Overriding Clarification on Classification of Manufacture & Service Industries under Micro Small Medium Enterprises Act issued by MSME Ministry

Categorisation of activities under manufacture or service under the MSMED Act, 2006

This always remained as a moot point, while categorising under MSMED Act, which provides different limits (link) for manufacturing and servicing industries.

Now, the Ministry of Micro, Small & Medium Enterprises has given a CLARIFICATION in supersession of all other circulars that:

A)    Activities considered as manufacturing :

1. (i)                  Medical Equipment and Ayurvedic Product
2. (ii)                Composite unit of Bacon Processing and Piggery Farm (Piggary Farm without bacon processing shall not be classified either as manufacturing or as service enterprise because this is farming activity)
3. (iii)               Tobacco Processing
4. (iv)              Beedi/ Cigarette manufacturing and other tobacco products
5. (v)                Extraction of Agave Spirit from Agave juice (imported medicinal plant) extraction of Agave
6. (vi)              Manufacture of Bio-fertilizer

B)     Activities considered as Service :

1. (i)                  Sanitation Services (Hiring of Septic Tank Cleaner)
2. (ii)                Clinical Pathological Laboratories and scanning, MRI Tests
3. (iii)               Hospitals
4. (iv)              Agri – clinic and Agri – Business
5. (v)                Restaurants with Bar
6. (vi)              Canteens
7. (vii)             Motel industry

The activity “Bee Keeping” is a farming allied activity and therefore, would not be covered in either manufacturing or service activity.

Source: No.5(6)/2/2009-MSME POL dated 21/07/2009

As you know [MSMED]Small Scale Industry definition only under MSMED Act for IDRA too.

To understand all the notifications of industry, read Industries DIPP updates

No Ministry of Commerce approval is required for Royalty/Lumpsum payment above 5%/8% - RBI Current Account Transaction Amendment

In continuation of Press Note 8 issued by DIPP with effect from 16.12. 2009 that No limits for royalty/lumpsum payment in FEMA under Current Account Transaction as per PN 8 – DIPP allowed it under Automatic route (ie) without the approval of RBI

The Foreign Exchange Management (Current Account Transactions) (Amendment) Rules, 2010 is passed. They shall be deemed to have come into force with effect from the 16th day of December, 2009.

In terms of Rule 4 of the Foreign Exchange Management (Current Account Transactions) Rules 2000, prior approval of the Ministry of Commerce and Industry, Government of India, is required for drawing foreign exchange for remittances under technical collaboration agreements where payment of royalty exceeds 5% on local sales and 8% on exports and lump-sum payment exceeds USD 2 million [item 8 of Schedule II to the Foreign Exchange Management (Current Account Transactions) Rules, 2000]. The Government of India has reviewed the extant policy with regard to liberalization of foreign technology agreement and it was decided to omit item number 8 of Schedule II to the Foreign Exchange Management (Current Account Transaction) Rules, 2000, and the entry relating thereto.

Accordingly, AD Category-I banks may permit drawal of foreign exchange by persons for payment of royalty and lump-sum payment under technical collaboration agreements without the approval of Ministry of Commerce and Industry, Government of India.

The amendment to the Foreign Exchange Management (Current Account Transactions) Rules, 2000, in this regard has been notified by the Government of India vide Notification No.G.S.R.382 (E) dated May 5, 2010.

Source: RBI/2009-10/465 A. P. (DIR Series) Circular No. 52 dated 13th May 2010

DIPP Consolidated FDI Policy Circular 1 of 2010 wef 1st April and all Press Notes repealed, the legal edifice is built on FEMA RBI notifications (Master)

The system of periodic consolidation and updation of Indian Foreign Direct investment (FDI) Policy issued by Department of Industrial Policy & Promotion (DIPP) under Ministry of Commerce & Industry is introduced as an investor friendly measure (as assured by Finance Ministry in his recent Budget Speech).  The draft master Press Note was released for public comments which can be read from Download all Press Notes from 1991 to 2009 issued by DIPP as it proposes to consolidate PNs in 2010 to release a comprehensive FDI policy in India like Master Circulars with a sunset clause of 6 months

Now, it has been decided that from now onwards a consolidated circular (Master Press Notes or Consolidated FDI Policy or Circular 1 of 2010) would be issued every 6 months to update the FDI policy. This consolidated circular will, therefore, be superseded by a circular to be issued on September 30, 2010. (like you wait for RBI Master Circulars on 1st July every year).  While this circular consolidates FDI Policy Framework, the legal edifice is built on notifications issued by RBI under FEMA.

Press Notes are NOT applicable:

All earlier Press Notes/Press Releases/Clarifications on FDI issued by DIPP which were in force and effective as on March 31, 2010 stand rescinded as on March 31, 2010. The present circular consolidates and subsumes all such/these Press Notes/Press Releases/Clarifications as on March 31, 2010.  Enjoy reading the last press note, it won’t kill you any more.  Its just a single document hereon (making the life of a Corporate Legal Consultant easier and interpretations tougher).

