| 'If petroleum is out, it's not GST' |
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If you were to make an action plan for the next government, what would be your suggestions? Ithink the primary focus has to be on tax administration. First, remove uncertainty for taxpayers. Ensure there are no retrospective amendments, like in Brazil and Sweden. Second, make tax administration accountable for its actions and decisions and ensure timeliness. Third, accountability must be linked to minimising infructuous demands and tracking recovery. Fourth, tax evasion should be appropriately identified and followed, rather than basing your premise on taxpayers as tax evaders. Fifth, and perhaps the most important, move away from astatic revenue target principle of revenue collection. Finally, regarding structural reform, of course, I hope the Direct Taxes Code ( DTC) and Goods & Services Tax ( GST) would be picked up. But, as I said, the first thing they should take up is a balanced approach to tax administration. Both the Congress and the Bharatiya Janata Party ( BJP) have voiced support to GST. Do you think a consensus is possible after formation of the new government? The intention of policymakers is clear, that they want GST. The issue is the Centre's disagreement with some states over technical aspects, though the technical work on GST is complete. For example, inclusion or exclusion of petroleum products. There are certain states that led the disagreement over inclusion of petroleum products in GST. But, if you keep petroleum products out, no tax policy designer could call it GST. Another issue was compensation for Central Sales Tax ( CST). For how long the Centre has to give the compensation was also a point of contention. In my view, there should be quick cut- off for CST compensation. That was not worked out fully. Flexibility to states was also given in terms of differential rates, which means states will have floor rates and can move the rates up or down. This would cause a high compliance burden on taxpayers. For the same products, he will have to deal with two different rates in two states. Interpretation of which commodities belong to which rate would also add to GST's complications. The concern among concern will focus of the GST Turn to Page 6 > The finance minister's advisor, PARTHASARATHI SHOME, completes his tenure at North Block next month. But his association with the ministry is going to continue, as head of the Tax Administrative Reforms Commission ( Tarc). He tells Indivjal Dhasmana& Vrishti Beniwal in an interview that the next government's priority should be removing tax uncertainty, while avoiding retrospective amendments. Edited excerpts: |
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| 'If petroleum is out and rates are flexible, it's not |
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Iwouldn't like to isolate particular groups. You cannot agree with every point states make, for two reasons. One, states' views keep changing. Two, if you agree with all the changing views, you are not getting to GST. Yes, you may have to make some modifications to accommodate political realities or even for field conveniences, but you can't move too far away from the crux of GST. On IT preparedness, Iagree, but I don't think the Centre is to blame for that. For example, the Centre has its own IT framework for the Central GST. The other part it can play is a clearing house role for inter- state trade. These can be done easily. It's states where IT- preparedness varies a lot; so, as a whole, they have to pick up. Do you think it was a good idea to propose the super- rich tax —35 per cent tax on those earning over ₹ 10 crore a year — in the revised DTC draft? At the level of above ₹ 10 crore, you look at the UK, Germany, Chile, China, South Africa... the rates are even higher, between 40 per cent and 50 per cent. So, raising it to 35 per cent in India is not high. The US has 35 per cent. An Indian consumer commands much more at ₹ 10 crore in terms of purchasing- power parity. I think it was justified and essential, given our overall economic status and income distribution and where the government is spending huge amounts to reach out to the poor. The Vodafone case has seen too many twists and turns. What could be a possible solution to the row? Retrospective amendments can be made for correcting errors or for making clarifications in favour of taxpayers. In any event, you can't have retrospective amendments to specifically counter the Supreme Court rulings. If the government insists on retroactivity in certain cases at the moment, there should not be application of interest or penalty. The committee's draft report was given, a final report followed but the final report is not yet on the net. The department has not come out with any position. Its acceptance would have reassured investors. If you make international comparisons, the number of disputes that we have in India far exceeds