Key Takeaways from the 43rd GST Council Meet

by Zen Webnet | May 29, 2021 | Blog

Key Takeaways from the 43rd GST Council Meet

The Goods and Services Tax (‘GST’) Council in its 43^rd meeting held on May 28, 2021 via video conferencing has made recommendations w.r.t. various issues related to changes in rate of Tax on supply of goods and services and changes related to GST laws and procedures, key highlights of which is as under:

1. GST Rate on Covid-19 related goods 

a. Exemption from Integrated Goods and Services Tax (‘IGST’) granted till August 31, 2021 on Covid-19 related goods such as medical oxygen, oxygen concentrators, other oxygen storage and transportation equipment, certain diagnostic markers test kits, Covid-19 vaccines and Amphotericin B, even if imported on payment basis for donation to the Government or to any relief agency on recommendation of state authority. 

2. GST rates revised on supply the following goods and services: 

3. Clarifications in relation to taxability of goods

a.Leviability of IGST on repair value of goods re-imported after repairs.

b.GST applicable @ 12% on parts of sprinklers/ drip irrigation systems falling under Heading 8424 (nozzle/laterals), even the goods are sold separately.

4. Clarifications in relation to taxability of Services

a.Exemption to services supplied by the Government to its undertaking/PSU by way of guaranteeing loans taken by such entity from banks and financial institutions.

b.GST payable on annuities payments received as deferred payment for construction of road. Annuities paid for the service by way of access to a road or a bridge is exempt.

c.Landowner promoters may opt to utilize Input Tax Credit (‘ITC’) of GST charged by developer promoters in respect of apartments which are subsequently sold and GST is paid by land owner.

d.Exemption to services supplied to an educational institutionincluding anganwadi (which provide pre-school education also), by way of serving of food including mid- day meals under any midday meals scheme, sponsored by the Government irrespective of funding of such supplies from the Government grants or corporate donations.

e.Exemption to services provided by way of examination including entrance examination, where fee is charged for such examinations by the National Board of Examination (NBE), or similar Central or State educational Boards, and input services in relation to such service.

f.Exemption on service supplied by way of milling of wheat/paddy  into flour(fortified with minerals etc. by millers or otherwise)/rice to Government/ local authority etc. for distribution of such flour or rice under public distribution services (PDS) if value of goods in such composite supply does not exceed 25%.

g.Services supplied to a Government Entity by way of construction of a rope-way leviable to GST at rate of 18%.

5. Amnesty Scheme to provide relief to taxpayers regarding late fee for pending returns

6. Reduction in rate of interest for delayed payments of tax

7. Waiver of late fees for late filing of GST returns

8. Due date for filing of GST returns extended

9. Annual return and Audit

a.Amendments in Section 35 and 44 of Central Goods and Services Tax Act, 2017 (‘the CGST Act’) made vide the Finance Act, 2021 w.r.t. furnishing of self-certified reconciliation statement, instead of chartered accountant certificate, applicable for FY 2020-21.

b.Filing of annual return in Form GSTR 9/9A for FY 2020-21 optional for taxpayers having annual turnover upto INR 20 million. Further, reconciliation statement in Form GSTR-9C for FY 2020-21 required to be filed by taxpayers with annual aggregate turnover above INR 50 million.

10. Other procedural changes

a.Reconciliation of ITC in terms of Rule 36(4) of the Central Goods and Services Tax Rules, 2017 to be done cumulatively for the months of April, May and June, 2021 in the return for the month of June 2021.

b.Facility of filing returns through EVC enabled instead of Digital Signature Certificate till August 31, 2021.

c.Time limit for completion of various actions by any authority or by any person under the CGST Act, which falls during the period April 15 to June 29, 2021 extended upto June 30, 2021 subject to specified exceptions.

d.Retrospective amendment in Section 50 of the CGST Act w.e.f. July 1, 2017 for payment of interest on net cash basis to be notified.

e.Amendments to be made in the CGST Act to make present system of filing of return in Form GSTR-1and Form GSTR-3B as default return filing system under GST.

