Economic Legislations

Economic Legislation
– Any policy has two fundamental aspects-
• Formulation
• Implementation
– The bridge between the two is provided by
legislations.
– Planners, legislators and executors have act in
concert so as to make the policy discussions
must be followed by a few illustrative examples
of economic legislations, so that the analyst may
understand particularly the interaction between
the economic and politico-legal environment of a
country.
Monopolies and Restrictive Trade Practices Act
( MRTP) 1969
 The MRTP Act enacted in December 1969 and
brought into force with effect from June 1 1970
Preamble
“ An act to provide that the operation of the
economic system does not result in the
concentration of economic power to the
detriment for the control of monopolies, for the
prohibition of monopolistic and restrictive trade
practices and matters connected there with or
incidental there to”
 Objectives

It has three objectives –

 To control and regulate the concentration of
economic power in a few hands of business
and industry. ( Ch. III of the Act)
 To control monopolies and monopolistic
trade practices. (Ch. IV)
 To prohibit restrictive trade practices unless
any one of them can be justified in the
public interest. (CH. V and VI)
 Applicability of the Act

Prior to the notification dated 27/09/91 the

MRTP Act was not applicable to-
 Undertakings owned or controlled by Govt.
 Trade unions and other associations of
workmen
 Financial Institutions
 but after the above notification the act was
made applicable to all undertakings and
financial institutions except three
undertakings-
 Applicability of the Act

 Owned or controlled by a govt. company or

the govt, engaged in the production of arms
and ammunition and allied items of defense
equipments, defense aircraft atomic energy
etc.
 Industry units under the ministry of finance.
 Trade unions and other association of
workmen.
 Monopolistic Trade Practice

 Under the MRTP Act an MTP defined as a trade

practice which had any of the following effects-
 Limiting or controlling or distribution of goods
or services thereby maintaining their price at
unreasonable.
 Limiting technical developments or goods or
capital investment or allowing the quality or
goods and services to deteriorate.
 Unreasonably preventing of restricting
competition.
 Monopolistic Trade Practice

 Unreasonably increasing cost or charge for

services.
 Unreasonably increasing prices of goods or
services.
 Unreasonably increasing profits on production.
 resorting to unfair or deceptive means to
reduce or prevent competition in goods or
services
 Restrictive trade Practices

 An RTP under the Act had defined to be the one

that had the effect of preventing, distorting or
restricting competition in any manner. An RTP in
particular had the effect of :
 Obstructing the flow of capital or resources for
production.
 Imposing unjustified costs or restrictions on
consumers with regard to the availability of good
and services by manipulating prices or conditions
of delivery or supplies to market.
 Unfair trade Practice

Section 36A of the Act provides that that “UTP means a

trade practice for the purpose of promoting sale, use or
supply of any goods or for the provision of any services
adopts any unfair method or deceptive practices.
 Falsely represents that the goods are of a particular
standard, quality, quantity, style or model.
 Falsely represents ant rebuilt second hand, renovated,
reconditioned or old goods as new goods.
 Represents that goods or services have sponoship,
approval, performance characteristics uses or benefits
which such goods or services do not have.
 Unfair trade Practice

 Makes a false or misleading representation

concerning the need for or the usefulness of
any goods or services.
 Misleads the public concerning the price at
which a product or like products or services
have been or are ordinarily sold or provided.
 Control of MTP

 The control over monopolistic trade practice is done

through the mechanism of inquiry and suitable orders
to remove the undesirable effects of a MTP
 The MRTP commission could make an enquiry on the
basis of any of the following
 A reference received from the central Govt.
 An application received from DGIR
 The commissions own information or knowledge.
 The commission could make an enquiry and submit
report to the central govt. which alone had the power
to take decision on such practice. The Govt. can
cancel whole agreement containing such a practice.
 Control of MTP

 The govt order in MTP had to be completed

within 30 days and DGIR had to be report
such compliance with in 90 days of the
issue of orders.
 Control Mechanism for RTP

 All the agreements containing any of the

restrictive clauses to be registered with the
DGIR.
 The MRTP commission could initiate an enquiry
into a restrictive trade practice on the basis of
any of the following-
 A complaint received from consumer/
consumer organization.
 A reference made by the central or state govt.
 Its knowledge or information
 Control Mechanism for RTP

