Steel imports’ scrutiny norms tweaked

Source: Financial Express, 08 July 2022

In a notification,the DGFT said importers of steel and products need to register with the Steel Import Monitoring System within 60 days before the arrival of their consignment. Earlier, they were mandated to do so at least 15 days before the expected arrival of the consignment.

The new rule, thus, grants the importers more time to register their imports. The government had in late 2020 directed traders to register themselves with the SIMS.

Cross-border insolvency cases: Government will soon put out for consultation the draft legal framework

Source: Economic Times, 19 November 2021

The government will soon put out for consultation the draft legal framework for cross-border insolvency cases.

The Ministry of Corporate Affairs (MCA) and the Insolvency and Bankruptcy Board of India (IBBI) met on Thursday to finalise the contour of the framework to settle bankruptcy cases of companies that have business or operations in more than one country. “A final draft paper to be floated by the end of this month, outlining the legal framework for the cross-border insolvency,” said a government official in the know.

Based on the feedback, the government will try and move a Bill to amend the Insolvency and Bankruptcy Code (IBC) in the upcoming winter session of Parliament.

The amended Code would empower insolvency professionals (IPs) and creditors to access assets outside India of corporate debtors, maximising the value for all stakeholders. Similarly, foreign creditors to an Indian entity become party to bankruptcy proceedings if the borrower goes bankrupt.

Sources privy to the meeting said there were discussions on the details of adopting a law based on the UNCITRAL Model Law on Cross-border Insolvency, 1997 and how it would be beneficial to Indian creditors.

No income tax NOC/NDC required for voluntary liquidations, says IBBI

Source: Business Standards, 18 November 2021

In a move that will ease some compliance burden, insolvency professionals would not be required to obtain any non-objection or no dues certificate from the Income Tax Department while handling the voluntary liquidation process, the Insolvency and Bankruptcy Board of India (IBBI) has clarified.

“The process of applying and obtaining of such NOC/NDC from the Income Tax Department consumes substantial time and thus militates against the express provisions of the Code, and also defeats the objective of time-bound completion of process under the Code,” IBBI said.

Section 178 of the Income-tax Act, 1961 obligates a liquidator to fulfil certain income tax related requirements. The section explicitly also states that its provisions “shall have effect notwithstanding anything to the contrary contained in any other law for the time being in force” except the provisions of the Code.

IBBI clarified that liquidators had been seeking these certificates even though the Code or the Regulations did not ask for such a requirement.

“This clarification is very important as many of the voluntary liquidation matters keep dragging on only because of the delay or non-availability of No Objection or No Dues letter from income tax. Liquidators fear that in case any claim arises after the dissolution, it will be on the head of the liquidators. This clarification would fast track the process substantially,” said Manoj Kumar, partner, Corporate Professionals.

Industry experts said that many liquidators had been raising these queries to the IBBI. “The principles that the Code enjoys supremacy and that the Code intends to achieve the objective of being time-bound are reiterated with the amendment. This would operationally ease the process of voluntary liquidation,” said Veena Sivaramakrishnan, partner, Shardul Amarchand Mangaldas & Co.

Regulation 14 of the IBBI voluntary liquidation process mandates the liquidator to make the public announcement within five days of his appointment, calling for submission of claims by stakeholders within thirty days from the liquidation commencement date.

It also obligates all the financial creditors, operational creditors including government, and other stakeholders to submit their claims within the specified period. If the claims are not submitted in time, the corporate entity may get dissolved without dealing with such claims.

At the end of June 30, 2021, 968 companies had initiated voluntary liquidation. Final reports in 438 cases had been submitted and nine processes had been withdrawn, according to the IBBI’s newsletter.

Most of these companies were small entities. Over 530 of them had a paid up capital of less than Rs 1 crore and only about a hundred of them had a paid up capital of more than Rs 5 crore.

Expert panel pitches for national dashboard for insolvency data

Source: Economic Times, 14 November 2021

An expert panel has suggested designing a national dashboard for insolvency data, saying “reliable real-time data” is essential to assess the performance of the insolvency process under the IBC.

