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Cutting Edge:Aerospace and Defence
Cutting Edge:Aerospace and Defence
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Dhiraj MathurPartner and Leader, Aerospace and Defence
It gives me immense pleasure to present the 35th edition of ‘Cutting Edge’, PwC India’s Aerospace and Defence newsletter. Over the last few months there have been important developments on the policy front. There has been significant progress in the implementation the SP policy. After the first approved project under this category for six advanced stealth submarines (P-75I) at a cost of around 60,000 crore INR, an RFI has been issued for:
• Manufacturing 1,770 FRCVs to replace the ageing T-72 tanks used by the Indian Army
• Procuring 123 NMRHs • Procuring 111 armed NUHs
A step that has been much appreciated by the industry is the approval of a procurement project under the Buy (India – IDDM) category. The project involves the procurement of over 260 BEL SDR sets for naval communication at a cost of over 490
crore INR. An area that has been a point of discussion and concern, which was also raised before the DAC, was the significant delays in the issuance of industrial licences for defence manufacturing. The MoD is considering establishing a system under which a timeframe will be set for issuing security clearances by the MHA. This move will not only help Indian companies but also foreign players who are trying to establish manufacturing set-ups in India, in accordance with the Government’s ‘Make in India’ initiative.
Policy changes have been recorded in the aviation sector too. The Union Cabinet has allowed up to 49% FDI under the government approval route in Air India—a move that will allow foreign carriers to bid for national carriers but with an Indian partner. This is an important FDI change which has come into effect at the time of the privatisation of Air India. Further, it puts Air India at par with other Indian carriers as far as FDI by foreign
airlines is concerned, particularly when the government is looking to disinvest. The 49% cap includes both direct and indirect investment by foreign airlines and comes with the condition that substantial ownership and control of Air India shall rest in the hands of Indian nationals. The DGCA has released the draft guidelines for the use of UAVs/RPAS for civil usage. The ministry has posted these guidelines on its website and has sought comments from the industry. Further, the guidelines for drones, which were issued last year, have yet not been finalised. These guidelines address issues such as drone weight, flying restrictions, licensing requirements, pilot training and drone traffic management systems. This is a much-awaited policy change as the absence of guidelines is resulting in complete prohibition of commercial usage of drones. Moreover, the promulgation of these guidelines will help both regulators and operators gain clarity on the prerequisites for operating drones.
Dear readers,
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In accordance with the government’s intention to privatise public sector entities, bids have been invited from both national and foreign private companies to acquire a 51% stake, along with management control, in the helicopter service operator PHL. PHL is under the administrative control of the MoCA and its remaining 49% stake is held by ONGC. This is another step towards the government’s recurrent efforts to divest from public sector entities and increase revenues to meet their fiscal targets.
I invite you to review our newsletter dedicated to A&D. I thank all our esteemed clients for their continued support and trust in PwC. Your feedback, trust and support are important and we look forward to the same.
Sincerely,
Dhiraj MathurPartner and Leader Aerospace and Defence
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FDI policy further liberalized in key sectors: Cabinet approves amendments in FDI policy-Civil Aviation
India to purchase anti-tank missiles from Israel through govt-to-govt deal
As per the extant policy, foreign airlines are allowed to invest under Government approval route in the capital of Indian companies operating scheduled and non-scheduled air transport services, up to the limit of 49% of their paid-up capital. However, this provision was presently not applicable to Air India, thereby implying that foreign airlines could not invest in Air India. It has now been decided to do away with this restriction and allow foreign airlines to invest up to 49% under approval route in Air India subject to the conditions that:
• Foreign investment(s) in Air India including that of foreign Airline(s) shall not exceed 49% either directly or indirectly
• Substantial ownership and effective control of Air India shall continue to be vested in Indian National.
India will purchase Spike Anti-Tank Guided Missile (ATGM) from Israel through the so-called government to government (G to G) route because the military wants the proven weapon, and the Defence Research and Development Organization (DRDO) has no objections to the deal as long as it does not involve transfer of technology (TOT). Last month after much deliberations, the defence ministry withdraw the Request for Proposals (RFP) for 8,000 Israeli spike missiles, a deal that would have been worth $500 million, after DRDO developed the indigenous Nag ATGM with seeker software and said it was against any TOT from Rafael Advanced Systems, the Israeli company that makes the Spike missile.
Source: http://pib.nic.in/newsite/PrintRelease.aspx?relid=175501
Source: http://www.hindustantimes.com/india-news/india-to-purchase-anti-tank-missiles-from-israel-through-govt-to-govt-deal/story-C0TQXzxqXHqcAm8ckghPkI.html
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Setback for Indian Navy: Rs 32,000 crore project to build 12 minesweepers scrapped, says report
Garden Reach Shipyard using carbon fibre to build warships
A Rs 32,000-crore project to indigenously build 12 minesweepers at the Goa Shipyard Ltd (GSL) in collaboration with South Korean firm Kangnam Corporation has reportedly just fallen through, dealing a major blow to the government’s Make in India mission. According to sources cited by The Times of India, this decision was taken by Union Minister for Defence Nirmala Sitharaman. “Goa Shipyard has been asked to issue a new global expression of interest for the mine counter-measure vessels (MCMVs). The fresh RFP (request for proposal) or tender will follow thereafter,” quoted the daily. With this, the Indian Navy’s nearly decade-old quest for new minesweepers, desperately needed to beef up security along its long coastline, has been pushed back even further.
Garden Reach Shipbuilders and Engineers (GRSE), under the Ministry of Defence, which recently completed major modernisation of its infrastructure facility and has doubled its capacity, has become the first Indian shipyard to build warships using carbon fibre composite material. The Kolkata-based shipyard has incorporated this technology in its ongoing project of third and fourth ASW (Anti-Submarine Warfare) Corvettes being built for the Indian Navy. The carbon fibre material, imported from Swedish stockyard Kockumo, is reportedly lighter than stainless steel, which is traditionally used to construct warships.
Source: http://www.businesstoday.in/current/deals/indian-navy-rs-32000-make-in-india-12-minesweepers-scrapped/story/267526.html
Source: http://www.indiandefensenews.in/2017/10/garden-reach-shipyard-using-carbon.html?utm_source=feedburner&utm_medium=email&utm_ campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29l
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Government approves sale of 10% stake in HAL HAL looks to start production of HTT-40 trainer aircraft in December
The government has approved the sale of 10% stake in Hindustan Aeronautics Limited (HAL), a defence Public Sector Undertaking. As part of the procedure, HAL had initiated the process of initial public offering with the filing of the Draft Red Herrring Prospectus (DRHP) with market regulator Securities and Exchange Board of India “This was a major milestone towards listing of the defence PSU which is slated for partial disinvestment by the Government of India.
The HTT-40 basic trainer developed indigenously is heading for critical trials in October, with plans for the production line to start before the end of this year. The indigenous HTT-40 trainer – which is critical for the air force’s pilot training program – is likely to undergo stall and spin tests shortly that will test its ability to recover from a potentially devastating situation. The tests are critical to prove the stability and utility of the HTT-40 to train young pilots in handling aircraft before they move on to the more advanced aircraft. The HTT-40 has already undergone wind tunnel testing in France and is undergoing minor modifications to prepare it for the tests. Stall and spin tests are potentially lethal for test pilots and need to be programmed and planned minutely.
Source: http://www.indiandefensenews.in/2017/10/government-approves-sale-of-10-stake-in.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
Source: http://www.indiandefensenews.in/2017/10/hal-looks-to-start-production-of-htt-40.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
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DRDO hands over tech to defence firm to manufacture bullet-proof jackets
Cochin shipyard lowest bidder for Rs 5,400 crore navy contract
IAF to add 114 fighter jets to its fleet - first squadron expected in 5 years
The Defence Research and Development Organisation (DRDO) has handed over its technology to a defence firm to manufacture bullet-proof jackets for the armed forces. The government has decided to procure 1.86 lakh bullet- proof jackets for the armed forces and majority of them will be manufactured by Kanpur-based private firm MKU Ltd which was given the DRDO-developed technology. The DRDO and MKU Ltd also exchanged licence agreement and other related documents. MKU will produce bullet-proof jackets which will be lighter in weight than those being used by the armed forces currently.
