Gaur & Associates, Delhi (2026)

05/01/2018

Govt seeks nod for Rs 800 bn PSB recap through bonds

Expects to issue these before end of fiscal year

The Finance Ministry sought Parliament´s approval to spend Rs 800 billion extra this fiscal year to recapitalise state owned through bonds.

Thursday´s move kick starts the Rs 1.35 trillion bank recapitalisation bond programme announced by Finance Minister Arun Jaitley in October to help public sector banks come out of the spiralling nonperforming asset mess.The Rs 800 billion infusion would take place before March 31, officials said. “These bonds will have nonSLR (statutory liquidity ratio) status, and will be non tradable,” an official said on condition of anonymity

The SLR isaportion of deposits that banks need to invest in government securities.The SLR status to any instrument provides a traceability option and they can be traded in the secondary market.“The intention is to ensure that banks´ ability to support growth is not diminished

Reckless lending by state owned banks during the tenure of the previous government has impacted the ability of the banks to support economic growth.This has, in turn, impacted private investment,” Jaitley said during a reply in Rajya Sabha later in the day.After the Centre moved forward on its bank recap programme, the benchmark Sensex reacted positively and reversed a three session slide

The scrip of UCO Bank soared 8.50 per cent, IDBI Bank surged 8.33 per cent, Punjab National Bank gained 5.97 per cent, Bank of India went up 3.83 per cent and Bank of Baroda jumped 3.77 per cent on BSE. Index heavy weight State Bank of India rose 1.72 per cent.

The Rs 800 billion expenditure has been sought by the government in the form of the Third Batch of Supplementary Demands for Grants for 201718. The demand is for “meeting additional expenditure towards the recap of public sector banks through issue of government securities”,a finance ministry document said. The additional expenditure would be matched by receipts of Rs 800 billion on issues of securities to the banks and would “not entail any cash outgo”, it added.

While finer details are not known, the whole transaction will only bea ´below the line´ book entry for calculation of the fiscal deficit and, hence, would not impact an already precarious fiscal situation this year, banking experts said.The Rs 1.35 trillion bank recapbonds, to be issued over this fiscal and the next, would be part of a larger Rs 2.11trillion bank recapitalisation programme.

Apart from the recap bonds, the Centre will cough up a total of Rs 180 billion this year and the next, and the rest Rs 580 billion would be mobilised from the market by the banks.The issuance of these bonds will be front loaded.While the Centre hasn´t announced anything yet, there are a number of parameters on the basis of which there capbonds will be distributed among the banks.

It is likely that weaker banks will be infused with further capital only to cover their provisioning requirements, while thestronger bankswill be provided with capital for growth as well.

Which bank gets how much will depend on how the lenders have dealt with nonperforming assets, what is the progress of cases that have been referred under the insolvency and bankruptcy code, how effective has their provisioning been, and other issues.

As Business Standard had reported earlier, the banks may be required to clean up their books further by writing off a small portion of nonperforming assets, apart from the cases being referred to the National Company Law Tribunal under the Insolvency and Bankruptcy Code.The total quantum of nonperforming assets in the Indian banking system increased to Rs 7.33 trillion as of June 2017, from Rs 2.75 trillion in March 2015.

05/01/2018

Lenders plan Aircel, GTL Infra merger

Look at March 31 as the proposed deadline to initiate the process

Lenders to Aircel and GTL Infrastructure have come up with a solution to clear the combined debt of the firms. They are looking at the option to merge the firms so that the new entity gets a stable earning. The lenders are looking at March 31 as the deadline to initiate the merger.

This comes after a proposed merger of Aircel with Reliance Communications (RCom) was called off, and banks are left with deteriorating financial health of the company as the Aircel’s shares are pledged with them.The lenders have also asked Maxis, the Malaysian promoter of Aircel, to bring in fresh equity worth at least Rs 40 billion into its Indian arm. Part of the proceeds would be used for the GTL Infrastructure merger and to repay debt.

