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KGS

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INDEX

Sl. No.. Topic Page No.

1 Decisions Taken On Indirect Tax Issues by the Forum Chaired by Dr.

Parthasarathi Shome

3

2 Business in India – An overview over the trade scenario 6

3 NSEL Scam 10

4 Safe Harbour Rules- A step towards ensuring certainty and reducing

litigation in Transfer Pricing?

13

5 CIS- When thugs of security market will stop operating through ponzy

schemes?

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6 Important Dates 20

About KGS

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Decisions Taken On Indirect Tax Issues (1 of 3)

In July 2013, the Union Finance Minister Shri P.Chidambaram constituted a Forum for exchange of views between industry groups and Government on tax related issues or tax related disputes. The Forum is chaired by Dr. Parthasarathi Shome, Adviser to the Finance Minister. The Union Finance Minister Shri P.Chidambaram has taken the following decisions so far with respect to IT, reinsurance and manufacturing sectors:

Pending Service Tax refunds/rebates for export of services Issue: The prescribed procedure demands documents from other departments, particularly matching of FIRCs (Foreign Inward Remittance Certificates) with export invoices by banks as FIRCs submitted by the claimant are not invoice-specific or transaction-based and hence not co-relatable to export invoices, on which the taxpayer does not have control. For claiming refunds under notification 5/2006, the following documents are to be submitted along with the application in Form A: Copy of the relevant Shipping Bills or Bills of Export duly certified by the officer of customs to the effect that the goods

have in fact been exported (in case of final products). Copy of invoices. Certificate from the bank certifying realization of export proceeds (in case of export of output services). Relevant extracts of the records maintained under the Central Excise Rules, 2002, the CENVAT Credit Rules, 2004, or

the Service Tax Rules, 1994, as the case may be, evidencing taking of CENVAT credit, utilization of such credit in payment of excise duty or service tax and the balance unutilized credit during the given period.

Decision: Instructions have been issued to the field formation on 04.09.2013 for acceptance of self-certification submitted by the claimant for refund claimed under notification 5/2006-Central Excise dated 14.03.2006.

Issue: Problems are being faced in establishing nexus of input services with exports Decision: The procedure for calculating the refund on the basis of the ratio of export turnover to total turnover that was introduced in 2012 vide notification no. 40/2012-Service tax will be applied for Pending Refund Cases. Instructions will be issued accordingly.

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Liability of payment on removal of Capital Goods after use

Issue: The amendment in CENVAT Credit Rules, 2004, w.e.f.1st April 2012, to provide for liability for payment on removal of capital goods, whether as capital goods (on the basis of depreciation at the rate of 2.5% per quarter), or as waste and scrap, whichever was higher, was causing hardship to the assesses as the amended rules assumed shelf life of 10 years for capital goods that often tended to have a shorter shelf life. Industry had suggested that the reversal of input tax credit should be based on the transaction value of the scrap or waste. Decision: An amendment has been carried out vide Notification No. 12/2013-CE (NT) dated 27th September, 2013, according to which: a) If Capital goods are removed after being used, liability will be, HIGHER of the following:

I. Duty leviable on TRANSACTION VALUE II. CCR ALREADY TAKEN (-) % AGE POINTS calculated by SLM method as specified below for each quarter of a year or part thereof

from the date of taking Credit, namely:- • For computers and computer peripherals:

• For capital goods, other than computers and computer peripherals @ 2.5% for each quarter. b) If the capital goods are cleared as waste and scrap: The manufacturer shall pay an amount equal to the duty leviable on

TRANSACTION VALUE.

