TaxTMI 
TaxTMI 
2024 (11) TMI 1007
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.... and Garnet as well as various value-added products through four operational units located in the States of Odisha, Kerala and Tamil Nadu. The Information relates to the actions of OP vis-à-vis Beach Sand Sillimanite and does not concern OP's other activities. 3. As per the Informant, Sillimanite is a natural sand-based product generated during the extraction of rare earth compounds from beach sand and is of two types viz., Beach Sand Sillimanite/ Sillimanite and underground mined Sillimanite; which are qualitatively different from each other. Beach Sand Sillimanite is used primarily by refractory manufacturers for lining furnaces and it is also used in the ceramic industry. It is also stated that underground mined Sillimanite available in India has excessive impurities that diminishes the quality of the refractory and is therefore, neither cost effective nor can it replace Beach Sand Sillimanite. 4. The Informant has averred that imported Andalusite is the closest replacement of Sillimanite in terms of quality; however, the former is expensive vis-à-vis the latter, which makes Andalusite not an effective substitute of Beach Sand Sillimanite. 5. It is stated ....
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....ma facie opinion that OP is an 'enterprise' under extant provision of Section 2(h) of the Act. The Commission noted that the Informant has delineated the relevant market as "mining and supply of Beach Sand Sillimanite in India", which has not been denied by the OP. For the reasons adduced by the Informant, the Commission was of the opinion that the relevant market in the instant case is 'mining and supply of Beach Sand Sillimanite in India'. On the issue of dominance of OP in the relevant market, the Commission noted that the OP has acquired a dominant position by virtue of it being a government owned company having exclusive right to undertake mining and supply of BSM (including Sillimanite) in India. Based on facts and circumstances of the case, the Commission noted that OP enjoys economic power and commercial advantage which allows it to operate independently of the market forces. Accordingly, the Commission was prima facie satisfied that there existed a case of contravention of Section 4 of the Act, as alleged by the Informant and vide an order dated 03.01.2022 passed under Section 26(1) of the Act, directed the Director General ('DG') to cause an investigation into the matter ....
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....ndalusite, Sillimanite and Kyanite, Sillimanite and Bauxite and Sillimanite and grogs & aggregates etc. On the basis of price, physical/chemical properties, presence of impurities etc., the DG concluded that Beach Sand Sillimanite is not substitutable with Kyanite/Andalusite/Bauxite and others. The DG also compared the average price charged by OP and Kerala Minerals and Metals Ltd. ('KMML') (a government of Kerala undertaking) and found that the price charged by KMML is much higher than the price charged by OP, which indicates high consumer dependency on Beach Sand Sillimanite, non-existence of countervailing buying power with the consumers and non-availability of economically viable substitute in the market. Therefore, the DG defined relevant product market as 'mining and supply of Beach Sand Sillimanite'. Further, the DG noted that there are no geographical barriers for production and sale of relevant product and conditions of competition for supply of Beach Sand Sillimanite are distinctly homogenous all over India. Thus, the DG delineated the relevant market in the instant matter as "mining and supply of Beach Sand Sillimanite in India". 16. The DG noted that by virtue of Cen....
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.... Considering these factors, the DG concluded that IREL was engaged in discriminatory pricing in the Beach Sand Sillimanite market in India in contravention of Section 4(2)(a)(ii) of the Act. 20. As regards the allegation of discriminatory supply conditions, the DG found that OP neither accepted nor negotiated the quantity of Beach Sand Sillimanite requested by the consumers in response to EOIs issued by it. Rather, it offered a standard Quality Sales Contract ('QSC') which contained pre-determined quantity for each such buyer. The DG observed that OP supplied more quantity to MNCs/foreign companies than what was supplied to domestic consumers which resulted in restricted supply for MSME consumers, thus harming their interests ................, in other cases, only OP had the prerogative of levying penalty as well as denying supply in case of default by other customers. The DG also found the submission of OP regarding pro rata reductions being applied to all whenever demand was greater than supply was not applied in the case of ........... Further, it was also observed that export quantity had ................ which substantiates the allegation that OP adopted discriminatory prac....
