The Regulatory implications of India’s membership of the Wassenaar Arrangement

 

 

 

 

India has joined the Wassenaar Arrangement (WA) on 8 December 2017 becoming the Arrangement’s 42nd Participating State. The Wassenaar Arrangement on Export Controls for Conventional Arms and Dual-Use Goods and Technologies, commonly known as the Wassenaar Arrangement, is a multilateral export control regime (MECR). The Wassenaar Arrangement was established to contribute to regional and international security and stability by promoting transparency and greater responsibility in transfers of conventional arms and dual-use goods and technologies. Participating states seek, through their national policies, to ensure that transfers of these items do not contribute to the development or enhancement of military capabilities which undermine these goals, and are not diverted to support such capabilities. It was established on 12 July 1996, in Wassenaar (the Netherlands).

India is also on the verge of joining The Australia group. The Australia Group is an informal arrangement which aims to allow exporting or trans-shipping countries to minimise the risk of assisting chemical and biological weapon (CBW) proliferation. The Group meets annually to discuss ways of increasing the effectiveness of participating countries’ national export licensing measures to prevent would-be proliferators from obtaining materials for CBW programs. Participants in the Australia Group do not undertake any legally binding obligations: the effectiveness of their cooperation depends solely on a shared commitment to CBW non-proliferation goals and the strength of their respective national measures. Key considerations in the formulation of participants’ export licensing measures are: they should be effective in impeding the production of chemical and biological weapons; they should be practical, and reasonably easy to implement, and they should not impede the normal trade of materials and equipment used for legitimate purposes. All states participating in the Australia Group are parties to the Chemical Weapons Convention (CWC) and the Biological Weapons Convention (BWC).

 

Joining of these regimes, besides having conventional strategic implications, have significant industrial/commercial spinoff as well. For instance, as a consequence of joining these multilateral institutions, in the near future, trade between the U.S. and India is likely to be simplified. After the US Commerce Department notifies India’s membership in these organizations in the Federal Register, the changes will likely reduce the exports for which a specific authorization will be required, and will increase the availability of certain license exceptions under the EAR, including Additional Permissive Re-exports (“APR”). However, to reap such benefits, India’s end of the bargain also has to be maintained.

 

The main policy instrument of the government to put into effect the obligations mandatory or otherwise as a consequence of entering the Australia Group or the Wassenaar agreement is the SCOMET list. Special Chemicals, Organism, Materials, Equipment and Technologies (SCOMET)” items are dual-use items having potential for both civilian and Weapons of Mass Destruction (WMD) applications. Export of such items is either restricted, requiring an authorisation for their export, or is prohibited. The export policy relating to SCOMET items is given in Paragraph 2.73 of Hand Book of Procedures of FTP 2015-20 and the list of such items is given in Appendix 3 to Schedule 2 of ITC (HS) Classification of Export and Import Items. There are eight broad categories of such items viz.,

1. Nuclear materials, nuclear-related other materials, equipment and technology
2. Toxic chemical agents and other chemicals
3. Micro-organisms, Toxins
4. Materials, Materials Processing Equipment, and related Technologies
5. Nuclear-related other equipment and technology, not controlled under Category o
6. Aerospace systems, equipment, including production and test equipment, and related technology
7. Reserved
8. Electronics, computers, and information technology including information security

 

All applications for export of SCOMET items as well as applications for onsite verification are considered on merits by an Inter-Ministerial Working Group (IMWG) in the DGFT under the Chairmanship of Additional Director General of Foreign Trade as per guidelines and criteria laid down in Para 2.74 of the Hand Book of Procedures. Members include, inter-alia, MEA, Cabinet Secretariat, DRDO, ISRO, DAE and Department of Chemicals & Petro-Chemicals. No export permission is required for supply of SCOMET items from DTA to SEZ. However, export permission is required if the SCOMET items are to be physically exported outside the country from SEZ. The SCOMET list which up to now was harmonised with the lists of Nuclear Suppliers Group (NSG) and Missile Technology Control Regime (MTCR) leading to India joining the MTCR in June 2016, has been further amended to fulfil the obligations of the Wassenaar agreement and the Australia group protocol, vide notification no: 29/2015-2020 dt:21/09/2017 further amending notification No.5/2015-20 dated:24/04/2017 and notification No.13/2015-20 dated:28/06/2017 .

 

Further, the following public notice has also been issued; Public Notice No. 2 7/2015-20 dated: 21/09/2017 which essentially amends Paragraph 2.72 (b) of the Handbook of Procedures of the Foreign Trade Policy (FTP) 2015-20.

The revised Paragraph 2.72 (b) of the HBP of FTP 2015-20 reads as under:-

(b) If the exporter has been notified in writing by DGFT or he knows or has reason to believe that an item not covered in the SCOMET list has a potential risk of use in or diversion to weapons of mass destruction (WMD) or in missile system or military use (including by terrorists and non-state actors), he shall apply for a SCOMET license. The export of such an item may be denied or permitted as per the procedure provided for SCOMET items in Paragraph 2.73.Note: “Military use” shall mean incorporation into items listed in SCOMET Categories 5D or 6 or for the use, development, or production of military items listed in these categories.

 

Implementing such complex provisions is hugely challenging for the Customs authority, which is the operational arm to implement the SCOMET guidelines, as primarily the customs resources are geared towards import monitoring. It is very difficult to correlate SCOMET items with HSN, this coupled with the fact of use of front companies, circumvention through third countries, exporting items just below the threshold requirements makes the task of implementation hugely challenging. The answer lies in enhanced capabilities required at the institutional level acquired through Inter Agency process of sharing information about potential export control violation, engaging with major multilateral export control regimes to understand emerging trends in proliferation issues. Effective implementation would also require significant outreach efforts.

 

 

Scheme for budgetary support under Goods and Service Tax Regime to the units located in States of Jammu & Kashmir, Uttarakhand, Himachal Pradesh and North East including Sikkim.

Government of India (MINISTRY OF COMMERCE & INDUSTRY; DEPARTMENT OF INDUSTRIAL POLICY & PROMOTION through notification dated 05/10/2017 issued from   F. No. 10(1)/2017-DBA-II/NER  has formalised the scheme for budgetary support under Goods and Service Tax Regime to the units located in States of Jammu & Kashmir, Uttarakhand, Himachal Pradesh and North East including Sikkim.

The details of the notification is as under:

To provide budgetary support to the existing eligible manufacturing units operating in the States of Jammu & Kashmir, Uttarakhand, Himachal Pradesh and North Eastern States including under different Industrial Promotion Schemes of the Government of India, for a residual period for which each of the units is eligible, a new scheme is being introduced. The new scheme is offered, as a measure of goodwill, only to the units which were eligible for drawing benefits under the earlier excise duty exemption/refund schemes but has otherwise no relation to the erstwhile schemes.

1.2 Units which were eligible under the erstwhile Schemes and were in operation through exemption notifications issued by the Department of Revenue in the Ministry of Finance, as listed under para 2 below would be considered eligible under this scheme. All such notifications have ceased to apply w.e.f. 01.07.2017 and stands rescinded on 18.07.2017 vide notification no. 21/2017 dated 18.07.2017. The scheme shall be limited to the tax which accrues to the Central Government under Central Goods and Service Act, 2017 and Integrated Goods and Services Act, 2017, after devolution of the Central tax or the Integrated tax to the States, in terms of Article 270 of the Constitution.

