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COVID 2019: Relaxation from Statutory and Regulatory compliances

From Yatin Sharma‘s  desk with Astha Srivastava and Sayli Petiwale

These unprecedented times call for unprecedented measures. As one of the first steps taken by the Government of India (“GoI”) to counter the impact of COVID -19 on the economy, the Union Finance & Corporate Affairs Minister on March 24, 2020 announced certain relief measures with respect to statutory and regulatory compliance matters across various sectors. Further, relief in the area of taxation — both direct and indirect have also been announced. This note provides a short summary of the various measures.

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Corporate Affairs

Under the Companies Act, 2013 (“CA, 2013”)

  • A moratorium period has been introduced from April 1, 2020 to September 30, 2020, whereby an additional fee would not be levied on late filing of any document, return, statement, etc. required to be filed with the Ministry of Corporate Affairs (“MCA”) registry. This will reduce the compliance burden on companies/ Limited Liability Partnerships (“LLPs”) and also help in reduction of financial cost involved in adherence to these compliance for the prescribed time period.
  • The requirement for holding a board meeting within the prescribed time period (i.e. 120 days) as per section of 173 of the CA, 2013 has been relaxed by 60 days, which would be applicable for the next two quarters i.e. till September 30, 2020. Therefore, the gap between two consecutive meetings of the board may extend to 180 days for the next two quarters.
  • The Companies Auditors’ Report Order, 2020 would be applicable from Financial Year (“FY”) 2020-2021. A notification bearing F. No. 17la5l2015-CL-V Part I dated March 25, 2020 (“Notification”) has been issued by the MCA in this regard.[1]
  • No violation of law shall be considered if the independent directors are unable to hold even a single meeting as per Schedule lV of the CA, 2013, for the FY 2019-2020.
  • The time period for filing a declaration within 6 months of incorporation of a company regarding commencement of business in Form 20A, has been extended by additional 6 months. This will reduce the compliance burden on newly incorporated companies as the commencement of business may pose certain challenges in these testing times.
  • No violation of law shall be considered if a director is unable to comply with minimum residency requirement of 182 days as per section 149 of CA, 2013. This would be relevant considering the travel restrictions imposed by the countries across the globe as well as lockdown in India.
  • The requirement of creation of reserve for 20 percent of all the deposits maturing in the next FY before April 30, 2020 has been deferred till June 30, 2020.
  • The requirement of investing 15 percent of the amount of maturing debentures during a year by April 30, 2020 as per section 173 of CA, 2013 read with Rule 18 of the Companies (Share Capital and Debentures) Rules, 2014, has been deferred up to June 30, 2020.

Please note that MCA has issued a circular bearing No. 11/2020 dated March 25, 2020 (“Circular”) with respect to the above.[2] These relaxations would help easing compliance burden upon the companies/ LLPs.

Insolvency and Bankruptcy Code, 2016 (“IBC”)

Following critical measures have been introduced under the IBC:

  • The minimum threshold for filing a petition under IBC has been increased from INR 1 Lakh to INR 1 Crore with immediate effect. This will provide immediate relief to Micro, Small and Medium Enterprises, which will bear direct and adverse effect of COVID-19 on a large scale. It is important to note here that the notification bearing F. No. 30/9/2020-Insolvency dated March 24, 2020 (“IBC Notification”) issued by the MCA does not prescribe any time limit for increase in the threshold.[3] Therefore, it appears that the increase in threshold has not been notified for a certain time period.
  • In the event the situation in relation to COVID-19 persists beyond April 30, 2020, the operation of Sections 7, 9 and 10 under IBC may be considered for a 6 month suspension. Section 7 of the IBC relates to initiation of corporate insolvency resolution by a financial creditor, while Section 9 and 10 talk about initiation of corporate insolvency resolution by operational creditor and corporate applicant.   As a result, initiation of insolvency resolution proceedings against defaulting corporates will be suspended for a limited time period once the measure is introduced. This will provide some relief to the small and medium-sized businesses which may be pushed to the brink of bankruptcy due to this black swan event.
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Income Tax Act, 1961

The following measures have been announced in relation to the Income Tax Act, 1961 (“IT Act 1961”):