Consolidated FDI Policy is APPLICABLE:

With effect from 1st April 2010, the Consolidated FDI Policy will be applicable.  It has the following important categories,

1. ORIGIN, TYPE, ELIGIBILITY, CONDITIONS AND ISSUE/TRANSFER OF INVESTMENT
2. CALCULATION, ENTRY ROUTE, CAPS, ENTRY CONDITIONS ETC. OF INVESTMENT
3. POLICY ON ROUTE, CAPS AND ENTRY CONDITIONS
4. AGRICULTURE
5. INDUSTRY, MINING, MANUFACTURING
6. SERVICES SECTOR
7. REMITTANCE, REPORTING AND VIOLATION/COMPOUNDING
8. ANNEXURES

• Annex-1 Form FC-GPR
• Annex-2 Terms and conditions for transfer of capital instruments from resident to non-resident and vice-versa
• Annex-3 Documents to be submitted by a person resident in India for transfer of shares to a person resident outside India by way of gift
• Annex-4 Definition of "relative" as given in Section 6 of Companies Act, 1956
• Annex-5 Report by the Indian company receiving amount of consideration for issue of shares / convertible debentures under the FDI scheme
• Annex-6 Know Your Customer (KYC) Form in respect of the non-resident investor
• Annex-7 Form FC-TRS
• Annex-8 Form DR
• Annex-9 Form DR – Quarterly

Definitions

CAPITAL
Means
Compulsorily, Mandatorily and Fully convertible
Preference Shares	Debenture Shares
and includes
DR’S	FCCB’s

Any many more interesting definitions, concepts, provisions, etc…

Download Circular 1 of 2010 on FDI Policy

Changes in Automatic Route Sectoral Cap under FEMA FIPB & treatment of additional foreign investments - Press Note 1 2010

Government Route (ie) prior approval of Government of India shall be considered by Foreign Investment Promotion Board (FIPB), under Department of Economic Affairs (DEA), Ministry of Finance.

Approval of FIPB/CCEA:

• FIPB can recommend on proposals for approval of Ministry of Finance if total foreign equity inflow is UPTO Rs.1200 crore.
• The FIPB Secretariat in DEA will process the recommendations of FIPB to obtain the approval of Minister of Finance and Cabinet Committee on Economic Affairs (CCEA) for total foreign equity inflow of more than Rs. 1200 crore.
• The CCEA would also consider the proposals which may be referred to it by the FIPB/ the Minister of Finance.

Additional Foreign Investment into Same Entity:

It has also been decided that companies may not require fresh prior approval of the Government i.e. Minister in-charge of FIPB/CCEA for bringing in additional foreign investment into the same entity, in the following cases:

1. Cases which earlier required prior approval of FIPB/Cabinet Committee on Foreign Investment (CCFI)/CCEA and who had, accordingly, earlier obtained prior approval of FIPB/CCFI/CCEA for their initial foreign investment but subsequently such activities/sectors have been placed under automatic route;
2. Cases which had sectoral caps earlier and who had, accordingly, earlier obtained prior approval of FIPB/CCFI/CCEA for their initial foreign investment but subsequently such caps were removed/increased and the activities placed under automatic route; provided that such additional investment alongwith the initial/original investment does not exceed the sectoral caps;
3. Cases of additional foreign investment into the same entity where prior approval of FIPB/CCFIICCEA had been obtained earlier for the initial/original foreign investment due to requirements of Press Note 18/1998 or Press Note 1 of 2005 and prior approval of the Government under the FDI policy is not required for any other reason/purpose.

Thats it, this is the final and last of the classes of Press Note series.  This subsequently will be superceded by Master Press Notes which will be released for every 6 months.

Source: Press Note 1 of 2010

Download all Press Notes from 1991 to 2009 issued by DIPP as it proposes to consolidate PNs in 2010 to release a comprehensive FDI policy in India like Master Circulars with a sunset clause of 6 months

Draft Master Press Note with FDI Regulatory Framework

The Legal basis: Foreign Direct Investments (FDI) by non-resident (NRI) in resident entities through transfer or issue of security to person resident outside India (PROI) is a ‘Capital account transaction’ and Government of India and Reserve bank of India (RBI) regulate this under the FEMA 1999 and its various regulations. Keeping in view the current requirements, the Government comes up from time to time with new regulation, amends/changes in existing one through order/allied rules, Press Notes, etc. . The regulatory framework over a period of time thus consists of Acts, Regulations, Press Notes, Press Releases, Clarifications, etc.

This draft Press Note consolidates into one document all the prior regulations on FDI and reflects the current ‘regulatory framework’ on FDI. It is clarified that this is a consolidation/compilation and comprehensive listing of most matters on FDI and is not intended to make changes in the extant regulations. While attempt has been made to deal with the subject comprehensively, if some aspect(s) has been left out then that will continue to be dealt in the current way where it is listed.

