MCA notifies winding-up rules: Shutting business now easier for small firms

Source: Business Standard, Jan 29, 2019

The Ministry of Corporate Affairs (MCA) on Tuesday notified rules for winding up of companies, making it easier for smaller firms to wind up businesses without taking approval. The rules have provided summary procedures for liquidation of companies with asset size of Rs 1 crore and which have not accepted deposits exceeding Rs 25 lakh and turnover less than Rs 50 crore and total loan under Rs 25 lakh. The Central government will provide required approvals to such companies for winding up instead of the tribunal. The rules said, “…wherever the word Tribunal is mentioned, it shall be read as Central Government and with further directions issued by the Central Government as may be necessary, from time to time.”

Relief for exporters: MEIS, other sops may run beyond March 31

Source: The Hindu Business Line, Jan 27, 2019

New Delhi: The government is looking at the possibility of extending the popular Merchandise Export from India Scheme (MEIS) and other export incentives, challenged by the US at the World Trade Organization, beyond March 31 as it is worried that replacing the existing schemes could hurt the already floundering exports.

The Foreign Trade Policy 2020-25 to be announced in the new fiscal may continue many of the old schemes with some adjustment in rates, a government official told BusinessLine.

“Exporters across sectors are seeking a continuation of incentives such as the MEIS, the Export Promotion Capital Goods (EPCG), the Export Oriented Units (EOUs) and the Electronic Hardware Technology Park (EHTP) schemes, which the government was planning to end this fiscal.

With exports showing a decline so far this year, there is a growing feeling amongst policy makers that the boat should not be rocked further,” a government official told BusinessLine.

India’s exports declined almost 2 per cent to $239.29 billion in April-December 2019 with most labour-intensive sectors contracting.

Last year, the US had complained to the WTO that India’s export subsidy schemes flouted rules as the country’s Gross National Income (GNI) had exceeded the per capita $1,000 annual threshold above which members were banned from subsidising exports.

Following this, a dispute panel ruled in the US’ favour. The report circulated on October 31 stated that New Delhi should do away with schemes including the MEIS, the EoU/EHTP and the EPCG within 120 days of adoption of the ruling, while the benefits of the Special Economic Zone scheme have to be withdrawn in 180 days.

Appeal against panel decision

India, however, need not be in a hurry to discontinue the schemes as it subsequently appealed against the panel decision at the WTO Appellate Body. Since the apex decision making body has not been functional since December — after the US blocked the appointment of new judges, demanding changes to WTO rules — India is not under pressure to implement the judgment of the panel.

“The fact that India has appealed against the WTO panel ruling allows the country to continue the schemes for many more months as the Appellate Body crisis is unlikely to be resolved soon because of Washington’s inflexible attitude,” the official said.

An indication that the government is slightly relaxed about replacing the export promotion schemes is evident from the fact that Finance Minister Nirmala Sitharaman’s decision to switch the MEIS with a new Remission of Duties or Taxes on Export Product (RoDTEP) scheme from January 1, 2020 has not yet been implemented.

The RoDTEP scheme is supposed to be compliant with WTO norms as it seeks to neutralise all taxes and levies imposed on export products without linking them directly to exports. But exporters are not too keen, as many in sectors such as electronics fear that the payments under it would be lower.

India likely to raise import duties on more than 50 items next week

Source: The Economic Times, Jan 27, 2019

India plans to increase import duties on more than 50 items including electronics, electrical goods, chemicals and handicrafts, targeting about $56 billion worth of imports from China and elsewhere, officials and industry sources said.

Finance Minister Nirmala Sitharaman could make the announcement when she presents her annual budget for 2020/21 on Feb. 1, along with other stimulus measures to revive sagging economic growth, one of the government officials said.

Higher customs duties are likely to hit goods such as mobile phone chargers, industrial chemicals, lamps, wooden furniture, candles, jewellery and handicraft items, two government sources with direct knowledge of the matter said.

The move could hit smartphone manufacturers that still import chargers or other components such as vibrator motors and ringers, along with retailers such as giant IKEA that is in the process of expanding its footprint in India.

IKEA had previously flagged higher Indian customs duties as a challenge.

