Foreign Investment in India - Recent Amendments under Sector Specific conditions under FEMA

Dear All,

Foreign Investment in India -Recent Amendments to
Sector Specific conditions under FEMA

RBI has recently made some amendments in sectors/activities wherein FDI is prohibited as also the entry norms, sectoral cap and other conditions for sectors/activities in which FDI is permitted under Government route and Automatic route are specified.

Please visit the following link to know more about the sectors/activities wherein FDI is prohibited as also the entry norms, sectoral cap and other conditions for sectors/activities in which FDI is permitted under Government route and Automatic route are specified.

Please click the following link for more details:

http://rbidocs.rbi.org.in/rdocs/content/pdfs/CAPFISS280612_1.pdf

GIFT OF SHARES BY INDIAN RESIDENT TO NRI , GIFT OF SHARES BY NRI TO ANOTHER NRI OUTSIDE INDIA, GIFT BY NON-RESIDENT TO ANOTHER NON-RESIDENT OUTSIDE INDIA, GIFT OF SHARES BY A NON-RESIDENT TO RESIDENT INDIAN

GIFT OF SHARES BY INDIAN RESIDENT TO NRI , GIFT OF SHARES BY NRI TO ANOTHER NRI OUTSIDE INDIA, GIFT BY NON-RESIDENT TO ANOTHER NON-RESIDENT OUTSIDE INDIA, GIFT OF SHARES BY A NON-RESIDENT TO RESIDENT INDIAN

Transfer of any capital instrument, by way of gift by a person resident in India to a person resident outside India. prior approval of Reserve Bank for approval for transfer of capital instruments by way of gift is needed.

Documents to be submitted by a person resident in India for transfer of shares to a person resident outside India by way of gift
i. Name and address of the transferor (donor) and the transferee (donee).
ii. Relationship between the transferor and the transferee.
iii. Reasons for making the gift.
iv. In case of Government dated securities and treasury bills and bonds, a certificate issued by a Chartered Accountant on the market value of such security.
v. In case of units of domestic mutual funds and units of Money Market Mutual Funds, a certificate from the issuer on the Net Asset Value of such security.
vi. In case of shares and convertible debentures, a certificate from a Chartered Accountant on the value of such securities according to the guidelines issued by Securities & Exchange Board of India or DCF method for listed companies and unlisted companies, respectively.
vii. Certificate from the concerned Indian company certifying that the proposed transfer of shares/ convertible debentures by way of gift from resident to the non-resident shall not breach the applicable sectoral cap/ FDI limit in the company and that the proposed number of shares/convertible debentures to be held by the non-resident transferee shall not exceed 5 per cent of the paid up capital of the company.
viii. An undertaking from the resident transferor that the value of security to be transferred together with any security already transferred by the transferor, as gift, to any person residing outside India does not exceed the rupee equivalent of USD 50,000  during a financial year.

* RBI‘s A.P. (DIR Series) Circular No. 14 Dated 15.09.2011

Reserve Bank considers the following factors while processing such applications:

(a) The proposed transferee (donee) is eligible to hold such capital instruments under Schedules 1, 4 and 5 of Notification No. FEMA 20/2000-RB dated May 3, 2000, as amended from time to time.

(b) The gift does not exceed 5 per cent of the paid-up capital of the Indian company/each series of debentures/each mutual fund scheme.

(c) The applicable sectoral cap limit in the Indian company is not breached.
General permission has been granted to non-residents/NRIs for acquisition of shares by way of transfer subject to the following:

(a) A person resident outside India (other than NRI and erstwhile OCB) may transfer by way of sale or gift, the shares or convertible debentures to any person resident outside India (including NRIs).

(b) NRIs may transfer by way of sale or gift the shares or convertible debentures held by them to another NRI.

(c) A person resident outside India can transfer any security to a person resident in India by way of gift.

NOW , MANUFACTURING and INFRASTRUCTURE COMPANIES CAN BORROW 10 BILLION USD FOR REPAYMENT OF RUPEE LOAN UNDER APPROVAL ROUTE

External Commercial Borrowings (ECB) – Repayment of Rupee loans

Attention of Authorized Dealer Category-I (AD Category-I) banks is invited to the Foreign Exchange Management (Borrowing or lending in foreign exchange) Regulations, 2000, notified vide Notification No. FEMA 3/2000-RB dated May 3, 2000, as amended from time to time, A.P. (DIR Series) Circular No. 25 dated September 23, 2011 and A.P. (DIR Series) Circular No. 111 dated April 20, 2012 relating to relaxation of ECB norms for Infrastructure and Power sector.

