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  • Centre moves to redact Retrospective Tax Law

    The government took the first step towards doing away with the contentious retrospective tax law of 2012, which was used to raise large tax demands on foreign investors like Vodafone and Cairn Energy.

    Retrospective Tax Law: A backgrounder

    • The roots of this law date back to 2007, when Vodafone bought over a majority stake in the telecom operations of Hutch in India for $11.1 billion.
    • While the deal involved the changing of hands of Indian operations of Hutch, the companies party to it were registered outside India and all the paperwork and financial transactions, too, were done outside the country.
    • But the Indian government ruled that Vodafone was liable to pay capital gains tax to it as the deal involved the transfer of assets located in India.
    • Importantly, there was no rule in the Indian statutes then that allowed such taxation.
    • Vodafone challenged this claim and the case went to Supreme Court, which ruled in 2012 that there was no tax liability on Vodafone’s part to Indian authorities.

    What was the law made then?

    • In 2012, Parliament amended the Finance Act to enable the taxman to impose tax claims retrospectively for deals executed after 1962 which involved the transfer of shares in a foreign entity whose assets were located in India.
    • The target, of course, was the Vodafone deal. Very soon, tax claims were also raised on Cairn Energy.

    How did the Companies react?

    • The changes to the Finance Act allowed India to reimpose its tax demand on Vodafone.
    • Tax authorities had slapped a tax bill of Rs 7,990 crore on Vodafone, saying the company should have deducted the tax at source before making a payment to Hutchison.
    • By 2016, reports say, the bill had risen to Rs 22,100 crore after adding interest and penalty.
    • The demand on Cairn was for Rs 10,247 crore in back taxes over its move, beginning in 2006, to bring its Indian assets under a single holding company called Cairn India Ltd.
    • A few years later, when Cairn India Ltd floated an IPO to divest about 30 per cent of its ownership of the company, mining conglomerate Vedanta picked up most of the shares.
    • However, Cairn UK was not allowed to transfer its stakes as Indian officials held that the company had to first clear the tax liability.

    Note: This story is of no use to aspirants. But one must understand how such cases create regression for the Indian economy in the long run.

    A case in the Hague

    • That prompted Cairn UK to move the Permanent Court of Arbitration to The Hague, Netherlands.
    • It said that India had violated the terms of the India-UK Bilateral Investment Treaty by imposing a retrospective tax due on it.
    • The treaty provides protection against arbitrary decisions by laying down that India would treat investment from the UK in a “fair and equitable” manner.
    • Vodafone, too, had sought arbitration before the Permanent Court of Arbitration, citing the “fair and equitable” treatment clause in the India-Netherlands BIT.

    India’s response

    • In September last year, the Hague court ruled in favour of Vodafone, quashing India’s tax claim after holding that it violated the “equitable and fair treatment standard” under the bilateral investment treaty.
    • India refused to pay the compensation, Cairn launched recovery proceedings across countries as part of which a French court ordered the freezing of some Indian assets in Paris.
    • This move discourages foreign investors from coming to India and that the Centre should look to resolve the case at the earliest.
    • The amendments now mooted are designed to do just that.

    Taxation Laws (Amendment) Bill, 2021

    • The Bill offers to drop tax claims against companies on deals before May 2012 that involve the indirect transfer of Indian assets would be “on fulfilment of specified conditions”.

    Various conditions:

    • The condition includes the withdrawal of pending litigation and the assurance that no claim for damages would be filed.
    • As per the proposed changes, any tax demand made on transactions that took place before May 2012 shall be dropped, and any taxes already collected shall be repaid, albeit without interest.
    • To be eligible, the concerned taxpayers would have to drop all pending cases against the government and promise not to make any demands for damages or costs.

    Why is the amendment necessary?

    • The retrospective taxation was termed “tax terrorism”.
    • It is argued that such retrospective amendments militate against the principle of tax certainty and damage India’s reputation as an attractive destination.
    • This could help restore India’s reputation as a fair and predictable regime apart from helping put an end to taxation.