The lenders are staring at huge provisioning as Aircel has failed to repay its debt on time and telecom tower firm, GTL Infrastructure, is in the final stages of exiting the strategic debt restructuring programme.If Aircel and GTL Infrastructure join forces, the merged entity would earn up to Rs 9 billion as Ebitda (earnings before interest, depreciation, tax and a mortisation), which can be used to repay bank loans, a source close to the development said.

The merger, according to a banker, will be the final attempt to save the be leaguered wireless telephony company, which is fast losing market share to bigger firms like Bharti Airtel, Vodafone Idea, and Reliance Jio. Aircel’s losses for calendar 2016 doubled to Rs 43.19 billion as against a loss of Rs 22.15 billion in calendar 2015. At the same time, its profit before interest, depreciation and tax in calendar 2016 fell to Rs 5.98 billion as against Rs 14.29 billion in calendar year 2015. The lenders said the company’s financials for the calendar 2017 worsened and, if no action is taken, it will have to exit wireless services like Tata Teleservices and RCom did.

Aircel has already delayed interest repayments on debt obligations worth over Rs174 billion on account of weak liquidity position, which worsened after the launch of Jio’s free services in September 2016. Aircel plans to withdraw services in six circles from this month end, and is now focusing only on profit-making circles.

GTL Infrastructure, on the other hand, is open to merger, provided Aircel pays all its dues first of around Rs 2.3 billion and pays market valuation for the company. GTL Infrastructure’s secured debt is Rs 41.93 billion.

As on December 2017, Indian lenders hold more than 70 percent stake in GTL Infrastructure while its promoter, GTL Ltd, owns 14 per cent stake. In the GTL Infrastructure sale process, overseen by EY, the company had received 20 proposals. But lenders see a merger between Aircel and GT L Infrastructure to be a win-win solution for both companies.

In December 2017, GTL Infrastructure announced that its foreign currency bonds were converted into equity at the rate of Rs 10 a share. As on Thursday, the market price of GT L Infrastructure was Rs 7 a share.

RCom and Aircel had signed binding agreements in September 2016 for a merger. But with the Supreme Court still hearing a 2005 case on the acquisition of Air c el by Maxis, the department of telecom refused to give its permission to the merger. With the deal collapsing, RCom decided to sell its spectrum, towers to Jio for up to Rs 240 billion. R Com is also selling its real estate for another Rs 100 billion. All proceeds will go to repay banks

05/01/2018

CBI failed to challenge 2015 excess spectrum order: Public prosecutor

The public prosecutor in the 2G spectrum case, Anand Grover, told the Supreme Court that the Central Bureau of Investigation (CBI) had not followed his recommendation to challenge a 2015 special court order acquitting all the accused in the excess spectrum case.

Grover made the complaint even as the top court bench monitoring telecom cases demanded a status report from the CBI and the Enforcement Directorate on their investigations into alleged irregularities related to the Aircel-Maxis deal.The public prosecutor had faced the special court's flak last month when it acquitted all the accused, including former telecom minister and DMK leader A Raja and his party colleague and MP Kanimozhi, in the 2G case.

An appeal against the December 22, 2017, judgement is expected to be filed in the Delhi High Court, challenging the acquittal and also seeking expunging of the adverse remarks the special court made against the public prosecutor.But in the excess spectrum case dating back to 2002, where the same court acquitted former telecom secretary Shyamal Ghosh and telecom firms Bharti AirtelBSE 1.36 % and Vodafone India, the CBI has done nothing despite its officials agreeing with his opinion to challenge it, Grover said.

Additional Solicitor General Tushar Mehta claimed that a revision had not been filed in that case because the attorney general had given an opinion against it. He, however, sought more time to take a call on the issue. "Please grant us 10 days or two weeks to deal with it," he said.

Grover asked how the government could interfere on the basis of AG's opinion when the top court was monitoring a caseIn that case, the CBI had argued that the exchequer had suffered a loss of more than Rs 800 crore after excess spectrum was allotted to these companies at a lower price. But the special judge discharged all without framing charges citing lack of evidence.