It is the intent and objective of the Government to have a regulatory framework which is transparent, predictable, understandable, simple and clear to reduce the regulatory burden and promote foreign direct investment. The new system of continuous consolidation and updation is primarily evinced as a measure of investor and investment friendliness.

This Press Note will have a sunset clause of 6 months and will automatically lapse on 30th September, 2010. A new press Note on Regulatory Framework would be issued every six months which will incorporate and reflect all the changes in the regulations during the last intervening period of 6 months. Thus the Government will issue Press Note on FDI Regulatory Framework twice a year in April and October which would be the current regulatory framework on that date.

All earlier Press Notes on FDI issued by Department of Industrial Policy and Promotion (DIPP), Government of India stand rescinded.

Notwithstanding the rescindment of earlier Press Notes, anything done or any action taken or purported to have been done or taken under the resinded Press Notes shall in so far as it is not inconsistent with this Press Note be deemed to have been done or taken under the corresponding provisions of this Press Note.

Download all Press Notes issued by DIPP from 1991 to 2009 here

Foreign Investment in Commodity Exchanges to be diluted on or before 31st March 2010 – PN 7 issued by DIPP

Press Note 7 of 2009 vide D/o IPP F.No. 12(58)/2005-FC dated 26.09.2009

Difficulties have been brought to the notice of the government in complying with the provisions of the earlier Press Notes within the stipulated time frame by Commodity Exchanges in India. The Government, on consideration and in order to facilitate the existing Commodity Exchanges to comply with the guidelines notified vide Press Note 2 (2008), has now decided to allow a further transition / complying/correction time to the existing Commodity exchange(s) beyond 30.09.2009. Accordingly, all such Commodity Exchanges are hereby advised to adhere to the conditions of Press Note 2 (2008) by 31.03.2010. This would comprise the last opportunity for such compliance.

All Commodity Exchanges shall furnish a status report informing the foreign investment in the Commodity Exchange as on 30.09.2009, along with details of equity structure, as well as the steps already taken/proposed to be taken with regard to compliance with the guidelines notified vide Press Note 2(2008), to the Department of Industrial Policy & Promotion (DIPP), Department of Consumer Affairs, Foreign Investment Promotion Board (FIPB), the Forward Market Commission (FMC) and SEBI.

No limits for royalty/lumpsum payment in FEMA under Current Account Transaction as per PN 8 – DIPP allowed it under Automatic route (ie) without the approval of RBI

Press Note 8 of 2009 as notified by 0/0 IPP F. No. 5(6)/2008-FC dated 16.12.2009

The existing policy of Government of India on the payment of royalties under Foreign Technology Collaboration provides for automatic approval for foreign technology transfers involving payment of lumpsum fee of US$ 2 million and payment of royalty of 5% on domestic sales and 8% on exports. In addition, where there is no technology transfer involved, royalty up to 2% for exports and 1% for domestic sales is allowed under automatic route on use of trademarks and brand names of the foreign collaborator. Separate norms are available for the hotel sector vide Press Note 18 (1991 Series) and Press Note 1 (1995 Series). Technology transfers involving payments above these limits required prior permission of the Government of India (Project Approval Board, Department of Industrial Policy and Promotion).

The Government of India has reviewed the extant policy and it has been decided to permit, with immediate effect, payments for royalty, lumpsum fee for transfer of technology and payments for use of trademark/brand name on the automatic route i.e. without any approval of the Government of India. All such payments will be subject to Foreign Exchange Management (Current Account Transactions) Rules, 2000 as amended from time to time.

Meaning, Payment of Royalty and Lumpsum fees is fully liberalised now without any ceiling limits and will fall under Automatic Route.

Manufacturing Enterprise is same as Industry or Industrial Undertaking (SSI) as the Act uses enterprise for both manufacturing & service – MSME Clarifies

The Micro, Small and Medium Enterprises Development Act, 2006 (MSMED) uses the terminology enterprise for the establishments engaged in manufacturing sector as well in service sector.  Therefore, the present terminology “manufacturing enterprise” should be considered as equivalent to the term “industry” or industrial undertaking”, which was used earlier in the definition of Small Scale Industries (SSI).  The establishment engaged in services are termed as “Service Enterprises” in the MSMED Act, 2006.

Source: 16(20)/1/2009-MSME POL dated 5th November 2009

As you know [MSMED]Small Scale Industry definition only under MSMED Act for IDRA too.

