E P R O F E S S I O N AP B O G R A M M E X A M I N A T I O N L J U N E 2 0 11

ALLIANCESAND' MANAGEMENT, STRATEGIC TRADE INTERNATIONAL

Timeallowed:3hours \Maximummarks : 100 PART A (Answer ANY TWO Questions from this pan ) Question 1 (a) Distinguishbetween the following: 'businessrisk'' (i) 'Market risk' and 'crossimpactanalysts" and (ii) 'Delphitechniques' ication' diversif and'conglomerate (iii)'Concentricdiversification' 'decisionsuppotr system (iv) 'Managementinformationsystem' and 'intra-firm (3 marks each) comparisons'' and (v) 'lnter-firm comparisons' 'risk elements'that a (b) As a Company Secretary, how would you pergelv?.the point of view ? will shareholder have in a company from financial risk (5 marks) Answer 1(aXi) DifferencebetweenMarketRisk and Business Risk dueto will Marketriskis the riskwherethe valueof an investment increase/decrease riskcannotbe avoided uncontrollable in changes marketfactorsand is generally ,['4arket in stoiks mightbe present the porttolioThis is the day{ono rnitter how manydilferent and options in day lluctuations a stock'sprice lt appliesmainlyto stocks with associated of risk Business on the othernandrefersto the siluation uncertainty and external Exlernal risk Business can be internal frowsof a business. .r"Jng uponthe organization "u"n whichare imposed conditions oi : -rsnessriskis the result operating riskswf\ichgiveriseto variation The majorbusiness beyonditscontrol :, :rrcumstances - :ash llowsand business valueare pricerisk,creditriskand pure rist( A n s w e r1 ( a X i i ) betweenDelphiTechniquesand Cross lmpact Analysis Difterence 3C:.3{lhesetechn|queSare{orecastingtechniques.HowevertheditterenCesbetween t h e r :a ' e a s u n o e r : to are expertopinions consolidated arriveal a the ln De,p: Techniques, divergent anonymous' through opinion expert the of estimate tutureThisinvolves useol comprom,se the Normally panelis polled groupof experts. amonga feedback .t"Lar,u" controlled issues Eachpanel well-defined on lV qu".rionnuir""in a searchfor opinions reasonably

PP-SMAIT-June 1 201

member responds a forecast reasons it.Theseresponses thenstatistically with and for are compiled and fed backanonymously all the members the panel.Thistechnique to of is employed fairlywioelyin publicand private sectorplanning. The key to Delphi technique lies in the coordinator experts. and Cross lmpactAnalysisTechniqueis designedto assessthe interactions among tutureenvironmental (socio, political, economic, legaletc)conditions. analyst The begins theseexercrses assuming by thata set of futureenvironmental circumstances come will true.Throughthe use of matrixanalysis, analyst the then attempts assessthe impact to ol thesecircumstances the possibility timingof otherssuchas price,competition on and etc. if nothingelse, the analystis able to exposeforecasting inconsistencies to and clarifyunderlying assumptions the forecasts in themselves. Answer 1(aXiii) Difference betweenConcentricdiversificationand Conglomerate diversification products markets. Concentric diversilication occurswhenatirm addsrelated or The goalof suchdiversificationto achieve is synergy strategic Strategic in operations or fit. fit couldresult synergy the combination operating in by of unitsto improve overall elficiency. Conglomerate diversification the otherhand occurswhen a firm diversifies on into areasthatare unrelated itscurrentlineof business. to One of the reasons thjstypeof for diversification the limited is opportunities a firm'scurrentlineol business. in Findjng an attractjve irrvestment opportunity requires firm to consideralternatives othersof the in business. This approach also adoptedby firms as a meansof increasing growth is the rate. In India,Tata's ITC and Mahindra and Mahindra are examplesol ccnglomerate diversif companies. ied Answer1(aXiv) DifferencebetweenMISand DSS M IS (Management Information System) 1 2 3 Information form of a MIS is periodic a n db a s e d n d e m a n d s . o Information formats are pre-specified and fixed. Information ls provided by extraction a n dm a n i p u l a l i o n o p e r a t i o n d a t a . of al DSS (DecisionSuppotl System) Information formof DSSis interactive. DSS informalion formats are adhoc, f lexible and adaptable. Information produced analytical is by modelingof operational external and data. It providesinformation and decision problems supporttechnique confront to

4. lt providesinlormation about the performance the organization. of

Answer 1(aXv) Difference between Inter-firm comparisons Intra-firm and comparisons Inter-f comparisonsa technjque comparing performances,iciencies, irm is of the eff

201 PP-Sl\4AlT-June 1

lts for of costsand protits variousconcernsin an industry assesslng own penormance andaScertainingthereasons{oranydifferenceinperformances/efficienclesetc, or ot meanscomparison two or moredepartmenls divisions irm lntra-f comparisons analysisfor the of making meaningful to belonging the same firm with the obiective involved or o{ the purpo;eol increasing effectiveness the departments divisions in are Thus,bothinterjirmand intrajirmcomparisons different the sensethatwhlle tirm with otherfirms,the lattercomparesthe ot the pedormance the formercompares maycoverthe f inancial The comparison or performance itsown division departments of or results both. position operating or Answer1(b) financiallossesby a company.A Lapsesin rlsk controloften lead to substantial or money,directly indirectly' coststhe shareholder in break-down riskcontrolevenlually to injectmore capitalor by seeingthe equityloosevaluewhen eitherby beingforced Thiscouldevenlead becomepublicknowledge failures f lossesresultingrom riskcontrol take over doesnot happen' to closureol the companyif a desperate Boardand Senior the right It is thuswithineveryshareholder's to question company's management on Management how the firm managesand conlrolsrisk,sincegood risk and its repons Committee of top Constitution RiskManagement muststanlrom the very the to response mitigate riskhas to periodically management's and naveto be reviewed the whichin turnapprises Boardof the of the AuditCommittee to be brought the attention levelof riskthat the companyis exposed shouldask their board and which shareholders There followsa llst ot questions guidelines which and risk contain management control The management. answers senior a lirm grip theircompanyhas whether to coulduse as a Iemplate evaluate shareholders on riskcontrol. on confidence shareholders to To sum up, the onus is on the top Management instill duringthe year and lo the risksrhaiwere brought theirattention diiclosing n eventually system' for banking the by initiated themin mitigating same Likean Ombudsman actions will vet the who for : rvillnot be too late to see t Risi Ombudsman every company risks 'eoortsof risk management and stepstaken to preventthe identifled committee Beport' alongwiththe Annual to communication the shareholders :-'cugh a separate 2 Ouestion Railways : rs passengeroperationwhich hetpspeople at large connect with lndian e]'Andyet,passengerseNiceshavegenera|lybeenviewedbylRmanagement an annual 2'jery a; socialservice obligation Passenger businesshave inflicted crore from passenger traffic in :s! cl over < 20,000crore Earnings ot < 23,488 of< earnings 58'502 freight revenues; only accountedfor 27% of li's gross 2C09-10 c rcre :ont ributed657". blllion Passengerbusnesswo dwideaccountedfor 577" and freight43% of the $313 railwaypassengerbusiness is inherenlly lossglobal iil market (in 2005) Not that "making. culprit On tB, it is the ordinary second-classsegment that is the maiar fare was 23.1 paise per km. in 2000-01: it white the second ctass mait/eipress

PP-Sl\4AlT-June 1 201

remainedstubbornly stuck at 23.2 paiseper km. even in 2O0A-0g. The ordinary second-classtare, largelyresponsiblefor loss-making,has remaineduntenablylow at 11.9paise per km. and suburban travel stilllower, at 12.9paise per km. The fare on State road transporlservicesin 2008-09 averaged48.37 paise per km. About 10 millionpassengersin lndia travel by air in a month, lR transporlstwice as many in a day. Even so, lR accounts for a meager 12o/o lndia's total passenger of trallic, roads carrying over 8770. Cost-effectiveruil travel demand, far outstripping supply, will tut'thergrow substantia y in view of the country's decliningag culture sectordrivingmigrationfrom ruralareas for an integratednationallabourmarket. The urban population is projected to rise from current 286 million to S7Smi ion by 2090, keeping the populationon the move. Also, the specter of climate change favours lR to repositionrail travel in preference to car and airlines. There is projectionof 7,189mi ion inter-citypassengers by 2025-26 against 2,835 passengers 2007-08.lf GDPgrows 8% or more,annualdemandfortranspotl million in generally rises 10-12%,implyingthenumber ot originatingnon-suburbanrailpassengers exceeding 12,000mi ion by 2025. On the basisof above case study,you are requiredto answer the tollowingquestions as the CEO of lndian Railways : (i) Describethe environmental factorsresponsiblefor perlormanceof railwaysas a commercialentity. (5 marks) (ii) Describecomponentsof a strategicplan for railwaysto meet passengerdemand highlighting considerationfor each component. (70 marks) (iii) Writea note on commercialrevival of lR using Gap Analysis. Answer 2(i) Indiahas seena signif icantshittin transport volumes awayf rom railways roadand to arrtransport the recenttimes. As a resull,once the backbone domestic in of transport, railways haveduringthe past20 yearsseentheirmarketsharedeclinesharply. Indeed in the 1980s,thisphenomenon generated somethinking to whether railways as the were relevant.In the 1990s,however, still concern the environmental lor costsof transport in general and of roadtransport parlicular, in resulted a growingacceptance in that railhas an important to playin the national role and international movement goodsand people. of Theenvironmental {actors responsible performance railways for of consist economic, of po , t e c h n o l o g i c a l , l l t i c a ls o c i a l , e g a la n d g l o b a ls u r r o u n d i n g s .h e l a c t o r sw h i c h a r e l T responsible as foilows: are 1. Chronic financial deficits Constraints charges i.e. on imposed through Government regulation; Persistent excesscapacity;Provision guaranteed of servicelevels (in at fixed pricesor with 'excess'competition comparison with othermodesot transport);Provision services belowmarginal of at cost; Failure understand to or identity costs; Ineffectivenesscollecting in revenues; Low productivity; Unduly h i g t r p e r a t i nc o s t s :O v e r m a n n i n g . o g 2. Growing operating subsidies Lackof 'corporatization'; i.e., Inadequate distinction betweenrolesol governmenl and of the railwayoperator; Inadequate subsidy policies.