2. The erstwhile Schemes which were in operation on 18.07.2017 were as follows:

2.1 Jammu & Kashmir- Notification nos. 56/2002-CE dated 14.11.2002, 57/2002-CE dated  14.11.2002 and 01/2010-CE dated 06.02.2010 as amended from time to time;

2.2 Himachal Pradesh & Uttarakhand- Notification nos. 49/2003-CE dated 10.06.2003 and 50/2003-CE dated 10.06.2003 as amended from time to time;

2.3 North East States including Sikkim- Notification no 20/2007-CE dated 25.04.2007 as amended from time to time.

3. SHORT TITLE AND COMMENCEMENT

3.1 The scheme shall be called Scheme of Budgetary Support under Goods and Services Tax (GST) Regime to the units located in State of Jammu & Kashmir, Uttarakhand, Himachal Pradesh and North Eastern States including Sikkim. The said Scheme shall come into operation w.e.f. 01.07.2017 for an eligible unit (as defined in para 4.1) and shall remain in operation for residual period (as defined in para 4.3 ) for each of the eligible unit in respect of specified goods (as defined in para 4.2 ). The overall scheme shall be valid upto 30.06.2027.

3.2 OBJECTIVE:

The GST Council in its meeting held on 30.09.2016 had noted that exemption from payment of indirect tax under any existing tax incentive scheme of Central or State Governments shall not continue under the GST regime and the concerned units shall be required to pay tax in the GST regime. The Council left it to the discretion of Central and State Governments to notify schemes of budgetary support to such units. Accordingly, the Central Government in recognition of the hardships arising due to withdrawal of above exemption notifications has decided that it would provide budgetary support to the eligible units for the residual period by way of part reimbursement of the Goods and Services Tax, paid by the unit limited to the Central Government’s share of CGST and/or IGST retained after devolution of a part of these taxes to the States.

4. DEFINITIONS

4.1 ‘Eligible unit’ means a unit which was eligible before 1^st  day of July, 2017 to avail the benefit of ab-initio exemption or exemption by way of refund from payment of central excise duty under notifications, as the case may be, issued in this regard, listed in para 2 above and was availing the said exemption immediately before 1st day of July, 2017. The eligibility of the unit shall be on the basis of application filed for budgetary support under this scheme with reference

to:(a) Central Excise registration number, for the premises of the eligible manufacturing unit, as it existed prior to migration to GST; or (b) GST registration for the premises as a place of business, where manufacturing activity under exemption notification no. 49/2003-CE dated 10.06.2003 and 50/2003-CE dated 10.06.2003 were being carried prior to 01.07.2017 and the unit was not registered under Central Excise.

4.2 ‘Specified goods’ means the goods specified under exemption notifications, listed in paragraph 2, which were eligible for exemption under the said notifications, and which were being manufactured and cleared by the eligible unit by availing the benefit of excise duty exemption, from:

(a) The premises under Central Excise with a registration number, as it existed prior to migration to GST; or

(b) The manufacturing premises registered in GST as a place of business from where the said goods under exemption notification no. 49/2003-CE dated 10.06.2003 and 50/2003-CE dated 10.06.2003 were being cleared

4.3 ‘Residual period’ means the remaining period out of the total period not exceeding ten years, from the date of commencement of commercial production, as specified under the relevant notification listed in paragraph 2, during which the eligible unit would have been eligible to avail exemption for the specified goods. The documentary evidence regarding date of commercial production shall be submitted in terms of para 5.7.

5. DETERMINATION OF THE AMOUNT OF BUDGETARY SUPPORT

5.1 The amount of budgetary support under the scheme for specified goods manufactured by the eligible unit shall be sum total of –

(i) 58% of the Central tax paid through debit in the cash ledger account maintained by the unit in terms of sub-section(1) of section 49 the Central Goods and Services Act, 2017 after utilization of the Input tax credit of the Central Tax and Integrated Tax.

(ii) 29% of the integrated tax paid through debit in the cash ledger account maintained by the unit in terms of section 20 of the Integrated Goods and Services Act, 2017 after utilization of the Input tax credit Tax of the Central Tax and Integrated Tax. Provided where inputs are procured from a registered person operating under the Composition Scheme under Section 10 of the Central Goods and Services Act, 2017 the amount i.e. sum total of (i) & (ii) above shall be reduced by the same percentage as is the percentage value of inputs procured under Composition scheme out of total value of inputs procured.

Explanation:-

Explanation-I

a Sum total worked out under clause (i) & (ii) (a) Rs.200

b Percentage value of inputs procured under Composition Scheme out of total value of inputs procured 20%

 

c Admissible amount out of (a) above (a) Rs(200-20% of 200) = Rs.160

Explanation- II

(a) Calculation of (ii) shall be followed by calculation of (i)

(b) To avail benefit of this scheme, eligible unit shall first utilize input tax credit of Central tax and Integrated tax and balance of liability, if any, shall be paid in cash and where this condition is not fulfilled, the reimbursement sanctioning officer shall reduce the amount of budgetary support payable to the extent credit of Central tax and integrated tax, is not utilized for payment of tax.

5.2 The above 58% has been fixed taking into consideration that at present Central Government devolves 42% of the taxes on goods and services to the States as per the recommendation of the 14th Finance Commission.

5.3 Notwithstanding, the rescinding of the exemption notifications listed under para 2 above, the limitations, conditions and prohibitions under the respective notifications issued by Department of Revenue as they existed immediately before 01.07.2017 would continue to be applicable under this scheme. However, the provisions relating to facility of determination of special rate under the respective exemption notifications would not apply under this scheme.

5.4 Budgetary support under this scheme shall be worked out on quarterly basis for which claims shall be filed on a quarterly basis namely for January to March, April to June, July to September & October to December.

5.5 Any unit which is found on investigation to over-state its production or make any mis declaration to claim budgetary support would be made in-eligible for the residual period and be liable to recovery of excess budgetary support paid. Activity relating to concealment of input tax credit, purchase of inputs from unregistered suppliers (unless specifically exempt from GST registration) or routing of third party production or other activities aimed at enhancing the amount of budgetary support by mis-declaration would be treated as fraudulent activity and, without prejudice to any other action under law may invite denial of benefit under the scheme ab-initio. The units will have to declare total procurement of inputs from unregistered suppliers and from suppliers working under Composition Scheme under CGST Act, 2017.

5.6 The grant of budgetary support under the scheme shall be subject to compliance of provisions relating to any other law in force.

5.7 The manufacturer applying for benefit under this scheme for the first time shall also file the following documents:

 

(a) the copy of the option filed by the manufacturer with the jurisdictional Deputy Commissioner/ Assistant Commissioner of Central Excise officer at the relevant point of time, for availing the exemption notification issued by the Department of Revenue;

(b) document issued by the concerned Director of Industries evidencing the commencement of commercial production

(c) the copy of last monthly/quarterly return for production and removal of goods under exemption notification of the Department of Revenue.

(d) An Affidavit-cum-indemnity bond, as per Annexure A, to be submitted on one time basis, binding itself to pay the amount repayable under para 9 below.

Any other document evidencing the details required in clause (a) to (c) may be accepted with the approval of the Commissioner.

5.8 For the purpose of this Scheme, “manufacture” means any change(s) in the physical object resulting in transformation of the object into a distinct article with a different name or bringing a new object into existence with a different chemical composition or integral structure. Where the Central Tax or Integrated Tax paid on value addition is higher than the Central Tax or Integrated Tax worked out on the value addition shown in column (4) of the table below, the unit may be taken up for verification of the value addition:

Explanation: For calculation of the value addition the procedure specified in notification no 01/2010-CE dated 06.02.2010 of the Department of Revenue as amended from time to time shall apply mutatis-mutandis.

5.9.1 In cases where an entity is carrying out its operations in a State from multiple business premises, in addition to manufacture of specified goods by the eligible unit, under the same GST Identification Number (GSTIN) as that of the eligible unit, the eligible unit shall submit application for reimbursement of budgetary support alongwith additional information, duly certified by a Chartered Accountant, relating to receipt of inputs, input tax credit involved on the inputs or capital goods received by the eligible unit and quantity of specified goods manufactured by the eligible unit vis-a-vis the inputs, input tax credit availed by the registrant under the given GSTIN.

