March 16, 2024 | CA B K Goyal & Co LLP

Certificate to Mini Tea Factory

Government Schemes / CA Bhuvnesh Goyal / March 16, 2024

In order to offer financial assistance and improve the competence of the tea industry, the Tea Development & Promotion Scheme (TDPS) was launched by the Tea Board of India. Tea is one of the industries, which by an Act of Parliament comes under the control of the Union Government. The present Tea Board set up under section 4 of the Tea Act 1953 was constituted on 1st April 1954. There are 7 supporting schemes under TDPS and let’s have a look at how the assistance is provided for Plantation Development through Tea Board. Below listed are the schemes which are covered under TDPS: Plantation Development Quality Upgradation and Product Diversification Domestic and International Market Promotion Research and Development Human Resource Development National Programme for Tea Regulation Establishment Expenses Plantation Development The first component of the Tea development & Promotion Scheme is aimed at increasing overall tea production, boosting the productivity of tea gardens, and improving the quality of Indian tea. It covers both big growers (owning more than 10.12 hectare) and small growers (owning up to 10.12 hectare). The following are the sub-components involved are: For both big and small growers Replanting & Replacement planting Rejuvenation pruning Irrigation Mechanization Organic Certification (plantation) For big growers only Annual award For small growers only Assistance to Self Help Groups (SHG) Assistance to Farmers’ Producers Organizations (FPO) Annual Award Scheme for SHGs and FPOs Setting up of new factories by FPOs Setting up mini-factories Traceability and publication of newsletters Workshop/training Study tour Strengthening field offices Organic Conversion Special Packages for North East, Idukki, Kangra and Uttaranchal General Process of Availing Financial Assistance Application forms must be submitted to the nearest field office of Tea Board at least 30 days prior to starting field activity. Forms are available at all Tea Board offices and online at the official website http://www.teaboard.gov.in Pre-approval inspection will be carried out by the Tea Board Pre Activity Acknowledgement Receipt will be issued. Field activities can be commenced at this stage Post activity documents must be submitted to Tea Board after the work is done First inspection/post activity inspection will be carried out Tea Board Proper maintenance of areas must be intimated to Tea Board within specified time schedule by Big Growers Final inspection to be carried out by Tea Board General Eligibility Conditions Applicants must satisfy the following conditions that are common for all the sub-components mentioned above, Big growers’ tea gardens must be registered with the Tea Board of India. Small growers (including members of SHGs and FPOs) must possess either an ID card issued by the Tea Board or a unique identification number and also present documentation supporting their ownership of land. Possession certificates from relevant land revenue department shall be accepted in absence of title deeds. Applicants must be current members of TRA (for tea gardens of North India) or UPASI-TRF (for tea gardens of South India) at the time of application. Growers with holdings less than 50 Ha are exempt. Full subscription fee must have been paid to the National Tea Research Foundation. Small growers, identified sick tea gardens, holdings less than 50 Ha, and gardens without tea factory are exempt. During the time of application and release of subsidy, the provident fund liabilities of the garden must not be in excess of Rs.10000. In case the limit is exceeded, the application must be accompanied by a court decree or written consent from relevant PF authorities for disbursing PF dues in instalments. This condition is not mandatory for small growe The applicant must not be at default in repayment of any of the Tea Board’s earlier loan schemes. Abandoned tea areas shall be eligible only after the submission of a fitness certificate issued by TRA/UPASI-TRF/IHBT. Applicants must comply with all relevant provisions of the Tea Act and other orders from the Tea Board. Violation will invite recovery of the subsidy granted along with 12% interest per annum. Big growers must attach a Plant Protection Code (PPC) compliance certificate issued by TRA or UPASI-TRF. For small growers, the compliance certificates will be issued post pre-approval inspection by a Development Officer of the Tea Board. Non-refundable application fee of Rs.5000 must be remitted electronically to the concerned bank account of the Tea Board by big grow transaction receipt must accompany the application. Small growers must pay a fee of only Rs.100. Only one application per activity per applicant shall be submitted. In case of an additional application for the same activity, it will be clubbed with the first application and then considered, provided all conditions of the scheme are satisfied. Quantum of Assistance for Sub-Components Replanting and Replacement Planting The subsidy will be 25% of the total cost and will be released in two installments. The 1st installment will cover 60% of subsidy and the 2nd installment will cover 40% of subsidy. Note: Unit cost of Tamil Nadu will apply to Karnataka; Unit cost of Darjeeling will apply to Himachal Pradesh and Uttarakhand; Unit cost of Dooars & Terai will apply to Chhattisgarh Rejuvenation Pruning and Infilling The subsidy will be 30% of the total cost and will be released in two installments. The 1st installment will cover 60% of subsidy and the 2nd installment will cover 40% of subsidy. Irrigation (Cost of transport not eligible) The subsidy will be 25% of the total cost and will be released in two installments. Mechanisation Following machinery, items are eligible for 25% subsidy, subject to ceiling limits and excluding any transportation charges. Equipments Ceiling Limit (Rs.) Pruning machine 25000 Mechanical harvester 40000 Pitting augur 20000 mounted power sprayer 10000 soil injector 6000 soil augur 2000 Annual Award For big gardens: One lakh rupees every year for every region. Organic Certification 50% of only certification cost, including renewals, capped at 2 lakh rupees per certificate. Assistance to SHGs Item Unit Cost (Rs.) Weighing scale 100% of cost subject to a ceiling limit of Rs.4000 per scale Plastic crate Ceiling limit Rs.350 per crate Nylon bag Ceiling limit Rs.75 per nylon bag Pruning machine

