` Annual 200/- ISSN 2320 –1584 EIRC News Vol. 10 No. 02 March, 2017 CMA Bhawan, 84, Harish Mukherjee Road, Kolkata- 700 025 Phones : (033) 2455- 3418/5957, 6533-1075/6456-3600/01/02/03, 6450 4305 6666/9999/ Fax No. : (033) 2455-7920 E-mail : [email protected]Website : www.eircoficmai.com (Statutory body under an Act of Parliament) EIRC NEWS The Institute of Cost Accountants of India GST Corporate Governance EIA Financial Architecture
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EIRC NEWSThe Institute of Cost Accountants of India
GST
Corporate
Governance
EIA
Financial
Architecture
Inaugural session of Orientation at EIRC.Chairman CMA Bibekananda Mukhopadhyay Presenting memento toCMA Amitava Mukherjee. CMA P. K. Chakraborty, VC is also seen.
CS Ravi Verma being greeted with a a bouquet by a participant.
Pre-placement Orientation Program for December 2016 Batch
Participants of Pre-placement Orientation Program Chairman presenting memento to CMA B. N. Chatterjee
CMA Harijiban Banerjee Addressing Ms Jayati Sinha addressing
Arundhati Basu, RCM and Chairperson, PD & Seminar Committee, Cma ShyamalKr. Bhattacharya, RCM were also present.
The program was lively and Interactive.
EIRC celebrated Woman's Day on 8h March at EIRC Seminar Hall. female Members, Students and lady employees
participated in he program. CMA Arundhati Basu, RCM, chaired the session. Chairman, Vice-Chairman, CMA Shyamal
Bhattacharjee, RCM and CMADr. Umar Farooque were also present.
Another program on "Conducting Audit Under SAP Emvironment" was held at EIRC on 25thMarch, 2017. CMA Tapas
Bhattacharya, FICO Consultant was the guest speaker. CMAArundhati Basu, Chairperson, PD & Seminar Committee, CMA
Umar Farooque, RCM, CMA Shyamal Bhattacharjee, RCM were present in the program. As the topic of the program was not
very regular in EIRC's program list, members took interest and requested for some more programs on such topic.
Result for ICAI examination is be out. Let me congratulate all the candidates who have come out successful and wish them all a
bright future.And those who could not succeed this time are advised not to breakdown but to concentrate and appear again with
full confidence.
With warm regards to my professional colleagues and love & affection to students.
Thanks and regards,
CMA Bibekananda MukhopadhyayChairman, EIRC of ICAI
SECRETARY’S COMMUNIQUE
EIRC NEWS 6
ToAll the Stake Holders
Dear Sir(s),
This is the Month of Tax Planning and 31st March is the last date for filing of belated Return for the assessment year 2015-16 under
Income Tax Act. Date of migration to GSTN portal has been extended up to 15th day of March 2017. So everyone those who are
engaged in Taxation area (Both Direct & Indirect Taxation) are very busy with their assignments.
Debate on Budget 2017-18 has started and it is expected that New GST bill will be passed in this budget session. Hope fully GST
will start from 1st July 2017. There are huge scope of work awaiting CMAs. Our Council has conducted several workshops on
GST. Several program on GST will be organized by EIRC to update our members regarding every changes of model law framed by
GST Council. Members are requested to provide valuable suggestion on GST to our PD committee so that EIRC can put its best
possible approach while approaching different state governments for making rules in this regards.
EIRC has passed resolution to conduct mock interview and free coaching classes for passed out students, who will appear
forthcoming recruitment exam of "COAL INDIA LIMITED" and other PSUs. Students are requested to enroll their name with the
concerned officer for taking part in coaching classes.
One important area where CMAs can play a vital role that is Insolvency Professional. EIRC has organized few programs on the
topic . Members are requested to appear the concerned exam to become IP within June 2017. This is new area for PCMAs to explore
professional acumen.
With Regards
Vol. 10 No. 02 March, 2017
CMA Ashis Banerjee
Secretary, EIRC of ICAI
EIRC NEWS 7
Abstract
Key Words:
Introduction
This paper discusses corporate governance issues from acompliance viewpoint. It makes a distinction between legaland ethical compliance mechanisms and shows that theformer has clearly proven to be inadequate as it lacks themoral firepower to restore confidence and the ability to buildtrust. The concepts of freedom of indifference and freedomfor excellence provide a theoretical basis for explaining whylegal compliance mechanisms are insufficient in dealing withfraudulent practices and may not be addressing the real andfundamental issues that inspire ethical behaviour. Ethicalcompliance mechanisms are addressed from a virtue ethicsperspective. The tendency to overemphasize legalcompliance mechanisms may result in an attempt to substitute"accountability" for "responsibility" and may also result in anattempt to legislate morality. The focus of the virtues ingovernance is to establish a series of practical responseswhich depend on the consistent application of core values andprinciples as well as commitment to ethical business practice.
Corporations have become a powerful and dominantinstitution. They have reached to every corner of the globe invarious sizes, capabilities and influences. Their governancehas influenced economies and various aspects of sociallandscape. Shareholders are seen to be losing trust and marketvalue has been tremendously affected. Moreover with theemergence of g loba l iza t ion , the re i s grea te rdeterritorialization and less of governmental control, whichresults is a greater need for accountability (Crane and Matten,2007). Hence, corporate governance has become an importantfactor in managing organizations in the current global andcomplex environment. In order to understand corporategovernance, it is important to highlight its definition. Eventhough, there is no single accepted definition of corporategovernance but it can be defined as a set of processes andstructures for controlling and directing an organization. It
constitutes a set of rules, which governs the relationshipsbetween management, shareholders and stakeholders (Chinget al, 2006). The term "corporate Governance" has a clearorigin from a Greek word, "kyberman" meaning to steer,guide or govern.
Corporate governance includes all types of firms and itsdefinitions could extend to cover all of the economic and non-economic activities. Literatures in corporate governanceprovide some form of meaning on governance, but fall shortin its precise meaning of governance. Such ambiguityemerges in words like control, regulate, manage, govern andgovernance. Owing to such ambiguity, there are manyinterpretations. It may be important to consider the influencesa firm has or affected by in order to grasp a betterunderstanding of governance. Owing to vast influentialfactors, proposed models of corporate governance can beflawed as each social scientist is forming their own scope andconcerns.
"What makes corporate governance and business ethicsnecessary? Put simply, the interests of those who haveeffective control over a firm can differ from the interests ofthose who supply the firm with external finance. The problemcommonly referred to as a principal- agent problem, growsout of the separation of ownership and control and ofcorporate outsiders and insiders. In the absence of theprotections that good governance supplies, asymmetries ofinformation and difficulties of monitoring results in capitalproviders who lack control over the corporation, finding itrisky and costly to protect themselves from the opportunisticbehaviour of managers and controlling shareholders."
Some corporations have grown dramatically in a relativelyshort time through acquisitions funded by inflated shareprices and promises of even brighter futures (many of thesecorporations have now failed). In others, it seems as if thechecks and balances that should protect shareholder interestswere pushed to one side, driven by a perception of the need tomove fast in the pursuit of the bottom line. While some
Conflict of Interest: The cause of Concern
MEMBER’S SECTION
Corporate Governance V/s Business Ethics: Issues & Concern
Dr. Mukesh Chauhan
Assistant Professor,PG Department of Commerce, PG Govt College, Sector- 46, Chandigarh- India
(Affiliated to Panjab University, Chandigarh-India)Email: [email protected] Mobile: 91- 93571-30698
Vol. 10 No. 02 March, 2017
EIRC NEWS 8
failures were the result of fraudulent accounting and otherillegal practices, many of the same companies exhibitedactual corporate governance risks such as conflicts of interest,inexperienced directors, overly lucrative compensation, orunequal share voting rights (Anderson and Orsagh, 2004). Inthe face of such scandals and malpractices, there has been arenewed emphasis on corporate governance.
1. To discuss the conceptual framework of corporategovernance and business ethics.
2. To discuss the relative importance of corporategovernance V/s business ethics.
The study is of descriptive nature and the main source of datais secondary type which has been collected through variousreliable sources like referred journals, internet data base,website of Govt. of India and of OECD, etc.
Corporate governance covers a large number of distinctconcepts and phenomenon as we can see from the definitionadopted by Organization for Economic Cooperation andDevelopment (OECD) -
"Corporate governance is the system by which businesscorporations are directed and controlled. The corporategovernance structure specifies the distribution of rights andresponsibilities among different participants in thecorporation, such as, the board, managers, shareholders andother stakeholders and spells out the rules and procedures formaking decisions in corporate affairs. By doing this, it alsoprovides the structure through which the company objectivesare set and the means of attaining those objectives andmonitoring performance".
From this definition we see that corporate governanceincludes the relationship of a company to its shareholders andto society; the promotion of fairness, transparency andaccountability; reference to mechanisms that are used to"govern" managers and to ensure that the actions taken areconsistent with the interests of key stakeholder groups. Thekey points of interest in corporate governance thereforeinclude issues of transparency and accountability, the legaland regulatory environment, appropriate risk managementmeasures, information flows and the responsibility of seniormanagement and the board of directors. From an ethicaldimension, at a fundamental level, the key issues of corporategovernance involve questions concerning relationships andbuilding trust (both within and outside the organization).
In order for an effective relationship to be maintained betweenthe providers of capital and company managers, high levels of
Objectives of the Research
Research Methodology
Corporate Governance
trust must exist between the two groups. For sufficient levelsof trust to occur, four overarching corporate governanceprinciples need to be in place:
Directors must make clear to theproviders of capital and other key stakeholders whyevery material decision was made.
Directors should be held accountablefor their decisions and account to shareholders bysubmitting themselves to appropriate scrutiny.
All shareholders should receive equalconsideration by the directors and management with asense of justice and avoidance of bias or vestedinterests.
Directors should carry out their dutieswith honesty, probity, and integrity.
"Corporate governance is concerned with holding the balancebetween economic and social goals and between individualand communal goals...the aim is to align as nearly as possiblethe interests of individuals, corporations and society."
Business ethics can be defined as the principles, norms andstandards that guide an organisation's conduct of its activities,internal relations and interactions with external stakeholders.
Business ethics (also corporate ethics) is a form of appliedethics or professional ethics that examines ethical principlesand moral or ethical problems that arise in a businessenvironment. It applies to all aspects of business conduct andis relevant to the conduct of individuals and entireorganizations.
Business ethics refers to contemporary standards or sets ofvalues that govern the actions and behaviour of an individualin the business organization.
(a) Business ethics are the guiding principlesof business function. It is the knowledge through whichhuman behaviour is learnt in a business situation.
(b) Business ethics is an ancientconcept. It has it origin with the development of humancivilization.
(c) The principles of ethics develop thepersonal dignity. Many of the problems of ethics arisedue to not giving dignity to individual. All the businessdecisions should be aimed by giving dignity to thecustomers, employees, distributors, shareholders andcreditors, etc. otherwise they develop in immorality inthe business conducts.
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Transparency:
Accountability:
Fairness:
Responsibility:
Business Ethics
Characteristics of Business Ethics:
ADiscipline:
Ancient Concept:
Personal Dignity:
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(d) Business ethics studiesthose activities, decisions and behaviours which areconcerned with human aspect. It is the function of thebusiness ethics to notify those decisions to customers,owners of business, government, society, competitorsand others on good or bad, proper or improper conductof business.
(e) Business ethics is the studyof goals and means for the rational selection of sacredobjects and their fulfilment. It accepts the principles of"Pure goals inspire for pure means" and "Meansjustifies the end". It is essential that goals and meansshould be based on morals.
(f) Socialresponsibility mainly relates to the policies andfunctions of an enterprise, whereas business ethics tothe conduct and behaviour of businessmen. But it is afact that social responsibility of business and its policiesis influenced by the business ethics.
(g) Although the law approves varioussocial decisions, but the law is not greater than ethics.Law is usually related to the minimum control of socialcustoms whereas ethics gives importance to individualand social welfare actions.
Ethics is the cornerstone of corporate governance
Ethics ensures the sustainability of a business
Good corporate reputation is built on a solid foundationof ethical culture. A culture of trust must be built on acorporate framework of ethical principles which aretransparency/ openness, competence, integrity andbenevolence
Ethics play a major role in the prevention of fraud. Fraudprevention becomes a shared responsibility among themembers of the organisation
Ethics are the Basis of Fundamental CorporateGovernance Theories like Agency Theory, StewardshipTheory, Stakeholder Theory, Resource DependencyTheory, Transaction Cost Theory and Political Theory.
The difficulty with legal compliance mechanisms is that manyabuses that have enraged the public are entirely legal, forexample, companies can file misleading accountingstatements that are in complete compliance with generallyaccepted accounting principles (GAAP). France et al (2002)point out that laws regulating companies are ambiguous, thatjuries have a hard time grasping abstract and sophisticatedfinancial concepts (for example, special-purpose entities or
Related to Human Aspect:
Study of Goals and Means:
Different from Social Responsibility:
Greater than Law:
Importance of Ethics for the Organisation
Legal Compliance Mechanisms
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complex derivatives), well-counselled executives haveplenty of tricks for distancing themselves fromresponsibilities (Enron and the individual officers all denythey've broken any laws), and the fact that criminal lawapplies only to extreme cases so violations are hard toenforce.
Based upon in-depth interviews with 30 graduates of HarvardMBA program, Badaracco and Webb (1995) revealed severaldisturbing patterns. First, young managers received explicitinstructions from their middle-manager bosses or felt strongorganizational pressures to do things that they believed weresleazy, unethical, or sometimes illegal. Second legalcompliance mechanisms (corporate ethics programs, codesof conduct, mission statements, hot lines, and so on) providedlittle help in such environments. Third, many of the youngmanagers believed that their company's executives were out-of-touch on ethical issues; either they were too busy orbecause they sought to avoid responsibility. Finally, theyoung managers resolve the dilemmas they faced largely onthe basis of personal reflection and individual values, notthrough reliance on corporate credos or company loyalty.
Although the accounting profession has always had a strongfocus on internal controls, recent spectacular businessfailures, which have undermined auditors' credibility in theirreporting function, have eroded public confidence in theaccounting and auditing profession. Brief et al (1997) foundthat 87% of accountants surveyed were willing tomisrepresent financial statements in at least one case whenpresented with seven financial reporting dilemmas. This hasled to new and more stringent applications of standards.
a) The Companies Act requiresevery company to conduct an annual general meetingand provides an effective mechanism for theshareholders to participate and vote at generalmeetings. In the interests of investor awareness, theCompanies Act also requires continuous disseminationof information to the shareholders in the form of anumber of corporate documents such as: annualreports, minutes of general meetings and Boardmeetings, auditor's report, Board's report, etc.
b) TheCompanies Act affirms that disclosure andtransparency form an integral part of corporategovernance and thus, information about the companyand its activities has to be provided to the shareholders,registrar of companies and to the stock exchanges in theform of annual report and other corporate documentsmentioned above. The annual accounts of the companyare required to be certified by auditors, who areappointed at the general meetings.
1. Corporate Governance under the CompaniesAct
Shareholder Rights:
Disclosure and Transparency Requirements:
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EIRC NEWS 10
c) The Board of acompany is appointed at the general meeting, with eachdirector's appointment to be approved by majority ofthe shareholders present and voting. Similarly, theshareholders can remove a director by way of simplemajority of shareholders. The whole time directorsalong with managing directors, manager, and secretaryare classified as officers in default by the CompaniesAct. Even though the Board has general powers,consent of shareholders has been made mandatory forcertain corporate decisions such as, further issue ofcapital, issuing shares at a discount, buy back ofshares, reissuing of redeemed debentures, change ofregistered office within the state and issuing of inter-corporate loans. The Companies Act also containsprovisions safeguarding the interests of shareholders inthe event of oppression and mismanagement in thecompany.
The SEBI Act, 1992 ("SEBI Act") empowers SEBI toframe regulations, pursuant to which the regulator hasintroduced a comprehensive set of guidelines on insidertrading, mergers and takeovers, fraudulent practices,etc all of which have a significant impact on corporategovernance in the country.
SEBI, as a market regulator, also decides the terms andconditions of listing agreement which govern thearrangement between stock exchanges and companieslisted on the stock exchange. Clause 49 of the listingagreement prescribes various corporate governancemechanisms in the following subject areas:
a) TheBoard of a listed company is required to have anoptimum number of executive and non-executivedirectors, with at least half of the Board comprising ofnon-executive directors. The independent director isalso not permitted to be a substantial shareholder of thecompany, i.e., owns two percent or more of the block ofvoting shares of the company.
With respect to the composition of the Board, Clause 49mandates that at least one third of the Board shouldcomprise of independent directors, when the Chairmanof the Board is a non-executive director or alternatively,at least half of the Board should comprise ofindependent directors, if Chairman of the Board is anexecutive director.
SEBI is also fairly vigilant of the activities ofindependent directors and in a recent case, has also heldthat independent directors can be held liable for the
misleading and fictitious financial statementspublished by the company.
b) The audit committee, whichoversees companies' financial reporting process andnecessary financial disclosures, is required to beheaded by an independent director. In order to ensurethat the audit committee functions in an independentmanner, two-thirds of the directors on the committeehave to be independent directors.
c) The presence of at least oneindependent director of the holding company, on theBoards of a material non-listed subsidiary company hasbeen made compulsory by Clause 49.
d) Clause 49 of the listing agreementrequires listed companies to make periodicaldisclosures of related party transactions, accountingtreatment, risk management, remuneration of directors,management related matters, appointment andreappointment of directors and utilization of proceedsfrom public issues, rights issues, preferential issues etc.
e) A separatesection, with a detailed compliance report on corporategovernance, is required to be included in the annualreports of the company. Aquarterly compliance report,as per the format in the listing agreement, is alsorequired to be submitted to the stock exchange within15 days from the close of quarter as per a specificformat.
f) Lastly, the company is required to obtainan annual certificate from either the auditors orpracticing company secretaries regarding complianceof conditions of corporate governance, which is thensent to the shareholders and stock exchanges.
a)MCA introduced the Voluntary Guidelines onCorporate Governance in 2009. The guidelines relateto various issues such as: the constitution of Board(appointment, role of independent directors,remuneration); the responsibilities of the Board(training, enabling quality decision making, riskmanagement, evaluation of performance, compliance);audit committees of Board (constitution, enablingpowers, role and responsibilities); and auditors(appointment, certificate of independence, rotation);secretarial audit; whistle blowers, etc.
b) A number of green initiatives havealso been recently introduced, such as: (i) service ofdocuments through electronic mode to increase the
Audit Committees:
Subsidiary Companies:
Disclosures:
Report on Corporate Governance:
Compliance:
3. Governmental Initiatives - Measures by MCA
Voluntary Guidelines on Corporate Governance:
Green Initiatives:
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EIRC NEWS 11
speed of delivery, (ii) participation of directors andshareholders through video conferencing to providelarger participation and for curbing the cost borne toattend various meeting , (iii) secure electronic voting inthe general meetings of the company and (iv) issuanceof digital certificates and standard letters by theRegistrar of Companies ("ROCs") to reduce the delay.
c) Theoffice investigates cases which have inter-departmentaland multi-disciplinary ramifications or public interestat stake or the possibility of investigation contributingtowards an improvement in systems, laws orprocedures.
d)IGMC, earlier known as the Investor Protection Cell,was set up by the MCA in 1993 with the objective ofresolving the grievances of investors'.
e)NFCG, the national apex platform on
corporate governance issues, was established in 2003by the MCA to act as a platform for deliberation onissues relating to corporate governance and sensitizecorporate leaders on the importance of "good corporategovernance, self-regulation and directorialresponsibilities".
If there is one theme to rival terrorism for defining the lastdecade-and-a-half, it would have to be corporate greed andmalfeasance. Many of the biggest corporate accountingscandals in history happened during that time. Here's achronological look back at some of the worst examples.
Company: Houston-based publicly traded wastemanagement company
What happened: Reported $1.7 billion in fake earnings.
Main players: Founder/CEO/Chairman Dean L.Buntrock and other top executives; Arthur AndersenCompany (auditors)
How they did it: The company allegedly falselyincreased the depreciation time length for theirproperty, plant and equipment on the balance sheets.
How they got caught: A new CEO and managementteam went through the books.
Fun fact: After the scandal, new CEO A. MauriceMeyers set up an anonymous company hotline where
Serious Fraud Investigation Office ("SFIO"):
Investor Grievances Management Cell ("IGMC"):
National Foundation for Corporate Governance("NFCG"):
Corporate Scandals: Failure Of Corporate Governance
1. Waste Management Scandal (1998)
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employees could report dishonest or improperbehavior.
Company: Houston-based commodities, energy andservice corporation
What happened: Shareholders lost $74 billion,thousands of employees and investors lost theirretirement accounts, and many employees lost theirjobs.
Main players: CEO Jeff Skilling and former CEO KenLay.
How they did it: Kept huge debts off balance sheets.
How they got caught: Turned in by internalwhistleblower Sherron Watkins; high stock pricesfueled external suspicions.
Penalties: Lay died before serving time; Skilling got 24years in prison. The company filed for bankruptcy.Arthur Andersen was found guilty of fudging Enron'saccounts.
Fun fact: Fortune Magazine named Enron "America'sMost Innovative Company" 6 years in a row prior to thescandal.
Company: Telecommunications company; now MCI,Inc.
What happened: Inflated assets by as much as $11billion, leading to 30,000 lost jobs and $180 billion inlosses for investors.
Main player: CEO Bernie Ebbers
How he did it: Underreported line costs by capitalizingrather than expensing and inflated revenues with fakeaccounting entries.
How he got caught: WorldCom's internal auditingdepartment uncovered $3.8 billion of fraud.
Penalties: CFO was fired, controller resigned, and thecompany filed for bankruptcy. Ebbers sentenced to 25years for fraud, conspiracy and filing false documentswith regulators.
Fun fact: Within weeks of the scandal, Congress passedthe Sarbanes-Oxley Act, introducing the mostsweeping set of new business regulations since the1930s.
Company: New Jersey-based blue-chip Swiss security
2. Enron Scandal (2001)
3. World Com Scandal (2002)
4. Tyco Scandal (2002)
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systems.
What happened: CEO and CFO stole $150 million andinflated company income by $500 million.
Main players: CEO Dennis Kozlowski and former CFOMark Swartz.
How they did it: Siphoned money through unapprovedloans and fraudulent stock sales. Money was smuggledout of company disguised as executive bonuses orbenefits.
How they got caught: SEC and Manhattan D.A.investigations uncovered questionable accountingpractices, including large loans made to Kozlowski thatwere then forgiven.
Penalties: Kozlowski and Swartz were sentenced to 8-25 years in prison.Aclass-action lawsuit forced Tyco topay $2.92 billion to investors.
Fun fact:At the height of the scandal Kozlowski threw a$2 million birthday party for his wife on aMediterranean island, complete with a Jimmy Buffetperformance.
Company: Largest publicly traded health care companyin the U.S.
What happened: Earnings numbers were allegedlyinflated $1.4 billion to meet stockholder expectations.
Main player: CEO Richard Scrushy.
How he did it: Allegedly told underlings to make upnumbers and transactions from 1996-2003.
How he got caught: Sold $75 million in stock a daybefore the company posted a huge loss, triggering SECsuspicions.
Penalties: Scrushy was acquitted of all 36 counts ofaccounting fraud, but convicted of bribing the governorofAlabama, leading to a 7-year prison sentence.
Fun fact: Scrushy now works as a motivational speakerand maintains his innocence.
What happened: $5 billion in earnings were misstated.
Main players: President/COO David Glenn,Chairman/CEO Leland Brendsel, ex-CFO VaughnClarke, former senior VPs Robert Dean and NazirDossani.
How they did it: Intentionally misstated and understated
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5. Health South Scandal (2003)
6. Freddie Mac (2003)
earnings on the books.
How they got caught:An SEC investigation.
Penalties: $125 million in fines and the firing of Glenn,Clarke and Brendsel.
Fun fact: 1 year later, the other federally backedmortgage financing company, Fannie Mae, was caughtin an equally stunning accounting scandal.
Company: Multinational insurance corporation.
What happened: Massive accounting fraud to the tuneof $3.9 billion was alleged, along with bid-rigging andstock price manipulation.
Main player: CEO Hank Greenberg.
How he did it: Allegedly booked loans as revenue,steered clients to insurers with whom AIG had payoffagreements, and told traders to inflateAIG stock price.
How he got caught: SEC regulator investigations,possibly tipped off by a whistleblower.
Penalties: Settled with the SEC for $10 million in 2003and $1.64 billion in 2006, with a Louisiana pensionfund for $115 million, and with 3 Ohio pension fundsfor $725 million. Greenberg was fired, but has faced nocriminal charges.
Fun fact: After posting the largest quarterly corporateloss in history in 2008 ($61.7 billion) and getting bailedout with taxpayer dollars, AIG execs rewardedthemselves with over $165 million in bonuses.
Company: Global financial services firm.
What happened: Hid over $50 billion in loans disguisedas sales.
Main players: Lehman executives and the company'sauditors, Ernst &Young.
How they did it: Allegedly sold toxic assets to CaymanIsland banks with the understanding that they would bebought back eventually. Created the impressionLehman had $50 billion more cash and $50 billion lessin toxic assets than it really did.
How they got caught: Went bankrupt.
Penalties: Forced into the largest bankruptcy in U.S.history. SEC didn't prosecute due to lack of evidence.
Fun fact: In 2007 Lehman Brothers was ranked the #1"MostAdmired Securities Firm" by Fortune Magazine.
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7. American International Group (AIG) Scandal(2005)
8. Lehman Brothers Scandal (2008)
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Company: Bernard L. Madoff Investment SecuritiesLLC was a Wall Street investment firm founded byMadoff.
What happened: Tricked investors out of $64.8 billionthrough the largest Ponzi scheme in history.
Main players: Bernie Madoff, his accountant, DavidFriehling, and Frank DiPascalli.
How they did it: Investors were paid returns out of theirown money or that of other investors rather than fromprofits.
How they got caught: Madoff told his sons about hisscheme and they reported him to the SEC. He wasarrested the next day.
Penalties: 150 years in prison for Madoff + $170 billionrestitution. Prison time for Friehling and DiPascalli.
Fun fact: Madoff's fraud was revealed just months afterthe 2008 U.S. financial collapse.
Company: Indian IT services and back-officeaccounting firm.
What happened: Falsely boosted revenue by $1.5billion.
Main player: Founder/Chairman Ramalinga Raju.
How he did it: Falsified revenues, margins and cashbalances to the tune of 50 billion rupees.
How he got caught: Admitted the fraud in a letter to thecompany's board of directors.
Penalties: Raju and his brother charged with breach oftrust, conspiracy, cheating and falsification of records.Released after the Central Bureau of Investigationfailed to file charges on time.
Fun fact: In 2011 Ramalinga Raju's wife published abook of his existentialist, free-verse poetry.
study found that specific characteristicsof legal compliance programs matter less than broaderperceptions of the program's orientation toward values andethical aspirations. They found that what helped the most areconsistency between policies and actions as well asdimensions of the organization's ethical climate such asethical leadership, fair treatment of employees, and opendiscussion of ethics. On the other hand, what hurts the most isan ethical culture that emphasizes self-interest andunquestioning obedience to authority, and the perception that
9. Bernie Madoff Scandal (2008)
10. Satyam Scandal (2009)
Ethical Compliance Mechanisms
Trevino et al (1999)
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legal compliance programs exist only to protect topmanagement from blame. examined thecharacter traits of effective business leaders in the culture ofeleven companies that transformed themselves from goodsolid businesses into great companies that producedphenomenal and sustained returns for their stockholders.Leaders in all companies exhibited the traits of fanatical driveand workmanlike diligence, but Level leaders were alsopeople of integrity and conscience who put the interest oftheir stockholder and their employees ahead of their own self-interest.
pointed out that following the abuses of recenttimes, executives are learning that trust, integrity, andfairness do matter and are crucial to the bottom line.Corporate leaders and entrepreneurs somehow forgot thatbusiness is all about values and are now paying the price in adownward market with a loss of investor confidence. He alsonoted that in the post-Enron, post-bubble world, therealization that many companies played fast and loose withaccounting rules and ethical standards and which allowedperformance to be disconnected from meaningful corporatevalues, is leading to a re-evaluation of corporate goals, valuesand purpose. What's emerging is a new model of thecorporation in which corporate cultures will change in a waythat puts greater emphasis on integrity and trust.
doubts whether legal compliancemechanisms alone can show the way to business probity andpoints out the need to ask some basic questions: AreSarbanes-Oxley and the mandated reforms being made likelyto achieve the desired goal? Will our efforts foster a moreethical business environment or is it likely that much of theeffort will be directed to formulaic conformity with theappearance of ethical probity? Will corporations be promptedmerely to offer empty clichés in their public embrace ofintegrity (e.g. some corporations might think that rewritingtheir value statement in a larger font size might somehowtranslate into a more impassioned ethical commitment)?Hansen (2004) also points out that more explicit recognitionof the role of culture in an organization may be forthcomingsince the challenge is to ascertain whether a corporation'scompliance program is merely a "paper program" or whetherit was designed and implemented in an effective manner. Acultural norm that reinforces the importance of compliance isone measure of a real compliance program as opposed to onethat merely exists on paper.
, using a natural ethicalframework, show that the latter is more coherent with humannature as the natural law perspective posits the primacy ofethics over politics, law and economics. Economics cannot bedivorced from ethics anymore than law, politics, education can(Arjoon and Gopaul, 2003). Natural law ethical theoryprovides a framework to address the moral dimension of
Collins (2001)
Byrne (2002)
Hansen (2004)
Ambrosio and Toth (1998)
Vol. 10 No. 02 March, 2017
EIRC NEWS 14
human action, serves as a guide to those directly responsible forcorporate governance, judges whether particular corporateactions are consistent with legal obligations, and provides thegrounds for a moral critique of existing laws and practicesrelated to corporate governance. The shareholder wealthmaximization model deflects attention from the ethicalquestions and the concern for values. Related to the firstprinciple of natural law ethics (do good and avoid evil) is virtueethics (be virtuous and avoid vices), which provides morepositive principles for the practice of corporate governance.
observes that despite certain congruities andconvergences, there are some very important differences inthe character and content of ethical and legal requirementswhich can help us understand why ethics is accorded anormative primacy in practical affairs and legality is to bejudged by reference to ethics (not vice versa). Specifically,law is concerned primarily with conduct and ethicalrequirements are centrally concerned with reasons, motives,intentions, and more generally with the character thatexpresses itself in conduct. Ethics therefore is concerned withwhat we are and not just what we do. Also, law isjurisdictionally limited since what is legitimately required inone state or country may differ from another, whereas ethicalvalues are inclined to be more universal. Kidder (1995)defines ethics as "obedience to the unenforceable". Longstaff(1986) argues that an overemphasis on legal compliancemechanisms could be at the expense of ethical reflection sincepeople may have less reason to form their own opinions andtake personal responsibility for the decisions they make. Thiscould result in a subtle substitution of "accountability" for"responsibility". Table 1 shows the differences between thelegal compliance and the ethical compliance approaches.
The current business environment provides an excellentopportunity to establish an organizational culture that goesbeyond mere legal compliance. Harshbarger and Holden (2004)also agree that as the new realities of corporate governance setin, the substance of the new laws and rules must not be lost in
Legal V/S Ethical Compliance Mechanisms
Kleining (1999)
Table-1: Legal and Ethical ComplianceApproaches
the race to comply with their form. They point out thatorganizations must make a good faith effort to comply not justwith the letter of the law, but with the spirit of the new reforms.
Legal compliance mechanisms tend to promote a freedom ofindifference which corresponds to the letter of the law whichmay not necessarily inspire or instill excellence, whereas,ethical compliance mechanisms promote a freedom forexcellence which corresponds to the spirit of the law (seeTable 2). The former concept of freedom is more seen as anexternal limit imposed on the agent while the latter governsthe dynamism and development of a person's faculties ofaction and tends toward perfection or happiness of the humanperson. These concepts of freedom explain why legalcompliance mechanisms are insufficient and may not beaddressing the real and fundamental issues that inspire ethicalbehaviour.
points out that these two distinctconceptions of freedom engender two types of morality:freedom of indifference is the source of moralities ofobligation and freedom for excellence inspires moralities ofhappiness and virtue. Under freedom of indifference oneloses sight or is no longer concerned for the bigger picture(the common good or happiness) that would unite all acts inone same intention since each act is viewed as independentlygoverned by obedience to the law. Freedom for excellence, onthe other hand, engenders a morality that regards happiness asdecisive for the integral ordering of one's life and theformation of one's character. Central to this, are the cardinalvirtues which strengthen freedom and refine human actions.
Ethics and moral norms now set a new benchmark forchoosing to "do the right thing" in business practices.Corporate scandals of excessive fraud, greed, dishonesty, andbribery have slowly turned the tide so that today corporatecodes of ethics are the norm rather than the exception. Thisevolution is only a few decades old but its principles arereflected in current definitions of corporate governance andsolidly codified in the OECD and UN international
Table-2: Two forms of Freedom
Pinckaers (2001)
The Moral Compass of Companies
Vol. 10 No. 02 March, 2017
EIRC NEWS 15
conventions against bribery. Ethics and moral norms now set anew benchmark for choosing to "do the right thing" in businesspractices.
Senior executives have the paramount responsibility to embedethical behaviour into the culture of the company. By leadership,boards and CEOs can build an ethical organization and becomethe benchmark to be emulated by competitors, industry peers,and the private sector in general. Such visible commitment helpskeep the organization on track to progress from just having afirm commitment to business ethics to creating an organizationalculture where ethics is a central consideration in businessdecisions across all layers of a company.
To an ethical organization, ethics is about doing businessright, not an issue of compliance. In practice this means that touphold its ethical philosophy, at times a company must standready to lose business before compromising its values.However, by having in place a comprehensive ethics programthat is aligned to its business strategy, a company can rely oninstitutional checks and balances that will help it make theright decisions when faced with challenging ethicaldilemmas. Good corporate governance and concrete ethicalstandards are strong allies to help companies navigate themine fields of corporate corruption.
Failure in corporate governance is a real threat to the future ofevery corporation. With effective corporate governance based
Conclusion
on core values of integrity and trust (reputational value)companies will have competitive advantage in attracting andretaining talent and generating positive reactions in themarketplace - if you have a reputation for ethical behaviour intoday's marketplace it engenders not only customer loyaltybut employee loyalty. Effective corporate governance can beachieved by adopting a set of principles and best practices. Agreat deal depends upon fairness, honesty, integrity and themanner in which companies conduct their affairs. Companiesmust make a profit in order to survive and grow; however, thepursuit of profits must stay within ethical bounds.
Companies should adopt policies that include environmentalprotection, whistle blowing, ethical training programs and so on.Such compliance mechanisms help develop and build corporateimage and reputation, gain loyalty and trust from consumers andheightens commitment to employees. Ethical compliancemechanisms contribute to stability and growth since it instillsconfidence; management, leadership, and administration areessentially ethical tasks. The focus of the virtues in governanceis to establish a series of practical responses which depend onthe consistent application of core values and principles as wellas commitment to ethical business practice.
Ethics is truly an essential ingredient for business success andit will continue to serve as the blueprint for success in the 21stcentury. Many of our traditional role models have fallen, andso it is more important for us to set a strong ethical examplefor future generations.
Vol. 10 No. 02 March, 2017
EIRC NEWS 16
CSR implies that companies to which the provisions of CSR
Rules are applicable contributes to social good by integrating
economic, environmental and social objectives with the
company's business operations and growth, thus, recognizing
the social and environmental priorities as well while up
holding the objectives of doing business gainfully.
Essentially, CSR focuses the social dimension of doing
business by companies and mandates by law in the Companies
Act 2013 that certain category of companies must fulfil their
social objectives also while fulfilling other business
objectives.
Companies Act 2013 (Act) has introduced several provisions
which have changed the face of Indian corporate business.
One such new provision is Corporate Social Responsibility
(CSR). The concept of CSR rests on the ideology of give and
take. Companies take resources in the form of raw materials,
human resources, various support facilities, etc from the
society. By performing the task of CSR activities, the
companies are giving something back to the society.
Ministry of Corporate Affairs has notified Section 135 and
Schedule VII to the Companies Act as well as the Companies
(Corporate Social Responsibility Policy) Rules, 2014 (CRS
Rules) which has come into effect from 1April 2014.
: Section 135 of the Companies Act provides the
threshold limit for applicability of CSR to a Company i.e. (a)
net worth of the company to be Rs 500 crore or more; (b)
turnover of the company to be Rs 1000 crore or more; (c)
average net profit of the company for the preceding three
years to be Rs 5 crore or more. Further, as per the CSR Rules,
the provisions of CSR are not only applicable to Indian
companies, but also applicable to branch and project offices of
a foreign company in India.
: Every qualifying company
Applicability
CSR Committee and Policy
requires spending of at least 2% of its average net profit for
the immediate preceding three financial years on CSR
activities. Further, the qualifying company will be required to
constitute a committee (CSR Committee) of the Board of
Directors (Board) consisting of at least three or more
directors one of whom will be an independent director. The
CSR Committee shall formulate and recommend to the
Board, a policy which shall indicate the activities to be
undertaken (CSR Policy) and recommend the amount of
expenditure to be incurred on the activities and monitor the
CSR Policy of the company. The Board shall take into
account the recommendations made by the CSR Committee
and approve the CSR Policy.
: The term CSR has been defined
under the CSR Rules which includes but is not limited to:
Projects or programs relating to activities specified in
Schedule VII to the CompaniesAct, 2013; or
Projects or programs relating to activities undertaken by
the Board in pursuance of recommendations of the CSR
Committee as per the declared CSR policy subject to the
condition that such policy covers subjects enumerated in
the said Schedule.
This definition of CSR assumes significance as it allows
companies to engage in projects or programs relating to
activities listed in the Schedule. Flexibility is also permitted
to the companies by allowing them to choose their preferred
CSR engagements that are in conformity with the CSR
policy.
: The activities that can be undertaken
by the company to achieve its CSR obligations include
eradicating hunger and poverty, promotion of education,
effects of the natural environment on a company in
monetary terms.
EnvironmentalAccounting
An environmental accounting system consists of:--
(II) Ecological accounting measures the influence a
company has on the environment, but in physical
measurements.
EIAis very much important for our survival and growth in the
earth. Mankind should not take any project or development
activities at the cost of environment degradation. Concrete
efforts are needed for protecting the surrounding
environment. Government agencies, Educational Institution,
NGO and corporate houses must come forward for spreading
awareness among general public about the importance of
EIA. Central Government must release more funds for
protecting our surrounding. Swach Bharat Abhiyan is
definitely a remarkable step by the Central Government of
India for protection of country's pristine environment.
Conclusions:
Vol. 10 No. 02 March, 2017
EIRC NEWS 24
GST council has approvedCentral GST and Integrated GSTlawsin 11th meeting. UGST and SGST laws will be approvedby the CouncilIn next meeting.The crush of whole GST is,which tax is an applicableon supply transactions?I.e. whetherCGST+SGST or IGST.
With the help of this article, I try to highlight variousprovisions of place of supply of goods and services underrevised MIGST Law with the help of various practicalIllustrations.
For better clarity, one should need to refer two importantdefinition provided under revised MIGST Law i.e. "Locationof the receiver of services" and "Location of the supplier ofservices".
Section 2(17) & Section 2(18) of revised MIGST Law are asfollow respectively,
(a) Where a supply is received at a place of business forwhich registration has been obtained, the location ofsuch place of business;
(b) Where a supply is received at a place other than the placeof business for which registration has been obtained, thatis to say, a fixed establishment elsewhere, the location ofsuch fixed establishment;
(c) Where a supply is received at more than oneestablishment, whether the place of business or fixedestablishment, the location of the establishment mostdirectly concerned with the receipt of the supply; and
(d) In absence of such places, the location of the usual placeof residence of the recipient;
(a) Where a supply is made from a place of business forwhich registration has been obtained, the location ofsuch place of business;
(b) Where a supply is made from a place other than the placeof business for which registration has been obtained, thatis to say, a fixed establishment elsewhere, the location ofsuch fixed establishment;
(c) Where a supply is made from more than oneestablishment, whether the place of business or fixed
"Location of the recipient of services" means:
"Location of the supplier of services" means:
establishment, the location of the establishment mostdirectly concerned with the provision of the supply; and
(d) In absence of such places, the location of the usual placeof residence of the supplier;
There are two sections in model IGST Law, to determineplace of supply of Goods, which can be summarized asfollow,
Place of supply of goods otherthan supply of goods imported into, or exported from India.
Place of supply of goodsimported into, or exported from India.
Let us try to understand both sections.
Place of supply of goods otherthan supply of goods imported into, or exported from India.
(1) This provisions shall apply to determine the place ofsupply of goods other than supply of goods importedinto, or exported from India. I.e. provisions is notapplicable to determine place of supply of goods, wheregoods are imported in India or exported from India.
If ABC Ltd has imported goods from CSCLtd, China, then provisions provided in section-7 ofIGSTis not applicable. For such cases, provisions ofsection-8 of MIGST is applicable.
(2) Where the supply involves movement of goods, whetherby the supplier or the recipient or by any other person,the place of supply of goods shall be the location of thegoods at the time at which the movement of goodsterminates for delivery to the recipient. It means whensupply involves movement of goods from one place toother place, then place of supply is Place wheremovement of goods terminates for delivery to therecipient.
ABC Ltd of Gujarat is supplying goodsto XYZ Ltd of Delhi, with door delivery terms, then inthis case IGST is applicable, as delivery of goodsterminates at Delhi and transaction is settled betweentwo states.
ABC Ltd of Gujarat is supplying goods
Place of Supply of GOODS
Section-7 of MIGST Law:
Section-8 of MIGST Law:
Section-7 of MIGST Law:
Illustration:
Illustration-1:
Illustration-2:
MEMBER’S SECTION
Vol. 10 No. 02 March, 2017
Place of Supply - Key factor to determine applicability of CGST + SGST or IGST
to XYZ Ltd of Delhi, with ex-factory terms, then in thiscase also, IGST is applicable, as delivery of goodsterminates at Delhi and transaction is settled betweentwo states.
(3) Where theon the direction of a third
person, whether acting as an agent or otherwise, beforeor during movement of goods, either by way of transferof documents of title to the goods or otherwise, it shall bedeemed that the said third person has received the goodsand the place of supply of such goods shall be theprincipal place of business of such person. This case islike "Bill to - Ship to" model.
PQR Ltd (buyer) of Maharashtra ispurchasing goods from ABC Ltd (seller/supplier) ofGujarat, and delivery (supply) of goods to XYZ Ltd(recipient) of Delhi, then IGST is applicable, as it is inter-state supply. HereABC Ltd (supplier) is 1st person, XYZLtd (recipient) is 2nd person & PQR Ltd (buyer) is 3rdperson, as on the direction of PQR Ltd of Maharashtra,goods are supply to XYZ Ltd of Delhi. In this case, placeof supply is principal place of business of third personi.e. place of PQR Ltd is place of supplyand we canconclude that transaction is settled between two statesi.e. between Maharashtra andGujarat.
PQR Ltd (buyer) of Maharashtra ispurchasing goods from ABC Ltd (seller/supplier) ofGujarat, and delivery (supply) of goods to XYZ Ltd(recipient) of Gujarat, then IGST is applicable, as it isinter-state supply. HereABC Ltd (supplier) is 1st person,XYZ Ltd (recipient) is 2nd person & PQR Ltd (buyer) is3rd person, as on the direction of PQR Ltd ofMaharashtra, goods are supply to XYZ Ltd of Gujarat. Inthis case, place of supply is principal place of business ofthird person i.e. place of PQR Ltd is place of supplyandwe can conclude that transaction is settled between twostates i.e. between Maharashtra and Gujarat.
PQR Ltd (buyer) of Gujarat ispurchasing goods from ABC Ltd (seller/supplier) ofGujarat, and delivery (supply) of goods to XYZ Ltd(recipient) of Delhi, then CGST+SGST is applicable, asit is intra-state supply. Here ABC Ltd (supplier) is 1stperson, XYZ Ltd (recipient) is 2nd person & PQR Ltd(buyer) is 3rd person, as on the direction of PQR Ltd ofGujarat, goods are supply to XYZ Ltd of Delhi. In thiscase, place of supply is principal place of business ofthird person i.e. place of PQR Ltd is place of supplyandwe can conclude that transaction is settled within thestates i.e. within the Gujarat.
PQR Ltd (buyer) of Maharashtra ispurchasing goods from ABC Ltd (seller/supplier) ofGujarat, and delivery (supply) of goods to XYZ Ltd(recipient) of Maharashtra, then IGST is applicable, as it
goods are delivered by the supplier to arecipient or any other person,
Illustration-1:
Illustration-2:
Illustration-3:
Illustration-4:
is inter-state supply. Here ABC Ltd (supplier) is 1stperson, XYZ Ltd (recipient) is 2nd person & PQR Ltd(buyer) is 3rd person, as on the direction of PQR Ltd ofMaharashtra, goods are supply to XYZ Ltd of Gujarat.In this case, place of supply is principal place of businessof third person i.e. place of PQR Ltd is place ofsupplyand we can conclude that transaction is settledbetween two states i.e. between MaharashtraandGujarat, even though place of recipient and place ofbuyer is the same.
(4) Where the supply does not involve movement of goods,whether by the supplier or the recipient, the place ofsupply shall be the location of such goods at thetime ofthe delivery to the recipient.
PQR Ltd (buyer) of Maharashtra ispurchasing goods from ABC Ltd (seller/supplier) ofGujarat, and delivery (supply) of goods to XYZ Ltd(recipient) of Delhi. Later on PQR Ltd of Maharashtraissue invoice to XYZ Ltd of Delhi, here IGST isapplicable, as it is inter-state supply. Here PQR Ltd hasissue invoice on the name of XYZ Ltd of Delhi, wherethere is no movement of goods. In this case, place ofsupply is the location of goods at thetime of the deliveryto the recipient i.e. Delhi, as location of goods at the timeof delivery to XYZ Ltd was Delhi. So we can concludethat transaction is settled between two states i.e.between Maharashtra and Delhi.
(5) Where the goods are assembled or installed at site, theplace of supply shall be the place of such installation orassembly. It means where goods is used in installationand assembly, then place of supply is place ofinstallation or assembly.
ABC Ltd of Gujarat is awarded contract toXYZ Ltd of Delhi for installation of machinery atRajasthan. Here goods are supply to Rajasthan by XYZLtd of Delhi for installation of machinery, here IGST isapplicable as it is inter-state supply. We can concludethat transaction is settled between two states i.e.between Delhi and Rajasthan.
(6) Where the goods are supplied on board a conveyance,such as a vessel, anaircraft, a train or a motor vehicle, theplace of supply shall be the location at which suchgoodsare taken on board. This means when goods are suppliedto board for further
ABC Ltd of Gujarat supply goods toMumbai for board a conveyance, here place of supply isthe location at which goods are taken on board i.e.Mumbai, hence IGST is applicable as it is inter-statesupply.
(7) Where the place of supply of goods cannot bedetermined in terms of subsection (2), (3), (4), (5) or (6),the same shall be determined in a manner prescribed by
Illustration:
Illustration:
Illustration:
Vol. 10 No. 02 March, 2017
EIRC NEWS 26
the Central Government on the recommendation of theCouncil. It means if it is not possible to determine placeof supply in terms of above no (2) to (6), then centralgovernment will determine place of supply byconsidering recommendation of GST council.
(1) The place of supply of goods imported into India shall bethe location of theimporter. This means goods is importedinto India, location of importer is place of supply.
ABC Ltd of Gujarat is importing machineryfrom CSC Ltd of U.K., here place of supply is U.K. asimporter is from U.K. and for this supply, IGST is apply.
(2) The place of supply of goods exported from India shallbe the locationoutside India. This means when goods isexported from India, then place of supply is locationoutside India.
ABC Ltd of Gujarat is exporting machineryto China, here place of supply is China as location isoutside India and for this supply, IGST is apply.
To determine applicability of GST/IGST for supply ofservices, mainly there are two vital factorsi.e. identification oflocation of supplier and place of supply.
Two sections are provided under revised MIGST Law fordetermination of place of supply of services i.e. Section-9Place of supply of services where the location of supplier ofservice and the location of the recipient of service is in India,and Section-10Place of supply of services where the locationof the supplier OR the location of the recipient is outside India.
Section-8 of MIGST Law: Place of supply of goodsimported into, or exported from India.
Illustration:
Illustration:
Place of Supply of SERVICES
Summary of applicability of sections:
Let us understand both sections in detail,
Place of supply of services where the location ofsupplier of service and the location of the recipient of serviceis in India,
(1) The provisions of this section shall apply to determinethe place of supply of services where the location ofsupplier of service and the location of the recipient ofservice is in India. It means section-9 is not applicable,when Location of Supplier OR Recipient of services issituated outside India. For such situation, separatesection is provided i.e. section-10.
(2) The place of supply of services, except the servicesspecified in subsections (4), (5), (6), (7), (8), (9), (10),(11), (12), (13), (14) and (15), made to a registeredperson shall be the location of such person.
(3) The place of supply of services, except the servicesspecified in subsections (4), (5), (6), (7), (8), (9), (10),(11), (12), (13), (14) and (15), made to any person otherthan a registered person shall be
(a) The location of the recipient where the address on recordexists, and
(b) The location of the supplier of services in other cases.
Section-9:
General/Normal Cases Section-9 (2), (3):
Summary of Section-9 (2) to (3):
Vol. 10 No. 02 March, 2017
Applicability
Section-9Where Location of Supplier AND Recipient ofservices is situated in India
Section-10Where Location of Supplier OR Recipient ofservices is situated outside India
Sec 9(2)
Supply of
services
made to
Registered
Person
Place of Supply…
Location of the Registered Person.
Sec 9(3)
Other than
Registered
Person
(a) Location of the Recipient, when
the address on record exits OR
(b) Location of the supplier, in other
cases.
Sec 9 (4), (5), (6), (7), (8), (9),(10),
(11), 12), (13), 14), (15)Special Cases
Summary of Section-9 (4) to (15) with Illustration:
SectionTypes of
Services
Place of Supply of
ServicesIllustration
CGST+SGST
/IGST
9(4)(a)
- Services for immovableproperty-Provided byarchitects, interior decorators,surveyors, engineers and otherrelated experts or estateagents,- any service provided by wayof grant of rights to useimmovable property or forcarrying out or co - ordinationof construction work,
Location of the immovableProperty.
Interior decorateservice by GodrejLtd (Registered atDelhi) to Mr.Ambani for housesituated at Mumbai.
- accommodation in anyimmovable property fororganizing any marriage orreception or matters relatedtherewith, official, social,cultural, religious or businessfunction,- including services providedin relation to such function atsuch property
Location of the immovableProperty.
Room and DJsystemserviceavailed byMr. Modi of Gujaratat Hotel Ashoka(Reg. at Delhi) forMarriage of his sonat Delhi.
Location ofsupplier isDelhi [Sec -2(18) (a)] andP.O.S. is Delhi,CGST+SGSTis applicable.
