Latest Blogs from SBS and Company LLP

    Sl.

    Section(s) under the CA,

    Clause No. in the

    Proposed amendment relating to

    Remarks/Comments/Penalty

     

    No.

    2013, amended

    Amendment Bill

     

     

     

     

     

     

     

     

     

     

    45

    Section  152

    46

    Amendment of sub-section (3) and (4) of section 152 of the

    Welcome amendment, allowing to

     

     

    Appointment

    of

     

    Act to provide any other identification number, as may be

    have a prescribed Identification

     

     

    Directors

     

     

    prescribed,  to  be  recognised  as  Director  Identification

    number as DIN, and a separate DIN

     

     

     

     

     

    Number, and a person may hold such identification number in

    need not be obtained.

     

     

     

     

     

    place of DIN.

     

     

     

     

     

     

     

     

     

    46

    Section 153 –

     

    47

    Insertion of a proviso to section 153 of the Act, enabling the

    Welcome amendment, allowing to

     

     

    Application for

     

     

    Central Government to recognise any other identification

    have a prescribed Identification

     

     

    Allotment of DIN

     

    number to be treated as DIN, and any person possessing such

    number as DIN, thereby removing

     

     

     

     

     

    Identification Number need not obtain a DIN under the

    the requirement for applying a

     

     

     

     

     

    section.

    separate DIN.

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    47

    Section 160 –

     

    48

     

    Welcome amendment, exempting

     

     

    Right of Persons Other

     

    Insertion of a proviso to sub-section (1) of Section 160 of the

    the requirement of deposit of

     

     

    than Retiring

    Directors

     

    Act of the Act,exempting the requirement as to deposit of

    money in respect of independent

     

     

    to Stand for Directorship

     

    Rs.1,00,000/-,  in  connection  with  appointment  of

    directors or directors nominated

     

     

     

     

     

    independent directors or directors nominated by nomination

    by nomination and remuneration

     

     

     

     

     

    and remuneration committee.

    committee.

     

     

     

     

     

     

     

     

     

     

     

    Vide exemption notification Dt:05.06.2015, the provisions of

     

     

     

     

     

     

    Section 160 are not applicable to Private Companies.

     

     

     

     

     

     

     

     

     

     

    Sl.

    Section(s) under the CA,

    Clause No. in the

    Proposed amendment relating to

    Remarks/Comments/Penalty

    No.

    2013, amended

     

    Amendment Bill

     

     

     

     

     

     

     

     

     

     

    48

    S e c t i o n

    1 6 1

    -

    49

    Amendment of sub-section (2) of Section 161 of the Act,

    Amendment to remove

     

    A p p o i n t m e n t

    o f

     

    restricting an existing Director in the Company, from being

    ambiguity.

     

    Additional

    Director,

     

    appointed as an Alternate director for other Director.

     

     

    Alternate Director and

     

     

     

     

    Nominee Director

     

     

    Amendment of Sub-section (4) of Section 161 of the Act, to

    Welcome  Amendment,  and

     

     

     

     

     

    delete the word “In case of a Public Company”, thereby

    ease of operations.

     

     

     

     

     

    allowing the Board of all companies to fill casual vacancy and

     

     

     

     

     

     

    obtain approval for the said appointment, in the immediate

     

     

     

     

     

     

    next annual generalmeeting.

     

     

     

     

     

     

     

     

    49

    S e c t i o n

    1 6 4

    50

    Insertion of a proviso to sub-section (2) of section 164 of the

    W e l c o m e  a m e n d m e n t

     

    Disqualifications

    for

     

    Act  to  provide  for  non-applicability  of  disqualification

    providing relief to the directors

     

    appointment of Director

     

    provisions, for period of 6 months from the date of

    who get appointed as Director

     

     

     

     

     

    appointment, to a director, who is appointed, as a director in a

    in  Company under defaulting

     

     

     

     

     

    company, which is in default of non-filing of financial

    status.

     

     

     

     

     

    statements or annual return or failure to repay the deposit.

     

     

     

     

     

     

    Substitution of a new proviso in place of the existing proviso

     

     

     

     

     

     

    to provide that the clauses (d), (e) and (g) of sub-section (3) of

     

     

     

     

     

     

    section 164 of the Act, shall continue to apply even if appeal

     

     

     

     

     

     

    or petition is filed.

     

     

     

     

     

     

     

     

    50

    Section 165 –

     

     

    51

    Insertion of an Explanation to sub-section (1) of Section 165

    Welcome amendment.

     

    Number of Directorships

     

    of the Act, to exclude the directorship in dormant companies

     

     

     

     

     

     

    from the limit of directorships of 20 Companies.

     

     

     

     

     

     

     

     

    Sl.

    Section(s) under the CA,

    Clause No. in the

    Proposed amendment relating to

    Remarks/Comments/Penalty

     

    No.

    2013, amended

    Amendment Bill

     

     

     

     

     

     

     

     

     

    51

    Section 167 –

    52

    Insertion of a proviso to Clause (a) of sub-section (1) of section

    Amendment to remove

     

     

    Vacation  of  office  of

     

    167 of the Act, to provide that in case a director incurs any of

    ambiguity.

     

     

    Director

     

    disqualifications under section 164 (2), he shall vacate office

     

     

     

     

     

    incompanies other than the company which is in default.

     

     

     

     

     

    Substitution of the proviso to Clause (f) of sub-section (1) of

    W e l c o m e  a m e n d m e n t ,

     

     

     

     

    section 167 of the Act to provide the time frame/criteria from

    providing relief in cases where

     

     

     

     

    which vacation of office of director shall take place, in case of

    appeal  is  made  against  the

     

     

     

     

    orders referred to in clauses (e) and (f)

    order.

     

     

     

     

     

     

     

    52

    Section 168 –

    53

    Amendment of proviso to Sub-section (1) of Section 168 of

    Welcome amendment, thereby

     

     

    Resignation of Director

     

    the  Act,  thereby making  the  requirement  of  filing  of

    making  the  filing  of  form

     

     

     

     

    Resignation letter by the Director with the Registrar of

    optional on the part of the

     

     

     

     

    Companies, optional.

    Resigning Director.

     

     

     

     

     

     

     

    53

    Section – 173 – Meetings

    54

    Insertion of a proviso to sub-section (2) of Section 173 of the

    Welcome amendment, thereby

     

     

    of the Board

     

    Act to allow participation of directors on certain items at

    enabling  the  directors  who

     

     

     

     

    Board meetings through video conferencing or other audio

    cannot be present physically to

     

     

     

     

    visual means if there is requisite quorum is present at the

    participate in the meeting and

     

     

     

     

    meeting through physical presence of directors.

    be part of the decision making.

     

     

     

     

     

     

     

    54

    Section 177–

    55

    Amendment to Sub-section (1) of Section 177 of the Act, to

    Welcome  Amendment  to

     

     

    Audit Committee

     

    replace the words “Every Listed Company” with words “Every

    remove ambiguity and ease of

     

     

     

     

    Listed Public Company”, thereby making the applicability of

    operations.

     

     

     

     

    the Section only to listed public companies and other

     

     

     

     

     

    companies as prescribed under the rules.

     

     

     

     

     

     

     

     

    Sl.

    Section(s) under the CA,

    Clause No. in the

    Proposed amendment relating to

    Remarks/Comments/Penalty

     

    No.

