TaxTMI 
TaxTMI 
2025 (5) TMI 1028
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....is likely to cause, a demand rigorous fact-finding, adversarial testing of testimony and, above all, an effects-based appraisal that balances commercial justification against proven harm. Preserving this symmetry between discipline and encouragement is essential if the statute is to nurture robust rivalry while sustaining the confidence of domestic and global investors who increasingly view India as a premier destination for enterprise and innovation. I. Background of the Case 2. These statutory appeals, preferred under Section 53T of the Act, challenge a common order dated 2 April 2014 passed by the Competition Appellate Tribunal In short, "COMPAT" in Appeal Nos. 91 and 92 of 2012. Civil Appeal No. 5843 of 2014 has been filed by the Competition Commission of India In short, "CCI". Civil Appeal No. 9998 of 2014 has been filed by Kapoor Glass India Pvt. Ltd. In short, "Kapoor Glass", the original informant. In both the matters, Schott Glass India Pvt. Ltd. In short, "Schott India" is the contesting respondent. 3. The proceedings have their genesis in an information lodged on 25 May 2010 by Kapoor Glass under Section 19 of the Act. Kapoor Glass alleged that Schott India, the....
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.... or sale of goods or service; or (ii) price in purchase or sale (including predatory price) of goods or service; (b) limits or restricts - (i) production of goods or provision of services or market therefor; or (ii) technical or scientific development relating to goods or services, to the prejudice of consumers; (c) indulges in practice or practices resulting in denial of market access in any manner; (d) makes conclusion of contracts subject to acceptance by other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts; (e) uses its dominant position in one relevant market to enter into, or protect, another relevant market. Explanation.-For the purposes of this section, (a) "dominant position" means a position of strength enjoyed by an enterprise in the relevant market in India which enables it to (i) operate independently of competitive forces prevailing in the relevant market, or (ii) affect its competitors or consumers or the relevant market in its favour; (b) "predatory price" means the sal....
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....Position: A firm is dominant when its economic strength lets it act largely on its own terms. A town with a single water utility, or a manufacturer whose patented device has no practical substitute, offers the everyday picture. Dominance is lawful; the question is how the power is used. (iii). Volume or "Target" Discounts: These are price reductions that grow purely with the quantity a buyer takes over an agreed period. For example, a supermarket chain that orders ten thousand sacks of rice may pay less per sack than a corner shop that orders ten. Such scale rebates are benign when offered to every purchaser on identical volume thresholds. (iv). Functional discounts: Sometimes the buyer performs an extra function-say, warehousing, local advertising, or after-sales service. A seller may repay a buyer for performing that extra task like storing stock, advertising the brand, or providing repairs. Airlines, for example, pay travel agents a commission for marketing flights. If the rebate merely covers the cost of that task and is open to any buyer willing to do the same, competition law is usually satisfied. (v). Margin squeeze: A vertically integrated supplie....
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....ow Nipro-Triveni) had exited by 2010 and the balance of demand was met by imports from Germany, Japan, Italy and, at the low-end, China. 14. In May 2008, a Schott group company entered into a joint- venture with Kaisha Manufacturers, creating Schott Kaisha Pvt. Ltd. In short, "Schott Kaisha", the country's largest converter. Schott Kaisha is neither a subsidiary nor a division of Schott India, but it purchases a substantial share of the latter's annual melt. 15. Discount architecture and agreements: To secure economies of scale and steady furnace utilisation, Schott India offered two rebate schemes: a. Target (volume) rebates: slabbed discounts, credited quarterly, rising with aggregate annual purchases of NGC and NGA; and b. Functional rebates: an eight-per-cent allowance extended to converters that (i) met annual purchase plans, (ii) refrained from using Chinese tubing, and (iii) adhered to "fair-pricing" commitments in their container sales. 16. Long-Term Tubing Supply Agreement In short, "LTTSA": In 2008 Schott India and Schott Kaisha executed a three-year agreement under which the converter agreed to source at least eighty per cent of its requirement....