5.9.2 Under GST, one business entity having multiple business premises would generally have one registration in a State and it may so happen that only one of them (eligible unit) was operating under Area Based Exemption Scheme. In such situations where inputs are received from another business premises of (supplying unit) of the same registrant (GSTIN) by, the details of input tax credit of Central Tax or Integrated Tax availed by the supplying unit for supplies to the eligible unit shall also be submitted duly certified by the Chartered Accountant.

7

The jurisdictional Deputy/Assistant Commissioner in such cases shall sanction the reimbursement of the budgetary support after reducing input tax credit relatable to inputs used by the supplying unit.

6. INSPECTION OF THE ELIGIBLE UNIT

6.1 The Budgetary Support under the Scheme shall be allowed to an eligible unit subject to an inspection by a team constituted by DIPP for every State to scrutinize in detail the implementation of the previous schemes. The inspection report shall be uploaded by the inspection team on ACES-GST portal of the Central Board of Excise & Customs (CBEC) and shall be made available to the jurisdictional Deputy/Assistant Commissioner of the Central Tax on the portal before sanction of the budgetary support. Budgetary support will be released only after the findings to these teams are available. Provided that where delay is expected in such findings of the inspection, the Deputy/ Assistant Commissioner of Central Taxes may sanction provisional reimbursement to the eligible unit. Such provisional reimbursement shall not continue beyond a period of six months.

7. MANNER OF BUDGETARY SUPPORT

7.1 The manufacturer shall file an application for payment of budgetary support for the Tax paid in cash, other than the amount of Tax paid by utilization of Input Tax credit under the Input Tax Credit Rules, 2017, to the Assistant Commissioner or Deputy Commissioner of Central Taxes, as the case may be, by the 15th day of the succeeding month after end of quarter after payment of tax relating to the quarter to which the claim relates.

7.2 The Assistant Commissioner or Deputy Commissioner of Central Taxes, as the case may be, after such examination of the application as may be necessary, shall sanction reimbursement of the budgetary support. The sanctioned amount shall be conveyed to the applicant electronically. The PAO, CBEC will sanction and disburse the recommended reimbursement of budgetary support.

8. BUDGETARY PROVISION AND PAYMENT OF AMOUNT OF BUDGETARY SUPPORT

8.1 The budgetary support shall be disbursed from budgetary allocation of Department of Industrial Policy & Promotion (DIPP), Ministry of Commerce & Industry. DIPP shall keep such budgetary allocation on the disposal of PAO, CBEC. The eligible units shall obtain one time registration on the ACES-GST portal and obtain a unique ID which is to be used for all processing of claims under the scheme. The application by the eligible unit for reimbursement of budgetary support shall be filed on the ACES-GST portal with reference to unique ID obtained and shall be processed by the Deputy Commissioner or Assistant Commissioner of the Central Tax for sanction of the admissible amount of budgetary support.

8.2 The application for imbursement of budgetary support shall be made by the eligible unit after the payment of CGST/IGST has been made for the quarter to which the claim relates, in cash in respect of specified goods after utilization of Input Tax credit, if any.

8.3 The sanctioning authority (AC/DC) with the approval of the Commissioner may call for additional information (inclusive but not limited to past data on trends of production and removal of goods) to verify the correctness of various factors of production such as consumption of principal inputs, consumption of electricity and decide on the basis of the same, if the quantum of supply have been correctly declared.

8.4 Special audit by the Chartered Accountant/Cost Accountant may be undertaken for units selected based on the risk parameters identified by CBEC in order to verify correctness of declared production capacity and production or overvaluation of supplies. Such special audit shall be undertaken only with the approval of the Commissioner, CGST.

8.5 The list of sanctions for payment, on the basis of amount sanctioned by the jurisdictional Deputy Commissioner or Assistant Commissioner of the Central Tax shall be forwarded by the authorised officer of the jurisdictional Commissionerate of the Central Tax through the ACESGST portal to e-PAO, CBEC for disbursal directly into the bank accounts of the eligible units.

9. REPAYMENT BY CLAIMANT/ RECOVERY AND DISPUTE RESOLUTION

9.1 The budgetary support allowed is subject to the conditions specified under the scheme and in case of contravention of any provision of the scheme/ notification, the budgetary support shall be deemed to have never been allowed and any inadmissible budgetary support reimbursed including the budgetary support paid for the past period under this scheme shall be recovered alongwith an interest @15% per annum thereon. In case of recovery or voluntary adjustment of excess payment, repayment, recovery or return, interest shall also be paid by unit at the rate of fifteen per cent per annum calculated from the date of payment of refund till the date of repayment, recovery or return.

9.2 When any amount under the scheme is availed by wrong declaration of particulars regarding meeting the eligibility conditions in this scheme or as specified under respective exemption notification issued by the Department of Revenue, necessary action would be initiated and concluded in the individual case by the Office of concerned Assistant Commissioner or Deputy Commissioner of Central Taxes, as the case may be.

9.3 The procedure for recovery: Where any amount is recoverable from a unit, the Assistant Commissioner or Deputy Commissioner of Central Tax, as the case may be, shall  issue a demand note to the unit (i) intimating the amount recoverable from the unit and the date from which interest thereon is due and (ii) directing the manufacturer to deposit the full sum within 30 days of the issue of the demand note in the account head of DIPP and submit proof of deposit to him/her

9.4 Where the amount is not paid by the beneficiary within the time specified as above, action for recovery shall be taken in terms of the affidavit –cum- indemnity bond submitted by the applicant at the time of submission of the application, in addition to other modes of recovery.

9.5 Where any amount of budgetary support and/or interest remains due from the unit, based on the report sent by the Assistant Commissioner or Deputy Commissioner of Central Tax as the case may be, the authorized officer of DIPP shall, after the lapse of 60 days from the date of issue of the said demand note take required legal action and send a certificate specifying the amount due from the unit to the concerned District Magistrate/ Deputy Commissioner of the district to recover that amount, as if it were arrears of land revenue

10 Residual issues related to the Scheme arising subsequently shall be considered by DIPP, Ministry of Commerce & Industry whose decision shall be final and binding.

11. SAVING CLAUSE

11.1 Upon cessation of the Scheme, the unpaid claims shall be settled in accordance with the provisions of the Scheme while the recovery and dispute resolution mechanisms shall continue to be in force.

Annexure A

AFFIDAVIT – CUM – INDEMNITY BOND

I / We Shri__________________ s/o________________(add names) in my/our capacity of_____________(designation) of________________ (Company/Unit Name) hereby solemnly affirm and declare for and on behalf of_____________(company/unit name) that an application for registration for reimbursement of budgetary support has been filed on__________ under the Scheme of Budgetary Support notified by Department of Industrial Policy and Promotion (DIPP).

I/We confirm that the eligible unit is manufacturing and supplying specified goods on payment of Central GST/ Integrated GST and the claim will not include any other activity being carried out under the same GSTIN.

I /We further affirm and declare, as stated above, goods other than specified goods manufactured by the eligible unit will not be taken into account while filing the application under the scheme. The input tax credit on the goods availed by the eligible manufacturing unit or the supplying unit under the same GSTIN will be taken into account while calculating the input tax credit of the eligible manufacturing unit. No amount of budgetary support which is not due as per the conditions of the scheme notified by DIPP shall be claimed by the eligible unit and where any mis-declaration is detected, the amount paid by the Government shall be paid back by me/us with interest as prescribed in the scheme.

I/We solemnly affirm and declare that whatever is stated above is true to the best of my / our knowledge and record. I/We further indemnify the Government of India to recover the amount, if any for any revenue loss which may occur (might have occurred) due to the above submission made by me / us.