(5 marks)

P P S M A I T - J u n2 0 1 1 e

not 3. Archaicpricingsystemswhere chargesare not relatedto cost; Pricesare or measured;Inadequate not properly identified costs; Costs to related marginal pnclng or lnadequate non-exlstent systems; accounting and financial managemenl pricingoollcy' ot or objectives statements (y Lackot useror cornmun fares; and fare 4. Lackof an equitable structure excessive making' in representation serviceand pricedecision and and Poor managemenl Low labourproductivity elficiency; 5. Low operating eff technical iciencY. no servicesi e ' Lack oi competltlon; congested 6. Low servicequality;Severely to policies; Inability reinvest in cost pricing;inadequate recovery pricing peak-load or surpluses raiselundsfor investment operating Failure i e, is 7 . D e f i c i e n c i en t h e p h y s i c ai ln f r a s t r u c t u rP o o ra s s e tm a i n t e n a n c e ' to inability retain/reinvest capitalcosts; Structural to of pricingpolicies recover or preventing investment borrowlng funds; Begulations surplus and/orservices' infrastructure fundsto investin transport 8. Inadequate and inirastructure servlces of and stateownership operation transport 9. Widespread in 10. Low privatesecto' oart;cioation lhe transponseclor' Answer 2(ii) StrategicPlannins ot on ol relersto the process deciding objectlves theorganization' planning Strategic and usedto attaintheseobjectives on on in theseJbjectives, the resources on of "nung"".that are to governthe acquisition, disposition theseresources' and the policies reach its ultimategoal Thereforeeven lR will have to plan for changein order to and oppodunltles avolonq by identilying planning help lR to adaptchange will Effective and of fo;the otherfunctions management ior piour"t.lin" *iy it can set the direction engage in All levels oi management Planningimprovesdecision-making i;;;"t. planing. n growthrale planned plannlng includes of examples strategic Someof the imponant lypes ol products, by technologies, diversiflcttion a"t"a, ,"rg"r, and acquisitions, stafling' " !n activities the areasol organizing areas,planning g"ographical ,.., rt."r. ' - a . r c e .e l "n"O c. wrtn plan tor rallways ol are Basedon this the tollowing the components strategic ::-s ceration: to ' is projected nse gap of ldentitication demand-supply (asthe urbanpopulation sectoris by 2030 and also that the agriculture irom 286 millionto 575 millio; so zonesof IndianRailways as to ascertain di{ferent areas)in movlngf rom rtrral areas; the mostllurdened Including increased with plans of (ii) r Developrnent strategicS g mtolcopeupe r . c thep a s s e n gdernand 0 2 3 . 2 6 a S a g a | n s t .,o oiectedincreaseolTl il ion|nt ity erSby2

PP-SN4'AtT-June1 201 6 2835 million 2007_08. needisto emerge ol thegroovy in out traditional style ,The ol thinking wherein focushas beento increase number rail the the of tripsor addition passenger ot bogies: (iii) Exptoring possibiljty thefo owing the of : (a) Ensuring public prjvate participation: (b) Privalizationcertain of routes revenue with sharing; (iv) Constituency nurturing based political on considera needs be stopped. on to Professionals should involved be while developing strategic plans; (v) Introduction trains reast thecrowded offast at on routes serve duar to the purpose of optimum utilization railcapacity recourse segmented of and to privatization: (vi) Increasing rairfare comparison roadand the rn to airtransport bringing at and it parwithother modes. railfareforsecond The classmail/express incrjas"ed to 23.2paise km in20OB_O9against per as 23.1paise km in2000_01 per whereas thefareol road transport 20Og_09 in au"rug"d 4g.37 prjseperkm. Answer 2(iii) GapAnatysis js GAPanalysis theprocess identifying gapbetween optimized of the the . allocation and Integration the inputs of and the current levelol allocation. helps This provide insight areas into thathaveroomfor improvement. gap analysis "orp"ny The process involves determining, documenting approving variance and tne between business requirements current and capabirities. anarysis-natura[y trombenchmarking Gap frows andother assessments oncethegenerar expectation performancetheindustry of rn is understood,is possible compare expectation tfrl tevet performance it to that wiin of at which company the currenfly functions. comparison Thjs becomes gapanalysis. rhe Under GapAnalysis attention firslfocused the gapsbeMeen actual is on . the and antrc'pated varues certain that variabres on andtheviruesthataremost take desirabre. once thegapsareproperry identified, attention snits to oevisrni waysto crose them. ln the context the lndian of Railways, strategy the should concerned the be with position rore therairways reration their and of in to enui-ronr"nt oesigning optimat of strategy thepresent in circumstances. "no On an overall considerationthesituation, Indian of the Bailways needs improving performanceterms increase revenue regard to focuson the in ot in with ro second class ordrnary, andexpress mail faresrruhich stuck 23.2paise KmIncompa'son is still at per to 23 1 paise kmin2000-01These per . need be upgraded'in roenabte Indian to order the Bailways recover costandto atow.it earn ieasonabrL to the to the protits. surprrsingry But theroad transport stands fare armost doubre farestructure rairways at the of whicn waJat around 32 paise kmin2009-og. 48 per Environmentaty rairways prererabreair arso are to orroad transport.indicates need enhance utirizationexisting rt the to the of rine capacities. Inaddition, Indian Railways needs explore extension railnetwork areas to the ol to with earnrngs potentral.willhelp railways recover losses, lt the to the earnrevenues then and payattention thehitherto to neglected areas.

PP*SMAIT-June 1 201 Question3 (a) suggest ways to overcome resistanceto change. which is the reast effective style of managingchange and why ? (10 marks) (b) what are the ten 'p' erements risk in business? Describeat reast of one erement for each'p'. (10 marks) Answer3(a) change is a naturar phenomenon. Research findings individuar organizationar on and behaviour revealed thatorganization individuals and resistchange. Flesistance changeis rikery be minimised the management to to if herpemproyees to adjustto contemplated changewjtha supportive conduct and behaviour. imperative The need rs to make the emproyees feerthat their interestin the work situationis beino adequately considered and tultyprotected the management. shouldbe impressej by lt uponthe employees thatin the longruntheywjllgainfromchangeand the management will,by all means,helpthem to achieve thesegains.lf the supportive cljmateexGts,the employees likelyto be more receptive change.Howevei,thatapart,the lollowino are lo considerations shouldfurtherbe keptin view: Ways to OvercomeBesistanceto Change The basicproblem managing in change to overcome is people resistance successfully. _ Problems overcoming of resistance changecan be managedin the following to ways: (t) Education communication lf misinlormation lackof informarion and : and create barriers managing to change, education communication and mjghtbe appropriate. (ii) Pafticipation: Participation hetpsto give peoptein organizational change a feelingol importance. createsthe feelingsamong the employeesthai the lt decision theirown. They realise is that the changeprocessrs a must. \iii) Obtainingcommitment:Commitment take part in changedprogrammecan be to obtainedin privatefrom each jndividual. gettinga personto commtt However, himselfin privateto a changedprogramme may yield fewer resultsthan if he voluntarily and publicly giveshis commitment an ideaof change. to 'r) Leadership:A transformational leadercan use personalreasonsfor change wtthout arousing resistance. effective An leader triesto changethe psychological needsof his followers. , Trainingand PsychologicalCounselling: Managementcan change the basic ,,,a of the peopleby training ues peopleshouldbe and psychological counseling. edLJcated becomefamiliar to with change,tls process, and working. Ccercion Edict:Coercion edictis the imposition changeor the issuing or or of of r -ectrves aboutchange.lt is the explicit use ol power.

The easteffective way of managing changeout of the abovementioned may be: Coercion Edict:Coercion the leastsuccessful ar is styleof managing changeexcept n a state oi crisisor confusion. coercronor edict is the imposition change or the or

PP-SMAIT-JUne 1 201 8 issuing directives of about change. means rt contronting forcing and resrs.ng emproyees to change. is theexplicit of power. lt use Managers forcepeople go-along a may to with change using by expricit impricit and threats invorving transfer, of promotion, ross n-egative recommendations, dismissaretc. beextremery if it reaves makes rtcan risky and p-eopre angry theinitiators. at Answer 3(b) Theten'P'elemenls riskin business : of are
S.No. 'P' elements

Elements
Location the organization, of type of premises available use. for Industry sector,featuresof product,lifecycle of the product, fashiontrends. Access to supplies, storageand warehouse facilities,stock control, payment terms and cost. W o r k e r si n t h e o r g a n i z a t i o n ,k i l l s ,t r a i n i n g s needs,motivation commitment. and Production procedures, record keepingand r e p o r t i n gs y s t e m s , u s e o l s t a n d a r d sa n d emergency procedures. Personal protection workers,propertyand of vehiclesecurity, insurance cover,information systemsand data security. Production rocesseswaste and scrap p , disposal, skills,technology new materials. Targetsets, monitoring, measurement tools, validity data. of Accessto relevantdata, management skills, externalfactors levels control, and of shortand l o n gt e r mp l a n n i n g n di n v e s t m e n tp t i o n s . a o Rangeof policies that supportstrategic plans of the lirm.

Premises Product Purchasing

People Procedure

Protection

Processes Performance Planning

10

Policy

PART B (Answer ANy ONE questionfrom thispa11.) Question4 (a) Hero Hondajoint venture formed in 19g4 is a crassiccase of strateqic alriance involving the lndian company Hero Group and Japaneseautomobile iajor Honda Motorcycle.Thealliancehasbeen terminatedwiththe entire26/" stakeof Honda Motorcyclein the venturebought by the Hero Group. Selling out of the venture

largestmarket for two-wheelers. (i) Listout the advantagesof the strategicalliancefor both the organisations, in two-wheeler market in lndia. (5 marks) (ii) What are the key success factors for managing an alliance ? ln the light of these key success factors, identify the reasons for the terminationof this

the company rreedom ita",l"i;ir!|Ilill!rt,i, to sivesJapanese th: so

joint venture. successful

(5 marks)

(b) Assuming that High Speed Auto Ltd. intends to acquire technicalknow_howto produce a small car for the lndian market in collaborationwith a German car manufacturer, specifythe broad issuestobe coveredin the agreementfor foreign technicalseNices in lndia. (10 maris) Answer4(aXi) Advantages strategic of alliance as under: are Rapidly moveto decisively seizeopportunities beforetheydisappear. Respond morequicklyto change. Adaptwith greaterf lexibility. Increase company's a marketshare. Gain accessto a new marketor beat othersto that market. Quicklyshoreup internal weaknesses. G a i na n e ws k i l lo r a r e ao f c o m p e t e n c e . Rapidlymeet a company'sneed for key resources such as more customers. additional products,new distribulion capital,new/better channels,additional jncreased facilities, production personnel capacity, competent or etc.

Answer4(a)(ii) The key successfactorsfor managing alliance under; are Mutuallrusl: L4utual trustat seniormanagement levelcarryventuresthrough turbulentmes. ti Abilityto compromise: When there are two strongcompanjes, the abilityto compromiseis not easy to achieve.lf you expect to receivesome valuable production marketing technology, or knowhowfroma partner, mustbe willing you t o g i v es o m e t h i n g . Favourable business condition: Launching alliance an whenfavourable business conditions exist makesa venturelifeconsiderably easierfor its partners. Alliance Autonomy: The autonomy mandates hjghdegreeof responsibility a and goodJUdgement the ventures by management.

Feasonslor termination successlul jointventureare as under: of D flerentcultures, may quicklyfincithe variations theirbehavioral in normsare creating ground misunderstanding, followthrough, eventual breeding for poor and drstrust.

PP-SMAIT-June 1 201 10 Jointventures alsopotentiar confricts. are for Theymay resurt disputes in between or amongpartners due to varjedinterests. Slowdown in decision makingby partners. Changesin the business environment two countries in and cnangesin partner strength. Lifecycleof joint ventures.

