Economic Legislations

Economic Legislation
Any policy has two fundamental aspects Formulation Implementation The bridge between the two is provided by legislations. Planners, legislators and executors have act in concert so as to make the policy discussions must be followed by a few illustrative examples of economic legislations, so that the analyst may understand particularly the interaction between the economic and politico-legal environment of a country.

Monopolies and Restrictive Trade Practices Act ( MRTP) 1969

The MRTP Act enacted in December 1969 and brought into force with effect from June 1 1970

Preamble
An act to provide that the operation of the economic system does not result in the concentration of economic power to the detriment for the control of monopolies, for the prohibition of monopolistic and restrictive trade practices and matters connected there with or incidental there to

Objectives It has three objectives To control and regulate the concentration of economic power in a few hands of business and industry. ( Ch. III of the Act) To control monopolies and monopolistic trade practices. (Ch. IV) To prohibit restrictive trade practices unless any one of them can be justified in the public interest. (CH. V and VI)

Applicability of the Act Prior to the notification dated 27/09/91 the MRTP Act was not applicable to Undertakings owned or controlled by Govt. Trade unions and other associations of workmen Financial Institutions but after the above notification the act was made applicable to all undertakings and financial institutions except three undertakings

Applicability of the Act

Owned or controlled by a govt. company or the govt, engaged in the production of arms and ammunition and allied items of defense equipments, defense aircraft atomic energy etc. Industry units under the ministry of finance. Trade unions and other association of workmen.

Monopolistic Trade Practice Under the MRTP Act an MTP defined as a trade practice which had any of the following effects Limiting or controlling or distribution of goods or services thereby maintaining their price at unreasonable. Limiting technical developments or goods or capital investment or allowing the quality or goods and services to deteriorate. Unreasonably preventing of restricting competition.

Monopolistic Trade Practice

Unreasonably increasing cost or charge for services. Unreasonably increasing prices of goods or services. Unreasonably increasing profits on production. resorting to unfair or deceptive means to reduce or prevent competition in goods or services

Restrictive trade Practices An RTP under the Act had defined to be the one that had the effect of preventing, distorting or restricting competition in any manner. An RTP in particular had the effect of : Obstructing the flow of capital or resources for production. Imposing unjustified costs or restrictions on consumers with regard to the availability of good and services by manipulating prices or conditions of delivery or supplies to market.

Unfair trade Practice Section 36A of the Act provides that that UTP means a trade practice for the purpose of promoting sale, use or supply of any goods or for the provision of any services adopts any unfair method or deceptive practices. Falsely represents that the goods are of a particular standard, quality, quantity, style or model. Falsely represents ant rebuilt second hand, renovated, reconditioned or old goods as new goods. Represents that goods or services have

Unfair trade Practice Makes a false or misleading representation concerning the need for or the usefulness of any goods or services. Misleads the public concerning the price at which a product or like products or services have been or are ordinarily sold or provided.

Control of MTP
The control over monopolistic trade practice is done through the mechanism of inquiry and suitable orders to remove the undesirable effects of a MTP The MRTP commission could make an enquiry on the basis of any of the following A reference received from the central Govt. An application received from DGIR The commissions own information or knowledge. The commission could make an enquiry and submit report to the central govt. which alone had the power to take decision on such practice. The Govt. can cancel whole agreement containing

Control of MTP

The govt order in MTP had to be completed within 30 days and DGIR had to be report such compliance with in 90 days of the issue of orders.

Control Mechanism for RTP All the agreements containing any of the restrictive clauses to be registered with the DGIR. The MRTP commission could initiate an enquiry into a restrictive trade practice on the basis of any of the following A complaint received from consumer/ consumer organization. A reference made by the central or state govt. Its knowledge or information

Control Mechanism for RTP

The commission, in its enquiry, heard all the parties concerned and its decisions fell into one of the following categories The practice might be allowed if it was found not prejudicial to the public interest. cease and desist order might be passed if it was found prejudicial to the public interest. The agreement might be modified as per orders of the commission. Proceedings may be dropped if the party on its own promised to discontinue, or not to repeat the such practice in future.