Author – Indirect Tax Team

Social Media: New Rules of the Game

by Zen Webnet | May 29, 2021 | Blog

Social Media: New Rules of the Game

Authors: Neeraj Dubey and Shubham Aggarwal

The Ministry of Electronics and Information Technology and the Ministry of Information and Broadcasting (“MIB”) notified the Information Technology (Intermediary Guidelines and Digital Media Ethics Code) Rules, 2021 (“Intermediary Rules 2021”) under Section 87 of the Information Technology Act, 2000 (“IT Act”) to replace the Information Technology (Intermediaries Guidelines) Rules, 2011, on February 25, 2021. The Intermediary Rules 2021 are aimed to empower the users of social media platforms to seek redressal for their grievances and command accountability in case of infringement of their rights. The objective is to establish a harmonious, soft-touch oversight mechanism in relation to social media platform as well as digital media and OTT platforms etc.

In the Press Release of February 25, 2021 (“Press Release”), the Ministry of Electronics and Information Technology (“MEITY”) had provided the rationale and justification for introducing Intermediary Rules 2021. According to the Press Release, in July 26, 2018, there was a Calling Attention Motion on the misuse of social media and spread of fake news in the Rajya Sabha and the government conveyed that the resolve of the Government is to strengthen the legal framework and make the social media platforms accountable under the law. The Supreme Court of India (“SC”) in a suo-moto writ petition in Prajwala, vs Union Of India, vide order dated December 11, 2018 had observed that the Government of India may frame necessary guidelines to eliminate child pornography, rape and gang rape imageries, videos and sites in content hosting platforms and other applications. Later, the SC vide order dated September 24, 2019 had directed MEITY to apprise the timeline in respect of completing the process of notifying the new rules. Also, the Ad-hoc committee of the Rajya Sabha laid its report on February 3, 2020 after studying the alarming issue of pornography on social media and its effect on children and society as a whole and recommended for enabling identification of the first originator of such contents. MEITY then prepared draft rules and invited public comments, which were analysed and an inter-ministerial meeting was held to discuss and finalize the rules.

The Intermediary Rules 2021 have been drafted keeping the significance of “intermediary” in consideration and, therefore, compliances and due diligence requirements for a significant social media intermediary (“SSMI”) is more than a social media intermediary (“SMI”). Section 2(w) of the IT Act defines “intermediary”, with respect to any particular electronic records, means any person who on behalf of another person receives, stores or transmits that record or provides any service with respect to that record and includes telecom service providers, network service providers, internet service providers, web-hosting service providers, search engines, online payment sites, online-auction sites, online-market places and cyber cafes. The Intermediary Rules 2021 introduce the concept of a “SMI” and define it to mean “an intermediary which primarily or solely enables online interaction between two or more users and allows them to create, upload, share, disseminate, modify or access information using its services. Based on the number of users on the social media platform, intermediaries have been divided into “SMI” and a “SSMI” (number of registered users in India should be above 50 lakhs as notified by the Central Government). In this article we will discuss these requirements.

An intermediary, both SMI and SSMI, are required to publish a Privacy Policy, User Agreement, and Rules and Regulation for usage of its website or app or both informing the user (i) to not host, display, upload, modify, publish, transmit, store, update or share any information that belongs to other person, infringes on any Intellectual Property Law, is obscene, harmful to a child, is pornographic, encourages gambling, threatens the sovereignty and unity of India etc.; (ii) the access to the website/app can be terminated if they are not in compliance with these policies; (iii) any changes in these policies.

Intermediary shall remove any objectionable content, within 36 hours that it has stored, hosted or published on its servers, once it gains actual knowledge, in form of a court order or such notification by the appropriate government. The information of any user who has withdrawn or cancelled his registration or the objectionable content could be stored in servers for 180 days or more (if court or government permits). Intermediary shall protect the data following reasonable security procedures and practices as laid down in Information Technology (Reasonable Security Practices and Procedures and Sensitive Personal Information) Rules, 2011. It shall provide access to information under its control or possession to the government agency within 72 hours, after being in receipt of order and not  install any kind of technical configuration to its computer resource, altering the normal course of its operation, in order to by-pass the law.

Intermediary shall report any cyber security incident and share the same with Indian Computer Emergency Response Team, in accordance with (The Indian Computer Emergency Response Team and Manner of Performing Functions and Duties) Rules, 2013. It shall prominently publish on its website/app the contact details of the Grievance Redressal Officer (“GRO”) and mechanism to lodge the complaint against any content on the website/app. The GRO shall acknowledge the receipt of such compliant within 24 hours, and dispose of the same within 15 days from receipt. However, if the complaint is regarding content which shows any kind of nudity prima facie, then the GRO must take down such content within 24 hours, of being in receipt of such complaint. Further, the GRO must acknowledge and receive any order, notice or direction by the Appropriate Government, any competent authority, or a court of competent jurisdiction.