The Insolvency and Bankruptcy Code (IBC), which provides for a time-bound and market-linked resolution of stressed assets, has been in force for more than five years now.

The working group on tracking outcomes under the Code has suggested a framework based on ‘Effectiveness, Efficiency and Efficacy’ with respect to Corporate Insolvency Resolution Process (CIRP).

According to the group, chaired by former Sebi Chairperson G N Bajpai, reliable real-time data is essential to assess the performance of the insolvency process.

While proposing the creation of the national dashboard for insolvency data, the panel also said the IBBI has made commendable efforts in publishing quarterly data on the insolvency resolution process in detail.

The data published by the Insolvency and Bankruptcy Board of India (IBBI), a key institution in implementing the Code, include those on insolvency filings, recovery amount and duration of the insolvency process across corporate debtors for all creditors.

In its report, the group said that cross-validation of data sourced from multiple data banks is a challenge in making credible assessments.

Against this backdrop, there can be a “national dashboard of insolvency data by using the existing data sources to the extent possible along with specific insolvency indicators, which the IBBI reports on a quarterly basis”.

Another suggestion is for the IBBI to look at including quantitative data on cost indicators such as court/bankruptcy authority fees, resolution professional’s fees and asset storage and preservation costs in its quarterly updates.

The report noted that data on time, cost and recovery rates will allow a reliable evaluation of the insolvency process with respect to parameters of effectiveness and efficiency.

Further, the report said it was important to track the performance of related economic indicators to assess the performance of the insolvency process for other objectives such as ‘promoting entrepreneurship’ or ‘enhancing credit availability.

“Such an assessment would measure the performance of the system with respect to the ‘efficacy’ parameter.

“The WG (Working Group) recommends a range of indicators such as the number of new companies registered, credit supply to stressed sectors like real estate, construction, metals etc, change in the cost of capital (particularly for stressed sectors), the status of non-performing loans, employment trends, size of the corporate bond market and investment ratio for the related sectors,” it added.

Fiscal sops, stricter rules in the works to back circular economy

Source: Economic Times, 15 November 2021

India is eyeing a slew of measures, including fiscal incentives and stricter regulations, as part of the framework being firmed up to encourage a circular economy.

Extended producer liability in 11 sectors or products and a refund option for products after use besides some other fiscal sops could be introduced to aid the switch to circular economy from a linear one.

The 11 sectors include scrap metal (ferrous and non-ferrous), lithium ion (Li-ion) batteries, tyre and rubber recycling, gypsum, end-of-life vehicles (ELVs), electronic waste, toxic and hazardous industrial waste, municipal solid waste and liquid waste, agriculture waste, used oil waste (generated from tools and machines) and solar panels.

The idea is to revamp the model of production and consumption in these sectors going forward. “Stricter regulations and compliance across these sectors along with some fiscal measures are being considered,” a top government official told ET. Compliances would be strengthened without compromising with the ease of doing business, the official added.

Extended producer responsibility provisions have already been put in place for plastics and e-waste.

While the work on circular economy has been going for some time, NITI Aayog had put it on a fast track following Prime Minister Narendra Modi’s Independence Day address laying out that the country would emphasize on ‘Mission Circular Economy’.

A circular economy is a model of production and consumption, which involves sharing, leasing, reusing, repairing, refurbishing and recycling existing materials and products if possible to tackle global challenges like climate change, biodiversity loss, waste and pollution.

The government estimates that a circular economy path could bring in annual benefits of ₹40 lakh crore or $624 billion in 2050.

Strict Monitoring
High-level committees formed across the identified sectors are laying out the timeline for the work to be done to help India achieve success in mitigating climate change and adhering to its global commitments on environment.

“Short-term, medium-term and long-term goals are being set for these sectors in consultation with the line ministries,” a top government official told ET.

Short-term targets would be for the remaining period of the current fiscal while medium to long-term targets are being put in place for a period extending up to two years.

The official said these targets would be regularly reviewed.

