Highlights of Companies Bill 2009

The following are some of the major highlights of Companies bill 2009 as presented -

(i) the basic principles for all aspects of internal governance of corporate entities and a framework for their regulation, irrespective of their area of operation, from incorporation to liquidation and winding up, in a single, comprehensive, legal framework to be administered by the Central Government. In doing so, the Bill also seeks to harmonise the Company law framework with the sectoral regulations;

(ii) easy transition of companies operating under the Companies Act, 1956, to the new legal framework as also from one type of company to another, freedom with regard to the numbers and layers of subsidiary companies that a company may have, subject to disclosures in respect of their relationship and transactions or dealings between them;

(iii) a new entity in the form of One Person Company (OPC), empowering the Government to provide for a simpler compliance regime for OPC and small companies and retention of the concept of Producer companies, while providing a more stringent regime for companies with charitable objects to check misuse;

(iv) application of the successful e-Governance initiative of the Ministry of Corporate Affairs (MCA-21) to all the processes involved in meeting compliance obligations. Company processes may also be carried out through electronic mode;

(v) speedy incorporation process, with detailed declarations and disclosures about the promoters, directors, etc., at the time of incorporation. Every company director would be required to acquire a unique Director Identification Number;

(vi) relaxation of restriction limiting the number of persons in associations or partnerships etc., to a maximum of one hundred, with no ceiling as to associations or partnerships formed by professionals regulated by special Acts;

(vii) duties and liabilities of the directors and every company to have at least one director resident in India. The Bill also provides for independent directors to be appointed on the Boards of such companies as may be prescribed, along with attributes determining independence.;

(viii) statutory recognition to audit committee, remuneration committee and stakeholders relationship committee of the Board and the Chief Executive Officer (CEO), the Chief Financial Officer (CFO) and the Company Secretary to be as Key Managerial Personnel (KMP);

(ix) companies not to be allowed to raise deposits from the public except on the basis of permission available to them through other special Acts. The Bill prohibits insider trading by company directors or Key Managerial Personnel and declares it as an offence with criminal liability;

(x) recognition of both accounting and auditing standards. The role, rights and duties of the auditors have been defined so as to maintain integrity and independence of the audit process. Consolidation of financial statements of subsidiaries with those of holding companies is proposed to be made mandatory;

(xi) a single forum for approval of mergers and acquisitions along with a simple and shorter merger process for holding and wholly owned subsidiary companies or between two or more small companies as well as recognition of cross border mergers. Concept of deemed approval also provided in certain situations;

(xii) a framework for enabling fair valuations in companies for various purposes. Appointment of valuers is proposed to be made by an audit committee or in its absence by the Board of Directors;

(xiii) claim of an investor over a dividend or a benefit from a security not claimed for more than a period of seven years not to be extinguished, and Investor Education and Protection Fund (IEPF) is to be administered by a statutory authority;

(xiv) shareholders associations or group of shareholders to be enabled to take legal action in case of any fraudulent action on the part of company and to take part in investor protection activities and 'Class Action Suits';

(xv) a revised framework for regulation of insolvency, including rehabilitation, liquidation and winding up of companies and the process to be completed in a time bound manner;

(xvi) consolidation of fora for dealing with rehabilitation of companies, their liquidation and winding up in the single forum of National Company Law Tribunal and appeal to National Company Law Appellate Tribunal with suitable transitional provisions. The nature of the Rehabilitation and Revival Fund as provided in the Companies (Second Amendment) Act, 2002 is to be replaced by Rehabilitation and Insolvency Fund with voluntary contributions linked to entitlements to draw money in a situation of insolvency;

(xvii) a more effective regime for inspections and investigations of companies while laying down the maximum as well as minimum quantum of penalty for each offence with suitable deterrence for repeated defaults. In case of fraudulent activities, provisions for recovery and disgorgement have been included;

(xviii) levy of additional fee in a non-discretionary manner for procedural non-compliance, such as late filing of statutory documents, to be enabled through rules. Defaults of procedural nature to be penalised by levy of monetary penalties by the adjudicating officers not below the level of Registrars. The appeals against orders of adjudicating officers are to lie with designated higher authorities;

(xix) special Courts to deal with offences under the Bill. Company matters such as mergers and amalgamations, reduction of capital, insolvency including rehabilitation, liquidations and winding up are proposed to be dealt with by the National Company Law Tribunal.

Source: ICSI

Goods and Services tax

What is GST?

