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Investigation of Large Corporations and Multinational Companies under GST Requires ‘Formal Authorization’

editor — Tue, 02 Apr 2024 07:46:09 +0000

The Department of Revenue has issued directives to CGST officials regarding the initiation of investigations into cases involving prominent industrial entities and multinational corporations (MNCs). These guidelines aim to streamline procedures and ensure uniformity in enforcement activities while maintaining the ease of doing business.

These guidelines outline specific scenarios where written approval from the zonal Chief Commissioner is necessary before initiating an investigation or taking action. These include cases involving large corporates, major MNCs, matters already under consideration by the GST Council, or matters seeking to impose taxes or duties on a sector, commodity, or service for the first time under Central excise or GST.

The precise definition of ‘big industrial house’ and major MNCs under these guidelines remains unclear to tax experts. Additionally, the guidelines require CGST field formations to gather details on prevailing trade practices and transaction nature from stakeholders in such cases, ensuring sufficient justification for initiating investigations and actions.

This uniform procedure was introduced following discussions by the Central Board of Indirect Taxes and Customs (CBIC) on the necessity for standardized enforcement procedures by CGST field formations, particularly concerning regular taxpayers and their impact on the ease of doing business.

Furthermore, tax officials are instructed to confirm whether any ongoing inquiries relate to the same subject matter or taxpayer by another investigating office or tax administration. This information must be presented to the authority responsible for approving the investigation’s initiation.

Experts believe that the directive addresses industry concerns, emphasizing the importance of effective implementation to promote tax certainty and stability in the business environment.

Source: https://www.thehindu.com/business/Economy/now-gst-probe-into-big-corporates-major-mncs-needs-a-written-approval/article68013343.ece

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Madras High Court Invalidates GST Assessment Over ITC Disparity

editor — Tue, 02 Apr 2024 04:58:07 +0000

In a significant ruling, the Madras High Court addressed the validity of a GST assessment order in the case of Sri Lakshmi Silvers versus The State Tax Officer, Gugai Circle, Salem. The case centered on the adherence to procedural guidelines and principles of natural justice in GST assessments, particularly concerning disparities between GSTR-3B and GSTR-2A returns.

Facts of the Case:

The petitioner, engaged in the supply of base metals, faced a GST assessment order pertaining to the tax demand arising from differences between the Input Tax Credit (ITC) claimed in GSTR-3B returns and that reflected in the auto-populated GSTR-2A returns for the year 2019-20.
Despite receiving a notice and show cause notice, the petitioner, relying on their accountant, remained unaware, resulting in no response from their side.
The central issue revolved around the validity of the assessment order, particularly concerning principles of natural justice and adherence to specific circulars regarding GST return discrepancies.

Petitioner’s Argument:

Department’s Argument:

Held:

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Insolvency and Bankruptcy Code, 2016

editor — Mon, 18 Mar 2024 07:40:03 +0000

Formation of the Insolvency and Bankruptcy Code, 2016:

Introduced in the Lok Sabha on December 21, 2015, the Insolvency and Bankruptcy Code, 2015 underwent scrutiny by the Joint Committee. The Committee presented its recommendations, leading to the passage of the modified Insolvency and Bankruptcy Code, 2016 by both Houses of Parliament in May 2016. The primary aim of this economic reform is to focus on creditor-driven insolvency resolution.

Shifting Existing Regime from ‘Debtor in Possession’ to ‘Creditor in Control’:

The Insolvency and Bankruptcy Code, 2016 represents a significant advancement in resolving legal complexities surrounding financial failures and insolvency in India. This code holds substantial value for stakeholders and various government regulators by providing a smoother exit mechanism for insolvent individuals and companies. It consolidates and replaces overlapping provisions found in laws such as the Sick Industrial Companies (Special Provisions) Act, 1985, The Recovery of Debts Due to Banks and Financial Institutions Act, 1993, The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and The Companies Act, 2013. Prior to its enactment, multiple agencies handling debt-related matters led to delays, complexities, and higher costs. The Insolvency and Bankruptcy Code, 2016 aims to expedite pending cases, resolving them within 180 days, with a further extension of 90 days.

Applicability of the Code:

The Code applies to insolvency, liquidation, voluntary liquidation, or bankruptcy of various entities, including companies incorporated under the Companies Act, 2013, Limited Liability Partnerships under the LLP Act 2008, partnership firms, and individuals. The minimum default amount for the Code’s application is Rs. 1 lakh, with exceptions for regulated financial service providers like banks, financial institutions, and insurance companies.

Objectives of the Code:

The Insolvency and Bankruptcy Code, 2016 aims to achieve several objectives:

Improving conflict resolution between creditors and debtors.
Providing procedural certainty for negotiation processes, reducing problems of common property, and minimizing information asymmetry.
Distinguishing between malfeasance and business failure.
Offering flexibility for parties to maximize value during negotiations.
Allocating losses effectively during macroeconomic downturns.
Balancing stakeholders' interests, promoting entrepreneurship, and increasing credit availability.
Establishing the Insolvency and Bankruptcy Board of India as a regulatory body.
Facilitating higher levels of debt financing and providing a painless revival mechanism for entities.
Addressing cross-border insolvency and resolving India's bad debt problem through a database of defaulters.

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Understanding the SARFAESI Act, 2002: Scope, Aims, Procedures, and Documentation

editor — Mon, 18 Mar 2024 07:18:20 +0000

India’s financial sector plays a crucial role in the country’s economic development. However, outdated legal frameworks hindered the efficient recovery of defaulted loans and contributed to rising nonperforming assets (NPAs). In response, various committees, including the Narasimham Committee I and II and the Andhyarujina Committee, were formed to examine banking sector reforms and propose changes in the legal system.

What is the SARFAESI Act, 2002?

The SARFAESI Act, short for the “Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act,” empowers banks and financial institutions to auction commercial or residential properties to recover loans when borrowers default. It allows for the reduction of Non-Performing Assets (NPAs) through recovery methods and reconstruction.

Applicability and Objectives

The SARFAESI Act applies to secured loans, enabling banks to seize properties without court intervention, except for agricultural land. Its objectives include facilitating the recovery of NPAs, enabling banks to auction properties, and streamlining the recovery process.

Key Provisions and Processes

The Act regulates Asset Reconstruction Companies (ARCs) and facilitates the securitization of financial assets. It empowers banks to take possession of securities and manage them, appoint managers, or lease/sell the assets. Borrowers are given a 60-day notice period to discharge liabilities before action is taken.

Role and Amendments

The SARFAESI Act allows banks and ARCs to convert debt into equity, adjust debt with property value, and sell properties with deferred payments. Borrowers have rights to remit dues, receive officer default compensation, and approach Debt Recovery Tribunals for grievances.

Methods of Recovery

Recovery under the SARFAESI Act includes securitization, asset reconstruction, and enforcement of security without court intervention. These methods enable financial institutions to efficiently recover NPAs.

Assets Not Covered

Assets not covered by the SARFAESI Act include those under the Sale of Goods Act or Indian Contract Act, properties not liable for attachment under civil procedure laws, and conditional contracts without security interests.

Conclusion

The SARFAESI Act, 2002, strengthens India’s financial sector by providing effective mechanisms for loan recovery. Its provisions empower banks and financial institutions to streamline the recovery process, reduce NPAs, and foster economic stability.

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