Control UTP
UTP could be passed only if it was prejudicial to public interest. A practice which was specifically authorized by some existing laws, not actionable under MRTP Act. MRTP commission will order DGIR to make a preliminary enquiry. After the MRTP commission investigation, commission can order compensation for loss or damage to the affected person or the party Directly pecuniary Indirectly pecuniary Non -pecuniary

Amendments to the MRPT Act (1991)

MRTP Act was amended in December 1991 with a view to make Indian industry more competitive in abroad and retain only those provisions of the act which were essential to control monopolistic and unfair trade practices The MRTP amendment 1991 could be studied under two heads Deletions from the Act Elimination of pre-entry restrictions. removal of the restrictions on acquisition and transfer of shares.

Control Mechanism for RTP

Amendments

to the Act Enlargement of definition of goods Enlargement of definition of service preliminary investigation by DGIR made optional Penalty provisions made more stringent New definition of dominant undertaking

Industrial Licensing

A license is a written permission issued by the central govt. to an industrial undertaking stating such details as the location, the article to be manufactured, production capacity and other relevant particulars To limit industrial capacity

Objectives

To direct investment in industries according to priorities. to regulate location of industrial units so as to secure balanced regional development. Prevent monopoly and concentration of

Control UTP
to protect small scale industries to encourage new entrepreneurs to start industrial units. Industrial licensing is an instrument to canalize the limited resources of an economy in the most productive way for industrialization

Legislative Frame work for licensing

The legislative frame work for industrial licensing is provided in the Industrial ( development and Regulation) Act 1951

Industrial (Development and Regulation ) Act 1951

Consistent with the industrial policy resolution, the industrial ( Development and regulation) Act 1951 Was passed which came into force on May 8 1952. To provide the central govt. with means to implement their industrial policy. To take necessary steps for the development of industries. To regulate the pattern and direction of industrial development.

Objectives

Application of the ACT ( Scope)

The Act applies to the whole of India including Jammu and Kashmir. Act applies to industrial undertaking manufacturing any of the articles mentioned in the first schedule . The Act is implemented through the Ministry of Industry.

Provisions of the Act

Classified into three broad categories Preventive Provisions Curative Provisions Creative Provisions

1. Preventive Provisions A) Registration and licensing

Section 10 provides that the owner of every industrial undertaking shall get his undertaking registered with in a specified period. Licensing is required for following case Licensing of new undertaking (11) Production of new articles (11A) license for expansion (13) License for shifting location (13) In the year 1991 (July 25 ), registration and licensing was abolished, except for 18 specified industries.

1. Preventive Provisions B) Investigation

Section 15 empowers the govt. to cause an investigation into an industrial undertaking on the happening of Deterioration in the quality of product. Rise in the price of article Misutilisation of resources Fall in production

1. Preventive Provisions C) Revocation of Registration and license

Section 10 empowers the govt. to revoke the registration when It was obtained by misrepresentation Registration has become useless or ineffective

2. Curative measures A) Take Over of management

The power of control entrusted to the govt. to take over of the management of whole or any part of an industrial undertaking which fails to comply any of the directions of Act. (section 18A) In order to secure equitable distribution and availability of any article or class of articles, govt. empowered by the act to control its supply, distribution and price

B) Control of Supply and price

3. Creative Provisions A) Development councils

Govt. can establish councils for any scheduled industry or group of scheduled industries consisting of members representing the interests of owners, employees, consumers etc. and persons having special knowledge of industries. Section 9 of the act provides govt. to levy and collect a cess for purpose of this act on all goods and services of scheduled industry.

B) Levy and collection of cess

3. Creative Provisions C) Central Advisory council

The empowers for the establishment, by the govt. of central advisory council consisting of representatives of the owners of industrial undertakings, employees, consumers, suppliers, etc. for the purpose of advising govt. on matters concerning the development of the industries.

Foreign Exchange Regulation Act 1973 Objectives

To regulate certain payments To regulate dealings in foreign exchange and securities. To regulate holding of immovable property of the country. To regulate employment of foreign nationals. to regulate foreign companies.