Answer4(b) The broad issuesto be coveredin the agreement foreigntechnjcal tor servicesin Indiaare as under: * Technical Services the Indian to company. Deputation teohnical of personnel. Training personnel the Indian of of Company. Secrecy conditionsuch as strict confidenceand secrecy and sha not be disclosed the Indian by Company. Consideration Technical Services to the Foreign. fee Company. PriorGovernment approval. Duration the agreement. of Termination the agreement. of ForceMajeure conditions, suchas actsof God,Government lawsand regulations, strikes,Lockouts, war or any othercausesbeyondits conrrot. Arbitration crause, caseof anydispute difference in or arising between parties. the l\4iscellaneousconditions. Law applicable the agreement. to

Question5 Describein brief the folowing in connectionwith direct investment outside rndiaby an Indiancompanyin an oveiseas joint venture(JV)/whoy ownedsubsidiary(WOS) under automati) route of FEMA : (i) Differentnethods of funding of investment. (ii) The conditions to be furfiled for investmentby an rndianentity engaged in financial sector. (iii) The conditionsfor capitalisation expofts and other dues of (iv) compliances of reboding of initiarinvestment, subsequent investmentandfiring of annualreturns. (v) Conditionsfor allowinginvestmentsin JVMOS throughthe medMmof a special purpose vehicle(SPV). G marks each)

11 Answer5(i) Methodsof Funding investments as under: of are -

P P - S M A t T - J u n2 0 1 1 e

Drawlof foreignexchange froman Authorised DealerBankin India: Capitalization exports; ot Swapof shares: l..,tilization proceedsot ExternalCommercialBorrowings(ECBs)/Foreign ol Currency Convertible Bonds(FCCBs); In exchange ADRs/GDRs of issuedin accordance withthe schemefor issueof Foreign Currency Convertible Bondsand Ordinary Shares(through Depository jssuedthereunderlrom Receipt Mechanism) Scheme, 993,andthe guidelines 1 tirneto time by the CentralGovernmenl; Balances held in EEFCaccountof the Indianparty;and Utilisation proceeds foreign of of currency fundsraised through ADR/GDR issues.

Answer 5(ii) Conditions Investments Financial for in Services Sector An Indianparty seekingto make investment an entityengagedin the financial in sectorshouldfulfill lollowing the additional conditions: Provided that Indianparty: * is registered withthe appropriate regulatory authority Indiafor conducting in the f inancral sectoractivities; hasearnednetprofit duringthe preceding yearsfromthe financial threefinancial servicesactivities; has obtained approvalfor investment fjnancial in sectoractivities abroadfrom regulatory authorities concerned Indiaand abroad; in and has fulfilled prudential the normsrelating capitaladequacyas prescribed to by the regulatory authority concerned India. in

A n s w e r5 ( i i i ) Conditions capitalisation exportsand otherduesare: for ot Indianpartiesare permitted capitalize to the paymentsdue from the foreign entitytowardsexports, fees,royalties any otherdues from the foreignentity or ior supplyof technical know how,consultancy, managerial and otherservices w i t h i nt h e c e i l i n g s p p l i c a b l eC a p i t a l i s a t i oo f e x p o r tp r o c e e d sr e m a i n i n g a . n unrealized periodof realization require beyondthe prescnbed priorapproval will oi the ReserveBank. ndiansoftwareexporters-are permitted receive25 per cent of the valueof to their exportsto an overseassoftwarestart-upcompanyin the torm ol shares without into entering JojntVenture Agreements, priorapproval the Reserve with of Bank.

PP-S[,4AlT-June 1 201 Answer 5(iv)

12

The lndian Party required report investment, formoDr to theAuthorised is to of in Dealer Bank submitting theReserve for to Bank within period 30 daysfromthedate a of ot thetransaction. ODl,comprising fourparts: of Partl- includes following: the party Section - Details the Indian A of Section - Details Investment Newproject B of in - Details Investment Existing project Section C of in Section - Funding JV / WOS D for - Declaration theIndian party(toberetained ADCategory | bank) Section E by _ by section - certificate thestatutory F party(tobe retained by Auditors theIndian of by ADCategory*bank) | Partll - Beporting Remittances of Partlll - Annual (ApR) Performance Feport Partlv - Report crosure/Disinvestmenworuntary on Liquidation^/vinding JV/ upof WOS Incases where investment being lhe joinfly morethanoneIndian is made by party, formoDl is required besigned joinfly alltheinvesting to by entities submitted the and to designated branch theAD Category | bank. of The sameprocedure should followed be where jnvestment madeoutof the the is proceeds ADB/ GDRissues an Indian of of oartv. Answer5(v) conditions investmentsJV,^/vos for in abroad Indian by parties through medium the of a Special Purpose (SpV)are: Vehicle Investment permitted under Automatic the Route. partyis not included the Reserve Indlan in Bank,s Caution or is under list investigation theEnforcement by Directorate lncluded thelistof defaulters or in to the banking system circulated the Reserve by Bank/anv otherCredjt lnformation company approved theReserve as by Bank. parties Indian whose names appear theDefaurters' require approval in rist prror or the Reserve Bankfortheinvestment. PART C (Answer ANy TWOquestions fromthispan.) Question 6 (a) State the similarities and differences between'anti_dumping duty,and 'counteNailing duty'. (S marks)

13

PP*SMAIT-June 1 201

(b) Highlight differences and WTO.. the between GATT (c) Elucidate concept 'mostfavoured nation'(MFN). the of

(5 marks)

(5 matks) 'rules origin' (d) Describe signiticance of underWTOsystemforensuring tair the of (5 marks) internationaltnde.
Answer6(a)

(AD) measures with anti-dumping and Dumping and subsidies together Experts in linked. speak "AD-CVD" onebreath. of countervailing (CVD) areotten duties process deal to under single a law,apply similar lvlany handle twoissues ihe countries the responsibility investigations. for Occasionally, authority withthern givea single and issues lor meetjointly. twoWTOcommittees responsible these is a The to and ot There a number similarities. reaction dumping subsidies often are duty Like tax special oflsetting import (countervailing in the caseof a subsidy). antiand on fromspeci{ic countries duly dumping duly,countervailing is charged products partners trading of a therefore breaks GATTprinciples binding tariflandtreating it the provide escape (MFN). agreements an clause, theybothalsosaythat but equally The investigation that must conduct detailed a the country before imposing duty, importing a properly domestic industry hurt. is that shows in and are differences, these retlectedtheagreemenls. fundamental Butthere also are or it Withsubsidies, is the government a Dumping an actionby a company. is or out directly by requiring government thatacts,eitherby paying subsidies agency customers, certain companies subsidize to governments. WTOdoes The and of ButtheWTOis an organizationcountries their suchas dumping. companies' actions and not dealwithcompanies cannotregulate governments may the Agreement concerns actions only Therefore Anti-Dumping the governments on bothsides: theysubsidize act Withsubsidies, takeagainst dumping. disciplines agreement Therefore subsidies the others' subsidies. andthey against act each and ooth subsidies thereactions. the Answer 6(b) and Thediflerences between GATT WTOare: ratif The Agreement never iedin was GATT wasad hocandprovisional. General for of parliaments, it contained provisions the creation an no and members' are As organization. WTOanditsagreements permanent. an international The haveratified legal members basis because the organization, WTOhasa sound how themselves describe theWTO and theWTOagreements, theagreements is to function. parties .The WTOhas"members". had GATT "contracting goods, and WTOcovers services intellectual dealt withtradein goods. GATT properiy well. as thanthe old is moreautomatic system faster, The WTO dispute settlement rulings cannot blocked. be lts GATT system.

PP-SMAtT-June 1 201 Answer 6(c) Mosffavoured-nation (MFN

1t

t,."ut. uirir," ;X:1i:.yi]::;lnyl3;j?jt"'0", Jtr,"";#;:l'Jl[:1ly;J".ffii.? prtn tJd;";; er,has #"'.:b'J,'f{l!jfi :[$ili8",i." it rhey remain alr "moslfavoured" !ff,i:i?ff o,ono, S.ilE r.40st-tuuorr"i ilaF,u'j.iu,r. nu't"ioi equarrreatment.
counkies inthe are WTO, MFN isnofongei",ririu"lii" rhe cluO ,af.f pr,ncipte lnateach ensures country treats fellow-members its eqJalty.
Answer 6(d) "Rutes origin" the of are crit(

country,in wro* ;;;"1fTXt":J?,::1J;1"J:ffi,1treatment ror parricurar one bur the

;;}"11"J.",:',""1 "i..;T[: :'i?d**;{d:fl::Ti,{il1 Ia';flffiJ T[1

mean Inthe1gth cenrury-."n"n nrrJ"i oi"urrfoi[i"ru,l\lrN"rways treaties were "

,lli'ffi'lX?:1ffi:il"*XHl oflgtnratherthan " er

euestion 7

actions, countervairins (charsedcounre,. duty to "*oon"ro",il3l;l*1'X'J;:t'""pins used compile statistics, ror"made to trade and in,,rabers rtl:;""i?i':[arealso that "r" This first-ever agreement subject onlhe WTO to rutes origin transparenl: they requires membersensure their that of are thar donoth*" ,".i,"ung.";,"torting or disruptive e'ects internationat that,rhey on trade: aieadmi"ia,"r"Ol" a""r.lslent, unitorm, 'Pt are on p"J'" ii""o"'d impartral based " .in
what doesnot. (a) Underthe Madridand Hague Systetls.deating with theinternational registration of marks and industrial desgns, match thefollowino:

t;;;ll::ii,l[J,#i1;Hr]IY:ji"##t"ii;"i#::1:;,.,#

other words,

(i) StrasbourgAgreement (a) C.once.rns with establishing an tnternational

(b) Esta.blishing international an ctassification ol the figurativeelementsof marks. (iii) Vienna Agreement (c) Conc.erning international the classification of Sood? services for the purposesot the 1!d regtstrat@n marks. of (iv) Locarno'Agreement (d) Concerning the international paient classification.

(ii) Nice Agreement

cass tItcation for industriat designs.

(b) State,with reasons brief, in whether fo the

(1nark each) owingstatements trueor false arc :

(i) Anti4umping cases initiated by WTO have increased significantty since mid

(ii) Trade creation describes the situationwhere theremoval of tariff barriers

rc pp_SMAIT-June ZO1 1 between members of the trading bloc now enable various products to be purchasedat lower prices,there:by stimutating in-tri rJg;;;li;;;:. (c) Attempt the folowing . (1 mark each)

(i) which two of the forowingare the mostrikery etfects theimpos,ionof of a tariffon an impoied good_ (a) Thedomesticprice of the impoftedgood wi fall (b) Overseas production thegoodmaybe stimulated of (c) Overseasunemployment comedown will (d) Thedomestic priceof theimpofted goodwi rise (e) Gainof taxrevenue the Government. by (ii) Which of thefollowing two arguments used critics f reetrade are _ by of (a) Free trade doei not take into consideration theproductivity diffe rences between countries (b) Free trademay lead to unemployment (c) Free trade often ignoresthe effectsof monopory etements on consumer welfare (d) Freetradecan only work withintrading blocs (e) Freetradereduces international specialisation. (iii) Whichtwo of the fo.owingare the most integrated forrpsof regional _ trading arrangement (a) CustomsUruon (b) Economic Union (c) Freetradearea (d) Multilateral tradingarea (e) Common markets. (1 mark each) (d) Explainthe conceptof 'boxes'under WTO terminology for agriculture agreement briefly and describe eachof them. @ marks) (e) Whatare theprinciples multilateraltrading of system underwTO ? (5 marks) AnswerT(aXi) - (d) strasbourg Agreement concerning Internationar palent the crassification Answer 7(a)(ii) Nice Agreement(c) Concerning Internatjonal the Classif ication Goodsand ^ of Services thepurposes theRegistrationMarks for of of Answer 7(aXiii) vienna Agreement(b) Establishing International an classif ication theFigurative of _, Elements Marks of