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....hould be read and interpreted widely. OP has further relied on order of the Commission in Case No. 19 of 2019, judgement of the Hon'ble Supreme Court of India in Physical Research Laboratories vs. K.G. Sharma (AIR 1997 Supreme Court 1855), the Hon'ble Delhi High Court's decision in UOI vs. CCI & Ors. (AIR 2012 Delhi 66) to establish that the activity relating to extraction of Sillimanite is a sovereign function and therefore, OP cannot be held as an 'enterprise' under the provisions of the Act. 26. OP also submitted that it functions within strict oversight of DAE, GOI, with the primary objective of mining and extraction of the strategic mineral Monazite from beach sand ore and supplying it to the GOI for atomic energy program. It also stated that every aspect of IREL's operations is subject to strict regulations as well as supervision by the DAE, GOI. 27. OP also submitted that the Informant wrongfully argued that IREL cannot be exempted under Section 2(h) of the Act as no notification has been issued by the Central Government under Section 54 of the Act. It was averred that Section 54 of the Act provides that the Government may exempt entities from the application of the Ac....
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....et by emphasizing demand side substitutability. It submitted that even in assessing demand side substitutability, the DG has erroneously delineated the relevant market on the basis of extremely selective responses received from a very small number of supposed users of Sillimanite, that in no manner represent the entire demand side for Sillimanite and its substitutes in the market. OP submitted that the DG's analysis of substitutability also did not account for the fact that not only there are other substitutes of Sillimanite available in the market, but that there is no evidence on record to indicate that customers' operations would be or were in fact adversely impacted due to an alleged non-supply of Sillimanite by IREL. 33. In order to assess relevant product market, OP has submitted that all minerals which can be alternatively used in place of Sillimanite, form part of the relevant product market and these include Sillimanite mined from underground/rock sources, Andalusite, Kyanite, Bauxite, Kaolin, plastic/non-plastic clay, super duty fire clay, other clays, Hydroxyl-Aluminosilicate refractory materials (Kaolinite, Pyrophyllite and Sericite), Bauxite and synthetic alumina ag....
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....d on market share data of IREL in Alumino-Slicate minerals, its share in the total market has been much lower than ......... of the market and was reducing since .......... till ............ 38. It was further stated by IREL that since disposal of Sillimanite is crucial for the smooth conduct of its core operations, it cannot price Sillimanite arbitrarily but has to keep in mind the price absorption of the market, the pricing of the substitutes of Sillimanite, price charged by KMML (which has priced Sillimanite higher than that charged by IREL) and presence of other domestic and international suppliers of Sillimanite and its substitutes in India. OP further submitted that if it fails to provide fair and sustainable commercial terms to its customers, it stands the risk of stockpiling Sillimanite, thereby impacting its core operations of extracting strategic minerals. It has a greater dependence on its customers for the off-take of Sillimanite stocks. 39. OP submitted that it even had to float promotional schemes for evacuation of Sillimanite and since offloading is crucial, it entered into Quantity Sales Contract ('QSC') to ensure continuous evacuation of the mineral which is ....
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....statutory restriction under the regulations and policies issued by GOI and there are no restrictions on any new GOI or state government entity from entering the market, mining of Sillimanite from another source i.e., hard rock, import of Sillimanite or on mining of BSM Ore that does not meet the prescribed threshold with respect to Monzonite. 43. IREL submitted that Sillimanite is a by-product of extraction of BSM ore and mining of strategic minerals is controlled by GOI and it is not the prerogative of IREL to decide and implement any possible increase in mining and supply of Sillimanite. IREL's mining and extraction of minerals is subject to various statutory provisions, clearances, and regulatory approvals from centre and state agencies leading to determination and stipulation of extent of mining which IREL may undertake. OP further submitted that the available quantity of Sillimanite in the BSM ore after the extraction is out of control of the OP and therefore, DG erred in noting that production of Sillimanite was in control of IREL and IREL itself could increase production of Sillimanite without any regulatory clearances. 44. It has been stated by IREL that it is a Centr....