  • Little progress since years after Indo-US nuclear deal

    Other than the imported Russian-built reactor-based project in Tamil Nadu, which is grandfathered under an earlier 1998 agreement, progress of greenfield projects since the Indo-US nuclear deal has been tardy.

    Indo-US Nuclear Deal

    • The deal was signed in 2008 jointly by then Indian PM Dr. Manmohan Singh and then US President George Bush.
    • India agreed to separate its civil and military nuclear facilities and to place all its civil nuclear facilities under International Atomic Energy Agency (IAEA) safeguards.
    • In exchange, the United States agreed to work toward full civil nuclear cooperation with India.
    • The implementation of this waiver made India the only known country with nuclear weapons which is not a party to the Non-Proliferation Treaty (NPT) but still allowed to carry out global nuclear commerce.

    Q. In India, why are some nuclear reactors kept under “IAEA Safeguards” while others are not? (CSP 2020)

    (a) Some use Uranium and others use thorium.

    (b) Some use imported uranium and others use domestic supplies.

    (c) Some are operated by foreign enterprises and others are operated by domestic enterprises.

    (d) Some are State-owned and others are privately-owned.

     

    [wpdiscuz-feedback id=”3yibtmqjzl” question=”Spark the debate!” opened=”1″]Answer this PYQ in the comment box:[/wpdiscuz-feedback]

    Implementation not in spirit

    • The US has been discussing the sale of nuclear reactors to India since the 2008 pact, two subsequent agreements were signed only in 2016 and 2019.
    • A “project proposal” to set up six reactors in collaboration with Westinghouse Electric Company (WEC) has been announced, but work is yet to begin.
    • WEC, alongside Wilmington-based GE Hitachi Nuclear, has been negotiating to build reactors in India since the nuclear deal was inked.
    • The project, however, came under a cloud after WEC filed for bankruptcy in mid-2017 following cost overruns on reactors coming up in the US.
    • The GE Hitachi project has barely made any progress.

    Back2Basics: Non-Proliferation Treaty (NPT)

    • NPT, is an international treaty whose objective is:
    1. to prevent the spread of nuclear weapons and weapons technology,
    2. to promote cooperation in the peaceful uses of nuclear energy, and
    3. to further the goal of achieving nuclear disarmament and general and complete disarmament
    • Between 1965 and 1968, the treaty was negotiated by a Committee on Disarmament, an UN-sponsored organization based in Geneva, Switzerland.
    • The treaty defines nuclear-weapon states as those that have built and tested a nuclear explosive device before 1 January 1967; these are the United States, Russia, the United Kingdom, France, and China.
    • Four UN member states have never accepted the NPT, three of which possess or are thought to possess nuclear weapons: India, Israel, and Pakistan.
    • In addition, South Sudan, founded in 2011, has not joined.

  • What is Horizontal Quota?

    The Bihar government recently announced 33% horizontal reservation for women in State engineering and medical colleges.

    What are vertical and horizontal reservations?

    • Reservation for Scheduled Castes, Scheduled Tribes, and Other Backward Classes is referred to the as vertical reservation.
    • It applies separately for each of the groups specified under the law.
    • Horizontal reservation refers to the equal opportunity provided to other categories of beneficiaries such as women, veterans, the transgender community, and individuals with disabilities, cutting through the vertical categories.

    How are the two categories of quotas applied together?

    • The horizontal quota is applied separately to each vertical category, and not across the board.
    • For example, if women have 50% horizontal quota, then half of the selected candidates will have to necessarily be women in each vertical quota category.
    • This means half of all selected SC candidates will have to be women, half of the unreserved or general category will have to be women, and so on.
    • The interlocking of the two types of reservation throws up a host of questions on how certain groups are to be identified.
    • For example, would an SC woman be put in the category of women or SC? Since quotas are fixed in percentages, what percentage of quota would be attributed to each?