Summary of liability

For each quarter in Rate

1st year 10%

2nd year 8%

3rd year 5%

4th and 5th year 1%


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Clarification in respect of Central Excise Notification No.33/2012

Issue: Industry represented that, though vide the aforementioned notification Government has permitted use of Status Holder Incentive Scheme (SHIS) Scrip to be utilized for payment of excise duty while procuring domestic machines, the Notification is being treated as an ‘exemption notification’ in the some field offices and demand notices are being issued to units clearing the consignments under this Scheme. Decision: To clarify the position, necessary Circular 973/07/2013/CX dated 4.9.2013 has been issued whereby it is clarified that in respect of goods cleared availing the benefit of any of notifications no. 29/2012-CE, 30/2012-CE, 31/2012-CE, 32/2012-CE and 33/2012-CE all dated 9th July, 2012, payment of amount under rule 6(3) of the Cenvat Credit Rules, 2004 is not applicable as the duty is leviable, but for these exemptions, shall be debited in or on the reverse of the said scrip. According to which the inputs / input services used in the manufacture of these goods will be allowed and this will not amount to inputs/ input services being used in manufacture of exempted goods.

CENVAT Credit on endorsed bill of entry

Issue: The earlier practice of endorsement of Bill of Entry by customs officer to an importer has since been dispensed with. This has led to ambiguity as to the mechanism by which CENVAT credit would be available to a subsequent manufacturer receiving the imported goods. Decision: A process is being designed to get the importers to register with the Department, who may then more easily pass on the CENVAT credit of CVD to a manufacturer. The notification in this regard are given below: Notification 17/ 2013-Central Excise (N.T.) dated December 31, 2013 has amended Rule 9(1) of the CENVAT Excise Rules, 2002, to include the importers issuing an invoice on which CENVAT Credit can be taken, in the list of persons who are required to obtain registration under the Excise Act. Notification 18/ 2013-Central Excise (N.T.) dated December 31, 2013 has amended Rule 2(ij) of the CENVAT Credit Rules, 2004, which provides that importer issuing Cenvat table invoice is now made a “First Stage Dealer” These changes are effective from 1.3.2014.


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Business In India – An overview of Trade Scenario (1 of 4)

Source: The Guardian

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German companies: Industrial leaders, admired globally for their technical expertise, precision and perfection in planning and execution.

Two economies inked 6 agreements: 1. Higher Education 2. Civil Security Research 3. Agriculture 4. Infrastructure 5. Green Energy 6. Science & Technology Germany & India are seeking to expand their cooperation in the field of high technology

BTIA once agreed, will cover almost one-fifth of the world’s population and is expected to boost India-EU trade significantly.

BTIA still facing hurdles in 2014 since 2007.

German companies: Industrial leaders, admired globally for their technical expertise, precision and perfection in planning and execution.

Two economies inked 6 agreements: 1. Higher Education 2. Civil Security Research 3. Agriculture 4. Infrastructure 5. Green Energy 6. Science & Technology Germany & India are seeking to expand their cooperation in the field of high technology

BTIA once agreed, will cover almost one-fifth of the world’s population and is expected to boost India-EU trade significantly.

BTIA still facing hurdles in 2014 since 2007.

INDIA & GERMANY INTERCHANGE OF TRADE BETWEEN THE TWO ECONOMIES

Recent Developments The two countries inked six agreements including a MOU on cooperation in higher education. Co-operation

pacts have been signed in the fields of civil security research, agriculture, infrastructure, green energy, and science and technology by German companies.

India and Germany agreed to set up a high technology partnership group and looks forward to expand defence cooperation anchored in technology transfer, co-development and co-production in India.

Germany has been keen to support green energy corridors through renewable energy grid in 2014. Negotiations for the Broad based Trade and Investment Agreement (BTIA) between India and the 27-nation

European Union bloc were launched in June 2007, but have been facing many hurdles even during 2014. The European side is concerned over some issues with regard to market access and patent issues.

EU has been pushing for reduction in import duties by India as car makers in the continent struggle with excess capacities and reducing sales due to the economic uncertainty.

Prospects: India to trade with Germany Healthy investment in infrastructure in the German states and generous investment benefits. IT sector accounts for 25 percent of all foreign direct investment in Germany on the back of a recent sharp rise. Germany and India are seeking to expand their cooperation in the field of high technology. Strong built of India on energy, metals and raw materials, automobile and machine-building industries. Partnership in Science: Close cooperation in the science and technology spheres since the 1950s.


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Brazil: Treasure trove of natural resources - agricultural produce, forest resources and minerals.