OECD global tax deal: Large Indian companies rethink overseas investment plans

Source: Economic Times, 25 October 2021

Several large Indian companies exploring outbound investments have put their plans on hold following a global tax deal over concerns of additional taxes and compliance challenges related to the new framework adopted by the world’s leading industrial bloc.

Large companies, especially in the information technology (IT) and information technology-enabled services (ITeS) sectors, were looking to expand in the Middle East, Africa and other Asian countries. To route these investments, the companies were looking to set up entities in tax havens and countries such as Dubai, Singapore, Ireland, Mauritius and the UK, as part of their global structuring and tax and compliance planning.

The Organisation for Economic Cooperation and Development’s (OECD) global tax deal now means that the Indian companies could see their tax liability go up in the near future.

Earlier this month, the OECD had announced that 136 countries had agreed to join an accord to impose a two-pillar global tax reform plan.

As per the deal, large multinationals have to pay a minimum tax of 15% on their global incomes from 2023 and those with profits above a threshold will now have to pay taxes in the markets where they conduct business.

Indian multinationals have now reached out to their legal and tax experts to figure out whether they can still go ahead with the investments or they need additional ring fencing of their entities in the tax havens.

“Under OECD deals, currently only large companies are covered but for several Indian companies that are planning to use certain jurisdictions to make investments in the Middle East, Africa or Asia, this could cause complications in the future,” said Uday Ved, partner at tax advisory firm KNAV. “Most Indian companies want to hold certain entities in countries such as Singapore or UAE to ring fence holding entities here and the tax savings are incidental, but the global tax deal means that they might have to tweak some of these structures.”

Take a large multinational that is looking to invest in Australia, for instance.

The company was looking to set up an entity in Singapore or Mauritius through which the investment would have been made. “The main purpose was to create a buffer between the Australian entity and the Indian holding company, and tax advantage was incidental,” a tax lawyer advising the company told ET.

The company has now reached out to legal advisors to figure out if such a structuring could result in additional taxes or any other compliance issues.

“The biggest problem is whether there could be additional taxes even on the entities based in Singapore or Mauritius. While tax treaties with India would come into play in this regard, the company doesn’t want to let go of control (in Australia) and still wants to limit the risks to its Indian holding company,” the legal expert said.

Traditionally, large Indian groups tend to set up entities in Europe or Singapore to invest outside India. These entities practically work as a pass through vehicles and attract no taxes. However, the OECD deal would mean that in the years to come, if the global taxes are less than 15% additional taxes could apply.

While the OECD deal, as of now, is only applicable to around 100 multinationals that have a particular size, this is set to create tax complications for other companies and entities that are present in tax havens, say tax experts.

The new OECD framework would mean that large companies will have to disclose their global revenues and pay taxes on them.

Importer-exporter code not updated after 2005 to be de-activated from Oct 6

Source: Financial Express, 26 September 2021

The Importer -Exporter Code is a key business identification number that is mandatory for exports or imports and no person shall make any import or export except under an IEC number granted by the DGFT.

The Commerce Ministry has decided to deactivate all importer-exporter codes (IECs) that have not been updated after January 2005 with effect from October 6 this year, a move which would help in knowing the actual number of real traders in the country.

The Importer -Exporter Code (IEC) is a key business identification number that is mandatory for exports or imports. No person shall make any import or export except under an IEC number granted by the DGFT.

On August 8 this year, the Directorate General of Foreign Trade (DGFT) was mandated all IEC holders to ensure that details in their IEC are updated electronically every year during the April-June period.”All IECs which have not been updated after January 1, 2005, shall be deactivated with effect from October 6, 2021,” according to a trade notice of the DGFT.

It stated that the concerned IEC holders are provided one final opportunity to update their IEC in this interim period till October 5, failing which the given code would be de-activated from October 6.

“Any IEC where an online updation application has been submitted but is pending with the DGFT RA (regional authority) for approval shall be excluded from the deactivation list,” it added. Further, it said that for re-activation of the code after October 6, the IEC holder has to navigate to the DGFT website and update their IEC online.

“Upon successful update the given IEC shall be activated again and transmitted accordingly to the customs system with the updated status,” the notice said.