  • Places in news: Agalega Island

    Mauritius has denied a report that it has allowed India to build a military base on the remote island of Agalega.

    Agalega Island

    • Agaléga are two outer islands of Mauritius located in the Indian Ocean, about 1,000 kilometers north of Mauritius island.
    • The islands have a total area of 2,600 ha (6,400 acres).
    • There is an MoU between the governments of Mauritius and India to develop the Agaléga islands and resolve infrastructural problems faced by Agaleans.

    Why in news?

    • India asserts that these new facilities are part of its Security and Growth for All in the Region (SAGAR) policy, which aims to increase maritime cooperation between countries in the region.
    • Mauritius, for its part, has indicated that its coastguard personnel will use the new facilities.
    • But it is clear that the Indian investment of $250m in developing an airfield, port, and communications hub on this remote island is not aimed at helping Mauritius develop its capacity to police its territorial waters.

    Significance of this area

    • The Agalega area is currently a blind spot for the Indian Navy and by building a military facility in it, New Delhi hopes to expand its maritime domain awareness.
    • In times of conflict, knowing the location of enemy ships and submarines, without being detected in the process, creates a significant advantage.
    • China’s naval forays into this region are the true motivator for its expanding naval presence.
    • In peacetime, effective maritime domain awareness helps establish international partnerships with like-minded militaries and also acts as a deterrent to both state and non-state adversaries, by signaling reach.

    Conclusion

    • The Indian Ocean is now increasingly contested.
    • Whether or not China is deterred by India’s surveillance efforts, Agaléga is now a pawn in this new era of major power competition across the Indian Ocean and indeed the wider Indo-Pacific region.

  • No fundamental right to strike

    Context

    Recently, the Minister of Defence introduced the Essential Defence Services Bill, 2021.

    About the Essential Defence Services Bill, 2021

    • The Bill seeks to provide for the maintenance of essential defence services so as “to secure the security of nation and the life and property of the public at large”.
    • Prohibit strike by ordinance factory staff: It prevents staff of the government-owned ordnance factories from going on strike.
    • Power to declare essential service: The Bill seeks to empower the government to declare services mentioned in it as “essential defence services” and prohibit strikes and lockouts in any industrial establishment or unit engaged in such services.

    No fundamental right to strike

    • There is no fundamental right to strike under Article 19(1)(a) of the Constitution.
    • Under Article 33 of the Constitution, Parliament, by law, can restrict or abrogate the rights of the members of the armed forces or the forces charged with the maintenance of public order.
    • Thus, for the armed forces and the police, where discipline is the most important prerequisite, even the fundamental right to form an association can be restricted under Article 19(4) in the interest of public order and other considerations.

    Supreme Court judgements on the issue

    • Many states prohibit strikes: This is not for the first time that strikes by government employees are being made explicitly illegal by the government, many states have similar provisions.
    • The Supreme Court in Delhi Police v. Union of India (1986) upheld the restrictions to form association by the members of the non-gazetted police force.
    • While the right to freedom of association is fundamental, recognition of such association is not a fundamental right.
    • Parliament can by law regulate the working of such associations by imposing conditions and restrictions on their functions, the court held.
    • In T.K. Rangarajan v. Government of Tamil Nadu (2003), the Supreme Court held that the employees have no fundamental right to resort to strike.

    Conclusion

    Strikes cannot be justified on any equitable ground. Strike as a weapon is mostly misused which results in chaos

  • 2 years of Repeal of Article 370

    Context

    Two years ago, India bid farewell to Articles 370 and 35 (A), marking the start of a new era in the politics of Jammu and Kashmir.

    Assessing the impact of changes on five parameters

    1) National unity

    • Articles 370 and 35 (A) created an unnatural and unhealthy divide in our nation.
    • For every law passed, every rule made, we had to ascertain whether it applied to J&K or not.
    • Today, such distinctions are history, J&K has been fully integrated with the other states and Union Territories.