2. On a review, it has been decided to allow Indian companies to avail of ECBs for repayment of Rupee loan(s) availed of from the domestic banking system and / or for fresh Rupee capital expenditure, under the approval route, subject to them satisfying the following conditions:-

1. Only companies in the manufacturing and infrastructure sector will be eligible to avail of such ECBs;
2. Such companies shall be a consistent foreign exchange earner during the past three financial years;
3. Such companies are not in the default list/caution list of the Reserve Bank of India; and
4. Such ECBs shall only be utilized for repayment of the Rupee loan(s) availed of for 'capital expenditure' incurred earlier and are still outstanding in the books of the domestic banking system and / or for fresh Rupee capital expenditure.

3. The overall ceiling for such ECBs as in para 2 above shall be USD 10 (ten) billion. The maximum permissible ECB that can be availed of by an individual company will be limited to 50 per cent of the average annual export earnings realised during the past three financial years.TheECBs will be allowed to companies based on the foreign exchange earnings and its ability to service the ECB. The companies should draw down the entire facility within a month after taking the Loan Registration Number (LRN) from the Reserve Bank.

4. Companies desirous of availing such ECBs may submit their applications in Form ECB through their designated Authorised Dealer bank with certification from the Statutory Auditor regarding the utilization of Rupee loan(s) with respect to 'capital expenditure' incurred earlier. Statutory Auditor shall also certify that the company is a consistent foreign exchange earner during the past three financial years. The outstanding Rupee loan(s) shall be duly certified by the domestic lending bank(s) concerned and the designated Authorised Dealer bank. Authorised Dealer should ensure that the foreign exchange for repayment of ECB is not accessed from Indian markets and the liability arising out of ECB is extinguished only out of the foreign exchange earnings of the borrowing company.

5. The designated AD - Category I bank shall monitor the end-use of funds and bank(s) in India will not be permitted to provide any form of guarantee(s). All other conditions of ECB, such as recognized lender, all-in-cost, average maturity, prepayment, refinancing of existing ECB and reporting arrangements shall remain unchanged and shall be complied with.

REF-A. P. (DIR Series) Circular No. 134 dated 25 JUNE 2012

ANNUAL RETURN ON FOREIGN LIABILITIES AND ASSETS REPORTING BY INDIAN COMPANIES – REVISED FORMAT

ANNUAL RETURN ON FOREIGN LIABILITIES AND ASSETS  REPORTING BY INDIAN COMPANIES – REVISED FORMAT

NOW , YOU CAN FILE THE ANNUAL RETURN ON FOREIGN ASSETS AND LIABILITIES ONLINE ON OR BEFORE JULY EVERY YEAR

The Reserve Bank Of India vide its Circular No. 133, Dated June,20,2012 the format of Annual Return on Foreign Liabilities and Assets reporting by Indian Companies has been revised now. The Annual Return now been filed electronically by July, 15 every year .

Attention of the Authorised Dealer (AD) Category – I banks is invited to A. P. (DIR Series) Circular No.45 dated March 15, 2011 wherein, it was, inter-alia, stipulated that the annual return on Foreign Liabilities and Assets (FLA) is required to be submitted directly by all the Indian companies which have received FDI and/or made FDI abroad (i.e. overseas investment) in the previous year(s) including the current year, to the Director, External Liabilities and Assets Statistics Division, Department of Statistics and Information Management (DSIM), Reserve Bank of India, C-8, 3rd floor, Bandra Kurla Complex, Bandra (E), Mumbai - 400 051, by July 15 of every year.

2. The Annual Return on FLA is now modified as attached. An easy-to-fill soft form of the return with guidance to users and in-built validations is now being made available on the RBI website (www.rbi.org.in → Forms category → FEMA Forms) which can be duly filled-in, validated and sent by e-mail, by July 15 every year.

Any queries related to filling of annual return should be e-mailed. These directions will come into force with immediate effect. AD Category-I banks may bring the contents of this circular to the notice of their constituents and customers concerned.