According to an industry expert, de-activation of IECs helps in reducing the base load of the directorate and it helps in knowing the actual number of real exporters and importers in the country.

The nature of the firm obtaining an IEC includes proprietorship, partnership, LLP, limited company, trust, and society. After the introduction of GST (Goods and Services Tax), IEC number is the same as the PAN of the firm.

Faceless assessment: Finance Ministry eases rules for authentication of e-records submission

Source: Economic Times, 07 September 2021

The 􀀀nance ministry on Tuesday said electronic records submitted through registered account of taxpayers in the income tax portal shall be deemed to have been authenticated by the taxpayer by electronic veri􀀀cation code (EVC). The Central Board of Direct Ta􀀁es (CBDT) amended income tax rules on Monday to ease authentication of records submitted in faceless assessment proceeding.

The ministry said the amended rule provides that electronic records submitted through registered account of the taxpayers in the income tax department’s portal shall be deemed to have been authenticated by the taxpayer by electronic veri􀀀cation code (EVC).

“Therefore, where a person submits an electronic record by logging into his registered account in designated portal of the income tax department, it shall be deemed that the electronic record has been authenticated by EVC…,” it said.

The ministry said this simplified process would also be available to companies, or tax audit cases and they are mandatorily required to authenticate the electronic records by digital signature.

“In order to provide the benefit of the simplified process of authentication by EVC to these persons (such as companies, tax audit cases, etc.) , it has been decided to extend the simplified process of authentication by EVC to these persons also,” the ministry added.

Hence, assessees who are mandatorily required to authenticate electronic records by digital signature shall be deemed to have authenticated the electronic records when they submit the record through their registered account in the Income tax department’s portal.

Legislative amendments in this regard would be brought in due course.

Vehicles Scrappage Policy launched

Source: Times of India, 14 August 2021

NEW DELHI: Indian Prime Minister Narendra Modi launched the vehicle scrappage policy while virtually addressing the Gujrat Investor Summit on Friday 13th August. 

Prime Minister Narendra Modi on Friday launched the much-awaited vehicle scrappage policy with an aim to phase out old and unfit vehicles in an environment-friendly manner

PM Modi said that the national policy will give a new identity to the auto sector and promote a circular economy, making the process of economic development more sustainable and environment-friendly.

“Modernity in mobility not only reduces the burden of travel and transportation, but also proves to be helpful for economic development. The goal for 21st century India to be Clean, Congestion Free & Convenient Mobility, is the need of the hour,” Modi said.

What is vehicle scrappage policy all about

The policy aims to scrap old, unfit and polluting vehicles by creating an infrastructure for automated testing of vehicles that have completed the registration period.

As per law, a registration certificate for a passenger vehicle is valid for 15 years from date of issue. For a commercial vehicle, it is valid for a period of 10 years.

The scrappage policy will come into effect after the expiry of this 10 or 15 year period. The vehicle will then have to undergo a mandatory fitness test.

As per the motor vehicle law, renewal of fitness certificate annually is mandatory for a commercial vehicle once it is older than eight years. For the first eight years, such vehicles will need to undergo the test after every two years.

Vehicles to be judged on basis of fitness test

Fitness tests are required to know the quality of the vehicle, if it is still fit to run on the roads and how much effect it will have on the environment.

A vehicle will be declared fit or unfit after conducting multiple tests like brake test, engine performance and others.

If a vehicle passes the fitness test then it will have to repeat the same after every 5 years to keep a check.

A valid fitness certificate will be necessary for renewal of registration certificates after 15 years. The renewed certificate will be issued for a period of 5 years in case of private vehicles.

Which vehicles will be scrapped?

Under the new policy, vehicles will not be scrapped merely on the basis of age. As mentioned earlier, they will be scientifically tested through authorised, automated testing centres.

Unfit vehicles will be scrapped scientifically which will ensure that registered vehicle scrapping facilities all over the country are technology driven and transparent.

The term ‘unfit’ vehicles include those who fail to qualify a fitness test; have been damaged due to fire, riot, natural disaster, accident or any other calamity; declared obsolete or beyond repair; vehicles which have outlived their utility.

