No capital gains tax on Ambuja, ACC sale to Adani Group: Holcim CEO

India-Mauritius treaty allows tax exemption on such agreement, says Swiss company's CEO.

Cement major Holcim’s agreement to sell its India business to the Adani family will not attract the South Asian nation’s capital gains tax, said Jan Jenisch, the chief executive officer of the Swiss company, in an analyst call on Monday.

Mauritius-based Holderind Investments sold its 63 per cent stake to a Mauritius-based offshore purpose vehicle owned by the Adani family. Holderind Investments, in turn, is owned by a Dutch entity. “Our analysis comes to the conclusion that there’s no capital tax gain, or any other tax to be paid for this transaction," said Jenisch.

Tax experts said that as Holcim's stake in the Indian company is held prior to April 1, 2017, a treaty provides for grandfathering for pre-April 2017 holdings and investments, and allows tax exemption.

The India-Mauritius treaty was designed to attract foreign investments in the early 1990s when India’s foreign exchange reserves were alarmingly low. Subsequently, the Supreme Court held in favour of the assessee’s claim for such tax exemption. Similarly, a treaty between India and the Netherlands also provided tax exemption to Dutch entities.

Jenisch said Holcim has not indemnified any cartelisation penalties imposed on Ambuja Cements and ACC by the Competition Commission of India (CCI). This means any future liabilities will have to be paid by the acquirer.

Both Ambuja and ACC appealed to the Supreme Court in 2018 appealing against the CCI penalties and the matter is pending. On December 10, 2020, the CCI initiated a fresh probe against Indian cement companies and raided many of them.

That day Ambuja Cements and ACC, in a regulatory filing, said the CCI has initiated an investigation against them and other cement firms in India for alleged anti-competitive behaviour.

“Ambuja Cements is of the firm view that it has acted and continues to act in compliance with competition laws and are fully cooperating with the investigation and providing all necessary information to the authorities. Ambuja Cements has a long-standing commitment to fair competition as reflected in its Code of Business Conduct and Ethics,” it had said.

The new CCI probe in 2020 came at a time when an appeal filed by cement companies including Ambuja is currently pending in the Supreme Court since 2018. The appeal was in response to the CCI fining 10 cement companies of Rs 6,700 crore for cartelisation and fixing prices. The NCLAT later dismissed the appeal filed by the cement companies including Ambuja and ACC.

In its annual report for fiscal 2021, Ambuja Cement filed an appeal against the CCI order which levied a penalty of Rs 1,163.91 crore on Ambuja which was dismissed by the NCLAT in July 2018 and CCI’s order was upheld. Further, Ambuja said it challenged the NCLAT judgement before the Supreme Court in September 2018. ACC was fined Rs 1148 crore by the CCI.

The Supreme Court admitted the appeals and ordered for the continuation of the interim order passed by the Tribunal.