Monthly Archives: April 2014

Bureau of Indian standards- Electronics and Information Technology goods (requirement for compulsory registration) order, 2012

Bureau of Indian standards,(BIS)  a statutory body formed by an Act of Parliament is the nodal agency to set standards on various consumer products. This authority provides quality certification of goods and ensures certain standards. 90 products are under mandatory certification. It allows the licensees to use the popular ISI mark on their product, which is synonymous with quality products.

Government of India introduced Electronics and Information Technology goods( requirement for   compulsory registration)  order 2012 making it mandatory that all Indian and Foreign manufacturers to register before the BIS.  As per this order, already some 722 companies, including all major computer, and electronics product manufacturing companies have registered. As per this Electronics and IT goods (requirement for the compulsory registration) order 2012 no person shall manufacture or store for sale, import, sell, or distribute electronics & IT goods which do not confirm to the specified  standard and do not  bear registration number  for the product. It also mandates all substandard on defective goods, which do not confirm to the specified standard, should be disposed of scraped. This order is applicable to all electronics gods like electronic games(IS13616:2010), laptop, notebook(IS 30252:2010), plasma LCD, LED TV screens of screen size 32 inch and above (IS 6016:2010), optical displays with multiple amplifiers(IS 616:2010), micro wave ovens(IS 302-02-25:1994), video monitors(IS 13252:2010), set top boxes and automatic data processing machines,(13252:2010) etc.

The IT and Electronics product manufacturers were consistently opposing the implementation of this order. In order to accommodate and give them adequate time to follow the BIS standards and compulsory registration, Government of India granted an extension of implementation of this order up to 03/10/2013. There after it was again extended up to January 2014 and further extender up to 03/04/2014. The Bureau of Indian Standards has issued detailed guidelines with regard to the electronic goods in order to enable them to get registration.

Manufacturers Association of Information Technology (MAIT), the apex body of IT product manufacturers are not very happy with this order. MAIT has of view that the labeling requirements are very complex and are unworkable. According to them the labeling requirements are not in accordance to international practices. Embossing or engraving is particularly not feasible due to many reasons: a) The size of the many electronics goods are very small and form size requirements stipulated cannot be applied on them, b) Many IT products are multiple factories in multiple territories and thus embossing and engraving the marking may not be feasible. And they are demanding the government to allow them to use stickers. According to MAIT ,  the BIS  should have given sufficient time for IT manufacturers before implementation  of this requirement.

It is true that introducing BIS standards on electronics and IT goods  will make some inconvenience to the industry at the beginning. However on long term, perspective this will definitely ensure more standardized products  in the market and eliminate the dominance of spurious and sub-standard products.

Rajesh Vellakkat

Supreme Court Judgment in Vodafone case

Indian Tax authorities have imposed capital gain tax against Vodafone International Holdings, a Netherland based company for the capital gains for that they received by the acquisition of C.G.P Instruments Holdings,  a Cayman Islands Company.  Tax authorities say that, by this acquisition Vodafone has acquired 65% interest in Hutchison Essar Limited. Thus taxable for the gains in India. The claim of Indian tax authorities are based on an interpretation of Section 9(1) (i) of Income tax Act. The said Section states,” all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India or through the transfer of a capital asset situate in India”.

As per the section 5(2) of Income Tax Act a non-resident (including a company incorporated outside India) is chargeable to income tax in India for the income that received or deemed to be received, accrues, or arises or deemed to accrues or arise from India. Indian Tax authorities argued that by acquiring stake in C.G.P instrument, Vodafone has acquired 67% interest in Hutchison Essar, an Indian company. Hence, they have indirectly gained from the property or asset or source of income in India. According to the interpretation of the tax authority the word used in Section 9(1)(i) is relating to the asset or source of income in India. Hence, indirect sale of parent company would also attract capital gain tax.  Full bench of the Supreme Court of India comprising Justice S. H. Kapadia, Justice Swatantar Kumar, Justice K. S. Radhakrishnan consider the appeal against Mumbai High Court judgment, upholding the arguments of tax authorities. Supreme Court in a detailed Judgment decided against the tax authorities interpreting Section 9(1) (i)  court observed that the legislature has not used the word “indirect transfer” in section 9(1)(i). The direct or indirect used in relation to the income and is not in relation to the assets. On the other hand if the word indirect used in section connected to the  word asset then the word “ Capital asset situate in India” would be rendered  nugatory. Court in its detailed judgment discussed about the FDI policy of the country, share holding structures, tax havens,  and other related  the section in detail while arriving at the conclusion, Court further re emphasizes the legitimacy of tax planning and approved investments through tax havens. This land mark judgment once again demonstrates the independence of Indian judiciary and its resole to implement law appropriately without interference from the executive.

However, to nullify the judgment the legislature introduced amend to section 9(1) (i) is with amendments as follows

“Certain judicial pronouncements including the Supreme Court judgment in the case of Vodafone International Holdings have created doubts about the scope and purpose of sections 9 and 195. Further, there are certain issues in respect of income deemed to accrue or arise where there are also conflicting decisions of various judicial authorities.

Therefore, there is a need to provide clarificatory retrospective amendment to restate the legislative intent in respect of scope and applicability of section 9 and 195 and also to make other clarificatory amendments for providing certainty in law.


Hence, the following clarifications have been inserted in various sections:-


Clarification regarding section 9(1) (i)


(i) Explanation 4 has been inserted in section 9(1) (i), w.e.f. A.Y. 1962-63 to clarify that the expression ‘through’ (used in section 9(1) (i) in relation to any asset or source of income in India) shall mean and include and shall be deemed to have always meant and included “by means of”, in consequence of” or “by reason of”.


(ii) Explanation 5 has been inserted in section 9(1) (i), w.r.e.f. A. Y. 1962-63 to clarify that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India if the share or interest derives, directly or indirectly, its value substantially from the assets located in India”.

This amendment was internationally criticized sating that foreign investor’s faith in Indian legislative process and the certainty of taxation have been critically   impacted. Retrospective amendments and introduction of explanations to counter and nullify Supreme court judgements, whereby foreign investors are charged with huge tax liability has highly impacted FDI flows in to this country. This amendment is again challenged before Supreme Court and is pending consideration.

Rajesh Vellakkat