India: Newsletter - November 2017

Last Updated: 28 November 2017
Article by Malay Damania

FEMA& INTERNATIONAL TAX

External Commercial Borrowing (ECB) under Foreign Exchange ManagementACT (FEMA):

External Commercial Borrowings are commercial loans raised by 'eligible resident borrower' from 'recognised non-resident entities' AND should confirm to parameters specified in ECB guidelines such as minimum maturity period, permitted end-use of funds, maximum all-in-cost ceilings etc.

The framework for raising ECB is divided into following THREE Tracks:

TRACK 1 – Foreign currency denominated ECB with minimum average maturity period of 3/5 years

TRACK 2 - Foreign currency denominated ECB with minimum average maturity period of 10 years

TRACK 3 – Indian Rupee denominated ECB with minimum average maturity period of 3/5 years

In this paper, we will discuss the ECB raised under Track 1 hereunder:

Forms of ECB

ECBs can be raised in any of the following forms:

  1. Loans
  2. Issue of non-convertible, optionally convertible or partially convertible preference shares/debentures
  3. Buyers' credit
  4. Suppliers' credit
  5. Foreign Currency Convertible Bonds (FCCBs) or
  6. Foreign Currency Exchangeable Bonds (FCEBs)

Eligible Borrowers:

Any Indian Company, body corporate or firm can raise money through ECB. Following categories of entities can raise ECB under track 1:

  1. Companies in manufacturing sector
  2. Software development sector
  3. Shipping and Airlines Companies
  4. Units in Special Economic Zones (SEZs)
  5. Companies in infrastructure sector
  6. Certain categories of NBFCs.

Recognised Lenders:

Following non-resident lenders are recognised lenders under ECB:

  1. International Banks
  2. International Capital Markets
  3. Multilateral Financial institutions
  4. Export Credit Agencies
  5. Suppliers' of Equipment
  6. Foreign Equity Holder-Foreign Equity Holder would mean direct equity holding of minimum 25% in borrowing Company OR indirect equity holder with minimum indirect equity holding of 51% OR group Company with common parent Company.

7. Overseas branch or subsidiary of Indian bank-However, they are not permitted to participate in refinancing of existing ECB.

These lenders proposing to extend ECB to Indian borrower have to furnish a certificate of due diligence from overseas bank and is subject to regulations of host country which should clearly mention:

  1. The lender maintains account with the bank since minimum of 2 years;
  2. The lending entity is organised as per local laws and it held in good esteem by business community and
  3. There is no criminal action pending against it.

This host country must adhere to Financial Action Task Force (FATF) guidelines on Anti-money laundering, combating the financing of terrorism.

Permitted End-use of funds:

Indian borrower, while raising ECB from recognised lender, is permitted to use the funds strictly in any one of the following purposes:

  1. ECB can be utilised for Capital Expenditure in any of the following form:

    1. Import of Capital Goods including payment for import of services, technical knowhow or license fee if the same are part of these capital goods;
    2. Local sourcing of capital goods;
    3. New project;
    4. Modernisation or expansion of existing project;
    5. Investment in Overseas Company under Overseas Direct Investment (ODI) route;
    6. Acquiring share of public sector undertaking under the divestment program of Government;
    7. Refinancing existing "trade credit" raised for import of capital goods;
    8. Payment of capital goods already shipped or imported but not yet paid;
    9. Refinancing of existing ECB provided the residual maturity period is not reduced.
  1. Units in SEZ can raise ECB only for their own requirements;
  2. Shipping and Airline Companies can raise ECB only for import of vessels and aircrafts respectively;
  3. IV. ECB can be used for general corporate purpose including working capital provided the ECB is raised from direct/indirect equity holder or from group Company for a minimum average maturity period of 5 years.

ECBs for import of second hand capital goods will be considered only under Approval route.

Minimum Average Maturity period:

Indian borrower can accept ECB from non-resident recognised lender with minimum maturity period as below:

1. For ECBs up to USD 50 million or its equivalent 3 years
2. For ECBs beyond USD 50 million or its equivalent 5 years
3. Companies in infrastructure sector 5 years, regardless of amount of borrowing
4. Certain categories of NBFCs 5 years, regardless of amount of borrowing
5. FCCBs or FECBs 5 years, regardless of amount of borrowing

All-in-cost ceiling:

The term 'All-in-Cost' is the maximum cost that the borrower is allowed to incur on the ECB and it includes rate of interest, guarantee fees, other fees, expenses, charges etc but does not include commitment fee, pre-payment charges, withholding tax payable in INR. This is generally prescribed by RBI through a spread of certain basis points over last 6 months' LIBOR.

Penal interest, in case of default or breach of agreement, should not be more than 2% over the contracted rate of interest.