    2013, amended

    Amendment Bill

     

     

     

     

     

     

     

     

     

     

     

     

    Insertion of new provisos in clause (iv) of sub-section (4) of

     

     

     

     

     

    Section 177 of the Act, relating to authorities/powers to the

     

     

     

     

     

    Audit committees, such as (i) ratification of transactions

     

     

     

     

     

    entered in to by the Directors with the company, neither

     

     

     

     

     

    without approval of the Audit Committee and involving

     

     

     

     

     

    amount not exceeding Rs.1 Crore rupees, not the said

     

     

     

     

     

    transaction is ratified by the Audit Committee, within 3

     

     

     

     

     

    months of transaction, (ii) consequences of non-ratification

     

     

     

     

     

    and  (iii)  exemption  from  obtaining  approval  of  audit

     

     

     

     

     

    committee for to related party transactions between holding

     

     

     

     

     

    compan yand its wholly owned subsidiary, other than those

     

     

     

     

     

    covered under Section 188

     

     

     

     

     

     

     

     

    55

    Section 178 -

    56

    Amendment to Sub-section (1) of Section 178 of the Act, to

    Welcome  Amendment  to

     

    replace the words “Every Listed Company” with words “Every

    remove ambiguity and ease of

     

     

    Nomination and

     

     

    Remuneration

     

    Listed Public Company”, thereby making the applicability of

    operations.

     

     

    Committee and

     

    the Section only to listed public companies and other

     

     

     

    Stakeholders

     

    companies as prescribed under the rules.

     

     

     

    Relationship Committee

     

     

     

     

     

     

     

    Amendment of Sub-section (2) of Section 178 of the Act, that

    Welcome Amendment for ease

     

     

     

     

    instead of the Committee carrying out evaluation of every

    of operations.

     

     

     

     

    director’s  performance,  the  Committee  will  specify

     

     

     

     

     

    methodology for effective evaluation of performance of

     

     

     

     

     

    Board and committees and individual directors, and the said

     

     

     

     

     

    performance evaluation to be carried out either by the Board,

     

     

     

     

     

    Nomination  and  Remuneration  Committee  or  an

     

     

     

     

     

    Independent external agency.

     

     

     

     

     

     

     

     

    Sl.

    Section(s) under the CA,

    Clause No. in the

    Proposed amendment relating to

    Remarks/Comments/Penalty

     

    No.

    2013, amended

    Amendment Bill

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Insertion of Proviso to Clause (c)of Sub-section (4) of Section

    D i s c l o s u re

    re q u i re m e nt

     

     

     

     

    178, to provide that the policy framed by the Nomination and

    included.

     

     

     

     

     

    Remuneration  Committee,  relating  to   criteria  for

     

     

     

     

     

     

    determining  qualifications,  positive  attributes  and

     

     

     

     

     

     

    independence of a director and recommend to the Board a

     

     

     

     

     

     

    policy, relating to the remuneration for the directors, key

     

     

     

     

     

     

    managerial personnel and other employees, shall be placed

     

     

     

     

     

     

    on the website of the Company, if any, and the salient features

     

     

     

     

     

     

    policy and changes therein, if any, along with the web address

     

     

     

     

     

     

    of the policy, if any, shall be disclosed in the Board's report.

     

     

     

     

     

     

    Amendment of proviso to Sub-section (8) of Section 178 for

    Amendment to remove error in

     

     

     

     

    substituting the words “inability to resolve or consider any

    wording

     

     

     

     

     

    grievance" in place of "non-consideration of resolution of any

     

     

     

     

     

     

    grievance".

     

     

     

     

     

     

     

     

     

     

    56

    Section 180 -

    57

    Amendment to item (c) of sub-section (1) of Section 180 of

    Amendment

    to  maintain

     

     

    Restrictions on Powers of

     

    the Act, to substitute for the words "paid-up share capital,

    uniformity

     

     

     

    Board.

     

    free reserves and securities premium", in place of "paid-up

     

     

     

     

     

     

    share capital and free reserves", i.e., to include securities

     

     

     

     

     

     

    premium, thereby making the requirement of obtaining

     

     

     

     

     

     

    consent from the members of the company, only for the

     

     

     

     

     

     

    cases, where the proposed borrowings, will be in excess of its

     

     

     

     

     

     

    paid-up share capital, free reserves and securities premium.

     

     

     

     

     

     

    Note: This section is does not apply to a Private Company, by

     

     

     

     

     

     

    virtue of the exemption notification Dt:05.06.2015.

     

     

     

     

     

     

     

     

     

     

    Sl.

    Section(s) under the CA,

    Clause No. in the

    Proposed amendment relating to

    Remarks/Comments/Penalty

     

    No.

    2013, amended

    Amendment Bill

     

     

     

     

     

     

     

     

     

     

     

    57

    Section 184 –

    58

    Amendment to Sub-section (4) of Section 184 of the Act, to

    Since there is no minimum fine

     

     

    Disclosure of Interest by

     

    remove the minimum fine of Rs.50,000/-, for contravention

    slab, the penalty levied can be

     

     

    Director

     

    by the Director of the provisions i.e., failure to disclose his

    upto Rs.1 Lakh.

     

     

     

     

     

     

    interest in general and/or in particular with reference to a

     

     

     

     

     

     

     

    contract

     

     

     

     

     

     

     

    Amendment to Clause (b) of sub-section(5) of Section 184 of

    Amendment to remove

     

     

     

     

     

    the Act, to provide for non-applicability of the provisions of

    ambiguity

     

     

     

     

     

     

    this section, relating to the transactions between Companies

     

     

     

     

     

     

     

    and body Corporates, where any of the directors of the one

     

     

     

     

     

     

     

    company or body corporate or two or more of them together

     

     

     

     

     

     

     

    holds or hold not more than two per cent. of the paid-up

     

     

     

     

     

     

     

    share capital in the other company or the body corporate,

     

     

     

     

     

     

     

    which was inadvertently left out.

     

     

     

     

     

     

     

     

     

     

     

    58

    Section 185 -

    59

    Amendment to substitute the existing Section 185 of the Act,

    V E R Y  M U C H

    R E Q U I R E D

     

     

    Loan to Directors, etc

     

    with a new section with following provisions:

    A M E N D M E N T

    W e l c o m e

     

     

     

     

     

    substitution  /Amendment  to

     

     

     

     

    èSub-section (1): To prohibit giving loans, advances, etc.,

    provide  for  relief  to  group

     

     

     

     

    to directors of the company or its holding company or any

    companies/Companies

    with

     

     

     

     

    partner of such director or any firm in which such director

    common directors to provide

     

     

     

     

    or relative is a partner.

    l o a n s /g u a ra n t e e s

    a f t e r

     

     

     

     

    èSub-section (2): It allows a company to give loan or

    compliance of the provisions.

     

     

     

     

     

     

     

     

     

     

     

    guarantee or provide security to any person in whom any

     

     

     

     

     

     

     

    of the director is interested subject to passing of special

     

     

     

     

     

     

     

    resolution by the company and utilisation of loans by the

     

     

     

     

     

     

     

    borrowing company for its principal business activities.

     

     

     

     

     

     

     

     

     

     

     

     

    Sl.

    Section(s) under the CA,

    Clause No. in the

    Proposed amendment relating to

    Remarks/Comments/Penalty

     

    No.

    2013, amended

    Amendment Bill

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    It provides for an explanation for term any person in whom

     

     

     

     

     

     

    any of the director is interested.

     

     

     

     

     

     

    èSub-section (3): Provides for certain situations to which

     

     

     

     

     

     

    the provisions of Sub-section (1) & (2)are not applicable.

     

     

     

     

     

     

    èSub-section (4): Penalties for non-compliance. (penalties

     

     

     

     

     

     

    remain the same as in the old Section)

     

     

     

     

     

     

     

     

     

     

    59

    Section 186 -

    60

    Omission of Sub-section(1) of Section 186 of the Act, relating

     

     

     

     

    Loan and Investment by

     

    to the  restriction on layers of investment companies i.e.,2

     

     

     

     

    Company

     

    Layers. Thereby investment can be done through more than

     

     

     

     

     

     

    two layers of investment companies.