DATE : NAME: PLACE: SIGNATURE:  DESIGNATION ADDRESS:

Note:

1. This indemnity bond should be submitted on Rs.150/- Stamp Paper.
2. The bond is required to notorised.
3. Proprietors /Partners / Directors / Authorised Signatory has to sign the bond alongwith their name and residential address. In case the bond is signed by authorized signatory, copy of power of attorney in favour of authorized signatory needs to be enclosed.

 

Due Diligence Framework under the Insolvency and Bankruptcy Code 2016

 

The Insolvency and Bankruptcy Code, 2016  is an Act to consolidate the laws relating to insolvency and bankruptcy of corporate persons, partnership firms and individuals. It has been mentioned in the Statement of Objects and Reasons of the Code that the objective of the Act is to ensure resolution of such proceedings in a time-bound manner and maximization of the value of assets of such persons in order to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the order of priority of payment of Government dues. Suitable amendments have been done in the existing laws to make all insolvency and bankruptcy proceedings subject to the provisions of the Insolvency and Bankruptcy Code, 2016. The Code would have an overriding effect on all other laws relating to insolvency and bankruptcy. To this effect, Sections 245 to 255 of the Code amend a plethora of existing laws, viz. the Indian Partnership Act, 1932, the Central Excise Act, 1944, the Income Tax Act, 1961, the Customs Act, 1962, the Recovery of Debts due to banks and Financial Institutions Act, 1993, the Finance Act, 1994, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Sick Industrial (Special Provision) Repeal Act, 2003, the Payment and Settlement Systems Act, 2007, the Limited Liability Partnership Act, 2008 and the Companies Act, 2013.

Insolvency and Bankruptcy Board of India (IBBI) has strengthened  its Due Diligence Framework under the Insolvency and Bankruptcy Code, 2016

Now prior to approval of a Resolution Plan, the Resolution Applicants, including promoters, will be put to a stringent test with respect to their credit worthiness and credibility; Amendments to the IBBI (Insolvency Resolution Process for Corporate Persons) Resolution Process, 2016 impose a greater responsibility on the Resolution Professionals  and the Committee of Creditors in discharging their duties.

Insolvency and Bankruptcy Board of India (IBBI) has amended its Corporate Insolvency Resolution Process Regulations to ensure that as part of due diligence, prior to approval of a Resolution Plan, the antecedents, credit worthiness and credibility of a Resolution Applicant, including promoters, are taken into account by the Committee of Creditors.

With a view to ensure that the Corporate Insolvency Resolution Process results in a credible and viable Resolution Plan, the Insolvency and Bankruptcy Board of India (IBBI) has carried-out amendments to the IBBI (Insolvency Resolution Process for Corporate Persons) Resolution Process, 2016 (CIRP Regulations).

The Revised Regulations make it incumbent upon the Resolution Professional to ensure that the Resolution Plan presented to the Committee of Creditors contains relevant details to assess the credibility of the Resolution Applicants.  The details to be provided would include details with respect to the Resolution Applicant in terms of convictions, disqualifications, criminal proceedings, categorization as willful defaulter as per RBI guidelines, debarment imposed by SEBI, if any, and  transaction, if any, with the Corporate Debtor in the last two years.

Apart from the above, the Resolution Professional has to also submit details in respect of transactions observed or determined, if any, covered under Section 43 (Preferential Transactions); Section 45(Undervalued Transactions); Section 50 (Extortionate Credit Transactions); Section 66 (Fraudulent Transactions) under Insolvency and Bankruptcy Code, 2016.

By virtue of the above mentioned changes in the Regulations, the Resolution Applicants, including promoters, are put to a stringent test with respect to their credit worthiness and credibility. Further, it also imposes greater responsibility on the Resolution Professionals and the Committee of Creditors in discharging their duties.

Scheme of Deferred payment of Customs Duty Introduced by India

 

Government of India through Circular No. 52/2016-Cus(F.No.450/81/2016-Cus IV) dated the 15th November, 2016 has drawn attention to Customs Notification No. 134/2016-Custorns (N.T) & 135/2016-Custorns (N.T.) dated 2nd November, 2016 permitting Importers certified under Authorized Economic Operator Programme as AEO (Tier-Two) and AEO (Tier-Three) to make deferred payment of duty of Customs. Explaining therein that :

Every importer certified as AEO-T2/AEO-T3 shall obtain ICEGATE Login which is essential to avail benefits envisaged in the AEO Programme. Further, in order to avail the facility of deferred payment, every AEO-T2/AEO-T3 is advised to nominate a nodal person borne on their establishment who would be responsible for authenticating all the customs related transactions on behalf of the AEO. Since the option of deferred payment has been extended only to AEO (Tier-Two) and AEO (Tier-Three), it is important for the AEO to exercise due caution in nominating the AEO nodal person to prevent misuse of facility of deferred payment. The contact details of AEO nodal person shall also be provided in ICEGATE login to ensure that the information reaches in time at their registered mail for authentication.

As per rule 4 of the Deferred Payment of Import Duty Rules, an eligible importer who intends to avail the benefit of deferred payment shall intimate to the Principal Commissioner of Customs or the Commissioner of Customs, as the case may be, having jurisdiction over the port of clearance, his intention to avail the said benefit. An intimation addressed to the AEO Programme Manager with a copy to the Principal Commissioner(s) of Customs or the Commissioner(s) of Customs, as the case may be, having jurisdiction over the port(s) of clearance shall be considered as an intimation by an eligible importer of his intention to avail the said benefit.

The eligible importer who intends to make deferred payment shall indicate the same using flag “D” in the Payment Method column of Bill of Entry filed. In order to ensure that the facility of deferred payment is availed only by the eligible importer, option has been provided in ICEGATE Login for AEO Nodal person to acknowledge such intent and authenticate using One Time Password (OTP) sent to his registered e-mail address. The Nodal person would be able to authenticate multiple Bills of Entry at once. Only on such authentication by the eligible AEO importer, customs clearance would be provided for the consignment under deferred payment of duty Rules. The due dates for deferred payment of import duty by eligible importers are specified in rule 6 of the said Rules. The eligible importer also has an option to select the challans belonging to the deferred period and pay at anytime, even before the due date at their convenience.

 

RELATED PARTY ASSESSMENT PROCEDURE UNDER INDIAN CUSTOMS LAW

RELATED PARTY TRANSACTIONS ARE MONITORED AND FINALIZED BY SPECIAL VALUATION BRANCH (SVB) FORMATIONS OF THE INDIAN CUSTOMS ADMINISTRATION BELOW IS A COMPREHENSIVE NOTE ON THE FUNCTIONING OF SVB: 

 

 

1.Background

                      Special Valuation Branch is an institution which specializes in the investigation and assessment of transactions involving special relationship between the importer and the related foreign supplier or those involving special circumstances surrounding the sale of imported goods having bearing on the valuation of imported goods.  In other words, when the parties are related as per rule 2(2) of Customs Valuation ( Determination of Value of Imported Goods ) Rules, 2007 (valuation rules), then the valuation of the goods as imported from such related foreign supplier is investigated / examined by SVB. CENTRAL BOARD OF EXCISE AND CUSTOMS (CBEC) ALSO REFERRED TO AS BOARD   has superseded its Circular Nos. 1/98-Customs dated 01.01.98 & 11/2001-Customs dated 23.02.2001 and issued detailed and comprehensive revised instructions for SVB proceedings in the following two circulars-:

• Circular No. 04/2016-Customs dated 09.02.2016 providing for the procedure for renewal of SVB orders and pending SVB inquiries under Circular No. 11/2001-Customs dated 23.02.2001. Thus this circular is relevant only for such cases which are pending for renewal and pending SVB inquiries under Circular No. 11/2001-Customs.
• Circular No. 05/2016-Customs dated 09.02.2016 providing procedure for SVB investigations of related party transactions and some other issues. This Circular laid down comprehensive procedure for SVB proceedings.