India: Major consumer of these Brazilian commodities that serve as active ingredients to fuel its industrial growth.

Brazil: Treasure trove of natural resources - agricultural produce, forest resources and minerals.

India: Major consumer of these Brazilian commodities that serve as active ingredients to fuel its industrial growth.

INDIA & BRAZIL INTERCHANGE OF TRADE BETWEEN THE TWO ECONOMIES

Recent Developments The Indian side invited the Brazilian oil & gas companies to participate in the upcoming NELP X bidding

rounds for oil & gas blocks in India in 2014. The proposed Transatlantic Trade and Investment Partnership (TTIP) , a possible future Free Trade

Agreement between the US and the EU, may have negative impact on selected Indian industry, including pharmaceuticals.

Secretary of Foreign Trade (SECEX) in the Ministry of Development, Industry and Foreign Trade on 12 August 2013 announced the opening of consultations on the position Brazil should take to expand the Preferential Trade Agreement between the Southern Common Market (MERCOSUR) and India signed in 2004 and in force since June 2009.

The Government of India on 18 September 2013 signed an agreement with Latvia on Double Tax Avoidance Agreement (DTAA) and the Prevention of Fiscal Evasion with respect to Taxes on Income.

Brazilian company Andrade Gutierrez is considering alternatives to invest in hydro-electricity projects in India.

Brazil and India told the Committee on Trade and Development on 2010 that they are pushing ahead with commitments to provide duty-free, quota-free treatment of imports from the least-developed countries (LDCs).

Prospects: India to trade with Brazil Systematized knowledge-sharing and cohesive learning.

Economic complementarities, which can be leveraged to mutual advantage. Attractive destination for Foreign Direct Inflows. Large and youthful populations: Ensures higher future productivity. Role as Global Diplomat: Increased international clout has the potential to translate into broader support.

IMPORT

EXPORT


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India-U.S. bilateral relations have developed into a global strategic partnership, based on increasing convergence of interests on bilateral, regional and global issues

U.S and India compromise on food at WTO. India refuses to budge on WTO trade deal

United States wants India to lower tariff walls as it could harm trade between the two economies

US-India Agricultural Alliance between the two countries concentrates on promoting teaching, research, service and commercial linkages

India-U.S. bilateral relations have developed into a global strategic partnership, based on increasing convergence of interests on bilateral, regional and global issues

U.S and India compromise on food at WTO. India refuses to budge on WTO trade deal

United States wants India to lower tariff walls as it could harm trade between the two economies

US-India Agricultural Alliance between the two countries concentrates on promoting teaching, research, service and commercial linkages

Recent Developments Richard Rothman, former US Trade Commissioner has launched the first and only opportunity consultancy in Mumbai. Open Mind Opportunity Consultancy is a unique idea to help companies uncover, recover and discover opportunities for sustained and profitable growth. The first major agreement to update global trade rules in two decades moved nearer in 2013 at WTO. The deal, if approved would let India continue to subsidize agriculture to support food security. Indian companies participated in the first global Select USA Investment Summit in Washington to foster investment and partnerships between Indian businesses and U.S. state and local governments. Outsourcing of knowledge work to India by the US based companies is a significant feature of the India US Trade Relations as producing goods and services in India makes them cheaper in the US.

Prospects: India to trade with America USA covers almost every sector in India, which is open for private participants US investor community is today increasingly sharing confidence in the future of the Indian economy People to People Linkages: Huge number of people of Indian origin residing in the US Government of India is continuously reviewing its policies to create an investor friendly environment in sectors such as roads, ports and airports Emergence of Business Process Outsourcing, where in many US companies are reaping the advantages offered by India's IT sector

IMPORT

EXPORT

INDIA & AMERICA

INTERCHANGE OF TRADE BETWEEN THE TWO ECONOMIES


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The loopholes

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What is NSEL? NSEL is a national level institutionalized, electronic,

transparent, delivery based commodity exchange. NSEL commenced operation pursuant to the Gazaette Notification dated June 5, 2007 issued by the Ministry of Consumer Affairs, Food and Public Distribution, Government of India, allowing it to conduct trading in one day duration forward contracts in commodities subject to conditions. Subsequently, the Ministry has issued Gazaette Notification dated February 6, 2012 to appoint Forward Markets Commission (FMC) as the designated agency to which all information or returns relating to the trade as and when asked for shall be provided by the National Spot Exchange. It starts live trading on 15th October 2008.