    Welcome  Amendment

    to

     

     

     

     

     

     

     

     

    Insertion of an explanation to Sub-section (2), that for the

    provide ease of operations.

     

     

     

     

     

    purpose of the sub-section,  the word "person"does not

     

     

     

     

     

     

    include any individual who is in the employment of the

     

     

     

     

     

     

    company.

     

     

     

     

     

     

    Amendment to substitute the existing sub-section (3) of

    Welcome  Amendment

    to

     

     

     

     

    Section 186 of the Act, with a new sub-section, to include

    provide ease of operations.

     

     

     

     

     

    aggregate  of  loan  and  investments  so  far  made  and

     

     

     

     

     

     

    guarantees, securities so far provided to all other bodies

     

     

     

     

     

     

    corporate along with the investment, loan, guarantee or

     

     

     

     

     

     

    security proposed to be made or given by the Board for the

     

     

     

     

     

     

    purpose of calculating the limits of loans and investments.

     

     

     

     

     

     

    Requirement  of  prior  Special  resolution  for

     

     

     

     

     

     

    investment/loans/securities beyond the limits.

     

     

     

     

     

     

     

     

     

     

    Sl.

    Section(s) under the CA,

    Clause No. in the

    Proposed amendment relating to

    Remarks/Comments/Penalty

     

    No.

    2013, amended

    Amendment Bill

     

     

     

     

     

     

     

     

     

     

     

     

    Inclusion of a proviso to sub-section (3), to exempt the

    Welcome Amendment to

     

     

     

     

    requirement of passing a special resolution at general

    provide ease of operations.

     

     

     

     

    meeting, in cases where a loan or guarantee is given or where

     

     

     

     

     

    a security has been provided by a company to its wholly

     

     

     

     

     

    owned subsidiary companyor a joint venture company, or

     

     

     

     

     

    acquisition is made by a holding company of the securities of

     

     

     

     

     

    its wholly owned subsidiary company.   A further proviso

     

     

     

     

     

    provides for the disclosure of the said details in the Financial

     

     

     

     

     

    statement of the Company

     

     

     

     

     

    Amendment to substitute the existing sub-section (11) of

     

     

     

     

     

    Section 186 of the Actto rephrase the provisions.

     

     

     

     

     

    Amendment of Clause (a) of the explanation provided to the

    Amendment to provide for

     

     

     

     

    section,  relating  to  “investment  company”,  to  include

    clarity.

     

     

     

     

    clarification to the existing explanation to provide for

     

     

     

     

     

    criteria/cases, as to when the company will be deemed to be a

     

     

     

     

     

    company principally engaged in the business of acquisition of

     

     

     

     

     

    shares, debentures or other securities.

     

     

     

     

     

     

     

     

    60

    Section 188 –

    61

    Insertion of a new proviso (3rd one) after the existing second

    Welcome Amendment to

     

     

    R e l a t e d  P a r t y

     

    proviso to sub-section (1) of Section 188, to provide that the

    provide ease of operations.

     

     

    Transactions

     

    provisions of 2nd proviso to Section 188(1) shall not apply to a

     

     

     

     

     

    company in which 90 % or more members in numbers are

     

     

     

     

     

    relatives of promoters or related parties.

     

     

     

     

     

     

     

     

    Sl.

    Section(s) under the CA,

    Clause No. in the

    Proposed amendment relating to

    Remarks/Comments/Penalty

     

    No.

    2013, amended

    Amendment Bill

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    Amendment of Sub-section (3) of Section 188 of the Act, to

    Amendment

    to  provide

    for

     

     

     

     

     

    provide that any transaction entered into by a director or any

    clarity.

     

     

     

     

     

     

     

    other employee, without obtaining the consent of the Board

     

     

     

     

     

     

     

     

    or approval by are solution in the general meeting under sub-

     

     

     

     

     

     

     

     

    section (1) and if it is not ratified by the Board or, as the case

     

     

     

     

     

     

     

     

    may be, by the shareholders at a meeting within three

     

     

     

     

     

     

     

     

    months shall be voidable at the option of the Board or

     

     

     

     

     

     

     

     

    shareholders, as the case may be

     

     

     

     

     

     

     

     

     

     

     

     

     

    61

    S e c t i o n

    1 9 4  -

    62

    Amendment to Omit Section 194 of the Act relating to

    Amendment

    proposed  to

    be

     

     

    Prohibition on Forward

     

    prohibition on forward dealings in securities of company by

    made, since the same is covered

     

     

    Dealings in

    Securities

     

    director or key managerial personnel

    under other enactment, and the

     

     

    of Company by Director

     

     

    Companies Act, cannot have a

     

     

    or  key  Managerial

     

     

    control over the same.

     

     

     

    Personnel

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

     

    62

    Section 195 -

     

    63

    Amendment to Omit Section 195 of the Act which provides

    Amendment

    proposed  to

    be

     

     

    Prohibition

    on  Insider

     

    for prohibition on Insider Trading of Securities.

    made, since the same is covered

     

     

    Trading of Securities

     

     

    under other enactment, and the

     

     

     

     

     

     

    Companies Act, cannot have a

     

     

     

     

     

     

    control over the same.

     

     

     

     

     

     

     

     

     

     

     

     

    Tags:

    Introduction:

     

    The Finance Budget, 2016 introduced excise duty levy on manufacture of both branded and unbranded Jewellery with effect from 01.03.2016 by withdrawing exemption conferred under entry 199 of Notification 12/2012-CE dated 17.03.2012. The Jewellery sector across India went onto indefinite strike as the duty levy would affect their ease of doing business on the concerns that this levy lead into a clumsy procedural and compliance issues and also lamented about the frequent pesters from the officials of Central Excise Department.

     

    Taking into consideration, the trepidations of the sector, Central Government has constituted a Committee to interact with the sector to address the procedural and compliance issues. The said committee has submitted their report on 23.06.2016. Vide press release of Finance Ministry dated 13.07.2016, stated that Central Government has accepted all the recommendations of the Committee. Accordingly, they are given legal effect by way of various Notifications and also through Circulars. Let us have a look at the various aspects of the recently notified compliance and procedural mechanism.

     

    Leviability of excise duty:

     

    Excise duty is applicable on articles of jewellery and parts of articles of jewellery made of precious metals. However, articles of silver jewellery which are not studded with any diamond, emerald, ruby, sapphire i.e. plain silver jewellery are continued to be exempt. This implies that excise duty is applicable on silver jeweller studded with precious stones namely diamond, emerald, ruby, and sapphire. The excise duty is leviable at the rate of 12.5%. Alternatively, excise duty can also be paid at the rate of 1% of the value on the condition that CENVAT Credit should not be availed for inputs and capital goods.

     

    Partial exemption for manufacture of jewellery out of jewellery or precious stones supplied by retail customer:

     

    In case of any jewellery manufactured by a manufacturer out of jewellery or precious stones supplied by retail customers, exemption is available to the extent of the value of these items supplied by retail customers. This implies that manufacturer is required to pay excise duty on a value that is equal to the value of additional materials used by principal manufacturer or manufacturer and the labour charges charged from the retail customer.

     

    It is important to note that this exemption is available only in case of any jewellery or precious stones supplied by retail consumer. If the retail consumer supplies any precious metals (Gold/Platinum supplied in the form of coins, biscuits) for manufacture of jewellery, the benefit of exemption is not applicable. In such cases, even the fair value of such precious metals supplied is required to be included in the value of jewellery.