other countries. That shows policies simply need an indepth revisit and rationalisation. Investors view all this, and they become ever cautious about investing in India. Many accuse the finance ministry of scaring away investors. Do you think by reviewing the General AntiAvoidance Rules ( GAAR) and other initiatives, the ministry has removed that perception? Here I speak as chairman of the committee to review GAAR. The introduction of GAAR was not questioned; it was the way components of GAAR were formulated in the Budget of 2012 was in question. It was rather extreme in terms of prevailing global practices. So, the committee examined it and made it rational and more applicable. The reaction was good. But Idon't think it is sufficient to expect a change in approach overnight. The fact that atax administration, nascent in the field application of GAAR, did not recognise the dozens of examples the committee provided in its report — where GAAR should, or should not, be applied — is deeply revealing to me on the approach being adopted by them. I keep hoping that new generations will bravely alter that stance for their own benefit. To continue, whether GAAR is implemented with revenue in mind, or with antiavoidance as the goal, whether officers are sufficiently trained to use this kind of instrument or not — all of these will have to be experienced. That would eventually prove how investors take the GAAR matter with respect to their decision to invest in India. The continuing variations in the application of transfer pricing with a revenue objective is sufficient evidence of my apprehension, but I remain hopeful things will change. Have you given a thought what would you do after your term in the finance ministry expires? The work of Tarc is supposed to continue for another year. Beyond that, my plans are set. I have to complete three books I have agreed to. Ihave to bring out the pictures I have taken for decades across the globe. I have to read the collection of my books and listen to my music, each selected over the years with care. I want to learn Sanskrit. I want to travel to the nook and corner of the world I have missed but, importantly, to discover India in her deep recesses. How do you look at your two stints at the finance ministry? It has been an excellent, challenging and chastening experience. In the first stint, I was operating on the basis of my earlier experience in India, as well as in several emerging economies. After the first stint, Iwas in the UK for three years, which is an advanced tax administration. So, during my first term, I could bring in emerging- country experiences wherever they were relevant. For example, regarding annual information returns ( AIR), Brazil uses information from 40 third- party sources. We introduced six. We could use other country experiences for fringe benefits tax or bank cash transaction tax, too. We could take out the surcharge for smaller firms, since we found corporate tax incidence was very downward sloping, or, tax burden went down as a firm's size increased. Or, we introduced calculation of revenue foregone due to tax incentives in the Union Budget. These were straightforward exercises in the first stint. Then, I went to the UK. That experience gave me the realisation of how to trust taxpayers. That would need a sea change in the thinking here, and continues to challenge and chasten my efforts. I saw what happened in the context of GAAR and retrospective amendments to I- T rules. I became more convinced that we had to give a partnership role to our taxpayer stakeholders. In the UK, they don't use the term taxpayer any more. It is customers for individuals, and stakeholders for businesses. I thought we should experiment with that approach. Some people doubt whether it will work in India, but I think it will certainly work here if administration takes the first step forward. The first term, I worked hard on DTC 2009 and GST. In the second, I worked very hard on DTC 2013. I found it was a very different tax code from 2009. The one I had worked on in 2007, whose modified form came out as 2009, had completely changed. Working on the new 2013 version was very challenging. In my assessment, DTC 2009 comprised a deeply fundamental tax reform. DTC 2010 returned close to the current I- T Act, but had been already commented on by the Parliamentary standing committee on finance. First, I had to digest the fact that we had retreated so much between the 2009 and the 2010 versions. But we did the best to improve DTC 2010 and achieved DTC 2013. On GST, I had worked from the VAT and wrote, with the EC (VAT), the first GST report at the end of 2007. I thought states accepted it by and large. When I returned from the UK, I found GST was being deconstructed. Currently there does exist a draft Constitutional amendment, but big breaches in Centre- state relations remain. These have to be bridged if we are to have a globally recognised GST. And, the design certainly needs to be revisited if we want a GST with low compliance cost. So, the challenges have not ended. >FROM PAGE 1 "Centre- state relations have to be bridged if we are to have a globally recognised GST" |