Foreign Exchange Regulation Act 1973

Provisions
Regulation of dealings in foreign exchange Restrictions on payments restrictions on establishment of place of business in India. restrictions on Immovable property restrictions on import and export of currency.

Foreign Exchange Management Act 1999

There was a lot of demand for a substantial modification of FERA in the light of ongoing economic liberalization and improving foreign exchange position. Accordingly, a new act the FEMA, 1999 replaced the FERA. To facilitate external trade and payments. To promote orderly development maintenance of foreign exchange.

Objectives

and

Provisions 1. Dealing in Foreign Exchange (Section 3)

No person shall deal in any foreign exchange or foreign security with any person other than authorized person. Make any payment to or for credit of any person resident outside India. Enter into any financial transaction in India as a consideration for or in association with acquisition or creation or transfer of a right to acquire any asset outside India by any person.

Provisions 2. Holding of Foreign Exchange (Section 4)

3. Current Account Transaction

No person, resident in India, shall acquire, hold, own possess or transfer any foreign exchange foreign security or any immovable property situated outside India, without permission from the RBI FEMA permits dealings in foreign exchange through authorized persons for current account transactions. Any person may sell or draw foreign exchange to or from an authorized persons for capital account transactions permitted by the RBI in consultation

4. Capital Account Transaction

Provisions 5. Export of Goods and Services

Every exporter of goods or services shall furnish

to the RBI details regarding the export value of such goods

6. Realization of Foreign Exchange

Where any amount of foreign exchange is due accrued to any person resident in India, such a person shall take steps to realize such foreign exchange with in specified period of time.

Provisions 7. Contravention and Penalties

Penalty for any kind of contravention under this

act is liable to a penalty up to thrice the amount involved where it is quantifiable or up to 2 lakhs where it is not quantifiable and where such contravention is continuing one, for the penalty which may extend to five thousand rupees for every day after the first day during which the contravention continues.

Tax Legislations

Central Sales Tax

The central sales tax is an indirect tax where the tax is levied in sales which are effected in the course of inter- state trade or commerce. The act was passed in the year 1956 by the parliament in exercise of the authority conferred on it under the articles 286 and 269 of the constitution of India.

Constitutional Provisions
Following are the provisions were made by the amended article 286 No law of a state shall impose or authorize the imposition of a tax on the sale or purchase of goods if such sale or purchase takes place outside the state. No law of a state shall impose or authorize the imposition of a tax on such sale or purchase of goods which takes place in the course of import of the goods into or export of the goods out of the territory of India.

Constitutional Provisions
Any law of a state imposing or authorizing to impose a tax on the sale or purchase of goods in the course of inter-state trade or commerce shall be subject to such restrictions, as may be specified by the parliament through legislation. The parliament may enact proper legislation for determining the place of sale or purchase of goods.

Scope of the Act ( CST Act 1956)

It extends to the while of India. it is divided into 6 chapters and 26 sections It makes provision for single point as well multiple point tax. Under this act, the goods have been classified as Declared goods other goods every dealer engaged in inter-state trade has to get himself registered with this act. The tax is levied under this act by the central govt. but it is collected by state govt.

Scope of the Act ( CST Act 1956)

The act does not provide rules regarding submission of returns, payment of tax, appeals etc. The central govt. and the state govt. are empowered to frame proper rules and regulations for the implementation of various provisions of this act.

Principles for Determining the Nature of Sale

1.

Sale or purchase in the course of inter state trade or commerce ( section 3)

A sale or purchase of goods shall be deemed to take place in the course of inter-state trade commerce if the sale or purchase. Occasions the movement of goods from one state to another. is effected by a transfer of documents of title to the goods during their movement from one state to another.

2. Sale or Purchase of goods inside a State

3. Sale or purchase of goods in the course of export

A sale or purchase of goods shall be deemed to take place inside a state if the goods are specific or ascertained at the time of the contract of sale and are with in the state.