3. Necessary amendments to the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident outside India) Regulations, 2000 and the Foreign Exchange Management (Transfer or Issue of any Foreign Security) (Amendment) Regulations, 2004 notified vide Notification No. FEMA 20/2000-RB dated May 3, 2000 and Notification No. FEMA 120 dated July 07, 2004, respectively will be issued separately.

Ref: A.P. (DIR Series) Circular No.133 dated 20 June 2012

FILE APPEAL WITHIN THE TIME LIMIT OF SECTION 35 OF FEMA-ELSE CONDONATION OF DELAY WILL NOT BE POSSIBLE

FILE APPEAL WITHIN THE TIME LIMIT OF SECTION 35 OF FEMA-ELSE CONDONATION OF DELAY WILL NOT BE POSSIBLE -

KETAN V. PAREKH & ORS v. SPECIALDIRECTOR, DIRECTORATE OF ENFORCEMENT & ANR [SC]

This case relates to Section35 of FEMA Foreign Exchange Management Act, 1999-- There was a delay of 2 years and 8 months' delay in filing appeal before the HighCourt- High Court declined to condone the delay - Whether decision of the High Court is correct- The Supreme Court concurred with the decision of the High Court

The defenedant held the plaintiff was  guilty of infringing the provisions of FEMA and levied penalty on them. TheAppellants contested he penalty before the Appellate Tribunal for Foreign Exchange and requested for cancelling with the need of pre-deposit of the amount of penalty.Appellate Tribunal ordered the Appellants to deposit fifty percent of the amount of penalty with a condition that if they fail to do so, the appeals will be dropped.

The Appellants contested the above verdict, by  filing writ petitions, before the Delhi High Court which set aside the writ petitions. Hence, the Appellants filed appeals under Section 35 of the Foreign Exchange and Management Act before the Bombay High Court. Defendants also filed applications for condonation of  2 years and 8 months' delay.The Division Bench of the Bombay High Court set aside  the applications for condonation of delay by citing that it does not possess authority to consider an appeal filed beyond four months and even though in terms of the autonomy given by the Delhi High Court, the Appellants could have made their appeals within one month, but they did not  do so and, hence,time lag in filing the appeals cannot be excused.

However , Supreme Court of India did not allow the appeal and set aside the appeal on the following elements:

 

Supreme Court was of the view that the applleants plaint did not even mention that they had been prosecuting a relief before a wrong forum before the Delhi High Court with good faith.

Further , the plaintiffs did not mention in their plaint that they lost time in fighting their case before the Delhi High Court.

This demonstrates that the Plaintiffs were trying to have cover under Section 5 of the Limitation Act, which, as emphasised before cannot be taken into account due to the wording  of Section 35 of the FEMA Act and elucidation  of analogues provisions by this Court.

Hence,the Division Bench of the Bombay High Court correcty pointed out  that even though the
dispute pertaining  to jurisdiction of the Delhi High Court to extend time to the plaintiffs to file appeals is highly controversial, the time mentioned  in the order given by the Delhi High Court
cannot be extended.

In view of the above discussion, we hold that the impugned order does not suffer from any legal infirmity.

For any clarification or more information , please contact rvsekar2007@gmail.com or 09848915177.

“Set-off” of export receivables against import payables-

“Set-off” of export receivables against import payables-
Liberalization of Procedure- now under automatic route

Attention of Authorized Dealer Category – I (AD Category – I) banks is invited to the fact that the requests received from the exporters through their AD branches for set-off of export receivables against import payables are considered by the Reserve Bank of India. As a measure of further liberalization, it has been decided to delegate power to AD Category – I banks to deal with the cases of “set-off” of export receivables against import payables, subject to following terms and conditions:
a) The import is as per the Foreign Trade Policy in force.

b) Invoices/Bills of Lading/Airway Bills and Exchange Control copies of Bills of Entry for home consumption have been submitted by the importer to the Authorized Dealer bank.

c) Payment for the import is still outstanding in the books of the importer.

d) Both the transactions of sale and purchase may be reported separately in ‘R’ Returns.

e) The relative GR forms will be released by the AD bank only after the entire export proceeds are adjusted / received.

f) The ” set-off” of export receivables against import payments should be in respect of the same overseas buyer and supplier and that consent for ”set-off” has been obtained from him.

g) The export / import transactions with ACU countries should be kept outside the arrangement.
h) All the relevant documents are submitted to the concerned AD bank who should comply with all the regulatory requirements relating to the transactions.