Cochin Shipyard Ltd (CSL) has emerged as the lowest bidder for a project of the Indian Navy and the Rs 5,400 crore contract for eight vessels is likely to be concluded after due process. CSL has received communication from the Integrated Headquarters, Ministry of Defence (Navy) that the Company has emerged as the L1 bidder for 16 X ASW SWC Project for the Indian Navy. The order was bagged against a competitive tender issued by the ministry in which both private and public sector yards had participated.
The Indian Air Force has begun hunt for 114 fighter jets to enhance its operational capabilities and add firepower to its depleting fleet. Air Forces said a formal Request for Information (RFI) will be issued soon to begin the process of acquisition. This will be done under the Strategic Partnership Model of the Narendra Modi government that aims at a synergy between foreign and Indian manufacturers to boost indigenisation in defence manufacture. Of the 114 fighter jets, 16 will be flown from the country of origin, and the rest will be manufactured in Indian production lines set up here.
Source: http://www.indiandefensenews.in/2017/10/drdo-hands-over-tech-to-defence-firm-to.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
Source: http://www.indiandefensenews.in/2017/10/cochin-shipyard-lowest-bidder-for-rs.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
Source: http://www.indiandefensenews.in/2017/10/iaf-to-add-114-fighter-jets-to-its.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
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Thales radar offered for HAL Tejas Mk-1A combat aircraft GRSE to set up diesel engines manufacturing unit for Indian Navy
The French company Thales is offering a lightweight, compact active array radar for India’s Tejas Light Combat Aircraft (LCA), dubbed Tejas Mark-IA. Thales radar is an advanced Fire Control Radar (FCR) designed for air-to-air superiority and strike missions, based on fully solid-state Active Electronically Scanning Array (AESA) technology, enabling the radar to achieve long detection ranges, high mission reliability and multi-target tracking capabilities. The firm recently completed its initial flight test. It is therefore ready and able to adapt to the tight schedule imposed by the Mk1A LCA.
Cooper Corporation has entered into a strategic Memorandum of Understanding (MoU) with Garden Reach Shipbuilders & Engineers Ltd. (GRSE) for joint development and manufacturing of small and medium diesel engines for marine applications. This collaboration aims at setting up a fully indigenous product line of marine diesel engines specifically designed and developed for Indian Navy and Indian Coast Guard, a home-grown alternative to multinational brands currently available in the market, the company said in a statement Monday. Cooper Corporation will design & manufacture of these diesel engines for marine DG set application, ranging from 50 KW – 500 KW. GRSE will integrate these DG set at their Diesel Engine Plant (DEP) at Ranchi and subsequently sell it to their prospective customers – Indian Navy, Indian Coast Guard, Shipbuilders in India and abroad
Source: http://www.indiandefensenews.in/2017/10/thales-radar-offered-for-hal-tejas-mk.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
Source: http://www.indiandefensenews.in/2017/10/grse-to-set-up-diesel-engines.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
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Make in India: Government shipyards win Rs 12,000 crore deal to supply 16 ASW craft to navy
Four contenders eying for Indian Navy’s project 75 (I): Here are the project details
Under Prime Minister Narendra Modi’s ‘Make in India’ program, government shipyards are moving ahead of their private sector rivals in warship building as they have emerged winners in a Rs 12,000-crore deal to supply 16 Anti Submarine Warfare (ASW) craft to the Navy. As tenders for the Rs 12,000-crore deal were opened, the shipping ministry’s Cochin Shipyard Limited and defence ministry’s Garden Reach Shipyard Limited (GRSE) emerged as the two lowest bidders. This is the third open tender deal involving competitive bids in the recent past which has gone to public sector firms. Recently, the Hindustan Shipyard Limited (HSL) won the contract for building two diving support vessels (DSVs) worth Rs 2,020 crore after it emerged as the lowest bidder.
Four contenders are now left in fray for building submarines worth USD 10.9 billion for the Indian Navy, after two Japanese and Spanish companies opted out of the project. Naval Group-DCNS (France), ThyssenKrupp Marine Systems (Germany), Rosoboronexport Rubin Design Bureau (Russia) and SAAB Kockums (Sweden) are the four submarine makers still in fray. They have responded to the initial request for information (RFI) issued by the Indian Navy for the project. Project 75 (India) is a long pending conventional submarine program.
Source: http://www.indiandefensenews.in/2017/10/make-in-india-government-shipyards-win.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
Source: http://www.indiandefensenews.in/2017/10/four-contenders-vying-for-indian-navys.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
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HAL strongly bats for FGFA project with Russia Cochin shipyard forms JV with Hooghly Dock & Port
State-run aerospace behemoth Hindustan Aeronautics Ltd (HAL) strongly pitched for going ahead with the fifth-generation fighter jet project with Russia, though the Indian Air Force is understood to have reservations over it. The multi-billion dollar co-development project with Russia will be an opportunity as no country has ever offered such critical technology to India. According to official sources, the IAF is not very keen to pursue the project in view of the high cost. Asked about IAF’s reservations about the project, HAL did not give a direct reply and insisted that it would help India’s aerospace sector to a great extent.
Cochin Shipyard (CSL) has incorporated a JV with Hooghly Dock & Port Engineering Ltd for upgradation and modernisation of shipbuilding infrastructure at two shipyard sites in Kolkata. A Joint Venture (JV) Company has been incorporated in the name of Hooghly Cochin Shipyard Limited- Cochin Shipyard Ltd and Hooghly Dock & Port Engineers Limited will have 76 per cent and 24 per cent stake in the Company respectively.
Source: http://www.indiandefensenews.in/2017/10/hal-strongly-bats-for-fgfa-project-with.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
Source: http://www.indiandefensenews.in/2017/10/cochin-shipyard-forms-jv-with-hooghly.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
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India to ink $4-B contract with Russia for four missile-carrying frigates
L&T built offshore patrol vessel under the ‘Made-In-India’ project is dedicated to the nation
L&T looking at options in three states to set up Rs 500 crore missile systems plant
Seeking to add power to the Navy’s capabilities, India will soon seal a $4-billion contract with Russia for the purchase of four missile-carrying frigates. Called Project 11356, the four warships will have gas turbine power engines and will be equipped with the BrahMos supersonic cruise missiles. Project 11356 has been in the offing for some years now, sources said. The frigates have a displacement of about 4,000 tonnes, speed of up to 30 knots and endurance of 30 days. Three such ships have already been built for the Black Sea Fleet.
An offshore patrol vessel (OPV), entirely developed in-house by Larsen and Toubro and the country’s first-ever such defence craft to be built in a private shipyard, was handed over to the Coast Guard. The vessel named “Vikram”, built at Larsen and Toubro’s Kattupalli shipyard, was handed over to the Coast Guard ahead of the March 2018 delivery schedule. This is the first of the seven vessels for which the Rs 1,432-crore contract had been awarded by the Ministry of Defence in March 2015. The vessel, equipped with modern weapon and state-of- the-art radar systems, would be deployed for day and night surveillance patrol, search and rescue and in pollution response operations in exclusive economic zones of the country.
India’s engineering conglomerate Larsen and Toubro Ltd, which has formed a Joint venture (JV) with Frances MBDA to develop and supply missiles and missile systems to the Indian armed forces, is looking at Tamil Nadu, Maharashtra and Gujarat to set up the plant
Source: http://www.indiandefensenews.in/2017/10/india-to-ink-4-b-contract-with-russia.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
Source: http://www.indiandefensenews.in/2017/10/l-built-offshore-patrol-vessel-under.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
Source: http://www.indiandefensenews.in/2017/10/l-looking-at-options-in-three-states-to.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
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Army finalises mega Rs 40,000 crore procurement plan to replace ageing weapons
Government relaxes arms rules to bolster investment in manufacturing
The Army has finalised one of its biggest procurement plans for infantry modernisation under which a large number of light machine guns, battle carbines and assault rifles are being purchased at a cost of nearly Rs 40,000 crore to replace its ageing and obsolete weapons. The broad process to acquire around 7 lakh rifles, 44,000 light machine guns (LMGs) and nearly 44,600 carbines has been finalised and the defence ministry is on the same page with the Army in moving ahead with the procurement.
