Introduction

Nirmala Sitharaman, Minister of Finance, Government of India, presented Budget 2021-22 on 1-2-2021 at 11.00 AM.  Finance Bill, 2021 was also presented. The Finance Bill, 2021 has been passed by Parliament. The provisions will be effective from date to be notified.

Changes in GST law made by Finance Act, 2021

The changes in CGST Act and IGST Act are as follows.

Services supplied by association or club to its members taxable w.r.e.f. 1-7-2017 – There was dispute about tax liability of service supplied by club or association to its members. To remove ambiguity, section 7(1)(aa) of CGST Act has been inserted vide Finance Act, 2021 w.r.e.f. 1-7-2017 to provide that for purposes of CGST Act, the expression ‘supply’ includes the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.

To remove any ambiguity or doubt, a ‘deeming’ provision has been made, vide Explanation to section 7(1)(aa) of CGST Act inserted vide Finance Act, 2021 w.r.e.f. 1-7-2017, stating that for the purposes of clause (aa), it is hereby clarified that, notwithstanding anything contained in any other law for the time being in force or any judgment, decree or order of any Court, tribunal or authority, the person and its members or constituents shall be deemed to be two separate persons and the supply of activities or transactions inter se shall be deemed to take place from one such person to another.

In view of insertion of the deeming provision, paragraph 7 of Schedule II of CGST Act (which stated that supply of goods by unincorporated association to is member for consideration shall be treated as supply of goods) has been omitted w.r.e.f. 1-7-2017.

Many clubs and associations had not collected GST on basis of judgment of Supreme Court and decisions of AAR. With the retrospective amendment, clubs or associations will have to pay GST w.r.e.f. 1-7-2017 @ 18% plus interest at 18%. This may be very difficult for many clubs or associations as they may not be able to recover the amounts from members.

The amendment with retrospective effect is highly unfair.

Really, BJP Government had specifically promised that there will be no retrospective amendment in tax laws.

ITC eligible only if supplier uploads details of his outward supply in his GSTR-1 and recipient accepts the same – ITC will be eligible only if supplier uploads details of his outward supply (invoices, debit note, credit note and revised invoice) in his GSTR-1. Recipient will get these details in his GSTR-2A and GSTR-2B. The recipient is required to accept the same as per section 37(2) of CGST Act. As per section 16(2)(aa) of CGST Act inserted vide Finance Act, 2021 w.e.f. date to be notified, registered person shall not be entitled to avail input tax credit, unless the details of the invoice or debit note has been furnished by the supplier in the statement of outward supplies [GSTR-1] and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37 of CGST Act [in GSTR-2A and GSTR-2B of recipient].

Provision of Audit report with reconciliation statement omitted – Provision of Audit report with reconciliation statement in form GSTR-9C has been omitted – section 35(5) of CGST Act omitted vide Finance Act, 2021 w.e.f. date to be notified. Instead of audited reconciliation statement, self-certified reconciliation will have to be submitted as per section 44 of CGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified.

Annual return with self-certified reconciliation statement – Annual return with self-certified reconciliation statement will have to be submitted. Commissioner in Board [not jurisdictional Commissioner) can exempt any class of registered persons from filing annual return. Department of State Government or Central Government or local authority whose accounts are subject to C&AG audit are not required to submit such annual return – section 44 of CGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified.

Interest payable on net amount payable in cash i.e. after adjusting ITC – There was controversy whether interest for late payment of GST is payable on net amount of tax payable (i.e. after adjusting ITC available) or gross amount of tax payable (without adjusting ITC available). The controversy has been set at rest vide proviso to section 50(1) of CGST Act substituted vide Finance Act, 2021 w.r.e.f. 1-7-2017. It is made clear that interest for late payment of GST is payable on net amount of tax payable (i.e. after adjusting ITC available). The provision is retrospective from 1-7-2017. However, this provision applies only when tax with interest is paid on its own and not when proceedings of notice, demand and recovery are commenced under sections 73 or 74 of CGAT Act.

Recovery of tax if outward invoices uploaded in GSTR-1 but liability not shown in GSTR-3B return – Some times, the supplier uploads details of tax invoices and debit notes in his GSTR-1 (so that recipient can avail ITC) but does not include that turnover in his GSTR-3B return. Hence, explanation  to section 75(12) of CGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified, provides that ‘self-assessed tax’ includes tax payable on details of outward supply furnished in GSTR-1 but not included in GSTR-3B and recovery under section 79 of CGST Act can commence, without issuing notice under sections 73 or 74. Thus, if outward invoices are uploaded by taxable person in his GSTR-1 but liability is not shown in his GSTR-3B return.

Scope of provisional attachment of property and bank accounts for protection of revenue widened – Scope of provisional attachment of property and bank accounts to protect interests of Government revenue has been widened and some of decisions of High Courts have been nullified. The revised provision is as follows – Where, after the initiation of any proceeding under Chapter XII [Audit by tax authorities and special audit – sections 65 and 66), Chapter XIV (Inspection, Search, Seizure and arrest – sections 67 to 72) or Chapter XV (Demands and recovery – sections 73 to 84) , the Commissioner is of the opinion that for the purpose of protecting the interest of the Government revenue it is necessary so to do, he may, by order in writing, attach provisionally, any property, including bank account, belonging to the taxable person or any person specified in section 122(1A) of CGST Act [person who is retaining benefit of specified transaction and at whose instance the transaction is conducted – transactions relating to bogus invoices and bogus ITC], in such manner as may be prescribed –section 83(1) of CGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified.

Thus, property of following can be provisionally attached – (a) person who is availing bogus Input Tax Credit (b) Person to whom SCN has been issued under sections 73 or 74, or recovery proceedings under section 79 have been commenced (c) Audit, search, seizure or arrest is under progress].

Such provisional attachment can continue upto one year from date of order – –section 83(2) of CGST Act.

Pre-deposit of 25% of penalty if goods are seized in transit – Section 129 of CGST Act makes provisions for detention and seizure of goods in transit. Penalty equal to 200% of tax payable can be imposed under section 129(3) of CGST Act, if goods are transported in contravention of provisions of CGST Act and Rules. If appeal is filed against order imposing penalty, no appeal shall be filed unless a sum equal to 25% of the penalty has been paid by the appellant – proviso to section 107(6) of CGST Act inserted vide Finance Act, 2021 w.e.f. date to be notified.

Really, there is no provision for provisional release of goods seized under section 129 of CGST Act. In fact, there is provision of sale of goods if goods are not released within 15 days from receipt of order imposing penalty. Thus, the provision of 25% penalty seems meaningless. Person has no option but to pay 200% penalty, get goods released and then file appeal.

Provisions relating to detention, seizure and release of goods and conveyances in transit are revamped – Provisions relating to detention, seizure and release of goods and conveyances in transit, if goods are transported in contravention of provisions of CGST Act and Rules, as contained in section 129 of CGST Act have been revamped. The revised provisions are as follows. These will be effective from date to be notified.

• Proceedings under section 129 have been de-linked from provisions in sections 73 and 74 of CGST Act, relating to determination of tax not paid or short paid
• Penalty equal to 200% of tax payable can be imposed – section 129(1)(a) [presently, there is provision of payment of tax plus penalty equal to 100% of tax payable]
• Provisions of release of seized goods on bond and security as contained in section 67(6) of CGST Act shall not apply to goods seized under section 129
• Notice of seizure of goods or conveyance shall be issued within seven days and order for penalty shall be issued within seven days from date of notice – section 129(3) as substituted
• Sale or disposal of goods if person fails to pay penalty within 15 days from date of receipt of order imposing penalty. This period of 15 days can be reduced in case of hazardous goods or goods that are likely to deteriorate  – section 129(6) of CGST Act
• No provision for provisional release of seized goods – thus, payment of 200% tax as penalty mandatory for release of seized goods
• Appeal can be filed on payment of 25% of penalty imposed. However, there is no provision for provisional release of seized goods.  In fact, there is provision of sale of goods if goods are not released within 15 days from receipt of order imposing penalty. Thus, the provision of 25% penalty seems meaningless. Person has no option but to pay 200% penalty, get goods released and then file appeal.
• No provision for confiscation of goods or conveyance [section 130 de-linked from section 129].
• Conveyance can be released on payment of penalty of Rs one lakh – first proviso to section 129(6) of CGST Act as substituted
• Provisions of confiscation of goods or conveyances and penalty as contained in section 130 of CGST Act will not apply to detention and seizure under section 129 of CGST Act

Power to call for information – Jurisdictional Commissioner has been empowered to call for information from any person relating to matter connected with CGST Act – section 151 of CGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified.

Supply to SEZ unit or SEZ developer zero rated only if for authorised operations – Supply to SEZ unit or SEZ developer will be zero rated only if supply is for authorised operations  – section 16(1)(b) of IGST Act amended vide Finance Act, 2021 w.e.f. date to be notified.

General provision for making payment of IGST on zero rated supply and claiming refund restricted – Present section 16(3) of IGST Act provides for two options in case of zero rated supply – (a) Pay IGST on zero rated supply and claim refund of IGST paid through customs procedure (b) Make zero rated supply under bond and LUT without payment of IGST on outward supply and claim refund of Input Tax Credit corresponding to input goods contained in supply of zero rated goods or services.

The first option is easy and simple with minimum hassles. Moreover, refund of GST paid on input services and capital goods can be availed by using this route.

The second option is clumsy and getting refund is very difficult. Some excuses are found to reject refund claim and huge amount is blocked. Further, refund of GST paid on input services and capital goods cannot be availed by using this route.

However, the first method is being misused by claiming ITC on basis of bogus invoices and making payment of IGST on zero rated supply and getting refund.

Hence, the general provision for making payment of IGST on zero rated supply and claiming refund has been restricted.

As per section 16(3) of IGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified, normally, person making zero rated supply shall follow only second option i.e. make zero rated supply under bond and LUT without payment of IGST on outward supply and claim refund of Input Tax Credit corresponding to input goods contained in supply of zero rated goods or services.

Further, the amount received as refund shall be liable to be paid back, if payment for supply is not received in foreign exchange, within time specified under FEMA – proviso to section 16(3) of IGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified.

Option of paying IGST on output supply and claiming refund of IGST paid on output supply will be available only to specified class of persons making zero rated supply and class of goods or services which may be exported on payment of IGST and claiming refund – section 16(4) of IGST Act substituted vide Finance Act, 2021 w.e.f. date to be notified.

