Saturday, April 20, 2013

Buyback - A closed door?

Share buyback has been one of the most favored routes of the MNC’s for repatriating profits from their Indian arm. With government of India proposing to tax buyback of unlisted equity shares as dividend in the finance bill 2013, literally one could imagine all the MNC rushing to run past the door that is closing on them.

A per the double tax avoidance treaty that India has with Mauritius and Singapore, capital gains arising on sale of shares in India are taxable in Mauritius and Singapore. Given that there are no capital gains tax in Mauritius and Singapore, MNC’s use Mauritius and Singapore as intermediate jurisdiction to invest in India to make a tax free exit from India in the future. This mode of tax neutral profit repatriation in the past drew lot of government attention and which has now made the policy makers to shut the doors by taxing buyback of unlisted equity shares as dividends.

The Authority for Advance Ruling in India in the case of OTIS Elevator dubbed the buyback as a colorable device disguised to repatriate dividends tax free as the company had not declared any dividend in the past.  Therefore, to plug in the revenue leakage the government has introduced section 115QA which reads as follows.

(1)   Notwithstanding anything contained in any other provision of this Act, in addition to the income-tax chargeable in respect of the total income of a domestic company for any assessment year, any amount of distributed income by the company on buy-back of shares (not being shares listed on a recognised stock exchange) from a shareholder shall be charged to tax and such company shall be liable to pay additional income-tax at the rate of twenty per cent on the distributed income.

Explanation.—For the purposes of this section,—

(i) “buy-back” means purchase by a company of its own shares in accordance with the provisions of section 77A of the Companies Act, 1956;

(ii) “distributed income” means the consideration paid by the company on buy-back of shares as reduced by the amount which was received by the company for issue of such shares.

As we proceed to dissect the section, we would understand that the section starts with an Non Obstinate clause and thus overrides other provision of the Indian Income-tax Act, 1961 (‘the Act’) especially section 46A of the Act which deals with capital gains on buyback of shares.  The section also provides the computation mechanism for arriving at the amount taxable as distributable income, which is the consideration paid by the company on buyback reduced by the amount received by the company on issue of shares brought back.  On examining of the term distributed income defined in the explanation, one would find contrasting that the term “amount” is used when defining what was received by the company on issue of shares and the term ‘consideration’ is  used when defining what is paid by the company on buyback of shares. As we all would understand that the term ‘consideration’ is much wider than the term ‘amount’, indicating that consideration can be in kind or in monetary form while the ‘amount’ has to be in the monetary form.  When the above interpretation is put to use say for example in a case where a resulting company in a demerger buybacks the share issued to the shareholders of the demerged company on demerger, the computation mechanism would fail as no ‘amount’ would have been received by the resulting on issuing of shares to the shareholders of the demerged company. Following the above pattern one would also find that the computation mechanism would also fail in the case of bonus shares issued or shares issued on amalgamation being brought back. Further, it would also need to be seen that when the buyback is undertaken below the issue price of the shares whether the resulting loss is a capital loss in the hands of the shareholders.

As we delve further, we would understand that the section is applicable to buyback made in accordance with section 77A of the Companies Act, which deals with buyback of equity shares.  Therefore, buyback of preference shares would still be chargeable to tax as capital gains, as buyback of preference shares are covered by section 80A of the Companies Act, 1956.

A parallel provision, section 10(34A) has been inserted to exempt the gains on buyback of shares in the hands of the shareholders. Section 115QR places the onus on the company buying back the shares to discharge the taxes at the rate of 20 percent plus surcharge and education cess on the distributed income.

Following are few pointers which the Indian subsidiaries of the MNC’s need to consider when undertaking buyback

  • Arm’s length nature of the buyback price from Indian transfer pricing perspective ( the recent ruling of the AAR in the case of Castleton has held transfer pricing to be applicable even though income is not chargeable to tax in India).
  • Discounted cash flow valuation from Indian foreign exchange regulation perspective.
  • Transfer of shares at ‘Fair market value’ from section 56(2)(viia) of the Act perspective ( views exist that section 56(2)(viia) of the Act is not applicable to buyback)
  • Substantiating the commercial substance behind the buyback of share and that it is not trigger reaction to proposed amendment.
  • A Nil withholding tax order from the tax authority or an advance ruling would be a safest bet given the appetite of the Indian tax authorities to question the commercial substance.
The provision is proposed to take effect from 1 June 2013.  With the presidential assent to the finance bill still pending it would not be surprising if Indian subsidiaries of the MNCs are rushing to undertake buyback before the door closes on them.  It would also be fairly interesting to see the corporate India come up with innovative methods to circumvent the proposed buyback provision to avail the capital gains related treaty benefits.