P P -S l \ 4 A t T - J u n e j 1 20 Answer7(aXiv) .-^:.:.:o,no UrlSlilirS

t6

Agreement (a) Establishing lnternationat an Classification Industrial for

Answer7(b)(i) True WTO Annual Reportsshow, lhe use of antj-dumping measureshas increased dramatically recent in years,considerably greater thanthe n"umbers such measures of rn rorcein the 1990's and Antidumprng casesinitiated wro haveincreased by sjgnifican y s i n c em i d 1 9 9 0 s Answer7(bXii) True The staticerfectof Regionar economic integration that it may resurt eithertrade is rn creation tradediversion or .Tracie creation describes situation the wherethe removar tariff barriers between menibers ofthe.trading blocknowenableu"iio* proOr"fato be purchased at rowerprjce,thereby stimulating intraregional trade Answer7(cXi) (d) The domestic priceof the imported goodswi rise (e) Gainof tax revenue the Government by Answer7(c)(ii) (b) Freetrademay leadto unemployment (c) Freetradeoftenignores effectof monopory the erements consumer on werfare Answer7(c)(iii) (b) Economic Union (e) Common Markel Answer 7(d) ,,boxes" WTO terminology, whichare giventhe coloursof trafficIightsin general il rdentify subsidies: green(permitted), amber(srow down- j.e.be reduced), (foriidoen). ieo 'amber The box, iror agriculture, subsidies all and other domestic supportmeasures consldered to drsiortproduction and trade (withsome exceptions) into the amber box. The fall total valueof thesenteasures mustbe reduced. 'green The box' ln orderto quarify the "greenbox",a subsidymust for not distorttrade,or at most -, causemrntmal distortion. Theyhaveto be government-funded by charging (not consumers nrgner prjces)and mustnot involve pricesupport. They tendto be programmes are that

I wh u arowedo rji;it; ffi 5!"lilT,#ff;r,l,"H?:::: ;;;. ; ; ;;;,",i it "; # The 'blue

box'

PP-sMAlr-June l 201 gL:":9 at parricurar products, incrude and l:] nolrelated direct income are supports farmers for to(are "decoupted,, ;;;;;:,::':;1:eme s rhat ir;-r

,fi Wnflffi iy.fr""T[:*,."s,,i""".,01,9J"X,,"jiru".:f n]i#l?'i#Ji

Answer7(e) Theprinciples multjlateral of trading system as under: are - Withoutdiscrimination

Theblue isanexemp box o rule all musr reduced t"pt *it in ll'.?I lhegeneral that subsidies De linked production to o, minimal minimis") ("de tevets. or.ectty rr t;nteoto-a"'r;#';'^"-",::d p"-v"iunl. n"o"'.' but undersch "ou"r" produoion, byi;p;;;;;;;;,1.?1T1'

jjli,";#ix*hii:ij:;*:;.""JlHi:: j;ry:il,,,,f Hl.l; Ji:,li; und to'"isn narionars ."'"iil!"Ji (tneyl.l;il|'.;5ff:i,?i:,X,'"onf,i p.or"r.,

ratesand marr<er_ corrnitmenr"a|."i;";;Jj ltohr;#8,more opening Morecompetitive: di:::y]:Sing ,,unfair,, by pradicessuchas export ano dumpins subsidies productsbetowl"it at

o"iLi"'uni measuresl oiher ffi' [:t;H:T[,,?,"]fl inl11", shourd ""nuu,ir tarirr

," s"i. il"ik"ir#!l

Freer:with barriers coming down through negotration; predictable: for",nn .or,:111? investors governmenrs and should confjdent be

bv them rime sivins more toadiusr, frexibirity, sreater ^^, "rJ[i!i"i.l,i!J!!!'"s: Question8
'' I:#[':fn',!:::l!iwins sentences afterrittins-in btankspa+s the wthappropriate

More beneficial for lessdt

Conference,t sgs washetdin !!:...r!i:d^yo_ Ministeriat Detween November, 3Ah lggg and3rdO"""rOir, ieig.', (iv) __ /ncreases price of impofted goods. the (v) The introducedthe term ,European lJnion,in November, 1993.
(1 mark each)

jne _ . __-.=_ of goods imloft^edintolndia is thepricepaid or payabte ror the goods by the first indepenoemDuyer. (ii) _....-.........'......./.sthe firstever setof multilateral, legaltyenforceaae rutes covering international trade i n servaes. (iir)

(t

Pl- Sl'.1All .iune 2ir1 l

to

tnree (b) '"Tttc subsidies artdcoLtntervailhgmeasures (SCM) agg3ment creates Explainsubsidies." of ,lefinedcategorics non-actionable narron\, (s marks) in review ol the panel repoft when a ic) B:i.)fiy descrlbethe role af appelt'^ body (5 marKs) againstthe panel report Darl; b ta(1e dtsputefilesappeal correct Conterence,20Ol has failed to fulfill its commitmentto ld) Doll{} Mir}isterial market Do you agree ? (listorlionin worldagricultural prevent rcsltictionanct an(l (5 marks) Lriscuss. Answer8(a) tor intoIndiais the pricepaidor payable the (i) The El(po4!.llce of goodsimported ' t g o o d sD yt h e ' r r s l ' n d e o e n o eblu y e r ' is the tirsl ever set o{ (ii) Gener4l Agreeloenl on Tfadg in Sefvrees IGALSJ ' ' tradein services' international rulescovering turtifolo-tallugJlyenJorceable -l-he 1999was heldin Seatlle'Washinglen Conference' WTO Ministerial (iii) Thircl 1999 and 3rd December' 1999 30thNovember, USA between goods the (iv) Taritf incrcases prrceot imported 'European 1993' in Union' November' the introduced term (v) The MaastrichlTrqaly Answer8(b) which of categories subsidies' defined createsthreenarrowly The SCM Agreemenl m u l t i l a t e r a l lo r i s s u b j e c t o y' a r e n o r - a c i i o n i b l ei,. e . ,w h i c h c a n n o tb e c h a l l e n g e d theyare eitherbecause are presumably protected Thesesubsidjes action. fountervaitlrrq they arc considered or effects because to unlikely causea'lverse r)(irefncly consiclered are: d p a r l i c u l a ra l u ea n dn o tt o b e d i s c o u r a g e T h et h r e ec a t e g o r l e s v tobe of subsidles These subsidies development - Bi sic rese::rch and pre-competitive costsandcan onlybe usedfor of proporlion project exceedii designated c;inrliit a B e s e a r c h n dd e v e l o p m e n t s3 c r i i a l ne x p e l l d i t u i s1 n 1 6 6ti o b e n o n - a c t i o n a b l e status scctordo not benelitfrom non-actionable in :;L.tbsidiesthe clvllalrcraft provided aidsare non-actionable Begional :1,'gi0ns . Ass!stairce clisaldvairlaqeil to withinthe region' or enterprises industries io specific ihey 11-:ai are not limited and development' io 1j-rat aro glvenpursuant a generalschemeof regional lhey' Memberas a wholein the by is tnattne'regio-n disadvantaged comparison.with such as GNP per capitaand Unemploymenl. criteria termsof o6jective Such requirements to facilities new environmental - Assistance acjapt existlng lo to 20 per cent o{ adaptation mustbo on a oie-time basis'be limited assistance and the new equipment to costs,and be availabte all {irms' which can adopt processes. t h e C o m m i t t e eb e f o r e t h e y a r e p , ! i u b s i c t y r o g r a r n m e sw h i c h a r e n o t i f i e dt o bodydetermines or anduntilthe Committee arbitration unless are implenrenlecl, protecteo whichhave not programmes status subsidy that they do not qualitylor non-actionable b e e n n o t i f i e r l i ] e l o r e l n ] p I e m e n l a t i o n m a y b e i n v e s t i g a t e d b y a p a n e I o r a nnon- s t i g a t i n g inve shall be treatedas Uut auinorlfy if founil to meel the criteriator non-actionability' actionable.

Answer8(c)

PP !jillAi | .jr1nc20.i l

'lii,".inno, jne i;t"'o'"t;ii"', ,n",arnexisrins :X[::il:l:l#[t;;jf ffi:l"T r"gd

Threemembers a Derm1,-n:nl of sev:n-memtrer Appellate Booyscr up by Settlement Bodyand broadlvrepresenting rangJiiili*C.cmrre'.silip, the Dtspute the hear each appeal. The appeal can uphold, modify ol' |."uni.n the p-aner,:-. i teg.1l nd,f gs ancJ ';O conctusions. Normallyappealsshould nlt l"at n-.or" tnrn ,r,.;.,., lvril):ri. :ii)soiulc maxrmum 90 days. of The DisputeSet ement B9.dI to acceptor rejectthe appeatsrepoii 1". wilhin30 days and rejection only possible js by consensus. Appeals limited issuel are to

E i t h e s i d ec a n a p p e aa D a n e l ,rs l i n g . r l u S o m e t i m eb o t hs i d e sd o s o . A p p e a l s s have

Answer g(d)

each rhe of issues taw of covered th"pun"r by i"poi i,io-ilJLgJ;'.',u,jr,,r,"rroris de'eloperi bythepaner which were appeatei du,'r'"g,n" Jp;"i"[';;;:il"n rneArrpeiiare Bociy may uphold, modify reverse legatllndings cJ""rr.L"" or the ano orrneDanet.

oeveopeouf tne;;;;i:ff;;;JHi"";ilTilJ:ilil:Ji:T:i;:i"fl il,ll3,i#':l"[:

thenegotiations provided jn theAgreement as for on a"rjs a consjderable ",riiritr" There dispers monqst ion^a rioysr.rar,, i4 fltctr acpro.tclr to agriculturar poricyAt one extreme Governr"rents are *ni"r'.ii'-n,t rnerr atleftion the to efliciency within agricutturaisc,i;,"rr, thetr ,i,.,,'",n",. (;overnments l:1.^:i,-?f their e wnrcn ".",igric agricurturar regard sectors fulfilling i rrJh"i "i a-s ", r"u;i'r"n"rar cDjflctrve \,/ithout regard effjcjency. to Given these qujte differcnt " p"ositioir., pr*l"o (.jtlijculttjndany l, to mrddle ground thecurrent in neootiationtnewro wni.i o." in,i"*o ,,"ner " in Arlrcre of 20 the Agreement Agric'rrture thereis in ind alsornconsistency divergent and interests across members theWTO. the of

ov rr.remoJ.s, rr,rinl;i;,;;;;ffiJin:, ;il:li:::il'#::,,;iiTy#:lTfl ;:fJli:l

R e c o g n i z l ntg e w o r k u n d e r t a k ejn t h e h n n e g o t i a l i o ni s l t i a t e I n e a r t y2 0 0 0 n o uncler Arlicle20 of the Agreement Agncuiture on rncrrding largl' nr.:mr;er negotiating inu of proposals _ submitted behalf a totalol i 21 membei., on of L.l,niri.u, rec.'rexihe tong_terrl o.Jectrve referredto in the Agreement estabrish to a fair and m.rket oric,nled trading syslenrthrougha programme fundamenial of r"tor, *naorrtfJrsrnr.i strengihenecl rules and specif commitments support ic on and protectionn uri"r l., correctand pi.event restrictions distortions worldagricultural and in markels. r\'4inisters committed ihernserves comprehensive to negotiations armed suilstaniial at: rmprovements marketaccess;reduction.s ln of, with u uiu-r'io' pf.,ua,ng all formsof out, exportsubsidies; and substantjal reductions tracle-Jirtoiiino in i"m".r,c ,uppo,r. thatspecial differentiar and rreatmer'rt dcvrropr(j ri.ies for ^^ ^Y'll:l"part c.Lii sha, be an lntegral ?si"ed ol allelements the negotiations shall of and be emir().i irrtireschedules ecJ of concessions commitments as appropriutu and and intnu r.J", Lij'0u",u,,n". ,o r)enecotiated, so as to be operationa,y etfectivend enabieoeueLprn',1 to ..ir"nlr,". to eri.ctivery take a c c o u no f t h e i rd e v e i o p m e n te e d s i,n c l u d i n g t n f o o . ls e c u n i iu , , J, r r o ,o e v e t o p r n e n t . Takingnoteol the non-trade (