To boost the ‘Make in India’ initiative, the Union home ministry has liberalised the Arms Rules to encourage investment in the manufacturing of arms, ammunition and weapon systems in the country. The liberalised rules will promote employment generation in the field of manufacturing of arms and ammunition, according to an official statement here today. Under the new rules, the licence granted for manufacturing will be valid for the life-time of the licensee company. The requirement of renewal of the licence every five years has been done away with. Similarly, the condition that small arms and light weapons produced by a manufacturer should be sold to the central government or the state governments with the prior approval of the home ministry has been done away with
Source: http://www.indiandefensenews.in/2017/10/army-finalises-mega-rs-40000-crore.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
Source: http://www.indiandefensenews.in/2017/10/government-relaxes-arms-rules-to.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
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Govt clears mega project to acquire 111 helicopters for navy
Indian defence companies may get customs duty relief
In a major move, the defence ministry approved procurement of 111 utility helicopters for the Indian Navy at a cost of Rs 21,738 crore. The long-pending proposal was cleared at a meeting of the Defence Acquisition Council (DAC). 16 helicopters will be procured at a fly-away condition while 95 will be manufactured in India. The acquisition of the helicopters will be made under the strategic partnership model. The cost of the project will be Rs 21,738 crore.
In an effort to soothe the nerves of Indian defence firms, the Centre is mulling Customs duty exemption on the import of spare parts under programmes that were rolled out before April 1, 2017. The exemption will be granted in order to bring the Indian firms on a par with foreign OEMs who are provided tax exemption on the projects they develop. The Customs duty is being paid by the Indian government on behalf of the foreign OEMs. According to current norms, while foreign original equipment manufacturers (OEMs) in the country are given tax concessions on the items they import into the country to build a certain armament, Indian companies end up paying Customs duty.Source: http://www.indiandefensenews.in/2017/11/govt-clears-mega-project-
to-acquire-111.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
Source: http://www.indiandefensenews.in/2017/11/indian-defence-companies-may-get.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
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Ease of doing business: India jumps 30 points, ranked 100 among 190 nations
Rafale production to start at Nagpur plant from January 2018, says CEO Rajesh Dhingra
Big boost to Indian defence: DRDO successfully test-fires indigenous Smart Anti-Airfield Weapon (SAAW)
India has jumped 30 places to rank 100th in the World Bank’s ‘ease of doing business’ ranking, helped by a slew of reforms in taxation, licensing, investor protection and bankruptcy resolution. This is a major shot of arm for the government which is fighting a battle of perception with opposition attacking it over alleged faulty implementation of demonetization and GST. The World Bank praised India and the constant work done in last two and three years but acknowledged that much work still needs to be done. Implementation of GST was not incorporated while compiling the report, according to World Bank.
Reliance Defence is gearing up for the take-off of its Rafale jets manufacturing plans. Reliance Defence plans to start production at its Dassault Reliance Aerospace (DRAL) facility in Nagpur by January 2018 and DRAL can start delivering Rafale fighter jets within three years of receiving an order.
Defence Research and Development Organisation (DRDO) and the Indian Air Force (IAF) successfully tested an indigenously-built lightweight ‘glide bomb’ at the Integrated Test Range in Odisha’s Chandipur. Designated as the Smart Anti-Airfield Weapon (SAAW), the bomb released from the IAF aircraft was guided through precision navigation system.
Source: http://www.indiandefensenews.in/2017/11/economy-ease-of-doing-business-india.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
Source: http://www.indiandefensenews.in/2017/11/rafale-production-to-start-at-nagpur.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
Source: http://www.indiandefensenews.in/2017/11/big-boost-to-indian-defence-drdo.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
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Army issues fresh RFI for future ready combat vehicle Ministry of Defence scraps $500 million Israeli missile deal, wants DRDO to make in India
India’s Ministry of Defence (MoD) has invited responses to its global request for information (RFI) to develop and build 1,770 multipurpose Future Ready Combat Vehicles (FRCVs) for the Indian Army (IA) to replace the service’s ageing fleet of T-72 main battle tanks (MBTs). The RFI invites original equipment manufacturers (OEMs) to provide details of the proposed 50-tonne tracked FRCV, which will not only be the base platform for the IA’s MBT, but also for a number of other armoured vehicles.
Asking the Defence Research and Development Organisation (DRDO) to indigenously develop and produce a Man-Portable Anti-Tank Guided Missile (MPATGM) for the Army, the Ministry of Defence (MoD) has decided to cancel the $500 million deal for Spike ATGM with Israel. The deal, seen as another proof of growing Indo-Israel defence cooperation, was expected to be signed after price negotiations with Rafael Advanced Defence Systems of Israel were completed last year. In anticipation of this deal, Rafael had entered into a joint venture with Kalyani group for missile production in India.
Source: http://www.indiandefensenews.in/2017/11/army-issues-fresh-rfi-for-future-ready.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+indiandefensenews%2FiIJx+%28Indian+Defence+News%29
Source: http://indianexpress.com/article/india/ministry-of-defence-scraps-500-million-israeli-missile-deal-wants-drdo-to-make-in-india-4945571/
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Mahindra Defence, Shapoorji Pallonji may bid for troubled Bharati Defence
Defence Ministry approves procurement of 260 naval communication sets
Mahindra Defence and Shapoorji Pallonji Group may independently bid for the troubled Bharati Defence and Infrastructure (formerly Bharati Shipyard) in the first such bankruptcy resolution attempt under the Insolvency and Bankruptcy Code for the security industry. The two companies are currently evaluating the deal that values the target company at $350 million. Bharati has also seen interest from other suitors such as German Dry Docks and other companies seeking to control individual docks along India’s eastern and western water margins
The Defence Ministry approved procurement of 260 naval communication sets at a cost of Rs 490 crore to ramp up surveillance on the high seas. The decision was taken at a meeting of the Defence Acquisition Council (DAC). It will be the first batch of indigenously designed and developed “software defined” radio sets, they said, adding the gadgets will improve information sharing through secure voice communications and data transfer on board the naval ships.
Source: https://economictimes.indiatimes.com/news/defence/mahindra-defence-shapoorji-pallonji-may-bid-for-troubled-bharati-defence/articleshow/61810547.cms
Source: https://economictimes.indiatimes.com/news/defence/defence-ministry-approves-procurement-of-260-naval-communication-sets/articleshow/61853301.cms
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Godrej Aerospace delivers 100th set of Brahmos airframe assemblies; bags additional order of 100 sets
HAL to float RFI seeking Indian partner to manufacture Dhruv helicopter
Barely a fortnight after India successfully test fired the air version of the BrahMos missile from the Indian Air Force’s frontline Sukhoi-30 MKI combat jet, Godrej & Boyce received a fresh order to supply airframe fuel management systems for the BrahMos Air-Launched Cruise Missile. BrahMos Aerospace Ltd., a 50.50:49.50, joint venture between India’s Defence Research Development Organisation and its Russian counterpart has placed an order for an additional 100 airframes from Godrej
Hindustan Aeronautics Limited (HAL) is likely to float a Request for Information (RFI) soon for identifying an Indian private agency that can produce the civilian version of the ALH Dhruv helicopters in future. Considering the increasing need of helicopters in civil operations of the country, this will be a mega deal from HAL which is the OEM and Licensor. Speaking during a function at HAL’s Naisik facility, T Suvarna Raju, HAL Chairman said the Company is keen to encourage private partnership in all its activities and as a major step, it would like to offer the indigenous helicopter ‘ALH Dhruv’ (Civil Version) for manufacturing to select Indian Private Companies through Transfer of Technology.Source: https://www.bloombergquint.com/business/2017/12/05/godrej-to-begin-
serial-production-of-supersonic-brahmos-missile-system
Source: http://www.defenseworld.net/news/21482/HAL_to_Float_RFI_Seeking_Indian_Partner_to_Manufacture_Dhruv_Helicopter
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TATA, GE join hands to manufacture jet engine components
$2-Bn procurement of sea guardian drones kicks off
The TATA Group and General Electric have entered into a partnership to manufacture components for engine-maker CFM International in India. Under the partnership, TATA Advanced Systems Ltd, a unit of TATA Group, and GE Aviation will together handle manufacturing, assembling, integration and testing of the aircraft components. The parts, manufactured for CFM’s LEAP engine, will be used for GE’s global supply chain. CFM is an equal joint venture between GE and Safran SA of France.