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.... ensure timely evacuation of the mineral and avoid black marketing/hoarding. IREL states that its pricing of Sillimanite is not arbitrary in nature and it has not received any complaints about its prices being unreasonable. 47. IREL denied allegations of excessive /unfair pricing and deriving super normal profits from sale of Sillimanite since such revenue constituted .............. of total revenue of IREL. Relying on the decision of the European Court of Justice ('ECJ') in the case of United Brands Co. and United Brands Continental BV v Commission [1978] ECR 207, according to OP, the test laid down in the said decision, to establish that a price charged by an entity was in fact excessive, such price should be exorbitantly high or should be such that it has no relation to the price charged for it. As per OP, the DG erred in its application of legal tests to arrive at predetermined findings. In applying the principle from the United Brands decision, the DG only calculated the margin in cost of production and the sales value of Sillimanite and concluded that the prices are excessive. This, however, is only the first limb of the test and to accurately determine whether the prices ....
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....nt transactions; and (ii) harm/likely harm to competition by which buyers suffered disadvantage against each other. In the present matter, IREL has not offered different prices to similar customers. Therefore, DG has erred in comparing the prices charged to ............ under long term contractual obligations and the retail prices offered to other customers to arrive at a finding of discriminatory pricing. In view of the above, OP submitted that it has not engaged in discriminatory pricing. 50. As per OP, the DG has erred in its application of the test of excessive pricing as suggested by the EC in the case of Deutsche Post AG-Interception of Cross-Border mail [2001] OJL 331/40. As per this test, an antitrust authority must compare the prices charged by a dominant entity to those charged by its next competitors to assess whether a dominant entity is charging excessive prices. It is submitted that the prices charged by OP during the period under investigation were lower than that of the KMML, despite the latter having smaller market share. OP submitted that DG misapplied the test and arrived on pre-determined conclusion that IREL charged excessive price in the relevant market. A ....
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....ies. This helped ............... and hence are not arbitrary and irrational. Moreover, prices offered to ................ have also been increased simultaneously with increase in prices for other customers. IREL has also offered attractive discounts to other buyers in the market based on their requirement and the volume of Sillimanite to be lifted as admitted by other parties and a small difference in percentage of discounts to .............. on account of being a bulk buyer, cannot be alleged as engagement in discriminatory pricing practices. 55. OP has further submitted that more than ............ of its customers of Sillimanite are domestic MSMEs. Although the core operations of OP do not require or mandate the sale of Sillimanite to any specific customer category, it has always strived to support and provide Sillimanite to MSMEs. The promotional schemes offered by OP have been allowed for evacuation of large quantities of Sillimanite in timely manner and it provided Sillimanite to all customers without preference or discrimination ....................................................................... 56. OP objected to the DG Report by stating that DG has failed to analy....
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....ring into annual contracts with IREL for the supply of Sillimanite. These customers are required to register their annual demand with IREL and provide an undertaking that they are not engaging in trading of Sillimanite. It is pertinent to note that the supply of Sillimanite by IREL to such customers is based on the past offtake i.e., the 'established demand', of each such customer. iii. Retail customers - A third category of customers i.e, retail customers, procure Sillimanite from IREL without entering into any formal contracts and buy round the year subject to availability of stocks with IREL and procure Sillimanite at listed price. 59. OP has submitted that the DG has wrongly concluded that it is engaged in discriminatory pricing by carrying out erroneous comparison between the prices charged under long term contracts and the prices charged to retail customers. Furthermore, the DG has only evaluated the pricing terms offered to .................. and its associated companies, without enquiring into and considering the discounts that were actually offered by OP to customers in other categories. The DG failed to notice those instances wherein ................ or its as....
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.... The earmarked quantity of 13,000 MT was proportionately distributed amongst those that were considered for QSC during the year 2020-21. IREL stated that it is important to highlight that IREL's sales / supply policy / mechanism has been approved by the competent authority and is in line with DAE's licensing policy. 63. OP has submitted that DG erred in concluding that IREL refused supplies to the existing customers, while making supplies to dealers who are selling Sillimanite to industry at much higher prices. OP has submitted that it had taken all necessary steps to prevent parties from trading Sillimanite at higher prices to disadvantage of the actual users by having terms in EOI/supply contract which prevents export or resale of Sillimanite. 64. Reiterating its submissions, the OP, vide submission dated 08.01.2024, stated that ........................... Its is noted that when the supply of Sillimanite surpasses the industry's demand, IREL readily fulfills the entirety of such demand (based on the 'established demand' of such customers), however, when the supply available with IREL falls short of the demand, the only viable and rationale recourse available to IREL is to d....