In addition to the above, an SSMI has to undertake certain additional due diligence while discharging their duties. It shall appoint a Chief Compliance Officer for compliance with IT Act and corresponding rules, a 24/7 Nodal Contact Person for assisting the law enforcement agencies & complying with their orders and requisitions, and a Resident Grievance Officer (“RGO”) for dealing with complaints lodged by any person with respect to any content on the website/app. It shall implement an appropriate mechanism for the receipt and processing of complaints which shall enable the complainant to track the status of such complaint by providing a unique ticket number. It should endeavour to provide the complainant with reasons for any action taken or not taken pursuant to the complaint.

An SSMI shall enable identification of first originator of the information, in case of messaging platforms, which would require chats to be backed up to encrypted cloud server, rather than providing end-to-end encryption to its users. An SSMI shall clearly mark any information as being advertised, marketed, sponsored, owned or exclusively controlled, if such intermediary is deriving direct financial benefit by advertising information on someone else’s behalf, to which it owns a copyright, or has an exclusive license, or in relation with which it has entered into any contract that directly or indirectly restricts the publication or transmission of that information through any means other than those provided through the computer resource of such SMI.

In addition, an SSMI shall have a physical contact address in India published on its website, mobile application, or both for the purposes of receiving the communication addressed to it. In case, wherein, users’ access to website or app has been revoked, or any other content that has been uploaded by the user has been removed. It shall inform the user prior to such removal about why the action is being taken, and on what grounds, is the action being taken. However, it shall also provide the user an opportunity to contest this claim of removal and the users’ request to re-upload the content. However, this should be done within reasonable time. The RGO shall oversee this process. It can be asked to furnish any additional information as deemed fit by the MIB.

SSMI shall employ technology-based measures to identify and remove information that depicts any sexually explicit content or any identical information which has already been removed by it. It shall display a notice to the user who is attempting to access such information that it has identified such information as objectionable. The measures taken by the SSMI must be proportional and have regard to the interests of free speech and privacy of the individual. The SSMI must further review periodically the technology-based measures to ensure there is no propensity of bias and discrimination in such measures.

It shall enable users to voluntarily verify their accounts by using any appropriate mechanism and provide such users with a demonstrable and visible mark of verification, which shall be visible to all users of the service. SSMI must publish compliance reports every month, containing the details in respect of the complaints which were received and the action taken on those complaints, and the number of links or information removed while using proactive monitoring through automated tools.

The SSMIs were to comply with the above-mentioned requirements within 3 months from the date of notification of the threshold of an SSMI, i.e., May 26, 2021. This compliance is necessary for the SSMIs since the non-observance of the Intermediary Rules 2021 would strip away these SSMIs of the protection accorded to them by the safe harbour provisions, i.e., Section 79(1) of IT Act. In other words, if there is any objectionable content on the SSMI’s platform, the intermediary can no longer claim legal immunity from the same and can be dragged to the court along with the person who posted the objectionable content. While certain SSMIs have already started adhering to the compliances, others have either sought an extension of time to implement these compliances or gone to court to challenge the constitutionality of the Intermediary Rules 2021 on the ground that the first originator clause violates the right to privacy and should be struck down as being unconstitutional as complying with the first originator clause will entail breaking its end-to-end encryption policy, which will weaken user privacy on the app and severely affect free speech.

Authors – Neeraj Dubey, Partner, Corporate Law and Shubham Aggarwal, Associate

SEBI Propositioning various norms under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018

by Zen Webnet | May 21, 2021 | Blog

SEBI Propositioning various norms under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018

SEBI has recently come up with the consultation paper “Review of the regulatory framework of promoter,   promoter   group   and   group   companies   as   per Securities  and  Exchange  Board  of  India  (Issue  of  Capital  and Disclosure Requirements) Regulations, 2018” dated May 11, 2021.