Tuesday, March 8, 2011

Highlights in Cenvat Credit Rules

Earlier pre-budget articles in this column had addressed the various expectations with respect to CENVAT credit on capital goods, disparity in various provisions of the Central Excise Act and in service tax law. Compared to these expectations, Budget 2011 has made some very radical changes to various provisions of the CENVAT Credit Rules 2004 (Credit Rules). These amendments have been made effective either from March 1 or from April 1, 2011. These far reaching changes have ostensibly been carried out with the objective of augmenting revenues and to also simplify complicated legal provisions. This article examines in details the changes made by Budget 2011 to the CENVAT Rules and highlights some of the concerns which may arise, as a result.

To start with, Budget 2011 proposes to restrict the definition of "inputs", on which CENVAT credit can be availed, by removing the expression "goods used in or in relation to the manufacture of final products whether directly or indirectly and whether contained in the final product or not" therefrom. The scope of the definition has been further restricted by excluding the following therefrom

  • goods used for the construction of a building or laying of structure for support of capital goods, except when used for certain construction related services;
  • capital goods except when used as components in the manufacture of final products; 
  • motor vehicles; 
  • goods used primarily for personal use or consumption of an employee; and 
  • goods which do not have any relationship with the manufacture of a final product.

The last category will prove problematic since inputs are now defined to include all those used in the factory of manufacture of excisable products. As can be seen, the contrast between the two expressions is a stark one and needs to be resolved in a manner that the definition is operable. At the same time however, the scope has been widened by including accessories cleared alongwith the final products, goods used for providing free warranty and goods used for generation of electricity or steam for captive use, within the definition.

With respect to "input services", the scope has been narrowed by removing the expression "activities related to business" from the inclusive part of the definition. This expression had enabled assesses to claim credits on most input services which were in the nature of business expenses. Thus, assessees would now be required to demonstrate that input services qualify for offsets within the restricted scope of the new definition. The scope has been further narrowed by excluding services in relation to setting up of factory or premises therefrom. Yet again, services such as outdoor catering, heath services, health and fitness centre, and life insurance services, used primarily for personal use or consumption of employees have been specifically excluded from the definition of input services.

With a view of rationalising the definitions of input goods and services, the two definitions have been aligned such that services related to goods that do not constitute "input" do not also qualify for the offset. There fundamental changes to the core definitions of "input" and "input services" are actually very worrisome as they militate against the understanding that the forthcoming GST law will be broadly worded and hence amenable to a liberal and inclusive interpretation in relation to these definitions.

Further, the definition of capital goods has been amended to allow credit for goods used outside the factory of manufacture for generation of electricity for captive use. Other amendments to definitions are with regard to exempted goods, to include therein goods which attract the lower excise duty of 1 per cent which has been extended to a whole host of products, as also exempted services, which has been widened to include taxable services which are eligible for abatement with the condition that no credit on input service is availed. Very importantly, an explanation has also been inserted thereto clarify that "exempted services" include trading activities. This explanation thus affirms the position that credits cannot be availed on input services pertaining to trading operations. The interesting point is that the amendment seeks only to treat the trading margin as the consideration towards the exempted service and not the whole of the turnover relating thereto.

Further, Budget 2011 has proposed radical changes to the provisions relating to the manner in which input tax credits are to be allocated and apportioned if they relate to goods and services that are used to provide both taxable and exempt goods or services. Rule 6(5), which provided an exclusion from these provisions to 17 identical services, has been deleted. Thus, these services will now be treated as any other and hence be subject to the revised provisions. The provisions require separate books of accounts to be maintained for the receipt, consumption and inventory of inputs and the receipt and use of input services towards taxable and exempt supplies. In case separate accounts cannot be maintained, the following options are available:- 

  • payment of an amount of 5 per cent, as against the earlier rate of 6 per cent, on the value of exempted goods and exempted services.
  • payment of a provisional amo-unt to be determined appropriately, followed by payment of a finally determined amount of cre-dit attributable to input and input services used in relation to exempted goods and exempted services. 
  • to maintain separate accounts only for inputs used in dutiable final products and taxable output services and payment of an amount to be appropriately determined, only in respect of input services.