ADVANCED TAX LAWSAND PRACTTCE

Timeallowed:ghours

Maximum marks: 100

NOTE: Alt references sections to mentioned paft-Aof the in paperrelateto thelncome_tax t 96l andrelevantAssessmelni euestrcn Act, -t Z, untess iel)ot t stated otherwise. PART A (AnswerANy TWOquestions from this part) Question t {a) !!e the mostappropriate answerfrom thegiven options respect in of the following: (i) Which schedule the C.onstitution tndiaindicates to of bifurcation powers of Io makelaws,between Uniongovernment Statigor"rr^"nt" _ and (a) First Schedule (b) SeventhSchedute (c) EighthSchedute (d) Twetfth Schedute (ii) whichafticte theconstit.ution rndia of of providesthat tax sha,be revied no or co ected exceptby authorityof law _ (a) Articte265 (b) Articte26e (c) Articte269 (d) Afticre274. (iii) companies whichpubric substantialy in are interested arso are referred to (a) lndiancompanies (b) lnvestment companies (c) Widety_heldcompanies (d) Ctosety-hetd companies. (iv) rn respectof whichareatax ptanning cannotbe aftempted thetime of at setting-up new business of entity_ (a) Formof organisation (b) Locationat aspects (c) Natureof business (d) Corporate restructuring. (v) Whichreturnof incomecannotbe revised _ by theassessee (a) Returnof loss (b) Defectivereturn

(c) Belated return (d) Revisedreturn.

PP-ATLP-June 1 201

''

I""il!;l#::lllwinssentencesafterrittins'inthebtankspaces:;r::';;::::

" i::::::::lfi,i!;3!!",iii;1",,I*,n
@
(iii)

2015 be wou,d covered by

rateof or ro,"iii i p;;2,;. * a *f, if:,::"Xr: g i " :,: ;:::1,;f T ;::f i ; " "; (iv) Unabsorbed lossesand unabso,rbed depreciation cannotbe allowed be to carried torward setolt in the hana, and .in" - "' -'1I""?7i!il!;f,Ti!l ' ri XJ!", *"cb u de ect,.i "i,"ti".",,J) 33ii', edn rs

m a e h : rW::;,!" : : :::,fl'! fl !"-'-"i* "'e. conslsrsinIv orincom w ich is ! y',' rt incom rrom capitaI gains,ai a ;;; ; ;:i: :: ".f :: e #i I"!:!': " "i:,f:; Surcharge
at the

'v)

t,ofite.appe1b the Commissioner to (Appeats) !::::1ht against orders the or assessing iceris off __ rc thedepanment.

''' u;:#::

in respe*,,", [A"":!:;"-,;,2i,!,;:;:;:,arseabte *"",1:,:::,,::i:l

(i/ Hindu deity (ii) Holder of an impartibte estate (iii) partnershipfim (iv) Associationsf persons (v) Trusteesof a private trusl.

Answer 1(axi)
(b) Seventh Schedule

(1 mark each)

Answer 1(axii)
(a) Articte 265 Answer 1(aXiii) (c) Widelyheldcompanies

Answer(axiv) t
(d) Corporate restructL!ring Answer 1(aXv) (c) Belated return

PP-ATLP-June 1 20j Answert(b)

22

,,
''

I|;ffilf

wourdcovered by the ioi[;;:t:l'lji:1il:31stMarch,2o1s be

''

garns' 'income othei::i:l:?T !"Yt" from . -capital and rrom r sources called is Investment Comp"nu . (iii) Surchargetherate a.Uj1";,1^ at o, in totat income a forejgn or company exceeds crore rheas."..rn"ntcase _ie {1 for 1l!,1!abte v""iedij
casesprescribed ,n0",

consists orincome is mainrv lt::#:;[t lffTJ;:::J?11 income 'inc-omewhich propettv;'

depreciation arowed carried cannot to ,:ffiHHl :Tnil1#Ji::"j:19the amalgamated be be ol comoany,

except in the

(v)rhe ri,e """tnot righ'o appea,s," assessing i;;#*::H::il#::j::;" offjcer not available tn" o"purtrlli*'", "r. is to
Answer1(c)

""",.,

(j) Hindudeity : yes, ,,i*,S:l chargeabte weatlh to tax. Trustestabtjshed forthebenef of Hindu-deities t: de"r"O it are toO" inir*iO"ar under tow""r,n-tur.ieli."i assessee the

}"J;i: fffi" "tarseabre

,iia"ason" ttd.,(1ee') 182

''

("':x'liil*f":ffi',|i;!?li"'lhiprirmsarenotcharseabretowearthrax.wearth
arenor chargeabt"#fl;?:t; ," HUFand onlv Alr p"rr"". "otp"niet "tn"i
not liable lo (iv) Association of Fersons : No,.Associatjon persons(AOp) js of

JJ"i"i to indivjduar be ow;", :?Tfti:";,:xl'ff#ii"#ilTfr:'tioi" ".tut""

h.order estate charseabre ll'J:ilr'l# $3f#?';:::.t"-rle-s, orimparribre are

property theAop. of

J;';;t;',minate rhen known flifli#;ff."1i,j1u"",!"1::,o',ntax in respect or re liable "'";;"; to wealth ot tneir

snarein ihe

(v) Trustees a privatetrust yes, of 'A : Trustees theprivak of

as lrreose)areassessable individuals Gordhandas Gorindr"^" | ramiry Charity Trustv. CtT(19731 rfi t.iii" aa aiii;; euestion 2
(a) Sbr Gas Ltd. commence

llXi:;!J,"i,"Jlj;;l t"l"

roweatth trusi a taxabre tax. L,not ir,J.i:lT:?J"_.Hfl::?; "n'tv,no"i or *lp".t, ;;1;;l;;.ie-elaprivate

trust lnot
oi ",

r;:z{x}:, !;i":,j,,!i?;:x tr;"';xi ;!;:; 1:i: ; eiil:{ ;,i":"{, ,i!ii;:li;:;:::;,:::::ly:,;,'",1;""r"n "!x:;r;:!":"1,f!l!":;:iy"

tinancial instrumen, tui"p,,u, tZ expenditure ? I ,4g0 tafn (inctuaing.ciit of of

23 pp-ATLp_June 2011 Futlher, during financial the year 2010-l , it incurred I capitat expenditure (6,600 of rakh(inctudins costof ta.nd.r,too tarij eicturi"if'i", ,n" abovebusiness. computetheamount of u"a"i"iii"iiiio'io, me assessment yea, 2011-12, assuming .deduction has thatthecompany futfileJiti tni conaitions specif in ied section 3SAD. H marks) (b) PQR,a partnership firm, has3 partners pankai, eureshiand namety Robert. Thefirm haspaidsatary,of 1.i taknp", ^nrrik ? ti'"')th of its partners during theprevious 2010_:1^1r:d_t!e ii yeat theparlnership deed. :"r" Thenet profitof the firm as shownin theprofit "rtniii"iivloiis and accountcomputed in rnemannerraiddownin chapterrv-o orine tncome_ii, Act, 1961 ?6 rakh is afterprovidins satary,to paftn9* ciipriiii"trmount for the of deduction of remuneration to paftners paid assuming euresii is) non-working tnat paftner. (c) Discuss with the hetp a.d^eci!:!_ca:: of taw,if any, whether , the tne assessee thb folowingseparatecases in ",:t:::il is iorrect or incorrect : (i) An assessee paid thehas entireamountof tax due tor the year by wayof self_assessment but filedthereturn iniiie tax, of i"tatedly. The assessee ctaimsthatinterest undersection 23qe is notteiiite on nim. (ii) An assessee rendered cenain sevicesfrom abroad without parlingwith technology. assessee The doesnot haveanypermanentestablishment in that is he

::;i lLiS::"

nottiabr, p"y Li ii,icome rrom to renderins

P marks each)

Answer2(a)

Computation of the amount of deduction allowable under section 35AD f o r t h e A s s e s s m e ny e a r 2 0 1 1 _ . t 2 t C a p i t a le x p e n d i t u r e c u r r e d u r i n g l n a n c j a le a r 2 0 1 0 _ 1 in y d F 1 ( e x c l u d i ntg e c o s l o f l a n d ) h I 6 . 6 0 0t a k h_ a I , 10 0 t a k h ? (in lakhs)

5,500

and Capitatized 1.4.200 t*"rrJrg .;.t j on 9urin?r:. Ji financial instrument)

a 1,490takh- { Z takh Totaldeduction undersection 35ADforthe
2.)11-12

Capital expendjtureincurreoprror to commencement o,

1,488 year Assessment 6,988

Answer 2(b) Computalion of book prolit of the firm Net prolitas per profit & Loss Account Add: S a l a r y a i dt o a p a r t n e r s a 1 . 5t a k hx 3 ) p ( Book profit

6 . 0l a k h 4.5 lakh 1 0 . 5l a k h

PP-ATLP_June .1 201 24 Computation Amount of deduction under of section 40(b) for remuneration to partners:

On firstI 3 takhof bookprofit@ 90% On balance 7.5lakhof bookprofit@ 60% a (i) Maximum of remuneration limit (ii) Actual remunerationworKrng to partners Pankaj Robert 1.5takh 2) = a 3,00,000 and (i x Allowabte deduction Itowerof rhe (i) & (ii)] Answer 2(c)(i)
Correct,interest undersection 2344 is not leviable on

a
2,7 0,000.. 4,50,000 7,20,000

3,00,000

theduedate fiting tor return income, of interest unoer slciion_alan oul;;; j"r*; ril in filingof return
ol incomeshall not be tevied. Answer 2(cXii) Correcl, the assesseejs not liable to pay tax. The

for reasonsbeyond ni" Ori tttedjt belatedly,t e charge of interest .r/s 2S4A is not vatid as "ontrof in such ."r. in"r" is no loss to the revenue. Further, interest undersectioneS+n,Oeing comfensatoryrn nature,shallbe leviedonrywhere the tax has not been deposited piio, to tn" Jr" date of firingot the return. Accordingly, wherethe entireamountof self assessmenr rax was paid before

the assessee.The honorable Supreme inDt.prannov and Court Roy anotner 6:lrird;;ft raxman (SC) v. 53 had held where assessee'had thetaxes that te paid n"i"r"',n?li" o"teoffiring return the but could not file the return

AAF in case of Invensys Systems (2009) 'tt or9 ,_lu.l lnc. 317 tneie parting tecnnorogy, is with thepayment wourd regarded technicar be as ll"lonry'wnere case-of other service. In any services i" no trability the nonfor resident pay unress servicei ,"no"r"JBy to tax the ur" in"liii.rn"nr of theassessee India. in ".t"brishment renderedfrom abroadwithoutDartjng with technotogy, ,n"r"

Question 3 (a) singhaiAirrines sotd tickets traveragents Ltd. to in rndiaand attowedthem to retainthe amountcollected them in eicess of by ni,tlare of ticketundera passenger salesagency agreement. Examine whether abovetransaction the amounts commission liableto deduction tax to and of at source. Cite relevant caselaw (s marks) (b) Dhavalwasin the business manufacturing of customised kitchenequipments. H" yu: the managing director and nearty65%ot thepaid_upshare capital 1l?o Ltd.A substantial of,hetid of Aarav part the business Dhaval,was ot obtained through Aarav Ltd. For thispurp,sss, Aarav Ltd. iuiii""" on the advance received fromitscustomers Dhavat executetii to to 1oi trtorxentrusred him. rc The assessing officerheld,that advancemoney received Dhavat the is in natureof theloangivenby AaravLtd. to him,andaccordinjly by rc aeemed dividend withinthemeaning theprovisions section of of 2(24(;)).ihe assessing officer,

Pp-Arlp-June 1 201 ,l;::Jn,ffii:,!,e adaition tyl)eatins advance as the deemed mot money dividend
Examine whethet thc ^", ^.' ^, :^:""'o"ce action of the assessing officer B bnable in taw. relevant caselaw.the Cite

''iitr{,lt::w;:!i:[i';;:til:.i:i;"!E:::t:;:::::,{
asreement.,*",[iyz:J';-;xi l?x! j::."_:tii:ff j;ii?[Z
nec! asreement Mr[,"Lli?,'',11i? r con ion with !te

::;ili:i;"?:,#"i;::I:; i:i;:,::,':,: ;:;,n:," #"3:; :{,::!;: _

the support ans*"i lncome-taxdeDa vour *nn ii,Jl{frT::::i:f*tl: ::#; o""*".?lii'"" "ui'io, Whetherthe contention laken by

jj;i:ii:",;:;:!"i;:;",":"i:::i:"::t:" ii;:f :;,";!;,i::::2ZZ:r::i;

The ptea submitted thr 'pp,f"l,;'", bv i::;;iffij[lj!:ff::.fi *ili';::?# H""j"'f,"#i.l?11#fl: ffil

rifl :ifii"T:llitilil:i,ilrft':iff::i,tu3il::ilf tf,:liil?:::?Iffi ffixl':fli11+!!&: ;:"?"',"#f 31?"Jil,9:*::L"l"tll1;n51[Sf 5,1'"T;i,"i

been rejected rorowjns onthe rhe sround.

ilff *,l,r,iltiil:il[til#,r#"T#""#i[l]i:i:i{[illi',f

judsemen, o, rhe I a x a t r o4 4 1( D e l n ",'li:,e"?;::1;,lf :1":?jffilT'1,?l_"^fl!,yl.cour.sin case ) I h e H o nb r e

H i g hc o u r lu \ < v v r l z t r

udncrusron ,u,",;'lTL"3':tnu thar paymenr ""'""',i"li,'i'i*Ji:igff.T:,i::ffi1iJ co.missionwli#iffi #ru""]{J;:lJff.',l"J,TJiTentarycommission.*u"J Hence,the

Answer 3(b) retained amounlis liablefor tax deducted : at source' on ,_,-Thecase \-rt v. HalKumar3 462t Derhi court the in case l s trR ,'Lijlln#lt t "on'ble Hish of Revenue, Derhi court rhe Hish upherd decrsion Trjbunal PJ,..:liiljJ.the rhe o,rhe "". studyis based

ff i,""'"Til'Jli;:blii*H1l*i"'*,,i,l,":l't"J;::i',"#11'anasentro

ffi::?'*;lnn:;'i:kl iil;:'Ix';,;;fi #I*fli:"".,,:::lT',i:'lllfl

"",J,:""::il1.',:i?,:ili:::IlTrfas

Theword'advance' to has be readinconjunct,on withtheword'roan. usuary attributes

PP-ATLP-June 2011 26 of loanarethatit involves,h" acl of lending, coupted acceptance the wrth by ??rltly" other sideof themoney roan; genera[y as it carries iii"r".i in"r" rsan obrigation of repayment. theother On handin its.widesi meaning ierm;aouunce or maynot tne "no may ,advance, include lending. word The if notfound tiu in o,o. ,nconjunction with "o,nprni y:id'toan' mayor maynotinclude oorigriion i5iui."n,. ,, it does, the J l.h" be thenit would a loan. The word,advance' which_appears company the word,loan, in the. of couldonly meansuchadvance whichcarrjes withit an obligaiion repayment. of Tradeadvance which in thenature money. are of transact"o gi" t" tl?ior."r.'", transaction woutd fa wirhin ambit the provisions Section not the of if "if""t 2(Zil1e) rheAct. o, by Ltd.couldnot betreated deemed ,..ThetradeadvancegiventoDhavalAarav as dividedundersection2(22Xe) the Act. of Answer 3(c) is on by Delhi . ^Tttecasestudy based thejudgement Hon,ble HighCourt thecase in ot CIT v. BhaniCelutar j Ltd., 319tTRi I S 1O"t filedby the Flevenue, DelhiHighCourtuphetd the _ .. On appeal the decision the of Tribunal held under: and as rendered interconnection/port didno nvotve qua access anyhuman -.^ll-"-":.j":" rntenace therefore, services and, the couldnotbe regarded ,technical as services,as contemplated under section 94Jofthe Act. tne inteiconnect/port 1 access facirity was userhesateway thenetwork t\4TNL/otner of companies. MTNL :ll-1lT1,ly l? djd provide and or otner companies not anyassistanceaidorhelp theassessee managing or jn to operating, setting theirinfrastrucrure network. up and No doubt, facility interconnecUon portaccess the of and provided l,4TNL/other by companies was'rechnica'in sense it invorved the that sopnisticateo technorogy. The 'technicar expressron service' notto beconstrued theabstract generar was in and sense butin thenarrower ;managing sense circumscribed theexpressions as by 'consultancy service, and servjce,as appearing Explanationto Sectron 11vii) theAct. The in 2 91t of 'technicar expression service'wourd reference ontytecnn,"ar have to servrce rendered by a human.lt would jnclude servrce not any provided machtnes robots. by or Therefore, interconnect the charges/porl access charges couldnotbe regarded as feesforlechnical services hence liable tax deduct6d .orr"". not for ul
PART B (Answer Question No.4 which is compulsory and any two of the restlrom thispari.)

Question 4

(a) y!:e the most appropriate answer from the given optionsin respectot the following : (i) UnderRule 1Sof the Central ExciseRutes, 2002,compoundedlevy scheme ts presen y applicableto _ (a) Pan masala

PP-ATLP-June j 201 (b) cutkha (c) Chewingtobacco (d) Aluminium circles. (ii) Undersection27A of the CustomsAct, 1962, interest retundsis payable, on if refund due is not disbursed within _ (a) 3 Months trom the date of apptication (b) 6 Months from the date of application (c) 3 Months from the date of order granting refund (d) 6 Months from date of order granting refund. (iii) Effective rate of customsduty on general baggageis _ (a) 1s0% (b) 100% (c) 35% (d) 10%. (iv) With the sanction of the proper officer and on the payment of prescribed tees, the owner of any goods after warehousing_ (a) Cannotinspect the goods (b) Can show the goods for sale (c) Cannot sale, export or dispose off the goods (d) Cannotseparatedamagedor deterioratedgoods from the rest. (v) The books of account or other documents, seizedby the Central Excise Officer shallbe returned within_ . (a) 6 Months of seizure of documents (b) 90 Days of issueof show cause notice (c) 30 Days of issueof show cause notice (d) 60 Days of issue of show cause notice. (l mark each) (b) Re-writethe followingsentences after filling-intheblank spaceswth appropriate word(s)/figure(s) : (i) Application to set ement commission can be madeonly when a case is pending before on the date of application.

(ii) ln thecaseof goodsimpoded post, labelor by any declaration accompanying the goodsshowingthe contents, desciiption, quantity iia)atue sha be treated _. as (iii) Shipping for expotlofgoodsunderclaim bi for dutydrawbackshould in be
^^l^t 'r

(iv) Section 17of theCustoms 1 Act,1962 providesgeneral penalty

to person whocon.travenes provisions the ector aLets [oitiieitiona any of in ana ir nopenattyhasbeenprescribed, penaltywoutdbe upto the (v) Undersection SSBofthe CentralExciseAct,1g44, any person aggrieved byanydecision orderpassed theConmissioner or by gipfi"util iiy "pp""t

PP-ATLp-June 20.1 1 tOCESTAT WithiN order contested.

28
from the date of communication of the

Answer4(aXi)

,o, or.o"irr;,,,,,!"iJii I ),o o u, n",, ", ) ", o o : r'::::: !X f": ", r ",,, ":: : " (5

(1 markeach) (c) Discuss brietwhether in cEA willtu admissibte fottowing in cases: (i) rnputs gonein oror"""'lJJ."'"dit (ii) Cement usedfor insta ation machinery. of (iii) Accessoriescleared alongwfththe finalproduct. (iv) paintsusedin factory to protectplant. (v) Tubes pipesused and in

marks)

(d) Aluminum circles. Answer4(a)(ii) (a) 3 months fromthedateof application. Answer 4(a)(iii) (c) 35% Answer4(aXiv) (b) Canshowthegoods forsate Answer4(axv) (c) 30 daysof issue show ol causenotice. Answer4(b)

'o fiB'[tffi u is ds #;Iil,ffi il .;;T, J:3i,lJI#"" e pen :ilL. "u" in

,',,, export soods o, under claim dury for dravr'back bejn 3l3J;tn",llifor shourd

"fl{ff:*'i;;lts::txiiistii;,?Hit?,ii;::fl:liTiTiff JJi::
(iv) Section 17ot theCustoms j

(v) Under section ol theCr 3SB Excise 1944, oer: Act' anv anvoqcls,on oiil;; ;""J."ltd

jff :Tr#t; ffi n:t,i.;f#i["jlf ffily ffi rx"il:# Ij ffi

.,o.no;,,J0,,,n,n,n,"".""i1il,#,r:TTfl?XT#d#I#

Answer 4(c)

PP-ATLp-June2011

(iv) yes, goods used paeorl as

no"' 1it;;;;;'t"fflJJil.lt'no't (ii) No, pr, as cement ror "rptun^rio!, used instaration machinery ', ot "o, ",,n,oltJl3:lljllT;JJ:[* '"'' Rures, accessories 2004, J'in];,iii,"ilil?iflll.:1,'l: "ttvAr credit are ''" rl these cleared are along withthefina'
o*"i

(r) Ves,6g1rlyOt js avajlable on enttre quantity e, rnprocess loss_Multi rsttav nbce of input A