The Indian government has initiated the procurement of 22 naval surveillance drones from the US for approximately $2 billion. The decision comes five months after the purchase proposal was approved by the Trump administration. “A request for Information (RFI) for Predator ‘B’ Sea Guardian was issued to the US Office of Defense Cooperation on November 14 and the response is awaited. The Minister also informed that the deal does not involve the transfer of critical technology to India. “Procurement of Predator ‘B’ Sea Guardian is being progressed under Buy (Global) category and no transfer of technology is envisaged.
Source: https://economictimes.indiatimes.com/news/defence/tata-ge-join-hands-to-manufacture-jet-engine-components/articleshow/62069697.cms
Source: http://www.business-standard.com/article/current-affairs/2-bn-procurement-of-sea-guardian-drones-kicks-off-117122100027_1.html
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IAF to ink deal for 48 new Mi-17 V5 helicopters from Russia
Made-in-India Dornier-228 gets flight nod for commercial flights
India and Russia are expected to ink a deal for around US$ 1.1 billion for 48 Mi-17V5 helicopters for the Indian Air Force (IAF) soon. Negotiations with the Indian side have been completed, and US hopes to sign the contract in 2018. The company has already delivered 151 Mi-17 V5 helicopters to India beginning with a deal for 80 machines in 2008, and then another 71 under three follow-on contracts. The Defence Acquisition Council (DAC) of the Indian Ministry of Defence (MoD) had cleared the purchase of fifth lot of 48 of these military transport helicopters in September 2015.
The 19-seater aircraft has, till now, been used by defence forces and is the first plane to be made in the country for commercial flights. The DGCA has given type certification to this aircraft and also given certificate of airworthiness to HAL’s Dornier 228. Now, HAL can sell this plane to airlines in India and it can be used by them for regional flights under the Modi’s government’s ambitious UDAN scheme. Some special incentives may be given to operators using this plane. Apart from airlines in India. HAL may also look at selling this plane for civil use in neighbouring countries such as Nepal and Sri Lanka.
Source: http://www.indiastrategic.in/2017/12/18/iaf-to-ink-deal-for-48-new-mi-17-v5-helicopters-from-russia/
Source: https://timesofindia.indiatimes.com/business/india-business/commercial-flight-nod-for-made-in-india-plane/articleshow/62245953.cms
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Anil Ambani led Reliance Group, Hinduja in talks for defence foray
Upgraded SARAS all set for maiden flight in January 2018
Eager to participate in the government’s strategic partnership policy and compete with other private sector players for bagging defence production orders worth billions of dollars over the next year, the Anil Ambani led Reliance Group and the Hinduja Group are looking to join forces and forge a mega partnership in the sector. The Reliance Group and the Hinduja’s are in advanced talks for a mega defence alliance which will be spearheaded by Reliance Naval & Engineering (formerly called Reliance Defence) & Ashok Leyland.
National Aeronautics Laboratories (NAL), a frontline wing under Council of Scientific & Industrial Research (CSIR) here, is ready to put the upgraded prototype of SARAS on its maiden flight. The SARAS PT1N (New), a 14-seater passenger plane, is expected to have its first flight after completing one more high speed taxi trial (HSTT). Two Test Pilots and one Flight Test Engineer, who are empanelled to the PT1N project from Indian Air Force’s Aircraft and Systems Testing Establishment (ASTE), will be onboard the maiden mission.
Source: https://economictimes.indiatimes.com/news/defence/anil-ambani-led-reliance-group-hindujas-in-talks-for-defence-foray/articleshow/62250551.cms
Source: http://english.mathrubhumi.com/news/india/upgraded-saras-pt1n-all-set-for-maiden-flight-in-january-1.2483386
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India gets admission into Wassenaar Arrangement
INS Kalvari submarine affirms Make in India’s giant strides: MDL
The Ministry of External Affairs welcomed the decision of the Wassenaar Arrangement to admit India as the 42nd member of the organisation which aims to regulate trade and use of dual use technology. Officials said that following admission into the club, India will get access to high technology, which will help address the demands of Indian space and defence sectors. It will also boost New Delhi’s chances of joining the Nuclear Suppliers Group (NSG).
The commissioning of the first Scorpene-class submarine - ‘INS Kalvari’ - into the Indian Navy reaffirms the giant strides taken under the ‘Make in India’ programme. The induction of Kalvari into the Indian Navy would be a game-changer in the field of underwater warfare and its commissioning has added another feather in MDL’s cap, the shipbuilder said after Prime Minister Narendra Modi commissioned the submarine at the naval dockyard.
Source: http://www.thehindu.com/news/national/india-gets-admission-into-wassenaar-arrangement/article21347560.ece
Source: https://economictimes.indiatimes.com/news/defence/ins-kalvari-submarine-affirms-make-in-indias-giant-strides-mdl/articleshow/62065127.cms
Government mulling time-bound mechanism for granting licences for defence production
To facilitate domestic defence manufacturing, the Defence Ministry is contemplating a system that will ensure fast-tracking the issuing of industrial licenses, which are mandatory to start production. The system entails that if the Home Ministry’s security clearance has not been given within a “reasonable” timeframe for the license, then the clearance should be “deemed approved”.
Source: https://economictimes.indiatimes.com/news/defence/government-mulling-time-bound-mechanism-for-granting-licences-for-defence-production/articleshow/61342132.cms
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Govt invites bids from pvt cos for Pawan Hans disinvestment
The government has invited bids from private companies, including foreign ones, to buy out its entire 51 per cent stake along with management control in helicopter service operator Pawan Hans Ltd. The Miniratna PSU is under the administrative control of the Civil Aviation Ministry and the remaining 49 per cent stake is held by oil behemoth ONGC. In a “global invitation for expression of interest”, the government has asked private players to submit the bids by December 8. “The government proposes to disinvest its entire equity shareholding of 51 per cent in Pawan Hans Ltd by way of strategic disinvestment to investors, along with transfer of management control,” it said while inviting bids.
Source: http://www.thehindubusinessline.com/economy/logistics/govt-invites-bids-from-pvt-cos-for-pawan-hans-disinvestment/article9902005.ece
India’s aviation ministry proposes rules for commercial use of drones
India’s civil aviation ministry proposed a number of regulations for the use of drones in the country as it looks to legalise the use of unmanned aerial systems. Used by the military for monitoring and imagery, drones have become popular worldwide in recent years, with people posting breath-taking videos on social media and e-commerce companies looking to use them for deliveries. In India, however, it is illegal for the general public to fly drones without the approval of government authorities, because of concern over the safety of other users of airspace and people on the ground.
Source: https://in.reuters.com/article/india-drones-regulations/indias-aviation-ministry-proposes-rules-for-commercial-use-of-drones-idINKBN1D14VG
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‘GST to hit aviation sector by ₹5,700 cr. a year’
The aviation industry will take an annual hit of ₹5,700 crore following the implementation of the Goods and Services Tax (GST). Under GST, 18% tax is charged on re-import of aircraft spare parts which were earlier exempted from import duty and service tax. “The GST paid on repairs carried out in India is creditable but not if it takes place abroad. With no engine repair shop in India, it is imperative to send the spares abroad. This will cost ₹2,000 crore per annum to the industry.