Banking and life insurance companies will not however be able to avail the above mentioned options. These entities shall pay a blanket amount equal to 50% and 20% respectively of all credits availed on input and input services and will only be eligible to avail of input tax credits on the balance.

As regards service providers rendering services to SEZ units/developers, in specified circumstances they will neither be required to charge service tax on such services nor will they be required to reverse proportionate input tax credits. The Credit Rules have also been amended to require reversal of the CENVAT credit on inputs or capital goods, even where their value is partially written off in the books before their being put to use.

In his budget speech, the Finance Minister stated that the amendments were intended to "achieve a more realistic balance between input credits and output tax and to harmonise the provisions of the scheme across goods and services". These objectives appear to have been met but with the result that taxpayers will now be able to offset significantly lesser input tax credits than before! Indeed, the proposals undo numerous Tribunal and Court rulings that had extended the benefit of tax credits to several inputs/input services which now stand excluded. Not a very encouraging augury of the things to come in the GST!

Posted by : S Rahul

Source : Business Standard 

Monday, February 28, 2011

Budget 2011 - Service Tax

A text of the Amendments in Service tax is reproduced Below

184. The actual collections of Service Tax do not reflect the full potential of this sector. While retaining the standard rate of service tax at 10 per cent, I seek to achieve a closer fit between the present service tax regime and its GST successor by:

- Bringing in a few new services into the tax net to expand the tax base while ensuring that the impact is predominantly on sections of society that have the ability to pay;

- Suitably expanding or rationalizing the scope of existing service categories;

- Rationalizing certain provisions relating to import of services and valuation;

- Modifying provisions of the Cenvat Credit scheme to achieve a more realistic balance between input credits and output tax and harmonising the provisions of the scheme across goods and services;

- Rationalizing penal provisions to reinforce the message that honest taxpayers would be facilitated and deviants would be dealt with severely; and

- Adoption of Point of Taxation rules for services which would shift the basis for tax collection from "cash" towards "accrual" basis as with Central Excise duty.

185. I propose to levy service tax on the following new services:

- Hotel accommodation, in excess of declared tariff of Rs 1,000 per day with an abatement of 50 per cent so that the effective burden is only 5 per cent of the amount charged;

- Service provided by air-conditioned restaurants that have license to serve liquor, by giving an abatement of 70 per cent. Thus, the effective burden will be 3 per cent of the bill.

186. I imposed service tax in 2010-11 on health check up or treatment. This levy has resulted in differential treatment between persons who make payments themselves and others where payments are made by an insurance company or a business entity. Thus, I propose to replace it with a tax on all services provided by hospitals with 25 or more beds that have the facility of central air-conditioning. Though the tax is on high- end treatment, I propose to sweeten the pill by an abatement of 50 per cent so that the actual burden is kept at 5 per cent of the value of service. I also propose to extend the levy to diagnostic tests of all kinds with the same rate of abatement. However, all Government hospitals shall be outside this levy.

187. I propose to raise the service tax on air travel by Rs 50 in the case of domestic air travel and Rs 250 on international journeys by economy class. I also propose to tax travel by higher classes on domestic sector at the standard rate of 10 per cent to bring it on par with journeys by higher classes on international air travel.

188. Services provided by life insurance companies in the area of investment are also proposed to be brought into tax net on the same lines as ULIPs. I propose to expand the scope of legal services to include services provided by business entities to individuals as well as representational and arbitration services by individuals to business entities. There shall, however, be no tax on services provided by individuals to other individuals.

189. There are certain other changes mainly by way of rationalisation or expansion in the scope of certain services or by plugging existing loopholes. I do not wish to take the valuable time of the House in further elaboration here.

190. The strength of a good value-added-tax lies in the free flow of the credit of the tax paid at the previous stage. Due to complexities, there have been many legal disputes on the availability of credit on a number of inputs or input services. These provisions are being rationalized by laying down clear definitions so that the scope of inputs and input services that are eligible and those that are not, is clear. Allocation of CENVAT credit to exempt and taxable goods and services is also being streamlined.

191. The number of assessees in service tax has grown manifold. I find that a large number of them comprise individuals or sole proprietors with small turnovers. Any audit at their premises tends to dislocate their activities for the duration of the audit. I therefore, propose to free all individual and sole proprietor taxpayers with a turnover upto Rs 60 lakh from the formalities of audit. This will give relief to a large number of taxpayers. I also intend to give all assessees with turnover upto Rs 60 lakh, the benefit of 3 percentage points in interest on delayed payment.