    2) Democracy at the grass-root level

    • A healthy culture of grassroots-level participation was absent.
    • Panchayat polls held: One of the critical deliverables for J&K was to hold panchayat polls, which were finally held in 2020.
    •  This one step will go a long way in shaping the development paradigm in Jammu and Kashmir.
    • Political activity has also picked up across Jammu and Kashmir.
    • The Centre’s emphasis on a proper delimitation followed by full-fledged elections is in line with the commitments made to the people of Jammu and Kashmir.

    3) Peace

    • The third parameter is that of peace.
    • The memories of 2008, 2010 and 2016 are still fresh in the minds of the people of Jammu and Kashmir.
    • An effort was made to reignite such sparks of tension after the decisions on Article 370 and 35 (A) but the Valley as well as Jammu have remained peaceful.

    4) People’s aspirations

    • Jammu and Kashmir did not have RTI laws and its SC, ST and OBC communities were not able to get the benefits of reservation
    • The fact that the most marginalised groups can now get reservation benefits is a major leap forward in fulfilling the aspirations of the people of J&K.

    5) Economic growth

    • The Valley is today abuzz with news of action against corruption in key departments and financial bodies in the state.
    • Money being sent for public good was being misused by vested interest groups.
    • The economic upliftment in the Valley began with the Prime Minister’s Package of 2015.
    • This set the stage for extensive spending on physical and social infrastructure.
    • With the going of 370 and 35 (A) there is great hope that tourism will pick up in the Valley.
    • Incentives given to different sectors of the economy — be it saffron farmers or those who fish trout — combined with a largely peaceful environment is empowering many lives.
    • With corruption and leakages drastically reduced, resources are reaching the intended beneficiaries.

    Conclusion

    The situation in Jammu and Kashmir was never easy. As we enter the Amrut Mahotsav, it is for us to see the new realities in J&K. The people of the state have got the wings to fly and, in the years to come, J&K will make even greater contributions to India’s growth and development.

  • Need to deal with the flaws in the existing structure of GST

    Context

    After four years, the promise of the Goods and Services Tax (GST) remains substantially unrealised.

    Why tax base of GST is not expanding

    • The GST is strongly co-related to overall GDP.
    • Revenue collection of the GST is dependent on the nominal growth rate of Gross Value Added (GVA) in the economy.
    • Since inception, GVA per quarter has been between ₹40-lakh crore to ₹47-lakh crore and GST revenue has not been higher than ₹2.7-lakh crore to ₹3.1-lakh crore.
    • The Tax to Gross value addition is only about 5% to 6.5% though GVA growth was much higher.
    • Issues: A very large segment is covered by exemption, composition schemes, evasion and lower tax rate.

    Five Issues with the GST structure

    1) Dominance of the Centre

    • The political architecture of GST is asymmetrically loaded in favour of the Centre.
    • No body to adjudicate: There is no particular body is tasked to adjudicate if there is a dispute between States and between the Centre and the States.
    • Centre’s domination: In the voting, the central government has one-third vote and States have two-thirds of total votes.
    • All states have equal voting rights regardless of size and stake.
    • With the support of a dozen small States whose total GST collection is not more than 5% of the total central government can dominate the decision making process in GST Council.
    • Small states dictate the terms: With equal value for each States’ voting, larger and mid-sized States feel shortchanged.

    2) Flaw in tax structure

    • Nearly 45% to 50% of commodity value is outside the purview of the GST, such as petrol and petroleum products.
    • Certain states not getting revenue as origin state: States which export or have inter-State transfers or mineral and fossil fuel extractions are not getting revenue as the origin States and need a compensation mechanism.
    • The pre-existing threshold level of VAT has been tweaked too often which has led to an evaporation of tax base incentivising, enabling evasion and mis-reporting.
    • Most trading and retail establishments, (however small) are out of the fold of the GST.
    • At the retail level, irrespective of whether Input Tax Credit (ITC) is required or not, the burden can be passed off to the consumer.
    • As a result, the loss could be as high as one third.