A sale or purchase of goods shall be deemed to take place in the course of the export of the goods out of the territory of India if the sale or purchase occasions such export It it effected by the transfer of documents of title to the goods after the goods have crossed customs frontiers of India

4. Sale for Purchase of goods in the course of Import

The sale or purchase either occasions such import The sale or purchase is effected by a transfer of documents of title to the goods before the goods have crossed the custom frontiers of India

Exception from CST Exemption on subsequent sale

Subsequent sale to govt. Subsequent sale to registered dealer.

Goods for mining

Extraction of ore from the mine. Washing, screening and dressing the ore Transport of the ore from the riverside to the harbor by means of barges. Blending of ore.

Exception from CST Good for generation or distribution of electricity

Battery cells to be used by linesmen to work on lines during night. Raincoats for the use of linesmen. Soaps, paints, varnishes for the purpose of cleaning boilers and electrical goods. Goods for generation or distribution of electricity Transfer of the goods otherwise than sale

Exception from CST

The unit of the buyer is located in any special economic zone. The dealer purchases the goods for the purpose of manufacture, production, processing, assembling, repairing, reconditioning, re-engineering, packaging.

Deductions Turnover of goods sold outside the state. Turnover of goods sold in the export. Value of goods transferred to other places of business. Turnover of goods unconditionally exempt under a state sales tax act

Central Excise Duty The Supreme Court has defined Excise duty is a levied necessarily on those dutiable goods which are produced or manufactured in India and it has no relationship with the sale of these goods. Excise duty is a duty on the production or manufacture of goods with in India. The duty of excise is levied on manufacturer or producer in respect of the commodities produced or manufactured by him.

Laws Relating to Excise Duty Central Central Central Central

Excise Excise Excise Excise

Act 1944(CEA) Rules 1944 (CER) Tariff Act 1985 (CETA) (valuation ) Rules, 2000

Scope of Central Excise Duty Excise duty is levied on goods. Excise duty is levied on the production or manufacture of goods. The burden of this tax falls on the consumers Excise duty is levied on the dutiable value calculated by a general or special method. Excise duty is payable when the goods are removed from the place of removal. Excise duty is levied through out India in the same form.

Scope of Central Excise Duty Excise duty is imposed on manufactured good only once except when these goods become the raw material for some other goods. Excise duty lay requires special records to be kept for removing the goods from the place of production, stock, or place of removal.

Basis of Levy Of Excise Duty 1. Specific Duty

It is the duty payable on the basis of certain fixed unit like weight, length, volume, etc. T.V. is a notional value fixed by the govt. under the section3(2) of CEA for the purpose of calculating the duty payable. Govt. can fix different tariff values for different classes of same excisable goods or Manufactured by different producers or sold to different classes of buyers.

2. Tariff Value

Basis of Levy Of Excise Duty 3. Duty based on MRP

Section 4A of the CEA empowers the govt. to specify goods on which duty will be payable based on MRP printed on carton. The goods should be covered under provisions of standards of weights and measures Act 1976. A reasonable deduction is allowed from such retail price to provide for excise duty.

Basis of Levy Of Excise Duty 4. Duty based on production capacity

5. Ad Valorem duty

Section 3A of the CEA Act gives power to the govt. to notify certain goods where the manufacturer will have to pay duty on the basis of production capacity. Commission of Central Excise will determine annual capacity of production of the factory. Duty on goods are payable on the basis of value of goods. The assessable value (AV) is arrived at on the basis of section 4 of CEA and duty is payable on the basis of percentage of such value at the rates specified in CETA 1985

Basis of Levy Of Excise Duty 6. Levy of Slabs

Under this system the excise duty is levied on the basis of different slabs based on various parameters like turnover, production capacity etc. SSI units are taxed on the basis of turnover Meant for the small scale decentralized sector e.g. embroidery, marble, stainless steel etc. Duty for a specified period is fixed on the basis of the number and type of machines. Manufacturer has to observe day today excise formalities regarding maintenance of account

6. Compound levy Scheme

Exemptions from Central Excise Duty

Section 5A of the CEA 1944 empowers the central govt. to issue notifications exempting goods from the payment of central excise duties. They are small scale industry Exemption Job work Exemption Captive Consumption Goods produced without the use of power. Cottage and village industry products Goods produced at exhibitions and trade fairs. Goods produced by educational, technical and research institutions.