A vehicle which fails the fitness test is deemed unfit from plying on the roads and their registration certificates will not be renewed

However, one re-test will be permitted after the necessary repair, rectification, and re-inspection — if ordered by the appellate authority. If it fails the re-test too then the vehicle will be declared an end of life vehicle (ELV).

Since it is a voluntary scheme, owners of such vehicles will have the option of scrapping their vehicles. He or she will have to take the vehicle to a registered vehicle scrapping facility.

Incentives for scrapping old vehicles

The Centre has announced several incentives that will be offered to people for retiring their old and unfit vehicles.

Firstly, owners of such vehicles will get a scrap value which will be equivalent to 4 per cent to 6 per cent of the ex-showroom price of the new vehicle that they would be purchasing.

Secondly, there will be zero registration fees for new vehicle purchased if the owner shows a certificate of deposit.

Thirdly, state governments have been asked to offer concessions on motor vehicle tax. The concessions include up to 25 per cent for non-transport vehicles and up to 15 per cent for transport vehicles.

Fourthly, vehicle manufacturers have been advised to provide 5 per cent discount on purchase of new vehicle against certificate of deposit.

Opting for a new vehicle will also lower maintenance cost and consumers will be able to have increased savings on fuel too.

Disincentives for holding old vehicles

Holding on to vehicles older than 15 years will become an expensive affair for owners as cost for renewal of fitness certificate might go up by 62 times for commercial vehicles and by 8 times for private vehicles.

In addition, states will impose green tax over and above the road tax that every vehicle owner needs to pay.

When will the policy come into effect

Personal vehicles that are older than 20 years will be de-registered from June 1, 2024 if they fail the automated fitness test or their registration certificates have not been renewed.

Similarly, heavy commercial vehicles older than 15 years will be de-registered from April 1, 2023.

Automated testing stations and registered scrapping facilities

The Centre has mandated setting up of automated testing stations to minimise manual testing of vehicles as per the road map.

In the first phase, 75 stations have been proposed to be set up. It will then be scaled up to 450-500 stations across the country.

The government has also encouraged private players to invest in setting up such stations through PPP route in partnership with the state governments.

Similarly, registered vehicle scrapping facilities will be set up across the country to promote safe scrapping of the vehicles.     The Centre plans to set up 50-70 such facilities in the next 4-5 years.

‘Beneficial for all stakeholders

Cheap raw material acquired from scrapped vehicles would bring down the price of vehicles and boost their sales. This will also help in raising the Centre’s GST collection, union minister Nitin Gadkari said.

He further said that the policy will be beneficial for all stakeholders.

“It will boost manufacturing, create employment and increase our savings. Cost of new vehicles will also come down as the scrap would provide copper, aluminium, steel, plastic and rubber to the industry,” Gadkari added.

“If we recycle on a continuous basis, we can recover 99 per cent of the materials. As per an estimate, this will lead to a reduction of 40 per cent in the raw material cost, which will lead to reduction in prices and higher sales,” said the minister.



LLP reforms 2021: How the Amendment Bill facilitates ease of doing business, encourage entrepreneurs

Source: Financial Express, 29 August 2021

Ease of Doing Business for MSMEs: India introduced the LLP Act in 2009 and over a decade since its introduction, Limited Liability Partnerships (LLPs) have steadily gained momentum as an alternate format to the traditional form of partnerships and highly regulated form of a company. LLPs have offered the much-required flexibility for entrepreneurs to conduct their businesses along with the protection in the form of limited liability.

However, many startups and entrepreneurs were shying away from the LLP format on account of lack of enough incentives for startups, flexibility in issuance of instruments like debentures, and criminalisation of many procedural lapses like delay in appointment of designated partner, maintenance of registered office, etc. Thus, in a move to facilitate ease of doing business and encourage more entrepreneurs, the government has introduced the Limited Liability Partnership (Amendment) Bill, 2021.

