January 2015

RSM Astute Newsletter Bimonthly updates on Tax and

other Regulations

Contents

Click for

Executive Summary

FEMA

Company Law / SEBI

Income Tax

Indirect Taxes

State VAT Regulations

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EXECUTIVE SUMMARY

FOREIGN EXCHANGE MANAGEMENT ACT (FEMA)

Reserve Bank of India (RBI) has revised period of realisation and repatriation of export proceeds applicable to Units in SEZs, Status Holder Exporters, EOUs, Units in EHTPs, STPs & BTPs to 9 months from 12 months, bringing it at par with the time limit applicable to other exporters.

With a view to provide greater flexibility to the ECB borrowers in structuring draw down of ECB proceeds and

utilisation of the same for permitted end uses, it has been decided to permit AD Category -I banks to allow eligible ECB borrowers to park ECB proceeds (both under the automatic and approval routes) in term deposits with AD Category- I banks in India for a maximum period of 6 months pending utilisation for permitted end uses.

The RBI has come out with a clarification that the provisions of External Commercial Borrowings (ECB), issuance of

guarantees, and overseas direct investment, as may be applicable, shall also be applicable to Indian companies which are accessing overseas market for debt funds through overseas holding / associate / subsidiary / group companies.

The Government of India has withdrawn 20:80 scheme and restrictions placed on import of gold. As such, the RBI

has also withdrawn all instructions issued from time to time about 20:80 scheme with effect from 28 November 2014. At present investment in Defence Industry is subject to Industrial license under the Industries (Development &

Regulation) Act, 1951. Department of Industrial Policy and Promotion (‗DIPP‘) has now provided a list of defence items as finalised by Department of Defence Production, Ministry of Defence and has clarified that – Items not in the list would not require industrial license for defence purpose. Dual use items, having military as well as civilian applications, other than those specially mentioned in the list,

would also not require Industrial License from Defence angle

Further, it is directed that the listed investee company engaged in defence sector, in accordance with the guidance provided by the Press Note 7 (2014 Series), shall immediately allocate limits for portfolio investment for RFPI (including QFI and FII), NRI (not exceeding 10%) and FVCI within the default portfolio investment limit of 24% being permitted now and approach Reserve Bank, Central Office, Foreign Investment Division, Mumbai so that allocated limits can be monitored by the Reserve Bank.

The RBI has come up with a circular permitting 100% FDI in railway Infrastructure sector under automatic route subject to certain conditions. It is pertinent to note that Reserve Bank has amended the Principal Regulations through the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) (Fourteenth Amendment) Regulations, 2014 notified vide Notification No. FEMA.320/2014-RB dated September 5, 2014, c.f. G.S.R. No. 800(E) dated 13 November 2014.

An Indian Alternative Investment Fund (AIF), registered with Securities and Exchange Board of India (SEBI), is permitted to invest overseas in terms of Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 (‗ODI Regulations‘). It is pertinent to note that the RBI has issued necessary amendments to the ODI Regulations vide Notification No. FEMA.326/RB-2014 dated 12 November 2014.

The RBI has liberalized ODI Regulations and specified the conditions in relation to

Creation of charge on shares of JV / WOS / step down subsidiary (SDS) in favour of domestic / overseas lender Creation of charge on the domestic assets in favour of overseas lenders to the JV / WOS / step down subsidiary Creation of charge on overseas assets in favour of domestic lender.

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EXECUTIVE SUMMARY

FOREIGN EXCHANGE MANAGEMENT ACT (FEMA)

Under the extant ECB guidelines, the choice of security to be provided to the overseas lender / supplier for securing ECB is left to the borrower. With a view to liberalising, expanding the options of securities and consolidating various provisions related to creation of charge over securities for ECB at one place, it has been decided that AD Category-I banks may allow creation of charge on immovable assets, movable assets, financial securities and issue of corporate and / or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised / raised by the borrower subject satisfying themselves that: The underlying ECB is in compliance with the extant ECB guidelines, There exists a security clause in the Loan Agreement requiring the ECB borrower to create charge, in favour of

overseas lender / security trustee, on immovable assets / movable assets / financial securities / issuance of corporate and / or personal guarantee

No objection certificate, wherever necessary, from the existing lenders in India has been obtained.

Once the aforesaid stipulations are met, the AD Category-I bank may permit creation of charge on immovable assets, movable assets, financial securities and issue of corporate and / or personal guarantees, during the currency of the ECB with security co-terminating with underlying ECB

As per A. P. (DIR Series) Circular No. 20 dated August 29, 2012, a non-resident guarantee for non-funded facilities

such as Letters of Credit / guarantees / Letters of Undertaking (LoU) / Letter of Comfort (LoC) entered between two persons resident in India is allowed under the general permission route.

Now, it is clarified that under the provisions of aforesaid Circular, residents that are subsidiaries of multinational companies can also hedge their foreign currency exposure through permissible derivative contracts executed with an AD Category – I bank in India on the strength of guarantee of its non-resident group entity. The method of discharge of liability by the non-resident guarantor under the guarantee and the subsequent repayment of the liability by the principal debtor shall continue to be governed, as hitherto, by the provisions of A.P. (DIR Series) Circular No. 28 dated March 30, 2001.

RBI has rationalized the documentation process for exporters and importers relating to hedging of probable exposures based on past performance covered by Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000as under

Importers and exporters shall, henceforth, be required to furnish a quarterly declaration to the same effect as per the specified format duly signed by the Chief Financial Officer (CFO) and the Company Secretary (CS). In the absence of a CS, the Chief Executive Officer (CEO) or the Chief Operating Officer (COO) shall co‐sign the undertaking along with the CFO

AD Category I banks may permit aggregate outstanding contracts in excess of 50 per cent of the eligible limit on being satisfied about the genuine requirements of their customers after examination of a document as per the format in Annex II to this circular, signed by the CFO and CS, containing the following:

A declaration that all guidelines have been adhered to while utilizing this facility; A certificate of import/export turnover of the customer during the past three years.

As part of the annual audit exercise, the Statutory Auditor shall also certify the following:

The amounts booked with AD Category‐I banks under this facility; and All guidelines have been adhered to while utilizing this facility over the past financial year.

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EXECUTIVE SUMMARY

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COMPANY LAW / SEBI

COMPANY LAW MCA vide its General Circular No. 42/2014 dated 12th November, 2014 notified clarification about Rule 5 (1) and 6(2)

of the Companies (Cost Records and Audit Rules, 2014 regarding maintenance of cost records and filing of notice of appointment of Cost Auditor in Form CRA-2 in electronic mode.

MCA vide its General Circular No. 43/2014 dated 13th November, 2014 came out with clarification regarding

applicability of provisions of Chapter III of the Companies Act, 2013 (Act) to the issue of Foreign Currency Convertible Bonds (FCCBS) and Foreign Currency Bonds (FCBs) by Indian companies exclusively to persons resident outside India in accordance with applicable sectoral regulatory provisions.

MCA vide its General Circular No. 45/2014 dated 18th November, 2014 came out with clarification regarding

extension of time for holding Annual General Meeting (AGM) under section 96(1) of the Companies Act, 2013 for Companies registered in State of Jammu and Kashmir.

MCA vide its Notification dated 3rd November, 2014 has come up with Company Law Board (Fees on Applications

and Petitions) Amendment Rules, 2014 amending Company Law Board (Fees on Applications and Petitions) Rules, 1991.

MCA vide its Notification dated 31st December, 2014 has come up with Companies ( Cost Records and Audit)

Amendment Rules, 2014.

SEBI SEBI vide its Circular No. CIR/MRD/DP/31/2014 dated 12th November, 2014 has come up with Consolidated

Account Statement (CAS) for all securities assets.