--.'',,' ,ods CCE v. (2007) ELT7j6 218 fcesrnrjl (v) yes,as perdefinition jn 2(a)of theCENVAT Rules, tubes pipes capiral 1.91f1:l,n""o: Ruje and Credit are gooos usJJin-Iil," it i""tory. Answer 4(d)
1 _ 0 4 - 2 0 1 0 _ has been made Hulel2 of thecenlrat proviso mandatory. Excise to ";;llT":l,l:]"1 W i t he f f e c t r o m f

J,[:,:::"ffi s?J#id#'[r;;:*:rli:{ti:i'j,ffi tJi:i[:",TlT

ff:l: :iTi:"".""'il:,i i3i3i3i'""JXl;3"'h;

Question5 (a) Priya and Co. manufactL

9".:.:_,?t'"*,.",.,"",i'""1;i:T":[:""[ii,!xl:i,?#.T ;;;;;;;,ii;lli""ln!'*,n,,
quarter,y or
out werecteared,o ,,","fi33,Y0! y:its of ProductP, of which800 units u

ji;#i":"::;:T::'::.i#w,l!:"x !:n[:si-*itm;ii
CAS-4 ( 7,90,000. = Profit margin per annual as repott the of company =lZy"oncost. - Seltingprice per unit (excluding exciseduty and other taxes)= ? g0O. batanceaol unts weresotd to an unretatedbuyer Y?'t!! ::,'"";{::i{::,ir day ? Givereasons your for answer. 1snai*s1 (b) Bholaram irpo,tud "",t":,'e Costol production 1,000 units of as per

r:i*ii{":,*'ill:}i'":Ifr::;jij{::;:":r::,::;:t ;:::: i:!{ yiii::x i :iifii!:"':: :,!i,:",w, :I:i: :: i i,:" :

thesoods ;;n;;;;Z:;i;dns ;, dutv other and charses, enora,am imol,Ja

{?J;,?!!"2:i:;:i:i:,{"!,;: t;i,r;;-#::i_,*,i,,!,fi,ili,!,iif

o' unotaram removins white the soods p"y"or"viiii"t;;;;i;i;i;x;,;:ailli:;i:;::,zi:Jeciaraaaitiona,rsitii ?;#;:i":x:;:::::;l,z!{!?':'"

PP-ATLP-JUne 2011 Rate of exchangeper US $ Rate of basic customs duty

30 28.11.2009 (46 15% 01.03.2010 {45 10% 15.04.2010 {44 S% (5 marks)

(c) Whatis the remedy availableto an assesseeaggrievedby followingdecisions/ orders in each separate case : (i) Adjudicationorder passed by AdditionatCommissionerof Central Excise. (ii) Adjudicationorder passed by the Commissionerof Central Excise. (iii) Order passed by the Commissioner(Appeals)relating to rebate of duty of excise on goods exporled outside lndia. (iv) Order passed by the Tribunalrelating to valuationof goods. (v) Order passed by the Tribunalrelating to penalty. Answer 5(a) p r I n c a s eg o o d sa r es u p p l i e do a ' r e l a t e d e r s o n ' f oc a p t i v e o n s u m p t i o n , l u a t i o n t c va plus 10% (proviso rule g o[ CentralExcise is done on the basisof cost of production lo Valuation Flules).Rate of profit marginor sellingpriceis not considered. (1 mark each)

Costperunit perCAS-4 = as Add :

/,90,000 1OO0 profit perBuleI 10%notional as

79 869

Assessable valueperunil Assessable valueof 800units(asperproviso Rule9) to = = 4 869x 800units f 6.95.200

lf the balance 200 unitsweresold to unrelated buyers@ { 925 per unil then (200 assessable value shallbe Rs.1,85,000 x 925)as Priya Co.directly and selling the goods unrelaled partynotthrough sister to the unit. Answer 5(b) (Note ) Relevant of Exchange rate 1 Applicable ol duty(Note rate 2) Assessable valueUS$1,00,000 f 46 x Customs Duty@ 10% Add : EC@Z"k SHEC@1% Customs & of Duty Totalcustoms dutypayable
= = = = (+o 10% 4 46,00,000 4 4,60,000

= =

a 13,800 4 4,73,800

'into Nof.r7 ; Therelevant of exchange belhe rateinforceon thedateonwhich rate will bond'billof entryis presented. Subsequent change not relevant. is Hence exchange relevant 1 US$ = f 46 on 28.11.2009. rate is

J I

PP ATLP-June2011

Note 2:ln KesoramRayon v. CC (1996)g6 ELT464, it was heldthat goodswhich are notremoved romthewarehouse f withinthe permissibre peroo are deemedto be improperly removed the lastdateon whichgoodsshouldhavebeenremoved. on H e n c e ,t h e a p p l i c a b l ea t e o f d u t y i s . 1 0 %i,. e . ,o n 0 1 . 0 3 . 2 0 1 0 h e l a s td a t e r t, whenthe periodwas over. Answer 5(c) (i) He may appealto Commissioner (Appeals) (ii) Appeal can be made to Customs,Excise & ServiceTax AppellateTribunal (CESTAT) againstthe orderpassedby Commissioner CentralExcise. of (iii) In this matterappearsha[ not riewith GESTAT.Revision apprication to be has f iledwithCentralGovernment. (iv) Appealshalllie with Supreme Court . (v) Appealcan be f iledwith HighCourt.

Question 6 (a) The assessee,a manufacturerof small juicer, used to avail of the benefit of SS|-exemption. saidgoods weresold undertheirownbrandnamed'Fatafat'. The However,in case of sale to Smarl Tele Shopping(STS),who were furlher sellinq the product through tele-shoppingnetwork, the supervisors of STS used to examine the goods and affix a sticker thereon containingthe name of STS. The depaftment denied SSI-exemptionin respect of goods bearing the name/ symbol of STS contendingthat the same amounts to affixation of brand name so as to dis-entitlethe exemption. Discussin the light of decided case taw, it any, whether contentionof the departmentis tenable in law. (5 marks) (b) ls the poft trust liable to pay duty on goods pilfered whitein their possession? Explain in brief under the Customs Act, 1962. (S marks)

(c) Whatis ad hoc exemption underthe CustomsAct, 1962? Can it be granted evenafterdutyis paid ? (3 marks) (d) Whatis ACES ? Discuss briefty. Answer 6(a) lf a manufacturer goods clears under ownbrand his name, ssl-exemptionavailabre. is Butif themanufacturer goods clears bearing brand the person, name anyother of SSI_ exemption notavailable. is Thefactsof the given pvt. casearesimilar thecaseof lJnison to Electronics Ltd. 235 ELT 206 (SC), wherein washetd [2009] it that, sticker the containing name/symbol ot the buyer werefixedafterquality checking, theretore, samewasa Drano the name used thepurpose indicatingconnectionthecourse trade for of a in of between goods the andthebuyer.Accordingly, assessee notentitred ssr-exemprtonresDect the was to In of goods soldto thisparticular buyer.so theassessee notentitled avaii benefit is lo the ot Ss|-exemption respect goods in of sotdto STS. (2 marks)

PP'ATLP-June011 2 Answer 6(b)

32

secllon 45(3) of the customs Act, 1962 casts liabitity the custodians pav on to customsduty in case o, any pilferagetaking place while the goods are under their custody. However, Section 45(3) appliesto 'personreferredto in section45(1). S e c t i o n 5 ( 1 )p r o v i d e so r a p p r o v ao f c u s t o d i a n b y t h e C o m m i s s i o n e rf c u s t o m s . 4 f l s o port Accordingly, major Ports notifiedunderthe l,,4ajor Trusts Act, 1963 who are the authorized functionas custodianunder their respective to Acts, do not requireany approvalbeforeacting as custodians.Therelore.provisions Section45(.1) not of do a p p l yt o t h e m . ln Boardot l rustees v. Unionof lndia(2009)241| ELT 513 (Bom.),it was hetdthat under Section45(1) of the CustomsAct, the recoveryof duty anrespectof pilfered goodscould only be madefrom the approvedpersonand the port trust is not liableto p a y d u t yo n g o o d sp i l f e r e d h i l ei n t h e i rp o s s e s s i o n . w The Courl interpreted that the intention the law mjght have been to check the ol pilferage takenplacefroma private warehouse a customs or warehouse by a private run pa(y. The negligence such privatepartiesshouldnot cause lossto the exchequer. of Answer 6(c) Section 25(2)ot the CustomsAct permits Centra!Government issuead hoc the to exemption frorncustomsduty by issueof a specialorder in publicinterestand under exceptional clrcumstances. The order shouldspecifythe exceptional circumstances l o r g r a n t i r . a d h o ce x e m p t i o n . . It hrs beenclarified that suchexemption can be grantedeven afterduty is paicj.In s u c hc . i s e , u t yh a st o b e r e f u n d e d - M(F R )C i c u l a rn o . 1 Z l g 7 - C u s t e d1 2 . 0 5 . 1 9 9 7 . D d da Answer 6(d) rriCES standsfor Automation CentralExciseand ServiceTax, lt is a centralized, of web basedsoltware application whichautomates variousprocesses CentralExcise of & S{rrvico Tax assessesand Departmenl and gives completeend to end solution. Any a s s e s s e e a n r e g i s t e w i t h d e p a r t m e nu s i n gA C E S a p p l i c a t i o n ,a n f i l e t a x r e t u r n , c r t c c l a r n sa n d i n t i r n a t i o nts , c ki t s s t a t u sa n d g e t o n l i n e e s s a g e . ra m Question 7 (a) What are the conditionsgoverning retund of import duty under section 26A of the CustomsAct, 1962 ? Explain briefly. (5 marks) b) Distinguishbetween the following: (i) Expoftunderbond by 'merchant expoftel and 'manufacturer exporler'undel Rule 19 of the Central Excise Rules, 2002. (ii) 'Brand rate'and 'specialbrund rate'for duty drawback. (4 marks each) (c) Can an applicationfor advance ruling be made by the following: (i) Governmentdepaftment. (ii) A residentimportinggoods under project imporl scheme. (l mark each)

Answer 7(a)

PP-ATLP-June 1 201

S e c t i o n 6 4 o f C u s t o m s c t ,a s i n s e r t e d 2 A b y t h e F i n a n c e N o . 2 ) c t , 2 0 0 9w . e . f . ( A 19 8 2009makesprovision refunoor import for Juty paioit!o"o"o. tornd defeclive or not as per specilications. Otherconditions as under: "r" are (i) The importedgoods are found to be defectiveor not in conformitywith the specifications theyshouldnothavebeen and reworkeJ repaired usedafter or or rmport. (ir) The goodsshourdbe identified the to satisfaction the AC/DCof customs as of the goodswhichwere imported. (iii) The j'.nporter not clajmeddrawback had underany otherprovrston this Act. oi (iv) Goodsshouldeitherbe re"exported or abandoned destroyed the presence or In ot the properoflicerwithin3Odaysfromthe date on whLn gooO.*"r"'irnpo11"j (theperiodcan be extended uptothreemonths). (v) Apprication refundshourd made for be withinsix monthsrromthe rerevant date in prescribed formand manner. Answer 7(bXi) Export under bond by merchant exponer and manufacturerexporrer