The salient features of above mentioned two latest CBEC circulars are given below:

2. Cases which may be considered for SVB investigations

At the time of filing bill of entry, all importers are required to file a declaration before the customs as to whether the seller of imported goods is a ‘related person’ in terms of rule 2(2) of CVR, 2007. If the importer declares that the transaction is with a ‘related person’ as defined under rule 2(2) of CVR, 2007, then it becomes necessary to examine whether or not the circumstances surrounding the sale of imported goods indicate that the relationship has influenced the price of imported goods and whether the SVB inquiries are needed or not.

Apart from related party transactions, certain transactions involving possible addition to declared transaction value are also to be considered/ examined to determine whether SVB investigations are required or not. Thus payments sought to be made which are in natures of instances below, are to be examined to find out the need for SVB inquiries-

• ‘royalty and licence fees’ under rule 10(1)(c) of CVR, 2007 or
• Where the value of any part of proceeds of any subsequent resale, disposal or use of imported goods accrues to the seller—rule 10(1)(d) of CVR, 2007. Or
• Where any payments are made or contemplated to be made in future by buyer to seller as a condition of sale of imported goods etc—- rule 10(1)(e) of CVR, 2007.

However no reference to SVB is required if the addition to value are sought to be made under rule 10(1)(a) and 10(1)(b) of CVR, 2007.

3. Procedure for considering reference to SVB

In cases where an importer  is related with foreign supplier in terms of rule 2(2) of CVR, 2007 and/or involving additions to value on account of royalty, licence fees etc, the importer  shall provide information as given in questionnaire as per Annexure A attached to CBEC Circular No. 05/16-Customs dated 09.02.2016 and the information as required under rule 3(3)(b) of CVR,2007 at the time of filing of bill of entry.

Since scrutiny of transaction between related persons or involving addition to value due to royalty etc. can lead to delay in clearance of consignment, the importers falling in these categories, should, as far as possible, file a prior bill of entry under the second proviso to sub-section (3) of section 46 of the Customs Act, 1962 preferable 15 days prior to import along with information as per above said Annexure A and as required under rule 3(3)(b) of CVR, 2007. Such advance filing of bill of entry is desirable to provide sufficient time to Customs for taking a decision on whether the transaction needs to be referred to SVB or not and therefore ensuring timely clearance of the import goods. This advance filing of bill of entry is required only in first instance of import and once a decision is taken regarding referring the matter to SVB or not, there would be no need for such advance bill of entry in each subsequent import.

Upon filing of bill of entry and receipt of information in Annexure A, the proper officer shall carefully examine the circumstances surrounding the sale and shall proceed to determine whether, prima facie, there is requirement of SVB investigation. The proper officer shall complete the examination within three days of filing of bill of entry and submit the matter before the Commissioner. The proper officer shall evaluate the matter on the following parameters as specified in Circular No. 5/16-Customs dated 09.02.2016:

1. Has the importer declared the price of goods imported as a “transfer price”?
2. What is the basis on which the price has been settled between buyer and seller?

• Has the price been settled in a manner consistent with the way the seller settles prices for sale to buyer who are not related to seller?

1. Does the nature of relationship between the buyer and seller appear to influence the price?
2. Is the information provided by the importer in terms of rule 3(3)(b) able to demonstrate that the transaction is at arm’s length?
3. Are there are any payments such as royalty, licence fees etc. actually made or to be made, as a condition of sale of the imported goods, by the buyer to the seller, or by the buyer to a third party to satisfy an obligation cast by the seller? Are such payments included in the price actually paid or payable?

• Whether any parts of proceeds of subsequent re-sale, disposal or use of the imported goods accrues, directly or indirectly, to the seller?
• What is the nature of other payments, if any, made or to be made by the buyer as a condition of sale of imported goods?

1. Has the importer entered into an Advance Pricing Agreement with the Income Tax Authorities or obtained an Advance Ruling?
2. Will the price paid or payable by the importer be settled with the seller at the end of the defined period by means of a debit note / credit note?

While examining the information provided by the importer in terms of rule 3(3)(b), the proper officer shall also refer to the Interpretative Note given in CVR, 2007 which reads as under:

“ A number of factors must be taken into consideration in determining whether one value “closely approximates” to another value. These factors include the nature of imported goods, the nature of industry itself, the season in which the goods are imported and whether the difference in value is commercially significant. Since these factors may vary from case to case, it would be impossible to apply a uniform standard such as fixed percentage, in each case. For example, a small difference in value in a case involving one type of goods could be unacceptable while a large difference in a case involving another type of goods might be acceptable in determining whether the transaction value closely approximates to the “test” values set forth in rule 3(3)(b).”

After examining the matter on above said guidelines, the proper officer shall submit his report to the Commissioner for a decision on whether the case is fit for being referred to the SVB investigations.

The Commissioner shall after due consideration of the preliminary findings, take a considered view whether:

• The matter be referred to SVB for further investigations and the goods be provisionally assessed to duty in terms of section 18 of the Customs Act, 1962, or
• The transaction does not merit investigations by SVB and the assessment be finalized on the basis of enquiries to be conducted by the proper officer in terms of rules 4 to 9 of the CVR, 2007 or
• The transaction be assessed in terms of rule 3 of CVR, 2007.

4. Procedure for reference to SVB

If the Commissioner directs for SVB investigations, the proper officer shall promptly clear the goods by carrying out provisional assessment in terms of section 18 of the Customs Act, 1962 and ensure that no delays occur in release of goods.

Side by side, the proper officer shall requisition further information from the importer as per Annexure B to Circular No. 05/2016-Customs dated 09.02.2016. The importer should be advised to furnish the documents and duly indexed reply to the questionnaire to the jurisdictional SVB within 60 days.

After carrying out provisional assessment procedure and issue of questionnaire to the importer, the proper officer shall transfer all related records/documents to the jurisdictional SVB within 3 working days of release of goods.

In cases where the import takes place through Customs Houses of Mumbai / Delhi / Chennai / Kolkata / Bangalore, the importer will be free to select the SVB of the Customs House of the import or the Customs House most proximate to the corporate office, as convenient to him. In the earlier Circular No. 11/2001-Customs dated 23.02.2001, jurisdiction of SVBs were based upon only on the principle of the location of corporate office .

5. Procedure in Special Valuation Branch

After receiving all records from the referring Customs formation, SVB will forthwith assign a case number and update the Central Registry Database (CRD) maintained by DGOV and also inform RMD about the details of importer, his IEC code and details of seller for inserting suitable instructions for assessing officers of all Customs House to ensure provisional assessments at all ports of import during the pendency of SVB investigations.

The documents received from the importer with reference to Annexure B shall be duly acknowledged by SVB. An intimation regarding the same shall be forwarded to RMD and the referring Appraising Group regarding submission of the documents in time so that provisional assessments without security can continue till finalization of investigations.

SVB will go through the documents and information received from the importer in Annexure B and will commence inquiries. The concerned Deputy/Asstt. Commissioner may call for additional information or documents if required. The importer shall be given full opportunity to submit all evidences in support of his declared value.

SVB shall, as far as possible, complete the investigations and issue its findings within two months of receipt of information in Annexure B.

If the investigations could not be completed within two months , then SVB shall seek the approval of jurisdictional Commissioner for extending the period of investigation as deemed necessary.

However if the investigations are not completed within 4 months of receipt of information in Annexure B, then the matter shall be placed before the Chief Commissioner for extension of period as deemed fit.

SVB will complete the investigations quantifying the extent of influence on transaction value due to the relationship or payments towards royalty or licence fees or other payments actually made or to be made as a condition of sale of imported goods. SVB will submit its findings to the Principal Commissioner/Commissioner.