SEBI vide its Circular No. CIR/OIAE/1/2014 dated 18th November, 2014 in order to enable the users to have an access to all the applicable circulars/directions issued till date, regarding redressal of investor grievances through SEBI Complaints Redress System (SCORES) platform, at one place, has consolidated Circular no.CIR/OIAE/2/2011 dated June 3, 2011, Circular No.CIR/OIAE/1/2012 dated August 13, 2012, Circular no.CIR/OIAE/1/2013 dated April 17, 2013. The circulars shall come into force from the date of its issue.

SEBI vide Notification No. G.S.R. 819(E) dated 18th November, 2014 notified Securities Contracts (Regulation) Third Amendment Rules, 2014.

SEBI vide its Circular No. CIR/MRD/DP/32 /2014 dated 1st December 2014 has introduced modification to Offer for

Sale (OFS) of Shares through stock exchange mechanism.

SEBI in its Board meeting dated 19th November, 2014 among other decisions, approved SEBI (Prohibition of Insider Trading) Regulations, 2014, decided to Conversion of Listing Agreements into Regulations - SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2014, amend SEBI (Mutual Funds) Regulations, 1996, implementation of Risk based supervision of market intermediaries, accepted the recommendations of the Depository System Review Committee (DSRC), approved re-classification of Promoters as Public.

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EXECUTIVE SUMMARY

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INCOME TAX

India‘s first bilateral Advance Pricing Agreement (APA) was signed between a Japanese Company and the CBDT on 19 December 2014. The objective of an APA scheme is to bring certainty and uniformity in transfer pricing matters of multi-national companies and reduce litigation.

The instances of undue influence / coercion in the recording of the statement during Search / Survey and retraction

of many such admissions by the assessees, has come to the notice of the CBDT recently. In this backdrop, officers concerned have been directed to focus on gathering evidences during Search/Survey and to strictly avoid obtaining admission of undisclosed income under coercion / pressure during Search / Survey.

Business in the nature of setting up and operating a semiconductor wafer fabrication manufacturing unit was

included as ‗specified business‘ for the purposes of the investment-linked deduction under section 35AD by the Finance (No.2) Act, 2014. The guidelines for notifying such business has been prescribed now.

The current provisions of sub-clauses (iiiab) and (iiiac) of section 10(23C) of the Income Tax Act, 1961 (‗the IT Act‘)

provide exemption, subject to various conditions, in respect of income of certain educational institutions, universities and hospitals which exist solely for educational purposes or solely for philanthropic purposes, and not for purposes of profit and which are wholly or ‗substantially financed by the Government‘. In this respect, recently inserted Rule 2BBB provides that Government grant exceeding 50% of the total receipts shall be considered as a percentage for considering university, hospital etc. as substantially financed by the Government for this purpose.

Resident taxpayers can obtain an advance ruling if value of one or more transactions is Rs.100 crore or more in

total. Further, fee for obtaining an advance ruling ranging from Rs.10,000 to Rs.10 lacs has been prescribed depending upon the category of applicant and category of cases.

In line with the increased limit of deduction i.e. Rs.1.50 available under section 80C, maximum limit of investment in

a 5 year fixed deposit with a scheduled bank for claiming deduction under section 80C has been increased to Rs.1.5 lacs from existing Rs. 1 lac.

The CBDT Circular on section 192 (which deals with TDS on salary income for FY 2014-15), conveys important

suggestions with respect to TDS return. The Commissioner of Income-tax (Exemptions) has been notified as ‗Prescribed Authority‘ by the CBDT with effect

from 15 November, 2014 for the purpose of exemption under sub-clauses (iv), (v), (vi) and (via) of section 10(23C) .

The CBDT had issued a Circular No. 3/2008 dated 12 March 2008 relating to settlement of cases. Recently, the

wording of para 61.2 of that circular has been modified to bring in line with the provisions contained in Explanation to

Section 245A(b) of the IT Act.

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EXECUTIVE SUMMARY

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INDIRECT TAXES

Service Tax Chartered Accountant or Cost Accountant nominated to conduct Service Tax Audit

Clarification on Time Limit for availment of CENVAT Credit Clarification on procedure to be followed by SEZ units/ developers for claiming upfront Service Tax Exemption Clarification on Service Tax Audit of assessees Central Excise Exemption from duty to all goods falling under First Schedule donated or purchased out of cash donations, for relief

and rehabilations of the people affected by the floods in the State of Jammu and Kashmir. Customs Exemption from the Basic and Additional duty of Customs for the imported goods in the state of Jammu and Kashmir.

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MAHARASHTRA STATE VAT

Earlier, no return was required to be filed under the Central Sales Tax Act, 1956 (CST Act) by the dealers in case of no inter-State sales in any return period, provided that the Maharashtra Value Added Tax Act, 2002 (MVAT Act) return for the same period shows 'NIL' turnover of inter-State sales. Now the said exemption is withdrawn and the dealers are required to file CST returns irrespective of whether the dealer has effected inter-state sales from Maharashtra.

The last date for submitting audit report under section 61 of the MVAT Act, 2002 for the year 2013-14 is postponed

to 30 January 2015. Official Trade Circular to this effect is expected. After uploading the said audit reports, the dealers are required to physically submit the specific documents to the LTU officer / location in-charge.

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1.0 Export of Goods / Software / Services – Period of Realisation and Repatriation of Export Proceeds

RBI has revised period of realisation and repatriation of export proceeds applicable to Units in SEZs, Status Holder Exporters, EOUs, Units in EHTPs, STPs & BTPs to 9 month from 12 months, bringing it at par with the time limit applicable to other exporters. The following table summarizes time limit applicable for realisation and repatriation of export proceeds to various types of export proceeds / exporters:

(RBI/2014-15/306 A.P. (DIR Series) Circular No. 37, Dated: 20 November 2014)

2.0 External Commercial Borrowings (ECB) Policy – Parking of ECB proceeds

2.1 As per the extant ECB policy, eligible borrowers are required to bring ECB proceeds, meant for Rupee expenditure in India for permitted end uses immediately for credit to their Rupee accounts with AD Category-I banks in India.

2.2 With a view to providing greater flexibility to the ECB borrowers in structuring draw down of ECB proceeds and utilisation of the same for permitted end uses, it has been decided with effect from 21 November 2014 to permit AD Category -I banks to allow eligible ECB borrowers to park ECB proceeds (both under the automatic and approval routes) in term deposits with AD Category- I banks in India for a maximum period of 6 months pending utilisation for permitted end uses. The facility will be with the following conditions: i. The applicable guidelines on eligible borrower, recognised lender, average maturity period, all-in-cost, permitted

end uses, etc. should be complied with. ii. No charge in any form should be created on such term deposits i.e. to say that the term deposits should be kept

unencumbered during their currency. iii. Such term deposits should be exclusively in the name of the borrower. iv. Such term deposits can be liquidated as and when required. (RBI/2014-15/309 A.P. (DIR Series) Circular No. 39, Dated 21 November 2014)

3.0 Routing of funds raised abroad to India

3.1 Certain Indian companies are access overseas market for debt funds through overseas holding / associate / subsidiary / group companies. Further, such borrowings are raised at rates exceeding the ceiling applicable in terms of extant FEMA regulations and that the funds so raised are routed to the Indian companies which accounts for sole/major operations of the group. In order to route the funds to Indian companies, different modalities/structures are resorted to including investment in rupee bonds floated by the Indian company.

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FEMA

Sr. No

Type of Exporter/Exports Period of Realization

Pre-issue of Circular Post issue of Circular

1 Units located in SEZs, Status Holder Exporters, EOUs, Units in EHTPs, STPs & BTPs

12 Months from the date of export

9 Months from the date of export

2 Exports made to warehouses established out-side India

15 Months from date of shipment

15 Months from date of shipment

3 Other cases 9 Months from the date of export

9 Months from the date of export

.