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.... been an increase in supply to other customers. In view of a more assured offtake pattern of customers other than ......., .......................... and also requested ........... to participate in EOI, like all the customers, to enter into an annual contract. This demonstrates that IREL has not been discriminatory in favour of ................ And ............. 67. The OP submitted that, in consideration of its detailed submissions in the objections, the Hon'ble Commission must set aside the finding of a contravention against IREL under the DG Report, since there is no contravention under the Act by IREL, no penalty should be imposed under Section 27(b) of the Act on IREL. 68. Further, OP submitted that notwithstanding the submissions made by OP even if contravention is found, the Hon'ble Commission must exercise discretion under Section 27(b) of the Competition Act and refrain from imposing a penalty on IREL since there is no harm to competition or consumers or economic harm due to such a contravention. The Hon'ble Commission must consider the following mitigating factors while assessing penalty, if any, to be imposed on IREL: i. Peculiarities of the market pertai....
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....of increasing the profit and thereby clearly showing that OP is not conducting any sovereign function. Reliance have also been placed on the judgement of Hon'ble Delhi High Court in Union of India v. Competition Commission of India and Ors. (AIR 2012 DELHI 66,), and of Hon'ble Gujarat High Court in Umedmiya R. Rathod and Ors. v. State of Gujarat [AIR 2017 (NOC) 1146 (GUJ.], to state that an entity may be carrying out part sovereign and part non-sovereign functions/activities, in which case the non-sovereign activities of the entity would fall within the ambit of the Act and the exemption would only apply for the sovereign function. In the present matter, sale/supply of Sillimanite is a non-sovereign activity undertaken by OP and thus, no exemption under Section 2(h) of the Act can be claimed by it. The Informant has also submitted that the claim of OP that it is involved in the function ancillary to sovereign/strategic function is baseless. 73. Reiterating its earlier submission, the Informant has submitted that the reliance placed by the OP on Case No. 19 of 2019 titled Beach Mineral Producers Association v. Directorate General of Foreign Trade (DGFT) & Ors. is misplaced. The s....
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....fence, currency and space are exempted from the meaning of enterprise. The Commission notes that OP is a Public Sector Undertaking designated as Miniratna Category-I, engaged inter alia, in mining and sale of Beach Sand Sillimanite on commercial considerations to domestic and international customers. The Commission has considered the submission of OP that its functions are ancillary to the strategic/sovereign function, which exempt it from the purview of enterprise. The Commission observes that the scope of 'Sovereign Function' has been analysed in plethora of cases by Hon'ble Supreme Court of India, High Courts and Tribunals. The Hon'ble Supreme Court in Coal India Limited and Anr. Vs. Competition Commission of India and Anr. (2023)10 SCC 345, in paragraph 81, held that: "81...The first appellant is not a Department of the Government. It is a Government Company. In fact, what is excluded from the definition of the expression 'enterprise', is a Government Department carrying on ..." 80. The Commission observes that IREL, the erstwhile Indian Rare Earths Limited is a Public Sector Undertaking and an unlisted Public Company, was incorporated on August 18,1950. It became a....
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....at contrary to OP's claim, the DG considered the responses of the DAE and Ministry of Mines along with the responses of certain consumers of Sillimanite. The Commission observes that the DG not only relied on demand side substitutability but also on economic analysis whereby it was evident that OP was able to increase the prices profitably without losing its sales, which indicated that there were no available substitutes of Beach Sand Sillimanite, which could be considered substitutable by the consumers. 84. The Commission observes that substitutability, as envisaged under the Act, has a different connotation than substitutability, as used in general parlance. To that extent, two products having similar chemical composition may be generally deemed as similar; however, when looked at from the lens of the Competition Act, the same two products may not be substitutable/interchangeable on the parameters given under Section 2(t)/19(7) of the Act. It may be noted that in terms of the provisions of the Act, substitutability of a product is determined on the basis of parameters such as price, intended use and characteristics of the product under consideration. 85. The Commission note....
