorists and even heavy vehicle drivers. In fact, the toll charges are quite low compared to the benefits they offer to the road users. There is a clear case for raising these toll charges so that the maintenance of the roads can be ensured without any funds constraint. Not surprisingly, the National Highway Authority of India is planning to build more such toll roads connecting different cities across the country.
Yet, better highways have not led to a reduction in the total travelling time. This is ironical. If you are travelling from Jaipur to Delhi, you will take at least 45 minutes to an hour to cover a distance of about 10 kilometres within the city before reaching the national highway. Once on the highway, the journey is smooth and fast with about 250 kilometres being covered in about three and a half hours. The problem starts again once you are about to enter the city of Delhi. And depending on your final destination point, this might mean an additional travel time of a couple of hours. It is the same story if you were to travel by road from Chandigarh to Delhi.
So, national highways have made driving easy once you get out of the city. But to reach a destination, you need to travel through the city. And the bottleneck is at the entry point of the city. Nothing much has been done in any of these cities to decongest the arterial access roads. The city of Delhi may have seen more flyovers in the last few years, but the impact has been marginal because the growth in the vehicular population in the city has also been phenomenal.
Airlines should have gained from this increasing vehicular congestion at the entry points of all cities. But pause for a moment to reflect on what is happening to airport congestions in almost all the major cities, you will notice a virtual re-run of what has already happened to Indian highways. The flying time between Delhi and Mumbai is only about an hour and a half. But the wait on the tarmac (in addition to the early check-in requirements because of security reasons) before the aircraft can take off is almost half an hour. There is another 30-45 minutes of hovering in the skies before the aircraft can actually land and you can be taken to the arrival terminal building. In effect, you end up waiting for almost the same time that you take to cover the actual distance. All this is due to airport congestion. Gone are the days when once you were airborne, you could confidently estimate the time by which you would be home. Consequently, there is little to choose between taking a Delhi-Chandigarh flight and travelling this sector by car.
In any other country, the railways should have benefited from this immensely. Since most railway stations are located in the heart of these cities, there is no long wait before one can reach the final point of destination. But the irony is that the Indian Railways has failed to take full advantage of this situation. The Shatabdi trains that run on these sectors could have easily become a preferred option for those who fly or travel by road on such sectors. But the quality of service and an erratic punctuality record are major problems for the Indian Railways.
Things might change though in the next couple of years. Delhi, Mumbai, Hyderabad and Bangalore would get new or completely refurbished airports with a capacity to handle more passengers without causing congestion and delays. There might be more expressways connecting more cities. Even the Indian Railways is planning to launch faster trains to connect different cities in all the regions.
But the worries might still remain. India’s infrastructure problems arise not just from its inability to create facilities with adequate capacity. Equally frustrating is the failure of most managers of these infrastructure projects to identify the last-mile problems and fix them before they become unmanageable. Even the country’s best-managed infrastructure project, Delhi Metro Rail Corporation, is not free from this malaise. And the solution does not lie with these individual project managers. There is an urgent need for the civic authorities in each of these cities to move in tandem with the infrastructure project managers and create necessary facilities within the cities to resolve the last-mile problems and remove other bottlenecks so that the full benefits of these huge projects accrue to the people.
Source: business-standard.com
Reliance Energy Ltd(REL) to hive off infrastructure projects
November 12, 2007
NEW DELHI: In a bid to separate the power and infrastructure projects, Reliance Energy Ltd. (REL) has now decided to transfer all its infrastructure projects to a separate wholly-owned subsidiary.
The REL board had already given its approval to the proposal.
The move comes hot on the heels of REL deciding to hive off its power generation business as a separate company — Reliance Power Limited (RPL).
RPL has filed a draft red herring prospectus with the Securities and Exchange Board of India (SEBI) for an initial public cffering (IPO) of around Rs. 12,000 crore.
The decision to hive off infrastructure portfolio to a new subsidiary comes in view of the increasing portfolio of the company on this account in recent months.
REL is developing highways for the National Highways Authority of India (NHAI) under the build-own-transfer (BOT) scheme.
It is involved in five National Highway projects in Tamil Nadu, covering a length of 400 km at a cost of Rs. 3,100 crore. In addition, it is pursuing road projects, including the proposed Rs. 5,000 crore Western Freeway sea-link project connecting Worli and Nariman Point in Mumbai and the Rs. 6,000-crore Jaipur Ring Road project.
On the real estate side, the REL-led consortium had emerged as a winner for developing a business city in Hyderabad with an estimated investment of Rs. 6,500 crore. The city will be built in 77 acres, which will include a 100-storey trade tower. It has also bagged the metro rail project in Mumbai that involved the development and operation of a fully-elevated metro rail.
The total cost of the project is around Rs. 2,500 crore. It has also bid for line 2 of the Mumbai metro elevated track between Mankhurd and Charkop with an estimated investment of Rs. 6,500 crore. The company is also bidding for the Rs. 6,000 crore Mumbai trans-harbour link.
Source : The Hindu
India approves offshore container terminal
November 11, 2007
New Delhi: India’s Cabinet approved the development of an offshore container terminal at Mumbai Port as trade expands in line with growth in Asia’s third-biggest economy after Japan and China.
The terminal will be built by a group of companies consisting of Gammon India, Gammon Infrastructure and Dragados of Spain, the government said in a release in New Delhi.
India is bolstering port capacity as economic growth boosts the import of oil and the export of textiles.
The shipping ministry said in December 2005 it expects to spend Rs1 trillion ($25 billion) in six years to improve maritime facilities.
Expansion
The South Asian nation’s economy has expanded at an average 8.6 per cent since 2003, the second-fastest pace among major economies after China.
India’s exports of gems, textiles and other manufactured products rose at the fastest pace in five months in September, the government said November 1.
Mumbai Port Trust, which will provide the supporting infrastructure for the project, will spend Rs3.66 billion ($93 million) on the project, which will cost a total of Rs12.28 billion, the government said.
Funding
The remaining Rs8.62 billion will be invested by the non-state partners.
The project will add capacity of 9.6 million tonnes per annum and will be constructed in three years, Finance Minister Palaniappan Chidambaram told reporters after the Cabinet meeting that approved the plan.
Source: gufnews