Upon approval by the Principal Commissioner/Commissioner, an Investigation Report (IR) shall be prepared broadly consisting of following details/documents:

• Relevant facts
• Submissions of the importer
• The findings
• The ground for acceptance or rejection of declared value
• Extent of influence on declared transaction value
• All relied up[on documents.

Investigation Report with all relevant documents shall be communicated to the referring Customs station and all other such stations where the goods were cleared on provisional basis as well as to DGOV.

In cases where investigative findings conclude that the declared value confirms to rule 3 of CVR, 2007, SVB shall convey through a communication to the importer regarding the acceptance of declared value.

6. Finalization of assessments

Upon receipt of Investigation Report from SVB, all provisional assessments will immediately be finalized and there would be no need to issue a speaking order for finalizing provisional assessment cases where declared price is found confirming to rule 3 of CVR, 2007.

In cases where investigative findings are that the declared value has been influenced by the circumstances surrounding the sale, a show cause notice is required to be issued by the proper officer to the importer within 15 days of receipt of investigations report under intimation to SVB.

Where the imports have been made from multiple locations, the jurisdictional Commissioner of SVB, after issue of show cause notices in all such locations, shall make a proposal to the Commissioner (Customs), CBEC recommending appointment of a common adjudicating authority by Board for passing orders for finalization of provisional assessments.

The adjudicating authority will follow the principles of natural justice and pass the orders quantifying the extent of influence on declared price. A copy of the order shall be endorsed to RMD and DGOV for updating the Central Registry Database. Normal appellate channels as given in the appellate provisions under Chapter XV of the Customs Act, 1962 would apply for filing appeals against the orders of adjudicating authority.

Earlier system of adjudication wherein the proper officer of SVB passes appealable order followed by the assessing officer passing another corresponding order finalizing provisional assessments has been replaced. Board has decided that SVB shall not issue an appealable order. Instead, SVB shall convey its findings by way of Investigation Report to the concerned Customs formation. This would do away with multiple streams of appeals for the trade.

7. Procedure for cases where reference to SVB is not required

                                  In cases where after examination of the transaction, the Commissioner decides that that there is no need for referring the matter to SVB, the concerned Customs formation shall issue a reference number to the importer and RMD to indicate that the transaction has been examined from the point of view of need of SVB inquiries and it has been decided not to refer the same to SVB.

8. Transactions not to be subjected to SVB proceedings

                                 In order to ensure that only cases with significant revenue implications are taken up for SVB investigations, Board has decided that the following cases shall not be taken up for inquiries by SVBs:

1. Import of samples and prototypes from related sellers.
2. Imports from related sellers where duty chargeable (including Additional Duty of Customs etc.) is unconditionally fully exempted or nil.

• Any transaction where value of imported goods is less than Rs. 1 lakh but cumulatively these transactions do not exceed Rs. 25 lakh in any financial year.

9. Extra Duty Deposit (EDD)

Board has reviewed the practice of levying “Extra Duty Deposit” (EDD) SVB cases. Earlier importers were required to deposit 1% of declared value as EDD for a period of four months during which he was required to submit information and documents to SVB and if he failed to submit required details, EDD can be increased to 5% till such time he complies. Upon complying with submission of required details, EDD is discontinued and clearance was done on PD bonds till completion of investigations. Board has also taken note of representations from many importers on delays in dispensing with EDD, even though importers provided required information and still the case was not decided within 4 months. In view of position explained above and in order to cut transactional costs and to bring uniformity across Customs Houses, Board in its latest circular no. 5/16 dated 09.02.2016, has decided that no security in the form of EDD shall be obtained from the importer although the assessment in cases referred to SVB, has to be provisional. However in cases where importer fails to provide information and documents required for SVB inquiries within 60 days of requisition of the same, security deposit at the rate of 5% of the declared assessable value shall be imposed by the Commissioner for a period not exceeding the next three months. Simultaneously, the importer shall be granted a further period of 60 days for submission of required details/documents. If the importer fails to provide documents even within the extended period, then the Commissioner Incharge of SVB may take help of other provisions of the Customs Act  in order to obtain documents/information from the importer for conducting investigations. But in no case, the period of security deposit of three months can be extended. Board has also decided that the importer is free to choose  the manner of furnishing security for the purposes of provisional assessment i.e. either cash deposit or bank guarantee. The form of the bond to be initially submitted by the importer is given in Annexure D to the circular and the form of bond with security is given as Annexure E to the said circular.

10. Changes in circumstances surrounding the sale

In any case where the circumstances of sale or terms and conditions of the agreement between buyer and seller change, or any other payments of the kind referred under rule 10(1)(c), (d) & (e) of the CVR, 2007 becomes payable, importer shall be required to declare the same at the place of import in the prescribed format in Annexure C to Circular No. 05/2016-Customs dated 09.02.2016. All such cases shall be examined by the proper officer and the jurisdictional Commissioner shall refer the matter to the jurisdictional SVB wherever required.

11. Discontinuation of renewal of SVB orders

                                       In view of the position explained in the above para 10, the requirement of renewal of SVB orders every three years has been done away with immediate effect i.e. from 09.02.2016.

12. Instructions regarding disposal of pending cases

Board’s Circular No. 04/2016-Customs dated 09.02.2016 provides for the procedure of disposal of pending SVB cases initiated in terms of two superseded circulars nos. 1/98-Cus. Dated 1.1.98 & 11/2001-Cus. Dated 23.02.2001 and those involving renewal of SVB orders. The procedure is outlined below:

Pending SVB renewal cases –  To facilitate quick disposal of cases pending with SVBs for renewal, a system of submission one time declaration in prescribed formats (Annexure 1 & 2 of circular 4/16) has been provided. Importers, in such cases were required to submit this one time declaration to jurisdictional SVB by 31.05.2016. In cases where the importer filed declaration in Annexure 1 indicating no change in the circumstances surrounding the sale, the process of renewal would be treated as dispensed with.  SVB is to inform the concerned Customs station to discontinue EDD and finalize provisional assessments. This communication from SVB to Customs station was required to be sent by 30.06.2016. In cases where a change in circumstances surrounding the sale had been stated in Annexure 2, the SVB inquiries are to be initiated in terms of the procedure laid down in Circular 5/16. If EDD is obtained in such cases, that are to be reviewed and sequence of para 3.2 of circular no. 5/16 is to be followed.

Pending SVB investigations –  All pending SVB investigations (other than renewal cases) where EDD is deposited are to be reviewed as per para 3.2 of circular No. 5/16. In cases where importer provided information and documents to SVB, EDD is discontinued. This exercise was required to be completed by 31.05.16. In cases where EDD enhanced to 5% due to non-submission of information/documents necessary for SVB inquires , the Commissioner is to take recourse to other provisions of the Customs Act for obtaining the necessary documents.

13. Jurisdiction of DGOV and monitoring of SVB investigations

CBEC circular No. 29/2012 dated 07.12.2012 wherein functional control over SVBs was vested with DGOV, has been withdrawn with effect from 09.02.2016 and functions of all Special Valuation Branches have been put under the supervisory control of the jurisdictional Chief Commissioner/Principal Commissioner/ Commissioner. DGOV shall continue to support SVBs by issuing advisories on legal issues and guidance notes and shall facilitate co-ordination amongst the SVBs. Once the case is registered by SVB, detailed information of the case along with IEC code of the importer is required to be entered in the Central Registry Database (CRD) maintained by DGOV. DGOV shall monitor the progress of the investigation and report to the Board cases involving inordinate delays.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LEVERAGING FREE TRADE AGREEMENTS FOR COMPETITIVE ADVANTAGE;IDENTIFYING THE ROAD BLOCKS

 

 

 

With the proliferation of FTAs globally in its various avatars covering trade in goods, services, and investments. It is imperative for every industry exposed to global production and supply chains management networks to include FTAs as a key component in its growth/survival strategy. The quality and depth of commitments under FTAs is typically WTO plus i.e. surpassing the commitments offered under the WTO commitments. Hence, factoring the FTA landscape by the industries would be a worthwhile endeavor, as it can lead to significant reductions in import duties thus enhancing the cost competitiveness . Further, Exporting Industries can use FTA’s to enhance their competitiveness in terms of smart pricing.