  • In relation to FY 2018-19, the last date for filing of belated income tax returns has been extended to June 30, 2020 from March 31, 2020.
  • In relation to delayed payments of advanced tax, self-assessment tax, regular tax, TDS, TCS, equalization levy, STT, CTT made between March 20, 2020 and June 30, 2020, an interest at a reduced rate of 9 percent (as opposed to 12 percent or 18 percent per annum) would be charged. Hence, on a monthly basis, a rate of 0.75 percent would be charged (instead of 1 percent or 1.5 percent). Further, there would be no late fees or penalty chargeable on delay in relation to this period. This is a welcome step as it would ease up the financial burden on the assessee.
  • The last date for Aadhaar-PAN linking has been extended to June 30, 2020.
  • Certain waivers have been offered in relation to payments under the Direct Tax Vivaad Se Vishwas Act, 2020. This legislation was introduced with an objective of resolving direct tax disputes. Under this Act, tax payers availing this scheme and making payment of amount of tax under dispute on or after April 1, 2020 were required to pay additional 10 percent of the determined tax amount. However, payments made by March 31, 2020 did not attract such charge. Vide the measures announced by, no additional payment of 10 percent would be required for payments made till June 30, 2020. This would enable the relevant assessee to take benefit of this legal amnesty scheme without incurring any additional cost.
  • The due dates in relation to the following, which are due for expiration between the period of March 20, 2020 and June 29, 2020 shall be extended till June 30, 2020:
    • issuance of notice, intimation, notification;
    • passing of approval order and sanction order;
    • filing of appeal;
    • furnishing of return, statements, applications, reports and any other documents;
    • time limit for completion of proceedings by the authority; and
    • any compliance by the taxpayer including investment in saving instruments or investments for roll over benefit of capital gains under various laws including IT Act 1961, Prohibition of Benami Property Transaction Act, 1988, The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, STT law, CTT Law, Equalization Levy law, Direct Tax Vivad se Vishwas Act, 2020.

It may be noted that necessary circulars and legislative amendments in this regard would be issued by the relevant Ministry / Department in the due course.

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Goods and Service Tax 

The following measures have been announced in relation to Central Goods and Service Tax Act, 2017 and the Indirect Taxes:

  • The due date for filing of Form GSTR-3B which is due in March, April and May, 2020, for companies having aggregate annual turnover less than INR 5 Crores, has been extended to the last week of June, 2020. Further, no interest, late fee, and penalty shall be chargeable in this regard. This is carried out to ease the compliance burden on the small and medium scale enterprises.
  • In relation to companies having aggregate annual turnover of more than INR 5 Crores, for filing of Form GSRT-3B which is due in March, April and May, 2020, the same has been extended till last week of June, 2020. However, if the return is filed after fifteen (15) days from the due date, a rate of interest at 9 percent per annum (instead of 18 percent per annum) would be chargeable. In this regard, no late fee and penalty would be charged if compliance is done prior to June 30, 2020.
  • The date for opting for composition scheme has been extended till June, 2020. Additionally, the last date for making payments for the quarter ending March, 2020 and for filing returns for FY 2019-20 by composition dealers would be extended till the last week of June, 2020.
  • The date for filing of GST annual returns of FY 2018-19, has been extended to the last week of June, 2020 from March 31, 2020.
  • The due dates in relation to the following compliances under the GST regime, wherein the time limit is due for expiration between March 20, 2020 to June 29, 2020 has been extended to June 30, 2020:
    • issuance of notice, notification;
    • approval order, sanction order;
    • filing of appeal;
    • furnishing of return, statements, applications, reports and any other documents;
    • time limit for any compliance under the GST laws.

It may be noted that the necessary legal circulars and legislative amendments in this regard shall follow with the approval of GST Council.

  • Payment date under the Sabka Vishwas (Legacy Dispute Resolution) Scheme, 2019 shall be extended to June 30, 2020 and no interest for this period shall be charged if the payments are made by June 30, 2020.

Customs

The following decisions have been taken with respect to compliances under Customs Act, 1962 (“Act of 1962”):

  • Customs clearance has been categorized as an essential service, which shall be available 24×7 till June 30, 2020.
  • The time limit for issuance of notice, notification, approval order, sanction order, filing of appeal, furnishing applications, reports, any other documents, etc., time limit for any compliance under the Act of 1962 and other allied laws where the time limit is expiring between March 20, 2020 to June 29, 2020, has been extended till June 30, 2020.
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Financial Services

The following measures have been introduced in relation to financial services:

  • A waiver on additional charges for cash withdrawals via debit-cards of a particular bank from an ATM of other banks would be granted for 3-months. This would entail charge free cash withdrawal, as it would be difficult to access an ATM with which an individual holds a bank account, during the lockdown period.
  • The requirement for minimum balance fee for bank accounts would be waived for a period of 3-months.
  • The bank charges would be reduced for digital trade transactions for all trade finance consumers. This step has been taken to ensure that people prefer digital transactions over traditional modes due to easy access.

Department of Commerce

In relation to the commerce sector, the GoI has announced that there would be an extension of timelines in relation to compliances and procedures. The detailed notification in this regard would be released by the Ministry of Commerce.