The objective behind the paper is to seek comments/views from the public on the following norms of the Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 [ICDR Regulations] by June 10, 2021:

1. Streamlining the definition of ‘Promoters’, and moving ahead with the concept of ‘Person in Control’ on one side and reducing and minimizing the lock-in-requirements of concerned promoters and also of shareholders that are investing in an IPO.
2. From the current lock-in-period of 3 years, the said has been proposed to reduce to one year, in the case if the objective of the issue is concerning offer for sale or something related to financing, but not for any of capital expenditures for a project, and therefore the specified promoters contribution has to be of 20% (minimum) to be locked in from the date of allotment in an IPO.
3. Further, if in any case the minimum contribution of promoters is more than what is prescribed, then the said excess to be lock in for period of six months in comparison to current one year period at present, and at the same time, those persons other than promoters, who have pre-issue capital in their hands have to follow six months lock-in time from IPO allotment as compared to one year at present.
4. With regard to “Promoter”, SEBI is looking for doing away with its definition for bringing the current disclosure requirements in hand with what has been specified in ICDR Regulations, and at the same time, amending the definition of “Promoter Group” as at present what is happening is that there are some bunch of common or related persons who are holding such esteemed positions even in companies that are completely unrelated to one another, therefore ending up with same financial investors and disregarding the investment environment by holding common holdings among selective and identified persons and their relatives or family members.
5. Also in case of “Promoter Group”, it suggested that only the names and Registered Office Address of such group companies of the issuing company needs to be disclosed in Draft Red Herring Prospectus, as provided or mentioned in Section 32 of Companies Act 2013, and hence any other disclosure requirements aren’t required to be followed in that draft paper.

Reason behind SEBI making amendments

SEBI has clarified that the current investment environment has been changing very rapidly, and now there are various high net worth individuals, private equity investors, institutional investors, etc. who have been investing in many big companies and at the same time holding a very key and important position in that company post their investment, and at the same time have been able to run and look after that company very well, thereby serving the twin purpose of “Substantial Shareholding”, and “Control over company”.

For proving the same reasoning, it has also said that in the past, ranging from the year 2008, the aggregate shareholdings of promoters in top 500 listed entities is on a decreasing trend, and at the same time, the holdings (in terms of market value) of institutional investors from the year 2009 in top 500 listed entities is on increasing trend.

And for this implementation, a time period of almost three years has been proposed so that the changes can be made in the regulations and in the market and its functioning in a steady and simplified manner without causing any disruptions among relevant stakeholders.

The  above  changes  in  nature  of  ownership,  could  lead  to  situations  where  the persons  with  no  controlling  rights  and  minority  shareholding  continues  to  be classified  as  a  promoter.  By  virtue  of  being  called  promoters,  such  persons  may have  influence  over  the  listed  entity  disproportionate  to  their  economic  interest, which may not be in the interests of all stakeholders.

Thus, the SEBI has argued that it is time to plan for such shift, over a period, in a smooth and progressive manner without causing any disruption.

SEBI simplicities investment norms for Venture Capital and Angel funds

by Zen Webnet | May 10, 2021 | Blog

SEBI simplicities investment norms for Venture Capital and Angel funds

Introduction

Securities Exchange Board of India (SEBI) vide notification dated May 5, 2021 has removed out certain restrictions and has provided regulatory flexibility for venture capital and angel funds investing in startups. The said regulations shall be called as Securities Exchange Board of India (Alternative Investment Funds) (Second Amendment) Regulations, 2021. As per SEBIs Alternative Investment Fund (AIF) Regulations, venture capital funds are those that invest in new products, new services, technology or intellectual property right based activities or new business model. These Category I AIF also receive tax benefits and incentives from the government since they are generally perceived to have positive spillover effects on economy.

The following amendments has been made in the above said regulations:

• SEBI approves the insertion of definition of Startup and removal of the list of ‘restricted activities or sectors from the definition of ‘Venture Capital Undertaking’.
• AIFs, including Fund of AIFs, permitted to simultaneously invest in units of other AIFs and directly in securities of investee companies.
• AIF manager is required to ensure compliances with investment conditions, fund documents and applicable laws under all circumstances.
• SEBI rationalizes regulatory requirements and prescribes a code of conduct for key management personnel of AIF and its manager, including the members of the investment committee.

The above amendments were proposed in the Securities Exchange Board of India (SEBI) in its board meeting dated March 25, 2021. The Government had proposed the regulatory reforms to further safeguard the interests of the investors and strengthen fund raising activities.

Analysis of the Amended Regulations

Definition of Start-Up

The amended regulations has provided the definition of Start-up. The Venture Capital Fund (“VCF”), under the AIF Regulations is set up as a sub-category of a Category I AIF and includes an angel fund (‘Angel Fud’). Even though the AIF Regulations allow Angel Funds to invest in the ‘Venture Capital Undertakings’ (VCUs) or ‘start-ups’, the AIF Regulations do not define the term ‘Start-up’. Thus, the definition of start-up was inserted – ‘Start-up’ means a private limited company or limited liability partnership which fulfills the criteria for Start-up as specified by the Department of Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce and Industry.