Exemptions from Central Excise Duty

Goods

produced in govt. factories, mines, prisons and defense production. Solar and Natural energy. Goods produced by free trade zones and 100% export oriented units. Capital goods meant for use in export goods.

Kinds of Excise Duty 1. Basic Excise Duty

This is called as CENVAT This duty id levied on the goods included in the first schedule of the CETA. Goods included in the II schedule of the CETA are subjected to SED. The general rate of this duty is 8% It includes items like motor cars, polyester filament yarn, tyres, soft drinks etc.

2. Special Excise Duty

Kinds of Excise Duty 3. National calamity Contingent Duty

NCCD has been imposed by the Finance Act 2001 This duty shall be in addition to the any other duties of excise chargeable on goods. This duty is imposed on Pan masala @23%, Cigarettes @ Rs 20 to 235 per thousand, bidis Rs. 1 to Rs.2 per thousand and tobacco products @ 105 Finance Act 2003 included other goods like polyester filament yarn, motor cars, multi utility vehicles and two wheelers @1% and domestic crude oil @ Rs 50 per metric tonne.

Kinds of Excise Duty 4.Special Additional Duty

This duty shall be in addition to any other duties of excise chargeable on such goods under the section CEA 1944 or any other law for the time being in force. Motor spirit Rs & 7 per liter, high speed diesel oil re. 1 per liter. The Finance Act 2004 imposed an education cess on dutiable goods manufactured in India @ 2% on the aggregate duties of excise chargeable on such goods.

5. Educational Cess

CENVAT

The Finance Act 200 had introduced the new CENVAT scheme replacing the MODVAT scheme from 1/4/2000. It is tax on value addition. CENVAT is basically an input duty relief scheme under central excise designed to reimburse the user manufacturer with the duty paid on the input which ha has absorbed as part of purchase price when buying the same for producing finished products.

Highlights

The CENVAT scheme is principally based on system of granting credit of duty paid on inputs. under CENVAT, a manufacturer has to pay duty as per normal procedure on the basis of Assessable value. He gets credit of duty paid on inputs. The CENVAT credit system is available on capital goods used in the manufacture of final goods. The term capital goods does not includes office equipments.

Scope

The CENVAT covers all inputs except High Speed Diesel oil and Motor Spirit CENVAT credit also coves inputs used in the manufacture of capital goods.

Conditions for Availing the Credit

CENVAT scheme is applicable to all finished excisable goods. The conversion of inputs into final products should involve the element of manufacture. Credit is allowed for specified duties paid on inputs or capital goods. The use of inputs must be in or in relation to the manufacture.

Income Tax

Income tax is very important direct tax. Every person, whose taxable income for the previous financial year exceeds the minimum taxable limit is liable to pay the central govt. income tax during the current financial year on the income of the previous year, at the rates face during the current financial year. In India, income tax was introduced for the first time in 1806, by Sir. James wilson, in order to meet the losses sustained by the govt. 1886 Income tax Act was passed. Final income tax Act was passed in the year 1961.

Basis for Charge of Income tax

Income tax is an annual tax on income. Income of previous year is taxable in the next following assessment year at the rate or rates applicable to that assessment year. Tax rates are fixed by the annual Finance Act. Tax is charged on every person as defined in section 2 (31). The tax is charged on the total income of every person computed in accordance with ACT.

Basis for Charge of Income tax

The income tax is computed on the basis of the residential status of the assessee in the manner provided hereunder and is classified in to the following heads. Income from salaries. Income from House Property. Profits of business or profession. Capital gains Income from other sources

Rates of Tax for an Individual

Women
On Rs. 1,35, 000 Next on Rs 15000 Next on Rs 1.00,000 Next balance Nil 10% 20% 30%

Rates of Tax for an Individual

Senior Citizen
On Rs. 1,85, 000 Next on Rs 65000 Next balance Nil 20% 30%

Rates of Tax for an Individual

Other Individuals
On Rs. 1,00, 000 Next on Rs 50000 Next on Rs 1.00,000 Next balance Nil 10% 20% 30%

Rates of Tax for an Individual

Surcharge If total income exceeds Rs. 10,00,000 @10% education cess. On the amount of income tax surcharge Rs. 2%

Problems in Administration of Income Tax in India

1. Large Non-Monetized Sector

There is a large non-monetized sector in the developing country like India. It is very difficult to assess the income originating in this sector. Even highly skilled tax administrator have found it difficult to evaluate the real income of farmers and other self-employed people, and including the value of home produced and consumed food in the taxable income of the farmer.