Source: http://www.thehindu.com/business/Economy/gst-to-hit-aviation-sector-by-5700-cr-a-year/article19847193.ece
IndiGo may induct wide-bodied planes to fly overseas as Air India sale in slow lane
IndiGo which has shown interest in buying Air India’s international operations, is actively considering alternate plans to induct at least 50 wide-bodied planes for starting overseas flights, as the divestment of the state-run carrier may take a while. Right now, it’s an optimistic 50-50, but the processes are slow. The airline will wait for four-five months and then implement Plan B of inducting its own fleet of wide-bodied planes. IndiGo currently has a fleet of 143 Airbus A320 and A320neo planes and an order for over 400 more.
Source: https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/indigo-may-induct-wide-bodied-planes-to-fly-overseas-as-air-india-sale-in-slow-lane/articleshow/61759558.cms
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Aviation turbine fuel price hiked by 6%; air travel likely to cost more
IndiGo, not Tatas, have shown interest in Air India
Air India floats tender to raise $535 million to buy 3 Boeing planes
Aviation turbine fuel (ATF) or jet fuel price was hiked by a steep 6 per cent in Oct, the third consecutive monthly hike in ATF price since August. However, jet fuel prices are revised every month. The government is yet to bring petroleum products under the ambit of GST (Goods and Service Tax).
Union minister Jayant Sinha on Saturday clarified that there was no formal expression of interest from the Tatas as regards the stake sale of Air India. Sinha said his words as regards the Tatas’ indication of interest were in reference to comments made by N Chandrasekharan, the executive chairman of the Tata Sons Ltd, on television about the company exploring the possibilities of participating in the stake sale of Air India.
National carrier Air India has floated a tender to raise $535 million to bridge finance a loan raised to acquire three Boeing 777-300ER (extended range) planes. Two of the planes will be used by the government for ferrying important officials. The planes are part of the historic and much-debated $15-billion 111plane order placed by the airline in 2005-06. They included 68 Boeings and 43 Airbus planes.
Source: http://www.businesstoday.in/sectors/energy/airfares-jet-aviation-turbine-fuel-price-lpg-hike-atf/story/261257.html
Source: https://www.ndtv.com/business/indigo-not-tatas-have-shown-interest-in-air-india-1782600
Source: https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/air-india-floats-tender-to-raise-535-million-to-buy-3-boeing-planes/articleshow/61523214.cms
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Udan: More airlines likely to participate in round 2 of regional connectivity scheme
India will soon have 150 to 200 operational airports: Jayant Sinha
More airlines may participate in the second round of the Udan regional connectivity scheme, while the government has received 141 initial proposals for the aviation scheme. At a press conference with civil aviation minister Ashok Gajapathi Raju in the capital, Chaubey said “participation by airlines has doubled” in the second round of the Udan scheme, routes for which will be given out next month after bidding. He declined to provide the names of the airlines as bids are yet to be opened but added that two-three major helicopter players have also shown interest in this round.
More than 150 more operational airports would come up across India in coming few years including three airports in J&K. The Aviation industry in India, would soon be one of the biggest sectors in India, and it is already fetching revenue almost equal to Indian Railways and Telecom Industry. The minister also announced that night landing facilities at Srinagar airport will come up soon and direct flights to Dubai and Kaula Lampur would be operational with in six months.
Source: http://www.livemint.com/Companies/NuEAEw5qgiFFDL3j4nC1UL/Udan-More-airlines-likely-to-participate-in-Round-2-of-regi.html
Source: https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/india-will-soon-have-150-to-200-operational-airports-jayant-sinha/articleshow/61976524.cms
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Air India subsidiary AIESL inks MoU with SIAEC
AirAsia India planning international flights, losses narrow
SpiceJet conducts seaplane trials in Mumbai
Air India’s subsidiary AIESL has forged a partnership with Singapore Airlines’ engineering arm, as AIESL seeks to get a foothold in the global MRO market besides tapping the local business. Under a non-binding Memorandum of Understanding (MoU) signed between Air India Engineering Services Limited (AIESL) and SIA Engineering Company (SIAEC) last week, the two “will collaborate to offer line maintenance and ancillary services at various airports in India as well as engineering training”
AirAsia India plans to fly international routes in the second half of next year after increasing its fleet to 20 aircraft, the minimum an airline requires to fly overseas. The airline, a joint venture between AirAsia Bhd of Malaysia and Tata Sons Ltd, its net loss had narrowed by 74% to Rs16.4 crore in the September quarter from a year ago.
SpiceJet conducted seaplane trials in association with Japan’s Setouchi Holdings at Mumbai’s Girgaum Chowpatty. The seaplane trials were conducted in the presence of Nitin Gadkari, Minister of Road Transport & Highways, Shipping and Water Resources, and Ashok Gajapathi Raju, Minister of Civil Aviation. SpiceJet and Setouchi Holdings have been working closely for over six months to explore opportunities for small ten and fourteen seater amphibious and land plane operations to provide air connectivity to smaller towns and cities of India, particularly the ones that remained unconnected due to infrastructural challenges.
Source: https://economictimes.indiatimes.com/industry/transportation/airlines-/-aviation/air-india-subsidiary-aiesl-inks-mou-with-siaec/articleshow/60994163.cms
Source: http://www.livemint.com/Companies/Tveid8p09OsTCynLWL459H/AirAsia-India-planning-international-flights-losses-narrow.html
Source: http://www.moneycontrol.com/news/business/spicejet-conducts-seaplane-trials-in-mumbai-2458221.html
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Jet Airways likely in talks with Air France-KLM, Delta to raise capital
Jet Airways is likely in talks with Air France-KLM and Delta to raise funds via fresh share issue. The deal is still in the negotiation stage. Sources suggest the airlines’ seek to acquire 5 percent each in Jet Airways which might be done through a fresh share issue by Jet. As of now, Etihad holds 24 percent stake in Jet Airways and the acquisition of 10 percent by other airlines is unlikely to impact Etihad. The Foreign Direct Investment (FDI) norms limit holding by foreign carriers in Indian entities at 49 percent. If the deal goes through, Jet will have 34 percent FDI investment. Air France-KLM and Jet Airways have launched the first cooperation agreement of its kind on the India-Europe market.
Source: http://www.moneycontrol.com/news/business/cnbc-tv18-comments/jet-airways-likely-in-talks-with-air-france-klm-delta-to-raise-fresh-capital-2465283.html
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Time-bound mechanism for granting licences for defence production
Manufacturing in the defence sector has so far been governed by industrial licensing under the Industries (Development and Regulation) Act, 1951 (IDRA). Before 2001, manufacturing in the defence sector was limited to public sector companies (OFB and DPSUs). However, in 2001, the government allowed 100% Indian private sector participation in the defence manufacturing sector, subject to licensing under the IDRA Act. After the notification of the New Arms Rules, 2016, vide its notification dated 19 May 2017 of the MHA, powers and functions under sub-section (1) of section (5), clauses (b) and (c) of section 7 and Chapter III of the Arms Act, 1959, have been delegated to the Secretary, DIPP, in respect of defence items included in the Schedule. Consequently, the power to grant manufacturing licences, in respect of the category of arms and ammunition and defence items as per columns (2) and (3) of the Schedule to the said notification, has been delegated to the Secretary, DIPP.
Under the existing procedure, the Indian company has to obtain an industrial licence for defence manufacturing, unless the items which it intends to manufacture do not find mention in the defence product list. The application is then sent to the MHA for security clearance, and only after the clearance is given can the licence be issued. However, there are invariable delays in the grant of industrial licences. In order to overcome this issue, the MoD is contemplating developing a system that will ensure licence fast-tracking. This system will also have mechanisms in place that will issue industrial licences in a time-bound manner on short, medium and long-term basis. The system entails that if the MHA has not given security clearance for licences within a
‘reasonable’ timeframe, the clearance should be deemed approved. This is a significant move to promote the domestic manufacturing of military platforms and equipment. The MoD is examining the reform initiative in consultation with the MHA, which issues licences to defence manufacturers.