In the Aircel-Maxis case, the Maran brothers — Dayanidhi and Kalanithi — were discharged early last year by the same court, saying that they had been charged on a misreading of official documents.

05/01/2018

RBI may maintain status quo on rates for entire 2018: Experts

The Reserve Bank of India (RBI) is likely to keep the key policy rates unchanged in 2018, despite bond yields rising sharply in the past three months.A rate hike might not come in the entire calendar year, economists and bond dealers said, adding a rate cut was not a possibility either

The sharp upward movement in yields started in October last year, when the 10 year bond yields stood at around 6.65 per cent.The yields are now at 7.33 per cent. In the same period, the one year overnight index swap (OIS), an instrument used to hedge rates, rose from 6.09 per cent to 6.46 per cent. In a theoretical sense,arise in the OIS rate might indicate rate hikes, but this time the OIS movement was directly influenced by the rise in yields

“It is very difficult for the OIS to remain undisturbed when the yields are rising so much.Base case suggests there would be no hike in 2018.The rise in (bond) yields is more about supply and the possibility that the February budget, being an election budget, would be expansionary in nature,” said Ananth Narayan,asenior bond market expert.

While the introduction of a new 10 year benchmark paper has also pushed up yields, Narayan said some of the yield movement cannot be justified without a rate hike expectation.As such, even as the market is not expecting a rate hike immediately.

“The chances of a rate hike for almost all of 2018 are relatively low.Growth impulses, while improving, remain fragile, and a rate hike will be disruptive to interest costs.Even prospects of a change to a tightening stance remain limited, since markets are already sensitised to the chances of a rate hike,” said Saugata Bhattacharya, chief economist, Axis Bank Ltd.

The minutes of the last monetary policy meeting showed that except Ravindra Dholakia, an external member, the other five members of the monetary policy committee voted for the status quo on policy rates.“At the next policy meeting (on 7 February), we expect the same five MPC members to vote to retain the status quo again.

But we see a risk that Ravindra Dholakia flips his vote to maintaining the status quo as well because of higher inflation (in November and December),” wrote Nomura in a report dated December 20. “We expect policy rates to remain unchanged in 2018, despite higher inflation, recovering growth and elevated oil prices, mainly due to an ample real rate cushion.”

No Hike In Sight

Economists, bond dealers say RBI may not hike rates in the entire calendar year This is despite bond yields rising sharply in past 3 mths While introduction of a new 10 year benchmark paper has pushed up yields, experts feel some of the yield movement can´t be justified without expectation of a rate hike

05/01/2018

Services sector growth improves in December

Combined services, manufacturing PMI fastest since demonetisation.India´s economy has a reason to cheer in the New Year with its biggest sector —services —rebounding to growth in December from contraction in November, though the expansion is moderate, according to a widely tracked Nikkei Purchasing Managers´ Index (PMI).

With manufacturing sector posting five year high growth in December, the combined expansion in the two sectors was the fastest since October 2016, the month of demonetisation.Higher activities in services led to increased hiring by firms with jobs growth quickening to the fastest since September, the PMI survey of 400 private sector firms showed.

However, effects of the goods and services tax (GST) still persist, since a large chunk of the improvement in PMI account delayed payments from previous months, and cash shortage still not abated.PMI for services grew from 48.5 in November to 50.9 in December.

APMI above 50 represents expansion or growth, while that below 50 indicates contraction.A coimprovement in both the sectors bodes well for the Advance Estimate of gross domestic product in the current financial year (FY18), wherein the Narendra Modi government saw the lowest growth in its tenure at 5.7 per cent in July-September 2017 in its over three years of rule.