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Section 219 – THE INDIAN CONTRACT ACT, 1872

THE INDIAN CONTRACT ACT, 1872 / CA Bhuvnesh Goyal / March 16, 2024

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Inverted Duty Structure under GST

Goods & Service Tax / CA Bhuvnesh Goyal / March 16, 2024

There was a constant tug-of-war between the departmental officer and the GST registrant regarding the claims for refund of input services in case of an inverted duty structure. Remarkably, due to conflicting views of two High Courts, the matter even reached the Supreme Court. After the Supreme Court’s observation that resulted in the recommendation of the 47th GST Council, let’s hope the matter settles down in favor of taxpayers soon. What is an Inverted Tax Structure? ‘Inverted tax structure’ refers to a situation where the input GST rate (i.e. the GST rate paid on inputs received) is higher than the output GST rate (i.e. the GST rate payable on outgoing supplies). Simply put, the taxpayer ends up paying more tax on purchases compared to sales tax. A taxpayer is entitled to a refund of the Input Tax Credit (ITC) due to the reverse tax structure. Inverted tax structure in the pre-GST regime n the pre-GST regime, a situation of an inverted duty structure arose in cases where import duty on raw materials that were used in the production of finished goods was higher than the import duty on finished goods itself. An example which shows a case of Inverted Duty Structure: Duty on the import of tyres (Finished Good) = 10% Duty on the imports of natural rubber (Raw Material) = 20% Other Examples: Products Import duty on Finished Goods Raw Materials Finished Goods Raw Materials Solar Modules Components for Solar Modules Nil 5-10% Seaweed Agar 10% 30% Dehydrated culture media Microorganism 10% 30% Electrical Transformer Steel Tubes 7.50% 10% Railway locomotives Components 5% 18-28% Inverted tax structure under the GST regime The term ‘Inverted Tax Structure’ refers to a situation where the rate of tax on inputs purchased (i.e.GST rate paid on inputs received) is more than the rate of tax on outward supplies (i.e. GST rate payable on sales). Products GST on Finished Goods (Output) Raw Materials (Input) Finished Goods Raw Materials Fabric Bag Non-Woven Fabric 5% 12% Pre-Amendment Refund Formula The maximum amount of refund = {(Turnover of reverse-rated supply of goods and services) x Net ITC ÷ Adjusted total turnover} – tax payable on such reversed nominal supply of goods and services. = 550000*50000/600000 – (550000*5/100) Eligible return = 45833 – 27500 = 18333 Post-Amendment Refund Formula Now the formula for refund after amendment- The maximum amount of refund = {(Turnover of reversed assessed supply of goods and services) x Net ITC ÷ Adjusted total turnover} – {tax payable on such reversed assessed supply of goods and services x (Net ITC ÷ ITC utilized on inputs and input services)} =550000 *50000/600000- (27500*50000/65000) = 45833 -21154 = Rs.24679 Hence refund increased after the change in the formula – (24679 – 18333) – Rs 6346 Reason for change in formula Output tax reduction on inverted rated supplies is to be made in the same proportion as ITC was availed on input and input services during the relevant period. Now many disputes have been resolved but still, it would be great if ITC on capital goods is also considered by GST Council. Refund in Inverted Tax Structure under GST A registered person can apply for a refund of unused input tax credit (ITC). ITC due to the reverse tax structure can be claimed at the end of each tax period where the credit has accumulated because the input tax rate is higher than the output tax rate. The tax period is the period for which the return must be filed. Exceptions, when it is not possible to apply for a refund of an unused input tax credit, are as follows: Output supplies are zero-rated or wholly exempt except for supplies of goods or services or both as may be notified by the Government on the recommendation of the GST Council. If goods exported from India are subject to export duty. If the supplier claims a refund of output tax paid under the IGST Act. If the supplier avails duty drawback or IGST drawback on such supplies. Maximum refund amount, formula, and conditions The maximum refund amount = (turnover of reverse-rated supply of goods and services X Net input tax credit/adjusted total turnover) – tax payable on the such reverse-rated supply of goods and services Let us understand with an example- Supply of Cloth Bags (Output) Value: Rs.1, 400 GST on the above items: 1,400 × 5% = Rs.70 Supply of Silk Fabric: Value Rs.1, 500 GST on the above items: Rs.1, 500×5%=Rs.75 The purchase value of silk yarn: 1000 rupees x 5% GST on the above items: Rs.1000. × 5%=50 The purchase value of non-woven fabric Rs.1, 000 GST on the above items: 1000 × 12% = Rs.120. The reverse nominal supply turnover which in this case is Rs.1, 400. Maximum Refund = {(1400×120)/1400}-70 = Rs 50 Useful terms in calculating the maximum refund amount Turnover of inverted nominal supply of goods The value of a reverse supply of goods or services made during the relevant period without payment of tax under the bond or promise. In the above example, turnover of reverse nominal supply of goods = Rs.1, 400 Net input tax rebate Net ITC means input tax credit availed on inputs during the relevant period, other than input tax credit availed for which refund is claimed under sub-rules (4A) or (4B) or both. In the above example, it is 50+120-50= Rs. 120 Adjusted total turnover “Adjusted total turnover” means the turnover in a State or Union territory as defined in sub-section (112) of section 2, excluding the value of exempt supplies other than zero-rated supplies and the turnover of supplies for which refund is claimed under sub-rules (4A) or (4B) or both during the relevant period. In the above example it is 1500+1400-1500 = Rs. 1400 Turnover in a State or Union Territory as defined in sub-section (112) of section 2: “Turnover in a State” or “turnover in a Union Territory” means the aggregate value of all taxable supplies (other than the value of inward supplies) on which tax is

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Custody of Children in India

Legal / CA Bhuvnesh Goyal / March 16, 2024

Parenting is not merely the bragging rights of a desperate parent but is an endeavor that determines the future well-being and morale of the child. The need for determining the legal guardianship of children aged below 18 occurs in the event of a divorce or annulment of marriage. In India, the rights of adjudication of this most delicate of provisions are vested with the family law courts. This article covers the legal framework pertaining to the custody of children in India. What Is Child Custody in India? In India, both parents have legal rights to the child. This means that the mother has the right to raise and care for the child and is entitled to visitations with the child. The father has equal rights to raise and care for his children but does not have the right to visitation. The courts do not decide on custody based on which parent is more suitable or better suited to care for the child. In this case, it would be a tie between both parents. This system of custody comes from how society views women as the weaker gender. They would rather give mothers legal rights over children because they believe mothers should be caring for children while fathers should be out working and providing financially for their children. Types of Custody he law concerning custodianship facilitates custodianship of any of the following manner, as directed by the courts: Physical custody Legal custody Joint physical custody Third party custody Physical Custody- Physical custody awards the custody of a child to a single parent if the other parent is abusive and is considered unfit for parenting. The parent with the custodial rights will be designated as the primary caretaker and will be in charge of the child’s emotional, medical and educational needs. For this purpose, the legal guardianship is bestowed on the person who may potentially serve the child better in terms of these needs. The earning capacity of the parent isn’t prioritized here, as the parents are assessed based on their potential to provide a safe and secure environment to the child. If a non-earning parent is bestowed with the custody of a child, the earning member is accountable to cater to the financial needs of the children. Note: According to a ruling of the Supreme Court, the custody of a child is bestowed to the mother if the age of the child is five or below, subject to conditions. Joint Physical Custody- The affection of a child is oftentimes impossible to comprehend. Most children, except in certain extreme scenarios, prefer to side with both their parents. Such a scenario would entitle both the parents to cherish the legal custody of the child, though physical guardianship would be entrusted to a single parent. Here again, the aspect of income isn’t prioritized over the potential of the parent to provide a safe and secure environment to the child. Legal Custody- The option of legal custody bestows the parents with the entitlement of making vital decisions with respect to the upbringing of a child. The rights so bestowed on them includes the right to cater to the child’s educational, moral, financial, and medical requirements. These aspects are given prominence as it has a direct bearing on the welfare of the child. Third Party Custody- The discretion to bestow the guardianship rights on the hands of a third party are taken when the concerned adjudicators are of the opinion that neither of the biological parents is considered fit to be assigned with the custodianship. In this case, the rights are granted to a third person. How Child Custody Works in India The Indian courts are reluctant to make decisions about child custody and the welfare of children. Child custody is a state-based issue in India, so each state has its own set of rules and regulations. In India, many people prefer joint custody to sole custody. A parent does not have to share custody of their children, and it can either be shared or not. In the event that the parents cannot agree on joint or non-joint guardianship, the court will decide who will have full custody of their child. In most cases, the court will ask both parents what they want if they cannot agree. The Central Regulation The laws concerning the custody of a child are provided in the Guardians and Wards Act of 1890. The law is enforced on all the religions of the country and is considered in conjunction with the relevant religious laws. On a precise note, the following aspects are considered while determining the guardianship of a child: The personal law wherein the minor is the subject. The age, gender, and religion of the minor. The character and capacity of the proposed guardian. The relationship of the kin with the minor. The wishes of a deceased parent. Any existing or prior relations of the proposed guardian with the minor. The minor’s capacity to make an intelligent preference. The desire of the child. The number of siblings in a family – The courts would generally like to keep the children together if the concerned family has multiple children, and hence would ordain the custodial rights accordingly. The comfort, health, material, intellectual, moral and spiritual welfare of the child. The Hindu Law he Hindu laws pertaining to guardianship are covered in the Hindu Minority and Guardianship Act, 1956, which is almost synonymous with the Guardians and Wards Act, 1890. The similarities found in both these laws are as follows: The mother will be bestowed with the custodianship of the child if the particular child is aged five or below, except in circumstances where the mother is proven to neglect or ill-treat the child. The general regulatory standards of both the laws favor the father to gain custody of older boys and the mothers with that of older girls, though it is by no means a compulsory dictum. A child’s desire is considered if he/she has surpassed the age of nine. Apart

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internal rate of return (IRR)

learn / CA Bhuvnesh Goyal / March 16, 2024

The Internal Rate of Return (IRR) is the discount rate that makes the net present value (NPV) of a project zero. In other words, it is the expected compound annual rate of return that will be earned on a project or investment. What Is IRR? IRR, or internal rate of return, is a metric used in financial analysis to estimate the profitability of potential investments. IRR is a discount rate that makes the net present value (NPV) of all cash flows equal to zero in a discounted cash flow analysis. IRR calculations rely on the same formula as NPV does. Keep in mind that IRR is not the actual dollar value of the project. It is the annual return that makes the NPV equal to zero.Generally speaking, the higher an internal rate of return, the more desirable an investment is to undertake. IRR is uniform for investments of varying types and, as such, can be used to rank multiple prospective investments or projects on a relatively even basis. In general, when comparing investment options with other similar characteristics, the investment with the highest IRR probably would be considered the best. The Formula for IRR The IRR formula is as follows: Calculating the internal rate of return can be done in three ways: Using the IRR or XIRR function in Excel or other spreadsheet programs (see example below) Using a financial calculator Using an iterative process where the analyst tries different discount rates until the NPV equals zero (Goal Seek in Excel can be used to do this) What Is IRR Used For? In capital planning, one popular scenario for IRR is comparing the profitability of establishing new operations with that of expanding existing operations. For example, an energy company may use IRR in deciding whether to open a new power plant or to renovate and expand an existing power plant. While both projects could add value to the company, one will likely be the more logical decision as prescribed by IRR. Note that because IRR does not account for changing discount rates, it’s often not adequate for longer-term projects with discount rates that are expected to vary.IRR is also useful for corporations in evaluating stock buyback programs. Clearly, if a company allocates substantial funding to repurchasing its shares, then the analysis must show that the company’s own stock is a better investment—that is, has a higher IRR—than any other use of the funds, such as creating new outlets or acquiring other companies. Individuals can also use IRR when making financial decisions—for instance, when evaluating different insurance policies using their premiums and death benefits. The consensus is that policies that have the same premiums and a high IRR are much more desirable. Note that life insurance has a very high IRR in the early years of the policy—often more than 1,000%. It then decreases over time. This IRR is very high during the early days of the policy because if you made only one monthly premium payment and then suddenly died, your beneficiaries would still get a lump sum benefit. Another common use of IRR is in analyzing investment returns. In most cases, the advertised return will assume that any interest payments or cash dividends are reinvested back into the investment. What if you don’t want to reinvest dividends but need them as income when paid? And if dividends are not assumed to be reinvested, are they paid out, or are they left in cash? What is the assumed return on the cash? IRR and other assumptions are particularly important on instruments like annuities, where the cash flows can become complex. Finally, IRR is a calculation used for an investment’s money-weighted rate of return (MWRR). The MWRR helps determine the rate of return needed to start with the initial investment amount factoring in all of the changes to cash flows during the investment period, including sales proceeds. Using IRR With WACC Most IRR analyses will be done in conjunction with a view of a company’s weighted average cost of capital (WACC) and NPV calculations. IRR is typically a relatively high value, which allows it to arrive at an NPV of zero. Most companies will require an IRR calculation to be above the WACC. WACC is a measure of a firm’s cost of capital in which each category of capital is proportionately weighted. All sources of capital, including common stock, preferred stock, bonds, and any other long-term debt, are included in a WACC calculation.In theory, any project with an IRR greater than its cost of capital should be profitable. In planning investment projects, firms will often establish a required rate of return (RRR) to determine the minimum acceptable return percentage that the investment in question must earn to be worthwhile. The RRR will be higher than the WACC.Any project with an IRR that exceeds the RRR will likely be deemed profitable, although companies will not necessarily pursue a project on this basis alone. Rather, they will likely pursue projects with the highest difference between IRR and RRR, as these will likely be the most profitable. Limitations of IRR IRR is generally ideal for use in analyzing capital budgeting projects. It can be misconstrued or misinterpreted if used outside of appropriate scenarios. In the case of positive cash flows followed by negative ones and then by positive ones, the IRR may have multiple values. Moreover, if all cash flows have the same sign (i.e., the project never turns a profit), then no discount rate will produce a zero NPV.Within its realm of uses, IRR is a very popular metric for estimating a project’s annual return; however, it is not necessarily intended to be used alone. IRR is typically a relatively high value, which allows it to arrive at an NPV of zero. The IRR itself is only a single estimated figure that provides an annual return value based on estimates. Since estimates of IRR and NPV can differ drastically from actual results, most analysts will choose to combine IRR analysis with scenario analysis. Scenarios can show different possible NPVs based on varying assumptions.As mentioned, most companies do not rely on IRR and NPV analyses alone. These calculations are usually also studied in conjunction with a company’s WACC and an RRR, which provides for

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