V S Datey

Twenty nine labour laws have been consolidated in four labour codes – (1) The Code of Wages, 2019 (2) The Industrial Relations Code, 2020 (3) The Occupational Safety, Health and Working Conditions Code, 2020 (4) The Code on Social Security, 2020.

All the four Acts have been passed by Parliament and have received assent of President. Draft rules of all four Codes have also been published. If all goes well, all the four Codes may be made effective latest by 1-4-2021, if not earlier.

Some definitions are common in all four Codes. In some of the definitions, major part is common, with some variations which are specific to that Code. This will bring uniformity in application of labour laws. This is welcome.

One such common definition is of ‘wages’. The definition is almost common in all the four Codes, with only a few minor variations. Though this will bring uniformity in application of labour laws, there are some serious lacunae in the definition, which will make the definition very litigation prone and practically impossible to comply with, at least by large organisations. Quantification of ‘wages’ is going to be a big challenge.

The definition is not conductive to ‘ease of dong business’ at all.

The issues in respect of definition of ‘wages’ are discussed in this article.

Common definition of ‘Wages’

The definition of ‘wages’ in all four Codes (with some minor variations) is contained in Section 2(y) of Code on Wages, 2019, Section 2(zq) of Industrial Relations Code, 2020, Section 2(88) of Code On Social Security, 2020 and Section 2(1)(zzj) of Occupational Safety, Health and Working Conditions Code, 2020.

The definition is as follows.

“Wages” means all remuneration, whether by way of salary, allowances or otherwise, expressed in terms of money or capable of being so expressed which would, if the terms of employment, express or implied, were fulfilled, be payable to a person employed in respect of his employment or of work done in such employment, and includes – (i) basic pay (ii) dearness allowance and (iii) retaining allowance, if any
but does not include—
(a) any bonus payable under any law for the time being in force, which does not form part of the remuneration payable under the terms of employment
(b) the value of any house-accommodation, or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the appropriate Government
(c) any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon
(d) any conveyance allowance or the value of any travelling concession
(e) any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment
(f) house rent allowance
(g) remuneration payable under any award or settlement between the parties or order of a Court or Tribunal
(h) any overtime allowance
(i) any commission payable to the employee
(j) any gratuity payable on the termination of employment
(k) any retrenchment compensation or other retirement benefit payable to the employee or any ex gratia payment made to him on the termination of employment **
Provided that, for calculating the wages under this clause, if any payments made by the employer to the employee under sub-clauses (a) to (i) exceeds one-half, or such other % as may be notified by the Central Government, of all remuneration calculated under this clause, the amount which exceeds such one-half, or the % so notified, shall be deemed to be remuneration and shall be accordingly added in wages under this clause
Provided further that for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in sub-clauses (d), (f), (g) and (h) shall be taken for computation of wage.
Explanation.—Where an employee is given in lieu of the whole or part of the wages payable to him, any remuneration in kind by his employer, the value of such remuneration in kind which does not exceed 15% of the total wages payable to him, shall be deemed to form part of the wages of such employee.

** – After ‘termination of employment’ the words  ‘under any law for the time being in force’ are there in ‘Code on Social Security, 2020’, but not in any other Code.

Some payments made to employee in exclusion clauses will be part of ‘wages’ if they exceed 50% of all remuneration

As per first proviso to definition of ‘wages’ under Labour Codes, for calculating the wages under this clause, if payments made by the employer to the employee under clauses (a) to (i) exceeds one-half (50%), or such other % as may be notified by the Central Government, of the all remuneration calculated under this clause, the amount which exceeds such one-half, or the % so notified, shall be deemed as remuneration and shall be accordingly added in wages under this clause.

The intention is clear that employer should not reduce his liability of PF, ESIC, gratuity etc. by camouflaging wages as different kinds of ‘allowances’.

However, some sub-clauses under this head are highly problematic. These are discussed below.

Value of any house-accommodation, or of the supply of light, water, medical attendance or other amenity or of any service excluded from the computation of wages by a general or special order of the appropriate Government – What this means is that if any free or subsidized accommodation has been provided to employee, its value (including light, water, medical attendance or other amenity or service) will have to be computed (probably at market rate). These calculations are required, since if total of amounts (a) to (i) exceeds 50% of wages, these will be part of ‘wages’. [If only HRA is given, that will also be part of total of (a) to (i) to calculate 50% of ceiling on wages]. Valuation should be on market value basis. Firstly, such valuation will cost money and secondly it will lead to litigation.

Any contribution paid by the employer to any pension or provident fund, and the interest which may have accrued thereon – As is well known, an employee earns interest on his PF amount or pension account, which is added to his account. The statement is obtained by every employee much after close of financial year. If interest on accumulated balance is considered, the amount may be substantial. This figure will have to be found out for calculating ceiling of 50%. Its quantification is possible only after annual statement of employees is received from PF authorities (or private trusts which are recognised under Income Tax Act for this purpose). The interest in pension or provident fund as indicated in PF slips or statements of private trusts will be on annual basis. It will have to be converted into monthly instalments, as the ceiling of 50% is on monthly basis. It will be a herculean task.

This provision seems to be highly impractical and unrealistic indeed.

Any conveyance allowance or the value of any travelling concession – By ‘conveyance allowance’, what is meant is the monthly or periodic allowance given at flat rate on ad hoc basis. If employee’s travel expenses for official work are reimbursed on actual basis, these cannot be part of ‘conveyance allowance’. This needs urgent clarification.

Any sum paid to the employed person to defray special expenses entailed on him by the nature of his employment – This term is also prone to different interpretations. What is meant and what is intended is not very clear. Calculation of these amounts will be required to consider monthly ceiling of 50% of ‘wages’. Some of the possible points of litigation are as follows  –

(A) Will travelling, hotel and other expenses incurred for work of employer be included in this sub-clause? It seems these may be covered under this head, as the expenses are incurred by employer to defray special expenses incurred by employee for his employment. If so, in case of travelling salesmen or persons who frequently travel for business of company, the amount (including other amounts included in (a) to (i) will easily exceed 50% monthly ceiling. Calculation will be required month-wise for each employee – difficult task indeed

(B) Will this sub-clause include reimbursement of telephone expenses for business purposes?

(C) Will this sub-clause include dress allowance or washing allowance?

Tip of iceberg – The issues discussed above are only tip of iceberg. Many unexpected issues will crop up in due course of time. Calculation of ‘wages’ of each employee and worker as per new definition would be nightmare to employers and platinum opportunity (not only ‘golden’ opportunity) to legal practitioners [as is happening in GST].

Remuneration in kind upto 15% will be part of ‘wages’

As per explanation to definition of ‘wages’ under Labour Code, where an employee is given in lieu of the whole or part of the wages payable to him, any remuneration in kind by his employer, the value of such remuneration in kind which does not exceed 15% of the total wages payable to him, shall be deemed to form part of the wages of such employee.

The drafting is faulty. The words ‘does not exceed’ should bereally ‘exceeds’, as the intention seems to include the amounts if huge amounts are paid in kind and not in cash.

However, as the explanation stands today, all canteen subsidy, free or subsidized transport, supply of uniform, etc. will be part of ‘wages’. Diwali or festival gifts to employees will have to be included in ‘wages’.

Quantification of canteen subsidy, free or subsidized transport, uniforms, festival gifts etc. given to each employee will be a big challenge and will be highly litigation prone. Such remuneration in kind should not form part of ‘wages’ at all.

Ironically, if this amount exceeds 15% of ‘wages’, the excess over 15% of wages it will not form part of ‘wages’, as the definition stands today.

In any case, monthly calculations of these payments ‘in kind’ will be required per employee or worker, to determine whether the amount is less than or more than 15%.

There is no ‘ease of doing business’ at all in new definition of ‘wages’, though intentions are sound.

Some payments will be part of ‘wages’ for purpose if equal wages to all genders and for payment of wages

As per second proviso to definition of ‘wages’ under Labour Codes, for the purpose of equal wages to all genders and for the purpose of payment of wages, the emoluments specified in clauses (d), (f), (g) and (h) shall be taken for computation of wage.

The first part of the proviso i.e. for the purpose of equal wages to all genders is fair and clear.

Meaning of ‘wages’ for purpose of payment of wages

About the second part i.e. ‘for purpose of payment of wages’, what is meant is that the provisions as contained in Chapter III of Code on Wages, 2019 [sections 15 to 25] will apply to such payments. Thus, provisions of wage period, time limit on payment of wages, deductions permissible etc. will apply for payment of following –

(1) Clause (d) – any conveyance allowance or the value of any travelling concession  

(2) Clause (f) – house rent allowance

(3) Clause (g) – remuneration payable under any award or settlement between the parties or order of a Court or Tribunal and

(4) Clause(h) – any overtime allowance.

Minimum wages are ‘wages’ and cannot be split

Definition of ‘wages’ only includes basic wage, DA and retaining allowance. Other allowances are not part of wages. Hence, where minimum wages are paid, these cannot be split into various allowances (except Dearness Allowance) to reduce liability of PF, ESIC, bonus, gratuity etc.

An employer paying minimum wages should not pay any allowance (except Dearness Allowance). Such allowance, if paid, will be treated as part of ‘wages’ for purposes of PF, Gratuity, ESI etc. but will not be treated as ‘wages’ for purpose of ‘Minimum Wages’.

As per earlier provisions under Minimum Wages Act, in APFC v. G4S Security Services 2011 LLR 316 (P&H HC), it was held that Minimum wages payable can be split in basic, house rent allowance, washing and conveyance allowance etc. In such case, Provident Fund is payable only on basic wages and not total minimum wages – view confirmed in APFC v. G4S Security Services 2011 LLR 943 (P&H HC DB). However, it was held that PF authorities should examine whether the minimum wages are split to reduce PF liability.

On the basis of above, in circular No. Coord/4(6)2003/ Clarification/Vol II/7394 dated 23-5-2011 issued by Additional Central PF Commissioner (Compliance), it was stated that basic wages are the minimum wages and these cannot be further split into various allowances. Thus, PF contribution is payable on minimum wages, which will be considered as ‘basic wages’ for purpose of PF Act.

In any case, under new definition of ‘wages’, the controversy has been set at rest.

Wages ‘camouflaged as ‘allowances’ would be part of Basic Wage

In RPFC v. Vivekananda Vidyamandir (2019) 103 taxmann.com 18 (SC), it has been held that if allowances paid by establishment to its employees were essentially part of basic wage but were camouflaged as ‘allowance’, these will be included in ‘basic wages’. In this case, so called ‘special allowance’ was linked with dearness allowance and subject to increment on time scale. However, leave encashment and overtime wages were variable and it was held that these would not fit into ‘basic wages’.