“Latest PMI data indicate better growth in the second half of FY18, when it is viewed along with improved exports and core sector growth in the month of November,” Dharmakirti Joshi, chief economist at CRISIL,a rating agency, told.Business Standard.December 2017 is the first time since demonetisation that manufacturing and services have shown a simultaneous expansion which was neither due to immediate recovery effect post demonetisation or the GST implementation.

Business activity in the services sector, which dealt with two major blows of contraction —one after demonetisation and other after GST implementation —had shown a dip in November 2017, too, (see chart), indicating a sustained impact on services post GST, especially in the information technology/ information techenabled services (IT/ITeS)domain.

The uptick in December PMI for services was held by information and communications, finance and insurance subsectors.But the GST still continues to “weigh on underlying sales volumes” resulting in decline in new contracts,areport by the IHS Markit,a compiler of PMI, said.

Aashna Dodhia, author of the December report and an economist at Markit, terms the December improvement as a marginal expansion.“India´s service economy remained onaweak growth trajectory amid reports that the GST was still hindering efforts to secure new clients,” she added.

While expansion in services was marginal, that in manufacturing was best in the past five years, indicating stronger demand from domestic and global market, says the report.But this five year peak comes with a caveat: Most of the robust improvement has been contributed by transactions that represent delayed payments from previous months.

05/01/2018

Taxman plans to match GST invoices to plug leakage

Move in response to falling GST revenue collection

The GST Council may move the sales and purchase invoice matching system to the back end. It will do so to keep tabs on missing transactions and check over-claim of input tax credits in the goods and services tax (GST).

At present, assessees claim input credits themselves by filing summary input- output returns, and the tax authorities do not have any clue whether the claims are correct or not. The process of invoice matching was supposed to be done by the assessees, though it was deferred till March. However, slowing GST revenues have now prompted the government to design an alternative mechanism, under which tax officials will do the matching themselves.

“Instead of asking taxpayers to match invoices, we may do it ourselves at the back end. We may follow a risk-based approach; when the gross level of transactions does not match, we may match invoices,” an official said, adding the proposal was under consideration.

GSTR-1 (sales) and GSTR-2 (purchase) returns have to be matched with GSTR-3 to ensure that claims by taxpayers are correct. Both GSTR-2 and GSTR-3 returns have been postponed.

A committee, under GSTN Chairman Ajay Bhushan Pandey, is looking at ways of making the filing of the GSTR-2 and GSTR-3 forms business-friendly. The time period for filing the GSTR-2 and GSTR-3 forms for the months of July to March is also being worked out. The committee has recommended merging the GSTR-1, 2 and 3 forms as one option to simplify filing returns.According to estimates, there is a 15-20 per cent GST revenue leakage at the moment.

GSTR-1 is used to file details of outward sales of a dealer. After submission, the details of purchases made by the dealer are automatically populated in the GSTR-2 form. The dealer is required to verify the details and submit the form. Finally, GSTR-3 calculates a taxpayer’s tax liability and the available input tax credit.

GST revenue collections touched their lowest in November at Rs 808 billion. According to the government’s estimates, if this trend continues, there could be a shortfall of Rs 250-300 billion in indirect tax collections this fiscal year. The government had attributed the slowing revenue to postponement of features of the GST such as matching of returns, electronic way bills and the reverse charge mechanism.

The revenue slowdown prompted the GST Council to call an urgent meeting on December 16 and advance the introduction of the electronicway bill for inter-state movements of goods to February 1 and for intra-state carriage from June 1.

“It is important that the concept of invoice matching continues as it is part of the basic design of the GST. If it is not done electronically, it will be needed at the time of assessment or audit, which will lead to more paperwork. The process can, however, be simplified,” said Pratik Jain, leader-indirect taxes, PwC India.

M S Mani, senior director-indirect taxes, Deloitte, said invoice matching provided taxpayers the ability to view transactions and take corrective steps on an ongoing basis. “While this may be cumbersome for small businesses, there are significant benefits for taxpayers and the government. However, the technology challenges will have to be overcome so that the matching happens seamlessly online in real time,” he said.