 The commission, in its enquiry, heard all the

parties concerned and its decisions fell into one of
the following categories-
 The practice might be allowed if it was found not
prejudicial to the public interest.
 cease and desist order might be passed if it was
found prejudicial to the public interest.
 The agreement might be modified as per orders
of the commission.
 Proceedings may be dropped if the party on its
own promised to discontinue, or not to repeat the
such practice in future.
 Control UTP

 UTP could be passed only if it was prejudicial to

public interest.
 A practice which was specifically authorized by
some existing laws, not actionable under MRTP Act.
 MRTP commission will order DGIR to make a
preliminary enquiry.
 After the MRTP commission investigation,
commission can order compensation for loss or
damage to the affected person or the party
 Directly pecuniary
 Indirectly pecuniary
 Non -pecuniary
 Amendments to the MRPT Act (1991)

 MRTP Act was amended in December 1991 with a

view to make Indian industry more competitive in
abroad and retain only those provisions of the act
which were essential to control monopolistic and
unfair trade practices
 The MRTP amendment 1991 could be studied
under two heads-
 Deletions from the Act
 Elimination of pre-entry restrictions.
 removal of the restrictions on acquisition and
transfer of shares.
 Control Mechanism for RTP

 Amendments to the Act

 Enlargement of definition of ‘goods’
 Enlargement of definition of ‘service’
 preliminary investigation by DGIR made optional
 Penalty provisions made more stringent
 New definition of dominant undertaking
 Industrial Licensing

 “A license is a written permission issued by the

central govt. to an industrial undertaking stating
such details as the location, the article to be
manufactured, production capacity and other
relevant particulars”
Objectives
 To limit industrial capacity
 To direct investment in industries according to
priorities.
 to regulate location of industrial units so as to
secure balanced regional development.
 Prevent monopoly and concentration of wealth
 Control UTP

 to protect small scale industries

 to encourage new entrepreneurs to start
industrial units.
“ Industrial licensing is an instrument to canalize
the limited resources of an economy in the most
productive way for industrialization “
 Legislative Frame work for licensing

 The legislative frame work for industrial licensing is

provided in the Industrial ( development and
Regulation) Act 1951
Industrial (Development and Regulation ) Act 1951

 Consistent with the industrial policy resolution, the

industrial ( Development and regulation) Act 1951
 Was passed which came into force on May 8 1952.
Objectives
 To provide the central govt. with means to implement
their industrial policy.
 To take necessary steps for the development of
industries.
 To regulate the pattern and direction of industrial
development.
 To control the activities of industrial undertakings in the
public interest.
 Application of the ACT ( Scope)

 The Act applies to the whole of India including

Jammu and Kashmir.
 Act applies to industrial undertaking
manufacturing any of the articles mentioned in
the first schedule .
 The Act is implemented through the Ministry of
Industry.
 Provisions of the Act

 Classified into three broad categories

 Preventive Provisions
 Curative Provisions
 Creative Provisions
 1. Preventive Provisions

A) Registration and licensing

 Section 10 provides that the owner of every
industrial undertaking shall get his undertaking
registered with in a specified period.
 Licensing is required for following case-
 Licensing of new undertaking (11)
 Production of new articles (11A)
 license for expansion (13)
 License for shifting location (13)
 In the year 1991 (July 25 ), registration and
licensing was abolished, except for 18 specified
industries.
 1. Preventive Provisions

B) Investigation
Section 15 empowers the govt. to cause an
investigation into an industrial undertaking on the
happening of –
 Deterioration in the quality of product.
 Rise in the price of article
 Misutilisation of resources
 Fall in production
 1. Preventive Provisions

C) Revocation of Registration and license

Section 10 empowers the govt. to revoke the
registration when-
 It was obtained by misrepresentation
 Registration has become useless or ineffective
 2. Curative measures

A) Take Over of management

 The power of control entrusted to the govt. to
take over of the management of whole or any
part of an industrial undertaking which fails to
comply any of the directions of Act. (section 18A)
B) Control of Supply and price
 In order to secure equitable distribution and
availability of any article or class of articles, govt.
empowered by the act to control its supply,
distribution and price
 3. Creative Provisions