The Birth It was born in interesting fashion. The department

of consumer affairs exempted one-day forward contracts on NSEL from the operation and provisions of the Forward Contracts (Regulation) Act under section 27 of the law. In other words, NSEL’s trading Operations didn’t have to be regulated by the Forward Markets. NSEL is a company promoted by Financial Technologies India Ltd and NAFED.

The Scandal The NSEL scam is a systematic and premeditated fraud

perpetrated in the commodity market by National Spot Exchange Ltd based in Mumbai, India. NSEL scam / NSEL fraud is a 5600 Crore Rs. (About US$ 0.9 Billion) fraud which came out in the public domain after the National Spot Exchange Ltd failed to pay out its investors in commodity pair contracts after 31 July 2013.

NSEL Scam (1 of 3)

NSEL has not made it mandatory for the seller to

actually deposit goods before he takes a short position through a member of the

exchange.

The Exchange System has no Stock Check facility that

validates the member positions. The Exchange allows trading on exchange platform without verifying whether the seller member has stocks with

him or not.

NSEL continued rampant “paired contracts” of T+25

and T+36 settlement cycles to boost volumes though Trades of more than 11 days duration

on NSEL were illegal

In 2007, the government

exempted NSEL from all regulatory

control and allowed it to

function freely

no particular body to regulate spot commodity trading and there is total

ambiguity about the guidelines and rules under

which it is supposed to function

. “There is a vast scale of illegalities going on. The 2007 notification itself is illegal as the law doesn’t give the government the power to change rules,” says an expert.

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Points which were ignored?

It was carrying out the NBFC like activity without having an NBFC license. NSEL engaged in a financing business where a fixed rate of return was guaranteed on paired contracts

NSEL failed to implement adequate risk management to protect itself against the financial liability of its members. trading members with open positions should have been levied margins of at least 40-50% to compensate for the liquidity and price risk of underlying commodities Some of the warehouses mentioned on NSEL website did not exist.

SGF (Settlement Guarantee Fund) which was supposed to be about Rs 839 crores (about $ 140 Million) as on 29 July 2013 vanished into thin air.

Most of underlying commodities never existed and buying and selling of commodities like Steel, Paddy, Sugar, Ferrochrome etc. was being conducted only on paper. Warehouse receipts of commodity stocks were being issued without warehouses actually having stocks.

It is found that a majority of board minutes of NSEL were fabricated as mobile locations of board members do not match.

Trading volumes on the NSEL grew rapidly particularly since late 2010. Monthly turnover increased from less than Rs. 10 crores in October 2008 to about Rs. 25,000 crore in April 2013 with a peak monthly turnover of Rs. 45,500 crore in March. No one noticed drastic change in turnover.

The initial performance of the exchange (NSEL) was rather poor and somewhere in 2010 it launched a paired series of T+2 and T+25 contracts in contravention of the conditions of the exemption . This, it was alleged, was a sort of financing scheme.

NSEL Scam (2 of 3)

Actions taken against NSEL National Spot Exchange (NSEL) has suspended trading of contracts, other than e-Series contracts till further notice. It has also decided to merge the delivery and settlement of all pending contracts and deferred the same for a period of 15 days. Consequently, the positions outstanding in the contracts will be settled by way of delivery and payment after expiry of 15 days,”

Source: Hindubusinessline.com

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NSEL Scam (3 of 3)

Conclusion/Lesson As a statutory auditor, it is statutory auditor’s duty, if internal auditor points out that some of the activity which the company has carried out are not within the domain or object of the company- then it is definitely ultra virus activity; statutory auditor has to report; statutory auditor cannot ignore the reports and don't take cognizance of such reports.