Further, the Venture Capital Undertaking (VCU) was also defined as domestic company which is not listed on recognized stock exchange at the time of making investments.

Elimination of Restricted Activities

SEBI also eliminated the list of restricted activities from the definition of VCU provided under Regulation 2(1)(aa) of the AIF Regulations. Under the existing framework, Non-Banking Financial Companies (NBFCs) and the Companies engaged in gold financing companies, inter-alia, are not covered within the ambit of VCUs. Thus, this amendment should not only boost investments in the start-ups space but also make Category I AIFs all the more productive for managers and investors.

Investment in other AIFs simultaneously

The AIF Regulations permit a fund of Category I AIFs to invest in units of other Category I AIF of same category, and fund of Category II AIFs to invest in the units of other Category I as well as Category II AIFs, provided that in each case, no investment shall be made in the units of other Fund of Funds (FoFs). Further, SEBI has now permitted AIFs, including FoFs, to simultaneously invest in units of other AIFs as well as directly in securities of investee Companies, subject to certain prescribed conditions.

SEBI has also allowed an AIF to invest in units of AIFs managed/sponsored by the same AIF manager/sponsor subject to the prior approval of at least 75% of the investors by the value of their investment in such AIF.

Responsibilities of Key Management Personnel of AIFs and Code of Conduct

SEBI in the amended regulations prescribed the scope of the responsibilities of the AIF Key Management Personnel, trustee, Trustee Company, directors of the Trustee Company, designated partners or directors of AIF through Code of Conduct. A separate Code of Conduct has been laid down under Fourth Schedule of the AIF Regulations.

The Code of Conduct specifies the working of AIFs, for Managers of Alternative Investment Funds and key management personnel of Managers and Alternative Investment Funds and Code of Conduct for members of the Investment Committee, trustee, Trustee Company, directors of the trustee company, directors or designated partners of the Alternative Investment Fund.

Conclusion

SEBIs amendment w.r.t. AIF Regulations, reflect the efforts undertaken by the financial regulator to not only provide flexibility to the AIF managers in running their fund operations effectively but at the same time ensure that their fiduciary responsibilities towards the investors are not compromised with. Further, these efforts should play an important role in the growth of start-ups in India by expanding the available pool of capital for these entities as well as catalyse the formation of new Category I AIFs.

Copyright Amendment Rules 2021

by Zen Webnet | Apr 9, 2021 | Blog

Copyright (Amendment) Rules, 2021: Key takeaways

[Notified vide Gazette notification under reference G.S.R. 225(E)dated 30th March 2021]

 The amendments have been introduced with the objective of bringing the existing rules in parity with other relevant legislations.

1- A new provision regarding publication of a Copyrights Journal has been inserted, thus eliminating the requirement of publication in the Official Gazette. The Copyrights Journal would be available on the Copyright Office website.

       Implication: The same ensures smooth and flawless compliance in the light of the technological advancement in digital era by adopting electronic means as primary mode of communication and working in the Copyright Office.

2- The compliance requirements for registration of software works have been largely reduced wherein the applicant can file the first 10 and last 10 pages of source code, or the entire source code if less than 20 pages, with no blocked out or redacted portions.

       Implication: The compliance requirements for registration of software works have been largely reduced as earlier the language of Rule 70 sub-rule 4 required the applicant to submit the “source and object code” while making an application for registration of computer programme.

3- The time limit for the Centre to respond to an application made before it for registration as a copyright society is extended to 180 days.

       Implication: The same has been adopted to ensure a comprehensive examination of the application.

4- A new rule i.e. Rule 65A has been inserted wherein the Copyright Societies would be required to draw up and make public an Annual Transparency Report for each Financial year within 6 months following the end of the financial year.

       Implication: This will help reinforcing transparency in the working of copyright societies.

5- New provisions have been introduced to deal with the undistributed royalty amounts and use of electronic and traceable payment methods while collection and distribution of royalties.

       Implication: This will encourage accountability and transparency.

6- The Copyright Board has been merged with the Appellate Board.

       Implication: The amendments have harmonized the Copyright Rules with the provisions of the Finance Act, 2017.

Refer to the below link for notification on Copyright (Amendment) rules.
https://copyright.gov.in/Documents/Notification/Copyright-Rules_Amendment_2021.pdf

Authored by
IPR Team