     

     

     

     

     

     

     

    17 | P a g e


     

     

    SBS Wiki                                                                                                                                                       www.sbsandco.com/wiki

     

    Valuation of Jewellery manufactured:

     

    Excise duty payable on Jewellery manufactured shall be on tariff value basis by principle manufacturer (in case jewellery is manufactured by job worker) or manufacturer as the case may be. Accordingly, it is notified that the value of excisable goods manufactured shall be the value at which they are sold for the first timefrom the registered premises or from the centrally registered premises or branches of such centrally registered premises

     

    In case where the retail customer supplies precious metal for manufacture of jewellery, as discussed above, the value for the purpose of payment of excise duty shall be the cost of additional materials used, labour charges charged by principle manufacturer or manufacturer and the value of such metal supplied by retail customer.

     

    Exemption is withdrawn for Handicrafts made of precious metals:

     

    By virtue of exemption Notification No. 17/2011-CE dated 01.03.2011; exemption is available for all kinds of handicrafts including those made of precious metals. This notification is now amended with effect from 26.07.2016 to with draw exemption for handicrafts made of precious metals viz. gold, silver and platinum. Thus excise duty is applicable even on handicrafts made of precious metals.

     

    Closing stock as on 29.02.2016:

     

    Confusion prevailed over the applicability of excise duty on closing stock as on 29.02.2016 which are lying in stock at different places viz. Job workers’ premises, workshop or showroom of the principle manufacturer or manufacturer etc. In this regard, it was clarified as follows;

     

    1. No excise duty is applicable on jewellery articles which are received from the premises of job workers or any other premises where the manufacture is undertaken and lying in stock as on 29.02.2016 at different premises including branches of principle manufacturer.

     

    1. No excise duty is payable on jewellery articles sent on approval to potential customers as on 29.02.2016.

     

    1. Excise duty is required to be payable on articles of jewellery lying in stock as on 29.02.2016 with the job worker or any other premises where articles of jewellery were manufactured (including finished articles of jewellery as well as work-in-progress) and are received by principle manufacturer or manufacturer on or after 01.03.2016 to the point of first sale (e.g. showroom)

     

    It is also clarified that no stock declaration is required to be filed by a jeweller for this purpose with the jurisdictional Central Excise Authorities.

     

    Articles of Jewellery (Collection of Duty) Rules, 2016:

     

    In terms of these rules, Central Government has laid down various provisions relating to date for determination of applicable rate of duty, person responsible to pay duty, determination of due date for payment of excise duty, records to be maintained etc. These provisions are broadly summarised as follows;

     

     

     

     

     

    18 | P a g e


    Excise Duty on Jewellery— The Recent Compliance and Procedural Mechanism

     

     

     

    SBS Wiki                                                                                                                                                      www.sbsandco.com/wiki

     

    1. Person liable to pay excise duty: In terms of the rules, the responsibility to pay excise duty is on manufacturer where the jewellery is manufactured on his own account and in case where the jewellery is manufactured by principle manufacturer on job work basis through job worker, then the principle manufacturer is responsible to pay excise duty.

     

    1. Date for determination of duty: The rate of duty applicable shall be the rate in force on the date when such articles are sold for the first time by manufacturer or principle manufacturer as the case may be from his registered premises or centrally registered premises or branches of such centrally registered premises

     

    1. Manner of payment of duty: Excise duty shall be paid by 5th/6th of the month following the month in which first sale is undertaken by principle manufacturer or manufacturer as the case may be. Where the assesse (principle manufacturer or manufacturer) is eligible to claim SSI exemption i.e. turnover for the previous financial year is less than fifteen crores, then assesse can pay duty on quarterly basis i.e. by 5th/6th of the month following the quarter in which first sale is undertaken. However, in case of March month or quarter ending with March month, the due date for excise duty payment is 31st March itself.

     

    1. 31st July is the due date for payment of duty for the months of March, April, May and June of 2016: As stated, excise duty is applicable for manufacture of jewellery with effect from 01.03.2016. Considering the concerns expressed by Jewellery sector and the fact that Committee has been constituted for dealing with procedural and compliance issues, Central Government has deferred the due date for payment of excise duty for the months of March, April and May months till 30th June vide Circular 1026/14/2016-CX, dated23.04.2016. It is now provided under these rules, that the due date for payment of excise duty for the above referred months including the month of June, 2016 is 31st July, 2016.

     

    1. Daily Stock Account to be maintained by Manufacturer or Principle Manufacturer: Every such assesse is required to maintain separate records for receipt and sale of manufactured and traded articles including their description on a daily basis. These records are required to be maintained on weight and cartage basis.

     

    The records and documents to be maintained for manufactured articles includes records and documents showing receipts of articles manufactured or received back from job worker’s premises, quantity of manufactured articles sold on first sale basis within India and for export to outside India. Such records and documents shall be maintained for a period of five years.

     

    Similarly, in case of traded articles, the records and documents to be maintained includes records showing the value and quantity of their traded stock at the time of purchase and sale. Such records and documents shall be maintained for a period of five years.

     

    1. Articles to be removed on invoice basis: Excisable articles of jewellery sold on first sale basis by principle manufacturer or manufacturer shall be removed only under the cover of an invoice called ‘First Sale Invoice’. The said invoice should contain the details viz. registration number, name of the consignee, description of articles, classification and date of removal by sale. The first sale invoice shall show the value of traded articles if any separately from the value of manufactured articles. The invoice shall be prepared in duplicate; original copy shall be marked to the buyer and duplicate copy for

    assesse records.

    19 | P a g e


    Excise Duty on Jewellery— The Recent Compliance and Procedural Mechanism

     

     

     

    SBS Wiki                                                                                                                                                      www.sbsandco.com/wiki

     

    1. Job worker need not maintain any documents and records: As discussed above, the job worker is relieved from the responsibility of collecting and paying excise duty for the articles manufactured by them on job work basis. He is also relieved from the responsibility of maintaining any documents or records with respect to the jewellery manufactured by him on job work basis.

     

    1. Principle Manufacturer responsible to maintain documents and records for job work: The principle manufacturer is under obligation to maintain all the documents and records as required with respect to the job works given by them. He is required to supply to job worker any inputs or articles for job work on the basis of a challan, issue voucher or any other document containing details viz. registration number, description & quantity of inputs or articles, name of the person carrying the inputs or articles along with his signature and proof of identity and date of supply of inputs or articles. The principle manufacturer shall also be required to maintain appropriate documents and records for the inputs or articles if any received back from the premises of job worker.

     

    1. Duty payable even in case the articles of jewellery are lost, destroyed or found short: It has been expressly clarified that in case where the articles of jewellery are lost, destroyed or found short at any time before their first sale, the principle manufacturer or manufacturer shall be liable to pay duty of excise as if such goods are sold. In such cases, the value of these articles, where they are manufactured on job work basis shall be equal to the cost of raw materials plus job work charges paid by the principle manufacturer. In case of direct manufacture, then the value shall equal to cost of raw materials plus the making charges charged by manufacturer for similar articles.

     

    1. Inputs, semi-finished or finished articles can be removed for certain purposes without payment of duty: A manufacturer or principle manufacturer is permitted to remove any inputs, semi-finished articles or finished articles for further processing, testing, repair, re-conditioning, hallmarking, display in exhibitions or for any other purpose including as samples to any other premises. No excise duty is required to be paid for removal of articles for any purpose stated above other than on account of first sale. In such cases, the removal shall be undertaken on the basis of a challans, issue voucher or any other document as referred for the purpose of removing inputs or other articles to job worker.

     

    1. Sales return of duty paid stocks: Sometimes, the jewellery articles sold on first sale basis may have been returned by customers while the excise duty charged would have been paid to the Central Government. In such cases, the jewellery articles returned by customers can be accounted as trading stock and can be sold subsequently to other customers without charging any excise duty.

     

    1. Optional Scheme for stock maintenance: As discussed above, the principle manufacturer or manufacturer is required to maintain separate physical stocks and stock records are also required to be maintained separately for manufactured and traded articles of jewellery. Excise duty is required to be paid on all first sales made out of manufacturing stock. No excise duty is required to be paid on all sales made out of trading stock. In case where assesse finds it difficult to maintain details of sales whether made out of manufacturing stock or out of trading stock, he is entitled to optional scheme where he is required to maintain details of stock separately for traded and manufactured articles. There is no need to ascertain the exact quantity of sales made out of manufactured stock and traded stock. In such cases, the sales are deemed to have been taken place in the following sequential manner;

     

     

     

    20 | P a g e


    Excise Duty on Jewellery— The Recent Compliance and Procedural Mechanism

     

     

     

    SBS Wiki                                                                                                                                                       www.sbsandco.com/wiki

     

    1. Out of opening stock of manufactured goods of a particular month

     

    1. Out of opening stock of traded goods of a particular month
    2. Out of quantity of stock manufactured during the month
    3. Out of quantity of stock purchased during the month

     

    This is an optional scheme which shall be exercised by written declaration to excise authorities by 28th February of previous financial year. This option once exercised shall not be withdrawn for the whole of financial year. It is clarified that with respect to March, 2016 and for the FY 2016-17, this optional scheme shall be exercised on or before 31st July, 2016.

     

    Quarterly Return: In case of assesses engaged in manufacture of only articles of jewellery falling under chapter 7113; paying excise duty at the rate of one per cent without the benefit of CENVAT credit on inputs and capital goods and is not engaged in manufacture of any other types of excisable goods, a simple return in Form ER-8 shall be filed once per quarter by 10th of the month immediately following the quarter. It is also clarified that for the quarters ending March, 2016 and June, 2016, the return shall be filed by 10th August, 2016.

     

    Relief from filing Annual Return: Assesses engaged in manufacture of articles of Jewellery falling under chapter 7113 are exempt from the requirement of filing annual return.

     

    Registration: As stated above, job worker is completely relieved from Central Excise requirements. Thus, there is no need for them to register under Central Excise. Manufacturer and Principle Manufacturer are required to obtain registration. They can register each of their business premises separately under central excise or they can obtain Centralised registration for all their business premises by registering their business premises where centralised billing or accounting system is maintained with respect to manufacturing and sales undertaken through their other business premises.

     

    It is clarified that there is no need to submit ground plan of the manufacturing premises in order to obtain registration. No physical inspection of the premises will be conducted by officials of Central Excise Department in order to grant registration. It is also clarified that the existing manufacturers are required to obtain registration under Central Excise by 31st July, 2016.

     

    Small Scale Industrial (SSI) Exemption:

     

    The general exemption namely SSI exemption is applicable to articles of jewellery also. It is originally notified as on 01.03.2016 that exemption is available in the current financial year on value of first clearances up to six crores of rupees provided the turnover in the preceding financial year does not exceed twelve crores of rupees. For the month of March 2016, it is specified that this exemption is available for clearances up to a value of Rs. 50 lakhs.

     

    This SSI exemption benefit is now enhanced. Accordingly, exemption is applicable for first clearances up to a value of ten crores provided the turnover in the preceding financial year does not exceed fifteen crores of rupees. It is also clarified that for the month of March 2016, exemption is available for clearances up to a value of Rs. 85 lakhs. For the purpose of this exemption benefit, the turnovers of all branches/premises of manufacturer or principle manufacturer as the case may be shall be clubbed.

     

     

     

    21 | P a g e


    Excise Duty on Jewellery— The Recent Compliance and Procedural Mechanism

     

     

     

    SBS Wiki                                                                                                                                                       www.sbsandco.com/wiki

     

    Clarification on audit proceedings:

     

    With respect initiation of audit proceedings on the assesses by Central Excise Department officials, the following are the assurances given by the Central Government;

     

    1. No audit shall be conducted for the first two year period on assesses whose excise duty payments (cash plus credit) are less than one crore rupees.
    2. In case assesses paying excise duty less than 50 lakh rupees, audit will be conducted after the expiry of two year period on 5% of the total number such assesses.

     

    1. In case of assesses paying excise duty of 50 lakhs or more, audit will be conducted after the expiry of two year period with a frequency of one audit in every five years.

     

    1. In case of assesses paying excise duty between one crore to three crores, audit will conducted once in every two years.

     

    1. In case of assesses paying excise duty of three crores and above, audit will be conducted every year.

     

    1. It is also clarified that audit conducted on assesses will only be in the form of desk review by the officers without physically inspecting the premises of assesses.

     

    1. Irrespective of duty involved, it is provided that show cause notice shall be issued and adjudicated only by the officers of the rank of Commissioners. It is also provided that summons will be issued only with the approval of Commissioner.

     

    Conclusion:

     

    In view of the above discussion, the efforts were made to envisage fairly simple and easy to comply mechanism for Jewellery sector when compared to the regular procedures under Central Excise Law as applicable to all types of assesses. These would include collection of duty only upon first point of sale basis, enhanced SSI exemption limit, simple return, optional stock maintenance scheme etc. It is also assured through clarificatory circulars that there is no need to worry about ‘inspector raj’ of the Excise Department. It is expressly provided that there are no physical visits by officers either for registration or for the purpose of conducting audits. Let’s hope all these would ensure smooth transition by Jewellery sector towards excise duty levy.

    Tags:

    Background

     

    REITs originated in the United States to give investors an opportunity to invest in income-generating real estate assets. After its introduction in the States, several countries such as Singapore, Australia and Hong Kong have implemented REITs.

     

    REITs are similar to mutual funds. While mutual funds provide for an opportunity to invest in equity stocks, REITs allow one to invest in income-generating real estate assets. REITs raise funds from a large number of investors and directly invest that sum in income-generating real estate properties (which could be offices, residential apartments, shopping centers, hotels and warehouses).

     

    The trusts are listed in stock exchanges so that investors can buy units in the trust. REITs are structured as trusts. Thus, the assets of an REIT are held by an independent trustee on behalf of unit holders.

     

    Significance of REIT in Indian context

     

    REITs, as a concept, have been on the horizon for a while now. India’s regulations in 2014 for the sector have not been able to attract investor interest. REITs obtained exemption from dividend distribution tax in the Budget, a step towards making them attractive for the investors. A report by real estate consultancy firm estimates that Indian commercial real estate (like office, retail assets) offers investment opportunities for REITs worth $43 billion – $54 billion (Rs. 2.88 lakh crore – Rs. 3.60 lakh crore) across top cities.

     

    REIT’s Investment Objective

     

    The investment objective of REITs is to provide unit holders with dividends, usually generated from rental income and capital gains from the profitable sale of real estate assets. Typically, the trust distributes 90 per cent of its income among its investors by issuing dividends.

     

    Characteristics of REIT Structure

     

    Typically, money is raised from unit holders through an Initial Public Offer (IPO) and used by the company to purchase a pool of real estate properties. These properties are leased out to tenants and the income generated via rent flows back to unit holders (investors) in return as income distributions (dividends).

     

    Real Estate Investment Trust and infrastructure investment trust invites tax regimes have been introduced to allow these infrastructures to be set up in accordance with SEBI regulations. The investment model for REIT’s and allows business trusts to raise capital through an issue of listed units and to raise debts from residents and nonresident investors.

     


     

     

     

    REIT STRUCTURE

     

     

     

     

     

     

     

     

     

     

     

    Sponsor

     

    Trustee

     

    Management

     

     

     

     

     

     

     

    1.

    Setup REIT and appoint

    1. Hold REIT assets in the name of

    1.