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DGCA released draft regulations on the civil use of drones in India
The DGCA released draft regulations on the civil use of RPAS on 1 November 2017. As per the draft civil aviation requirements for UAS:
• Drones have been classified as nano (less than or equal to 250 gm), micro (greater than 250 gm and less than or equal to 2 kg), mini (greater than 2 kg and less than or equal to 25 kg), small (greater than 25 kg and less than or equal to 150 kg) and large (greater than 150 kg).
• All drones are proposed to be operated in the visual line of sight during the day and have to fly below 200 feet. Dropping of any substance, carriage of hazardous material or animal or human payload is not permitted.
• All commercial categories of drones, except those in the nano category and those operated by government security agencies, will have to be registered by the DGCA as per the ICAO proposed policy in the form of a UIN. The mini and above categories will require an UAOP, but the model aircraft up to maximum take-off weight of 2 kg and flown below 200 feet inside an educational institution will not require UIN/UAOP.
• It mandates remote pilots to undergo requisite training, except for nano and micro categories.
• For the micro and above category, drones are to be equipped with RFID/SIM, return to home option and anti-collision lights.
• Drones cannot be operated within an area of 5 km from an airport, within permanent or temporary prohibited, restricted and danger areas as notified by the AAI in AIP and without prior approval over densely populated areas or over or near an area affecting public safety or where emergency operations
are underway and within 50 km from the international border and beyond 500 m (horizontal) into the sea along the coastline. Drones cannot be operated within a 5 km radius from Vijay Chowk in Delhi and from a mobile platform such as a moving vehicle, ship or aircraft.
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Disinvestment of Pawan Hans Limited (PHL)
The MoCA had invited EoI for the proposed strategic disinvestment of 51% stake in PHL or company. In a meeting held on 27 October 2016, the CCEA had given an ‘in-principle’ approval for the strategic disinvestment of PHL based on the recommendations of the Core Group of Secretaries on Disinvestment. The CCEA had approved the recommendation for the disinvestment of 100% shareholding of the GoI to a strategic buyer identified through a two-stage auction process.
PHL is the leader of helicopter operations in India, boasting a fleet strength of 43 helicopters and a diverse fleet mix of light, medium and heavy helicopters. Over the past years, contracts with ONGC and state governments have provided a steady source of income for PHL (average 40–45% revenues from the oil and gas sector and around 35–40% revenues from state governments). It provides helicopter services for offshore operations, inter-island transportation, connecting inaccessible areas, rescue work, tourism, etc., and provides helicopter services for offshore operations, inter-island transportation, connecting inaccessible areas, rescue work, tourism, etc. The GoI proposes to disinvest its entire equity shareholding of 51% in PHL by way of strategic disinvestment to investor(s) along with the transfer of management control. The company is a joint venture where the state-owned ONGC holds 49% stake.
The process for the proposed transaction has been divided into two stages:
Stage I: • Through a PIM, the GoI will provide IBs with instructions for submitting
their EoI to the GoI to be used for prequalifying IBs, in accordance with the specified criteria.
• The EoIs will be evaluated based on the eligibility criteria and disqualification conditions detailed in this PIM.
• Only IBs shortlisted in stage I can participate in stage II.
Stage II: • The shortlisted IBs will be issued a RFP.• The IBs will get access to the data room to review documents pertaining to
the company for conducting due diligence on the company through a CIM to provide details of the company and the proposed transaction.
• The shortlisted IBs would be required to undergo a transparent bidding process for the acquisition of the entire GoI shareholding in PHL, in accordance with the terms of the RFP.
• The IBs may be required to deposit earnest money at stage II, if required by the GoI.
• Post the submission of financial bids, the highest bidder (H1) shall undergo a security clearance process. Details of the H1 bidder, along with its board of directors and shareholders, would be submitted to the MHA through the MoCA. In case the H1 bidder fails in obtaining the security clearance, the next highest bidder will be offered an option to match the bid of the H1 bidder and the next highest bidder’s details shall be sent for security clearance.
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An Indian subsidiary providing support services which enable a foreign company to render services to its client abroad cannot be considered a PE of such a foreign company in India
• A Group Inc. and B Corporation, USA (hereinafter, collectively referred to as AB USA) were resident companies in the USA. AB USA was in the business of providing ATM management services, electronic payment management, professional services, IT and IT-enabled services, etc., to its customers outside India.
• C Private Limited (C India) was a company resident in India. It provided various support services to AB USA in relation to its IT and IT-enabled services. AB USA and C India were assessed to tax on their global income in their respective jurisdiction.
• The Revenue authorities contended that the income of AB USA should also have been taxed in India as they had PE in India in the form of C India, to which income from the provision of IT and IT-enabled services could be attributed.
The Revenue contended that AB USA had a fixed place PE in India in the form of C India, as per Article 5(1) of the India-USA tax treaty basis the following:
• Forty percent of employees of the entire group were employed in India.
• AB USA had call centres and software development centres in India.
• AB USA was performing only marketing activities in India and its contracts with clients were assigned or sub-contracted to C India.
• The master service agreement between AB USA and C India gave complete control to AB USA over personnel employed by C India.
• C India functioned through the proprietary database and software of AB USA, which was provided to C India free of cost.
• The corporate office of C India housed an ‘international division’, comprising the president’s office and a sales team servicing C India and group entities.
• The president’s office primarily oversees operations of C India and other group entities. The president’s overall reporting was to AB USA.
• The physically located premises in India was at the disposal of AB USA, with the degree of permanence required for the entire year.
• Reliance, in this regard, was placed on the decision of the SC in the case of Formula One World Championship Limited (394 ITR 80) (SC).
Based on the above facts, the Revenue further contended that AB USA also had a service PE in India (in terms of Article 5(2)(l) of the India-USA tax treaty), as the employees of C India were under the control
Facts of the case Revenue’s contentionand supervision of AB USA and two employees of AB USA were seconded to C India and their roles went beyond just stewardship activities.
The Revenue also contended that AB USA had an agency PE in India in terms of Article 5(4) and 5(5) of the India-USA tax treaty since AB USA was unable to furnish the information sought by the Revenue.
Lastly, the Revenue contended that the MAP resolution arrived at by AB USA for earlier years (wherein the existence of PE was accepted) would be binding for subsequent years as well.
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The assessee raised the following arguments with respect to the constitution of a PE in India:
Fixed place PE
• For establishing a fixed place PE, there should have been a place at its disposal—that is, AB USA must have had the right to use the premises for their own business, which was not made out in the facts of the case.
• The TPO accepted the arm’s length pricing between AB USA and C India. Even if a fixed place PE was found, once the arm’s length price was paid, AB USA goes beyond the dragnet of Indian taxation.
• Further, the mere fact that a 100% subsidiary could be carrying on business in India did not mean that the holding company would have had a PE in India.
Assessee’s contention Decision of the SCService PE
• The AO did not allege that such a PE existed. It also claimed that no services were provided to customers in India as all their customers were located outside India.
• Only the Indian company employed personnel engaged in Indian operations and that AB USA may indirectly control such employees was only to protect their own interests.
• The activities of C India were independent business activities on which taxes were levied under the Income-tax Act, 1961.
Agency PE
• The AO never alleged an agency PE and, therefore, no factual foundation for the same has been laid.
As regards the reliance placed by the Revenue on MAP proceedings of earlier years, the assessee contended that the MAP procedure availed for earlier years could not be said to be binding for subsequent years as they were without prejudice to the contention that they do not have a PE in India.
Fixed place PE
The SC held that the principal test to ascertain whether an establishment had a fixed place of business or not was that such physically located premises had to be ‘at the disposal’ of the enterprise. The place would be treated as ‘at the disposal’ of the enterprise when the enterprise had the right to use the said place and had control over it thereupon. It was not necessary for the enterprise to own or even rent the premises. Therefore, there must exist a fixed place of business in India, which was at the disposal of AB USA through which they carried on their business. There was, in fact, no specific finding in the assessment order or the appellate orders that applying the aforesaid tests, any fixed place of business had been put at the disposal of AB USA.
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The following observations of the HC were upheld by the SC:
• C India provided various services and was dependent on AB USA for its earning which was not the relevant test to determine location PE.