3.2 On a review of the matter in light of the existing regulatory framework, the RBI has clarified as under: a. Indian companies or their AD Category – I banks are not allowed to issue any direct or indirect guarantee or

create any contingent liability or offer any security in any form for such borrowings by their overseas holding / associate / subsidiary / group companies except for the purposes explicitly permitted in the relevant Regulations.

b. Further, funds raised abroad by overseas holding / associate / subsidiary / group companies of Indian compa-nies with support of the Indian companies or their AD Category – I banks as mentioned at (i) above cannot be used in India unless it conforms to the general or specific permission granted under the relevant Regulations.

c. Indian companies or their AD Category – I banks using or establishing structures which contravene the above shall render themselves liable for penal action as prescribed under FEMA, 1999.

(RBI/2014-15/316 A.P. (DIR Series) Circular No. 41, Dated: 25 November 2014)

4.0 Abolition of 20:80 scheme applicable to Import of Gold

The Government of India has withdrawn 20:80 scheme and restrictions placed on import of gold. As such, the RBI has also withdrawn all instructions issued from time to time about 20:80 scheme with effect from 28 November 2014. (RBI/2014-15/329 A.P. (DIR Series) Circular No. 42, Dated: 28 November 2014)

5.0 Foreign Direct Investment (FDI) in India – Review of FDI policy –Sector Specific conditions- Defence

5.1 At present investment in Defence Industry is subject to Industrial license under the Industries (Development & Regulation) Act, 1951. Department of Industrial Policy and Promotion (‗DIPP‘) has now provided a list of defence items as finalised by Department of Defence Production, Ministry of Defence and has clarified that Items not in the list would not require industrial license for defence purpose. Dual use items, having military as well as civilian applications, other than those specially mentioned in the list,

would also not require Industrial License from Defence angle.

5.2 Further, it is directed that the listed investee company engaged in defence sector, in accordance with the guidance provided by the Press Note 7 (2014 Series), shall immediately allocate limits for portfolio investment for RFPI (including QFI and FII), NRI (not exceeding 10%) and FVCI within the default portfolio investment limit of 24% being permitted now and approach Reserve Bank, Central Office, Foreign Investment Division, Mumbai so that allocated limits can be monitored by the Reserve Bank. (RBI/2014-15/340 A.P. (DIR Series) Circular No. 46 Dated-December 8, 2014)

6.0 Review of FDI policy – Sector Specific conditions- Railway Infrastructure

As DIPP has permitted 100% FDI in railway Infrastructure sector under automatic route subject to conditions, it has been decided to permit FDI in the following activities of the Railway Transport sector: ―Construction, operation and maintenance of the following: a. Suburban corridor projects through PPP, b. High speed train projects, c. Dedicated freight lines d. Rolling stock including train sets, and locomotives/coaches manufacturing and maintenance facilities e. Railway Electrification f. Signaling systems g. Freight terminals h. Passenger terminals i. Infrastructure in industrial park pertaining to railway line/sidings including electrified railway lines and connectivi-

ties to main railway line and j. Mass Rapid Transport Systems. Further, FDI beyond 49 % of the equity of the investee company in sensitive

areas from security point of view will be brought before the Cabinet Committee on Security (CCS) for considera-tion on a case to case basis.‖

(RBI/2014-15/341 A.P.(DIR Series) Circular No.47, Dated: December 8, 2014)

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7.0 Overseas Investments by Alternative Investment Funds

An Indian AIF registered with Securities and Exchange Board of India (SEBI), is permitted to invest overseas in terms of Foreign Exchange Management (Transfer or Issue of Any Foreign Security) Regulations, 2004 (‗ODI Regulations‘).

(RBI/2014-2015/344 A.P.(DIR Series) Circular No.48, Dated: 9 December 2014)

8.0 Overseas Direct Investments by Indian Party – Rationalization / Liberalization

8.1 RBI has liberalized ODI Regulations and specified the conditions in relation to Creation of charge on shares of JV / WOS / step down subsidiary (SDS) in favour of domestic / overseas lender Creation of charge on the domestic assets in favour of overseas lenders to the JV / WOS / step down subsidiary Creation of charge on overseas assets in favour of domestic lender The same are discussed at length as under

8.2 Creation of charge on shares of JV / WOS / step down subsidiary (SDS) in favour of domestic / overseas lender: Designated AD bank may permit creation of charge / pledge on the shares of the JV / WOS / SDS (irrespective of the level) of an Indian party in favour of a domestic or Overseas lender for securing the funded and / or non-funded facility to be availed of by the Indian party or by its group companies / sister concerns / associate concerns or by any of its JV / WOS / SDS (irrespective of the level) under the automatic route subject to the following conditions: The Indian party is complying with the provisions under Regulation 6 and Regulation 7, if applicable of the ODI

Regulations for undertaking financial commitment; Compliance to the provisions under Regulation 18 of the ODI Regulations The period of charge, if not specified upfront, may be co-terminus with the period of end use (like loan or other

facility) for which charge has been created; The loan / facility availed by the JV / WOS / SDS from the domestic / overseas lender shall be utilized only for

its core business activities overseas and not for investing back in India in any manner whatsoever; A certificate from the Statutory Auditors‘ of the Indian party, to the effect that the loan / facility availed by the

JV / WOS / SDS has not been utilized for direct or indirect investments in India, is to be obtained and kept by the designated AD;

The invocation of charge resulting into the domestic lender acquiring the shares of the overseas JV / WOS / step down subsidiary shall be governed by the extant FEMA provisions / regulations issued by the Reserve Bank from time to time;

The facilities (funded or non-funded) extended by the domestic lender to the Indian party or to its group / sister / associate concern or to any of its overseas JV / WOS / SDS shall also be governed by the prudential norms and other guidelines issued by the Department of Banking Regulation (DBR, the erstwhile DBOD), Reserve Bank of India from time to time; and

The matter relating to the setting up / acquiring the multi-layered structure of overseas entities by the Indian party, wherever applicable, is under the examination of the Reserve Bank and the decision taken in this regard shall be conveyed in due course for necessary compliance at AD / Indian party level.

8.3 Creation of charge on the domestic assets in favour of overseas lenders to the JV / WOS / step down subsidiary

8.3.1 8.3.2

As per the extant FEMA provisions, creation of charge on the domestic assets (movable / immovable / financial / other) of an Indian party (or its group / sister / associate concern including the individual promoter / director) in favour of an overseas lender to the JV / WOS / step down subsidiary (SDS) requires prior approval of the Reserve Bank. It has been decided that the designated AD bank may permit creation of charge (by way of pledge, hypothecation, mortgage, or otherwise) on the domestic assets of an Indian party (or its group companies / sister concerns / associate concerns including the individual promoters / directors) in favour of an overseas lender for securing the funded and / or non-funded facility to be availed of by the JV / WOS / SDS (irrespective of the level) of the Indian party under the automatic route subject to the following conditions:

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8.3.3 The Indian party is complying with the provisions under Regulation 6 and Regulation 7, if applicable of ODI Regulations for undertaking the financial commitment;

Compliance to the provisions under Regulation 18A(1) of the ODI Regulations; The domestic assets, on which charge is being created, are not securitized; The period of charge, if not specified upfront, may be co-terminus with the period of end use (like loan or other

facility) for which charge has been created; The loan / funds raised overseas by the JV / WOS / SDS shall be utilized only for its core business activities

overseas and not for investing back in India in any manner whatsoever; A certificate from the Statutory Auditors‘ of the Indian party, to the effect that the loan / funds raised overseas by

the JV / WOS / SDS has not been utilized for direct or indirect investments in India, is to be obtained and kept by the designated AD;

The overseas lender undertakes that, in the event of enforcement of charge, they shall transfer the domestic assets by way of sale to a resident only;

In case of invocation of charge, the resultant remittance of the proceeds exceeding the prescribed limit of the financial commitment of the Indian party (prevailed at the time of creation of charge) shall require prior approval of the Reserve Bank;

Wherever creation of charge involves pledge of shares of an Indian company, the pledge shall also be governed by the extant FEMA provisions / regulations issued by the Reserve Bank and the consolidated Foreign Direct Investment (FDI) policy issued by the Government of India from time to time; and

The matter relating to the setting up / acquiring the multi-layered structure of overseas entities by the Indian party, wherever applicable, is under the examination of the Reserve Bank and the decision taken in this regard shall be conveyed in due course for necessary compliance at AD / Indian party level.

