Goods & Service Tax
1. Government continues ‘Rebate of State and Central Taxes and Levies scheme’ on Apparel/ Garments and made-ups
The Central Government, Ministry of Textiles vide Notification bearing File no. 12015/11/2020-TTP dated August 13, 2021 has further continued Rebate of State and Central Taxes and Levies scheme (“RoSCTL scheme”) on Export of Apparel/ Garments and made-ups in exclusion of RoDTEP.
This notification shall remain in force till March 31, 2024 for apparel/ garments (Chapter 61 and 62) and Madeups (Chapter 63) with the rates as notified vide Notification no. 14/26/2016-IT dated March 08, 2016. Rebate under RoSCTL scheme shall be in the form of transferable Duty Credit Scrip which can be used for making
payment of Basic Customs Duty.
2. Trial period of Chip Imports Monitoring System further extended till September 30, 2021
The DGFT vide Notification No. 15/2015-2020 dated August 09, 2021 has amended para 3 of Notification No. 05/2015-2020 dated May 10, 2021 so as to extend trial period of Chip Imports Monitoring System (“CHIMS”) by further two months i.e. upto September 30, 2021 and the registration at CHIMS portal will be effective from October 01, 2021. Earlier, the CHIMS trial was to end on July 31, 2021.
Note: This CHIMS facility is for HS Codes 85423100, 85423900, 85423200, 85429000, and 85423300, of Chapter 85 of ITC (HS), 2017, Schedule - I (Import Policy).
3. Extended period of modification of IEC till August 31, 2021 and waived fee for the same
The DGFT vide Notification No. 16/2015-2020 dated August 09, 2021 has further amended para 2.05(d) of Chapter-2 of Foreign Trade Policy, 2015-2020 to extend the period of updating/ confirming the details in Import Export Code (“IEC”).
An IEC holder has to ensure that details in its IEC is updated electronically every year, during April-June period. However, for the current year only, this period is extended by another month i.e. till August 31, 2021. Earlier, this was extended to July 31, 2021.
Further, fee charged for modification of IEC during the month of August, 2021 shall be NIL.
Customs
1 Notified Scheme Guidelines and rates for the new Scheme for RoDTEP
The Ministry of Commerce and Industry vide Notification No. 19/2015-2020 dated August 17, 2021 has amended Foreign Trade Policy 2015-20 (“FTP”) for introducing a Scheme for Remission of Duties and Taxes on Exported Products (“RoDTEP”) in the following manner:
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a. Scheme objective and operating principles for ReDTEP include:
b. Objective being to refund Duties/taxes/Levies at the central state and local Level on exported product and indirect duties/taxes/levies on distribution of exported product which were not subjected to refund before.
c. Rebate not to be available on taxes/duties already exempted or remitted or credited
d. Ceiling rates determination by Committee in Department of Revenue
e. Budget to be finalised by Ministry of Finance
f. Grant of Rebate to be provided to eligible exporters on export of items categorised under notified HSN codes along with the mechanism of Issuance of such rebate, recovery of rebate where foreign exchange not realised etc. to be notified by the Central Board of Indirect Taxes and Customs (“CBIC”).
g. Categories of exports like exports through trans shipment, deemed exports, goods taken into use after manufactured etc. are ineligible for rebate under ReDTEP subject to Governments modification in the list at the later date.
h. Monitoring and audit mechanism with an IT-based Risk Management System (“RMS”) would be put in place by the CBIC for physical verification of the records of exporters on a sample basis.
i. Residual Issues to be considered by Inter-Ministerial Committee, RODTEP Policy Committee (“RPC”) to be chaired by Directorate General of Foreign Trade (“DGFT”).
Company Act
1. The MCA issued notification for new Amendment ACT, 2021 for Insolvency and Bankruptcy Code.
2. Status of directorship of retired director who issued fraudulent cheque have to be tested at trial
In Maj. Surendra Kumar Hooda (retd.) V. Kapil Gupta the Hon’ble Delhi High Court held that, the correctness of the allegations against the Director who has already resigned on the date of presentation of post-dated cheques issued by the Director of the Company for exercising Buy Back Option which were returned unpaid have to be tested at trial.