192. In keeping with our thrust to encourage voluntary compliance, the penal provisions for Service Tax are being rationalised. A key component of this strategy would be to treat less harshly those who have maintained truthful records but have fallen short of discharging their tax liability. Simultaneously, deliberate evaders with unrecorded business transactions will be dealt with more severely. Similar changes are being carried out in Central Excise and Customs laws. The details of the provisions are in the Finance Bill.

193. My proposals relating to service tax are estimated to result in net revenue gain of Rs 4,000 crore for the year.

194. Many experts have argued that it will be desirable to tax services based on a small negative list, so that many untapped sectors are brought into the tax net. Such an approach will be very conducive for a nationwide GST. I propose to initiate an informed public debate on the subject to help us finalise the approach to GST.

195. Copies of notifications giving effect to the changes in Customs, Central Excise and Service Tax will be laid on the Table of the House in due course.

196. My proposals on direct taxes are estimated to result in a revenue loss of Rs 11,500 crore for the year. Proposals relating to indirect taxes are estimated to result in a net revenue gain of Rs 11,300 crore, leaving a net loss of Rs 200 crore in the Budget.

197. As an emerging economy, with a voice on the global stage, India stands at the threshold of a decade which presents immense possibilities. We must not let the recent strains and tensions hold us back from converting these possibilities into realities. With oneness of heart, let us all build an India, which in not too distant a future, will enter the comity of developed nations.

Madam Speaker, with these words, I commend the Budget to the House

Posted By: S Rahul 

Key Points - Budget 2011



Focus on - Moderate taxes and easier collections

DTC - Government committed to DTC introduction from 1 April 2012 – Inputs from Parliamentary Standing Committee to be incorporated soon in the bill

Tax free bonds of Rs 30,000 crores for infrastructure sector

Focus on E-Governance through Online tax returns, online payment of taxes, tax refunds, TDS  returns

Separate online gateways for tax return filing and status of return and refunds



Salary tax returns not required when TDS is made in certain case

Increase in individual tax slabs to Rs 180,000 – benefit of Rs 2000 per tax payer

Reduce qualifying age to 60 years for senior citizens exemption and value increase to Rs 250,000 

 Rs 500,000 basic exemption for citizens of above 80 years of age





Corporate surcharge reduced to 5% (reduction by 2.5%)

MAT increased to 18.5% (increase by 0.5%)

MAT introduced on SEZ developers

Foreign dividend – resident investor – FY 2010-11 – 15% special tax rate on dividend income of foreign subsidiaries

 Transactions with "specified jurisdictions" to be restricted


Net effect of direct tax proposals - Estimated Tax Revenue loss – Rs 11,000 crores – for FY 2010-11



Posted By : S Rahul 

Wednesday, February 23, 2011

Why people dont like Term Insurance and why they are wrong

Why people don't like Term Insurance is the question , The answer is simple, because you don't get anything if you survive the whole tenure and hence the amount paid as premium is wasted , this is claimed by millions . Fair enough . The first thing is , these people do not understand or appreciate the Importance of Life Insurance . Now lets see this situation from a different angle . Assume you get the money at the end in your Term Insurance . Lets see a case study of a general Family . How does a family look like .

Manish is 28 yrs old and got recently married (oops!!) . He earn close to 40,000 per month . His monthly expenses is around Rs 25,000 overall and he saves 15,000 per month (heh) . He also have his parents dependent on him financially . He is 30 yrs away from his retirement . He calculated his Insurance Requirement and it was close to 50-60 lacs minimum . Lets take it as 50 lacs for simplicity for now .  

Analysis of Case Study

Now is the fun part , his current monthly Expenses are close to 25k, How what will it be his monthly Expenses when he retires after 30 yrs ? So the average inflation for last 30 yrs was 6.5% (based on past data) , lets assume it will be 6.5% for next 30 yrs on an average . Then the monthly expenses after 30 yrs would be 25,000 X (1.065)^30 = 1,65,359 (1.65 lacs) . If he takes a Term Insurance at the start , his yearly premium per year for 50 lacs cover would be Rs 11802 for 30 yrs tenure from Aegon Religare .