 

India is party to various FTAs which include the Asia-Pacific Trade Agreement with Bangladesh, Korea, Sri Lanka and China (‘APTA’), the Global System of Trade Preferences with 48 countries (‘GSTP’) the Comprehensive Economic Cooperation Agreement with Singapore (‘CECA’), the Agreement on South Asian Free Trade Area with Pakistan, Bangladesh, Nepal, Bhutan, Sri Lanka, Maldives (‘SAFTA), the India-Thailand FTA, Preferential Trade Agreements with the Association of South East Asian Nations (‘ASEAN’) and South Korea etc. As of 2015, India has notified the WTO of 15 trade agreements and is currently negotiating another 11 agreements in various forms.

 

Trade agreements are a means to promote trade but Indian Industry  appears to have underutilised these trade agreements. The percentage of India’s international trade  through the preferential route/FTAs is very low. According to the Asian Development Bank, the utilization rate of India’s FTAs varies between 5% and 25%, which is one of the lowest in Asia.

 

A major reason consistently pointed out in  various  studies across developing countries for low utilization rates of FTAs remains the lack of information and education campaigns focused on FTAs. Compliance and administration costs related to ROO (rules of origin) requirements also  represent a major hurdle in the decision of firms to utilise an FTA. All too often, firms, are severely discouraged by the administrative costs of securing COO certificate . Preparing the origin documents entails work that creates fixed expenditure, thus only those firms(one can safely exclude SMEs from this category) who can absorb this cost are inclined to use an FTA scheme. In order to qualify for preferential duty rates, a company must comply with the rules of origin for that particular FTA. These rules have varied criteria (e.g. regional value content or shift in tariff classification) which apply differently to products depending on the FTA. Complex rules of origin criteria, lack of information on FTAs, higher compliance costs and administrative delays dissuade exporters from using preferential routes. Failure to properly track the country of origin of imported goods can jeopardize eligibility for FTAs and other preferential trade programs. Incorrect or false country of origin claims can also result in severe customs penalties or violations of civil and criminal statutes. When applying for a certificate of origin, firms also have to submit documents with specific information on source, components, and raw materials to prove origin.  Firms rightly perceive this process as requiring the disclosure of confidential information, concern about the continued confidentiality of the information so submitted ,is also a major dampener.

 

 

Industries are already facing difficulties comprehending and utilising existing FTAs, this has implications for India’s negotiation of RCEP/FTA with EU, Australia etc., as it  would imply as yet another trade agreement for industries to comprehend. The RCEP, along with other mega RTAs – the TPP(Trans Pacific Partnership) etc, are expected to alter the framework and standards for trade relations among nations. These agreements /negotiations are also focused on compliance of technical ,intellectual property and environmental standards. In these circumstances Industries have no option to ignore the emerging web of trade agreements,  a very concerted effort is required to enhance their capacity to understand and utilize these trade agreements. This won’t be possible especially in context to the SME segment, without government support. The utilisation rate of FTAs would certainly improve as the government steps up its efforts in information and education campaign.

 

In its Foreign Trade Policy statement, issued in March 2015, the Commerce Ministry (GOI) has talked of a relative lack of awareness about the potential benefits from free trade agreements (FTAs). A web portal on FTAs has been developed and can be accessed at http://indiantradeportal.in. However, The data available in the portal require  interpretation and enhanced levels of understanding which is certainly beyond mid-sized & small firms .In any case this effort can at the most qualify as baby step in the right direction.

 

 

In this scenario merely focusing at the policy level of FTAs wont resolve the issue of low utilization and survival of the Industries effected by the global supply chain. A  concerted effort focusing at the administrative issues , especially in ROO administration is required, in terms of creating a Binding Origin Information (BOI) Authority ; enhancing the capacity of the Industry to comply with technical standards, leverage their intellectual property which remaining vigil for not violating the agreed upon IPR regime. What is essentially required is a comprehensive outreach programme, which not only educates but also enhances the capacity of industries to avail the benefits of FTAs .

 

 

 

 

STRATEGY FOR LEVERAGING IPR AS COMPETITIVE ADVANTAGE BY INDIAN THE LEATHER INDUSTRY

 

Leather Industry is one of the major established manufacturing exporting sector of India in the modern as well as traditional sector. It is an indigenous industry in which the country is well endowed with an affluence of raw materials, skilled manpower. The industry has undergone a structural change , from merely an exporter of raw material in the sixties to that of value added products occupying a place of prominence in the Indian economy in terms of foreign trade, employment generation .  The foreign exchange earnings(s) of this sector in the year 2014-2015 stood as USD 6.49 billion. Government of India  as a major Policy initiative  launched the ILDP- Indian Leather Development Programme – The thrust areas of which include ,modernization of production capacities, setting up of institutional facilities, skill development etc. However,  there is a need to  go beyond them.

Surveying the strategic choices before the Indian leather industry, this article essentially refers to the publication  “Intellectual Property, A business tool for SMEs, A Guide for the Leather Industry” published by IPeurope (an EC initiative)  ,while outlining the contours / facets of intellectual property  it unveils a blueprint for the leather industry to use IP as an competitiveness enhancing strategy . The publication initiates the discussion by stating that many surveys in European context reveal that SMEs in the leather sector fear the costs that IPRs could entail or the excessive management requirements for enforcing rights. Few look at IPRs as a strategic company asset that can be effectively protected and that help generate business. The situation in India in this respect is expected to be much worse.

The publication while explaining & elaborating Intellectual property in terms of trade secrets,  copyright and related rights,  industrial property in terms of designs , trade marks , patents & utility models, outlines an action plan for creating value with the firms IPR. When you have an idea for a new product or a design for shoes, clothes, handbags, furniture, etc. or you think about a logo or an image to distinguish and market your company, products or brands, you should ask yourself if these  “ideas” are still protectable (mainly that nobody else is already using and protecting them).

The sale, purchase or licensing of IP can generate substantial profits. However, due to a lack of awareness of the commercial opportunities provided by IP, much of it remains untapped . To make markets more transparent and provide IP owners with a better overview of who owns what, various trading exchanges for IP have emerged recently. The aim of these exchanges is to bring the buyer and the seller together. Similar to other on- line exchanges, such as eBay, these IP exchanges are meant to help firms see whether they can license their various forms of IP. Another useful tool to help understand where there could be a potential seller, buyer, licensor or licensee for your IP is an IP database. Another opportunity to directly commercialize your IP is auctions. While currently used primarily for patents, there is no reason why other forms of IP should not also be sold at auction, where bidders bid for a specific IP and it is sold to the winning bidder. One can also identify potential licensors or licensees through networking. For example, attending the meetings of the Licensing Executive Society (LES) may be a good way to find interesting business partners. For more information on that, visit http://www.lesi. org

Apart from providing new income through commercialization , IP can also boost competitiveness by bringing important indirect benefits to a company. Good management of IP assets in a business or marketing plan helps enhance the value of a company in the eyes of financing institutions and investors who are taking a closer look at intangible assets. In that sense, valuation and management of IP assets become central issues in strategic decision-making. The competitiveness of many companies depends on their ability to transfer intellectual property and other intangible assets to their worldwide production processes. IPs are a factor in these decisions since they allow firms to shift innovative activities abroad, to dedicate more resources to innovation and management activities in advanced countries, and to expand operations in emerging markets. IP enhances strategic alliances with key partners in- side the value chain while establishing more effective, clear, safe and durable business relationships. Non-disclosure agreements should be signed when beginning strategic negotiations, specific clauses in contracts should be put in writing, and clear rules related to IP should be decided upon when setting up partnerships. This will undoubtedly clarify and consolidate their relationship and thus boost business activities.