Income Tax
Recent Judicial Pronouncements
1. Income Tax Refund cannot be adjusted in excess of 20% of Disputed Demand: Delhi HC
In Eko India Financial Services (P) Limited vs Assistant Commissioner of Income Tax in W.P.(C) 5819/2021 dated August 03, 2021 the Hon’ble Delhi High Court directed the Revenue (“the Respondents”) to refund the amount adjusted in excess of 20% of the disputed demand for the Assessment Year (“AY”).
2. Payment made to advertising agency attracts TDS under Section 194C and not under section 194J, even though there is no written contract
In the matter of M/s. Perfect Probuild P. Ltd. v. DCIT, Circle 76(1) [ ITA No. 1034/Del/2018 order dated August 05, 2021] before the Income Tax Appellate Tribunal (“ITAT”), Delhi, it is held that, TDS has to be deducted u/s 194C of IT Act on payment made to advertising agency even if there is no written contract.
FEMA
The petroleum and natural gas sector is among the eight core industries in India and plays a major role in influencing decision making for all the other important sections of the economy. India’s economic growth is closely related to energy demand; therefore, the need for oil and gas is projected to grow more, thereby making the sector quite conducive for investment. India has witnessed a steady increase in production as well as consumption of petroleum products over the years. India is the largest exporter of petroleum products in Asia, the 2nd largest refiner in Asia and the 3rd Largest consumer of crude oil and petroleum products in the world.
The DPIIT (Department for Promotion of Industry and Internal Trade) on 29th July 2021 issued an executive order to allow 100% FDI (Foreign Direct Investment) under the Automatic Route for oil and gas PSUs. It is for those PSUs for which an in-principal approval for strategic disinvestment has been approved by the Government.
PM Modi has announced in 2019 that India will invest $100 bn in the oil and gas infrastructure of the country by 2024.
FDI Routes and Sectoral Caps:
Foreign Direct Investment in India can happen either through the automatic route or the approval route. Automatic Route is the route in which the Foreign investor or the Indian Company does not require any prior approval from the Reserve Bank of India or Government of India to bring in FDI into India.
Approval route is on where prior approval of RBI or Government of India is mandatory. The approval route is available in all sectors and activities specified under the Consolidated FDI Policy.
The Consolidated FDI policy has specified the percentage of FDI for various sectors. This means up to the limit specified, FDI can be brought in without any prior approval under automatic route up to the percentage mentioned, and through approval route for anything beyond that limit.
FDI in Public Sector Undertaking was 49% earlier which has been proposed to be increased to 100% and will take effect from the date of FEMA notification.
The move of the Government is expected to expand the scope for FDI in privatization of Bharath Petroleum Corporation Limited and enable the sale of the Government’s stake to a Foreign Investor.
APPLICABLE ACTIVITIES:
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a. Exploration Activities of oil and natural gas fields,
b. Infrastructure related to marketing of petroleum products and natural gas,
c. Marketing of natural gas and petroleum products,
d. Petroleum product pipelines,
e. Natural gas pipelines,
f. LNG regasification infrastructure,
g. Market study and formulation and petroleum refining in private sector subject to existing sectoral policy,
This change in sectoral cap for PSUs is said to have been mainly brought into an account of many bidders who bid for BPCL had foreign investment.
Companies Act 2013
Financial Statements
Given the audit season this month, in this article we will discuss about the vital document of a company such as Financial Statements that all the companies must prepare every year and present it to their shareholders in their Annual General Meeting. Let us understand in detail the major requirements to prepare a financial statement and the manner in which it must be presented before the Shareholders.