In The Daily Partap v. RPFC  1999 I LLJ 1 = 1999 LLR 1 =  AIR 1999 SC 2025 = 1999 AIR SCW 1721, though the amount paid was termed as ‘production bonus’, it had no relation to  extra production efforts. The amount paid had no direct nexus with the amount of extra output. It was held that this was ‘wages’ and not ‘production bonus’.

In RPFC v. Vivekananda Vidya Mandir 2005 LLR 399 = 2005-II LLJ 721 (Cal HC DB), employer was paying ‘special allowance’ which was revised every two years. It was held that it is part of ‘pay’ – view confirmed in RPFC v. Vivekananda Vidyamandir (2019) 103 taxmann.com 18 (SC).

Special allowance uniformly paid to all are ‘wages’ – In Gordon Woodroffe v. RC, EPF (2002) 100 FJR 657 = 2002 LLR 1167 (Mad), employees were working for five days a week. It was increased to 6 days a week and special allowance was paid for working on Saturday. The allowance was paid continuously for many years. It was held that such special allowance paid under agreement for work done on holiday has partaken the character of ‘basic wages’ for contribution to provident fund.

PF contribution is payable on conveyance allowance and special allowance given uniformly to all employees – Montage Enterprises v. EPF 2011 LLR 867 (Mad HC DB ) * Management of Reymonds Pens v. RPFC 2011 LLR 876 (Mad HC).

Leave encashment are not wages

In Manipal Academy of Higher Education vs. Provident Fund Commissioner(2008) 5 SCC 428 = AIR 2008 SC 1951 = 2008 LLR 443 (SC), it has been held that PF Contribution is not payable on Leave encashment paid. This decision will apply to gratuity also – same view in RPFC v. Vivekananda Vidyamandir (2019) 103 taxmann.com 18 (SC).

Production bonus or incentive are not ‘wages’

PF contribution is not payable on production incentive or production bonus – Bridge & Roof Co v. UOI AIR 1963 SC 1474 = 1962 II LLJ 490 = 1963(3) SCR 978 (6 member SC bench).

In Kirloskar Brothers v. Appellate Authority 2003 LLR 929 (MP HC DB), it was held that incentive bonus paid to employees is not ‘wages’ for calculation of gratuity.

In TI Cycles v. M K Gurumani 2002 LLR 57 = 2001(2) LLJ 1068 = (2001) 7 SCC 204 = AIR 2001 SC 3465 = 2001 AIR SCW 3202, it was held that there is no basic distinction between ‘basic wages’ in the PF Act and ‘wages’ in Gratuity Act. It was held that ‘incentive payment’ should not be reckoned as wages for purpose of gratuity.

Arrears of wages when pay revised with retrospective effect

When existing scales are revised with effect from back date, increase in basic wages with back date are ‘basic wages’ for purpose of PF Act and PF contribution is payable. – Prantiya Vidhyut Mandal Mazdoor Federation v. Rajasthan State Electricity Board (1992) 2 SCC 723 = 81 FJR 206 = 64 FLR 1051 = AIR 1992 SC 1737 = 1993 I LLJ 222 = 1992 LLR 401 (SC)  * Ponni Sugar v. Cauvery Sugar 2002 LLR 25 (Mad HC DB). Payment of interim advance against charter of demands as part of settlement of dispute will be increase in basic wages and will attract contributions under the Act. – Dalmia Cement v. RPFC (2002) 101 FJR 307 (Mad HC).

If arrears of wages are given in form of lumpsum payment, it is wages and provident fund contribution will be payable – Ponni Sugar v. RPFC 2001 II LLJ 1201 (Mad HC DB).

Payment made under settlement – If some ad hoc amount is paid to workmen in settlement, it is basic wages and PF contribution is payable. – Shree Changdeo Sugar Mills v. UOI 2001 AIR SCW 172 = AIR 2001 SC 557 = 2001(I) LLJ 698 = 2001 LLR 188 (SC).

Employee reinstated with back wages

If an employee is reinstated with back wages by a court order, Company has to pay its contribution to Provident Fund in respect of back wages, even if it fails to deduct employee’s share from his salary – Mrs. Savita Rani v. Oriental Insurance Co. Ltd. – (1995-2) 110 PLR 263 (P&H HC).

However, in Swastik Textile Engineers v. Virjibhai Mavjibhai Rathod 2008 LLR 472 (Guj HC), it was held that back wages are not for duty performed and hence not ‘wages’. Hence, PF contribution is not payable if back wages are awarded by Court at the time of reinstatement.

Subsistence allowance paid when employee was under suspension are not ‘wages’

Subsistence allowance paid when employee is under suspension would not amount to ‘wages’ within meaning of 2(21) of the Act, as it is not paid for work done. – Motor Industries Co  v. Popat Murlidhar 1997 I LLN 749 = 1997(2) LLJ 1206 (Bom HC) – followed in Deccan Merchant Coop Bank v. Avdhoot Marutrao Rane 2008 LLR 30 (Bom HC).. – contrary view in Project Manager, Oil and Natural Gas Commission v. Sham Kumar 1995 LLR 619 (Guj HC), where it was held that suspended employee will be entitled to bonus on suspension allowance [In Labour Codes, ‘suspension allowance’ is not part of ‘wages’ at all].

Other issues relating to ‘wages’

Other case law in respect of ‘wages’ is as follows.

Conveyance allowance are not ‘wages’ – Conveyance allowance or site allowance are not ‘wages’ for Payment of Gratuity Act – Voltas Ltd. v. Chandrakant Y Bhramhane 2008 LLR 84 (Bom HC) – relying on Straw Board Mfg Co. v. Its Workmen (1977) 2 SCC 329.

Retaining allowance to seasonal workers – Retaining allowance payable to seasonal workmen during off season establishment is ‘salary or wage’ for purpose of Bonus Act. – Managing Director v. Govt. Labour Officer – (1981) 2 SCC 147 = 1981 SCC (L&S) 290.

City Compensatory Allowance – City Compensatory Allowance paid to employees is ‘wages’ as it is attached to the post – S Krishnamurthy v. Presiding Officer 1986(I) LLJ 133 (SC) – followed in Jeeva Transport Corporation v. Presiding Officer 2004 LLR 802 (Mad HC).

Overtime wages – Overtime payment is not ‘wages’ for Bonus Act – Associated Cement Co. v. Their workmen 1959 I LLJ 644 = AIR 1959 SC 925 = 16 FJR 262 (SC) = 1959 SCR 925 * RPFC v. Vivekananda Vidyamandir (2019) 103 taxmann.com 18 (SC).

[Now the definition of ‘wages’ specifically excludes ‘overtime allowance’, but would be includible if total of all sub-clauses exceed 50% pf basic plus DA plus retention allowance.

Lay-off compensation – Lay off compensation are ‘wages’ – Mohan Kumar v. Dy LC 1991(62) FLR 903 = (1991) 1 LLN 242 = (1991) 1 CLR 418 = 1996 LLR 765 (Ker HC).

Conclusion

The definition of ‘wages’ is litigation prone. There are many issues where ambiguity and different opinions are possible. Quantification of ‘wages’ is not going to be easy at all. Computing ‘non monetary’ benefits for purpose of ‘wages’ will also be a challenge.

Introduction

Nirmala Sitharaman, Minister of Finance, Government of India, presented Budget 2021-22 on 1-2-2021 at 11.00 AM.  Finance Bill, 2021 was also presented. The Finance Bill, 2021 has been passed by both houses of Parliament. The provisions will be effective when the Bill receives assent of President (expected on or before 31-3-2021)

Changes made by Finance Act, 2021

The changes in Customs Act and Customs Tariff Act are as follows.

Commissioner (Appeals) can exercise only certain powers – Commissioner of Customs (Appeals), shall exercise powers only under Chapter XI [baggage, goods imported by post, courier], section 108 [power to summon persons to give evidence and produce documents] and 110(1D) [dispose of seized gold] – section 5(3) of Customs Act amended w.e.f. March, 2021.

Common Customs Electronic Portal – CBI&C may notify a common portal, to be called the Common Customs Electronic Portal, for facilitating registration, filing of bills of entry, shipping bills, other documents and forms prescribed under Customs Act or under any other law for the time being in force or the rules or regulations made thereunder, payment of duty and for such other purposes, as the CBI&C may, by notification, specify – Sections 154C and 2(7B) of Customs Act inserted w.e.f. March, 2021.

Sunset clause to any conditional customs exemption notification – Any conditional customs exemption notification issued under section 25(1) of Customs Act will have sunset clause. Unless otherwise specified, varied or rescinded, it will be valid only upto 31st March falling immediately after two years from date such grant or variation – section 25(4A) of Customs Act inserted w.e.f. March, 2021.

The notifications existing on 1-2-2021 and those which will be issued till passing of Finance Act, 2021 will cease on 31-3-2023 – proviso to section 25(4A) of Customs Act inserted w.e.f. March, 2021.

Time limit for issue of show cause notice under sections 28(1) or 28(4) – Any inquiry or investigation under Customs Act culminating in the issuance of a notice under section 28(1) or 28(4) of Customs Act shall be completed by issuing such notice, within a period of two years from the date of initiation of audit, search, seizure or summons, as the case may be – section 28BB(1) of Customs Act inserted w.e.f. March, 2021.

The Principle Commissioner or Commissioner of Customs can extend the period by further one year  – proviso to section 28BB(1) of Customs Act inserted w.e.f. March, 2021.

For computing the period under section 28BB(1), the period during which stay was granted by an order of a court or tribunal, or the period for seeking information from an overseas authority through a legal process, shall be excluded –  section 28BB(2) of Customs Act inserted w.e.f. March, 2021.

Nothing contained in section 28BB shall apply to any such proceeding initiated before the date on which the Finance Bill, 2021 receives the assent of the President  –  explanation to section 28BB(1) of Customs Act inserted w.e.f. March, 2021.

The two year limit is not for completing the adjudication but only for issue of show cause notice. Then, adjudication can be done anytime.

Bill of Entry to be presented before end of day (including holidays) preceding the day on which vehicle, aircraft or vessel arrives – Bill of Entry should be presented before end of day (including holidays) preceding the day on which vehicle, aircraft or vessel arrives –section 46(3) of Customs Act amended w.e.f. March, 2021.

CBI&C can prescribe different time limits for presentation of Bill of Entry, which shall not be later than the end of the day of such arrival – – first proviso to section 46(3) of Customs Act inserted w.e.f. March, 2021.

The Bill of Entry can be presented upto 30 days prior to expected arrival of aircraft or vessel by which goods have been shipped for importation into India – second proviso to section 46(3) of Customs Act, renumbered w.e.f. March, 2021.

If Bill of Entry is not filed in time, charges are payable – third proviso to section 46(3) of Customs Act, renumbered w.e.f. March, 2021.

Easy way of increasing revenue.

Commissioner (Appeals) can approve disposal of gold seized  – Jurisdictional Commissioner (Appeals) can approve disposal of gold seized under section 110(1) of Customs Act [presently, details have to be submitted to Magistrate] – insertion of section 110(1D), amendment to section 5(3) and amendment to explanation to section 139 of Customs Act w.e.f. March, 2021.

Reducing work of department.

Confiscation of goods entered for exportation for wrongful claim if remission or refund of tax – The following goods shall be liable for confiscation –  any goods entered for exportation under claim of remission or refund of any duty or tax or levy to make a wrongful claim in contravention of the provisions of Customs Act or any other law for the time being in force – section 113(ja) of Customs Act inserted w.e.f. March, 2021.

Penalty for fraudulent utilisation of input tax credit for claiming refund on goods entered for export – Where any person has obtained any invoice by fraud, collusion, willful misstatement or suppression of facts to utilise input tax credit on the basis of such invoice for discharging any duty or tax on goods that are entered for exportation under claim of refund of such duty or tax, such person shall be liable for penalty not exceeding five times the refund claimed – section 114AC of Customs Act inserted w.e.f. March, 2021.

For the purposes of section 114AC of Customs Act, the expression “input tax credit” shall have the same meaning as assigned to it in section 2(63) of the Central Goods and Services Tax Act, 2017 – explanation to  section 114AC of Customs Act inserted w.e.f. March, 2021.

Amendment to export or import documents by importer or exporter himself – Presently, section 149 of Customs Act empowers proper officer to amend export or import document.

Now, such amendment may also be done electronically through the customs automated system on the basis of risk evaluation through appropriate selection criteria – second proviso to section 149 of Customs Act inserted w.e.f. March, 2021.

Such amendments, as may be specified by CBI&C, may be done by the importer or exporter on the common portal – third proviso to section 149 of Customs Act inserted w.e.f. March, 2021.

Good step towards ease of doing business.

Notice, order, summons, decision can be communicated through common portal – Any notice, order, summons, decision can be communicated by making it available on common portal – section 153(1)(ca) of Customs Act inserted w.e.f. March, 2021.

Safeguard duty if EOU and SEZ clears goods in DTA or if specifically made applicable – Provisions of safeguard duty will not apply to imports by EOU or SEZ, unless specifically made applicable to such undertaking or unit or if EOU/SECZ unit clears the goods as such in DTA, in which case, safeguard measures shall be applied on the portion of the article so cleared or used, as was applicable when it was imported into India – section 8B(6) of Customs Tariff Act The word ‘or’ is inserted w.e.f. March, 2021. [This is to correct drafting mistake].

Safeguard measures – Safeguard measures means safeguard duty or tariff rate quota or such other measures imposed under section 8B(1) of Customs Tariff Act – rule 2(fa) inserted w.e.f. 1-2-2021. The ‘Customs Tariff (Identification and Assessment of Safeguard Duty) Rule, 1997 have been amended making changes relating to determination of serious injury or threat of injury and refunds.

Anti-circumvention provision – Countervailing duty on other articles if description or country of origin changed can be levied from date of initiation of enquiry – Often, when countervailing duty on subsidized articles is imposed, description of imported goods is changed or goods are imported in unassembled or dis-assembled condition or country of origin is changed or some other way is adopted to render the countervailing duty ineffective. In such case, countervailing duty can be imposed on such article also from such date, not earlier than the date of initiation of the inquiry, as the Central Government may, by notification in the Official Gazette, specify – section 9(1A) of Customs Tariff Act. The words in italics inserted w.e.f. March, 2021.

Increase in Countervailing duty on subsidized articles, if export price was decreased by exporter in foreign country – If Countervailing duty on subsidized articles is imposed in India, it is possible that the exporter in foreign country may decrease his selling price and sale price in India may remain unchanged. In such case, Countervailing dutyon subsidized articles may be modified in India to counter effect of such decrease.

The statutory provision is as follows –

Where the Central Government, on such inquiry as it considers necessary, is of the opinion that absorption of countervailing duty imposed under section 9(1) has taken place whereby the countervailing duty so imposed is rendered ineffective, it may modify such duty to counter the effect of such absorption, from such date, not earlier than the date of initiation of the inquiry, as the Central Government may, by notification in the Official Gazette, specify – section 9(1B) of Customs Tariff Act inserted w.e.f. March, 2021.

For the purposes of section 9(1B), “Absorption of countervailing duty” is said to have taken place – (a) if there is a decrease in the export price of an article without any commensurate change in the resale price in India of such article imported from the exporting country or territory; or (b) under such other circumstances as may be provided by rules – explanation to section 9(1B) of Customs Tariff Act inserted w.e.f. March, 2021.

Countervailing duty on subsidized articles if EOU and SEZ clears goods in DTA or if specifically made applicable – Provisions of Countervailing duty on subsidized articles will not apply to imports by EOU or SEZ, unless specifically made applicable to such undertaking or unit or if EOU/SEZ unit clears the goods as such in DTA, in which case, Countervailing duty on subsidized articles shall be applied on the portion of the article so cleared or used, as was applicable when it was imported into India – section 9(2A) of Customs Tariff Act inserted w.e.f. March, 2021.

Countervailing duty on subsidized goods can continue upto five years – Presently, Countervailing duty on subsidized articles continues for five years. Now, it is provided that it can continue upto five years  – section 9(6) of Customs Tariff Act amended w.e.f. March, 2021.

It is also provided that if Countervailing duty on subsidized articles is revoked temporarily, such revocation shall not exceed one year at a time – third proviso section 9(6) of Customs Tariff Act inserted w.e.f. March, 2021.

Proviso to rule 28(2) and 24(4) Customs Tariff (Identification, Assessment and Collection of Countervailing Duty on Subsidized Articles and for determination of Injury) Rules, 1995 as inserted w.e.f. 1-7-2021 provide that review shall be completed at least three months prior to expiry of duty under review.

Anti-circumvention provision – Anti dumping duty on other articles if description or country of origin changed can be levied from date of initiation of enquiry – Often, when anti-dumping duty is imposed, description or name or composition of imported goods is changed or goods are imported in unassembled or dis-assembled condition or country of origin is changed or some other way is adopted to render the anti-dumping duty ineffective. In such cases, anti-dumping duty can be imposed on such article originating in or exported from such country, as the case may be, from such date, not earlier than the date of initiation of the inquiry, as the Central Government may, by notification in the Official Gazette, specify – section 9A(1A) of Customs Tariff Act. The words in italics inserted w.e.f. March, 2021.

Rule 26(4A) of Customs Tariff (Identification, Assessment and Collection of Anti-dumping duty on Dumped Articles and for determination of Injury) Rules, 1995 has been inserted enabling Central Government to resort to provisional assessment till decision is taken.

Increase in Anti dumping duty, if export price was decreased by exporter in foreign country – If anti-dumping duty is imposed in India, it is possible that the exporter in foreign country may decrease his selling price and sale price in India may remain unchanged. In such case, anti-dumping duty may be modified in India to counter the effect of such decrease.

The statutory provision is as follows –

Where the Central Government, on such inquiry as it may consider necessary, is of the opinion that absorption of anti-dumping duty imposed under section 9A(1) has taken place whereby the anti-dumping duty so imposed is rendered ineffective, it may modify such duty to counter the effect of such absorption, from such date, not earlier than the date of initiation of the inquiry, as the Central Government may, by notification in the Official Gazette, specify – section 9A(1B) of Customs Tariff Act inserted w.e.f. March, 2021.

For the purposes of section 9A(1B), “Absorption of anti-dumping duty” is said to have taken place,– (a) if there is a decrease in the export price of an article without any commensurate change in the cost of production of such article or export price of such article to countries other than India or resale price in India of such article imported from the exporting country or territory; or (b) under such other circumstances as may be provided by rules –  explanation to section 9A(1B) of Customs Tariff Act inserted w.e.f. March, 2021.

No anti dumping duty in case of imports by EOU and SEZ, unless such goods are cleared in DTA – Anti-dumping duty is not applicable for imports by EOU or SEZ units, unless (i) it is specifically made applicable in the notification imposing anti-dumping duty or (ii) such article is either cleared as such into the domestic tariff area or used in the manufacture of any goods that are cleared into the domestic tariff area, in which case, antidumping duty shall be imposed on that portion of the article so cleared or used, as was applicable when it was imported into India. [section 9A(2A) of Customs Tariff Act as substituted w.e.f. March, 2021.].

Discontinuation of anti-dumping duty i.e. sunset review and extension of anti-dumping duty – Anti dumping duty ceases on the expiry of five years from date of imposition. However, Central Government can extend the anti-dumping duty for a further period upto five years, if it is of the opinion that cessation is likely to lead to continuation or recurrence of dumping and injury. If the review was initiated before expiry of five years, anti-dumping duty may continue to remain in force pending outcome of such review for a further period of one year. If the anti-dumping duty is revoked temporarily, the period of such revocation shall not exceed one year at a time – section 9A(5) of Customs Tariff Act, amended w.e.f. March, 2021.

Proviso to rule 28(2) and 23(2) of Customs Tariff (Identification, Assessment and Collection of Anti-dumping duty on Dumped Articles and for determination of Injury) Rules, 1995 as inserted w.e.f. 1-7-2021 provides that review shall be completed at least three months prior to expiry of duty under review.

Agriculture Infrastructure and Development Cess (AIDC) – An Agriculture Infrastructure and Development Cess (AIDC) has been imposed on some specified products w.e.f. 2-2-2021, vide clause 115 of Finance Bill, 2021. It is ‘duty of customs’. The purpose is to finance agriculture infrastructure and other development expenditure. AIDC rate can be upto rate of customs duty as specified in First Schedule to Customs Tariff Act.

The value for purpose of AIDC is same as per section 14 of Customs Act. All provisions of Customs Act relating to assessment, levy, refund etc. will apply to AIDC.

The goods on which AIDC is leviable and rate of AICD has been specified in Notification No. 11/2021-Cus dated 1-2-2021.

AIDC is not leviable on goods imported under Advance Authorisation, EOU and FTA (Free Trade Agreements).

Gold & Silver (and their dore) imported under export promotion schemes (which is exempt under Notification No. 56/2000-Cus dated 5-5-2000 and 57/2000-Cus both dated 8-5-2000) has been exempted from Agriculture Infrastructure and Development Cess (AIDC) w.e.f. 17-2-2021.

AIDC is ‘duty of customs’ and hence has to be included while calculating Social Welfare Surcharge.

However, social welfare surcharge is not leviable on AIDC on silver (7106) and Gold (7108) – Notification No. 13/2021-Cus dated 1-2-2021.

Partial Exemption from AIDC in respect of trade agreements – Partial exemption from AIDC (the partial exemption same as applicable to basic customs duty) has been granted to goods imported under following trade agreements – (a) LDC (Least Developed Countries) – 96/2008-Cus dated 13-8-2008 (b) MERCOSUR Member States – 57/2009-Cus dated 30-5-2009 (c) Chile – 101/2007-Cus dated 11-9-2007 (d) Asia Pacific Trade Agreement APTA) – 50/2018-Cus dated 30-6-2018. All these notifications haven been amended vide Notification No. 16/2021-Cus dated 5-2-2021.

Payment of AIDC of EOU if goods or final product cleared in DTA – CBI&C, vide Circular No. 07/2021-Customs dated 22-2-2021 has clarified as follows.

As per Notification No. 11/2021- Customs dated 1-2-2021 goods imported by EOUs/EHTP units/STP units (collectively called EOUs) are exempted from the AIDC as the goods imported by these units enjoy benefit of exemption from basic customs duty under notification no. 52/2003-Cus dated 31.03.2003.

In case of EOU selling finished goods in DTA, BCD exempted on import of inputs used in such finished goods is to be paid vide Notification No. 52/2003-Customs dated 31.03.2003. Similarly, AIDC exemption under Notification no. 11/2021-Customs dated 01.2.2021 also gets denied on such inputs and same is also required to be paid by EOU.

In addition to clearance of goods in DTA there are many situations like clearance of inputs; capital goods; packing material suitable for repeated use such empty cones, bobbins, containers; left over textile fabric or textile material etc. or exit from EOU scheme. In such cases duty/tax of which exemption under Notification No. 52/2003-Customs dated 31.03.2003 was availed at the time of import is required to be paid at the time of clearance. In case of clearance of capital goods, applicable depreciation is allowed for denial of exemption. Unutilized left over textile fabric or textile material is allowed to be cleared into DTA on payment of duty leviable at the time of import but for the exemption on transaction value as if the goods have been manufactured in that unit.

Exemption of duty/tax on goods imported under Notification No. 52/2003-Customs dated 31-03-2003 is also denied on account of breach of various conditions of EOU scheme. Once EOU is required to pay back BCD for which exemption was claimed and allowed under Notification No. 52/2003-Customs dated 31.03.2003 at the time of import then exemption of AIDC, if availed, in all such situations shall also be denied.

Thus, EOU shall be required to pay AIDC in the manner of payment of BCD against the goods imported under exemption Notification No. 52/2003-Customs dated 31.03.2003 under various situations.

Social Welfare surcharge 10% on gold, silver, petrol and diesel – Social Welfare surcharge was 3% on gold, silver, petrol and diesel vide Notification No. 12/2018-Cus dated 2-2-2018. Now this notification has been rescinded and social welfare surcharge would be 10% w.e.f. 2-2-2021 on these goods.

Amendment to Customs (Import of Goods at Concessional Rate of Duty) Rules, 2017 – Following changes are made – (a) job-work of the materials allowed (except gold and jewellery and other precious metals) imported under concessional rate of duty (b) 100% out-sourcing for manufacture of goods on job-work permitted (c) imported capital goods that have been used for the specified purpose can be cleared on payment of differential duty, along with interest, on the depreciated value.

The depreciation norms on capital goods would be the same as applied to EOUs, as per Foreign Trade Policy.

Goods imported at concessional rate can be used for providing output service also.

The Amended Rules provide for intimation when goods are received for job work and quarterly return.

Presently, EOU require specific permission for job work outside. Sub-contract only upto 50% of their overall production of EOU is permitted.

General permission for sending goods for job work without restrictions is good step towards ‘ease of doing business’, good relief for EOU.

V S Datey

Executive Summary

Provisions relating to Corporate Social Responsibility (CSR) have been revamped w.e.f. 22-1-2021, by making amendments to section 135 of Companies Act, 2013 and amending Companies (CSR Policy) Rules, 2014. The amended provisions are explained in this article.

1. Background

Company is a part of society and has duties towards it.

Corporate Social Responsibility (CSR) is pragmatic responsiveness to stakeholders, consumers and civil society. It is deliberate inclusion of public interest into corporate decision making.

In National Textile Workers Union v. P R Ramakrishnan AIR 1983 SC 75 = (1983) 1 SCC 228 = 53 Comp Cas 184 (SC 5 member bench 3 v. 2 judgment), it was observed – ‘Company is not ‘property’ of shareholders. They provide only capital, but there are other factors of production like labour, financial institutions, depositors, consumers and rest of members of community. Then why only capital, which is only one of the factors of production should be regarded as owner having an exclusive dominion over the concern ? – . – Company is a social institution having duties and responsibilities towards the community in which it functions. Its objective is to bring about maximization of social welfare and common good. [In this case, it was held that workers can appear before High Court in winding up petition of company as they have interest. They can even file an appeal].

Ministry of Corporate Affairs had issued Corporate Social responsibility Voluntary guidelines in 2010.

Now, under the 2013 Act, specific provisions have been made in section 135 of Companies Act, 2013. Companies (Corporate Social Responsibility Policy) Rules, 2014 were notified, which have been substantially changed w.e.f. 22-1-2021.

It seems India is the only country so far, where CSR has been made mandatory.

CSR provisions revamped w.e.f. 22-1-2021 – Provisions relating to CSR have been revamped w.e.f. 22-1-2021. The major changes are as follows –

• If CSR activities of company are carried through section 8 company, registered public trust or registered society, such section 8 company, registered public trust or registered society would require registration with MCA [rule 4(2)] [Hopefully, this will reduce siphoning off of CSR funds through such trusts, societies or companies].
• If CSR spending exceeds 2% of average net profits of company made during preceding three financial years, the excess amount can be carried forward and set off against CSR spent required in subsequent three financial years [third proviso to section 135(5)]
• Capital Assets can be created but those will have to be transferred to trust, society or section 8 company [rule 7(4)]

• If CSR spending is less than 2%, the unspent amount should be transferred to specified fund except in case of ongoing project [second proviso to section 135(5), section 135(6) and rule 10].
• If not so transferred, penalty provisions apply [section 135(7)]
• Capital assets can be created out of CSR funds but those assets should be transferred to specified entity [rule 7(4)]

The provisions are discussed below.

2. Activities which are not eligible as ‘Corporate Social Responsibility’

As per Rule 2(d) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021, “Corporate Social Responsibility (CSR)” means the activities undertaken by a Company in pursuance of its statutory obligation laid down in section 135 of the Companies Act, 2013, in accordance with the provisions contained in these rules, but shall not include the following, namely:-

(i) activities undertaken in pursuance of normal course of business of the company. However, any company engaged in research and development activity of new vaccine, drugs and medical devices in their normal course of business may undertake research and development activity of new vaccine, drugs and medical devices related to COVID-19 for financial years 2020-21, 2021-22, 2022-23 subject to the conditions that- (a) such research and development activities shall be carried out in collaboration with any of the institutes or organisations mentioned in Schedule VII(ix) to the Act (b) details of such activity shall be disclosed separately in the Annual report on CSR included in the Board’s Report

(ii) any activity undertaken by the company outside India except for training of Indian sports personnel representing any State or Union territory at national level or India at international level.

(iii) contribution of any amount directly or indirectly to any political party under section 182 of the Act.

(iv) activities benefitting employees of the company as defined in section 2(k) of the Code on Wages, 2019.

(v) activities supported by the companies on sponsorship basis for deriving marketing benefits for its products or services.

(vi) activities carried out for fulfilment of any other statutory obligations under any law in force in India.

Employee under Code on Wages – “Employee” means, any person (other than an apprentice engaged under the Apprentices Act, 1961), employed on wages by an establishment to do any skilled, semi-skilled or unskilled, manual, operational, supervisory, managerial, administrative, technical or clerical work for hire or reward, whether the terms of employment be express or implied, and also includes a person declared to be an employee by the appropriate Government, but does not include any member of the Armed Forces of the Union – section 2(k) of Code on Wages, 2019.

3. Companies to which CSR provisions are applicable

Every company having (a) net worth of rupees five hundred crore or more, or (b) turnover of rupees one thousand crore or more or (c) a net profit of rupees five crore or more during immediately preceding financial year shall constitute a Corporate Social Responsibility Committee of the Board – section 135(1) of Companies Act, 2013 [words in italics substituted w.e.f. 19-9-2018].

‘Any Financial year’ referred to in section 135(1) of Companies Act, 2013 read with rule 3(2) of CST Rules implies ‘any of the three preceding financial years’.

Holding, subsidiary and foreign company liable – Every company including its holding or subsidiary, and a foreign company defined under section 2(45) of the Companies Act having its branch office or project office in India, which fulfils the criteria specified in section 135(1) of the Companies Act, 2013 shall comply with the provisions of section 135 of the Act and the CSR rules – Rule 3(1) of Companies (CSR Policy) Rules, 2014.

Provisions of CSR apply to foreign branch/project office of foreign company – CSR provisions will apply to foreign companies also – section 384(2) of Companies Act, 2013 amended w.e.f. 9-2-2018.

The provisions of CSR (Corporate Social Responsibility) are applicable to foreign company having branch office or project in India if it fulfils criteria of net worth or turnover or net profit – Rule 3(1) of Companies (Corporate Social Responsibility Policy) Rules, 2014.

The criteria of net profit etc. applies only to business operations in India in case of foreign company/project office.

Net worth, turnover or net profit in case of a foreign company – Net worth, turnover or net profit of a foreign company of the Act shall be computed in accordance with balance sheet and profit and loss account of such company prepared in accordance with the provisions of section 381(1)(a) and section 198 of the Companies Act, 2013 – proviso to Rule 3(1) of Companies (CSR Policy) Rules, 2014.

CSR spending not required if net worth, turnover and net profit falls below prescribed limit for three consecutive years – Every company which ceases to be a company covered under section 135(1) of the Act for three consecutive financial years shall not be required to— (a) constitute a CSR Committee; and (b) comply with the provisions contained in sections 135(2), 135(3), 135(4), 135(5) and section 135(6) till such time it meets the criteria specified in section 135(1) of Companies Act, 2013 – Rule 3(2) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

CSR provisions apply to section 8 company also – CSR provisions apply to ‘every company’ and hence apply to section 8 company also, if it fulfils criteria – MCA circular No. 01/2016 dated 12-1-2016.

4. CSR Committee of Board to undertake and monitor CSR activities.

Company to which CSR spending is mandatory should appoint a CSR Committee to undertake and monitor CSR activities.

Composition of the committee – The Corporate Social Responsibility Committee shall consist of three or more directors, out of which at least one director shall be an independent director – section 135(1) of Companies Act, 2013.

An unlisted public company or a private company which is covered under CSR provisions as per section 135(1) of Companies Act, 2013, but is not required to have independent director on the CSR Committee, can have two or more directors on CSR Committee – proviso to section 135(1) of Companies Act, 2013 inserted w.e.f. 19-9-2018].

Separate CSR Committee not required if CSR amount to be spent is less than Rs 50 lakhs per annum – In case of companies where amount to be spent under CSR foes not exceed Rs 50 lakhs, the Board of Directors will discharge functions of CSR Committee. It shall not be necessary to constitute separate CSR Committee – section 135(9) of Companies Act, 2013 inserted w.e.f. 22-1-2021.

Constitution of CSR committee in case of private company, foreign company or where no independent director – The companies mentioned in rule 3 shall constitute CSR Committee as under – (i) a company covered under section 135(1) which is not required to appoint an independent director pursuant to section 149(4) of the Act, shall have its CSR Committee without such director (ii) a private company having only two directors on its Board shall constitute its CSR Committee with two such directors (iii) with respect to a foreign company covered under these rules, the CSR Committee shall comprise of at least two persons of which one person shall be as specified under section 380(1)(d) of the Companies Act, 2013 [i.e. person resident in India authorized to receive notices to be served on company] and another person shall be nominated by the foreign company – Rule 5(1) of Companies (CSR Policy) Rules, 2014.

Submission of annual action plan by CSR Committee to Board – The CSR Committee shall formulate and recommend to the Board, an annual action plan in pursuance of its CSR policy, which shall include the following – (a) the list of CSR projects or programmes that are approved to be undertaken in areas or subjects specified in Schedule VII of the Companies Act (b) the manner of execution of such projects or programmes as specified in rule 4(1)(c), the modalities of utilisation of funds and implementation schedules for the projects or programmes (d) monitoring and reporting mechanism for the projects or programmes; and (e) details of need and impact assessment, if any, for the projects undertaken by the company. – – Board may alter such plan at any time during the financial year, as per the recommendation of its CSR Committee, based on the reasonable justification to that effect – Rule 5(2) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

Responsibilities of Corporate Social Responsibility Committee – The Corporate Social Responsibility Committee shall – (a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activity or activities to be undertaken by the company in areas or subject, specified in Schedule VII (b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and (c) monitor the Corporate Social Responsibility Policy of the company from time to time – section 135(3) of Companies Act, 2013 [The words in italics inserted w.e.f. 19-9-2018].

Government will not monitor implementation of CSR policies by companies – In MCA circular No. 01/2016 dated 12-1-2016, it has been clarified that Government will have no role in monitoring implementation of CSR policies by companies.

5. CSR Policy

“CSR Policy” means a statement containing the approach and direction given by the board of a company, taking into account the recommendations of its CSR Committee, and includes guiding principles for selection, implementation and monitoring of activities as well as formulation of the annual action plan – Rule 2(f) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

6. Actions required by Board of Directors

The Board of every company shall, (a) after taking into account the recommendations made by Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company’s website, if any, in prescribed manner (b) ensure that the activities as are included in Corporate Social Responsibility Policy of the company are undertaken by the company [section 135(4) of Companies Act, 2013.

7. Spending at least 2% of average net profits of CSR

The Board of Directors shall ensure that at least 2% of average net profits of the company made during three immediately preceding financial years or where the company has not completed the period of three financial years since its incorporation, during such immediately preceding financial years, is spent in every financial year on CSR. – section 135(5) of Companies Act, 2013. The words in italics are inserted vide Companies (Amendment) Act, 2019 w.e.f.  22-1-2021.

Thus, after 22-1-2021, provisions of CSR will apply even in first three financial years, if other conditions in respect of CSR like profits and net worth are fulfilled.

Net profit is basically PBT – Net profit is primarily PBT (Profit Before Tax) – MCA circular No. 01/2016 dated 12-1-2016.

Exclusion from ‘ net profit’ – Net Profit shall not include such sums as may be prescribed and shall be calculated as per section 198 of Companies Act, 2013 – Explanation to section 135 of Companies Act, 2013.

Meaning of ‘Net Profit’ – “Net profit” means the net profit of a company as per its financial statement prepared in accordance with the applicable provisions of the Act, but shall not include the following – (i) any profit arising from any overseas branch or branches of the company, whether operated as a separate company or otherwise; and (ii) any dividend received from other companies in India, which are covered under and complying with the provisions of section 135 of the Act – Rule 2(h) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

Net profit in case of foreign company – In case of a foreign company covered under CSR rules, net profit means the net profit of such company as per profit and loss account prepared in terms of section 381(1)(a), read with section 198 of the Companies Act, 2013 – proviso to Rule 2(h) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

8. Activities which may be included by a company in its CSR Policies

A company may include following activities in its CSR policy [schedule VII of Companies Act, 2013]

(i) eradicating hunger, poverty and malnutrition, promoting health care including preventive health care and sanitation including contribution to the Swach Bharat Kosh set up by the Central Government for the promotion of sanitation and making available safe drinking water [as amended w.e.f. 24-10-2014].

(ii) promoting education, including special education and employment enhancing vocation skills especially among children, women, elderly, and the differently abled and livelihood enhancement projects;

(iii) promoting gender equality, empowering women, setting up homes and hostels for women and orphans; setting up old age homes, day care centres and such other facilities for senior citizens and measures for reducing inequalities faced by socially and economically backward groups;

(iv) ensuring environmental sustainability, ecological balance, protection of flora and fauna, animal welfare, agroforestry, conservation of natural resources and maintaining quality of soil, air and water, including contribution to the Clean Ganga Fund set up by the Central Government for rejuvenation of river Ganga (amended w.e.f. 24-10-2014).

(v) protection of national heritage, alt and culture including restoration of buildings and sites of historical importance and works of art; setting up public libraries; promotion and development of traditional arts and handicrafts:

(vi) measures for the benefit of armed forces veterans, war widows and their dependents; Central Armed Police Forces (CAPF) and Central Para Military Forces (CPMF) veterans, and their dependents including widows [words in italics inserted w.e.f. 23-6-2020]

(vii) training to promote rural sports, nationally recognised sports, paralympic sports and Olympic sports;

(viii) contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government for socio-economic development and relief and welfare of the Scheduled Caste, the Scheduled Tribes, other backward classes, minorities and women; or Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund (PM CARES Fund) [words in italics inserted w.e.f. 28-3-2020]

(ix) (a) Contribution to incubators or research and development projects in the field of science, technology, engineering and medicine, funded by the Central Government or State Government or Public Sector Undertaking or any agency of the Central Government or State Government; and (b) Contributions to public funded Universities; Indian Institute of Technology (IITs); National Laboratories and autonomous bodies established under Department of Atomic Energy (DAE); Department of Biotechnology (DBT); Department of Science and Technology (DST); Department of Pharmaceuticals; Ministry of Ayurveda, Yoga and Naturopathy, Unani, Siddha and Homoeopathy (AYUSH); Ministry of Electronics and Information Technology and other bodies, namely Defense Research and Development Organisation (DRDO); Indian Council of Agricultural Research (ICAR); Indian Council of Medical Research (ICMR) and Council of Scientific and Industrial Research (CSIR), engaged in conducting research in science, technology, engineering and medicine aimed at promoting Sustainable Development Goals (SDGs) [substituted w.e.f. 24-8-2020] – earlier the words were -(ix) contributions or funds provided to technology incubators located within academic institutions which are approved by the Central Government and contribution to public funded Universities, IIT, Laboratories and bodies set up by ICAR, CSIR, DAE, DRDO, DST etc. [words in italics were inserted w.e.f. 11-10-2019].

(x) rural development projects

(xi) Slum Area Development (inserted w.e.f. 6-8-2014) [slum area means aa area declared as such by Central Government, State Government or any other competent authority].

(xii) Disaster management, including relief, rehabilitation and reconstruction activities [inserted w.e.f. 30-5-2019].

Liberal interpretation permissible – Entries in Schedule VII of Companies Act, 2013 should be interpreted liberally so as to capture essence of the subjects enumerated in the Schedule – MCA Circular No. 21/2014 dated 18-6-2014 – reiterated in – MCA circular No. 01/2016 dated 12-1-2016.

Covid-19 (Corona) related issues under CSR – MCA, vide Circular No. 15 /2020 dated 10-4-2020 has clarified various issues as follows.

1. Contribution to ‘PM CARES Fund’ shall qualify as CSR expenditure under item no (viii) of Schedule VII of the Companies Act, 2013. It was further clarified vide Office memorandum F. No. CSR-05/1/2020-CSR-MCA dated 28-3-2020 [Now, specific provision has been made]

2. However, contribution made to Chief Minister’s Relief Funds’ or State Relief Fund for COVID-19’ shall not qualify as CSR expenditure.

3. Contribution made to State Disaster Management Authority to combat COVID-19 shall qualify as CSR expenditure under item no (xii) of Schedule VII of the 2013, as clarified vide MCA circular No. 10/2020 dated 23-3-2020.

4. Spending CSR funds for COVID-19 related activities shall qualify as CSR expenditure, as clarified vide MCA circular No. 10/2020 dated 23-3-2020. Funds may be spent for various activities related to COVID-19 under items nos. (i) and (xii) of Schedule VII relating to promotion of health care including preventive health care and sanitation, and disaster management. As per MCA circular No. 21/2014 dated 18.06.2014, items in Schedule VII are broad based and may be interpreted liberally for this purpose.

5. Payment of salary/wages to employees and workers and casual/daily workers, including contract labour, during the lockdown period cannot be adjusted against the CSR expenditure of the company, as it is moral obligation of employer.

6. Payment of ex-gratia to temporary /casual /daily wage workers over and above the disbursement of wages, specifically for the purpose of fighting COVID 19, shall be admissible towards CSR expenditure as a one-time exception, provided there is an explicit declaration to that effect by the Board of the company, which is duly certified by the statutory auditor.

9. How to undertake CSR activities

As per Rule 4(1) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021, the Board shall ensure that the CSR activities are undertaken by the company itself or through –

(a) a company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80 G of the Income Tax Act, 1961, established by the company, either singly or along with any other company, or

(b) a company established under section 8 of the Act or a registered trust or a registered society, established by the Central Government or State Government; or

(c) any entity established under an Act of Parliament or a State legislature; or

(d) a company established under section 8 of the Act, or a registered public trust or a registered society, registered under section 12A and 80G of the Income Tax Act, 1961, and having an established track record of at least three years in undertaking similar activities.

Registration with Government by entity which intends to undertake CSR activity on behalf of other companies – Every entity, covered under rule 4(1), who intends to undertake any CSR activity, shall register itself with the Central Government by filing the form CSR-1 electronically with the Registrar, with effect from 1-4-2021 – Rule 4(2)(a) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

The provisions of rule 4(1) shall not affect the CSR projects or programmes approved prior to 1-4-2021 – proviso to Rule 4(2)(a) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

Form CSR-1 shall be signed and submitted electronically by the entity and shall be verified digitally by a Chartered Accountant in practice or a Company Secretary in practice or a Cost Accountant in practice – Rule 4(2)(b) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

On the submission of the Form CSR-1 on the portal, a unique CSR Registration Number shall be generated by the system automatically – Rule 4(2)(c) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

Purpose of the provision – Presently, many companies syphon out CSR funds through trusts or section 8 companies. Now, there will be some control on such syphoning.

Engagement of international organisations for CSR projects – A company may engage international organisations for designing, monitoring and evaluation of the CSR projects or programmes as per its CSR policy as well as for capacity building of their own personnel for CSR – Rule 4(3) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

“International Organisation” means an organisation notified by the Central Government as an international organisation under section 3 of the United Nations (Privileges and Immunities) Act, 1947, to which the provisions of the Schedule to the said Act apply – Rule 2(g) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

Company can collaborate with other companies, but should report separately – A company may also collaborate with other companies for undertaking projects or programmes or CSR activities in such a manner that the CSR committees of respective companies are in a position to report separately on such projects or programmes in accordance with the CSR rules – Rule 4(4) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

Monitoring and certification of disbursement of CSR funds – The Board of a company shall satisfy itself that the funds so disbursed have been utilised for the purposes and in the manner as approved by it and the Chief Financial Officer or the person responsible for financial management shall certify to the effect – Rule 4(5) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

Monitoring of ‘ongoing project’ – In case of ongoing project, the Board of a Company shall monitor the implementation of the project with reference to the approved time lines and year-wise allocation and shall be competent to make modifications, if any, for smooth implementation of the project within the overall permissible time period – Rule 4(6) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

“Ongoing Project” means a multi-year project undertaken by a Company in fulfilment of its CSR obligation having timelines not exceeding three years excluding the financial year in which it was commenced, and shall include such project that was initially not approved as a multi-year project but whose duration has been extended beyond one year by the board based on reasonable justification – Rule 2(i) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

CSR activities as programmes – CSR activities should be undertaken as projects/programmes. One-off events such as marathons, awards, charitable contribution/ advertisement/ sponsorship of TV programmes etc. would not be clarified as part of CSR expenditure – – MCA Circular No. 21/2014 dated 18-6-2014.

CSR expenditure to be within India – Projects undertaken outside India will not be considered for CSR expenditure. However, some expenditure outside India is permitted.

Foreign holding company to route CSR expenditure through Indian subsidiary – If Indian subsidiary is required to undertake CSR activities as per section 135(1) of Companies Act, 2013, the Foreign holding company should route CSR expenditure through Indian subsidiary – MCA Circular No. 21/2014 dated 18-6-2014.

10. Carry forward, set off and Restrictions on CSR Expenditure,

The provisions in respect of restrictions on CSR expenditure, set off and carry forward are as follows.

Restrictions on administrative overheads for CST expenditure – The board shall ensure that the administrative overheads shall not exceed 5% of total CSR expenditure of the company for the financial year – Rule 7(1) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

“Administrative overheads” means the expenses incurred by the company for ‘general management and administration’ of Corporate Social Responsibility functions in the company but shall not include the expenses directly incurred for the designing, implementation, monitoring, and evaluation of a particular Corporate Social Responsibility project or programme – Rule 2(b) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

Plough back of surplus from CSR activities – Any surplus arising out of the CSR activities shall not form part of the business profit of a company and shall be ploughed back into the same project or shall be transferred to the Unspent CSR Account and spent in pursuance of CSR policy and annual action plan of the company or transfer such surplus amount to a Fund specified in Schedule VII, within a period of six months of the expiry of the financial year – Rule 7(2) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

Carry forward of excess CSI expenditure and its set off – If company spends amount in excess of requirements under section 135(5), the company may set off such excess amount against requirement to spend under section 135(5) for such number of succeeding financial years and in such manner, as may be prescribed – third proviso to section 135(5) of Companies Act, 2013 inserted w.e.f. 22-1-2021.

Where a company spends an amount in excess of requirement provided under section 135(5), such excess amount may be set off against the requirement to spend under section 135(5) up to immediate succeeding three financial years subject to the conditions that – (i) the excess amount available for set off shall not include the surplus arising out of the CSR activities, if any, in pursuance of rule 7(2) of CSR Rules (ii) the Board of the company shall pass a resolution to that effect – Rule 7(3) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

Spending of CSR for capital assets – The CSR amount may be spent by a company for creation or acquisition of a capital asset, which shall be held by – (a) a company established under section 8 of the Act, or a Registered Public Trust or Registered Society, having charitable objects and CSR Registration Number under rule 4(2); or (b) beneficiaries of the said CSR project, in the form of self-help groups, collectives, entities; or (c) a public authority – Rule 7(4) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

“Public Authority” means ‘Public Authority’ as defined in section 2(h) of the Right to Information Act, 2005 – Rule 2(j) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

As per section 2(h) of RTI Act, “public authority” means any authority or body or institution of self-government established or constituted— (a) by or under the Constitution (b) by any other law made by Parliament (c) by any other law made by State Legislature (d) by notification issued or order made by the appropriate Government, and includes any—(i) body owned, controlled or substantially financed;(ii) non-Government organisation substantially financed, directly or indirectly by funds provided by the appropriate Government.

Capital assets existing as on 22-1-2021 – Any capital asset created by a company prior to the commencement of the Companies (Corporate Social Responsibility Policy) Amendment Rules, 2021 (i.e. prior to 22-1-2021), shall within a period of 180 days from such commencement comply with the requirement of rule 7, which may be extended by a further period of not more than ninety days with the approval of the Board based on reasonable justification – proviso to Rule 7(4) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

11. CSR Activities to be stated in Board report

The Board of Director’s report under section 134(3) of Companies Act, 2013 shall disclose the composition of the Corporate Social Responsibility Committee – section 135(2) of Companies Act, 2013.

The Board’s Report of a company covered under these rules pertaining to any financial year shall include an annual report on CSR containing particulars specified in Annexure I or Annexure II to Companies (CSR Policy) Rules, as applicable – Rule 8(1) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

In case of a foreign company, the balance sheet filed under section 381(1)(b) of the Companies Act, 2013 shall contain an annual report on CSR containing particulars specified in Annexure I or Annexure II, as applicable – Rule 8(2) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

12. Impact assessment of CSR expenditure

The provisions are as follows.

(a) Every company having average CSR obligation of ten crore rupees or more in pursuance of section 135(5) of the Act, in the three immediately preceding financial years, shall undertake impact assessment, through an independent agency, of their CSR projects having outlays of one crore rupees or more, and which have been completed not less than one year before undertaking the impact study. (b) The impact assessment reports shall be placed before the Board and shall be annexed to the annual report on CSR (c) A Company undertaking impact assessment may book the expenditure towards Corporate Social Responsibility for that financial year, which shall not exceed 5% of the total CSR expenditure for that financial year or fifty lakh rupees, whichever is less – Rule 8(3) of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

13. Display of CSR activities on company’s website

The Board of Directors of the Company shall mandatorily disclose the composition of the CSR Committee, and CSR Policy and Projects approved by the Board on their website, if any, for public access – Rule 9 of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

14. Effect of not complying with CSR provisions

Till 22-1-2021, spending on CSR activities was not mandatory and no penalty could be imposed for non-compliance. The only effect was that matter has to be reported in Board report with reasons – second proviso to section 135(5) of Companies Act, 2013 as existing upto 22-1-2021.

If a company fails to provide or spend such amount, the Board shall specify reasons for not spending the amount in its report – second proviso to section 135(5) of Companies Act, 2013 [as existing upto 22-1-2021].

Now the provision has been made to transfer the unspent amount to a specified fund, except in case of ongoing project, as explained below. If not so transferred, penalty provisions apply.

Transfer of unspent CSR amount to any fund as specified in Schedule VII Second proviso to section 135(5) of Companies Act, 2013, as amended by  Companies (Amendment) Act, 2019 from 22-1-2021, provides that if CSR amount is not spent during a financial year, the Board report shall state reasons for not spending that amount, and unless the unspent amount relates to an ongoing project referred to in section 235(6), the amount shall be transferred to any Fund specified in Schedule VII of Companies Act, 2013 within 6 months from expiry of financial year.

Transfer of unspent CSR amount to fund specified in Schedule VII – Until a fund is specified in Schedule VII for the purposes of sections 135(5) and 135(6) of the Companies Act, 2013, the unspent CSR amount, if any, shall be transferred by the company to any fund included in schedule VII of the Act – Rule 10 of Companies (CSR Policy) Rules, 2014 as amended on 22-1-2021.

Funds specified in Schedule VII are – Swachh Bharat Kosh, Clean Ganga Fund, Prime Minister’s National Relief Fund and Funds for technology incubators which are approved by Central Government.

15. Transfer of funds to separate bank account in case of ongoing projects

In case of unspent amount in respect of ongoing projects, company shall transfer such funds to a separate special account opened by company in scheduled bank, within 30 days from end of financial year in any scheduled bank. The company shall spend that amount within three financial years towards CSR. Otherwise, the amount shall be transferred to any Fund specified in Schedule VII of Companies Act, 2013 within 30 days from completion of third financial year – section 135(6) of Companies Act, 2013 as inserted vide Companies (Amendment) Act, 2019 from 22-1-2021.

16. Penalty for non-compliance with provisions of CSR

Section 135(7) of Companies Act, 2013 as inserted vide Companies (Amendment) Act, 2020 from 22-1-2021 provides for penalty on company of twice the amount required to be transferred to the Fund specified in Schedule VII or Rs one crore, which ever is less.