    Identify and recommend

     

     

    the Trustee

    REIT  for  the  benefit  of  Unit

     

    investment opportunities

     

    2.

    Hold minimum required

    Holders

     

     

    2.

    Manage Investments

     

    2. Oversee activities of Management

     

     

    percentage of total unit

     

     

     

     

    of REIT

    and  ensure

    that  Management

     

     

     

     

     

    undertakes

    reporting  and

    3.

    Undertake Lease

     

     

     

    disclosures as per the regulations

     

    Management

     

     

     

    3. Ensure  Management  makes

    4.

    Ensuring reporting and

     

     

     

    timely payment of dividend to

     

    disclosures to

     

     

     

    unit holders.

     

     

    stakeholders.

     

     

     

    4.  Ensuring

    compliance  with

     

     

     

     

     

    applicable

    laws and protecting

     

     

     

     

     

    the rights of unit holders as well.

     

     

     

     

     

     

     

     

     

     

     

     

    Significance of Investing in REITs, Tax and Other Issues

     

    Investors can buy and sell units of REIT on the stock exchange as and when required, making investment easier to liquidate compared to physical property transaction. Investors who are averse to investing in physical purchase of property due to the risks involved, REIT is an alternative.

     

    REIT could provide an opportunity for investors who, otherwise, do not get the opportunity to invest in commercial real estate because of high capital values. The minimum required to be put into an REIT is Rs2 lakh.90 per cent of the profit generated needs to be distributed as dividend in REIT, it could provide a stable income for unit holders.

     

    Short-term capital gain tax is applicable for unit holders at the rate of 15 per cent. While interest is tax-exempt for REITs, it is taxable for unit holders. The registration charges for every purchase and sale of property is still applicable therefore such factors can impact the profitability and attractiveness of REITs in India.

     

    Potential Investment Risks

     

    REITs units are listed on, and are subject to the vagaries of the stock exchanges, resulting in negative or lower returns than expected. As in mutual funds, retail investors in REITs have no control over investments and exits being made by the trust. Investing in REITs can be a passive, income-producing alternative to buying property directly. Strongly consider publicly-traded REITs over non-traded REITs. It’s essential to pay attention to interest rates.

     

     

    REIT Enterprise Risk Management Framework

     

    Five-step risk management process comprising Risk identification, Risk assessment, Formulation of risk mitigating measures, Communication and Implementation, as well as Monitoring and review.

     

    The risk assessment takes into account both the impact and likelihood of occurrence and covers the investment, financial, operational and reputational aspects of REIT’s business. Tools such as a risk rating matrix, key risk indicators and risk register assist the Management in its risk management process.

     

    The Board is responsible for governing risks and ensuring that the Management maintains a sound risk management system and internal controls to safeguard Unitholders' interests and Company’s REIT's assets. Assisted by the Audit and Risk Committee (ARC), the Board shall provide valuable advice to management in formulating various risk policies and guidelines.

     

    The Board and Management shall meet on a quarterly basis or more frequently, when necessary, to review Company’s REIT’s financial performance, assess its current and future operating, financial and investment risks, as well as respond to feedback from the compliance Management and auditors.

     

    Operational Risk

     

    All operations are aligned with Company’s REIT’s strategies to ensure income sustainability and maximize distributable income growth. Measures include prompt lease renewals to reduce rental voids, monitoring of rental payments to minimize rental arrears and bad debts, as well as controlling property expenses to maximize net property income.

     

    Standard operating procedures are reviewed regularly and good industry practices are incorporated into daily operations.

     

    Business continuity plans are reviewed and improved periodically to minimize operational disruptions. These plans are tested regularly to ensure the responses developed are feasible and effective. Regular external audits are conducted to ensure that safety standards and procedures are implemented and up-to-date

     

    For assets that are co-owned, the Management works closely with the property Management and co-owners to optimize asset performance and control property expenses. The Management and co-owners also jointly assess and approve all new, renewal, review and restructured leases, as well as capital expenditures.

     

    Financing Risk

     

    Liquidity and financing risks shall be managed in accordance with established guidelines and policies. The Management shall closely monitor its cash flow, debt maturity profile, gearing and liquidity positions. The Management diversifies its funding sources and lengthens the tenure of borrowings to ensure a well-staggered debt maturity profile.

     

     

    Borrowings are refinanced early to reduce refinancing risk and lengthen the overall debt maturity.

     

    The Managementshall maintain a robust cash flow position and ensures that there are sufficient working capital lines to meet its financial obligations.

     

    Credit Risk

     

    Tenants' credit worthiness is assessed prior to signing of lease agreements. They are also required to place security deposits upon confirmation of their leases.

     

    Systematic rental collection procedures are implemented to ensure regular collection of rents, thereby preventing potential rental arrears.

     

    Investment Risk

     

    Comprehensive due diligence procedures to assess and evaluate potential investment risks are conducted prior to any transaction.

     

    All investment proposals are evaluated objectively based on the investment criteria, as well as the target asset’s specifications, location, expected returns, yield accretion, growth potential and performance sustainability, taking into account the prevailing economic climate and market conditions.

     

    Compliance Risk

     

    The Investment Manager shall update with the changes in legislations and regulations, as well as new developments in its operating environment.

     

    Organisations shall undergo periodic internal and external audits to ensure that it adhere to relevant policies and processes.

     

    The Investment Manager shall ensure organisation complies with applicable laws and regulations, including the Listing Rules.

    Tags:

    To foster entrepreneurship and promoting innovation, the “Startup India” initiative was launched by the Prime Minister of India, Shri Narendra Modi on January 16, 2016 at Vigyan Bhavan, New Delhi. As part of the event, a Startup India Action Plan was released. Subsequently many steps were taken by various ministries/ regulators in this direction to implement the plan. The Action Plan proposes a 19-point action list which will enable setting up of incubation centres, easier patent filing, tax exemption on profits, setting up a Rs.10,000 crore corpus fund, ease of setting-up of business, a faster exit mechanism, among others.

     

    The initiative of the Government of India is to build a strong eco-system for nurturing innovation in order to accelerate economic growth and generate employment opportunities.

     

    In this article the author has made an attempt to summarise the concept, benefits under various laws and way forward for the Start Up entities in India

     

    1.1      Legal Framework:

     

    The DIPP1 has issued Notification2 to define the concept of Startup entities. The criteria fixed by this notification (including its amendments from time to time) are adopted by all the government department(s)/ regulator(s) etc., for various purposes.

     

    1.2      Criteria for Startup entities

     

    An entity3  shall be considered as a ‘startup’-

     

    1. Up to five years from the date of its incorporation/registration,
    2. If its turnover4 for any of the financial years has not exceeded Rupees 25 crore , and

     

    1. It is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property;6

     

    Provided that any such entity formed by splitting up or reconstruction of a business already in existence shall not be considered a ‘startup’;

     

    Provided further that in order to obtain tax benefits a startup so identified under the above definition shall be required to obtain a certificate of an eligible business from the Inter-Ministerial Board of Certification (“IMB) 7

     

    Present IMB consists of:

     

    1. Shri Shailendra Singh, Joint Secretary, DIPP
      1. Alka Sharma, Director/Scientist ‘F’, Department of Biotechnology, an

    c)Shri H.K. Mittal, Head, Innovation/Entrepreneurship& National Science& Technology Entrepreneurship Development Board, Department of Science & Technology

     

    1.3 The process of recognition as a ‘startup’

     

    Through mobile app/portal of the DIPP 8. Startups will be required to submit a simple application with any of following documents:

     

    1. a recommendation (with regard to innovative nature of business), in a format specified by DIPP, from any Incubator established in a postgraduate college in India; or

     

    1. a letter of support by any incubator which is funded (in relation to the project) from Government of India or any State Government as part of any specified scheme to promote innovation; or
    2. a recommendation (with regard to innovative nature of business), in a format specified by Department of Industrial Policy and Promotion, from any Incubator recognized by Government of India; or

     

    1. a letter of funding of not less than 20 per cent in equity by any Incubation Fund/Angel Fund/Private Equity Fund/Accelerator/Angel Network duly registered with SEBI that endorses innovative nature of the business. Department of Industrial Policy and Promotion may include any such fund in a negative list for such reasons as it may deem fit; or

     

    1. a letter of funding by Government of India or any State Government as part of any specified scheme to promote innovation; or

     

    1. a patent filed and published in the Journal by the Indian Patent Office in areas affiliated with the nature of business being promoted.