Financial Statements:
What are they:
Financial statements of a Company must include –
i) A Balance sheet as at the end of the Financial Year,
ii) A Profit and Loss account for the financial year,
iii) Cash Flow Statement for the financial year*,
iv) A Statement of changes in equity, if applicable and,
v) Any explanatory note annexed or forming part of any document mentioned above
*A One Person Company (OPC), Small Company and Dormant Company may not include Cash Flow Statement in its financial statement.
As per Section 129(3) where a Company has one or more subsidiaries or associate companies, in addition to the above statements, it shall also provide Consolidated Financial Statements (CFS) of the Company and all of its subsidiaries and associates company.
How it should be prepared:
i) A financial statement must be prepared keeping in mind that the statements give true and fair view of the affairs of the Company,
ii) It must be prepared in compliance with the applicable accounting standards notified under section 133 and,
iii) Schedule III of the Companies Act provides the format in which a financial statement must be prepared.
Who shall sign it?
A financial statement shall be signed by –
a. Chairperson of the Company where he is authorised or by two directors and one of them shall be a Managing director, if any.
b. CEO, CFO and Company Secretary wherever they are appointed.
c. Only one director in case of OPC
Manner of Approval and presentation:
1. The Board of directors shall approve the financial statements prepared by the Company as above in a Board meeting before signing it.
2. Signed Financial Statements shall be sent to the auditor for his report thereon. And the Auditors shall carry out his duties and attach his report to the financial statement.
3. The Board of directors shall also prepare a Boards report which shall include Directors responsibility Statement, explanation or comments by the Board on every qualification, reservation or adverse remark made by the auditor in his report and other disclosures as per Section 134 of the Act. The Boards report shall also be attached to the Financial Statements.
4. The Financial Statements along with Auditors and Boards report shall be laid before the shareholders in the Annual General Meeting for the adoption of the Financial Statements.
Taxation
On 5th August 2021, the Hon'ble Finance Minister Mrs.Nirmala sitaraman introduced The Taxation (Amendment) Bill 2021, passed by both the houses of Parliament, seeks to remove the retrospective applicability of the Indian tax that arises upon transfer of shares of a foreign company/entity which derives substantial value from Indian assets, commonly called as Indirect Transfers.
Indirect Tansfers – Meaning:
Any sale/transfer of shares of a foreign company which has invested in an Indian company, irrespective of the fact that the shareholding of the Indian company remains unchanged.
For Instance :
a. AA, a resident of the USA, holds 100% shares in XYZ Ltd registered in the USA. It has no or very few businesses and is incorporated mainly for investments in operating jurisdictions.
b. XYZ Ltd has a 100% subsidiary (ABC Ltd) in India. ABC Ltd is an established operating company in India with significant turnover and high net worth.
c. XYZ Ltd also holds investment in subsidiaries set up in other jurisdictions but the turnover/net worth of those companies is minimal.
d. Now, say AA sells his shares in XYZ Ltd to another company in the USA, say EE Ltd. In this case while the shareholding of ABC Ltd, the Indian company, remains unchanged.
Background of Retrospective Taxation:
It all started in 2012, when a retrospective amendment was brought into the Income-tax Act, 1961 (Act) to impose tax on gains arising from transfer of shares of a foreign company/entity. This amendment sought to neutralise the judgement of Hon'ble Supreme Court in case of Vodafone International Holdings B.V v. Union of India which held that any gain arising on transfer of shares of foreign company, even if it derives value principally from underlying assets located in India, should not be taxable in India as the charging provision under the Act provide for taxation of assets situated in India.
While the Hon'ble Supreme Court, in the case of Vodafone International Holdings B.V (supra) held that gains accruing to a non-resident from sale of shares of a foreign company cannot be brought to tax in India, the Government by way of a retrospective amendment to the law brought within the ambit of Indian tax, transfer of shares of a foreign company, which derives value substantially from India.
Imposition of capital gains tax on income arising from indirect transfer retrospectively, created a huge tax uncertainty among the foreign investors especially for those investors who had already undertaken such stake sales - the key ones being Vodafone and Cairn where the estimated tax liability amounts to around 30,000 crores Approx. The retrospective amendment received criticism as it had the effect of overruling the Supreme Court verdict, which had, to a great extent, provided certainty to foreign investors.