To understand all the notifications of industry, read Industries DIPP updates

Now, read in mail Subscribe to Blog

NFE shall be calculated in rupees for SEZ unit approval, fluctuations may be considered, if negative – Ministry Clarification

F.No.C.6/9/2009-SEZ dated November 2009 under Ministry of Commerce & Industry as Instruction No. 41

Sub: Clarification on calculation of NFE as per Rule 53 of the SEZ Rules, 2006

• It is hereby clarified that Net Foreign Exchange (NFE) is to be calculated in rupee terms only.
• In case a unit is NFE negative and claims that it is due to foreign exchange fluctuation, the Approval Committee may consider such cases provided that the unit gets the computations certified by the Authorised Bank, on a case to case, basis.

Priority lending to Training centres & consultancy services registered as Micro or Small enterprise – RBI instructs banks

Priority Sector Lending – Categorisation of activities under service under the Micro Small & Medium Enterprises Development (MSMED) Act, 2006

Understand the broad CATEGORIES OF PRIORITY SECTOR,
(i) Agriculture (Direct and Indirect finance)
(ii) Small Enterprises (Direct and Indirect Finance)
(iii) Retail Trade
(iv) Micro Credit
(v) Education loans
(vi) Housing loans

Understand about MSMED from http://yehseeyes.blogspot.com/search?q=MSMED

It has been decided to include loans granted by banks in respect of following activities under Micro and Small (Service) Enterprises within the priority sector, provided such enterprises satisfy the definition of Micro and Small (Service) Enterprises in respect of investment in equipment (original cost excluding land and building and furniture, fittings and other items not directly related to the service rendered or as may be notified under the MSMED Act, 2006) (i.e. not exceeding Rs. 10 lakh and Rs. 2 crore respectively).

1. Consultancy Services including Management Services;
2. Composite Broker Services in Risk and Insurance Management;
3. Third Party Administration (TPA) Services for Medical Insurance Claims of Policy Holders;
4. Seed Grading Services;
5. Training-cum-Incubator Centre;
6. Educational Institutions;
7. Training Institutes;
8. Retail Trade;
9. Practice of Law, i.e. legal services;
10. Trading in medical instruments (brand new);
11. Placement and Management Consultancy Services; and
12. Advertising agency and Training centres

Accordingly, there will be no separate category for "Retail Trade" under priority sector. Loans granted by banks for Retail Trade [i.e. advances granted to retail traders dealing in essential commodities (fair price shops), consumer co-operative stores; and advances granted to private retail traders with credit limits not exceeding Rs. 20 lakh) would henceforth be part of the Small (Service) Enterprises.

The commercial banks may report such loans under the head "Total credit to Small Enterprises" in the half-yearly (Ad-hoc) [under 2 (a) and 2 (ii)] and yearly (final) [under 14, 15, 19, 20 and 21] return on priority sector advances.

For All Primary (Urban) Co-operative Banks (read this circular UBD.CO.BPD(PCB) Cir.No.50/09.09.001/2009-10 dated March  25, 2010)

Source: RBI/2009-10/164 RPCD.CO.Plan.BC. 24 /04.09.01/2009-10 dated 18th September 2009

Publishing, Printing – manufacture/service under Micro Small Medium Enterprises (MSMED) Act,2006 clarified

Categorisation of activities under manufacture or service under the MSMED Act, 2006

Whether Printing is a manufacture / service?  Whether Publishing is manufacture or service?

This always remained as a moot point, while categorising under MSMED Act, which provides different limits (link) for manufacturing and servicing industries.

Now, the Ministry of Micro, Small & Medium Enterprises has clarified that,

Manufacturing –

• Printing OR
• Printing & Publishing, as an integrated unit.

Service – Publishing.

Thus publishing per se is not manufacturing unless printing is also involved.  Printing per se is manufacturing.  Publishing per se is service.

Source: No.5(6)/2/2009-MSME POL dated 08/05/2009

As you know [MSMED]Small Scale Industry definition only under MSMED Act for IDRA too.

To understand all the notifications of industry, read Industries DIPP updates

Now, read in mail Subscribe to Blog

[FEMA]FC-TRS reporting amended & is subject to KYC & to be submitted within 60 days of consideration for transfer of equity instruments involving foreign nationals or NRI’s

Foreign Direct Investment in India -
Transfer of Shares / Preference Shares / Convertible Debentures
by way of Sale - Modified Reporting Mechanism