| Etihad set to escape open offer for Jet |
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JAYSHREE PYASI & SAMIE MODAK Mumbai, 27 April The Securities and Exchange Board of India ( Sebi) is likely to rule in favour of Etihad Airways, clearing it of any takeover code violation while buying a 24 per cent stake in Jet Airways. A green signal from Sebi will bring the curtains down on the regulatory hold- up of the ₹ 2,000- crore acquisition. According to sources close to the development, Sebi was convinced by the arguments put forward by the Abu Dhabi- based airline, which had earlier got a showcause notice on the issue. Etihad had argued that the definition of control under the takeover code norms while acquiring stake in Jet Airways last year. "We are conducting a final review on Etihad's submission and are likely take a final decision this week," said a Sebi official on condition of anonymity, adding that the regulator was largely convinced with Etihads justification. Sebi, in its earlier order, had cleared the deal from any securities law violations but had changed its view based on observations made by the Competition Commission of India ( CCI). Definition The anti- competition authority, while clearing the deal between the two airlines, had made an observation that the transaction gave joint control to Jet and Etihad. Legal experts concurred that what constitutes control from securities law can be different from the competition law. Jay Parikh, partner at legal firm Verus, said Sebi would be right in exempting Etihad from making an open offer. "The CCI is mandated to scrutinise any mergers and acquisitions from the perspective of anticompetitive concerns. Sebi, on the other hand, is tasked to scrutinise it from an investor protection angle. Both perspectives are different. Therefore, Sebi will be correct in ruling that the CCI's observations on ' control' in the Jet- Etihad deal do not necessarily impact its own review of the deal," he explained. Sebi's clearance will come as abig relief for Etihad, who would have had to shell out another ₹ 2,000 crore on the open offer to the minority shareholders of Jet. Also, the additional stake bought through the open offer would have clashed with the foreign direct investment ( FDI) regulations. Current FDI norms allow a foreign airline to hold up to 49 per cent in a domestic carrier. The open offer, if fully successful, would have increased Etihad's stake to 51 per cent, which it would have had to pare again later. Ramesh Vaidyanathan, managing partner at Advaya Legal, said, " A decision by Sebi directing Etihad to make an open offer would negatively impact India's image as a destination for foreign investment. It would have virtually meant changing rules halfway through the game." The Jet stock is currently priced at about ₹ 280. Etihad had purchased 24 per cent stake in Jet at ₹ 754.70 a share, nearly 2.7 times its current price. APRIL 2013: Jet approves 24% stake stale to Etihad for ₹ 2, 058 crore SEPTEMBER 2013: Prima facie, deal doesn't result in change of control, the Securities and Exchange Board of India (Sebi) writes to the finance ministry NOVEMBER 2013: Competition Commission of India approves deal, says Etihad and Jet gaining ' joint control' FEBRUARY 2014: Sebi issues showcause notice to Etihad for violation of takeover code norms MARCH 2014: Etihad in its reply to Sebi denies violation of takeover code APRIL 2014: Etihad appears before Sebi for personal hearing Etihad argues the definition of control in the takeover code should be looked at differently from that in the competition law |
| BRIEF CASEN M J ANTONY | |
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The Supreme Court ruled last week that State Bank of India ( SBI), Overseas Branch, Mumbai, was wrong in debiting the account of an exporting firm after a long delay of two and a half years on the ground that it was wrongly deposited in the with the complaint, it dismissed it on the ground that it would not interfere in contractual matters in a writ petition. The firm, Metro Exporters Ltd, therefore appealed to the Supreme Court. SBI argued that the amount credited to the firm did not belong to it but it exclusively belonged to the bank. The amount was deposited in the firm's account by mistake and hence it could be recovered debiting its account. It is a ' normal' practice and was done in good faith, it was argued. Rejecting the contention, the judgment emphasised that the exporter should not suffer for the mistake committed by the bank. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Fresh tender for tea estate sale The Supreme Court last week set aside was far below the market price. The low price was justified on the ground that 70 per cent of the land was encroached upon. The Gauhati High Court had given the green signal for the tender process. But the state appealed to the Supreme Court and in its judgment, State of Assam vs Susrita Holding Ltd, the High Court order was set aside. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Bajaj Allianz to pay damages to engineer A 24- year- old metallurgical engineer who lost his leg in a road accident was awarded ₹ 33.10 lakh as compensation, to be paid by Bajaj Allianz General Insurance Ltd with interest. The motor accident tribunal awarded ₹ 30 lakh, which was reduced by the Karnataka High Court to ₹ 6.32 lakh. The Supreme Court raised it, setting aside the computation formula adopted by the High Court. Dinesh Singh had suffered 60 per cent permanent injury. He lost his job in the steel company and had to work in a bank on a temporary basis. He suffered loss of future earnings, prospects of marriage and other amenities and has to continue medical treatment. All these factors were considered by the Supreme Court while enhancing the damages. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Borrowermust take Sarfaesi remedies A borrower must avail of the remedies provided in the Securitisation (" Safaesi") Act, in the first instance, and it should not rush to the High Court with a writ petition, the Supreme Court has stated in its judgment in the case, Devi Ispat Ltd vs State Bank of India. In this case, the bank classified the account of the steel company as non- performing asset (NPA) since its outstandings crossed the permissible limit. When the bank issued notice under the Act the firm moved the Calcutta High Court against the declaration as NPA. The High Court dismissed it on the ground that the firm has an alternative remedy under Section 13 ( 3A) of the Act. According to this provision, the borrower can raise objections to the creditor against the latter's action. On appeal, the Supreme Court upheld that view. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Sterlite appeal on power dismissed The Supreme Court last week dismissed the appeal of Sesa Sterlite Ltd against the ruling of the appellate tribunal of electricity in Odisha. The tribunal had affirmed the orders of the Odisha Electricity Regulatory Commission that said that even if the firm was a 'deemed distribution licencee', it was still liable to pay cross subsidy charge to WESCO which is a distribution licencee for the area in question. Sesa Sterlite, manufacturer and exporter of aluminium, argued that it has its unit in Special Economic Zone ( SEZ) and it is a developer in the area. It is not drawing electricity from WESCO for its unit, VALE- SEZ. It has a Power Purchase Agreement ( PPA) with Sterlite Energy Ltd. Moreover, it had applied for approval of the PPA, but the state commission rejected it and directed it to pay charges to WESCO holding it to be a ' consumer'. The court rejected these contentions. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Delegation of power a necessity The Supreme Court has stated that in view of the complexity of modern day administration and expansion of state functions to economic and social spheres, delegation of powers has become a compelling necessity. It cannot be expected that the head of the administrative body performs each and every task himself. The court stated so in its judgment, Sidhartha Sarawgi vs Port Trust of Kolkata, while upholding the eviction of two lessees of land belonging to the port trust. The land manager ordered demolition of the illegal constructions and ejectment of sub- tenants. The lessees protested, but the land manager terminated their 30- year licence leading to writ petitions in the Calcutta High Court. They were dismissed. In the appeal before the Supreme Court, it was argued that the land manager had no power to terminate leases; only the chairman of the port trust could do it. The Supreme Court rejected the contention and stated that the chairman had authorised the land manager to take action against the lessees and he had the jurisdiction to do so. >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> Deadline to complete national highway Setting aside the judgment of the Punjab and Haryana High Court, the Supreme Court last week asked the contractor of the Panipat- Jullundhar national highway to complete the widening work by March 31 next year. The High Court had cancelled the ₹ 4,500 crore contract altogether due to slow work since 2008. Soma Isolux, the contracting firm, appealed to the Supreme Court. It directed the firm to submit quarterly progress reports to the national highway Authority ( NHAI). The court further clarified that neither NHAI nor the contractor shall raise any further litigation over the project in any court as the work had already been enmeshed in litigation at the fag end of the project. If it is further delayed, NHAI shall decide the quantum of penalty. A weekly selection of key court orders | |
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