Following this amendment, Indian tax authorities raised high value tax demands on foreign companies by re-assessing and opening assessments for past tax years. The indirect transfer provisions have not only seen significant litigation in India, but foreign companies have also taken up arbitration proceedings against the Government in International Courts, were India faced a downtrend.
Contents of the Amendment Bill:
The present Bill clarifies that indirect transfer provisions would not have a retrospective application and hence any such transaction undertaken before 28th May 2012 will not come with the ambit of India tax. Effectively, the law has been applied prospectively and from the date of its introduction, thereby impacting transactions undertaken on or after 28th May 2012.
The Bill also makes it clear that where an order, increasing the tax liability of an assessee has been passed because of the erstwhile retrospective amendment, such an order shall be deemed to have never been passed subject to fulfilment of specified conditions such as withdrawal of any appeal, writ, arbitration proceedings and undertaking to the effect that once the relief is obtained, no other remedy under law shall be pressed.
It also provides refund of taxes collected by tax authorities using this retrospective amendment, but without interest payable by tax authorities under section 244A (i.e. 0.5% per month or part of the month).
This effectively means that the most high-profile tax litigation cases in India should be approaching an end. This coupled with the settlement under the Vivad se Vishwas Scheme & other amnesty scheme show the Government's commitment to reduce litigation in India and provide certainty.
Conclusion
This is a big move by the Indian Government and definitely in the right direction.
It will go a long way in restoring investor confidence, bringing in foreign investment and given the economy the required thrust in these COVID times.
TRENDING TOPIC
Ease of Doing Business
Incorporating and starting a business in India has become a whole lot easier. How do we say that? Well, the Ease Of Doing Business (EODB) index ranking says so…
In theory the ease of doing business (EODB) index is an index created jointly by Simeon Djankov, Michael Klein and Carlee McLiesh, three leading economists at the World Bank Group. Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights. The research and data collection are on an empirical basis, which basically means, more weightage is given to real experiences than to hearsay and stereotypes. The research is funded by the World Bank.
We must remember that this report is, above all, a benchmark study of regulation. The survey consists of a questionnaire designed by the Doing Business team (of the World Bank) with the assistance of academic advisers. The questionnaire centers on a simple business case that ensures comparability across economies and over time. The survey also bases assumptions on the legal form of the business, size, location, and nature of its operations. The ease of doing business index is meant to measure regulations directly affecting businesses and does not directly measure more general conditions such as a nation's proximity to large markets, quality of infrastructure, inflation, or crime etc.
Presently an Economy’s ranking on the index is based on an average of the 10 catalysts and its model sub-heads:
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1. Starting a business -- Online process and procedures for incorporation, time and cost, and minimum capital to open a new business.
2. Dealing with construction permits -- To have comprehensive building rules, using risk-based building approvals.
3. Getting electricity -- Streamlining approval processes, creating a transparent process, ensuring the safety of internal wiring by regulating the electrical profession rather than the connection process.
4. Registering property -- Investing in an electronic database, time and cost to register commercial real estate, expedited disputes and resolutions.
5. Getting credit -- Strength of legal rights regulations, depth of credit information available, maintenance of unified credit registry and database.
6. Protecting investors -- Extent of disclosures, the extent of director liability, and ease of shareholder suits, protection of minority shareholders, allowing rescission of prejudicial related-party transactions.
7. Paying taxes -- Number of taxes paid, hours per year spent preparing tax returns, total tax rates, electronic filing and payment of taxes, having a single tax base.
8. Trading across borders -- Number of documents, cost and time necessary to export and import.
9. Enforcing contracts -- Time and cost to enforce contract covenants, judicial verdicts, having specialized courts and special judges for timely resolution processes and electronic filing of data and complaints.