2. Less Literacy Rate

The majority of the population in the India is illiterate. Most of the farmers, wage earners, small shop keepers, craftsmen, etc. cannot fill out even the simplest income tax return forms.

2. non-voluntary compliance

Key to successful income tax is voluntary compliance on the part of tax payers. This condition is less in India. Large number of businessmen do not maintain books properly. While fixed income groups pay income tax regularly and a large number of prosperous businessmen pay only a very small part of their income.

4. Anonymity in the Ownership of Wealth

Anonymity in the ownership of wealth is another serious problem. This is in the form of bearer shares in the case of companies or the system of benami in India. This makes it difficult to assess the income from capital or wealth in an effective way.

5. No Single Comprehensive Tax

In India there is no single comprehensive tax system. It follows cedular system of income taxation. This system has imposes separate taxes on different sources of income. It leaves many important sources entirely untaxed.

6. Inefficient and Corrupt Administration

As far as the tax enforcement aspect is concerned, perhaps the most serious criticism is the inefficient and corrupt administration in developing countries. As a result, taxes are not strictly enforced resulting in a loss of revenue to the govt.

7. Inflexible

Another defect that characterizes the Indian tax system is its inflexibility. It depends mostly on urban incomes and leaves out almost completely agriculture incomes from the purview of direct taxes.

8. Inter sectoral Imbalances in the Tax structure

There are inter-sectoral imbalances in India's tax structure as agricultural incomes are virtually tax free. After the land reforms were carried out and new technology was introduced in agriculture, a new class of large farmers emerged in India. Income of these farmers are now fairly high and yet they are tax free. These developments during the past four decades have created inter-sectoral imbalances in the tax structure.

9. Large Evasion
On top of inflexibility of the tax system, is its faulty structure, resulting in large scale evasion of tax. Following causes are responsible for large evasion of taxes. corrupt business practices Ineffective tax enforcement. undue curbs on business expenses on entertainment, advertisement, travel etc.

The Foreign Trade ( Development and regulation) Act 1992

This act which replaced the Imports and exports (Control) Act 1947, came into force on 19th June 1992. Objective To provide for the development and regulation of foreign trade by facilitating imports into and augmenting exports from India.

Provisions
1. Development and Regulation The Act empowers the central govt. to make provision for the development and regulation of foreign trade by facilitating imports and increasing exports. 2. Prohibition and Restriction The Act empowers the central govt. to make provision for prohibiting, restricting or otherwise regulating the import or export of goods as and when required. 3. Exim Policy The act lays down that the central govt. may, from time to time, formulate and announce the

Provisions
4. Director general of Foreign Trade The Act provides for the appointment by the central govt. , of a Director General of Foreign Trade for the purpose of this Act. The DGFT shall advice central govt. in the formulation EXIM policy and shall responsible for carrying out that policy. 5. Importer- Exporter Code Number The Act lays down that no person shall make any import or export except under an Importer Exporter Code (IEC) numbers granted by DGFT or the officer authorized by him in his behalf.

Provisions
6. Issue and Cancellation of License The DGFT or any other officer authorized under this Act is empowered to suspend or cancel a license issued for export or import of goods in accordance with this act for good and sufficient reasons. 7. Search, Inspection and Seizure Where any contravention of any condition of license of authority under which any goods are imported is suspected or made, any person authorized by the central govt. may search, inspect and seize such goods, documents, things and conveyances subject to such requirements

Provisions
8. Penalty for Contravention Where any person makes or attempts to make any export or import in contravention of any provisions of this Act or any rules or orders made under this Act or the EXIM policy, he shall be liable to a penalty not exceeding one thousand rupees or five times the value of the goods involved, which ever is more