8.4 Creation of charge on overseas assets in favour of domestic lender

8.4.1 8.4.2

Creation of charge on the overseas assets of JV / WOS / SDS of an Indian party in favour of a domestic lender to the Indian party or to its group / sister / associate concern or to any of its overseas JV / WOS / SDS requires prior approval of the Reserve Bank. It has been decided that the designated AD bank may permit creation of charge (by way of hypothecation, mortgage, or otherwise) on the overseas assets (excluding the shares) of the JV / WOS / SDS (irrespective of the level) of an Indian party in favour of a domestic lender for securing the funded and / or non-funded facility to be availed of by the Indian party or by its group companies / sister concerns / associate concerns or by any of its overseas JV / WOS / SDS (irrespective of the level) under the automatic route subject to the following: The Indian party is complying with the provisions under Regulation 6 and Regulation 7, if applicable of ODI

Regulations for undertaking financial commitment; Compliance to the provisions under Regulation 18A(2) of of the ODI Regulations The overseas assets, on which charge is being created, are not securitized; The period of charge, if not specified upfront, may be co-terminus with the period of end use (like loan or other

facility) for which charge has been created; The loan / facility availed by the JV / WOS / SDS from the domestic lender shall be utilized only for its core busi-

ness activities overseas and not for investing back in India in any manner whatsoever; A certificate from the Statutory Auditors‘ of the Indian party, to the effect that the loan / facility availed by the

JV / WOS / SDS has not been utilized for direct or indirect investments in India, is to be obtained and kept by the designated AD;

The invocation of charge resulting into the domestic lender acquiring the overseas assets shall require prior approval of the Reserve Bank; and

The matter relating to the setting up / acquiring the multi-layered structure of overseas entities by the Indian party, wherever applicable, is under the examination of the Reserve Bank and the decision taken in this regard shall be conveyed in due course for necessary compliance at AD / Indian party level.

(RBI/2014-2015/371 A.P.(DIR Series) Circular No.54, Dated: 29 December 2014)

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9.0 Security for External Commercial Borrowings

9.1 9.2

Under the extant ECB guidelines, the choice of security to be provided to the overseas lender / supplier for securing ECB is left to the borrower. With a view to liberalising, expanding the options of securities and consolidating various provisions related to creation of charge over securities for ECB at one place, it has been decided that AD Category-I banks may allow creation of charge on immovable assets, movable assets, financial securities and issue of corporate and / or personal guarantees in favour of overseas lender / security trustee, to secure the ECB to be raised / raised by the borrower subject satisfying themselves that: The underlying ECB is in compliance with the extant ECB guidelines, There exists a security clause in the Loan Agreement requiring the ECB borrower to create charge, in favour of

overseas lender / security trustee, on immovable assets / movable assets / financial securities / issuance of corporate and / or personal guarantee

No objection certificate, wherever necessary, from the existing lenders in India has been obtained.

Once the aforesaid stipulations are met, the AD Category-I bank may permit creation of charge on immovable assets, movable assets, financial securities and issue of corporate and / or personal guarantees, during the currency of the ECB with security co-terminating with underlying ECB .

9.2.1 9.2.2 9.2.3 9.2.4

Creation of Charge on immovable assets:

Such security shall be subject to provisions contained in the Foreign Exchange Management (Acquisition and Transfer of Immovable Property in India) Regulations, 2000.

The permission should not be construed as a permission to acquire immovable asset (property) in India, by the overseas lender / security trustee.

In the event of enforcement / invocation of the charge, the immovable asset / property will have to be sold only to a person resident in India and the sale proceeds shall be repatriated to liquidate the outstanding ECB.

Creation of Charge on Movable Assets

In the event of enforcement / invocation of the charge, the claim of the lender, whether the lender takes over the movable asset or otherwise, will be restricted to the outstanding claim against the ECB. Encumbered movable assets may also be taken out of the country.

Creation of Charge over Financial Securities

Pledge of shares of the borrowing company held by the promoters as well as in domestic associate companies

of the borrower will be permitted. Pledge on other financial securities, viz. bonds and debentures, Government Securities, Government Savings Certificates, deposit receipts of securities and units of the Unit Trust of India or of any mutual funds, standing in the name of ECB borrower/promoter, will also be permitted.

In addition, security interest over all current and future loan assets and all current assets including cash and cash equivalents, including Rupee accounts of the borrower with AD Category-I banks in India, standing in the name of the borrower/promoter, can be used as security for ECB. The Rupee accounts of the borrower/promoter can also be in the form of escrow arrangement or debt service reserve account.

In case of invocation of pledge, transfer of financial securities shall be in accordance with the extant FDI/FII policy including provisions relating to sectoral cap and pricing as applicable read with the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000.

Issue of Corporate or Personal Guarantee

A copy of Board Resolution for the issue of corporate guarantee for the company issuing such guarantee,

specifying name of the officials authorised to execute such guarantees on behalf of the company or in individual capacity should be obtained.

Specific requests from individuals to issue personal guarantee indicating details of the ECB should be obtained. Such security shall be subject to provisions contained in the Foreign Exchange Management (Guarantees)

Regulations, 2000.

(RBI/2014-2015/377 A.P.(DIR Series) Circular No.55, Dated: 1 January 2015) 11 of 25

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10.0 Non-resident guarantee for non-fund based facilities entered between two resident entities

10.1 As per A. P. (DIR Series) Circular No. 20 dated August 29, 2012, a non-resident guarantee for non-funded facilities such as Letters of Credit / guarantees / Letters of Undertaking (LoU) / Letter of Comfort (LoC) entered between two persons resident in India is allowed under the general permission route.

10.2 Now, it is clarified that under the provisions of aforesaid Circular, residents that are subsidiaries of multinational companies can also hedge their foreign currency exposure through permissible derivative contracts executed with an AD Category – I bank in India on the strength of guarantee of its non-resident group entity. The method of discharge of liability by the non-resident guarantor under the guarantee and the subsequent repayment of the liability by the principal debtor shall continue to be governed, as hitherto, by the provisions of A.P. (DIR Series) Circular No. 28 dated March 30, 2001. (RBI/2014-2015/387 A.P.(DIR Series) Circular No.56, Dated: 6 January 2015)

11.0 Risk Management and Inter Bank Dealings: Hedging under Past Performance Route ‐ Liberalization of Documentation Requirements in the OTC market

RBI has rationalized documentation process for exporters and importers relating to hedging of probable exposures based on past performance covered by Foreign Exchange Management (Foreign Exchange Derivative Contracts) Regulations, 2000 as under

Importers and exporters shall, henceforth, be required to furnish a quarterly declaration to the same effect as per the specified format duly signed by the Chief Financial Officer (CFO) and the Company Secretary (CS). In the absence of a CS, the Chief Executive Officer (CEO) or the Chief Operating Officer (COO) shall co‐sign the undertaking along with the CFO

AD Category I banks may permit aggregate outstanding contracts in excess of 50 per cent of the eligible limit on

being satisfied about the genuine requirements of their customers after examination of a document as per spec-ified format, signed by the CFO and CS, containing the following:

A declaration that all guidelines have been adhered to while utilizing this facility; A certificate of import/export turnover of the customer during the past three years.

In the absence of a CS, the CEO or the COO shall co‐sign the undertaking along with the CFO. As part of the annual audit exercise, the Statutory Auditor shall also certify the following:

The amounts booked with AD Category‐I banks under this facility; and All guidelines have been adhered to while utilizing this facility over the past financial year.