10. Resolving insolvency-- Requiring professional or academic qualifications for insolvency administrators by law, allowing creditors’ committees to have a say in insolvency proceeding decisions, specifying time limits for the majority of insolvency procedures, providing a legal framework for out-of-court workouts, settlements and arbitration.
The report regarding the rankings and main information presented have to be considered with caution by every user of the report. Mainly:
1. Report does not measure all aspects of the business environment that matter to firms or investors, such as the macroeconomic conditions, or the level of employment, corruption, stability, or poverty, in every country.
2. Report does not consider the strengths and weaknesses of neither the global financial system, nor the financial system of the individual economies.
3. Other types of regulation such as financial market, environment, or intellectual property regulations that are relevant for the private sector are not considered.
The EODB report is not intended as a complete assessment of competitiveness or the business environment of a country and should rather be considered as a proxy of the regulatory framework faced by the private sector in a country.
The world bank has also suggested ‘DB Reforms’ which aid the overall business community in compliance with rudimentary laws common to all the countries, smooth operations of business, and also in swift incorporation. Some of them are mentioned below:
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1. Elimination of minimum paid-up Capital: Minimum Capital requirements were first formulated in the United Kingdom back in the 19th Century. It was viewed as a manner of security to the creditors of the enterprise. Now, as more and more budding entrepreneurs have sprung up, it is being viewed as more of a barrier. These requirements in today’s day and age have especially impacted, female-owned businesses, as they tend to have lesser start-up capital.
2. Developing Credit Reporting Systems: Prior to entries into commercial credit reporting services, credit information used to be shared informally, the first recognized/ formal credit information sharing arrangement was in the United States back in the 1940s. Arrangements too have evolved over the years, where first only the negative information used to be shared, whereas nowadays, credit score is assigned, this helps people/enterprises build credit score/ credit worthiness, so that they may even borrow without a collateral. (This is called a reputational collateral).
3. Introducing or strengthening reorganization procedures: In accordance with good international practices, a reorganization procedure enshrines clear rules on its commencement, including an insolvency test; provides a mechanism to manage the debtor’s property; sets minimum requirements for the content and adoption of the reorganization plan; contains an element of debt restructuring; and provides a stay period for enforcement actions. Prior to the introduction of reorganization, corporate over indebtedness was solved primarily by applying mechanisms like in-court liquidation and schemes of arrangement with creditors.
The methodology regarding labor regulations was criticized by International Trade Union Confederation because it favored flexible employment regulations. In the earlier iterations of the report, the easier it was to dismiss a worker for economic reasons in aneconomy, the more its rankings improved. And so, the employment and workers index was later removed from being a criterion. Many countries have expressed displeasure in the fact that, the report has plausibility to be misinterpreted, the narrowness of the indicators and the information base. They also suggested that, the reports be maintained, but also add an independent peer review process to ensure integrity and objectivity.
A study was commissioned by the Norwegian government alleged there to be methodological weaknesses and an uncertainty in the ability of the indicators to capture the underlying business climate, and a general worry that many countries may find it easier to change their ranking in Doing Business than to change the underlying business environment.
India has made incredible amendments to its business factors, laws and regulations, reforms, taxes and compliance, infrastructure, IT infrastructure etc. All these changes have culminated in India raising up the EODB (Ease of Doing Business) ranks to Rank-63 now in 2020, all the way from Rank-142 in 2014.
Our Central/State Governments have taken commendable steps/ efforts in order to reduce burden and to ease out compliance issues. Just to name a few of the departments who have had a big impact in such measures are: Ministry of Finance and Corporate Affairs, headed then by Shri. Arun Jaitley and now Smt. Nirmala Sitharaman, Ministry of Commerce and Industry headed by Shri. Piyush Goyal, Ministry of External Affairs headed by Shri. Subramanyam Jaishankar, and Ministry of Skill development and Entrepreneurship headed by Shri. Dharmendra Pradhan.
In the future entries, we will try to cover in specific about the reforms that were brought in and implemented by India to bring about a drastic change to ease the business community of certain hardships in business compliances, and law compliances.