Further, every officer who is in default is liable to a penalty of one-tenth of amount required to be transferred by the company to such fund specified in Schedule VII or the unspent CSR amount, or Rs two lakhs, whichever is less.

17. Government can issue directions in respect of CSR

Section 135(8) of Companies Act, 2013 as inserted w.e.f. 22-1-2021 from date yet to be notified, makes provisions empowering Central Government to issue directions for complying with provisions of section 135 of Companies Act, 2013 in respect of CSR.

18. Income Tax Aspects of CSR

Expenditure on CSR is not allowable as deduction under section 37 of Income Tax Act. However, such expenditure may be claimed as deduction under any other section, if otherwise applicable – Explanation 2 to section 37(1) of Income Tax Act, inserted w.e.f. 1-3-2014.

In CIT v. Madras Refineries (2004) 266 ITR 170 = 138 taxman 261 (Mad HC), expenditure on CSR was allowed as business expenditure.

In CIT v. Infosys Technologies (2014) 43 taxmann.com 251 = 223 taxman 469 = 360 ITR 714 (Karn HC DB), expenditure incurred in installing traffic signals in Bangalaru city was held as allowable expenditure for corporate social responsibility [However, this was not the only reason. The company had argued that traffic signals were installed as it helped their employees to reduce travel time and come to office in time].

Avenues under Income Tax Act – Following avenues are available –

• Section 80G – only 50% of sum contributed to trust is allowable as deduction. Trust has to comply with various requirements and formalities.
• Section 35AC – Expenditure on eligible projects and schemes.
• Section 35CCA – Payment to institution carrying out rural development program
• Section 35CCB – Payment to institution for carrying on programmes of conservation of natural resources
• Section 35CCC – Expenditure on Agricultural Extension Project
• Section 35CCD – Expenditure on Skill Development Project – deduction is 150%

• E-Way Bill for Transport of Goods
  • Background of E-Way Bill Provisions
  • Generation of E-Way Bill
  • ‘Bill to Ship to’ Transactions
• Filling of Part B of E-Way Bill
  • Part B of the Form GST EWB-01
  • When Part B is not required to be filled in
• Generation of E-Way Bill by portal
  • Generation of E-Way Bill after Part A and Part B are filled in
  • Validity of E-Way Bill Generated
  • Procedure by Transporter after Generation of E-Way Bill
  • Intimation of Acceptance of Details by Recipient/Supplier
• Other Provision Relating to E-Way Bill
  • Transport of Goods for which E-Way Bill is not required
  • Goods for which E-Way Bill not required as per Annexure to Rule 138(1)
  • Other Provisions relating to E-Way Bill
  • Storing goods in godown of transport after goods reach destination
• Road Check and Verification of Documents and Conveyances
  • Background
  • Penalty for transporting goods without valid documentation
  • Penalty equal to tax mandatory – Highway Robbery
• Overview of the Provisions of E-Way Bill
  • Provisions of E-Way Bill at a glance
• Tax Invoice
  • Tax invoice or delivery challan during transport of goods
  • Invoice for supply of goods or services or both
  • Tax Invoice in respect of goods
  • Tax Invoice in case of continuous supply of goods
  • Tax Invoice when goods sent on approval basis
  • Invoice for transportation of goods in knocked down condition in more than one consignment
  • If tax invoice could not be issued at the time of removal
  • Tax invoice of goods transport agencies
  • Ticket issued in case of passenger transportation service
    is tax invoice
  • Issue of revised invoices for goods sold during period prior
    to registration
  • Contents of tax invoice
  • Relaxation is giving HSN code or accounting code of service
  • Marking on invoices for exports or supplies to SEZ
  • Consolidated daily tax invoice when sale to unregistered person
  • Marking on invoice and number of copies of invoice
  • Amount of tax to be indicated in tax invoice and other documents
  • Information of serial numbers on monthly basis
  • Invoice issued after suppression of facts, fraud, seizure and confiscation
• Delivery Challan
  • Delivery challan instead of tax invoice for transportation of goods in some specific circumstances
  • Delivery challan for sending goods for job work
  • Delivery Challan and Tax Invoice when goods sent on approval basis
• Bill of Supply when no Tax Invoice is Required
  • Bill of supply when no tax invoice is required
  • Contents of Bill of supply
• GST on Goods Transport Service
  • Service of transportation of goods
  • Goods transport by road
  • Reverse charge in respect of GTA services
  • Whether SGST and CGST is payable of IGST payable under reverse charge if transporter is from out of State
  • Service provided by person who does not issue consignment note is not taxable
  • Input Tax Credit of GST paid on GTA service is available to recipient
  • Exemptions in respect of goods transport of specified goods
  • Exemption to service of giving vehicles on hire to GTA
  • GST on outward freight charged in tax invoice in case of FOR contracts
  • Tax Invoice of Goods Transport Agencies
  • Person paying GST was eligible for the abatement upto 30-6-2017
  • Transport of goods by rail
  • Water transport service of goods
  • Inland waterways
  • Meaning of ‘National Waterway’
  • Meaning of ‘Inland water’
  • Reverse charge on inward ocean transport from out of India
  • Air transport service of goods
  • Cargo handling services

• Amendments made by Insolvency & Bankruptcy Code (Amendment) Ordinance, 2019 at a glance
• Guide to Insolvency & Bankruptcy Code (Amendment) Ordinance, 2019
• Guide to Insolvency and Bankruptcy Code, 2016 and other allied laws
• Circulars issued under IBC
• Table showing enforcement of provisions of IBC from different dates
• Rules and Regulations under IBC
• RBI (Prudential Framework for Resolution of Stressed Assets) Directions, 2019
• Law relating to securitisation
• Law relating to Recovery of Debts and Bankruptcy:
• Filing of Forms for monitoring CIRP

• Topic-wise commentary on FEMA
• Analysis of all provisions of FEMA with relevant Rules, Judicial Pronouncements, Circulars, Notifications and Master Directions issued by Reserve Bank of India.

The Present Publication is the 14th Edition, and it is amended upto 25^th November 2020. The coverage of this book is as follows:

• Current Account Transactions
• Bank Accounts in Foreign Exchange 
• Dealings in Foreign Exchange
• Export and Import of Goods and Services 
• Provisions relating to NRI and OCI
• Capital Account Transactions
• Foreign Investment in India
• Foreign Portfolio Investors
• Borrowing and Lending in Rupees and Foreign Currency
• External Commercial Borrowings
• Investment outside India
• Foreign investment in Debt Instruments
• Acquisition of property in India/Abroad
• Remittance of Assets
• Branches/LO/Project Office in India by Foreign Entities
• Offences/Penalties and Compounding under FEMA
• Law relating to Prevention of Money Laundering Act/Foreign Contribution (Regulation) Act/Conservation of Foreign Exchange and Prevention of Smuggling Activities Act

The Present Publication is the 9^th Edition, authored by Taxmann’s Editorial Team, which incorporates the amendments made by the Companies (Amendment) Act, 2020 & it is updated till 10^th January 2021. The key features of this book are as follows: 

• ‘Guide to Companies (Amendment) Act, 2020’ to quickly understand the amendments 
• Topic wise commentary on Companies Act, 2013
• Analysis of all provisions of Companies Act with relevant Rules, Judicial Pronouncements, Circulars and Notifications
• The contents of the book are as follows
  • Incorporation of a Company
  • Memorandum of Association
  • Articles of Association
  • Capital of the Company
  • Issue of Securities
  • Further Issue of Securities
  • Reduction of Capital and Buy Back of Securities
  • Public Issue of Securities
  • Membership of Company
  • Transfer of Securities
  • Nomination and Transmission of Shares
  • Democracy of Shareholders
  • Procedure of General Meeting
  • Directors of Company
  • Disqualifications and Removal of Director
  • Restrictions on Directors in Relation to Company
  • Duties, Rights and Liabilities of Directors
  • Meeting of Board to Members
  • Corporate Governance
  • Restrictions on Power of Board
  • Key Managerial Personnel
  • Charge on Assets of the Company 
  • Debentures
  • Public Deposits
  • Accounts of the Company
  • Dividend
  • Financial Audit of Accounts
  • Cost Audit and Secretarial Audit
  • Private Companies
  • Holding and Subsidiary Companies
  • Companies Licensed under Section 8
  • Government Companies
  • Foreign Company
  • Other Types of Companies
  • Miscellaneous Provisions in Company Law
  • Overview of NCLT Related Issues
  • Inspection, Investigation, Offences, Penalties
  • Administration of Company Law
  • MCA-21 – E-Governance
  • Procedural Compliances by a Company

The 22nd Edition is updated till Finance Act, 2020 with the following noteworthy features:

• Detailed analysis of provisions of the Customs laws and Foreign trade Policy 2015-20 along with relevant Judicial Pronouncements, Circulars, and Notifications
• Covers the legal text of the Customs Act, 1962 and its Rules and Regulations as amended by Finance Act, 2020
• Follows the Six-Sigma Approach, to Achieve the Benchmark of ‘Zero Error’
• Analysis of GST provisions at appropriate places
• Detailed coverage of various export promotion schemes (EPCG, Advance Authorisation, EOU, etc.)

The Present Publication is the 4^th Edition, authored by V.S. Datey & amended up to 1^st February 2021, with the following noteworthy features:

• Issues pertaining to Projects/Transfer of Development Rights (TDR)/Development Rights/Floor Space Index (FSI)/Leasing/Renting are extensively covered in this book
• Numerical illustrations to clarify issues relating to GST on Real Estate Projects are provided
• Services to and by Government is covered
• The contents of this book are as follows:
  • Part I – Basics of GST
    • Background
    • Taxable Event in GST
    • Classification of Goods and Services
    • Value of Taxable Supply of Goods or Services or Both
    • Input Tax Credit
    • Input Tax Credit when Exempted as well as Taxable Supplies are made
    • Input Service Distributor
    • Place of Supply of Goods or Services
    • Time of Supply of Goods and Services
    • Reverse Charge
    • Procedures in GST
    • E-Way Bill for Transport of Goods
    • Miscellaneous Issues in GST
  • Part II – Taxability of Works Contracts Real Estate Transactions
    • Transactions Relating to Real Estate
    • Real Estate Projects
    • TDR/FSI/Upfront Amount in Long Term Lease in Real Estate Transactions
    • Leasing and Renting of Real Estate
    • Construction and Works Contract Services
    • Government Related Activities
• Also Available
  • [4^th Edition] of Taxmann’s GST Practice Manual | Day to Day GST Practice Guide for Professionals
  • [15^th Edition] of Taxmann’s GST Ready Reckoner | Ready Referencer for all Provisions of the GST Law