    3) Exemptions

    • Exemptions from registration and taxation of the GST have further eroded the GST tax base compared to the tax base of the pre-existing VAT.
    • Ground for evasion: Exemptions are purely distortionary and also provide a good chance to remain under the radar, thereby directly increasing evasion or misclassification.
    • Theoretically, exemptions at the final stages reduce tax realisation.
    • Multiple rates: As multiple rates are charged at different stages, it goes against the lessons of GST history.
    • This tax works well with a single uniform tax rate for all commodities and services at all stages, inputs and outputs alike.
    • While most countries have a single rate, India stands out and is among the five countries to have four rates/slabs.

    4) Exclusion

    • Against the interest of States: Petroleum products remaining outside the purview of GST has helped the Centre to increase cesses and decrease central excise, in what would otherwise have been shareable with the States.
    • Now, States will be keen on including petrol and diesel under the GST as their share of tax goes up in the process, even if there is a special rate fixed for it.
    • Equity requires that petrol and diesel be brought under the GST.
    • Cascading of taxes: Apart from the complexity it creates in record keeping and ‘granting ITC’, in the present form it also leads to a cascading which the GST avowedly tried to avoid.

    5) Lack of compliance

    • Compliance with GST return (GSTR-1) filing stipulation and the resultant tax information is not up to date.
    • Fraudulent claims of Input Tax Credit (ITC) because of a lack of timely reconciliation are quite high though it has come down by two thirds.
    • Tax evasion, estimated by a National Institute of Public Finance and Policy’s paper, is at least 5% in minor States and plus 3% in the major States.

    Conclusion

    Policy gaps along with compliance gaps do need to be addressed. Without proper tax information, infrastructure and base, the States would go in for selective tax enforcement. In the long run, voluntary compliance will suffer and equity in taxation will be violated.

  • CJI recuses himself from Andhra-Telangana Case

    The Chief Justice of India (CJI) N V Ramana (who hails from AP) recused himself from hearing Andhra Pradesh’s plea after it said “no” to the Supreme Court’s suggestion to go for mediation over a dispute with Telangana over the Krishna River dispute.

    Q. Can you list down some basic principles of judicial conduct?

    Independence, Impartiality, Integrity, Propriety, Competence and diligence and Equality are some of them as listed under the Bangalore Principles of Judicial Conduct.

    What is the Recusal of Judges?

    • Recusal is the removal of oneself as a judge or policymaker in a particular matter, especially because of a conflict of interest.
    • Recusal usually takes place when a judge has a conflict of interest or has a prior association with the parties in the case.
    • For example, if the case pertains to a company in which the judge holds stakes, the apprehension would seem reasonable.
    • Similarly, if the judge has, in the past, appeared for one of the parties involved in a case, the call for recusal may seem right.
    • A recusal inevitably leads to delay. The case goes back to the Chief Justice, who has to constitute a fresh Bench.

    Rules on Recusals

    • There are no written rules on the recusal of judges from hearing cases listed before them in constitutional courts.
    • It is left to the discretion of a judge.
    • The reasons for recusal are not disclosed in an order of the court. Some judges orally convey to the lawyers involved in the case their reasons for recusal, many do not. Some explain the reasons in their order.
    • The decision rests on the conscience of the judge. At times, parties involved raise apprehensions about a possible conflict of interest.

    Issues with recusal

    • Recusal is also regarded as the abdication of duty. Maintaining institutional civilities is distinct from the fiercely independent role of the judge as an adjudicator.
    • In his separate opinion in the NJAC judgment in 2015, Justice Kurian Joseph highlighted the need for judges to give reasons for recusal as a measure to build transparency.
    • It is the constitutional duty, as reflected in one’s oath, to be transparent and accountable, and hence, a judge is required to indicate reasons for his recusal from a particular case.

    Back2Basics:

    https://www.civilsdaily.com/news/krishna-water-dispute/

  • Members of Parliament Local Area Development Scheme (MPLADS)

    Virtually, 50% of funds allotted for ongoing MPLADS projects have lapsed.