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CORPORATE LAWS / SEBI

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COMPANY LAW

1.0 Clarification about Rule 5 (1) and 6(2) of the Companies (Cost Records and Audit Rules, 2014

The Ministry has considering delay in availability of Form CRA-2 on the Ministry website, decided to extend the annual filing of the said form without any penalty/ late fee upto 31st January, 2015. It is noted that some companies have filed Form 23C for appointment of Cost Auditor for financial year 2014-2015. It is clarified that such companies need not file form CRA-2 afresh for the financial year 2014-2015. (General Circular No. 42/2014 dated 12th November, 2014)

2.0 Clarification regarding applicability of provisions of Chapter III of the Companies Act, 2013 (Act) to the issue of Foreign Currency Convertible Bonds (FCCBS) and Foreign Currency Bonds (FCBs) by Indian companies exclusively to persons resident outside India in accordance with applicable sectoral regulatory provisions.

The issue of FCCBs and FCBs by companies is regulated by the Ministry of Finance's regulations contained in Issue of Foreign Currency Convertible Bonds and Ordinary Shares (Through Depository Receipts Mechanism) Scheme, 1993 (Scheme) and Reserve Bank of India through its various directions/regulations. It is, accordingly, clarified that unless otherwise provided in the said Scheme or the directions/regulations issued by Reserve Bank of lndia, provi-sions of Chapter III of the Act shall not apply to an issue of a FCCBs or FCBs made exclusively to persons resident outside India in accordance with the above mentioned regulations. (General Circular No. 43/2014 dated 13th November, 2014)

3.0 Clarification regarding extension of time for holding Annual General Meeting (AGM) under section 96(1) of the Companies Act, 2013 for Companies registered in State of Jammu and Kashmir

In view of the exceptional circumstances in the state of Jammu and Kashmir, Registrar of Companies, Jammu and Kashmir was advised to exercise powers conferred on him under the third proviso to section 96(1) of the Companies Act, 2013 to grant extension of time upto 31/12/2014 to those companies registered in the State of Jammu and Kashmir who could not hold their AGMS (other than first AGM) for the financial year 2013-14 within the stipulated time. (General Circular No. 45/2014 dated 18th November, 2014 )

4.0 Company Law Board (Fees on Applications and Petitions) Amendment Rules, 2014

In the Company Law Board (Fees on Applications and Petitions) Rules, 1991, in the Schedule (which specifies fees in respect of applications and petitions under the Act, has been amended. Accordingly, after serial number 33 the following shall be inserted, namely:

(Notification dated 3rd November, 2014 )

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Sr. No.

Section of the Act Nature of application / petition Fees in Rs.

34 2(41) of the Companies Act, 2013

Allowing any period other than April to March as financial year.

5,000

35 58 and 59 of the Companies Act, 2013

Rectification of register of members 500

36 73(4) of the Companies Act, 2013 read with section 76

Directing the company to pay the sum due or for any loss or damage incurred as a result of such non-payment.

100

37 74(2) of the Companies Act, 2013

Allow further time as considered reasonable to the company to repay the deposit.

5,000

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5.0 Companies ( Cost Records and Audit) Amendment Rules, 2014

The rules shall come into force from the date of publication in the Official Gazette. Rule 2 (aa);- ―Central Excise Tariff Act Heading‖ means the heading as referred to in the Additional Notes in

the First Schedule to the Central Excise Tariff Act, 1985 [5 of 1986] Rule 3 :- Application of Cost Records.- For the purposes of sub-section (1) of section 148 of the Act, the

class of companies, including foreign companies defined in clause (42) of section 2 of the Act, engaged in the production of the goods or providing services, specified in the Table furnished in the notification, having an overall turnover from all its products and services of rupees thirty five crore or more during the immediately preceding financial year, shall include cost records for such products or services in their books of account.

Provided that nothing contained in serial number 33 shall apply to foreign companies having only liaison offices. Provided further that nothing contained in this rule shall apply to a company which is classified as a micro enter-prise or a small enterprise including as per the turnover criteria under sub-section (9) of section 7 of the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006).

Rule 4:- Applicability for cost audit.- (1) Every company specified in item (A) of rule 3 shall get its cost records audited in accordance with these

rules if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is rupees fifty crore or more and the aggregate turnover of the individual product or products or service or services for which cost records are required to be maintained under rule 3 is rupees twenty five crore or more.

(2) Every company specified in item (B) of rule 3 shall get its cost records audited in accordance with these rules if the overall annual turnover of the company from all its products and services during the immediately preceding financial year is rupees one hundred crore or more and the aggregate turnover of the individual product or products or service or services for which cost records are required to be maintained under rule 3 is rupees thirty five crore or more.

(3) The requirement for cost audit under these rules shall not apply to a company which is covered in rule 3,

and - (i) whose revenue from exports, in foreign exchange, exceeds seventy five per cent of its total reve-nue; or (ii) which is operating from a special economic zone.‖

in rule 5, in sub-rule (1), the following proviso shall be inserted, namely:- ―Provided that in case of company covered in serial number 12 and serial numbers 24 to 32 of item (B) of rule

3, the requirement under this rule shall apply in respect of each of its financial year commencing on or after 1st day of April, 2015.‖

in rule 6, after sub-rule (3), following sub-rule shall be inserted, namely:- ―(3A) Any casual vacancy in the office

of a cost auditor, whether due to resignation, death or removal, shall be filled by the Board of Directors within thirty days of occurrence of such vacancy and the company shall inform the Central Government in Form CRA-2 within thirty days of such appointment of cost auditor.‖

rule 7 shall be omitted;

In annexure A amendments in Form CRA-I and Form CRA-3

Link for full text of the notification: http://mca.gov.in/Ministry/pdf/Amendment_Rules_01012014.pdf

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SEBI

1.0 Consolidated Account Statement (CAS) for all securities assets

Interim Budget announcement in 2014 deliberated to create one record for all financial assets of every individual.

It has been decided to enable a single consolidated view of all the investments of an investor in Mutual Funds

(MF) and securities held in demat form with the Depositories. The Depositories and the Asset Management Companies (AMCs)/ MF-RTAs shall put in place systems to

facilitate generation and dispatch of single Consolidated Account Statements (CAS) for investors having MF investments and holding demat accounts. AMCs/ RTAs shall share the requisite.

Consolidation of account statement shall be done on the basis of PAN. In case of multiple holding, it shall be

PAN of the first holder and pattern of holding. Based on the PANs provided by the AMCs/MF-RTAs, the Depositories shall match their PAN database to determine the common PANs and allocate the PANs among themselves for the purpose of sending CAS. For PANs which are common between depositories and AMCs, the Depositories shall send the CAS. In other cases (i.e. PANs with no demat account and only MF units holding), the AMCs/ MF-RTAs shall continue to send the CAS to their unit holders as is being done presently in compliance with the Regulation 36(4) of the SEBI (Mutual Funds) Regulations.

In case investors have multiple accounts across the two depositories, the depository having the demat account

which has been opened earlier shall be the default depository which will consolidate details across depositories and MF investments and dispatch the CAS to the investor. However, option shall be given to the demat account holder by the default depository to choose the depository through which the investor wishes to receive the CAS.

The CAS shall be generated on a monthly basis. The AMCs /MF-RTAs shall provide the data with respect to the

common PANs to the depositories within three days from the month end. The depositories shall then consolidate and dispatch the CAS within ten days from the month end.

The CAS shall be implemented from the month of March 2015 with respect to the transactions carried out

during the month of February 2015. If an investor does not wish to receive CAS, an option shall be given to the investor to indicate negative

consent. Depositories shall accordingly inform investors in their statements from the month of January 2015 about the facility of CAS and give them information on how to opt out of the facility if they do not wish to avail it.

Where such an option is exercised, the concerned depository shall inform the AMC/MF-RTA accordingly and

the data with respect to the said investor shall not be shared by the AMC/MF-RTA with the depository. The dispatch of CAS by the depositories to BOs would constitute compliance by the Depository Participants

with requirement under Regulation 43 of SEBI (Depositories and Participants) Regulations, to provide statements of account to the BOs as also compliance by the MFs with the requirement under Regulation 36(4) of SEBI (Mutual Funds) Regulations.