Government departments, regulators and exchanges need to keep scouring the trading landscape for regulatory gaps in extremely close coordination with each other. An important distinction from the past has to be to involve representatives of brokerage firms explicitly and formally.

Regulators and government department, personnel should have adequate domain knowledge to keep up with staff in exchanges

and brokerages. They need to be fully conversant with traded instruments and those in the pipeline, including empirical and theoretical aspects - that is, they should be fully capable of following the "money trail". Investors Invest only in those commodities whose fundamentals you understand. In NSEL’s case, for instance, any investor who had understanding of a spot market wouldn’t have fallen for assured returns. One, in an exchange where price is market driven, returns cannot be guaranteed. Two, settlement here happened after 30-40 days, which is very unlike spot market contracts. Before you part with your money, do some homework to ascertain the credentials of the broker. See if he is registered with the Securities Exchange Board of India (if he facilitates equity trading) or the Forward Markets Commission (if it is commodities). The FMC says that trades in commodity futures that happen in exchanges outside its ambit, are illegal. The other problem with unregulated exchanges is that they may not have a robust system to check speculative trades or offer protection against the risk of counter party default. This is just what happened with NSEL’s investors as the exchange couldn’t pay for the defaulting members.

Every investment has its share of risk. The higher the return, the higher will be the risk. So, when a broker assures risk-free return, one should question it — what is his modus operandi to fetch that return? Does he have a Plan-B if the original plan backfires?

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Advisor

s LLP

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INTRODUCTION The constant change and growth in the world economy has successfully resulted in the advent of MNCs. MNCs being high profile structure their investment and business strategies in the way that minimum profit arises in the country where taxation rates are the highest and this gives rise to the emerging problem of transfer pricing. Safe harbour Rules are framed with a view to reduce or eliminate complex litigation and ensure certainty as to the acceptance of taxpayers’ prices.

CONCEPT OF SAFE HARBOUR RULES (SHRS)

Safe Harbour Rules lay down a framework within which income tax authorities shall accept transfer price declared by the taxpayer. Accordingly, Safe Harbour is a legal concept whereby a person who has met the required list of rules and requirement is protected from any adverse legal proceedings. As the word “harbor” suggests a place that offers refuge or protection, the safe harbour rules also provide a kind of rescue and relief to the taxpayers as well as revenue authorities from protected litigations. These rules are presently Applicable to six sectors including IT and ITes , Contract research & Development in IT, Pharma and Auto ancillary. The companies in these sectors can take shelter under the SHRs norms for five years to avoid long drawn legal tangle with the government.

Safe Harbour Rules- A step towards ensuring certainty and reducing litigation in Transfer Pricing? (1 of 3)

CERTAINTY IN THE UNCERTAIN WORLD OF TRANSFER PRICING Transfer pricing is more of an “art” than “science” with more subjectivity involved than most other tax issues. The recent time have witnessed increasing disputes in the transfer pricing arena and the introduction of Safe Harbour Rule is an effective step to achieve certainty in this regards. The certainty offered by Safe Harbour Rule will Help resolve the protracted disputes between tax payers and tax authorities. A Quest of certainty –WHY? The Objects of transfer pricing focus on minimizing taxes ,duties ,and foreign exchange risk ,along with enhancing company ‘s profitability .cross country difference in corporate tax rates lead multinationals to find strategies in order to diminish their tax liabilities .The manipulation of transfer pricing is suspected to lead to a fiscal loss of a large magnitude .In order to curb the devastating effects of transfer prices ,the tax authorities focus on establishment of fair transfer prices adopted by the multinationals. This results in increased litigations, prolonged assessments along with protracted disputes between tax payers and tax authorities. Thus, the element of uncertainty regarding establishment of transfer prices remains a matter of concern.

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Safe Harbour Rules –A key to ensure certainty Safe Harbour Rules prove to be a welcome solution to the increasing uncertainty in transfer pricing issues. An added advantage of these rules is the certainty that the taxpayer’s transfer prices will be adopted by the tax administration. Qualifying taxpayers would not be subject to any audit or reassessment in connection with their transfer prices. The tax administration would accept without any further scrutiny any price exceeding a minimum threshold. For that ,the taxpayers could be provided with relevant parameters which would provide a transfer price or a result deemed appropriate to the tax administration. This could be, for example, sector specific mark ups etc.