Which means , he is going to pay total premium of 3.54 lacs in his entire life . How even if he gets this money back at the end , How much will it benefit him ? How many months can he survive on this money ? 2 months is the answer !! , With expenses of 1.65 lacs per month , the money he gets back from term insurance is enough for not more than 2 months , Lets take maximum 3 months . That's it !!! .

 So Following are the questions needed to be asked

•                Do you want to put your Family at Financial Risk because you are not getting 2 months worth of expenses back ?
•                For a small amount you "don't get" at the end , are you not being childish to Secure your family.
•                Don't you think you are seeing Term Insurance from a wrong attitude ?
•                Are you not concentrating on "what you are not getting" rather than "what you are getting" .

We already have "Return of Premium Term Policies", but they are themselves idiotic because they are again designed to just exploit the weakness of people who feel that term insurance is waste of money because they dont get their money back .

Reason why Indians dont like Term Insurance

Reason 1# : Most of the people concentrate on number and explicit data , like the money they are not getting back or its a waste of premium if nothing happens to them . They fail to look internal advantage which term Insurance provides

Reason 2# : We are emotional with Money , we are more concentrated with Growing money and getting money back rather than what value it provides in our life .

Reason 3# : Most of the people think that the probability of dying is much lower than an average person which is again totally idiotic . We just don't want to visualise a bad situation and hence do not concentrate on that situation .


In life we don't appreciate things like Health , small moments of happiness , nature , time spend with our loved ones which are most wonderful and real things in life. Term Insurance is one of the similar things in personal finance domain . You just need to shift your focus of view from "what you are losing" to "what you are getting" , once you do this with Term Insurance and your Life , Both with become wonderful .

Posted By : Pravesh P Jain & S Rahul Jain 

Monday, February 7, 2011

Renting of Immovable property

Delhi High Court in Home Solutions Retail India Ltd (latest decision post Shubh Steels):

It was argued that Section 65(105)(zzzz) of the Act cannot really cover mere renting of immovable property in the net of service tax. It is averred that in the earlier definition of the said provision words used in relation of renting of immovable property were 'for use in the course or furtherance of business or commerce' and the present provision has only made a different kind of contour but by such an amendment, it cannot be held that mere renting of immovable property without any kind of rider would tantamount to service and thereby would be covered in the ambit and sweep of service tax.


Relying upon the observations made by the High Court, it was submitted by the advocate that in the said decision it has been clearly held by the Division Bench that the renting of the immovable property for use in course or furtherance of business or commerce by itself does not entail any value addition and, therefore, cannot be regarded as service. The advocate submits that when such a conclusion has been arrived at while interpreting the concept of service tax in respect of letting simplicitor, by amending the Act with regard to renting of immovable property by Finance Act, 2010 the situation cannot improve.


With the following observations, the High Court has ordered to continue the stay and the court to wait for disposal of SLP against Home Solutions case by Supreme Court. In the course of hearing, counsel for the parties fairly stated that they would bring it to the notice of their Lordships of the Apex Court and shall seek expeditious disposal of the SLP filed against the judgment rendered in Home Solution. In view of the submissions raised at the bar, the High Court adjourned these matters to be called on 25th January, 2011 for direction.



Impact and issues:

Whether government has legislative competence to levy service tax on rental income?

The matter is presently before the Supreme Court to decide on the legislative competency of the Central Government to levy service tax on rental income. 


Who are the assessees likely to be affected?

The assessees who are likely to be affected are those who provide/let out commercial buildings on rent and would also impact manufacturers or service providers taking the premises on rent as the recipients would be obligated to pay service tax in addition to the rents.


Whether the amendment can have retrospective effect?

There is no doubt that Parliament has plenary powers to amend any law with retrospective effect. There is no restriction on Legislature passing law with retrospective effect. However this would be decided judicially in due course probably in favour of the tax payer.


Whether the benefit of service tax paid under rental of immovable property service is available as cenvat credit?

Yes, the benefit of cenvat credit of service tax paid on rental charges is available for set off under rule 3 of Cenvat Credit Rules 2004 provided the same is an eligible input service used for manufacture/ clearance of goods or used for providing a taxable service.


Whether the manufacturer (service receiver) is legally bound to pay service tax in addition to the rental charges to the land lord?

The liability to pay service tax is on the service provider, but since service tax is an indirect tax, the same can be collected from the service receiver. It is also expected to be collected from the customers/ consumer of the service. Supreme Court in the case of All India Federation of Tax Practitioners Vs UOI 2007 (7) STR 625 has observed that service tax is destination based consumption tax and service tax is not a charge on business but on consumer. Therefore the recipient of service is bound to pay service tax to the receiver of service.