Debt-Equity ratio:

For ECB raised from direct equity holder under automatic route, the ECB liability of the borrower towards foreign equity holder should not be more than 4 times the equity contributed by the foreign equity holder. This mean that the debt equity ratio towards the foreign lender should not be more than 4:1. For ECB raised under approval route, this ratio should not be more than 7:1. However, for ECBs raised by the borrower is less than USD 5 million, these restrictions would not apply.

GOODS AND SERVICE TAX (GST)

Advance Ruling under GST laws (s. 95 to s. 106 of The Maharashtra GST Act, 2017)

The Maharashtra Government have constituted the Maharashtra Authority for Advance Ruling for the state of Maharashtra, vide Notification dated 24th October, 2017.

The Authority consists of:

  1. One member from amongst the officers of Central tax AND
  2. One member from amongst the officers of state tax

What is Advance Ruling (AR)? s.95(a)

Any person (registered or desirous of obtaining Registration under the Maharashtra GST laws) can apply under the GST law, for ruling or decision on matters or questions in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by him. Such ruling or decision by the authority is called "Advance Ruling".

Which matters or questions can be applied for under the AR provisions?

AR can be sought on following questions: s. 97(2)

  1. classification of any goods or services or both;
  2. applicability of a notification issued under the provisions of this Act;
  3. determination of time and value of supply of goods or services or both;
  4. admissibility of input tax credit of tax paid or deemed to have been paid;
  5. determination of the liability to pay tax on any goods or services or both;
  6. whether applicant is required to be registered;
  7. whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.

Procedure for AR:

  1. An applicant desirous of obtaining an AR on any of the questions stated above, has to make application to the AR Authority in prescribed form and manner with prescribed fees. S.97(1)
  2. On receipt of aforesaid application, the AR Authority shall examine the application (and the records if any called for from the concerned departmental officer) and after hearing the applicant, will pass an order either admitting or rejecting the application.

    In case application is rejected, reasons for rejection shall be specified in the order.

    The AR authority shall not admit the application where the question raised in the application is already pending or decided in any proceedings in case of the applicant under any of the provisions of the Maharashtra GST Act.

    The Government need to clarify as to what are the remedies/appeal provisions in case of the rejection of application.

  3. In case application is admitted:

    The AR authority shall examine the materials placed before it, hear the applicant and the concerned officer and pronounce its ruling on the question specified in the application, within 90 days from the date of receipt of the application.

    Where the members of the AR authority differ on any question raised in the application, they shall state the point or points on which they differ and make a Reference to the AR Appellate Authority for hearing and decision on such question. s. 98 (5).

What are Appeal provisions? s.100

  1. The applicant or the concerned officer aggrieved by any advance ruling pronounced by the AR authority, may appeal to the Appellate Authority in prescribed manner. Such appeal has to be filed within 30 days from the receipt of the order.

    The concerned Appellate Authority shall be constituted by the Government and known as "Maharashtra Appellate Authority for Advance Ruling for Goods and Service tax", consisting of two persons namely:

    1. The Chief Commissioner of central tax as designated by the Board; AND
    2. The Commissioner of State tax;
  1. The Appellate Authority may, after hearing parties to the appeal or reference (in para III above s. 98 (5)), pass order confirming or modifying the ruling appealed against or referred to. Such order shall be passed within 90 days from the date of filing of appeal or Reference u/s. 98(5).
  2. Where the members of Appellate Authority differ on any point referred to in appeal or reference, it shall be deemed that no advance ruling can be issued in respect of the question under appeal or Reference. s.101(3)

Is this constitutional? The Government need to clarify as to what are the

remedies available to the applicant in such situation.

Amendment of Order: (s.102)

The Authority of the Appellate Authority may amend any order passed by it under section 98 or section 101, so as to rectify any error apparent on the face of the record, if such error is noticed by the Authority or the Appellate Authority on its own accord, or is brought to its notice by the concerned officer, the jurisdictional officer, or the applicant or the appellant within a period of six months from the date of the order:

Provided that no rectification which has the effect of enhancing the tax liability or reducing the amount of admissible input tax credit shall be made unless the applicant or the appellant has been given an opportunity of being heard.

Binding effect: s.103(1)

The advance ruling pronounced by the Authority or the Appellate Authority under this Chapter shall be binding only

  1. on the applicant who had sought it in respect of any matter referred to in sub-section (2) of section 97 for advance ruling;
  2. on the concerned officer or the jurisdictional officer in respect of the applicant.

Detection of fraud/suppression of facts etc. s. 104(1)

Where the Authority or the Appellate Authority finds that advance ruling pronounced by it under sub-section (4) of section 98 or under sub-section (1) of section 101 has been obtained by the applicant or the appellant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void ab-initio and thereupon all the provisions of this Act or the rules made thereunder shall apply to the applicant or the appellant as if such advance ruling had never been made:

Provided that no order shall be passed under this sub-section unless an opportunity of being heard has been given to the applicant or the appellant.

Relevant Forms:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions