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Apex Chamber of Industry and Commerce of NCT, Delhi Challenges Government Notification for hike in Minimum Wages.

The Delhi Government, by a notification dated 3rd March, 2017, cleared a significant 37% hike in minimum wages of workers in the State. An unskilled labourer will now be entitled to a minimum wage per month of Rs. 13,350/- from the earlier Rs. 9,724/-. Likewise, the minimum wage per month for semi-skilled workers would go up from Rs. 10,764/- to Rs. 14,698/- and from Rs. 11,830/- to Rs. 16,182/- for skilled labourers. The sole objective of the Government behind the scheme is to provide financial security to the impoverished, thus increasing their purchasing power, which in turn would stimulate growth in the trade and industry.

Apex Chamber of Commerce and Industry is the representative body for free industries in Delhi. It aims to facilitate the common interests of trade and industry for its members thereby creating a constructive trade and industrial relationship, competitive, transparent, free and fair environment for its members. The Apex Chamber in a letter to Lieutenant Governor opposed the figures proposed in the said order by Delhi Government.

While fixing the rate of minimum wages, the fundamental components that are taken into account include food, clothing, house, light, fuel and education. The Seventh Pay Commission has laid down 2700 calories per day for a workman who performs moderate activities. The representative body for trade and industry has stated that the minimum calorific value taken into consideration while calculating minimum wages was 3447 calories, which is much higher that the value fixed by the Seventh Pay Commission. It is also argued by the representative body that the legislative scheme under Section 9 of the Minimum Wages Act, 1948 has been completely violated in as much as it requires equal number of representation of employers and employees as well as independent persons not exceeding 1/3rd of its total members. In W.P. (C) 12088/2016, before the Hon’ble High Court of Delhi, in the matter of Apex Chamber of Commerce and Industry of NCT Delhi v LT. Governor of Delhi, a bench comprising of the Chief Justice of the High Court of Delhi and Justice Sangita Dhingra Sehgal has passed an interim order stating that no coercive action shall be taken against the petitioner therein, pursuant to the Notification dated 3.03.2017 by the Delhi Government until further orders.

The bench is yet to decide the matter filed by the Apex Chamber of Commerce and Industry and the matter is listed before the Delhi High Court for 11th September, 2017. In the interim period, no coercive steps shall be taken as per the Court order dated 7th March, 2017.

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New MRP Rules under GST notified by Central Government

Maximum Retail Price (“MRP”) is the highest price that can be charged to a consumer by the last point in the supply chain which is inclusive of all taxes. But, post Goods and Services (“GST”) Tax introduced in the country on 1 July 2017, the rate of tax has changed in some commodities, thus, affecting the MRP in some cases. This has created a crisis like situation for several businesses which are left with huge volumes of unsold pre-packed items with the previous MRP before the GST came into force.

By way of respite, the Government has issued a notification on 4 July 2017, allowing companies to print, stamp, or use stickers to show the revised MRP on a product package. The old MRP will have to be clearly visible along with the revised MRP sticker. Also, it has been further directed that companies should advertise the change in prices of their products, in at least two newspapers, if they are raising the price of any product featuring both the new (post-GST) and old (pre-GST) MRPs on the packaging. However, no advertisement is required in case of lowering of price. This step is aimed to ensure that the companies and retailers have a way of dealing with the older (pre-GST) stock and preventing profiteering.

This transitional measure can be availed till 30 September 2017, after which all pre-packed goods will have to have just one MRP including the GST.

That said, this notification has come out as a ‘sticker shock’ to the companies who point out that the step is horrendously complicated, time-consuming and tedious as it would be a formidable task for the manufacturers to use stickers that reflect the new MRP as millions of packages are already in stock with distributors and retailers countrywide. Not only would this be virtually impossible but also, it would impose a crushing financial burden on the sellers.

Also, a downside of the step is that the notification issued would result in non-compliance of the provisions under the Legal Metrology Act, 2009, which prohibits manufacturers from changing MRP tags once goods are out of the factory.

The Food and Consumer Affairs Minister, has taken to social media to inform that if the provisions regarding revised MRP, as stated in the rules, are not properly followed, then legal action will be taken against such shopkeeper.

In conclusion, it would be best to state that though the Government may be well intentioned, the steps being taken are harm handed, and punitive and impractical.

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Abolition of Foreign Investment Promotion Board

The entry of Foreign Direct Investment (FDI) into the country has hitherto been  regulated by two routes, one by an automatic route and the other, by an approval route which involves an approval by an inter-ministerial body, named as Foreign Investment Promotion Board (FIPB), housed in the Department of Economic Affairs under the Ministry of Finance. The Finance Minister would approve proposals with total foreign equity inflow below 3000 crore rupees, after consideration of recommendations from FIPB. However, the proposals involving total foreign equity inflow above 3000 crore rupees were approved by the Cabinet Committee on Economic Affairs after consideration of recommendations from FIPB.