The government had identified items and decided to increase import tariffs by 5%-10% as recommended by a panel of trade and finance ministry officials, among others, the second government official said.

“Our aim is to curb imports of non-essential items,” said the official, adding a hike in import duties would provide a level playing field for local manufacturers-hit by cheap imports from China, the Association of Southeast Asian Nations (ASEAN), and other countries that enjoy trade pacts with India.

The sources asked not be identified as the discussions were private.

A spokesman for the finance ministry and a spokeswoman for the commerce ministry declined to comment.

Since taking charge in 2014, Prime Minister Narendra Modi has imposed several restrictions on imports while allowing more foreign investment in manufacturing, defence and other sectors.

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Govt mulls mediation to solve tax issues with companies

Source: The Economic Times, Jan 23, 2019

New Delhi: The government may adopt a mediation mechanism that will help companies determine their future tax liabilities and even settle disputes, said a person familiar with the development. The concept, which is widely prevalent overseas, is being discussed amid preparations for the February 1 budget, the person said.

Mediation will allow taxpayers to get a fix on how much they need to pay and avoid disputes. “This will bring down litigation substantially,” the person said.

The mediation process involves examining tax legislation and all relevant facts in detail. Neutral mediators, chosen from a panel, will negotiate and arrive at a settlement. The decision is binding on both sides.

The government could also look at expanding the Dispute Resolution Panel mechanism, which handles transfer pricing disputes, as an alternative, the person said.

Currently, the various Authorities for Advance Rulings take up issues from a technical standpoint and do not cover wider issues of law, hence the need for a broader framework. Besides, AAR decisions have not helped in containing litigation as most of these have been getting appealed both by taxpayers as well as the income tax department.

The Companies Act had in 2016 provided for a formal mediation process to settle disputes relating to the law but such a formulation is not present in the Income Tax Act.
The Direct Tax Task Force headed by former Central Board of Direct Taxes (CBDT) member Akhilesh Ranjan had suggested a mechanism to ascertain tax liability.

Industry Pitched for Such a Mechanism
“It is an established practice in some overseas tax jurisdictions to discuss and negotiate tax issues and disputes across the table between taxpayer and tax administration,with an earnest intent to resolve matters,” said Vikas Vasal, national leader, tax, Grant Thornton.

The Confederation of Indian Industry (CII) lobby group has pitched for a mediation mechanism in its pre-budget wish list. It has suggested that the government constitute a panel of experts comprising retired tax officials and experienced professionals to mediate.

“This process saves time and cost and helps in resolving many issues,” said Vasal of Grant Thornton. “The government would also have to provide necessary protection to the revenue or independent authority acting as the mediator from unnecessary questioning and its decisions being challenged in future, to make such a scheme successful.”

The government has sought to partially address this demand in the past through Advance Pricing Agreements (APAs) for transfer-pricing cases or by the Mutual Agreement Procedure (MAP) involving a settlement between the competent authorities of the respective governments, said Rakesh Nangia, chairman, Nangia Andersen Consulting. “Still, the need is felt for a more comprehensive tax-mediation mechanism, where taxpayers can have a dialogue for settlement of their tax disputes in all types of cases.”


The US Internal Revenue Service has a voluntary mediation programme known as Fast Track, which helps resolve disputes in 40-120 days, much faster than the traditional appeals process. An independent mediator facilitates the settlement discussion and helps reach an agreement on the disputed issues. A key feature of Fast Track is that the taxpayer retains the right to traditional appeal if the dispute remains unresolved through the mediator.

In the UK, Her Majesty’s Revenue and Customs has introduced alternative dispute resolutions by way of mediation, which involves a trained officer acting as a neutral third party, without forming a view on what is right or wrong, to settle tax disputes.

New payments formula for creditors in the works

Source: The Economic Times, Jan 20, 2019

NEW DELHI: The government is considering a new formula for payments to creditors of distressed companies resolved through the insolvency and bankruptcy law, which would give a better deal to unsecured lenders and operational creditors.

There are two options under consideration, a government official told ET.

Under one of the plans, the resolution amount would be split into two parts – liquidation amount set by the valuers before the resolution is started, and anything in excess of this amount.