     

    1.4  Penalty in case of false information:

     

    If on subsequent verification, such recognition is found to be obtained without uploading the document or uploading any other document or a forged document, the concerned applicant shall be liable to a fine which shall be fifty per cent of paid up capital of the startup but shall not be less than Rupees 25,000.

    Benefits/ supportive measures taken under various laws:

     

    2.1      Foreign Exchange Management Act, 1999 (“FEMA”)

     

    1. Opening of FC/EEFC Account

     

    1. RBI9 has permitted Indian Startups:

     

    1. having an overseas subsidiary, to open a foreign currency account with a bank outside India for the purpose of crediting to the account the foreign exchange earnings out of exports/sales made by the said startup or its overseas subsidiary. The balances held in such accounts, to the extent they represent exports from India, shall be repatriated to India within the period prescribed for realization of exports

     

    1. to open EEFC10 account maintained in India with the Authorised Dealers for crediting the payments received in foreign exchange arising out of sales/ export made by the startup or its overseas subsidiaries

     

    1. RBI has expressed to carry slew of following measures to support the Startup initiatives of GOI

     

    1. Enabling start-up enterprises, irrespective of the sector in which they are engaged, to receive foreign venture capital investment and also explicitly enabling transfer of shares from Foreign Venture Capital Investors to other residents or non-residents;

     

    1. Permitting, in case of transfer of ownership of a start-up enterprises, receipt of the consideration amount on a deferred basis as also enabling escrow arrangement or indemnity arrangement up to a period of 18 months;

     

    1. Enabling online submission of A2 forms for outward remittances on the basis of the form alone or with document(s) upload/submission, depending on the nature of remittance; and

     

    1. Simplifying the process for dealing with delayed reporting of FDI related transaction by building a penalty structure into the regulations itself.

     

    1. Issue of shares without cash payment through sweat equity or against any legitimate payment owed by the company remittance of which does not require any permission under FEMA

     

    2.2     Income Tax Laws:

     

    1. Insertion of new section 54EE for exempting Capital Gain on long term capital asset and invested in eligible units of AIF

     

    1. A new section has been inserted to permit the exemption of long term capital gain arising out of transfer of capital asset if the investment is made in specified units of Alternative Investment Funds (AIF) on or after 1st April, 2016, within 6 months of transfer of capital asset.

     

    1. The exemption is restricted on proportion basis of investment Vs Sale proceeds received
    2. The maximum amount that can be invested is restricted to Rs. 50 Lakhs
    3. The benefits is restricted for investment made upto 31/03/2019
    1. Insertion of new sub-section 5 under section 54GB

     

    1. A new sub-section has been inserted to permit exemption of long-term capital gain arising out of transfer of capital asset if the investment is made in specified units of Alternative Investment Funds (AIF) on or after 1st April, 2016, within 6 months of transfer of capital asset.
    2. In both the cases the word “Specified Units” means investment into equity shares of eligible startup unit as defined herein above.

     

    • Exemption of tax on difference between the allotment price and FMV under section 56 (2) (viib) of the Act

     

    1. A new explanation has been added under section 56 (2) (viib) of Act, to exempt the difference between Issue price and Fair Market Value, from being considered as taxable income under Other Sources. Due to this amendment the Startup entity can issue shares to residents at premium than the Fair Market Value, without any tax burden11

     

    1. Exemption of tax on Profits of the entity for 3 years u/s 80-IAC of the Act

     

    1. A new section has been added after section 80-IAB of Act, to exempt the tax on 100% profits of Startup entity
    2. The benefit is applicable for profits earned from the fiscal year 2016-17
    3. The maximum period of tax benefit is given for 3 consecutive financial years out of 5 years of incorporation/ registration of startup entity. The entity has option to choose the beginning period of exemption

     

    1. Exemption is subject to non- distribution of dividend by the Startup.
    2. The startup entity shall fulfill the eligibility criteria listed by DIPP, and should have been incorporated between 01-04-2016 and 31-03-2019

     

    1. However the startup entity has to pay MAT/AMT12 under section 115JB/115JC, as the case may be, of the Act.

     

    1. Further, existing capital gains exemption for investment in newly formed manufacturing Micro, Small and Medium Enterprises (MSMEs) by individuals shall be extended to all Startups.

     

    1. For Startups, investment in computer or computer software (used in core business activity) to qualify as purchase of “new assets”.

    2.3      Labour laws:

     

    The Union Government has simplified the legal compliance under various labour laws, as detailed below:

     

    1. Engaging Apprentices 13

     

    The entity is permitted to recruit apprentices in a band of 2.5% - 10% of total strength (including contractual workers). The Startup entity is eased from inspection based on the following criteria:

     

    Period

    Particulars of Inspection

     

     

    1st Year

    Inspection is completely dispensed with based on the self-certification

     

     

    2nd - 5th Year

    Inspection only when very credible and verifiable complaint of violation

     

    has been filed in writing  and the approval has been obtained from

     

    concerned Apprenticeship Adviser

     

     

    6th Year onwards

    As per Apprentices Act, 1961

     

     

     

    1. Relaxation under various other Labour Laws

     

    Sl. No.

     

    Name of the Law

     

    Referred as

     

    Implementing Agency

     

     

     

     

     

     

    (Central / State)

     

     

     

     

     

     

     

     

     

     

     

     

     

    1

     

    The Industrial Disputes Act, 1947

     

    ID Act

     

     

     

     

     

     

     

     

     

    2

     

    The Trade Unions Act, 1926

     

    TU Act

     

     

     

     

     

     

     

     

     

    3

     

    The  Building  and  Construction  Workers’

     

    BOCW Act

     

     

     

     

    (Regulation of Employment and Conditions of

     

     

     

     

     

     

    Service) Act, 1996

     

     

     

     

     

     

     

     

     

     

    Central and State

    4

     

    The Industrial Employment (Standing Orders) Act,

     

    SO Act

     

     

     

    1946

     

     

     

     

    5

     

    The Inter State Migrant Workmen (Regulation of

     

    ISMW Act

     

     

     

     

    Employment and Conditions of Service) Act, 1979

     

     

     

     

     

     

     

     

     

     

     

    6

     

    The Payment of Gratuity Act, 1972

     

    Gratuity Act

     

     

     

     

     

     

     

     

     

    7

     

    The Contract Labour (Regulation and Abolition)

     

    CLRO Act

     

     

     

     

    Act, 1970

     

     

     

     

    8

     

    The  Employees’  Provident  Fund  and

     

    EPF Act

     

     

     

     

    Miscellaneous Provisions Act, 1952

     

     

     

    Central

    9

     

    The Employees’ State Insurance Act, 1948

     

    ESI Act

     

     

     

     

     

     

     

     

     

    The Startup entity is eased from inspection based on the following criteria:

     

     

     

     

    Period

    Particulars of Inspection of state level authority

     

     

     

     

    1st Year

    Inspection under BOCW, ISMW Act, Gratuity Act, CLRO, is completely

     

     

    dispensed with based on the online self-certification

     

     

     

     

    2nd - 3rd Year

    Inspection under the aforesaid laws, only when very credible and

     

     

    verifiable complaint of violation has been filed in writing and the approval

     

     

    has been obtained from at least one level senior to the inspecting officer

     

     

     

     

    th

    As per respective law

     

    4  Year onwards

     

     

     

     

     

     

    Compliance pertaining to 6 labour and 3 environmental laws will be allowed to be self-certified through the Startup mobile app.