Vide RBI/2008-09/447 A. P. (DIR Series) Circular No.63 dated April  22, 2009

1.In order to capture the details of investment received by way of transfer of the existing shares / compulsorily and mandatorily convertible preference shares (CMCPS) / debentures [hereinafter referred to as equity instruments], of an Indian company, by way of sale, in a more comprehensive manner, the form FC-TRS has been revised (format in Annex I). Accordingly, the proforma for reporting of inflows / outflows on account of remittances received / made in connection with the transfer of equity instruments by way of sale, submitted by IBD/FED/nodal branch of the AD Category – I bank to the Reserve Bank has also been modified (format in Annex III).
2.The sale consideration in respect of equity instruments purchased by a person resident outside India, remitted into India through normal banking channels, shall be subjected to a KYC check (format in Annex II) by the remittance receiving AD Category – I bank at the time of receipt of funds. In case, the remittance receiving AD Category – I bank is different from the AD Category - I bank handling the transfer transaction, the KYC check should be carried out by the remittance receiving bank and the KYC report be submitted by the customer to the AD Category – I bank carrying out the transaction along with the form FC-TRS.
3.Further, in order to ensure that the form FC-TRS is submitted within a reasonable timeframe, it has been decided that henceforth, the form FC-TRS should be submitted to the AD Category – I bank, within 60 days from the date of receipt of the amount of consideration.  The onus of submission of the form FC-TRS within the given timeframe would be on the transferor / transferee, resident in India.
4.In case of transfer of equity instruments where the non-resident acquirer proposes deferment of payment of the amount of consideration, prior approval of the Reserve Bank would be required, as hitherto. Further, in case approval is granted for a transaction, the same should be reported in form FC-TRS, duly certified by the AD Category – I bank, within 60 days from the date of receipt of the full and final amount of consideration.
5. These directions will become operative with immediate effect.

Kindly note,

Attention of the Authorised Dealer Category – I (AD Category - I) banks is invited to paragraph 6 of the Annex to A. P. (DIR Series) Circular No.16 dated October 4, 2004, wherein, it has been stipulated that in case of transfer of shares from a resident to a non-resident / non-resident Indian and vice versa, the transferee / his duly appointed agent is required to approach the investee company to record the transfer in their books along with the certificate in form FC-TRS from the designated AD branch that the remittances have been received by the transferor / payment has been made by the transferee.  In addition, the designated AD branch is also required to submit two copies of the form FC-TRS received from their constituents / customers together with the statement of inflows / outflows on account of remittances received / made in connection with transfer of shares, by way of sale, to IBD/FED or the nodal office designated for the purpose by the AD Category – I bank. The IBD/FED or the nodal office of the AD Category – I bank in turn submits a consolidated monthly statement in respect of all the transactions reported by the branches to the Reserve Bank, in the prescribed proforma.  Further, it may be noted that in terms of Regulation 2 of Notification No. FEMA 20/2000-RB dated 3rd May 2000, as amended from time to time, "preference shares" mean compulsorily and mandatorily convertible preference shares and "debenture" means compulsorily and mandatorily convertible debentures.

[FTP-Hp] LUT & BG for duty credit scrips before realisation of export proceeds

Obtaining transferable duty credit scrips made easier

Source: TNC Rajagopalan / New Delhi April 06, 2009, 0:09 IST

Ref: Handbook of Procedures (FTP)

The Director General of Foreign Trade has notified the procedures for executing legal undertaking and bank guarantee for obtaining transferable duty credit scrips under Duty Entitlement Passbook scheme and under the reward schemes such as Focus Product Scheme, Focus Market Scheme etc. before realisation of export proceeds. The formats of legal undertaking and bank guarantee have also been notified

The good news is recognised export houses and PSUs need not furnish bank guarantees. Manufacturer exporters registered with Central Excise and with exports in the preceding two years of at least Rs 1 crore and manufacturer exporters who have paid excise duty of over Rs 1 crore in the preceding year need not execute bank guarantee.

The relevant Public Notice (no. 167/2008 dated 30th March 2009) says the applicant shall execute the legal undertaking and bank guarantee as per Customs circular no. 58/2004 dated 21st October 200 4. The said circular exempts exporters who have a turnover (physical exports) of Rs 5 crore in the current or preceding fiscal and having a track record of three years of exports.

Other manufacturer exporters need furnish bank guarantee of only 15 per cent of the amount of legal undertaking. Other exporters have to furnish bank guarantee covering 100 per cent of the amount involved.

Apparently, the amount of legal undertaking should cover the full duty credit amount. The exporter, however, has the option to file a revolving legal undertaking for a higher amount which will act as a limit i.e., within the limit, it will be debited if a duty credit scrip is issued and credited whenever the exporter submits evidence of realisation of export proceeds relating to any shipping bill against which the duty credit scrip was issued.

The revolving legal undertaking has to be submitted separately for each scheme. The legal undertaking/bank guarantee should be kept valid for 24 months from the let export order date. Perhaps, the DGFT expects that few payments will be delayed beyond 24 months from the date of exports.

The DGFT circular says that in case the export proceeds are not realised within 12 months of export, the exporter should either produce Reserve Bank approval extending the period for realisation of export proceeds or deposit amount equal to the duty credit or produce duty credit scrip for debit of equivalent amount within further 60 days failing which he will have to pay, in addition, 15 per cent per annum interest on the duty credit amount. The legal undertaking/bank guarantee will be enforced if the exporter does not surrender the benefits.

The Customs credit the duty drawback at All Industry Rates in the exporter’s bank account immediately after shipment based on only a declaration along with the shipping bill. The exporter is not required to submit a bond or bank guarantee but a six monthly certificate of export bills outstanding beyond the period allowed by RBI from authorised dealer(s) or chartered accountant.