• C India did not bear sufficient risk and was irrelevant when deciding whether a location PE exists.
• The close association between C India and AB USA and the application of functions performed, assets used and risk assumed criteria was not a proper and appropriate test to determine the location PE.
• C India was reimbursed the cost of call centre operations, plus certain percentage of cost, which was not relevant for determining the location or fixed place PE.
• The assignment or sub-contract to C India was not a factor or rule to be applied to determine the existence or otherwise of fixed place PE.
• Whether or not any provisions for intangible software was made or had been supplied free of cost was not a relevant criteria.
• C India would not become fixed place PE merely because there was interaction or cross transactions between C India and AB USA.
• Even if foreign entities save and reduce their expenditure by transferring business or back office operations to their Indian subsidiaries, a fixed PE would not be created.
SC further held that:
• No part of the main business and revenue earning activity of AB USA was carried out through a fixed business place in India which had been put at their disposal.
• C India only rendered support services, which enabled AB USA to render services to their clients abroad. This outsourcing of work to India would not give rise to a fixed place PE.
Service PE
• An enterprise must furnish services within India through employees or other personnel for a service PE to be constituted. In the present case, C India only rendered support services to AB USA.
• The presence of employees in India was relevant under the Double Taxation Avoidance Agreement
(tax treaty) but the said employees should have furnished services within the contracting state.
• None of the customers of AB USA had received any services in India.
• Mere auxiliary operations that facilitate services rendered by AB USA to its customers was carried out in India.
• Further, in respect of employees seconded, it was held that:
1. The seconded employees were working under the control and supervision of C India. The TO did not negate this assertion made by AB USA.
2. The entire remuneration paid to such employees was borne by C India.
3. The AO had not made any findings on whether these employees reported to AB USA or any group company.
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Agency PE
• C India could not exercise any authority to conclude contracts on behalf of AB USA and no other clauses of the tax treaty dealing with the agency PE was applicable.
Further, as the arm’s length condition was satisfied, no further profit would be attributable, even if there existed an agency PE in India.
MAP
The agreement entered into by AB USA under MAP pertained to disputes in earlier assessment years and could not be considered as a precedent for subsequent years.
Assistant Director of Income-tax-1, New Delhi vs. E-Funds IT Solution Inc. [2017] 86 taxmann.com 240 (SC)
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Payment for granting distribution rights of ‘Adwords program’ is taxable as ‘royalty’ under the Income-tax Act, 1961, as well as the India-Ireland tax treaty
Facts of the case Tribunal’s ruling Tribunal’s ruling• The taxpayer is a wholly owned
subsidiary of Google International LLC, US (‘Google’). The taxpayer was appointed as a non-exclusive authorised distributor of the Adwords program to advertisers in India by Google Ireland Limited (‘GIL’). The taxpayer was appointed as a non-exclusive authorised distributor of ‘Adwords programs’ to the advertisers in India by GIL.
• Under the Google Adwords program distribution agreement, the taxpayer was granted the marketing and distribution rights of the Adwords program.
• The taxpayer made a payment to GIL for granting distribution rights of the ‘Adwords program’ without deducting tax at source.
Taxability as royalty
• The tribunal observed that GIL is allowing the taxpayer to access all intellectual property and confidential information which the taxpayer is using for activities related to the distribution agreement.
• The taxpayer was also observed to have a right over the intellectual property of Google. With the help of an IP address, Google gains access to information such as name, sex, city, state, country, phone number and religion pertaining to the user of the website. Other than the above basic information, Google also has access to the history of the users, as well as the search behaviour of the persons using Google.
• The AO made the disallowance of expenses for the non-deduction of taxes at source, which was further confirmed by the first appellate authorities. The AO treated the amount as royalty under the act, as well as under the India-Ireland tax treaty. According to the AO, the ‘distribution rights’ are ‘intellectual property rights’ covered by ‘similar property’ (under the ambit of royalty definition as per the act) and the distribution fee payable is in relation to the transfer of distribution rights.
• Aggrieved by the decision of the AO and the first appellate authorities, the taxpayer approached the Income Tax Appellate Tribunal (‘tribunal’).
Taxability as royalty
• The agreement between the taxpayer and GIL does not merely work by providing advertising space on Google but with the help of various patented tools and software. Further, it is not merely an agreement to provide advertisement space but one that should facilitate the display and publishing of an advertisement to the targeted customer.
• The IP of Google vests in search engine technology, associated software and other features and, hence, the use of these tools for performing various activities, including accepting advertisements, providing before or after sale services clearly fall within the ambit of royalty.
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Initiation of TDS proceedings
• With respect to TDS proceedings under the act, the tribunal observed that in absence of any direct jurisdictional HC decision and various contrary decisions post amendment, the period of limitation for the initiation of proceedings for resident as well as non-resident should be six years from the end of the financial year. The tribunal, relying on the non-discrimination clause under the tax treaty, observed that it cannot be said that a non-resident would be given special and beneficial treatment in comparison to the resident or treated unequally by providing unlimited time to initiate proceedings under section 201 of the act. If the law requires the initiation of proceedings within six years from the end of the financial year for the resident, the same treatment is required to be given to the non-resident.
Clarification mechanism under section 195 and tax avoidance
• With respect to the taxpayer’s stand that the withholding of tax is not required as the payment made to GIL was not the sum chargeable under the provisions of the act, the tribunal clarifies that this argument is not available for the payer to be raised in the present proceedings. The necessary safeguards are provided by the act in the form of section 195(2), which clearly provides that in case the assessee is having any doubts about the chargeability to tax of the payment, then the assessee may make an application to the AO for the purpose of determining whether the sum is chargeable to tax or not and if yes, in what proportion.
• In the present case, no such application is made under section 195(2) to the AO. The taxpayer, on his/her own, without having knowledge, information and without being privy to the accounting standard and accounting practice of GIL, has treated the said payment as a business profit of GIL in its books of account. A uniform policy is required to be adopted for the deduction of taxes at source by the person responsible for paying the amount to a non-resident. In our view, whether it is business profit or royalty and so long as it concerns the taxpayer, he/she is duty-bound to deduct TDS unless there is an adjudication by the AO to the contrary under section 195(2).
Google India Private Limited Vs ACTT 117-(TP) A 1511 to 1518/Bang/2013
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Guarantee fee paid to a foreign parent company is taxable as other income
Facts of the case Decision of the tribunal • The taxpayer was a resident
of the UK and was engaged in the business of manufacturing technologically advanced chemicals known as catalysts, which are used in automobile and other industries. The taxpayer provides various types of guarantees in relation to the business of its subsidiary companies. During the year, the taxpayer provided guarantees to support credit facilities extended to its Indian subsidiaries (I. Cos) by banks in India and received guarantee commission from the I. Cos in this regard. The same was offered to tax as interest taxable @15% under Article 10 of the India-UK tax treaty.
• During the year, the taxpayer had also received reimbursement of salary paid to an employee who was seconded to an Indian subsidiary.
The tribunal ruled in favour of the tax authority based on the following reasoning:a. Guarantee fee accrued/arose
in India
The guarantee fee accrued or arose in India since the Indian subsidiary received a loan from foreign banks and the loan transaction took place in India. It was the act of the subsidiary of borrowing the funds that resulted in income accruing to the taxpayer.
b. Guarantee fee is not in the nature of interest
The tribunal held that definition of interest under the domestic tax law and the treaty should be interpreted in the context of the usage and with reference to other words and phrases used in the definition. The words ‘claims of
• The Revenue held that the guarantee fee did not fall within the definition of interest under Article 12 but is taxable as ‘other income’ under Article 23, which grants taxing rights to India. Consequently, the guarantee fee is subject to 40% tax under the domestic tax law.
• The Revenue also contended that reimbursement received against the disbursement of salary on behalf of the Indian subsidiary is taxable as FTS, relying upon the ruling of Centrcia India Offshore Pvt. Ltd. 151 taxmann.com 386 (SC).