The Latest news:

The High Court was not impressed and granted stay to the petitioners in respect of renting of immovable property. Revenue naturally took the matter to the Supreme Court and the Supreme Court has stayed the operation of the Delhi High Court judgment, till the next date. The next hearing is on 20.01.2011 and there would be many more……. Hopefully the confusion would get resolved in this year!!

Posted By: S Rahul 

Source: CAClubindia 

Monday, January 24, 2011

All About SIP's

How must I start investing via a SIP? Do I need a demat account? The maximum I can invest is Rs 2,000. Please suggest an equity fund.

An SIP is the most convenient and efficient way to invest in a mutual fund. SIP is an acronym for Systematic Investment Plan. That means you invest fixed amounts at pre-determined periods in your mutual fund. Depending on the net asset value (NAV) on the date of your purchase, you will get units assigned to you. The three types available are: Quarterly SIP (invest in units once in 3 months), monthly SIP (every month) and daily SIP (every day).

You can approach your distributor or the fund house directly. In the application form you will have to fill in your bank account details, the duration of the SIP, the SIP amount and the date and frequency at which you want the SIP to be directly debited from your account into the mutual fund. It will then be automatically done.

You do not need a demat account unless you buy the fund from the stock exchange via a broker. Equity funds fall under various categories, depending on the type of stocks that fill their portfolios. Since we are not aware of your investment preference, we will stick to large-cap funds. These are funds that have the bulk of their portfolio in large-cap stocks. You can invest in either one of the funds or pick up two (Rs 1,000 in each).
Source: Value Research Online
Posted By: S Rahul Jain

Thursday, December 30, 2010

China cuts rare earth export quotas

China cuts rare earth export quotas

China cut its first batch of rare earth export quotas for next year by more than one-tenth, in the face of a threat by the United States to complain to the World Trade Organization over the export limits.

China's Commerce Ministry allotted 14,446 metric tons of quotas to 31 companies, which was 11.4 percent less than the 16,304 metric tons it allocated to 22 companies in the first batch of 2010 quotas a year ago.

The ministry said in a short statement that it had added more producer companies to the quota list, but has cut volumes allocated to trading companies for the metals, which are used in high-tech goods.

The export quotas were based on export volumes from the beginning of 2008 to October 2010, it added, without giving details.

China produces about 97 percent of rare earth elements, which are used worldwide in high tech, clean energy and other products that exploit their special properties for magnetism, luminescence, and strength.

The decision to cut export quotas and raise tariffs has inflamed trade ties with the United States, European Union, and Japan in particular.

Last week, the U.S. Trade Representative office said China had refused U.S. requests to end export restraints on rare earths that have alarmed trade partners. The U.S. representative and that Washington could complain to the WTO, which judges international trade disputes.

China's Commerce Ministry has yet to respond to that threat.

Foreign Ministry spokeswoman Jiang Yu declined to comment today when asked about it at a regular news briefing, referring the question to "relevant departments." She did not elaborate.

The issue will add to already strained Sino-U.S. ties, which have been battered this year by arguments over everything from Tibet and Taiwan to the value of the Chinese currency. Chinese President Hu Jintao visits the United States next month.

Japan has been hard hit by the export curbs. Japanese imports of rare earths shrank further in November, reflecting the impact from China's de facto ban on shipments of the minerals which was lifted late last month.

Japanese companies had complained of restrictions on shipments of the metals, vital for making auto parts and high-tech products, by Chinese customs officials following a spat over disputed islands in the East China Sea which led to a de facto suspension by Beijing on exports from late September.

China is still exporting small volumes of rare earth to Japan. Analysts have suggested the de facto ban was probably because of differences in the way rare earths are categorized by each country, as well as a dribble of imports that had previously been delayed.

The European Union has also expressed concern at China's limiting of rare earths' exports, though the bloc's trade commissioner said earlier this month China had reiterated that rare earth supplies would be sustained.

China says its curbs are for environmental reasons and to guarantee supplies to domestic industrial consumers, but it has also insisted its dominance as a producer should give it more control over global prices.

Beijing has been trying hard to impose discipline on its chaotic rare earth sector and is expected to establish a rare earth industry association by May next year, said Wang Caifeng, an official with the Ministry of Industry and Information Technology, speaking at a conference today.

Courtesy: Cnet