Bipin Sapra, partner— indirect taxes, EY, said, “In the absence of invoice level matching, the alternative is to match revenues and credits with GSTR1 but since the process will notbe automated, it will be possible for a limited number of clients on the basis of risk assessment.”

05/01/2018

Bombay High Court’s Tax Bench Constitution w.e.f 04.01.2018
The Tax Bench of the Hon’ble Bombay High Court with effect from 4th January 2018 is as follows

05/01/2018

Mahadev Balai vs. ITO (Rajasthan High Court)
It is true that the contentions which have been raised by the department is that the investment is made by the assessee in his own name but the legislature while using language has not used specific language with precision and the second reason is that view has also been taken by the Delhi High Court that it can be in the name of wife. In that view of the matter, the contention raised by the assessee is required to be accepted with regard to Section 54B regarding investment

05/01/2018

DDIT vs. Reliance Communication Ltd (ITAT Mumbai)
So far as Constitution of special Bench is concerned, a reference to constitute a Special Bench flows from the members and not from the parties to the case. Furthermore, such a reference can be made by the members when they do not agree with the view taken by the earlier order of the Tribunal. However, in the instant cases before us, it is not a situation, only after hearing, the matter afresh by the division bench in terms of direction of Hon’ble High Court dated 08.08.2017, the bench may decide the issue to agree or disagree with the view already taken by the earlier bench. Furthermore merely on the conflict view .of the decision of the High Court, a reference cannot be made to constitute Special Bench. If the present application of the Revenue is accepted, the process of reference to a Special Bench / larger Bench would never reach an end. Reference to Special Bench would continue to be moved by the parties upon every subsequent non-jurisdictional High Court decision, thus, leading to a number of cases being referred to constitute Special Bench. However, correct decision is to follow the judicial hierarchy and maintain judicial discipline. Furthermore, if the applications of the Revenue were to be allowed, it would lead to the violation of the principle laid down by the Hon’ble Supreme Court in the case of CIT Vs. Vegetable Products (1973) (188 ITR 192) (SC)

13/11/2017

Three states cut VAT on fuels

Maharashtra, Gujarat and Himachal Pradesh on Tuesday reduced valueadded tax (VAT) on petrol and diesel.The move follows the Centre cutting excise duty on petrol and diesel by Rs 2 per litre last week.Petrol in Maharashtra will be cheaper by Rs 2 and diesel by Rs 1 per litre from Wednesday.

Finance Minister Sudhir Mungantiwar said the decision would cause an annual revenue loss of Rs 2,000 crore to the state exchequer but “the government is ready to bear the additional financial burden despite Maharashtra´s economy not being in a good shape.” Gujarat cut VAT on petrol and diesel by 4 per cent. The effective price of petrol in Gujarat will be Rs 67.53alitre and that of diesel Rs 60.77 per litre, Chief Minister Vijay Rupani said. “We have taken this decision in the interest of the people.

The decision should not be considered to have any links with the polls.This is only aimed at giving relief to the people and it is a permanent decision.” The Himachal government reduced VAT on petrol and diesel by 1 per cent, said Chief Minister Virbhadra Singh.

OMCs stand firm against Oct 13 dealer strike

Oil marketing companies (OMCs) have taken a firm stand against the strike planned by dealers on October 13, calling it totally unreasonable.The Petroleum Dealers Federation are protesting the marketing discipline guidelines amended by the OMCs that has made penal action stringent for offences involving short delivery of products, operating automated retail units on manual mode and improper maintenance of toilets.

“There needs to be a reason for their (dealers) demand.We are not going to negotiate on the guidelines given out on October 2,” said Balwinder Singh Canth, director (marketing) at Indian Oil, told reporters at a conference Tuesday.

In the guidelines, dealers have also been directed to pay minimum wages, as notified by the OMCs, and salaries and wages have to be paid through e-payments.However, the changes have not gone down well with the dealers, who are still unhappy with the switch to a daily fuel pricing system from fortnightly.