Dealing of offences under the Act

Defaults in the current LLP Act are “punishable with fine” on the LLP and the partners. Fine is the amount of money that a court can order to pay for an offence after the conviction of an accused in a process of the criminal trial. Whereas penalty is the punishment imposed by the appropriate authority for failing to comply with provisions of law where no harm to public interest is caused or no criminality is intended.

Based on the recommendation of the CLC in January 2021, the Bill thus seeks to decriminalise various offences under the Act and has thus changed the provisions from “punishable with fine” to “liable to penalties”. Further, an adjudication mechanism has been introduced for adjudication of penalties under the Act for offences that are not of criminal nature.

Recently, the Union Cabinet also approved decriminalisation of 12 offences under the Act relating to default of procedural compliances like responsibilities of designated partners to file document, return, etc. or appointment of designated partner on vacancy, maintenance of registered office, filing of annual return, etc. The Bill has also reduced some of the penalties from the maximum threshold of Rs 5 lacs to Rs 1 lac for LLPs and Rs 50,000 for partners.

Apart, from the above compoundable offences are reduced to seven offences dealing with the maintenance of books and accounts, default under providing information to registrar or production of information, etc., and non-compoundable offences to three which deal with fraud, intent to deceive, or injury to the public interest. However, if an LLP or its partners carry out an activity to defraud their creditors, or for any other fraudulent purpose, the Bill increases the maximum term of imprisonment from two years to five years for every person party to it knowingly. The Bill also proposes to establish a Special Court under the Act for speedy trials of offences committed under the Act.

Introduction of the concept of small LLP and start-up LLP

The Bill proposes to introduce the concept of small LLP in line with the concept of small companies. Small LLPs shall be LLPs having contribution not exceeding Rs 25 lacs which can be extended to Rs 5 Crores and turnover not exceeding Rs 40 lacs which can be extended to Rs 50 crores. The concept of startup LLPs has been introduced in the Act. While the definition of a start-up LLPs is yet to be notified by the Government the move is being seen as a boost to the start-up ecosystem whereby start-ups who do not intend to register as companies now have an alternative operating structure.

To incentivise small and startup LLPs, the Bill seeks to limit the penalty levied on the Act for any non-compliances under the act to only one-half of the amount of penalty prescribed subject to thresholds. However, unless tax sops are introduced for small and startup LLPs like they have been made available to small and startup companies, this initiative would be rather lackluster.

Debentures

The Bill for the first time has dealt with the issuance of debentures by an LLP as a mode of fundraise. These debentures shall have a charge on the assets of the LLP and can be raised from entities regulated by SEBI or RBI. This move will definitely attract institutional funding to LLPs which were resistant in providing funds as there were no laws in LLPs that would provide a secured instrument. 

Amalgamation with companies

The Bill proposes to restrict LLPs from amalgamating into companies. Thus, all LLPs who intend to enter into any M&A activity with a company in the future would necessarily have to first convert themselves into a company first and then proceed to amalgamate with another company. This could result in increased timelines and may also derail M&A opportunities.

Resident partner

Currently, it is mandatory to have one designated partner resident in India which means a person who has stayed in India for a period of not less than 182 days during the immediately preceding one year. With Foreign Direct Investment permitted in LLPs for sectors in automatic route, this requirement proved a dampener for foreign investors intending to set base in India.

The amendment now seeks to reduce the number of days to 120 days during the financial year. This may provide some relief for the foreign investors who had difficulty in maintaining one designated partner resident in India.

Accounting / Auditing Standards

A new section 34A has been introduced so as to empower the Central Government to prescribe the Accounting Standards or Auditing Standards for a class or classes of limited liability partnerships in consultation with NFRA constituted under Companies Act, 2013.

Conclusion

The objective of the Bill is to promote the idea of LLP as a body corporate to enable professional expertise and entrepreneurial initiative in a flexible, innovative, and efficient manner. The Bill comprises of long-awaited changes required to facilitate greater ease of doing business for corporates and stakeholders in the industry and particularly decriminalization of offences shall incentivize compliance and promote congenial business climate.

Diana Mathias – Partner and Vaibhav Gandhi – Senior Consultant, N. A. Shah Associates LLP. Views expressed are the authors’ own.