A) Development councils
 Govt. can establish councils for any scheduled
industry or group of scheduled industries
consisting of members representing the interests
of owners, employees, consumers etc. and
persons having special knowledge of industries.
B) Levy and collection of cess
 Section 9 of the act provides govt. to levy and
collect a cess for purpose of this act on all goods
and services of scheduled industry.
 3. Creative Provisions

C) Central Advisory council

 The empowers for the establishment, by the govt.
of central advisory council consisting of
representatives of the owners of industrial
undertakings, employees, consumers, suppliers,
etc. for the purpose of advising govt. on matters
concerning the development of the industries.
 Foreign Exchange Regulation Act 1973

Objectives
 To regulate certain payments
 To regulate dealings in foreign exchange and
securities.
 To regulate holding of immovable property of the
country.
 To regulate employment of foreign nationals.
 to regulate foreign companies.
 Foreign Exchange Regulation Act 1973

Provisions
 Regulation of dealings in foreign exchange
 Restrictions on payments
 restrictions on establishment of place of
business in India.
 restrictions on Immovable property
 restrictions on import and export of
currency.
 Foreign Exchange Management Act 1999

 There was a lot of demand for a substantial

modification of FERA in the light of ongoing
economic liberalization and improving foreign
exchange position.
 Accordingly, a new act the FEMA, 1999 replaced
the FERA.
Objectives
 To facilitate external trade and payments.
 To promote orderly development and
maintenance of foreign exchange.
 Provisions

1. Dealing in Foreign Exchange (Section 3)

 No person shall
 deal in any foreign exchange or foreign security
with any person other than authorized person.
 Make any payment to or for credit of any person
resident outside India.
 Enter into any financial transaction in India as a
consideration for or in association with acquisition
or creation or transfer of a right to acquire any
asset outside India by any person.
 Provisions

2. Holding of Foreign Exchange (Section 4)

 No person, resident in India, shall acquire, hold, own
possess or transfer any foreign exchange foreign
security or any immovable property situated outside
India, without permission from the RBI
3. Current Account Transaction
 FEMA permits dealings in foreign exchange through
authorized persons for current account transactions.
4. Capital Account Transaction
 Any person may sell or draw foreign exchange to or
from an authorized persons for capital account
transactions permitted by the RBI in consultation
with central govt.
 Provisions

5. Export of Goods and Services

 Every exporter of goods or services shall furnish
to the RBI details regarding the export value of
such goods
6. Realization of Foreign Exchange
 Where any amount of foreign exchange is due
accrued to any person resident in India, such a
person shall take steps to realize such foreign
exchange with in specified period of time.
 Provisions

7. Contravention and Penalties

 Penalty for any kind of contravention under this
act is liable to a penalty up to thrice the amount
involved where it is quantifiable or up to 2 lakhs
where it is not quantifiable and where such
contravention is continuing one, for the penalty
which may extend to five thousand rupees for
every day after the first day during which the
contravention continues.
Tax Legislations
 Central Sales Tax

 The central sales tax is an indirect tax where the

tax is levied in sales which are effected in the
course of inter- state trade or commerce.
 The act was passed in the year 1956 by the
parliament in exercise of the authority conferred
on it under the articles 286 and 269 of the
constitution of India.
 Constitutional Provisions

 Following are the provisions were made by the

amended article 286
 No law of a state shall impose or authorize the
imposition of a tax on the sale or purchase of
goods if such sale or purchase takes place
outside the state.
 No law of a state shall impose or authorize the
imposition of a tax on such sale or purchase of
goods which takes place in the course of import
of the goods into or export of the goods out of the
territory of India.
 Constitutional Provisions

 Any law of a state imposing or authorizing to

impose a tax on the sale or purchase of goods in
the course of inter-state trade or commerce shall
be subject to such restrictions, as may be
specified by the parliament through legislation.
 The parliament may enact proper legislation for
determining the place of sale or purchase of
goods.
 Scope of the Act ( CST Act 1956)

 It extends to the while of India.

 It is divided into 6 chapters and 26 sections
 It makes provision for single point as well multiple
– point tax.
 Under this act, the goods have been classified as
 Declared goods
 Other goods
 Every dealer engaged in inter-state trade has to
get himself registered with this act.
 The tax is levied under this act by the central
govt. but it is collected by state govt.
 Scope of the Act ( CST Act 1956)

 The act does not provide rules regarding

submission of returns, payment of tax, appeals
etc.
 The central govt. and the state govt. are
empowered to frame proper rules and regulations
for the implementation of various provisions of
this act.
 Principles for Determining the Nature of Job

1. Sale or purchase in the course of inter – state

trade or commerce ( section – 3)
 A sale or purchase of goods shall be deemed to
take place in the course of inter-state trade
commerce if the sale or purchase.
 Occasions the movement of goods from one
state to another.
 is effected by a transfer of documents of title
to the goods during their movement from one
state to another.
2. Sale or Purchase of goods inside a State
 A sale or purchase of goods shall be deemed to
take place inside a state if the goods are specific or
ascertained at the time of the contract of sale and
are with in the state.
3. Sale or purchase of goods in the course of export
 A sale or purchase of goods shall be deemed to
take place in the course of the export of the goods
out of the territory of India if
 the sale or purchase occasions such export
 It is effected by the transfer of documents of title to
the goods after the goods have crossed customs
frontiers of India
4. Sale for Purchase of goods in the course
of Import
 The sale or purchase either occasions such
import
 The sale or purchase is effected by a
transfer of documents of title to the goods
before the goods have crossed the custom
frontiers of India
 Exception from CST

Exemption on subsequent sale

 Subsequent sale to govt.
 Subsequent sale to registered dealer.
Goods for mining
 Extraction of ore from the mine.
 Washing, screening and dressing the ore
 Transport of the ore from the riverside to the
harbor by means of barges.
 Blending of ore.
 Exception from CST

Good for generation or distribution of electricity

 Battery cells to be used by linesmen to work on
lines during night.
 Raincoats for the use of linesmen.
 Soaps, paints, varnishes for the purpose of
cleaning boilers and electrical goods.
 Good for generation or distribution of electricity
 Transfer of the goods otherwise than sale
 Exception from CST

 The unit of the buyer is located in any special

economic zone.
 The dealer purchases the goods for the purpose of
manufacture, production, processing, assembling,
repairing, reconditioning, re-engineering, packaging.
 Deductions

 Turnover of goods sold outside the state.

 Turnover of goods sold in the export.
 Value of goods transferred to other places of
business.
 Turnover of goods unconditionally exempt
under a state sales tax act
 Central Excise Duty

The Supreme Court has defined-

“ Excise duty is a levied necessarily on those
dutiable goods which are produced or
manufactured in India and it has no
relationship with the sale of these goods.”
“ Excise duty is a duty on the production or
manufacture of goods with in India. The duty
of excise is levied on manufacturer or
producer in respect of the commodities
produced or manufactured by him.”
 Laws Relating to Excise Duty

 Central Excise Act 1944(CEA)

 Central Excise Rules 1944 (CER)
 Central Excise Tariff Act 1985 (CETA)
 Central Excise (valuation ) Rules, 2000
 Scope of the excise Duty

 Excise duty is levied on goods

 Excise duty is levied on the production or manufacture of
goods.
 The burden of this tax falls on the consumers.
 Excise duty is levied on the dutiable value calculated by
general or special method.
 Excise duty is levied through out India in the same form.
 Excise duty is imposed on manufactured goods only once
except when these goods become the raw material for
some other goods.
 Excise duty law requires special records to be kept for
removing the goods from the place pf production, stock,
or place of removal.
 Basis of Levy Of Excise Duty

1. Specific Duty
 It is the duty payable on the basis of certain fixed
unit like weight, length, volume, etc.
2. Tariff Value
 T.V. is a notional value fixed by the govt. under
the section3(2) of CEA for the purpose of
calculating the duty payable.
 Govt. can fix different tariff values for different
classes of same excisable goods or Manufactured
by different producers or sold to different classes
of buyrers.
 Basis of Levy Of Excise Duty

3. Duty based on MRP

 Section 4A of the CEA empowers the govt. to
specify goods on which duty will be payable
based on MRP printed on carton.
 The goods should be covered under provisions of
standards of weights and measures Act 1976.
 A reasonable deduction is allowed from such
retail price to provide for excise duty.
 Basis of Levy Of Excise Duty

4. Duty based on production capacity

 Section 3A of the CEA Act gives power to the
govt. to notify certain goods where the
manufacturer will have to pay duty on the basis
of production capacity.
 Commission of Central Excise will determine
annual capacity of production of the factory.
5. Ad Valorem duty
 Duty on goods are payable on the basis of value
of goods.
 The assessable value (AV) is arrived at on the
basis of section 4 of CEA and duty is payable on
the basis of percentage of such value at the rates
specified in CETA 1985
 Basis of Levy Of Excise Duty

6. Levy of Slabs
 Under this system the excise duty is levied on the
basis of different slabs based on various parameters
like turnover, production capacity etc.
 SSI units are taxed on the basis of turnover
6. Compound levy Scheme
 Meant for the small scale decentralized sector e.g.
embroidery, marble, stainless steel etc.
 Duty for a specified period is fixed on the basis of
the number and type of machines.
 Manufacturer has to observe day today excise
formalities regarding maintenance of account
 Exemptions from Central Excise Duty

 Section 5A of the CEA 1944 empowers the central govt.

to issue notifications exempting goods from the payment
of central excise duties. They are –
 small scale industry Exemption
 Job work Exemption
 Captive Consumption
 Goods produced without the use of power.
 Cottage and village industry products
 Goods produced at exhibitions and trade fairs.
 Goods produced by educational, technical and research
institutions.
 Exemptions from Central Excise Duty

 Goods produced in govt. factories, mines, prisons

and defense production.
 Solar and Natural energy.
 Goods produced by free trade zones and 100%
export oriented units.
 Capital goods meant for use in export goods.
 Kinds of Excise Duty

1. Basic Excise Duty

 This is called as CENVAT
 This duty id levied on the hoods included in the
first schedule of the CETA.
2. Special Excise Duty
 Goods included in the II schedule of the CETA are
subjected to SED.
 The general rate of this duty is 8%
 It includes items like motor cars, polyester
filament yarn, tyres, soft drinks etc.
 Kinds of Excise Duty

3. National calamity Contingent Duty

 NCCD has been imposed by the Finance Act 2001
 This duty shall be in addition to the any other
duties of excise chargeable on goods.
 This duty is imposed on Pan masala @23%,
Cigarettes @ Rs 20 to 235 per thousand, bidis Rs.
1 to Rs.2 per thousand and tobacco products @
105
 Finance Act 2003 included other goods like
polyester filament yarn, motor cars, multi utility
vehicles and two wheelers @1% and domestic
crude oil @ Rs 50 per metric tonne.
 Kinds of Excise Duty

4.Special Additional Duty

 This duty shall be in addition to any other duties
of excise chargeable on such goods under the
section CEA 1944 or any other law for the time
being in force.
 Motor spirit Rs & per liter, high speed diesel oil re.
1 per liter.
5. Educational Cess
 The Finance Act 2004 imposed an education cess
on dutiable goods manufactured in India @ 2% on
the aggregate duties of excise chargeable on
such goods.
 CENVAT

 The Finance Act 200 had introduced the new

CENVAT scheme replacing the MODVAT scheme
from 1/4/2000.
 It is tax on value addition.
 CENVAT is basically an input duty relief scheme
under central excise designed to reimburse the
user manufacturer with the duty paid on the input
which ha has absorbed as part of purchase price
when buying the same for producing finished
products.
 Highlights

 The CENVAT scheme is principally based on system of

granting credit of duty paid on inputs.
 under CENVAT, a manufacturer has to pay duty as per
normal procedure on the basis of Assessable value.
 He gets credit of duty paid on inputs.
 The CENVAT credit system is available on capital goods used
in the manufacture of final goods.
 The term capital goods does not includes office equipments.
 Scope

 The CENVAT covers all inputs except High Speed

Diesel oil and Motor Spirit
 CENVAT credit also coves inputs used in the
manufacture of capital goods.
 Conditions for Availing the Credit

 CENVAT scheme is applicable to all finished

excisable goods.
 The conversion of inputs into final products
should involve the element of manufacture.
 Credit is allowed for specified duties paid on
inputs or capital goods.
 The use of inputs must be in or in relation to the
manufacture.
 Income Tax

 Income tax is very important direct tax.