The Goods and Services Tax (GST) is a full fledge value added tax (VAT) system on the supply of goods or services in India. France was the first country to introduce this value added tax system in 1954 devised by a public servant.
Adoption Of GST in other countries:
Different countries have different structures of GST. The countries which have a centralized government control results in a more effective implementation of GST. The countries like Brazil and Canada which has a dual (Central and State) government have adopted GST in a different manner. The different models of GST are discussed as under-
(1) Australian Model: In Australia GST is a federal tax, collected by the Centre and distributed to the states. But India is a heterogeneous country and there is no chance that states may allow the Centre to collect all the taxes while they become just spending institutions;

(2) Canadian Model: The GST in Canada is dual between the Centre and the states and has three varieties:
(i) Federal GST and provincial retail sales taxes (PST) administered separately - followed by the largest majority;
(ii) Joint federal and provincial VATs administered federally (Harmonious Sales Tax - HST); and
(iii) Separate federal and provincial VAT administered provincially (QST) - only for Quebec as it is like a breakaway province.

Proposed structure Of GST in India:

In India due to the presence of dual govt. the proposed structure is related to that of Canadian model. In India a dual GST is proposed whereby a Central Goods and Services Tax (CGST) and a State Goods and Services Tax (SGST) will be levied on the taxable value of every transaction of supply of goods and services. The transaction which will take place between two states will be subjected to inter state GST. In India the introduction of GST will lead to a substitution of all the Indirect Tax by a single tax known as GST. The following are the proposed features of GST-
What are taxable under GST?:
All the goods are services are proposed to be taxed under GST. This means that there will be no separate laws for goods and services. However the goods and services which will be available for taxation under GST will be subjected to certain exemptions which will be stated in the draft law.
Applicability of both CGST and the SGST on all transactions:- A transaction of ’supply of goods’ will attract both the CGST & SGST as applicable on goods. Similarly, a ‘supply of service’ will attract both the CGST & SGST as applicable on services.
Applicability of other indirect taxes : It is proposed that the taxes to be subsumed under CGST will include Central Excise Duty (CENVAT), Service Tax and Additional Duties of Customs (Basic custom duty will continue to be lived) and the taxes to be subsumed under the SGST will include Value Added Tax, Central Sales Tax, Purchase Tax, Entertainment Tax, Luxury Tax, Octroi, Lottery Taxes, Electricity Duty and State surcharges relating to supply of goods and services.
The taxes under GST will be collected at each stage of production on the value added.
Refund of un-utilised CC on inputs and input services :-It is envisaged that under the proposed Dual GST model there would be refund of unutilized accumulated CCs at the end of each fiscal year and that refunds would not be restricted only to those relating to exports.
Status of Software Technology Parks/ 100% Export Oriented Units/Special Economic Zone units:-Typically, in view of the common list of exemptions, the exemption would extend to both the CGST and the State GST. With regard to the position on the Software Technology Parks/ 100% Export Oriented Units/Special Economic Zone units, it is envisaged that the status quo will remain.
Taxation of Inter-State sale transactions: Presently, inter-State sales are subject to Central Sales Tax (CST), which is origin based i.e. the state from which the goods were sold was subjected to CST but under GST regime there is no place for CST and inter state GST will be charged by the destination state i.e the state to which the goods are sold. This removes one of the major drawbacks of CST that it is not available for setoff with VAT. Thus in thegoods selling state it will be zero rated.
Registrations under GST :- The position in this regard is not clear at present. However it is expected that there will be fresh registration for dealers

Difference between existing tax and GST:
There are large number of difference between existing sales tax structure and GST however some of them are discussed below-

(1) Under proposed GST there will be only one tax structure in place of the multiple taxes which are levied by central and state government at present.
(2) The taxes will be available for setoff with each other under GST where as in the present sales tax system the taxes charged by Central government are not available for setoff with the taxes charged by state government.
(3) There will be no cascading effect of taxes on the goods transacted between the two states which was one of the drawbacks of the existing tax system
(4) The prices of the goods and services will gradually reduce due to simplified systm

Hurdles in Implementation of GST in India

(1) Implementation of GST calls for effecting widespread amendments in the Constitution and the various constitutional entries relating to taxation. In the current scenario it is difficult to visualise constitutional amendments of such far reaching implications going through, more so in view of the fact that sharing of legislative powers is such an essential element of our federal polity and it may be perceived to be a basic feature of the Constitution;
(2) Services have to be appropriately integrated in the tax network;
(3) Under GST it is proposed that there will be only one or two tax rates ranging between 12-16% this might lead to increase in price of some goods substantially.
(4) Another contentious issue that is bound to crop up in this regard is the manner of sharing of resources between the Centre and the states some states might face severe revenue crises.

CONCLUSION: Thus implementation of GST is necessary for the growth of the economy. However, proper steps should be taken for its implementation so that it can be effectively followed. The structure of proposed GST will be clearer when the white paper on GST will be presented.