Ref - A.P. (DIR Series) Circular No. 47 dated November 17, 2011

For more clarification and details  , please contact rvsekar2007@gmail.com or 09848915177

WHETHET LIASION OFFICE IN INDIA CAN BE CONSIDERED AS PE (Permanent Establishment ) for Income-Tax Purpose?

IT/ILT : Liaison Officeof foreign company in India is not a PE in Indiain view of Article 5(6)(e) of Indo-Japan DTAA

Facts

• Assessee-company a tax resident of Japan dealing in steels and steel products.
• Assessee-company hadopened a LO in India with theapproval of the Reserve Bank of Indiain terms of section 6(6) of the Foreign Exchange Management Act ('FEMA' inshort).
• The LO was closed downin the year 2008. The assessee was required to pay fringe benefit tax becauseof which return was filed in which income was shown at nil.
• The Assessing Officerpassed a draft order on 23-12-2010 holding that the LO is a PE, carrying oncore business activities. A draft order was passed computing the income ofabout Rs.35.58 crores. The DRP not only upheld the finding of the AssessingOfficer but also enhanced the income. The AO passed final order on 18-10-2011.
• Article5(6)(e) of Indo-Japan DTAA excludes from permanent establishment, the officewhich carry on activities of "the maintenance of a fixed place ofbusiness solely for the purpose of carrying on, for the enterprise, any otheractivity of a preparatory or auxiliary character". Assessee-companyclaimed that its LO was covered by article 5(6)(e) and hence not a PE in India while thecase of the Revenue was that this office was carrying on the key function ofprice negotiation leading to formation of contract.
Held
• As per Regulation 2(e)of FEM(Establishment in India of Branch or Office or other Place of Business)Regulations, 2000,'liaison office' means a place of business to act a channelor communication between the principal place of business or HO and entity in India but which does not undertake any commercial, trading, industrialactivity, directly or indirectly and maintains itself from remittances receivedfrom the abroad through normal banking channels.
Schedule-II of the saidRegulations provides that the permitted activities of LO are:

(i) representingthe parent company/group companies in India,

(ii)promoting export/importfrom/to India,

(iii) promoting technical/financial collaborations betweenparent/group companies and Indian companies,

(iv) acting as communicationchannel between parent and Indian companies.

• The AO had not brought on record information that the activity was beyond the limit prescribed by theRBI vide the said Regulations.

• The Revenue'scontention that India office was engaged in price negotiation was not correct as quotations were made on the basis of instructions from the Head Office.

• Therefore, the presumption can validly be raised in this case that India office does not constitute aPE as no violation was noticed by the RBI. This presumption was not rebutted bythe AO by bringing any positive material to show that any substantive businessactivity was carried on by the assessee in India.
• In the result,assessee's appeal allowed.

NOW , YOU CAN TRACE THE STATUS OF YOUR APPLICATION IN FOREIGN EXCHANGE DEPARTMENT , RBI THROUGH ATS -ONLINE TRACKING SYSTEM

The Application Tracking System (ATS) is a major e-Governance initiative of the Reserve Bank of India.
 

Foreign Exchange Department, Central Office and its 17 Regional offices have since adopted the ATS, to facilitate the customers to apply and track the status of the applications online.

Under the online Application Tracking System (ATS), customers can submit applications online  and also track the status of an already filed / submitted application. The applicant would be required to login with email id and password as registered with the RBI website. In respect of those applications, being submitted physically at the counters of the Foreign Exchange Department, a valid email id is required to be indicated in the letter / application. An auto generated information will be sent to the email id given upon receipt of an application and also at the time of disposal of an application by the Department. Status of all letters / applications (other than statements and returns) requiring a reply from the Foreign Exchange Department can be tracked by accessing the ATS. ATS can easily be accessed on the homepage of RBI (www.rbi.org.in).

FAQs on use of ATS are also available on the RBI website under FAQs > Others > Application Tracking System (ATS).

Let us hope , this will speed up the process of various applications filed under FEMA both in the regional and headquarters of RBI.

Source: Press Release : 2011-2012/1925