REDUCED LITIGATION-A BIG YES The issue of transfer has always been an issue of great concern as far as the complexity and scope of litigation is concerned. As a result of the subjectivity of the concept, the number of transfer pricing audits in on a constant rise. The Transfer Pricing trends in Indicate greater scrutiny and newer issues, leading to increased adjustments, which in the last audit cycle amounted to ₹ 70,000 Crores. In certain cases, the scope of

litigation and the complexity involved may be disproportionate to the size of the corporation or the quantum of list transactions. The burden on the taxpayer to comply with varying transfer rules of many jurisdictions in which they operate is immense. Safe Harbours may significantly ease out compliance taxpayers from such complicated and lengthened litigations. Designed as a comfort mechanism, they allow greater flexibility and reduced complexity. Under a safe harbour , taxpayers would know the range of prices or profits within which the corporation must fall in order to qualify for safe harbour. Meeting such conditions would result in assured acceptance of the transfer prices declared by the taxpayer. The spares the tax administration the search for comparable, thus saving their time and resources. Tax administration could then allocate more resources to the examination of material transaction and other high profiled tax payers.

The basic reason why litigation in transfer pricing has reduced lies in the improved certainty and enhanced simplicity of compliance to be made. Acceptance of the transfer prices as determined by the taxpayer puts a full stop to any further assessment and procedures. Protracted litigation is a result of dispute in establishment of a transfer price. SHRs provide a mechanism whereby the disputes among assesses and the revenue is appropriately addressed. Thus, there lies very little room for complex litigations. Simpler the compliances, Smoother are its litigations.


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OTHER PROS AND CONS OF SAFE HARBOUR RULES Application of safe Harbour Rules Bring forth other benefits like :- Reduce compliance costs

Simplified procedure for Compliance

Flexibility in transaction which are not comparable

Reduction in administrative burden on part of tax administration

Increased foreign investments

Apart from benefits, certain challenges posed by the safe harbour rules are as follows :- Increased risk of double taxation

Opening avenues for inappropriate tax planning

Issues of equity and uniformity

Potential shifting of profits

SHRS – A DOUBLE EDGED SWORD Safe Harbour Rules truly represent a double edged sword. On one hand, these provisions provide the needed certainty, simplified method and administrative ease to tax authorities, the same provisions on the other hand may lead to adverse effects like double taxation, if not formulated or applied in the appropriate manner.

IN A NUTSHELL

The Safe Harbour Rules have definitely opened a new door to simplify the administration and compliance of transfer pricing related issues. The SHRs can aptly be considered as a move taken by the Indian Government to ensure certainty and reduce litigation in the complex world of transfer pricing. SHRs, if properly implemented will have a large platter of benefits to serve the Indian tax structure. As even a gold coin has two side, SHRs also pose some disadvantages. However, the benefits of the concept surely outweigh the negativities.


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SEBI introduced CIS regulations in 1999.

Gift Collective Investment Management Co-only registered company.

699 companies violated SEBI regulations for CIS.

Of these, 552 companies were prosecuted and convictions were secured in 124 cases.

SEBI introduced CIS regulations in 1999.

Gift Collective Investment Management Co-only registered company.

699 companies violated SEBI regulations for CIS.

Of these, 552 companies were prosecuted and convictions were secured in 124 cases.