Click here to understand Foreign Trade Policy 2004-2009.

[MSMED]Small Scale Industry definition only under MSMED Act for IDRA too

Small Scale & Ancillary Industry becomes Small or Medium Enterprise even for the purpose of IDRA.

Rescinding of Notification No.857(E) dated 10 December, 1997

The above said notification lists the factors on the basis of which an industrial undertaking shall be regarded as a small scale or as an ancillary industrial undertaking for the purposes of Industries (Development and Regulation) Act, 1951 (IDRA).  It is the impact of Micro, Small & Medium Enterprises Development Act, 2006, the said notification was rescinded.  Read about MSMED Act in http://yehseeyes.blogspot.com/2007/11/micro-small-and-medium-enterprises.html

The central Government considers it necessary with a view to ascertain which ancillary and small scale industrial undertakings need supportive measures, exemption or other favourable treatment under the Industries (Development and Regulation) Act, 1951 (65 of 1951) herein after referred to as the said Act) to enable them to maintain their viability and strength so as to be effective in –

1. promoting in a harmonious manner the industrial economy of the country and easing the problem of unemployment, and

2. securing that the ownership and control of the material resources of the community are so distributed as best to subserve the common good.

& for which purpose has rescinded the above said notification vide Notification SO. 563(E) dated 27th February 2009.

Consequently even the format of Industrial Entrepreneurial Memorandum (IEM) got amended, which now reads instead for IDRA – enterprise for goods pertaining to Schedule-I industry or employing plant & machinery as value addition to final product with distinct name/character/use. Find the said amendment in http://www.laghu-udyog.com/publications/circulars/GazNot/SO-199(E).pdf

Keep tracking Industries amendment using Industries DIPP updates

[Press Note 2009]FDI, Downstream Invesment, clarification & types of companies

Downstream investment refers to either fresh investment or acquisition by foreign-owned Indian holding company in a project of different activity which may or may not belong to the same group.

Click here for Press Note 2 of 2009 series regarding "Guidelines for calculation of total foreign investment i.e. direct and indirect foreign investment, including downstream investment in any or all Indian companies". 'Downstream investment' means indirect foreign investment by one Indian company into another Indian company by way of subscription or acquisition in terms of Press Note 2 of 2009. Para 5.2 of the said Press Note provides the guidelines for calculation of indirect foreign investment with conditions specified in para 5.5. It has definition of terms "when an Indian Company is owned and controlled by resident Indian citizens" OR "when an Indian company is owned or controlled by non-resident entities" OR "foreign investment". Download Press Note 2 from http://siadipp.nic.in/policy/changes/pn2_2009.pdf

Click here for Press Note 3 of 2009 series regarding "Guidelines for transfer of ownership or control of Indian companies in sectors with caps from resident Indian citizens to non-resident entities" with definition of terms "owned by resident Indian citizens & Indian companies" OR "controlled by resident Indian citizens or Indian companies" OR "owned by non-resident entities" OR "controlled by non-resident entities". It is clarified that these guidelines will not apply for sectors/activities where there are no foreign investment caps, that is, 100% foreign investment is permitted under the automatic route. Download Press Note 2 from http://siadipp.nic.in/policy/changes/pn3_2009.pdf

Click here for Press Note 4 of 2009 series regarding "Clarificatory guidelines on downstream investment by Indian Companies". The 'guiding principle' is that downstream investment by companies 'owned' or 'controlled' by non resident entities would require to follow the same norms as a direct foreign investment i.e. only as much can be done by way of indirect foreign investment through downstream investment in terms of Press Note 2 (2009 series) as can be done through direct foreign investment and what can be done directly can be done indirectly under same norms. It has definitions of "operating company" OR "investing company". It can be downloaded from http://siadipp.nic.in/policy/changes/pn4_2009.pdf

The classification for the purpose of Foreign Direct Investment (FDI) include:
Only Operating Companies - to comply with respective sectoral conditions & caps for foreign investment.
Operating-cum-investing companies - to comply with respective sectoral conditions & caps for foreign investment and the subject Indian companies into which downstream investments are made by such companies should also comply with its respective sectoral conditions & caps.
Investing companies - require prior approval of Government or FIPB for foreign investment and the subject Indian companies into which downstream investments are made by such companies should also comply with its respective sectoral conditions & caps.
Companies with no operations or downstream investments - require approval of Government or FIPB for foreign investment and when such company commences business or makes downstream investment it will have to comply with its respective sectoral conditions & caps.