The Union Government has made certain policy changes by way of economic reforms to make India a more attractive destination for foreign investment and to upscale the ‘ease of doing business in India’, and thus the Government has phased-out FIPB to facilitate foreign investment in the country. According to the World Bank’s Ease of Doing Business Index, India ranks 130 amongst 189 other countries which is a rather undesirable ranking to have.

FIPB was first constituted in the early 1990s, chaired by the Economic Affairs Secretary with other permanent members. Now, the Board would be replaced by the administrative departments under the concerned ministries who would deal with the approval to the FDI proposals in consultation with Department of Industrial Policy and Promotion (DIPP). The DIPP would also formulate a detailed Standard Operating Procedure (SOP) so as to guide the ministries in the process of approving the applications to ensure consistency of treatment with the applications and uniformity of approach across the sectors. Also, to make them more accountable, strict time-lines would be fixed under the SOP and the concurrence of DIPP is mandated for rejection of proposals. Additionally, the administrative department of the ministries will be responsible for monitoring the compliances imposed under the FDI approval mechanism.

This step hopes to effectively eliminate the bureaucratic hurdles that investors face before investing in the country and since DIPP and FIPB were two separate entities, the proposals occasionally did get held up because of differences in opinion or perception between different ministries engendering unnecessary delays in getting the proposals approved. An investor at times got squashed between DIPP, FIPB and RBI for any FDI-related issue. Further, the fact that the FIPB was constituted with officials from various ministries and regulators, there was a perceived lack of  transparency in the decision-making process.

That being said, it appears that the Government’s decision may turn out to be  little more than a symbolic gesture. While granting the fact that the FIPB may have delayed clearances at times, the efficacy of this move will be determined by the capability of individual ministries to take decisions efficiently and expeditiously, qualities that continue to evade much of our bureaucracy.. This step means that individual ministries (that often function as political and/or bureaucratic fiefdoms) could also exercise their ‘discretionary’ powers without the alleged fear, favour or the cover provided by a collective decision-making body. It will be interesting to see how well these ministries fall in line  with the nuances of the FDI policy and maintain consistency/transparency and continuity in the process, which is of paramount importance for attracting foreign investors.

This move by the Central government is hopefully a step towards liberalization of FDI in India albeit its success would depend largely on the structure of comprehensive guidelines issued by the DIPP in consultation with the ministries.

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ICDS draft for Real Estate Transactions

The Central Government had notified Income Computation and Disclosure Standards (ICDS) vide notification dated 29th September, 2016 by way of powers conferred under Section 145 (2) of Income Tax Act, 1962. The notified standards have mentioned identification of revenue from construction contracts, sale of goods and providing of services. However there was no standard for recognition of revenue from real-estate transactions.
Thereafter, the CBDT placed the ICDS drafts for recognition of income from such transactions on 11th May, 2017. This Income Computation and Disclosure Standard shall be applicable for determination of income from all forms of transactions in real estate, which refers to land as well as buildings and rights in relation thereto. The draft provides that where the economic substance is similar to a construction project, project revenue and cost shall be recognized by referring to the stage of completion of the project on the last date of financial year. Further, it is stated that where the substance of the project is not similar to that of a construction project, the income will be recognized in accordance with income from sale of goods as prescribed in ICDS IV.
Indicators that economic substance of a project is similar to a construction contract are: (a) The duration of such projects is beyond 12 months and the project commencement date and project completion date fall into different previous years, (b) Project involves activities similar to construction contracts such as land development, structural engineering, architectural design, construction or activities of similar nature, (c) While individual units of the project are contracted to be delivered to different buyers these are interdependent upon or interrelated to completion of a number of common activities with or without provision of common facilities and (d) The construction or development activities form a significant proportion of the project activity.
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Embassies to inform Foreign Nationals to be aware of Indian Laws: Delhi High Court

The High Court of Delhi has asked the Ministry of External Affairs to inform the Embassies and High Commissions in Delhi that their citizens should be well aware of the local laws in order to avoid inadvertent violations.
The Delhi High Court has directed the Ministry of External Affairs to send a communication to all Embassies, Consulates or High Commissions in India advising foreign nationals travelling to this country as to the desirability to bear in mind the local laws, particularly laws such as the Arms Act.
The Court heard two Petitions filed for quashing of FIRs lodged under the Arms Act against two foreigners, one from the UK and another from Kenya. Both citizens had travelled to India on a valid visa, and were found to be carrying bullets at the time of leaving the country. The two have now filed a quashing petition stating that the FIRs against them be quashed as the cartridges were not in their conscious possession and, therefore, they did not commit any intentional acts of commission or omission to constitute offence under Section 25 of the Act.
The Court noted that the FIRs as well as investigation in both cases did not indicate anything suggesting conscious possession. The court therefore quashed the FIRs against the two citizens.