BACKGROUND In 1990s there were various instances of collection of money by numerous agro-based and plantation companies, which eventually failed to provide any return on the investments (despite promising around 18-30% returns) including the repayment of principal amount. In this context, the Government of India, vide its press release dated November 18, 1997, decided that an appropriate regulatory framework for regulating entities which issue instruments like agro bonds, plantation bonds etc., will be put in place. Subsequently, the notification of SEBI (Collective Investment Schemes) Regulations 1999 was issued on October 15, 1999. As per the CIS regulations, any person who has been operating a Collective Investment Scheme at the time of commencement of the CIS Regulations was required to make an application to SEBI for the grant of registration under the provisions of the Regulation, within a period of two months from the date of the notification. In case, such an application is rejected, the entity was required to wind up its existing schemes in the manner as specified in the Regulations. No entity was / is allowed to run a CIS scheme without obtaining the Certificate of Registration from SEBI. In 2013, in the backdrop of Sahara / Sharada scams, SEBI modified the definition of CIS to include any scheme / arrangement floated by any person (instead of a company as was defined earlier); and any such scheme with corpus of more than Rs. 100 Crore shall also be deemed to be a CIS by SEBI.

When thugs of security market will stop operating through ponzy schemes? (1 of 4)

TYPES OF COLLECTIVE INVESTMENT SCHEMES

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Standing Committee on Finance

Inter Ministerial Group

International Organization of Securities Commission International Advisory Board Of SEBI

Standing Committee on Finance

Inter Ministerial Group

International Organization of Securities Commission International Advisory Board Of SEBI

COMMITTEES FORMED FOR REGULATING CIS Standing Committee on Finance- headed by Mr. Yashwant Sinha. It focuses on:-

• Blanket ban on investment scheme promising unreasonable returns. • A single regulator to oversee their functioning or scrapping them altogether.

Inter- Ministerial Group (IMG) - headed by Department of Financial Services’ Additional Secretary. The Group discussed about:-

• Set up to ensure proper enforcement of regulatory framework for Multi-Level- Marketing Companies, NBFCs and companies running CIS. • Ban on defaulter firms and blocking their websites being operated from abroad. • Nomination of a central agency by the Department of Financial Services with powers to probe such firms and to take legal action against the defaulters.

International Organization of Securities Commission (IOSCO)- The Commission laid stress on:- • Third party audits to safeguard the interest of investors. • Valuation of CIS

• Need for having procedures to detect, prevent as well as correct “pricing error” with regard to CIS. International Advisory Board of SEBI (IAB)- Board acknowledged the need of-

• Reviewing the capital adequacy norms for market entities to meet the “unknown and non-market risks” such as flash- crash, as per their trade volumes & number of clients. • A separate set or code of guidelines for research analyst providing their services without any fee to safeguard the investor’s interest. • Role of State Government’s role for regulating these schemes.


WHY CIS IS HARD TO REGULATE?

SEBI has not the absolute power to govern CIS scheme and related cases. Therefore, issue of jurisdiction has mostly been raised by the Company against SEBI in the proceedings. Common argument against the role of SEBI in regulating CIS is that the mandate of SEBI is to develop the market and to protect the interest of investors and not to regulate the market. Thus, to form regulations to restrict CIS is beyond the mandate of SEBI. No specific regulations in India for art and other such funds which collect money, mostly from high net-worth individuals to invest them into art works, antique pieces as old and rare coins and stamps. Lack of clarity about roles of different organization such as MCA, SEBI, RBI and State Governments allow for gullible investors being taken for a ride.

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AMENDMENTS IN CIS REGULATIONS To tackle the growing menace of ponzi schemes being floated as CIS, the rules have been amended. The changes are part of as many as 22 amendments made by the government in three main Acts governing SEBI and its operations -- the SEBI Act, the SCRA and the Depositories Act -- through a 16-page Ordinance. Major amendments are- In a major upgrade of powers given to SEBI, the government has allowed it to pass orders like search and

seizure, attachment of properties, arrest and detention of defaulters and to seek information from other regulators within India and abroad.

The rules have also been amended to classify any money collection of Rs 100 crore or more as CIS operation. SEBI has been given powers to crack down on illegal investment schemes floated by individuals as well.

SEBI has also been given powers to pass disgorgement orders for amount equivalent to wrongful gains or to losses averted by contravention of regulations.

The regulator can now enter and search buildings, places, vessels, vehicles and aircraft of defaulters. State-Level Coordination Committees (SLCCs) has also been empowered to regulate companies

running collective investment schemes, a move aimed at checking illegal deposit taking and Ponzi schemes.

