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A recent deal between Jet Airways and Etihad Airways, valued at $379 million, forms part of the government's new policy to encourage foreign direct investment in India. It is hoped that the infusion of foreign direct investment into civil aviation will result in improvements to the economy, a growth in traffic at Indian airports and the creation of job opportunities.

Corporate Tax


The Supreme Court recently held that, for the purpose of central excise duty, royalty charges payable by distributors and copyright owners to artists and production houses should not be included in the assessable value of compact discs (CDs) which had been duplicated by workers using master CDs supplied to them.

Among other things, proposed amendments to the Finance Act will increase the rate of service tax from 12.36% to 14%, which is in line with the government's objective to introduce goods and services tax in April 2016. Other legislative changes include changes to the negative list, the introduction of the Swachh Bharat cess and amendments to the Service Tax Rules.

The importance of the introduction of goods and services tax (GST) was effectively demonstrated in the finance minister's recent speech, which highlighted that – along with a revamped direct tax regime – GST will bring greater transparency and investments. As such, it is expected to be a game-changing tax reform. The minister also announced that a political agreement to pass the bill which will enact the GST regime has been reached.

Under the current taxation system, businesses face two issues with regard to credits – the inability to avail of credits for all taxes paid on sourcing and the accumulation of credits. The credit mechanism under the goods and service regime is therefore a key issue for businesses as, in theory, it should facilitate the transfer of all credits, allowing tax to be passed on to the consumer without any cascading.

The various laws on the principal taxes which will be replaced by the goods and services tax (GST) regime provide exemptions and concessions from GST. Although under the GST regime exemptions are distortionary and affect the free flow of tax credits, some of these are expected to continue, at least until their sunset clauses expire. This update provides insight into the impact of the new regime in relation to different types of exemption.

Under the proposed goods and services tax (GST) regime, the intrastate GST model has been accepted for interstate transactions. Within this model, the central government has the right to levy intrastate GST at a rate likely to be equivalent to the applicable state GST rate and central GST rate. One significant advantage of the interstate GST model is that the input tax credit chain will be uninterrupted for interstate transactions.

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International Trade


Recent amendments to excise duty rates and policies include legislative changes (eg, amendments to the Central Excise Act in relation to penalties), changes to non-tariff notifications – including those which cover abatements in relation to products covered under retail sale price valuation – and changes to excise duty rates on items such as cigarettes and petrol.

The 122nd Constitution Bill 2014 seeks to levy goods and services tax (GST) on all supplies of goods and services made during interstate trade and commerce. The bill further proposes to treat supplies of goods and services imported into India as supplies of goods and services occurring in the course of interstate trade. Importers will likely encounter cash-flow constraints, owing to the increased rate of interstate GST.

Recent changes to the Foreign Trade Policy include an amendment regarding inputs under advance authorisation and duty-free import authorisation. The requirement to affix barcodes to mono-cartons of pharmaceutical products has also been deferred. Finally, Form ANF 3B1 must be filed when claiming benefit under the 'served from India' scheme for the year 2013/2014.

In a recent Customs, Excise and Service Tax Appellate Tribunal case, the assessee had entered into a licence and technology agreement with a holding company for the transfer of technical know-how with regard to the manufacture of float glass.The issue was whether the royalty paid to the holding company should be included in the value of the imported capital goods.

Recent trade developments include the introduction of an online complaint resolution system for electronic data interface issues and a new procedure for tracking and tracing export consignments of drugs and pharmaceuticals. Every exporter of drugs and pharmaceuticals must now submit a certificate of analysis issued by the specified entities when goods are shipped and incorporate barcodes on medicines.

In the complex and ever-evolving world of trade, it is common for manufacturers to sell their products through trading houses. More often than not, the trading house is involved in invoicing only. This update briefly examines the effect of such trade arrangements with regard to the Indian anti-dumping regime and the interesting dichotomy observed therein.

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The Supreme Court recently held that, for the purpose of central excise duty, royalty charges payable by distributors and copyright owners to artists and production houses should not be included in the assessable value of compact discs (CDs) which had been duplicated by workers using master CDs supplied to them.

The Supreme Court recently ruled that fees for technical services in relation to projects involving imported goods are not includable in the assessable value of the imported goods under Rule 9(1)(e) of the Customs Valuation Rules 1988. As such, they are not liable to customs duty in India. In this context, the court held that the charges in question related to post-import activities and were therefore not liable to duty.

The Supreme Court recently declared that Rule 9(2)(ii) of the Customs Valuation (Determination of Price of Imported Goods) Rules 1988 is arbitrary to the extent it seeks to introduce a fiction for arriving at the purported cost of loading, unloading and handling charges, even where the actual charges paid are available and ascertainable. The rule is applicable only where the actual cost of such services is not ascertainable.

The principles of natural justice are considered the backbone of the legal system. The Supreme Court recently dealt with a case related to the blacklisting of a contractor by the government which reiterated one of the cornerstones of the principles of natural justice – the Latin maxim 'audi alteram partem' (ie, 'hear the other side too'). The judgment provides entities dealing with the government with adequate protection against arbitrary actions.

In 2012 public interest litigations were filed against the central government for alleged illegal allocations of coal blocks between 1993 and 2010. The Supreme Court has found the allocation of coal blocks arbitrary and illegal and cancelled them accordingly. The government has promulgated an ordinance to deal with the cancellation of the licences, but the judgment has had a significant impact on an already struggling industry.

The Supreme Court has held that Part 1 of the Arbitration and Conciliation Act is not applicable if parties have chosen the seat of arbitration and the law governing the arbitration agreement to be outside India, even if Indian law is chosen as the law governing the substantive contract and the agreement was entered into before September 6 2013.

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