“Our guidelines are in the interests of the consumer and we will not put public into inconvenience during this festive season,” said Canth, who clarified that about 1,000 company owned company operated outlets of all OMCs would ensure products were available for consumers.Dealers have also demanded goods and services tax on petrol and diesel concerns expressed by dealers towards home delivery of fuel to consumers, OMCs said this was in the interest the consumer.

It would be undertaken after approval of the Petroleum Safety Organisation.OMC officials also said not all dealers were keen on the strike and some have already informed of their nonparticipation.

13/11/2017

Next Step in GST Recast: Lower End of Tax Slabs

The next rejig of goods and services tax will likely focus on the lower end of the rate slabs, as the country seeks to further streamline the structure by converging multiple rates into two or three. It will happen after the regime settles down and there is more clarity on revenue following the recast last week.

Simplification of laws, rules and procedures in line with industry’s feedback is also likely to top the GST Council’s agenda in the next few meetings. The rates on some items such as cement and paint, still left at the highest rate of 28%, could be brought down if tax revenue remains robust.

A top official with a state government said the focus would now be to recast the lower 12% and 5% rate slabs.Other issues to be considered by the council are inclusion of real estate and petroleum products under GST.The government has set up a group with industry representation to review the tax regime, which has since its July 1 launch been criticised for having too many rates and being burdensome to comply with.

The latest recast, decided at a GST Council meeting in Guwahati last week, has seen the 18% rate emerging as the dominant slab with nearly half the goods, apart from most of the services, now taxed at that rate. The Guwahati meeting decided to move 178 items to the 18% rate from 28% and cut the GST on eating at restaurants to 5% from Monday, in a decision that would reduce tax revenue by 20,000 crore

Eye on Revenue

It may have been possible to move some more goods to the 18% slab from 28%, but that would have resulted a bigger revenue loss. Officials said cement and paint alone would have cost the government more than Rs 20,000 crore had the two been moved a slab lower.“We need revenue as well,” said the state government official.

But eventually, the 28% slab would be left with very few items, mostly in the luxury and sin-goods category.Other increasingly common-use items that are still in the 28% slab include air conditioners, refrigerators, washing machines, vacuum cleaners and digital cameras. In all, more than 50 items still remain on the 28% list.

A committee headed by chief economic adviser Arvind Subramanian had suggested a revenue-neutral rate of 15-15.5%, with a strong preference for the lower end of that range. It had recommended a standard rate — for services and most goods — of 17-18%, high or non-GST excise rate of 40% for items such as luxury goods and to***co, and a low rate of 12% for essential goods.

With the latest recast, the rates have moved closer to this structure.A further recast of the 5% rate, moving some up to 12% and scrapping the tax on others will further simplify the GST structure.

Lesser rates will bring stability to the overall tax regime, said experts.“GST needs to be a simple, transparent and stable tax system. Multiple rate slabs result in classification disputes as businesses attempt to classify their products in lower slabs,” said Pratik Jain, indirect taxes leader, PwC.

In most countries, including Australia, Malaysia and Singapore, there is one standard rate, or at best a lower rate in addition to a standard rate.“Single rate will remove complexity from the structure as also alleviate revenue concerns,” said Bipin Sapra, partner, EY.

CONGRESS RAISES PRESSURE

Congress vice-president Rahul Gandhi in a tweet demanded that petroleum products and LPG cylinders be brought under GST.

He said the government should have a single rate that should not be more than 18%, and remove GST on products that the common man uses.

A day ahead of the council meeting in Guwahati, Congress-ruled states had demanded complete revamp of the GST structure.

13/11/2017

CBDT Circular Of Clarification On Indirect Transfer Provisions In Case Of Redemption Of Share Or Interest Outside India

The CBDT has issued Circular No.28/2017 dated 7th of November 2017 in which it has provided important clarification on Indirect Transfer provisions in case of redemption of share or interest outside India under the Income-tax Act, 1961

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