Downstream investment by OTHER THAN 'only operating companies' is subject to following conditions:

1. To notify SIA, DIPP and FIPB of its downstream investment within 30 days of such investment even if equity shares/CCPS/CCD have not been allotted;
2. If by way of induction of foreign equity in an existing Indian Company to be duly supported by a resolution of the Board of Directors supporting the said induction as also a shareholders Agreement if any;
3. Issue/transfer/pricing/valuation of shares shall be in accordance with applicable SEBI/RBI guidelines;
4. Investing companies would have to bring in requisite funds from abroad and not leverage funds (not raising debts) from domestic market for such investments.

Thats it about Press Notes 2, 3 & 4 of 2009. TO keep track of Press Notes, click http://yehseeyes.blogspot.com/search/label/Industries%20DIPP

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[FDI-DIPP]Print Media liberalisation & read Indian Wall Street Journal now

Department of Industrial Policy & Promotion has issued press Note 1 of (2009 Series) dated 14th January 2009 amending FDI policies in Print Media in particular News & Current affairs matters.

Foreign direct investment (FDI) in publication of facsimile edition of foreign newspapers:

· FDI up to 100% is permitted with prior approval of FIPB in publication of facsimile edition of foreign newspapers.

· Investment should be made by the owner of the original foreign newspaper(s) whose facsimile edition is proposed to be brought out in India.

· Business can be undertaking only by an entity incorporated or registered in India under the provisions of the Companies Act.

· Publication of facsimile edition of foreign newspaper would also be subject to the Guidelines for publication of newspapers and periodicals dealing with news and current affairs and publication of facsimile edition of foreign newspapers issued by Ministry of Information & Broadcasting on 31.3.2006, as amended from time to time.

Foreign investment in publication of Indian editions of foreign magazines dealing with news and current affairs.

• FDI upto 26% including investment by NRIs/PIOs/FII, is permitted with prior approval FIPB.
• 'Magazine', for the purpose of these guidelines, will be defined as a periodical publication, brought out on non-daily basis, containing public news or comments on public news.

· Foreign investment would also be subject to the Guidelines for Publication of Indian editions of foreign magazines dealing with news and current affairs issued by the Ministry of Information & Broadcasting on 4.12.2008.

Click here for the Press Note 1 2009 series http://siadipp.nic.in/policy/changes/pn1_2009.pdf

So, whats the impact of this amendment

A facsimile edition is an exact replica of an international edition that meets certain conditions and cannot carry separate advertisements aimed at Indian readers or locally generated content or India-specific content, not published in the original edition of the foreign newspaper.

The all new Indian edition was added to the WSJ.com website this weekend and includes coverage from the New Delhi and Mumbai bureaus of Wall Street Journal which can be read from http://india.wsj.com/

For your kind information, Wall Street Journal also has a partnership with Hindustan Times in India to publish Mint - a business newspaper that is available in both print and online edition at livemint.com.

And you will find many more Indian editions of e-newspapers & foreign magazines.

Print your Entrepreneurs Memorandum (EM) Number, to get identified as Micro & Small Enterprise

Whether Schedule VI Update of Companies Act is followed in Spirit ?

Apprehensions have been expressed that in the absence of the identification of MSE Supplier on its supply order/ invoices and other documents may leave a scope for the buyer to omit their mention in the annual statement of accounts. The auditors while auditing the annual accounts may not be able to deduct such omissions from the available documents because of non-availability of identification. In terms of the provisions of MSMED Act, 2006, the MSE supplier is defined as under:

“As per Section 2(a)(ii)(n) of the MSMED Act, 2006 the “supplier” means a micro or small enterprise, which has filed a memorandum with the authority referred to in sub-section (1) of section 8. “

So, What Now ?

It is considered advisable that the Micro and Small Enterprises should mention/ get printed on their letter heads, supply order sheets, invoices, bills and other relevant documents, the Entrepreneurs Memorandum (EM) Number {as allotted after filing of the said Memorandum, by the District Industries Centre (DIC) or competent authority, as notified by their respective State Government/ UT administration}, so that there always remains an identification of being a MSE supplier.

 

This may please be brought to the knowledge of all micro and small enterprises, through respective Micro and Small Enterprises Associations in your State/ under your jurisdiction or all other possible means for creating awareness and sensitisation of micro and small enterprises on this issue, under intimation to this office, so that the provisions of Section 22 and Section 23 of the MSMED Act, 2006 are implemented in letter and spirit.

 

MSME No.2(18)/2007-MSME (pol) dated 26-08-2008

 

Understand Micro, Small & Medium Enterprises Act, 2006 here.

IEC modification, when 100% EoU becomes DTA

Yes,

You will get a Fresh Import Export Code (IEC) from RA, once your 100% Export Oriented Unit (EoU) gets converted into a Domestic Tariff Area (DTA) unit.

Same is NOT the case when an existing DTA gets converted into 100% EoU. Meaning, it will continue with the same IEC.