 Every person, whose taxable income for the previous
financial year exceeds the minimum taxable limit is
liable to pay the central govt. income tax during the
current financial year on the income of the previous
year, at the rates face during the current financial
year.
 In India, income tax was introduced for the first time
in 1806, by Sir. James wilson, in order to meet the
losses sustained by the govt.
 1886 Income tax Act was passed.
 Final income tax Act was passed in the year 1961.
 Basis for Charge of Income tax

 Income tax is an annual tax on income.

 Income of previous year is taxable in the next
following assessment year at the rate or rates
applicable to that assessment year.
 Tax rates are fixed by the annual Finance Act.
 Tax is charged on every person as defined in
section 2 (31).
 The tax is charged on the total income of every
person computed in accordance with ACT.
 Basis for Charge of Income tax

The income tax is computed on the basis of th

residential status of the assessee in the manner
provided hereunder and is classified in to the
following heads.
 Income from salaries.
 Income from House Property.
 Profits of business or profession.
 Capital gains
 Income from other sources
 Rates of Tax for an Individual

 Women

On Rs. 1,35, 000 Nil

Next on Rs 15000 10%
Next on Rs 1.00,000 20%
Next balance 30%
 Rates of Tax for an Individual

 Senior Citizen

On Rs. 1,85, 000 Nil

Next on Rs 65000 20%
Next balance 30%
 Rates of Tax for an Individual

 Other Individuals

On Rs. 1,00, 000 Nil

Next on Rs 50000 10%
Next on Rs 1.00,000 20%
Next balance 30%
 Rates of Tax for an Individual

Surcharge
 If total income exceeds Rs. 10,00,000 @10%
education cess.
 On the amount of income tax surcharge Rs. 2%
Problems in Administration of
Income Tax in India
 1. Large Non-Monetized Sector

 There is a large non-monetized sector in the developing

country like India.
 It is very difficult to assess the income originating in
this sector.
 Even highly skilled tax administrator have found it
difficult to evaluate the real income of farmers and
other self-employed people, and including the value of
home produced and consumed food in the taxable
income of the farmer.
 2. Less Literacy Rate

 The majority of the population in the India is

illiterate.
 Most of the farmers, wage earners, small shop
keepers, craftsmen, etc. cannot fill out even the
simplest income tax return forms.
 2. non-voluntary compliance

 Key to successful income tax is voluntary

compliance on the part of tax payers.
 This condition is less in India.
 Large number of businessmen do not maintain
books properly.
 While fixed income groups pay income tax regularly
and a large number of prosperous businessmen pay
only a very small part of their income.
 4. Anonymity in the Ownership of Wealth

 Anonymity in the ownership of wealth is another

serious problem.
 This mat be in the form of ‘bearer’ shares in the case
of companies or the system of ‘benami’ in India.
 This makes it difficult to assess the income from
capital or wealth in an effective way.
 5. No Single Comprehensive Tax

 In India there is no single comprehensive tax system.

 It follows “cedular” system of income taxation.
 This system has imposes separate taxes on different
sources of income.
 It leaves many important sources entirely untaxed.
 6. Inefficient and Corrupt Administration

 As far as the tax enforcement aspect is

concerned, perhaps the most serious criticism is
the inefficient and corrupt administration in
developing countries.
 As a result, taxes are not strictly enforced
resulting in a loss of revenue to the govt.
 7. Inflexible

 Another defect that characterizes the Indian tax

system is its inflexibility.
 It depends mostly on urban incomes and leaves
out almost completely agriculture incomes from
the purview of direct taxes.
8. Inter – sectoral Imbalances in the Tax structure

 There are inter-sectoral imbalances in India's tax structure as

agricultural incomes are virtually tax free.
 After the land reforms were carried out and new technology
was introduced in agriculture, a new class of large farmers
emerged in India.
 Income of these farmers are now fairly high and yet they are
tax free.
 These developments during the past four decades have
created inter-sectoral imbalances in the tax structure.
 9. Large Evasion

 On top of inflexibility of the tax system, is its faulty

structure, resulting in large scale evasion of tax.
 Following causes are responsible for large evasion of
taxes.
 corrupt business practices
 Ineffective tax enforcement.
 undue curbs on business expenses on
entertainment, advertisement, travel etc.