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....at the conduct attracted Clauses (a) through (e) of Section 4 (2) of the Act, the CCI: (i). Directed Schott India to cease and desist from the impugned practices with immediate effect; and (ii). Levied a monetary penalty calculated at four per cent of the company's average turnover for the three preceding financial years, amounting to Rs. 5.66 crore. 20. Schott India and Kapoor Glass appealed the matter to COMPAT by way of Appeal Nos. 91 and 92 of 2012. The COMPAT gave the following finding in the impugned order: (i). Appeal of Schott India allowed: The evidence against the company rested "for the most part on statements never subjected to cross-examination"; on that footing COMPAT found no proof of discriminatory rebates, margin squeeze or tying. It pointed out that, barring one exception, every converter had grown its output after 2009, a fact at odds with the charge of foreclosure. (ii). All sanctions annulled: The penalty of one per cent of turnover and the attendant cease-and-desist directives were quashed in toto. (iii). Appeal of Kapoor Glass dismissed with costs: Kapoor Glass's prayer for wider relief was rejected and costs of....
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....tubes: Discounts were calculated on the combined quantity of clear and amber tubing. Because Schott India held over ninety per cent of amber tubes, indispensable for light-sensitive formulations, converters had little choice but to buy clear tubes from it as well. The appellants characterise this as a tie-in contrary to clause (d). E. Margin squeeze on independent converters: It is argued that the preferential input price to Schott Kaisha enabled it either to sell containers below the cost level sustainable by equally efficient converters or to harvest abnormal margins, squeezing rivals out of the downstream market in violation of clauses (a) and (e). F. Selective refusals to supply: Instances were cited where converters who sourced even modest volumes elsewhere found their subsequent Schott allocations curtailed or delayed. It is argued that such conduct amounts to denial of market access under clause (c). G. "Mixing" rationale a façade: It is submitted that the assertion that Chinese tubes might be secretly mixed with Schott tubes is speculative; no concrete incident was proven. The quality argument therefore serves only to cloak an exclusivity o....
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.... in 2000, years before the 2002 label episode deployed by Schott India as an after-the-fact excuse. Any private trade-mark grievance expired with limitation; competition law requires proportionality, not a perpetual embargo by the sole large-scale amber-tube supplier. D. Persistent mix-up hazard. Kapoor Glass maintains that a real and present danger existed of converters mis-labelling containers by "mixing" premium Schott tubes with lower-grade imports. The LTTSA and the functional rebate, it is submitted, were devised not to protect quality but to immunise Schott Kaisha from price rivalry on the pretext of that hazard; COMPAT, in discounting the risk, ignored contemporaneous complaints from Ranbaxy, Cadila and other buyers. E. Quantum of penalty. Finally, Kapoor Glass submits that the four-per-cent turnover penalty originally imposed by the CCI was conservative, given both the duration of the abuse (2008- 2012) and the deterrence objective set out in Section 27(b). It prays for reinstatement of the penalty and for broader behavioural remedies. F. The learned Senior Counsel has placed reliance on the following precedents apart from those relied on by the ....
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....tt Kaisha sold ampoules and vials at prices comparable to, and in many cases higher than, rival converters. The latter's own sales volumes and EBITDA margins rose in the period under enquiry, facts extracted by the Economic Member and by COMPAT. With margins intact and output expanding, foreclosure is conceptually impossible. F. No tying or bundling of clear and amber tubes: NGC and NGA tubing emerge from the same tank; converters order each variant in the proportion demanded by their pharmaceutical customers. The rebate scheme merely aggregated annual purchases of both variants to compute the slab. Nothing in the contracts obliged a converter to buy clear tubes as a pre- condition to obtaining amber (or vice-versa). G. "Mixing risk" furnished a bona-fide rationale for the no- Chinese clause later withdrawn: Documentary evidence from Ranbaxy and other pharma demonstrated that some suppliers were passing off low-quality imports as premium containers. The temporary restriction on Chinese tubing, in force only until March 2010, protected patient safety and Schott's reputation; converters were always free to source from Nipro-Triveni or any approved foreign manufactur....
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....efore dealing with each of the aforementioned issues, it is essential to ascertain the contours of the relevant market in the present dispute. The evidence placed by the DG and accepted, in substance, by the CCI, discloses that converters treat NGC tubes and NGA tubes as distinct and non-interchangeable inputs. The physicochemical attributes of NGA are required where the packed drug is photo- sensitive, whereas NGC is preferred when no such protection is demanded. No party has pointed us to any functional substitute capable of meeting the identical pharmaceutical standard. We accordingly identify two discrete upstream product markets: NGC and NGA. Each of them feeding the downstream market for containers (ampoules, vials, cartridges, syringes) fabricated from the respective tube. 27. As to geographic scope, the record shows that converters located across the country source tubes from the same limited set of manufacturers. The transport cost is marginal compared with the value of the product, import barriers are uniform nationally, and pharmaceutical end-buyers impose identical quality specifications regardless of State. Those considerations, noted both by the DG and by the CCI, ....
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....ues framed earlier. Issue I - Whether the target-discount scheme of Schott India amounts to discriminatory or exclusionary pricing in contravention of Section 4(2)(a) and Section 4(2)(b) of the Act. 32. A perusal of Section 4(2)(a) of the Act implies that an abuse arises only where a dominant enterprise "directly or indirectly imposes unfair or discriminatory...price in purchase or sale". As the words "unfair or discriminatory" import a comparative enquiry, it must first be established that transactions which are materially equivalent have been accorded materially different treatment. If the challenged differentiation rests on an objective commercial justification, or if it is open on identical terms to every purchaser similarly placed, the price cannot be stigmatised as abusive. In British Airways plc v Commission (Court of Justice of the European Union in Case C-95/04 P, dated 15 March 2007), it was observed that dominant firm must not "favour or disfavour" trading partners. However, the court further held that applying different prices only becomes abusive when it lacks an objective commercial justification or when equivalent customers cannot obtain the same terms. In othe....
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....r. 34. Differential outcomes certainly occurred as Schott Kaisha, by reason of an offtake exceeding three thousand tonnes per annum, habitually captured the 12% step, whereas smaller converters realised lower steps. Yet such divergence mirrors the inequality of quantities, not unequal treatment of like quantities. The appellants have not demonstrated that any converter lifting an equivalent tonnage to Schott Kaisha was refused an identical 12 % abatement. 35. Moreover, the technical realities of borosilicate production reinforce the commercial logic of the scheme. Furnace tanks operate at temperatures around 1600 °C and cannot be cyclically shut down without inflicting catastrophic refractory damage. Stable, high-volume orders are therefore indispensable for efficient utilisation and for amortising the very substantial capital employed. A volume-contingent rebate transmits a share of those scale economies downstream, to the ultimate benefit of pharmaceutical customers. Such an objectively grounded incentive cannot be condemned as "unfair". 36. It must also be noted that there is no evidence that the slab mechanism foreclosed alternative suppliers or throttled output in....
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....ssing Chinese tubing, and (iii) complied with traceability-cum-"fair-pricing" obligations became entitled to a flat rebate of 8 per cent on the invoiced value of NGC, NGA and Fiolax tubes. With effect from 1 April 2010, the quantum of the allowance remained unchanged, but the qualifying conditions were restated in a Trade-mark Licence Agreement (TMLA) paired with a Marketing-Support Agreement. Execution of the TMLA conferred a royalty-free right to emboss the "SCHOTT" mark on finished containers and in exchange the converter accepted limited inspection rights and furnished a bank guarantee of Rs. 70 lakh to guard against misuse. Only one converter chose to execute the TMLA; all others continued on list price plus the ordinary target-rebate ladder. 41. As already observed in the previous section, to attract Section 4(2)(a) of the Act, it must be shown that transactions which are equivalent in every commercially relevant respect are nevertheless subject to dissimilar conditions. The purchase ledgers for FY 2008-09 to FY 2011-12, collated in the COMPAT's own table, disclose no instance in which two converters performing the same function received different net prices. The rate (8 p....
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....verters imported Chinese tubes for un-branded lines during 2009-10 and merely waived the functional rebate, demonstrating the voluntariness of the arrangement. The right of inspection is pre-announced, confined to stock verification, and of brief duration. 45. Therefore, in conclusion, every converter prepared to assume the same traceability and quality-promotion obligations received exactly the same economic consideration; the ancillary conditions are objectively justified; and the evidence shows no foreclosure of rivals or suppression of output. The functional rebate and its successor agreements therefore do not offend either Section 4(2)(a) or Section 4(2)(b)(i) of the Act. Issue II is answered in the negative. Issue III - Whether the LTTSA with Schott Kaisha produced a margin-squeeze proscribed by Section 4(2)(e) of the Act. 46. Having settled the relevant markets and Schott India's dominance upstream, we next examine the impugned LTTSA and the allegation that it enabled Schott India to foreclose independent converters by compressing the margin between their input cost and the downstream selling price of Schott Kaisha. 47. The facts are not in dispute that under the....