    What is the MPLAD scheme?

    • The Members of Parliament Local Area Development Scheme (MPLADS) is a program first launched during the Narasimha Rao Government in 1993.
    • It was aimed towards providing funds for developmental works recommended by individual MPs.

    Funds available

    • The MPs then were entitled to recommend works to the tune of Rs 1 crore annually between 1994-95 and 1997-98, after which the annual entitlement was enhanced to Rs 2 crore.
    • The UPA government in 2011-12 raised the annual entitlement to Rs 5 crore per MP.

    Implementation

    • To implement their plans in an area, MPs have to recommend them to the District Authority of the respective Nodal District.
    • The District Authorities then identify Implementing Agencies that execute the projects.
    • The respective District Authority is supposed to oversee the implementation and has to submit monthly reports, audit reports, and work completion reports to the Nodal District Authority.
    • The MPLADS funds can be merged with other schemes such as MGNREGA and Khelo India.

    Guidelines for MPLADS implementation

    • The document ‘Guidelines on MPLADS’ was published by the Ministry of Statistics and Programme Implementation in June 2016 in this regard.
    • It stated the objective of the scheme to enable MPs to recommend works of developmental nature with emphasis on the creation of durable community assets based on the locally felt needs in their Constituencies.
    • Right from the inception of the Scheme, durable assets of national priorities viz. drinking water, primary education, public health, sanitation, and roads, etc. should be created.
    • It recommended MPs to works costing at least 15 percent of their entitlement for the year for areas inhabited by Scheduled Caste population and 7.5 percent for areas inhabited by ST population.
    • It lays down a number of development works including construction of railway halt stations, providing financial assistance to recognized bodies, cooperative societies, installing CCTV cameras etc.

    Answer this PYQ in the comment box:

    Q. With reference to the funds under the Members of Parliament Local Area Development Scheme (MPLADS), which of the following statements are correct? (CSP 2020)

    1. MPLADS funds must be used to create durable assets like physical infrastructure for health, education, etc.
    2. A specified portion of each MP’s fund must benefit SC/ST populations.
    3. MPLADS funds are sanctioned on a yearly basis and the unused funds cannot be carried forward to the next year.
    4. The district authority must inspect at least 10% of all works under implementation every year.

    Select the correct answer using the code given below:

    (a) 1 and 2 only

    (b) 3 and 4 only

    (c) 1, 2 and 3 only

    (d) 1, 2 and 4 only

    [wpdiscuz-feedback id=”371dggp5nz” question=”Spark the debate!” opened=”1″]“Post your answers here”[/wpdiscuz-feedback]

  • Air Quality Commission Bill, 2021

    The Lok Sabha has passed the Bill to formalize the Commission for Air Quality Management For National Capital Region and Adjoining Areas.

    Highlights of the AQC Bill

    • The AQC would be a ‘permanent’ body to address pollution in the National Capital Region Delhi and address sources of pollution in Delhi, Punjab, Rajasthan, Haryana and Uttar Pradesh.
    • The all-powerful body assumed several powers to coordinate action among States, levy fines — ranging up to ₹1 crore or five years of prison — to address air pollution.

    Key features

    • Over-riding powers: While the Central Pollution Control Board (CPCB) and its state branches have the powers to implement provisions of the Environment Protection Act for air, water and land pollution.
    • In case of dispute or a clash of jurisdictions, the AQC’s writ would prevail specific to matters concerning air pollution.
    • Chair: The body has a full-time chairperson and a range of members consisting of both representatives from several Ministries as well as independent experts and will have the final say on evolving policy and issuing directions.
    • Curb on stubble burning: the Commission may impose and collect environment compensation causing pollution by stubble burning.
    • No penalties to farmers: The Centre, facing flak earlier this year from farmers protesting the farm laws, had committed to removing a clause in the Air Commission Bill that would penalize farmers for burning stubble, an important contributor to noxious air quality.