The primary source of competitive advantage for all businesses is innovation and original creative expressions. Protecting the company’s assets ensures exclusivity, reduces the risk of trampling the IPR of others, and protects against copying. This exclusivity gives a ‘lead-time’ advantage over competitors and can even hinder them from bringing a new product or design to the market or keep them out of specific niche markets! As a result, IP can be used to increase sales in existing markets and to open the door to new potential markets and opportunities, which leads to an improvement in market share.

Managing IP allows secure returns on R&D investments..A company has to protect its core knowledge and prevent the leaking of confidential knowledge to outsiders. Possessing exclusive assets and strong core knowledge makes a strong company that motivates its employees and is attractive to potential collaborators. Involving the company and its staff through formal and informal methods to protect its assets builds a sound company.

The resource intensity of formal IPR management is generally what worries SMEs in the leather sector. However, sound planning, wise delegation and effective operating procedures can significantly reduce the burden on SMEs and increase efficiency. The more IPRs one owns, the more complex and the more costly their management. Resource efficiency in IPR management can be achieved with sound planning. IP management involves the setting of clear goals, but also follow-up to ensure they are being reached. Like in any other business strategy, the IPR business plan for an SME in the leather sector must include “indicators” or milestones that can be monitored.

Monetising IPR resources through a concerted strategy can ensure emergence of the India version of Jimmy Choo and the likes.

 

                                                                                                           

 

*********

GST TREATMENT IN INDIA OF CROSS BORDER B2C DIGITAL PRODUCTS TRANSACTIONS

 

GST Treatment in India of Cross Border B2C Digital Products Transaction is covered under the OIDAR taxation framework under GST. Online Information Database Access and Retrieval services (OIDAR) is a category of cross border digital products/ services provided through the medium of internet and received by the recipient online without having any physical interface with the supplier of such services. E.g. download of an e-book online for a payment would amount to receipt of OIDAR services by the consumer.

The Integrated Goods and Service Act 2017, defines OIDAR as services whose delivery is mediated by information technology over the internet or an electronic network and the nature of which renders their supply essentially automated involving minimal human intervention. These include electronic services such as:

(i) Advertising on the internet

(ii) Providing cloud services

(iii) Provision of e-books, movie, music, software and other intangibles through telecommunication networks or internet

(iv) Providing data or information, retrievable or otherwise, to any person in electronic form through a computer network

(v) Online supplies of digital content (movies, television shows, music and the like)

(vi) Digital data storage

(vii) Online gaming

 

The nature of OIDAR services/digital products are such that it can be provided online from a remote location outside the taxable territory. A similar service/digital provided by an Indian entity, from within the taxable territory, to recipients in India would be taxable.

In cases where the supplier of such service is located outside India and the recipient is a business entity (registered person) located in India, the reverse charge mechanism would get triggered and the recipient in India (registered entity under GST) will be liable to pay GST under reverse charge and undertake necessary compliances.

If the supplier is located outside India and the recipient in India is an individual consumer in such cases also, the place of supply would be India and the transaction is amenable to levy of GST.

For such cases the IGST Act provides that on supply of online information and database access or retrieval services by any person located in a non-taxable territory and received by a non-taxable online recipient, the supplier of services located in a non-taxable territory shall be the person liable for paying integrated tax on such supply of services.

Now if an intermediary located outside India arranges or facilitates supply of such service to a non-taxable online recipient in India, the intermediary would be treated as the supplier of the said service, except when the intermediary satisfies the following conditions:

(a) The invoice or customer’s bill or receipt issued by

such intermediary taking part in the supply clearly identifies the service in question and its supplier in

non-taxable territory

(b) The intermediary involved in the supply does not authorise the charge to the customer or take part in its charge. This means that the intermediary neither collects or processes payment in any manner nor is responsible for the payment between the non-taxable online recipient and the supplier of such services

(c) The intermediary involved in the supply does not authorise delivery

(d)  The general terms and conditions of the supply are not set by the intermediary involved in the supply but by the supplier of services

The supplier (or intermediary) of online information and database access or retrieval services shall, for payment of integrated tax, take a single registration under the Simplified Registration Scheme in Form GST REG-10. The supplier shall take registration at Principal Commissioner of Central Tax, Bengaluru West(India) who has been the designated for grant registration in such cases.

In case there is a person in the taxable territory (India) representing such overseas supplier in the taxable territory for any purpose, such person (representative in India) shall get registered and pay integrated tax on behalf of the supplier.

In case the overseas supplier does not have a physical presence or does not have a representative for any purpose in the taxable territory, he may appoint a person in the taxable territory for the purpose of paying integrated tax and such person shall be liable for payment of such tax.

“Non-Taxable Online Recipient” means any Government, local authority, governmental authority, an individual or any other person not registered and receiving online information and database access or retrieval services in relation to any purpose other than commerce, industry or any other business or profession, located in taxable territory.

 

Indicative List of OIDAR Services

1. Website supply, web-hosting, distance maintenance of programmers and equipment

(a) Website hosting and webpage hosting

(b) Automated, online and distance maintenance of   programmers

(c) Remote systems administration

(d) Online data warehousing where specific data is stored and retrieved electronically

(e) Online supply of on-demand disc space

2. Supply of software and updating thereof

(a) Accessing or downloading software (including procurement/accountancy programmers and

 anti-virus software) plus updates

(b) Software to block banner adverts, otherwise known as Banner blockers

(c) Download drivers, such as software that interfaces computers with peripheral equipment

 (such as printers)

(d) Online automated installation of filters on websites

(e) Online automated installation of firewalls

3. Supply of images, text and information and making available of databases

(a) Accessing or downloading desktop themes

(b) Accessing or downloading photographic or pictorial images or screensavers

(c) The digitised content of books and other electronic publications

(d) Subscription to online newspapers and journals

(e) Weblogs and website statistics

(f)  Online news, traffic information and weather reports

(g) Online information generated automatically by software from specific data input by the customer, such as legal and financial data, (in particular, data such as continually updated stock market data, in real time)

(h) The provision of advertising space including banner ads on a website/web page

(i) Use of search engines and Internet directories

4. Supply of music, films and games, including games of chance and gambling games, and of political, cultural, artistic, sporting, scientific and entertainment broadcasts and events

(a) Accessing or downloading of music on to computers and mobile phones

(b) Accessing or downloading of jingles, excerpts, ringtones, or other sounds

(c) Accessing or downloading of films

(d) Downloading of games on to computers and

 mobile phones

(e) Accessing automated online games which are dependent on the Internet, or other similar electronic networks, where players are geographically remote from one another

5. Supply of distance teaching

(a) Automated distance teaching dependent on the Internet or similar electronic network to function and the supply of which requires limited or no human intervention. These include virtual classrooms, except where the Internet or similar electronic network is used as a tool simply for communication between the teacher and student

(b) Workbooks completed by pupils online and marked automatically, without human intervention

The place of supply of online information and database access or retrieval services shall be the location of the recipient of services.

 

 

First blog post

Hello readers !! I have started this blog to track matters related to the ever shifting  regulatory scenario effecting primarily trade and business in the Indian as well as the global context. My experience  suggests that there is tremendous gap in the industry about regulatory challenges confronting them and more often than not they are ill informed or mis-informed. This is a free wheeling blog and it wont be confined to just regulatory matters alone, anything which would enhance the competitiveness of commerce,institutions ,government etc interests me and through this medium I wish to share with fellow travelers.This blog is meant to keep you better informed , so that you can make more considered choices and decisions.  However , a word of caution, before effecting any decision having an financial or legal implication after reading this blog, you are strongly recommended to seek professional advice and consult official sources. So happy reading !!