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....ssion notes that by virtue of DAE notification dated 27.07.2019, grant of operating rights in respect of atomic minerals in any offshore areas in the country was restricted to the Government or a Government Company or a Corporation owned or controlled by the Government. As a result of the said notification, (i) private sector players operating in the relevant market, namely Trimex Sands Pvt. Ltd. ('TSPL') and VV Mineral were prohibited from mining/selling Sillimanite; and (ii) only OP and KMML remained in the business of mining/selling Sillimanite in India. The Commission has perused the domestic supply data of Sillimanite collected by the DG from IREL, KMML and TSPL for the period 2016-17 to 2021-22. From the data, the Commission observes that OP has the largest market share in terms of sales volume and value in aforesaid period. The Commission observes that the market share of OP has shown growth from around .............. in ............. to about ........... in ......... and ................ in Further, the market share of KMML has increased from ............ in ............ to ............... in ............... 90. The Commission also notes the contention of the OP that it ....
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....ket. 94. The contention of the OP that the market share of an entity cannot be a definitive and exclusive indicator of its dominance and therefore, the findings of DG with respect to dominance of the OP cannot be relied upon. However, the Commission observes that the DG has analysed dominance based on various factors, as provided under Section 19(4) of the Act, and not alone on the basis of market share. Further, market share of an entity can be a strong indicator of its presence in the market and simply cannot be brushed aside in toto in absence of other negating factors. 95. Therefore, based on above discussion, the Commission is in agreement with the conclusion drawn by the DG that the OP enjoyed a dominant position in the defined relevant market. Issue (iv): Whether OP has abused its dominant position in terms of Section 4 of the Act? 96. With regard to the question whether OP has abused its dominant position or not, the Commission, on the basis of the Information, DG report and submission of the parties, has identified following questions for consideration: a. Whether OP has violated the provisions of section 4(2)(a)(ii) by charging unfair/ excessive price....
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....ng decision is a complex mechanism which takes into account the dynamics of the market such as demand and its elasticity, possible rival reaction, availability of imported substitutes etc. The Commission also finds merit in the argument of the OP that in order to arrive at the final cost of Sillimanite, the DG ought to have considered joint cost till the point of separation, as the Sillimanite is a 'by-product' ............................................................. Thus, the price charged by KMML was much higher than IREL despite KMML being a much small player. The Commission also notes that allegation have been levelled in respect of higher quantities being offloaded to a particular company and its associates and also that the price charged is substantially lower vis-à-vis what is being charged from other customers. There seems to be no economic incentives for the OP, being in a dominant position, to indulge in such activities where it sold higher quantities at lower prices. Further, the Commission is of the view that market price is best left to the dynamic interaction between forces of the market and intervention would normally be required only in appropriate cases....
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....mers depending on their level of offtake. 106. At the outset, the Commission notes that ............ entity incorporated in India and governed by the laws of India. The Commission has perused the DG Report and submission of the parties in this regard and observes that there is a difference between prices charged to .............. vis-à- vis OP's other customers. The Commission notes that OP has provided justification for charging different prices to different customers. The Commission is of the view that OP granted discounts in lieu of commercial relations and based on justifiable grounds of long-standing commercial relationship which has mutually benefited the parties. To that extent, the Commission notes that there is a historical relationship between OP and ............ and its associate companies in as much as when there was .......... .......... of the by-product i.e., Sillimanite adversely affecting the core operation of the OP, ............... a discount-cum-rebate scheme which was extended from time to time. Further, the Commission also observes that when demand from domestic consumers grew, OP requested ........................... to come through the EOI route, t....
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.... through EOI. Therefore, Commission is of the view that quantity supplied by OP to different categories of consumers of Sillimanite may be different for the reasons such as long-standing business relations, assured off-take quantity, past off-take etc. and therefore, may not be discriminatory. Here, it is trite to say that every commercial enterprise enjoys freedom to carry out trade and take appropriate business decisions. As a normal business prudence, the Commission has reasons to believe that, a party buying in bulk would get better terms (including purchase price) than a small buyer. Unless and until there are manifest contravention of the provisions of the Act, the freedom of enterprise remains sacrosanct and the Commission would not like to dictate the terms of the trade. Based on the facts of the case and analysis, the Commission is of the view that no case of contravention of Section 4(2)(a)(i) of the Act for adopting discriminatory practices in supply of Sillimanite favouring MNCs/foreign customers as against domestic customers is made out against the OP. 109. Considering the facts and circumstances of the case, material on records, Investigation Report of the DG, subm....