Liquidation amount would be distributed to company’s creditors in accordance with the “waterfall” mechanism set out in Section 53 of Insolvency and Bankruptcy Code, as per the plan.
Under this mechanism, all claims of secured financial creditors must be fully paid before payments are made to unsecured financial creditors, who must in turn be fully paid before operational creditors.

Any amount in excess of the liquidation value would be split on a pro-rata basis among all creditors – secured, unsecured and operational.

The government has also proposed this formula for distribution of proceeds from the resolution of debt-ridden Infrastructure Leasing and Financial Services Group (IL&FS).

“One formula is that everyone has contributed to enterprise value, so up to liquidation value, secured creditors will have the first claim. Till liquidation value, Section 53 (waterfall mechanism) will apply. On the balance, everyone has a claim,” said a government official.

The second formula being considered is to set aside a fixed proportion of 5% or 10% of sale proceeds for operational creditors.

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Government plans new law to protect foreign investment

Source: Business Standard, Jan 09, 2019

NEW DELHI : India is planning a new law to safeguard foreign investment by speeding up dispute resolution, aiming to attract more capital from overseas to boost stuttering domestic growth, two officials with direct knowledge of the matter told Reuters.

In a 40-page initial draft, India’s finance ministry has proposed appointing a mediator and setting up fast-track courts to settle disputes between investors and the government, one of the sources said.

“The idea is to attract and promote foreign investment, but a major issue for investors is enforcement of contracts and speedy dispute resolution,” said the official.

The draft proposal is aimed at diffusing investor mistrust around the sanctity of agreements, which has worsened recently after some state governments decided to review approved projects, or threatened to cancel contracts.

Both officials declined to be named as the proposal is not public, and is still being assessed by different ministries and regulators.

A spokesman for the finance ministry did not respond to a request for comment.

Foreign investors have highlighted the enforcement of contracts as one of their biggest concerns, said the second official, adding that improving on this front would also reduce litigation for the government.

While investors can still rely on the existing legal system to settle disputes, it often takes several years for cases to be decided or settled.

Investors previously had an option to take India to international arbitration courts under bilateral investment treaties (BITs) the government had agreed with dozens of nations. But, after suffering setbacks in overseas arbitration matters, India has allowed most of its treaties to lapse, giving investors little to fall back on in case of major disputes.

BITs are agreements between two countries that give foreign investors protections, and among other things, legal recourse via international arbitration in disputes with a government.

India is entangled in more than 20 such overseas arbitration cases – the most against any country – brought by companies including Vodafone, Deutsche Telekom and Nissan Motor Co for disputes over retrospective tax claims and breach of contracts.

If India loses these cases, brought before most of its BITs lapsed, it could end up paying billions of dollars in damages.

The government’s thinking is that India may not need to sign investment treaties with other nations if the new law, which is modelled on a BIT, can give confidence to investors, said the first source.

A domestic law, however, cannot be a substitute for a BIT as its scope cannot allow investors to take their case to international arbitration, the sources said.

Govt plans to impose restrictions on imports of products categorized as 'others'

Source: Livemint, Jan 16, 2020

New Delhi: Imports of uncategorized items may soon require special licences, with the commerce ministry seeking to curb such imports by shifting them to a restricted list in a month, trade minister Piyush Goyal said.

“We have a big problem in our imports of a category called ‘others’. In that category, all sorts of stuff are being put in and imported into the country. The last analysis I got done, I found one out of four products being imported in the ‘others’ category,” Goyal said at the National Standards Conclave on Wednesday. “I appeal to everybody, who is importing any product or service into the country, please categorize your product into the respective HSN (harmonized system of nomenclature) code where it falls. If your product is imported in sufficient measure, it requires a separate HSN code.”

Importers may face serious consequences if they fail to comply with the directions, the minister said. These could be higher duty on products that come under the “others” category or requirement for a licence to import such items, he said.

“In one month or so, I will restrict the import of every product that goes in the ‘others’ category. You will have to approach us, take a special licence without which you cannot import any product in the ‘others’ category. Either the import duty will be increased exorbitantly or a special duty imposed, so that FTA (free trade agreement) countries also will bear it,” he said.

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