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2.0 Consolidation of circulars/directions regarding Redressal of investor grievances through SEBI Complaints Redress System (SCORES) platform

The salient features of SCORES are: Centralised database of investor complaints Online movement of complaints to the concerned listed company or SEBI registered intermediary Online upload of Action Taken Reports (ATRs) by the concerned listed company or SEBI registered intermedi-

ary Online viewing by investors of actions taken on the complaint and its current status

Link for full text of the notification:- http://mca.gov.in/Ministry/pdf/Amendment_Rules_01012014.pdf

3.0 Securities Contracts (Regulation) Third Amendment Rules, 2014

In rule 19, in sub-rule (2),— (I) for clause (b), the following clause shall be substituted, namely:— ―(b) (i) at least twenty five per cent. of each class or kind of equity shares or debenture convertible into equity shares issued by the company, if the post issue capital of the company calculated at offer price is less than or equal to one thousand six hundred crore rupees; (ii) at least such percentage of each class or kind of equity shares or debentures convertible into equity shares issued by the company equivalent to the value of four hundred crore rupees, if the post issue capital of the company calculated at offer price is more than one thousand six hundred crore rupees but less than or equal to four thousand crore rupees; (iii) at least ten per cent. of each class or kind of equity shares or debentures convertible into equity shares issued by the company, if the post issue capital of the company calculated at offer price is above four thousand crore ru-pees: Provided that the company referred to in sub-clause (ii) or sub-clause (iii), shall increase its public shareholding to at least twenty five per cent. within a period of three years from the date of listing of the securities, in the manner speci-fied by the Securities and Exchange Board of India: Provided further that this clause shall not apply to a company whose draft offer document is pending with the Securities and Exchange Board of India on or before the commencement of the Securities Contracts (Regulation) Third Amendment Rules, 2014, if it satisfies the conditions prescribed in clause (b) of sub-rule (2) of rule 19 of the Securities Contracts (Regulation) Rules, 1956 as existed prior to the date of such commencement.‖; (II) clause (c) shall be omitted; In rule 19A, in the Explanation to sub-rule (1), the words, brackets and figures ―sub-clause (ii) of‖ shall be omitted. Link for full text of the notification:- http://www.sebi.gov.in/cms/sebi_data/attachdocs/1417409035351.pdf

4.0 Modification to Offer for Sale (OFS) of Shares through stock exchange mechanism

SEBI has decided that seller may give an option to retail investors to place their bid at cut-off price in addition to placing price bids. In order to do so, following conditions shall be applicable to the OFS:

a) Where option for cut-off price is given, i. Sellers shall mandatorily announce floor price latest by 5 pm on T-1 day to stock exchange. ii. Exchanges will decide upon the quantity of shares eligible to be considered as retail bids, based upon the

floor price declared by the seller iii. there shall be no indicative price for the retail portion of OFS

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b. Retail investors may enter a price bid or opt for bidding at cut-off price. c. Margin for bids placed at cut-off price shall be at the floor price and for price bids at the value of the bid. d. Allocation to retail investors shall be made based on the cut-off price determined in the non-retail category. e. Seller may offer discount to retail investors on the said cut off price. f. Retail bids below the cut-off price shall be rejected. Retail bids at cut-off price shall be allocated on

proportionate basis in case of over subscription. g. Any unsubscribed portion of retail category after allotment shall be eligible for allocation in the non-retail

category.

In partial modification to earlier circular, in respect of bids in the retail category, clearing corporation shall collect margin to the extent of 100% of order value in cash or cash equivalents. Pay-in and pay-out for retail bids shall take place as per normal secondary market transactions. Link for full text of the notification:- http://www.sebi.gov.in/cms/sebi_data/attachdocs/1417587496337.pdf

5.0 Securities and Exchange Board of India Board meeting dated 19th November, 2014 approved/ decided on following matters

Amendment of SEBI (Prohibition of Insider Trading) Regulations, 2014. Conversion of Listing Agreements into Regulations - SEBI (Listing Obligations and Disclosure Requirements)

Regulations, 2014. Amendment to SEBI (Delisting of Equity Shares) Regulations, 2009. Amendment in SEBI (Mutual Funds) Regulations, 1996 Implementation of Risk based supervision of market intermediaries Single Registration to Depository Participants. Accepted Recommendations of the Depository System Review Committee (DSRC) Proposal to initiate public consultation process on re-classification of promoters as public. Proposal to initiate public consultation process regarding issuance of partly paid shares and warrants by Indian

companies. Proposal to frame suitable regulations for using Secondary Market infrastructure for public issuance (―e-IPO‖)

after going through the public consultation process Amendments in Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000

to allow FVCIs to invest in NBFC-CIC (Core Investment Companies), as defined by RBI. Link for full text of the notification:- http://www.sebi.gov.in/sebiweb/home/detail/29593/yes/PR-SEBI-Board-Meeting

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1.0 First Bilateral Advance Pricing Agreement (APA) signed by CBDT with a Japanese Company The Central Board of Direct Taxes (CBDT) signed first APA on 19 December 2014 with a Japanese Company for a period of 5 years. This APA is expected to improve the investment climate of the country and generate positive sentiments amongst Japanese investors in India [Press Release, dated 19 December 2014]

2.0 Officers concerned directed to avoid obtaining admissions of undisclosed income under coercion / pressure during Search/Survey The Officers concerned have been instructed to adhere with the instructions/guidelines issued by it with re-

gard to search/survey operations. The CBDT emphasized upon the need to focus on gathering evidences dur-ing the search/survey and to strictly avoid obtaining admission of undisclosed income under coercion /undue influence.

Further, it was conveyed that any such instance of undue influence/coercion in future in the recording of the statement during Search/Survey/Other proceeding under the IT Act and / or recording a disclosure of undis-closed income under undue pressure/ coercion shall be viewed adversely by the CBDT.

Letter [F.NO.286/98/2013-IT (INV.II)], dated 18 December 2014

3.0 Guidelines for notification of a semiconductor wafer fabrication manufacturing unit as specified business under section 35AD prescribed [ Insertion of Rule 11-OB ]

To give effect to the provisions of newly inserted section 35AD (8) (xiii) (business of ―setting up and operating a semi-conductor wafer fabrication manufacturing unit‖), Rule 11-OB has been inserted to provide guidelines and procedure for notification of such business.

The applicant shall apply for notification of such unit in Form No. 3CS to the Member (Income tax), Central Board of Direct taxes, Department of Revenue, Ministry of Finance, North Block, New Delhi.

Notification no. 80/2014 [F.NO.142/04/2014-TPL]/SO 3169(E), dated 12 December 2014

4.0 Government grant exceeding 50% of the total receipts of university, hospital etc.- to be considered ‗substantially financed by the Government‘ for section 10(23C) [Insertion of Rule 2BBB]

The CBDT has inserted Rule 2BBB providing that for the purpose of Section 10(23C)(iiiab) and Section 10(23C)(iiiac), any university, educational institution, hospital etc., shall be considered as being substantially financed by the Government for any previous year, if the Government grant to such university, educational institution, hospital exceeds 50% of the total receipts (including any voluntary contributions, of such university or other educational institution, hospital or other institution), as the case may be, during the relevant previous year Notification no. 79/2014 [F.NO.142/12/2014-TPL], dated 12 December 2014

5.0 Residents can approach Authority for Advance Ruling (AAR) if the value of one or more transaction is 100 crore or more [Amendment in Rule 44E and insertion of Form No. 34DA] A Resident taxpayer shall be eligible to apply for advance ruling in respect of his tax liability arising out of one or more transactions valuing Rs. 100 crore or more in total. Further, Rule 44E of the IT Rules has been suitably amended to effectively provide for operation of newly inserted provision under section 245(a)(iia) of the Act. The CBDT has prescribed Form No. 34DA as the form of application for obtaining advance ruling by a resident applicant as aforementioned. Further, the fees payable for advance ruling shall be as per the following table:

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INCOME TAX

Notification No. 73/2014 [F.NO.142/6/2014-TPL]/SO 3014(E), dated 28 November 2014 & Notification No.74/2014 [F.NO.142/6/2014-TPL]/SO 3015(E), dated 28 November 2014

6.0 Taxpayers can now invest up to Rs. 1.50 lacs in a Fixed Deposit with Banks to claim deduction under section 80C

The investment limit in a term deposit with a scheduled bank has been raised from Rs. 1 lac to Rs. 1.5 lacs vide Bank Term Deposit (Amendment) Scheme, 2014. This will be in line with the increased limit of deduction available under section 80C i.e. Rs. 1.5 lacs. Notification no.63/2014 [f.no.142/09/2014-tpl]/so 2906, dated 13 November 2014

7.0

Important clarification with respect to the TDS returns in Circular on section 192 Employers are advised to ensure in Form 16 that the status of "matching" with respect to "Form 24G/OLTAS"

is ‗F‘. If the status of matching other than 'F', the same needs to be promptly rectified. It is clarified that the employer should quote the gross amount of salary (including any amount exempt under

section 10 and the deductions under chapter VI A) in column 321 (Amount paid/credited) of Annexure I of Form 24Q as per NSDL RPU (hereafter Return Preparation Utility). Further it states that the employer should quote the amount of salary excluding any amount exempt under section 10 in column 337 (Total amount of salary) of Annexure II of Form 24Q as per NSDL RPU.

Income without rounding off to be mentioned in TDS return: It has been suggested in para 4.6.1 of the circular

that employer should quote Total Taxable Income (Column 346) in Annexure II without rounding-off and TDS should be deducted and reported accordingly i.e. without rounding-off of TDS also. In this respect, illustration has been provided .

Online correction of TDS return:

CPC-TDS portal introduced a facility of online correction of statements whereby personal information, PAN correction, add/update of challan information; add/update of salary detail, add/update/movement of deductee row etc. can be done in the statements filed by the deductors, with or without the digital signa-tures.

Further with effect from 1st January, 2015, TRACES would be providing a correction window of 7 days from date of processing at CPC-TDS (generally 2 days after date of filing of statement). This facility will enable the filer to correct PAN errors and challan mismatch cases identified by CPC-TDS and avoiding of issuance of demand notices.

Circular no. 17/2014[f.no.275/192/2014-it(b)], dated 10 December 2014

8.0 Commissioner of Income-tax (Exemptions) notified as Prescribed Authority for the purpose of exemption under section 10(23C)(iv), (v) (vi) and (via)

In pursuance of the provisions of section 10(23C)(vi) and (via) the Commissioner of Income-tax (Exemptions) shall act as prescribed authority for the purpose of claiming exemption under the said section by any university or other educational institution, any hospital or other institution . Notification No.75/2014 [F.NO. 196/26/2014-ITA.I]/SO 3026(E), dated 1 December 2014 & Notification no. 76/2014 [F.NO. 196/26/2014-ITA.I]/SO 3027(E), dated 1 December 2014

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Category of appli-cant

Category of case (Amount of one or more transactions)

Fee (Rs.)

An applicant referred to in sub-clauses (i) or (ii) or (iia) of clause (b) of section 245N

Rs. 100 crore or less Rs. 2 Lacs

Exceeds Rs. 100 crore but does not exceed Rs. 300 crore Rs. 5 Lacs

Exceeds Rs. 300 crore. Rs. 10 Lacs

Any other applicant 10,000

9.0 Para 61.2 of the Circular No. 3 of 2008, dated 12-3-2008 relating to revised settlement scheme modified to bring in line with the provisions contained in Explanation to Section 245A(b) of the IT Act In para 61.2 of circular no 3 of 2008 (in the context to making an application of settlement to the commissioner), it was inadvertently stated that the assessment shall be deemed to be completed only on the date of service of assessment order to the applicant. The notification clarifies in this regard stating that the aforesaid statement is not in consonance with the provisions contained in Explanation to Section 245A(b) of the Act. Accordingly, the said statement in para 61.2 has been replaced with effect from 01 June 2007 to provide that “the assessment shall be deemed to have been completed on the date on which the assessment order is passed.” Circular no. 16/2014 [F.NO.142/14/2007-TPL(PART)], dated 17 November 2014

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Service Tax

1.0 Chartered Accountant or Cost Accountant nominated to conduct Service Tax Audit

The Central Government through has nominated Chartered Accountant or Cost Accountant to conduct Service Tax Audit by amendment in Rule 5A(2) of the Service Tax Rules, 1994. Therefore, a Chartered Accountant or a Cost Accountant may be nominated by the Commissioner for the purpose of Special Audit under Section 72A of the Finance Act, 1994 has also been added amongst the list of authorized persons having access to the records of the assessee. Further, the time limit of 15 days for making available the requisite documents by the assessee has been dispensed with. (Notification No.23/2014 - ST dated 5 December 2014)

2.0 Clarification on Time Limit for Availment of CENVAT Credit

The Central Board of Excise & Customs clarified that the time limit of availing CENVAT Credit within 6 months from the date of CENVATABLE document is applicable for taking credit for the first time and not in case of availing re-credit in respect of the following cases:

Non payment to service provider within 3 months from date of invoice (3rd Proviso to Rule 4(7) of The CENVAT Credit Rules, 2004 (‗CCR, 2004‘)

Under this rule, the CENVAT Credit is required to be reversed if payment for the value of input service and Service Tax paid as indicated in the invoice is not made within three months of the date of invoice, bill or challan referred in rule 9 of CCR 2004, then the manufacturer or service provider who has availed CENVAT Credit on such input ser-vice shall pay an amount equal to the CENVAT Credit availed on such input service. However post fulfillment of conditions, re-credit of CENVAT can be taken of the amount paid earlier.

Inputs or capital goods before being put to use are written off (Rule 3(5B) of CCR, 2004)

Under this rule, if the value of any input or capital goods before being put to use on which CENVAT Credit has been taken, is written off fully or partially or where any provision has been made in Books of Account, then the manufacturer or service provider is required to pay an amount equivalent to CENVAT Credit availed earlier. How-ever, when the inputs or capital goods are subsequently used, re-credit of CENVAT can be taken of the amount paid earlier.

CENVAT credit on goods sent to Job worker (Rule 4(5)(a) of CCR, 2004)

Under this rule, if inputs sent to job worker for further processing, testing, repair, reconditioning or manufacture of intermediate goods used for manufacture of final products are not received back within 180 days, the manufacturer or service provider is required to pay an amount equal to credit taken on such inputs in the first instance. However, when the inputs are subsequently received back from job worker, re-credit of CENVAT can be taken of the amount paid earlier.

The condition for availment of CENVAT Credit within 6 months is applicable when CENVAT Credit is taken for the first time from the date of CENVATABLE document. The time limit of 6 months would not apply for taking re-credit of amount reversed, after meeting the conditions prescribed in these rules.