     

    Startups classified as White Category as defined by the Central Pollution Control Board will be allowed self- certification under environmental laws, with only random checks proposed.

     

    2.4       Fast Track exit under Insolvency and Bankruptcy Code, 201614

     

    As per Section 55 to 58, the startup entity is eligible for fast track corporation insolvency resolution process and the exit process may be completed within 90 days of commencement date of process unless otherwise sought for extension by the entity etc.

     

    2.5      Government Support for establishing Incubation Centres

     

    1. AIM/ATL, NITI Aayog

     

    As per the Atal Innovation Mission/ Atal Tinkering Labs, NITI Aayog, Government of India, the Central Government has issued guidelines in May, 2016 for extending the support for establishing incubation centres/ tinkering labs at various places in India

     

    1. NIDHI, NSTEDB

     

    As per the NIDHI, NSTEDB, Government of India, the Central Government has issued guidelines in April, 2016 for extending the support for 20 student start up entities with a maximum amount of Rs. 10.00 Lakhs each, which will be given as ignition grant/award, subject to the conditions stated therein.

    2.6     Establishment of Fund of Funds with a corpus of Rs.10,000 crore

     

    Government to set up a Fund with an initial corpus of Rs.2,500 crore and a total corpus of Rs.10,000 crore over a period of 4 years.

     

    Such Fund will not invest into Startups directly, but shall participate in the capital of SEBI registered Venture Funds.

     

    The Venture Fund may obtain up to a maximum of 50% of the fund size from the Fund of Funds, provided it has already raised the balance 50% of the stated fund size. Such Fund will be managed by a Board with private professionals drawn from industry bodies, academia, and successful Startups.

     

    2.7       Relaxation of norms for procurement from Startup entities

     

    Ministry of Micro, Small and Medium Enterprises has issued a policy circular No. 1(2)(1)/2016-MA, dated 10th March, 2016 to all central ministries, central PSUs, departments etc., to convey that in case of procurement of goods on prior experience basis is relaxed in case of procurement of goods from startup entities subject to certain conditions stated therein.

     

    Conclusion:

     

    By initiating so many measures, the Union Government expects that the India becomes major player for home grown start ups and the mission of Make-in India, skill india etc., can be achieved. The Action Plan has certainly addressed key concerns, like simplifying the process to obtain certain regulatory registrations and approvals by rolling out the proposed Mobile App and Portal, enabling faster exits from a regulatory perspective, providing funding support and credit guarantee for Startups, and permitting certain specified tax benefits.

    Tags:

    In this bulletin, we bring to our readers, certain important and significant judicial precedents pronounced by various high courts which would determine the future course of Transfer Pricing litigation. We wish the readers shall be benefited from the following judgments.

     

    1. Pr CIT v Ameriprise India (P)Ltd –Delhi High Court

     

    The Court upheld Tribunal’s order considering foreign exchange gain/loss arising out of revenue transactions(i.e. ITES services) as an item of operating revenue/cost.

     

    1. Toluna India Pvt Ltd – Delhi High Court

     

    HC upholds ITAT’s exclusion of 4 comparables viz. Infosys Technologies Ltd, KALS Information Systems Ltd, Tata Elxsi Ltd and Wipro Ltd for assessee providing software development and marketing support services to AE for AY 2008-09 and 2009-10; Notes that ITAT, while directing AO to exclude these comparables, had followed order passed in assessee’s own case for AY 2007-08 and such order did not appear to have been challenged by Revenue; On merits, HC holds that “given the scale of operations of the above entities, their exclusion from the list of comparables for the purposes of determination of ALP appears justified”; Accordingly, HC holds that no substantial question of law arises and dismisses Revenue’s appeal.

     

    1. Yum Restaurants(India) Pvt Ltd v ITO – Delhi High Court

     

    The Court held that the TPO was incorrect in presuming the existence of an international transaction between the assessee and its AEs, on the basis that the assessee allegedly made a contribution towards AMP expenditure to its wholly owned Indian subsidiary on behalf of its AEs and the fact that the assessee had incurred a loss in the relevant segment and therefore concluding that it was not adequately compensated by the AEs for the creation of marketing intangibles. The Court held that there would be a need for a detailed examination of the operating agreement between the assessee, its Indian subsidiary and the AEs to ascertain if any part of the AMP expenses was for the purpose of creating marketing intangibles for the AE of the assessee and only after an international transaction between the assessee and its AE in relation to AMP expenses was shown to exist, could the question of determining ALP of such international transactions arise.

     

    1. CIT v Thyssen Krupp IndustriesIndia (P)Ltd – Bombay High Court

     

    The Court held that where a substantial part of revenue of a comparable company in execution of turnkey projects arose out of executing projects of public sector undertakings, it could not be considered to be comparable to assessee-company providing turnkey services to its AE as contracts between Public Sector undertakings were not driven by profit motive alone but other consideration also weigh in such as discharge of social obligations etc.

     

     

    1. CIT v Goldstar Jewellery Design Pvt Ltd – Bombay High Court

     

    The Court held that the TPO was unjustified in applying the base of capital employed under the TNMM method without segregating the capital employed in respect of AE and Non-AE transactions. Further, it held that where the assessee entered into both international as well as domestic transactions, the Tribunal was justified in restricting the adjustment only to international transactions.

     

    1. CIT v ITC Infotech India Ltd – Calcutta High Court

     

    The Court held that where in respect of marketing and administrative services provided to third party customers, the assessee adopted a revenue sharing model whereby it kept 75 percent of the revenue and paid 25 percent to its subsidiaries who provided support services for transactions where the customers directly contracted with either the assessee or its subsidiaries, the TPO was incorrect in determining the remuneration to subsidiaries at 15 percent, where the customers directly contracted with the assessee, since there was no difference in the functions performed by either the assessee or its subsidiaries as compared to cases where customers directly contracted with the subsidiaries.

     

    1. Honda Cars India Ltd v DCIT – Delhi High Court

     

    The Court held that where the Petitioner was not a foreign company and the TPO did not propose any variation to income returned by petitioner, neither of two conditions of section 144C of the Act were satisfied and therefore the petitioner was not an ‘eligible assessee’. Consequently, the Assessing Officer was not competent to pass draft assessment order under section 144C(1) of the Act and therefore the said draft assessment order was quashed.

     

    1. International Air Transport Association – Bombay High Court

     

    The Court set aside the final assessment order passed under section 143(3) of the Act without passing a draft assessment order as mandated by Section 144C(1) of the Act which applied to the assessee. It observed that the DRP did not entertain the assessee’s objections absent the draft assessment order and therefore the rights made available to the assessee under section 144C of the Act were rendered futile by directly passing final order under section 143(3) of the Act.

     

    Concluding Remarks:

     

    Irrespective of the fact that most of the issues in Transfer Pricing are attaining finality through the judgements of the Tribunals, there are still certain conflicting views on various issues which are being cleared by the High Courts. However, the Tribunals and the Transfer Pricing Officers have been following their respective views stating that some of these High Court Judgements are not Jurisdictional High Courts pronouncements.

    Tags:
    Looking for suggestions?

    Subscribe SBS AND COMPANY LLP updates via Email!