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....hough the competitors may be as efficient as the dominant undertaking, they may be able to operate on the retail market only at a loss or at arti ficially reduced levels of profitability. 34. It must moreover be made clear that since the unfairness, within the meaning of Article 102 TFEU, of such a pricing practice is linked to the very existence of the margin squeeze and not to its precise spread, it is in no way necessary to establish that the wholesale prices for ADSL input services to operators or the retail prices for broadband connection services to end users are in themselves abusive on account of their excessive or predatory nature, as the case may be (Deutsche Telekom v Commis sion, paragraphs 167 and 183)." 49. No downstream participation by Schott India- Schott India manufactures tubing only; it neither converts nor sells containers. The downstream entity, Schott Kaisha, is a separate company in which the global Schott AG holds fifty per cent stakes, the balance being with the Kaisha promoters. The record discloses no board overlap, no common management, and separate audited accounts. Section 4 of the Act may of course reach a group; but leverage still demand....
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....ott Kaisha's volumes and planning horizon. We therefore hold that the LTTSA does not contravene Section 4(2)(e) of the Act, and the finding of CCI on this head cannot be sustained. Issue III is answered in the negative. Issue IV - Whether Schott India tied or bundled NGA and NGC tubes, thereby breaching Section 4(2)(d) of the Act. 54. Section 4(2)(d) of the Act is attracted only where a dominant enterprise: * supplies two distinct products, * makes the supply of the tying product conditional upon acceptance of the tied product, and * thereby forecloses competitors in the tied-product market. The aforementioned conditions have been echoed in the landmark case of Microsoft Corp. v. Commission of the European Communities (General Court of the European Union, Case T-201/04, judgment dated 17 September 2007) in the following paragraph: "15. In order to determine whether the conduct of the dominant undertaking constitutes abusive tying, the Commission is entitled to base its finding on the following factors: first, the tying and tied products are two separate products; second, the undertaking concerned is dominant in the market for the tying p....
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....kens the evidentiary value of their allegations. (ii). The circular dated 20.05.2009 predates the commencement of Sections 3 and 4 of the Act by nearly a decade and therefore cannot ground liability for the period covered by these proceedings. (iii). No converter produced a purchase order, invoice or contract clause making the supply of NGA contingent upon an order for NGC. The only linkage is that, for the purpose of computing volume rebates, annual tonnages of both grades are aggregated; any converter remains free to purchase a single grade at the published list price. Recognised commentary treats such aggregation as a multi-product volume discount, not tying. (iv). The minority opinion of the Economic Member assembled converter sales data for FY 2007-08 to FY 2011-12 and found that every converter increased output while imports, especially of NGC, rose steadily. None of rival tube makers exited the business. The indispensable element of foreclosure is therefore absent. 57. Objective justification, even if coercion was made out, is evident. NGA and NGC draw from a common furnace operating at 1600°C. Sharp month-to-month swings in the ratio jeopar....
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....000), which is the blueprint for the Act, framed the "key questions for adjudication on abuse of dominance" in terms that are unmistakably effects- orientated: "How will the practice harm competition? Will it deter entry? Do consumers benefit from lower prices and greater availability?". Parliament adopted that approach and nowhere does the enacted text suggest an irrebuttable presumption. This Court has also rejected rigid deeming rules even where the statute expressly presumes harm. In Rajasthan Cylinders v. Union of India (2020) 16 SCC 615, this Court held that the "presumption" of AAEC in Section 3(3) of the Act is rebuttable. A fortiori, a presumption that is not even expressed in Section 4 of the Act cannot be treated as conclusive. The relevant para from this judgement has been reproduced hereunder: "75. We may also state at this stage that Section 19(3) of the Act mentions the factors which are to be examined by CCI while determining whether an agreement has an appreciable adverse effect on competition under Section 3. However, this inquiry would be needed in those cases which are not covered by clauses (a) to (d) of sub-section (3) of Section 3. Reason is simpl....