P r o c e d u r efs re x p o r t n d e r o n du n d e rR u l e1 9 o u b o f t h e C e n t r aE x c i s e u l e s 2 O O 2 l R , are prescflbed Notification in _cE(NT) No.4212001 dated26.6.2001. l,4erchant exporteris required executea bond in Form B_1. to MerchantExporter registered with recognizeci Exportpromotioncouncit anJ siar ExportHouses do not have to furnishany security/surety while executingOonJ,unf""" in"V n""" a adverse noticeof department. Alterexecution Oo"O, "#" of ,nur"n"ri rxponer nas to obtain CT-1 certif icatesf rom exciseolfice. He wilrsendcr-1 certificate rhe manu{acturer to fromwhomgoodsarero be procured for exportwithout payment duty.The merchant of export"i*iri .1,n,r,n , ,nunningBond Account' export. for exporter needsnol to executea bond. He can lurntsh , . ,The.manufacturer a Letterof u n d e r t a k i n ( L U T )i n F o r mu r - 1 . T h e L U To n c eg i v e n g i. i " t 1 2 c a r e n d am o n t h s . r The LUT will not be discharoed unlessproofof ex-poir .rJrii,fo o,,duty is paid i, " " L r o upon deficiency with interest. Answer 7(bXii) 'Brand l r a t e 'a n d , s p e c i a b r a n d r a t e ' f o r d u t y d r a w b a c k Arrindustry drawbackratesare fixecr the Directorate Drawrrack. by of t is possibre to fix all industryratesonly for some standardproducts. tt cannlt Oefixedfor special type of products.In suchcases,brandrateis fixed unO"rrrl"i. in".anufacturer has to submit an application with all details to the Commissioner, CentratExcise. Such application must be macle within60 days of export. All industry ratesare fixedon averagebasis.In case the manuracrurer or exporter findsthat the (a) duty-drawback per att industry as rate is t;ss ihan 809," the duties of

PP-ATLp--June11 20 g4 paidbyhim(b)rateis notlesslhan.1% ol F_OB value product of excepl wnenamount of pershipment more is thanBs.s00 expor.t (c) v;ru i" notr".. tnunthevarue llwback material ol rmported usedinthem. sucncases,'he ln i"" i". t*"i"n ol special brand rateto theCommissionerCentral of "ppf' ."n Excise Cust#!., ft-e anO Bule7 forfixation Special "' "pp,yunder of Brand Rate, within daysfio;;r;"ri. 30 Answer 7(cXi) Department cannot appry advance for .- definition public ruring, jt is notjncluded as in the f9, 9ou"rlTent Sector of Comoanv. Answer 7(cXii) ,mporring goods jmport under project scheme heading -^^,L"^"j 9801 can appry advance tor 1"_:lg:ltruting _Norrficatjon r Z+leOOg_Cus unoer t to. ifrfil J"t"o zOA.zOOg PARTC Queslion I Attempt any five of the following : ,tax (i) What is heaven' What the parameters consider ? are to wnemer jurisdiction a is taxheaven not,as au!inedby ih. Organisatiii or riiEconomicCo-operation andDevetopment (OECD) ? ( marks) (ii) Mahesh, agecr years,is resdentandordinariry 64 resident rndia.Hisincome n is ? 16,80,000 from a busine-ss naia anJ dls,On iro, a business in in a fo.reign countrywithwhomrndia hasagre"m"nt io, irlijaice ot aouotetaxation (ADT). According the ADT agreeir"nt, irroiiii'iii"bte to in thecountryin whichit is earned not in othercountry.Howeve;, and ; theothercountry,such incomecan be included computaton tax For ot rate. According tothe tax lawsof foreign counlry,Mahesh paid (32,000 as .the tax in that country.Duringthe previousyear, Mahesh has haspaid ( 2g,000as t,uition fee.forhisdaughter tndiaand rg6,ooira, triio, in feefor his sonoutside tndiatorfu timeeducation. Maheshhasatsi i"""ii"i ii irt"nst of (4a,000 on Government securities. outthetaxtiaOitity UJe*shtor the J: assessment .Find vear2011-12 Doesit makeanv difference, uanesi ii i no, ,t;2;:^;;"',, ir (iii) Whatare the entryoptions.av:it:bt? flr foreisn companies planning set_up to busnessoperations lndia ? Exptain in briefti. H marks) (iv) Exptain binding the natureof advancerulings under thelncom" ,", 1"0,,,r1!!frr; (v) Whatis the roleof ,Transfer pricingOffber,? ls it possible tor the Assessing Officer passthe assessmen.t penaining ihe to order to assessmenl year 201 _ l 12 withoutconsiderinq arm'slengthprice aairiii"a pricing {inu Transfer Officer ? H narks) 'cross (vi) Distinguish between 'rntematDnarrransactions,. BorderTransactions'and (4 marks)
-

AnswerB(i)
.A tax heavenis a place vrh

\tc

PP-ATLp-June 1 20i

ffiUil", :ffi :I ""i:n:';'ffitr;il"";: fi;[il?#::';Jiff J: ""fl pur"r"[;,;]o"nsioer :{iiffg the rorow'ns ,r t"lH;T::.tfioutrned
lmposes or onlynomrnal no taxes: .(i) (ii) Whether there a lack is (iii) Whether thereare laws

wnetner aiurisdiction

a*r';;,,*," il' lffl,',y?J:llonneeded .i3,li"lli!::Xffi :: :it"l1i;,f

jH"J:,,X?.""Jff uremr thath acti ^"^'^:. i en t e vir
Computati

open consi;t;;;#ij',1ffiiililt;J:T;:XfliJ and rhar isan ijsures rhere bv rax

fJiffi ;i*,iltil?Hf ilH""n[xilfi #[in""#""",:y: #,'Ij,ffi t',yfl? req

Answer 8(ii)

investmen, i,"".*n33i:n*:**n1J;:;1J:,iH?i"??ii,i,l"i ""0

Business income India \ in Interest Government on 16,80,000 Secunties Gross TotalIncome 48,000 Less: Deduction 17,28,000 under Section (seenote) BoC TotalIncome 28,000 Add: Foteign 17,00,000 income be included to forratepurpose Total 5,45,000 Taxon ? 22,45,OOO 22,45.00o Upro 1,60,000 ? - . a Fromf, 1,60,001 a Nil ro 5,00,000 1O% @ 34,000 FromI 5,00,00.1 f ro 8,00,000 20o{, @ 60,000 Un batance 14.45,000 a @ 30% 4,33,500 Add: Educatjon 5,27 Cess(2%of tax) ,5oo Add: Secondary higher 10,550 and educalon cess(.1 of tax 70 Taxpayable 5,275 5,43,325 9{9'?1 Average o, ,u, rate x 100 Z2.4S,OOO = 24.20q. Indiantax fiabitity (117,00,ooo 24.20o/o) x
4,11,400

,..,"i 3""J"11i#i n illl,"J#:'T"'

PP*ATLP-JUne 1 201

36

It will not make any difference [,4ahesh a non-resident. if is The Non Resident can certainly take the benefitof the provisions DTAAenteredinto betweenIndiaand of the c o u n t r yi,n w h i c hh e r e s i d e s . Nole : Deduction undersectiong0c is not avairabre tuition paidoutsideIndia. ror fee Answer 8(iii) A Foreign companyplanning set-upbusiness to operations Indiahas the f ollowing in e n t r y0 p t i o n s : (i) As an incorporated entityby gettingincorporated under the ComoaniesAct. 1 9 5 6o r t h r o u g h o i n tV e n t u r e s , s w h o l l y w n e d u b s i d i a r i e s l J a o s (ii) As an otficeof a foreignentityrikea riaison icelrepresentative off oflice/project otflce/branch oflice. Entryroutes can be through technicar coflaboration through or financiar coflaboration. such investments madeeither are under automatic route approvar or route. rnvestment underautomatic routeinvorves t facto apvovarof RBrfor the investment pos madeand the investment underapprovar routerequires priorapprovar FrpB (Foreign of Investment Promotion Board). Answer 8(iv) A c c o r d t n g o S e c t i o n2 4 5 S o f t h e I n c o m eT a x A c t , j 9 6 . 1 t h e a d v a n c er u l i n o t , p r o n o u n c eb y t h ea u t h o r i t u n d e rS e c t i o n 4 5 Rs h a l lb e b j n d i n g n l y : d y 2 o (i) On the applicant who had soughtit; (ii) In respectof the transaction relation whichthe rulinghad beensought;and in to (iii) On the commissioner, and the lncome-Tax Authorities subordinate him, in to respectof the applicant and the said transaction. The advancerulingreferred abovesha||be binding aforesaid to as unress thereis a changein law or lacts on the basisof whichthe advancerulinghas been pronounced. The effectof the ruiingis, understandably, statedto be conlinedto the apolicant who has soughtit as wellas the commissioner and the rncome-Tax Authority subordinate to him havingjurisdiction overthe caseand thattoo only in relation transaction which to for advance rulingwas sought. lt may, however,be stated that the Authoritygenerally lollowsthe rulingin othercaseson materially similarfacts and, most certainry othei in cases raisingthe same questionof law, if any, which it has decided.The rule here is different from the position othercountries in whereeitherthe taxpayer the revenue or or both are at libertyto acceptthe rulingor not. Answer 8(v) Role of "Transfer Pricing Officer" lf Assessing otlicer considers necessary expedient relerthe computation it or to of Arm's LengthPriceof an International rransactionto the Transferpricinoolficer then he may do so with the previous approvalol the Commissioner.

On the date speciliedin the above

ilj"j:i::J:jf" "ternationar

(b) aftertakingintoaccount all relevant material which he has garhered. The translerpricjngofficer.shall by orderin writing determine arm,slengthprice the transaction

pri in orr rm ;d;;;; an c s ice ay ;;""X1"J*H:T "i : ",o"*" H?"::

suchevidence,as assessee rne mayproduce, c l u d i n g n y :1t:jj:1,1"n documents in rntormation a or

PP-ATLp-June2011 noticeor as soon as thereafter as may be : as the transfer

37

**.'.iJ,liii:ij?'ii]f i::::sins p,icing'oiri;;;l'i:Jffi?;31iii "" determined bv rhJ ns I:l:tl rocompulc rotar iiT'; il'j:j.rrce officer the income the on basis arm'" of r"ng,r'' loJrJH ptoig ffiixr:
Answer 8(vi)

and a"c"pv oro"r'," Aoand send the to "ii-ri" otr'|certo the pass assessmentorder pertainins

il'J","!,:1"#,;;rT: ;*rns:1ft :tiil:[:l.?nfu ?J,",,,,"":x"i#ffi

'International transaclion, transaction must be between two enrerpnses ag1s3s1 61r.ll.a^ and s6s enterprise be a non-resident associated must rh" ,t"".""r]o" must rnthenaturu prr"hu.",'"n oe of

"s,""'"nli :t emprovment Exparriate asreements,sT;s;;?ill?ffllt:torshlp asreements, "l5J?Jr::::ffi Host

13i33il5i'i:

of thecounterpartieslocated is ros o r t,uJ nl c s brde n. io ;,#rffJff,i";:",1#.ilT:::Hl"*"1:ili,, jJ ::illij ";. q t" d;,;;, outsrde homecountry ,na the o,

,;::,n?:r:".:,f#,1:::;i_"

in orroreisn 1.":3"ti"n aninternationar country, ora 'l *n'"n

at least one

""

trademark,icense