• Aggrieved with the Revenue, the taxpayer approached the tribunal.
any kind’ or ‘service fee or other charges’, need to be understood in relation to the transaction or contract of loan. Under the domestic tax law, the term ‘interest’ is defined as any payment pursuant to a loan transaction if it is made in the context of a loan and in relation to the contract between the parties, even in the absence of a debtor-creditor relationship.
However, a payment made to a person not a party to the loan transaction or contract cannot be treated as an interest payment even though the payments are incidental to the loan. The taxpayer is not party to the loan transaction and the guarantee contract is different from the loan contract; accordingly, a guarantee fee does not fall within the definition of interest.
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c. Guarantee fee is not in the nature of business income
The global guarantee agreement is entered into for the limited purpose of enabling its subsidiaries to secure loans. The guarantee income is incidental in nature since the taxpayer was not in the business of providing corporate/bank guarantees to earn income on a regular basis. Accordingly, the guarantee fee cannot be treated as business income which, in the absence of a PE in India, is not taxable in India under Article 7 of the treaty.As a result, the guarantee fee falls under the ‘other income’ article of the treaty and is, consequently, fully taxable in India.
In relation to the secondment of an employee to the Indian subsidiary, the tribunal recognised that the applicability of the ruling in case of Centrica (supra) is a fact-specific question to be determined with reference to the functions performed and the conduct of the duty of the seconded employee with reference to the business of the assessee and the Indian entity. The tribunal further held that in the absence of necessary documents such as secondment agreement and an employment contract, it would not be appropriate to adjudicate on the matter. Therefore, the tribunal remanded back the matter to the TO for a fresh finding post the verification of necessary documents.
Decision of the tribunal Johnson Matthey Public Ltd. Company vs. DCIT (International Taxation), Circle 2 (2) (1), New Delhi
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Customs Notification no. 96/2017 dated 29 December 2017• The Central Government has provided deeper tariff concessions in respect
of specified goods, including balloons, gliders, helicopters and aircraft when imported from member states of ASEAN under the India-ASEAN Free Trade Agreement w.e.f. 1 January 2018.
Goods and Service TaxNotification no. 72/2017-Central Tax dated 29 December 2017• The Central Government has extended the time limit for furnishing the
details of outward supplies in Form GSTR-1 for registered persons having an aggregate turnover of more than 1.5 crore INR in the preceding financial year or the current financial year, as follows:
Notification no. 96/2017 dated 29 December 2017Notification no. 48/2017-Central Tax dated 18 October 2017• The Central Government notifies the description of supply of goods as
‘deemed export’:
Sr. no. Months for which the details in Form GSTR-1 are furnished
Time period for furnishing the details in Form GSTR-1
1 July–November 2017 10 January 2018
2 December 2017 10 February 2018
3 January 2018 10 March 2018
4 February 2018 10 April 2018
5 March 2018 10 May 2018
Sr. no. Description of supply of goods
1 Supply of goods by a registered person against Advance Authorisation
2 Supply of capital goods by a registered person against Export Promotion Capital Goods authorisation
3 Supply of goods by a registered person to an export oriented unit
4 Supply of gold by a bank or public sector undertaking specified in notification no. 50/2017-Customs dated 30 June 2017 (as amended) against Advance Authorisation
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CBDT releases final rules on CbCR and Master File requirementsIn keeping with India’s commitment to implement the recommendations of Action Plan 13 of BEPS, the Finance Act, 2016, introduced section 286 of the Income-tax Act, 1961 (the Act), providing for the furnishing of CbCR in respect of an international group. Section 92D of the Act, which contained provisions for preparing TP documentation, was also amended to provide for keeping and maintaining of the Master File. In continuation with the amendment, the CBDT on 31 October 2017 released the final rules and forms in relation to the manner of preparation and the furnishing of the Master File and CbCR. A snapshot of the Indian compliance requirements as per the rules are as follows:
A. Master FileWho What When Whom
A CE(irrespective of:
• whether the entity has entered into an international transaction
• threshold applicability
• whether the entity is resident or not)
Part A of form no. 3CEAA By due date of furnishing RoI, except for FY 2016–17, which is on or before 31 March 2018
DGIT, RA
A CE, having:
a. Consolidated group revenue of more than 5 billion INR for the accounting year; and
b. Aggregate value of international transactions during the accounting year:
• Exceeds 500 million INR; or
• Exceeds 100 million INR in respect of the purchase, sale, transfer, lease or use of intangible property
Part B of form no. 3CEAA By due date of furnishing RoI, except for FY 2016–17, which is on or before 31 March 2018
DGIT, RA
The designated entity where there are multiple CEs resident in India • Form no. 3CEAA (part A and part B)
• Form no. 3CEAB
• Form no. 3CEAA (part A and part B) – by due date of furnishing RoI, except for FY 2016–17, which is on or before 31 March 2018
• Form no. 3CEAB – at least 30 days before the due date of filing Form no. 3CEAA, except for FY 2016–17, which is on or before 1 March 2018
DGIT, RA
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B. CbCRWho What When Whom
CE resident in India of an international group whose parent is a non-resident Form no. 3CEAC (intimation)
At least two months prior to the due date of furnishing RoI, except for FY 2016–17, which is on or before 31 January 2018
DGIT, RA
Parent entity or alternate reporting entity, which is:
• resident in India; and
• part of an international group, the consolidated group revenue which exceeds 55 billion INR
Form no. 3CEAD (CbCR) By the due date of furnishing RoI, except for FY 2016–17, which is on or before 31 March 2018
DGIT, RA
CE of an international group resident in India, whose parent is a non-resident [and if conditions of section 286(4) of the Act are satisfied]
Form no. 3CEAD (CbCR) Filing date will be contingent to the provisions of section 286(4) of the Act
DGIT, RA
The designated entity, where there are multiple CEs of an international group resident in India, whose parent is non-resident [and if conditions of section 286(4) of the Act are satisfied]
Form no. 3CEAE (intimation)
Not specified, as the filing date will be contingent to the provisions of section 286(4) of the Act
DGIT, RA
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AIESL Air India Engineering Services Limited
ALH Advance light helicopter
AO Assessing officer
ASW Anti-submarine warfare
BEL Bharat Electronics Limited
CCEA Cabinet Committee on Economic Affairs
CE Constituent entity
CSL Cochin Shipyard Ltd
DAC Defence Acquisition Council
DGCA Director General of Civil Aviation
DGIT Director General of Income Tax
DPSU Defence public sector unit
DRDO Defence Research and Development Organisation
EoI Expression of interest
FDI Foreign direct investment
FGFA Fifth generation fighter aircraft
FRCV Future ready combat vehicle
FTS Fee for technical services
GIL Google Ireland Limited
GoI Government of India
GRSE Garden Reach Shipbuilders and Engineers
GSL Goa Shipyard Ltd
HC High Court
IDDM Indigenous design, development and manufacturing
JV Joint venture
LCA Light combat aircraft
MBT Main battle tanks
MCMV Mine counter measure vessels
MDL Mazagon Dock Shipbuilders Limited
MHA Ministry of Home Affairs
MoCA Ministry of Civil Aviation
MoD Ministry of Defence
MoU Memorandum of understanding
MPATGM Man portable anti-tank guided missile
NAL National Aeronautics Laboratories
NMRH Naval multi-role helicopters
NUH Naval utiliy helicopter
OEM Original equipment manufacturers
OFB Ordinance Factories Board
ONGC Oil and Natural Gas Corporation
PE Permanent establishment
PIM Preliminary information memorandum
PSU Public sector unit
RA Risk assessment
RFI Request for information
RFP Request for proposal
SC Supreme Court
SAAW Smart anti-airfield weapon
SIAEC SIA Engineering Company
UAOP Unmanned aircraft operator permit
UAVs/RPAS
Unmanned aerial vehicle/remotely piloted aircraft systems
UIN Unique identification number
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Partner and Leader + 91 124 616 [email protected]
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Director + 91 124 616 [email protected]
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Manager+ 91 124 330 [email protected]
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Assistant Manager + 91 124 330 [email protected]
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About PwC
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