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.... merely classifying conduct under a descriptive label is insufficient; net competitive harm must be shown before liability can attach. 63. The CCI's own decisions acknowledge as much. In Indian National Shipowners' Association v. ONGC (2019) SCC OnLine CCI 26, the CCI undertook a "fairness or reasonableness test" and exonerated the respondent upon finding objective necessity. Similarly, in Excel Crop Care (supra), it was held that an administrative body cannot, consistently with Article 14 of the Constitution, apply an effects test in some cases yet disclaim the power in others; such selective deployment is the antithesis of equal treatment. The relevant paras of this judgement have been reproduced hereunder: "110. Moreover, in Hindustan Steel Ltd. v. State of Orissa [Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627: AIR 1970 SC 253], this Court made the following observations: (SCC p. 630, para 8) "8. ... An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi- criminal proceeding and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of ....
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....ibed into any penalty imposed under Section 27 of the Act. Otherwise excessively high fines may over-deter, by discouraging potential investors, which is not the intention of the Act. Therefore, the fine under Section 27(b) of the Act should be determined on the basis of the relevant turnover. In light of the above discussion a two-step calculation has to be followed while imposing the penalty under Section 27 of the Act." 64. Turning to the present record, the majority ruling of the CCI professed to have analysed effects yet adduced no economic evidence of price increases, output restriction or foreclosure. By contrast, the CCI's minority Member, after compiling converter sales, EBITDA and price data for FY 2007-08 to FY 2011-12, found (i) that all independent converters expanded output and margins, and (ii) that pharmaceutical buyers paid identical or higher prices for containers from the joint-venture than from other converters. The data thus falsify any allegation of competitive harm. 65. The learned Counsel for CCI urged that Section 4(2) of the Act is a "deeming provision", ipso facto condemning the listed practices. The submission cannot stand. The very case on which C....
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....nts and "surfing the worldwide web", no independent verification was attempted. International suppliers were contacted by e-mail and only two responded. No converter, friendly or even neutral, to Schott India was interviewed. The Report thereafter cites those statements as its primary proof more than twenty times. For example, "the above stated fact becomes evident from the statements"; "reading/analysis of the above quoted statements"; "findings: from the statements of the parties mentioned above". The CCI adopted the same material without independent scrutiny. In short, uncorroborated testimony is the foundation of every adverse inference by the DG and CCI against Schott India. 70. In its written objections dated 16 May 2011, Schott India squarely put the CCI on notice that the depositions emanated from "converters openly conflicted and inimically disposed" and requested the right to cross-examine each deponent. At the oral hearing the request was reiterated. The CCI refused, reasoning that no "separate application" had been filed. No attempt was made to weigh necessity or prejudice and it is clear that the request was rejected on form rather than substance. 71. That refusa....
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....rty can reasonably request for cross examination of individuals whose testimony can adversely affect it and that it has to consider the applications made in such cases, by exercise of discretion. 62. Cadila's argument that its request was turned down without adequate reasons, in this court's opinion is justified. Regulation 41(5) of the 2009 regulations provides as follows: "(5) If the Commission or the Director General, as the case may be, directs evidence by a party to be led by way of oral submission, the Commission or the Director General, as the case may be, if considered necessary or expedient, grant an opportunity to the other party or parties, as the case may be, to cross examine the person giving the evidence." 63. This court is of the opinion that the discretion, which is undoubtedly vested with the CCI to permit or refuse cross examination of a witness, is to be exercised judiciously. The reason for denial of the request for cross examination is that the justification given by Cadila is not "satisfactory" and that the testimony of witnesses who have deposed and whose cross examination is sought, are not relied upon in the DG's repor....
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....te party an opportunity to cross-examine. The amendment reflects a legislative judgment that the right is indispensable and it underscores that the right existed in substance all along and was ignored here. 75. We therefore record, in emphatic terms, that the proceedings before the DG and the CCI were procedurally defective in a manner that, by itself, could have warranted dismissal of the complaint at the threshold. The fact that the COMPAT and this Court have, for completeness, entered into an effects-based merits analysis does not water down that conclusion; it merely furnishes an independent foundation for the same result, ensuring finality should a higher forum take a different view on procedure. If the CCI had allowed cross-examination, two courses were open: either the allegations would have crumbled under questioning, or a tested evidentiary record would have emerged on which a reasoned decision, whichever way, could rest. By electing to proceed on untested assertions, the CCI deprived itself of the material needed for a legally sustainable finding and placed the respondent under an evidentiary handicap contrary to natural justice. Issue VI is answered in the affirmative....