This is as per the Clarification issued by Commerce Ministry which can be accessed in http://164.100.9.245/exim/2000/cir/cir08/cir2608.htm

Changes in FDI Policy - DIPP Press Notes Series 2008

Dear All,

Department of Industrial Policy & Promotion has issued 6 Press Notes under 2008 series on 12^th March 2008. Brief amendments in FDI policy in said press notes are as follows:

Press Note 1 (2008): Change in FID on Credit Information Company (CIC):

As per PN-1 of 2008, Foreign Investment is permitted to the extent of 49% through composite ceiling i.e both Foreign Direct Investment and as well Investment by FII through portfolio investment, subject to the approval from FIPB and necessary regulatory clearance from RBI and subject to the following conditions.

• Portfolio investment by FII should not exceed 24% at any case.
• Further no such FII should hold more than 10% either directly or indirectly.
• Any acquisition in excess of 1% is subject to the reporting to the RBI.
• FII's who are going to invest in CICs Companies, should not seek any representation in the Board based on their shareholding.

Press Note 2 (2008): Foreign Investment on Commodities Exchange:

As per PN-2 of 2008, Foreign Investment is permitted to the extent of 49% through composite ceiling i.e both Foreign Direct Investment and as well Investment by FII through portfolio investment, subject to the specific approval of the Government and necessary regulatory clearance from RBI and subject to the following conditions.

• FII can invest only through secondary market i.e Portfolio investment route only to the extent of 23% at any case.
• Investment under FDI scheme will be allowed to the extent of 26%.
• No foreign investor, including person acting in concert with can hold more than 5% either directly or indirectly.

Press Note 3 (2008): Clarification on FID in Industrial Park:

You may be aware of that as per press note 2 of 2000, 100% FDI is allowed for industrial park under the automatic route. Further through press note 2 of 2005, the Govt of India stipulated certain conditions for FDI upto 100% under the automatic route for development industrial projects subject to the terms and conditions as stipulated PN 2 of 2005. But, Companies which are in established industrial park are falling under 100% automatic route without complying with PN 2 of 2005.

Further through this PN 3 of 2008, it is clarified FDI will be permitted under the automatic route without complying with PN 2 of 2005 both for setting up industrial park and as well established industrial park.

Besides, DIPP has also issued press notes on the following subject, Press Note 4 (2008): Change in FDI Policy in Civil Aviation Sector, Press Note 5 (2008): Change in FDI Policy in petroleum and Natural Gas Sector, Press Note 6(2008: FDI Policy for mining of titanium bearing mineral and ores.

You can access entire text of press notes 2008 series at http://groups.google.com/group/cschennai/files in PDF format.

Thanks & Regards

Alagar

Investment Banking

Karvy Investor Services Limited
G-1 Swathi Court
22, Vijayaraghava Road
T.Nagar, Chennai - 600 017
Tel: 044-28151034/3445/3658
Moble: 919884731993
e-mail: alagar.muthu@karvy.com
website: karvy.com

for more information about cschennai visit to
http://groups.google.com/group/cschennai

24% investment cap on SSIs removed - FDI

Dear All,

24% investment cap on SSIs removed - FDI

As per existing provisions, FDI is allowed upto 24% of capital in SSI units, if SSI units wants to take additional FDI over and above 24%, then it needs to sacrifice SSI status and can go to upto the sectoral cap as specified under FEMA Regulations for that particular business/industry.

As per recent announcement by Commerce Ministry, 24% of Investment cap is removed for SSI. So that now SSI can go upto sectoral cap as specified under FEMA regulation under automatic route without losing their status as SSI..

Extract from BS – 19-12-2007

In a development, which is likely to increase participation of foreign players and big companies in small-scale industries (SSIs), the government has formally announced doing away with the 24 per cent investment cap in the sector.

However, industry sources remained sceptical about the move as cheap imports from countries like China has made production of many goods exclusively reserved for the sector unviable.

To make this move effective, the government has taken a decision to repeal a restrictive clause, which limits equity participation in SSIs to 24 per cent.

Announcing the development, Commerce Minister Kamal Nath said: "This will lead to technology infusion in the sector as more and more foreign players and large companies set up their own SSI units."

The government notification will enable big industrial houses, both from the country and abroad, to set up SSI units in the sector, which has been restricted because of a limit of 24 per cent equity participation by other companies.

An industrial unit is classified as an SSI when the investments is within Rs 5 crore. At present, there are 114 goods that are exclusively reserved for the sector.

"The doing away of the investment limit means that the de-reservation process of SSIs, which started in 1967, is complete. Thus large corporate houses will be able to set up SSI units in both reserved and unreserved products," said Anil Bhardwaj, secretary general of Federation of Indian Micro and Small and Medium Enterprises.

But he also added that this move is inconsequential in terms of effective benefits for the SSI sector: "Cheap imports have made production of many reserved items unviable. Indian SSIs are not able to compete with international companies in the domestic market."

Reserved items in the sector include electric tea and coffee maker as well as pens, which are being imported in large quantities.

Thanks & Regards

Alagar
Karvy
Moble: 919884731993