(Circular No. 990/14/2014-CX-8 dated 19 November 2014)

INDIRECT TAXES

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3.0 Clarification on procedure to be followed by SEZ units/ developers for claiming upfront Service Tax Exemption

The Tax Research Unit (‗TRU‘) of the Ministry of Finance, Government of India have issued clarification in respect of procedures to be followed by SEZ unit or developers. Under Notification no.12/2013 dated 1 July 2013 as amended, SEZ unit or the developer needs to approach two authorities (the SEZ authority and the Jurisdictional Service Tax authority) for claiming upfront exemption. In the said regard it has been clarified that the procedure prescribed under above notification is for proper accounting and monitoring of benefit availed by SEZ unit and developer under the exemption. Further compliance verification at the service provider‘s end (in domestic tariff area) would only be feasible if an institutional mechanism for accounting and verification procedure is in place. The SEZ units and developer may, if they so desire, route their application for issuance of authorization by department through the specified officer of SEZ instead of submitting directly to the department and may also route quarterly statement in Form A-3 through the specified officer in the SEZ. The Notification no.12/2013 dated 1 July 2013 as amended does not put any restriction in this regard. (Tax Research Unit Order F.No.B1/6/2013-TRU dated 25 November 2014)

4.0 Clarification on Service Tax Audit of assesses

The Central Board of Excise & Customs vide Circular No. 181/7/2014-ST dated 10 December 2014 clarified that verification of records mandated by the statute is necessary to check the correctness of assessment and payment of tax by the assessee in the present era of self-assessment. It may be noted that the expression "verified" used in section 94(2)(k) of the Finnace Act, 1994 is of wide import and would include within its scope, audit by the departmental officers, as the procedure prescribed for audit is essentially a procedure for verification mandated in the statute. It may also be noted that the Hon'ble High Court of Delhi in the judgment dated 4 August 2014 in the case of M/s. Travelite (India) [2014-TIOL-1304-HC-DEL-ST] had quashed rule 5A(2) of the Service Tax Rules, 1994 on the ground that the powers to conduct audit envisaged in the rule did not have appropriate statutory backing. This judgment can now be distinguished as a clear statutory backing for the rule now exists in section 94(2)(k) of the said Act. Departmental officers are directed to audit the Service Tax assessees as provided in the departmental instructions in this regard. (Circular No. 181/7/2014-ST dated 10 December 2014)

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Exemption from duty to all goods falling under First Schedule donated or purchased out of cash donations, for relief and rehabilitations of the people affected by the floods in the State of Jammu and Kashmir.

Exemption to all goods falling under First Schedule to the Central Excise Tariff Act,1985 donated or purchased out of cash donations, for relief and rehabilations of the people affected by the floods in the State of Jammu and Kashmir from the duty of excise leviable thereon under the Central Excise Act, 1944, subject to the following conditions,:- i. that it is certified by the manufacturer of such goods on the relevant clearance documents that the goods are

intended to be donated for the relief and rehabilitation of the people affected by the floods in the said State free of cost;

ii. that the goods are sent directly from the factory of the manufacturer or warehouse to the Central Government, the Government of Jammu and Kashmir; or as the case may be, the relief agencies of the Central Government, the Government of Jammu and Kashmir including the relief agencies duly approved by the Central Government or the Government of Jammu and Kashmir; and

iii. that the manufacturer produces before the jurisdictional Deputy Commissioner or the Assistant Commissioner of Central Excise, as the case may be, within six months from the date of removal of the goods or within such extended period as the said officer may allow, a certificate from the District Magistrate of the affected area in the State of Jammu and Kashmir that the said goods have been donated for use for the aforesaid purpose.

The notification shall remain in force upto and inclusive of the 31st March, 2015 (Notification No.25/2014-Central Excise dated 11 December 2014)

Customs

Exemption from the Basic and Additional duty of Customs for the imported goods in the state of Jammu and Kashmir.

The Central Government has exempted goods failing under First Schedule of Customs Tariff Act from whole of the Customs duty and additional duty of Customs on all of the goods imported into India for donation for the relief and rehabilitation of people affected by the floods in the State of Jammu and Kashmir subject to certain terms and conditions specified. The Notification shall remain in force upto and inclusive of 31 March 2015.

(Notification No. 33/2014-Customs dated 11 December 2014)

Central Excise

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Maharashtra VAT

1.0 Dealers to file CST returns even if the they do not have inter-state sales from Maharashtra State

1.1 1.2 1.3 1.4 1.5 1.6 1.7 1.8

Before issue of this Trade circular (Trade Circular No. 20T of 2014 dated 25 November 2014) no return was re-quired to be filed under the Central Sales Tax Act, 1956 (CST Act) by the dealers in case of no inter-State sales in any return period, provided that the Maharashtra Value Added Tax Act, 2002 (MVAT Act) return for the same peri-od shows 'NIL' turnover of inter-State sales.. The exemption granted in respect of filing of the returns under the CST Act was posing difficulties in generating the lists of returns defaulters under the CST Act in the automation system i.e. Mahavikas In view of the above, fresh guidelines are being issued by modifying the earlier circulars on the subject. The Maharashtra Sales Tax Department has withdrawn the exemption granted in respect of filing of the returns under the CST Act where there are no inter-State sales in any return period The revised instructions are as follows where Sales Tax Department has specifically mentioned the CST Transac-tion for which CST return will be required to be filed. A dealer who is effecting the following types of transactions during a period shall be required to file CST return (i) Inter-State sales u/s. 3 of the CST Act , such as

Sale that occasions the movement of goods from the State of Maharashtra to another State as per Sec.3(a)

Sale which is effected by a transfer of document of title to the goods during their movement from the State of Maharashtra to another State as per Sec 3(b).

(ii) Goods transferred u/s. 6A (1) of CST Act, such as Goods transferred to Branch / Factory / HO, Goods sent for processing, Goods sent on consignment, Goods sent for approval.

(iii) Sales outside the state u/s. 4 of CST Act i.e. Sale of Goods not in Maharashtra. (iv) Export sales u/s 5(1) and 5(3) of the CST Act, viz Export Sale and Penultimate sale for export (Sales

against form H) (v) Sales in the course of import u/s. 5(2) of the CST Act These instructions shall be applicable for the returns starting for the period from the 1st October 2014 onwards. A dealer not filing CST return in the above referred contingencies will be treated as defaulter under the CST Act. (Trade Circular No. 20T of 2014 dated 25 November 2014)

2.0 Physical submission of Audit Report in form 704 for the financial year 2013-14

2.1 The last date for submitting audit report under section 61 of the MVAT Act, 2002 for the year 2013-14 is postponed to 30 January 2015. Official Trade Circular to this effect is expected. After uploading the said audit reports, the dealers are required to physically submit the following documents: Statement of submission of Audit Report in the specified format (vide notification VAT / AMD – 2013 / IB /

ADM – 8, dated 23 August 2013) duly certified with signature, stamp, seal of the dealer with date Copy of acknowledgement generated after uploading the Audit report duly certified with signature, stamp, seal

of the dealer and auditor with date.

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2.2 The aforesaid documents shall be submitted A. In case of Mumbai – to the concerned LTU officer, if the dealer is Large Tax Payer To the 704 cell, Vikrikar, Mazgaon, if the dealer is not a Large Tax Payer B. In case of rest of Maharashtra – to the concerned LTU officer, if the dealer is Large Tax Payer to the location in-charge officer of every location, e,g. Joint Commissioner of Sates Tax, VAT (ADM), Dy.

Commissioner of Sales Tax (VAT Adm), Assistant Commissioner of Sales Tax (VAT Adm), if the dealer is not a large tax payer.

2.3 2.4

In case of acceptance of recommendations of the auditor, the information about the tax and interest payment with the revised returns shall be submitted by the dealer through online compliance when the facility of Computerised Desk Audit for the year 2013-14 is made available. It may be noted that the dealers are not required to submit physical copies of chalans of payments, at the time of submission of documents as mentioned in 2.1 above.

The last date of electronically filing form 704 for the financial year 2013-14 is 15 January 2015 and the last date for submission of above documents is 27 January 2015.

(Trade Circular 21T of 2014 dated 20 December 2014)

For further information please contact:

RSM Astute Consulting Group

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Mumbai - 400 021.

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www.astuteconsulting.com

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RSM Astute Consulting Private Limited is a member of RSM network. Each member of the RSM network is

an independent accounting and advisory firm which practices in its own right. The RSM network is not

itself a separate legal entity in any jurisdiction.

This publication is general in nature. In this publication, we have endeavored to analyze certain

significant aspects of the topics covered in this publication. It may be noted that nothing contained in

this publication should be regarded as our opinion and facts of each case will need to be analysed to

ascertain applicability or otherwise of the topics covered in this publication. Appropriate professional

advice should be sought for applicability of legal provisions based on specific facts. We are not

responsible for any liability arising from any statements or errors contained in this publication.

January 2015