Conclusion

The COVID-19 pandemic and resultant preventive measures have affected the business sector and given rise to various complications. With a view to reduce the reeling effects of this pandemic, the GoI through the Ministry of Finance has introduced a slew of measures to relax the statutory and regulatory compliances for businesses. These relaxations have been introduced for ease of day-to-day functioning and compliances. Further, these measures would also sustain in management of the financial and operational burdens vis-à-vis statutory and regulatory related compliances. Small and medium scale businesses have been affected the most due to the outbreak of COVID-19, and these measures would go a long way in easing their financial burdens. From an individual perspective, certain relaxations have been introduced in the financial services sector to reduce bank charged for digital transactions. In addition to the above, the due date of ongoing proceedings (regulatory, quasi-judicial and judicial) under the tax regime (direct and indirect) has been extended. This is a much-needed relief for the hour, as given the circumstances, the courts and tribunals across the nation are not functioning or hearing selective matters, and hence taking a legal recourse in this regard would pose a challenge. The formal circular / notification in this regard from the relevant Ministry / Department is expected soon.

[1] The Notification could be accessed here.

[2] The Circular could be accessed here.

[3] The IBC Notification could be accessed here.

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Impact of the WTO Panel Ruling on the Solar Mission of India

This post briefly discusses the WTO ruling in a case initiated by the United States against India in relation to domestic content requirements for solar cells and modules under certain specific phases of the Jawaharlal Nehru National Solar Mission (“Mission”) . 

I. WTO Ruling

United States had filed a panel request on 6th February 2013, against the domestic content requirements for solar cells and modules in Phase I (Batches I and II) of the Mission. On 10 February 2014, the United States requested supplementary consultations concerning certain measures of India relating to domestic content requirements under the Phase II (Batch I) of the Mission for solar cells and solar modules.

The main crux of the argument advanced by the United States was that the local content requirements mandated under the Mission applied different conditions to domestic cells and modules than the imported cells and modules to the detriment of the latter. Under the said Phases of the Mission, the Government was to enter into power purchase agreement with selected solar power developer’s contingent on their agreement to use domestically produced solar cells and modules. Therefore, United States argued that this requirement accorded less favorable treatment to the imported cells and modules than to the like modules and cells of Indian origin. Hence, India violated its national treatment obligations.

In its defence, India argued that the:

  1. solar cells and modules of Indian origin are integral part of solar electricity generation, which is procured by the Government (and not used for commercial resale) and therefore, derogation to national treatment obligations under Article III:8(a) is applicable
  2. local content requirement was covered under the exception of Article XX (j) of GATT 1994. India argued that it lacked domestic manufacturing capacity of solar cells and modules, and was dependent on imported cells and modules, which meant that the said products were in ‘general or local short supply’, and therefore the domestic content requirements were justified under Article XX (j) of GATT 1994; and
  3. local content requirement mandating use of doemstically producedcells and modules help in achieving India’s objective of sustainable development and ensuring energy security, and therefore, the said requirements are justified under under Article XX (d) of GATT 1994.

The panel (the report was circulated on February 24, 2016) agreed with the arguments advanced by the United States, and held that the domestic content requirements under the Phase I (Batches I and II) and Phase II (Batch I) of the Mission result in “less favourable treatment” to imported cells and modules within the meaning of Article III:4 of the GATT 1994.

The three-member panel rejected the arguments advanced by India distinguishing Appellate Body report in the case of Canada — Renewable Energy / Feed-In Tariff Programme . In particular the panel held that the product procured by the Government is electricity whereas the product discriminated against for reason of its origin is generation equipment,” i.e., solar cells and modules, and that as seen in case of Canada — Renewable Energy / Feed-In Tariff Programme neither solar cells nor solar modules are in a competitive relationship with electricity. Therefore, the derogation provided under Article III:8(a) is not applicable in the present case.

In so far as the defence under Article XX(d) is concerned, the panel held that it was insufficient that the local content requirement merely ensures the attainment of the objective of sustainable development/ clean energy but it is necessary that the said measures enforce specific sustainable development/ clean energy obligations which are contained in the legal instruments. Therefore, as India had failed to demonstrate that the local content requirements were directly enforcing the said obligations, Article XX(d) was not applicable.

II. Way Forward

The Government of India’s target of achieving 100 gigawatts (GW) of solar power by 2022 shall not be really affected by this ruling. In fact, as a result of this ruling (subject to the ruling of an appeal, if filed) both domestically manufactured solar cells and modules and imported solar cells and modules shall be available at competitive prices, which may help in generation of green energy at affordable and lower costs.

However, the domestic manufacturing capacity of solar cells and modules (even though the percentage of the domestic manufactures covered under the local content requirement is a small percentage of the total domestic manufacturing capacity of India) will be adversely affected as an aftermath of this ruling.

It is plausible that the Government can use the ‘Make in India’ programme to provide other forms of incentives and assistance to the domestic manufacturers to turn India into a manufacturing hub of solar cells and modules.

India may file an appeal against the panel ruling. Therefore, the final impact may need to be assessed again based on the final finding of the Appellate Body in the said dispute.

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Start Up Action Plan – A New Beginning

An update on the Start Up Action Plan released by the Government of India, outlining various incentives and mechanisms for enabling the start up environment.