SEBI amended the regulations for CIS and decided that the investors cannot make cash subscriptions for CIS scheme.

Powers of “Search & Seizure” to SEBI. Criteria of Monetary limit of Collection of Investment added. Powers of passing Disgorgement Orders Can enter and search premises of Defaulter State Level Coordination committees, empowered to regulate CIS SEBI bars Cash Subscription from investors for CIS

Powers of “Search & Seizure” to SEBI. Criteria of Monetary limit of Collection of Investment added. Powers of passing Disgorgement Orders Can enter and search premises of Defaulter State Level Coordination committees, empowered to regulate CIS SEBI bars Cash Subscription from investors for CIS


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Increase in the role of State Government. Creation of Unified Agency for regulating CIS Requirement of Large scale Investors Awareness Programme Stringent Guidelines by SEBI

Increase in the role of State Government. Creation of Unified Agency for regulating CIS Requirement of Large scale Investors Awareness Programme Stringent Guidelines by SEBI

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Saradha Group opened 300 new companies to create more cross-holdings

SEBI warned the state government of West Bengal about Saradha Group's apparent chit fund activities in 2011

Saradha Scam


Servehit Housing & Infrastructure India Ltd. Osian's-connoisseurs of Art Pvt. Ltd.

SCAMS Strong steps required to curb the practice of CIS

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Important Dates

Department Due Date Obligation

Income Tax 7th Feb

e-payment of TDS & TCS, for the month of January 2014.

Service Tax & Central Excise 6th Feb e-payment of Service Tax / Central Excise for the month of January 2014. (in case of persons other than individual, proprietor & partnership firms)

10th Feb

Filing of Excise Return for the month of January 2014.

Employee Provident Fund 15th Feb Deposit of EPF Contributions and Collections for the month of January 2014.

25th Feb Filing of EPF Monthly Return for the month of January 2014.

Employee State Insurance 21th Feb Deposit of ESI Contributions and Collections for the month of January 2014.

D-VAT 7th Feb E- Return of VAT (including block R.10 of CST Return in Form 1) for the quarter ended Dec

M-VAT 21st Feb Submission of MVAT return for month of January

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Important Websites

Sl. No. Organisation Website

1 RBI http://www.rbi.org.in/home.aspx

2 CBDT http://www.cbdt.gov.in/

3 CBEC http://www.cbec.gov.in/

4 INCOME TAX http://www.incometaxindia.gov.in/

5 Ministry of Finance http://finmin.nic.in/

6 Ministry of Commerce http://www.commerce.nic.in/

7 SEBI http://www.sebi.gov.in/sebiweb/

8 MCA http://www.mca.gov.in/

9 FICCI http://www.ficci.com/

10 ESIC http://www.esic.nic.in/

11 IFAC http://www.ifac.org/

12 AICPA, USA http://www.aicpa.org/index.htm

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CPA, Australia http://www.cpaaustralia.com.au/

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KGS

With an experience of over 5 decades, KGS has association with various large Financial Institutions, Banks, Power Companies and Corporations based in and outside India across various IT platforms. KGS is registered with PCAOB ,RBI Panel, World Bank , ADB Bank ,CAG, LIC, IRDA, Nationalized Banks, Govt. India for Stock ,Concurrent Audits, Chief Commissioner of Income tax for Special Audits and Institution of Valuers. KGS offers various consultancy services like Internal Audits, Due Diligence and Valuations, Income Tax matters including appeals, Physical Verification of Stock and Fixed Assets, Review and Audit of Information Technology & various other legal and financial services.

About KGS

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Contact Name E-mail Mobile

Mr Anuj Somani [email protected] 9871098777

Mr Bhuvnesh Maheshwari [email protected] 9810031993

Office Address

3/15 Asaf Ali Road New Delhi 110002

Telephone 011-23277677 Fax 011-23260086

Email [email protected]

mailto:[email protected]

mailto:[email protected]

kgs€¦ · notification 18/ 2013-central excise (n.t.) dated december 31, 2013 has amended rule...

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