9(4)(d)- any services ancillary to theservices referred to in clause(a), (b) and (c),
Location of immovable property or boat or vessel.
Specialcase u/s9(4)
- location of the immovableproperty or boat or vessel islocated or intended to belocated outside India
Location of the recipient.
Room and DJsystem serviceavailed by Mr. Modiof Gujarat, at HotelAalishan (Reg. atU.K.) for Marriageof his son at U.K.
Location ofsupplier is U.K.and P.O.S. isGujarat.
9(6)
- services in
relation to
training and
performance
appraisal
Made To
Location of the Registered
Person.
Safety training by
ABC Ltd (Reg. at
Delhi)to employee
of M/s Reliable Ltd
(Reg. at Gujarat), at
Ahmedabad.
Location of
supplier is
Delhi [Sec -
2(18) (a)] and
P.O.S is
Gujarat, IGST
is applicable.
Registered
Person
Other thanRegisteredPerson
Location where servicesactually performed.
Computer training
by ABC Ltd (Reg. at
Delhi)to Mr.
Maheshwari
(Unregistered) at
Mumbai.
Location of
supplier is
Delhi [Sec -
2(18) (a)] and
P.O.S is
Mumbai, IGST
is applicable.
9(7)
- services provided by way ofadmission to a cultural,artistic, sporting, scientific,educational, or entertainmentevent or amusement park orany other place,- services ancillary to above
Location where eventactually held or park/otherplace is located
Smart Phonesexhibition by M/s.LAVA internationalLtd(registered atMumbai), event heldat Karnavati club ofAhmedabad, Gujaraton kite festival.
Address of the recipient** as per records of the supplier of theservice.
EIRC NEWS 31
Vol. 10 No. 02 March, 2017
SectionTypes of
Services
Place of Supply of
ServicesIllustration
CGST+SGST
/IGST
* If pre -paid service is availed or the recharge is made through internet banking or other electronic mode ofpayment, the location of the recipient of services on record of the supplier of services shall be the place of supply ofsuch service.
** Where address of the recipient as per records of the supplier of service is not available, the place of supply shallbe location of the supplier of service.
9(13)
Banking and other financial
services including stock broking
services
Location of the recipient of
services on the records of
the supplier of services
Banking services by
HDFC bank (Reg. at
Mumbai-Principal
place of
Business)from its
Hyderabad branch
(Fixed Establishment
from service
supplied) to Mr.
Mehta, (residing at
Hyderabad to perform
Job), but a ddress on
HDFC bank record is
Delhi.
Location of
supplier is
Hyderabad
[Sec-2(18) (c)]
and P.O.S is
Delhi, IGCT is
applicable.
Location of the supplier
ofservices. If location is not
available with supplier.
Banking services like
issue of DD by
HDFC bank (Reg. at
Mumbai-Principal
place of Business)
from its Vadodara
branch (Fixed
Establishment from
service supplied) to
Mr. Patel, and he is
not maintaining bank
account with HDFC
Bank.
Location of
supplier is
Vadodara
[Sec-2(18) (c)]
and P.O.S is
Vadodara,
CGCT+SGST
is applicable.
9(14) Insurance services
Made To
Location of the RegisteredPerson.
Insurance service byOriental Insurancecompany Ltd (Reg. atDelhi) to GAC Ltd(Reg. at Vadodara -Gujarat).
Location of the recipient ofservices on the records ofthe supplier of services.
Insurance services byOriental Insurancecompany Ltd (Reg. atDelhi) to Mr. Shah(Unreg.) for hisBMW car.Address ofMr. Shah on recordsof Oriental InsuranceCompany is Mumbai.
Location of each states,amount proportionallydistribute to each states asper contract/Agreement orother basis, if nocontract/agreement.
Advertisementservice by AajTak(registered at Delhi)for promoting“PradhanMantriBimaYojana”
scheme, in all states.
Location ofsupplier isDelhi [Sec -2(18) (a)] andP.O.S is eachstates.
SectionTypes of
Services
Place of Supply of
ServicesIllustration
CGST+SGST
/IGST
EIRC NEWS 32
Vol. 10 No. 02 March, 2017
Section-10: Place of supply of services where the locationof supplier of service OR the location of the recipient ofservice is outside India
(1) The provisions of this section shall apply to determinethe place of supply of services where the location of thesupplier of service or the location of the recipient ofservice is outside India.
(2) The place of supply of services except the servicesspecified in subsections (3), (4), (5), (6), (7), (8), (9),(10), (11), (12) and (13) shall be the location of therecipient of service:
PROVIDED that in case the location of the recipient ofservice is not available in the ordinary course of business, theplace of supply shall be the location of the supplier of service.
Summary of Section-10 (3) to (13) with Illustration:
SectionTypes of
Services
Place of Supply of
ServicesIllustration
CGST+SGST
/IGST
10(3)(a)
- Services in relation to goods,where physically availability ofgoods are required by supplier ofservices
Location, whereservices are actuallyperformed.
Machine repair serviceby Godrej Ltd (Reg. atMumbai) to Tai ChangLtd (Reg. at China).Repairing of machinetakes place at China.
Location ofsupplier isMumbai andP.O.S is China,IGST isapplicable.
- Service of above nature, providedby electronic means
Location wheregoods are situated atthe time of supply ofservice.
Online repair serviceby Skyline solution(Reg. at Mumbai) forrepairing of SmartPhone, situated at U.K.
Location ofsupplier isMumbai andP.O.S is U.K.,IGST isapplicable.
Note:This clause shall not apply in the case of a service supplied in respect of goods that are temporarily
imported into India for repairs and are exported after repairs without being put to any use in India ,other than that which is required for such repairs. Means in such case, p.o.s. is accordingly section 10(2).
10(3)(b)- Services to individual, wherephysically availability of goods arerequired by supplier of services
Location, whereservices ar e actuallyperformed.
Cosmetic surgeryservice by Dr. Roshan(from Gujarat), atU.S.A.
Location ofsupplier is Gujaratand P.O.S isU.S.A., IGST isapplicable.
10(4)
- Services for immovable property -Provided by experts or estateagents,- supply of hotel accommodationby a hotel, inn, guest house, club orcampsite,- any service provided by way ofgrant of rights to use immovableproperty or for carrying out or co -ordination of construction work,
Location of theimmovable Property.
Architect service by -Artex Ltd (Reg. atU.K.) to M /s. L&T Ltdfor river bridge atMumbai.
Location ofsupplier is U.K.[Sec-2(18) (d)]and P.O.S. isMumbai, IGST isapplicable.
Rooms and DJ systemservice by HotelAshoka (Reg. at Delhi)to Mr. Peter (resident ofCanada)for Marriage ofhis son at Delhi
Location ofsupplier is Delhi[Sec-2(18) (a)]and P.O.S. isDelhi,CGST+SGST isapplicable.
10(5)
- services supplied by way ofadmission to, or organization of,a cultural, artistic, sporting,scientific, educational, orentertainment event, or acelebration, conference, fair,exhibition, or similar events,- services ancillary to above,
Location where eventactually held.
Smart Phonesexhibition by M/s.LAVA international Ltd(registered at Mumbai),event held at U.K.
Location ofsupplier is Indiaand P.O.S is U.K.,IGST isapplicable.
10(7)- services referred to sections (3), (4), (5) or (6) are suppliedin more than one State,
P.o.s. shall be the location of each states,amount proportionally distribute to eachstates as per contract/Agreement or otherbasis, if no contract/agreement.
10(8)(a)(b)(c)
- Services supplied by a bankingcompany, or a financial institution,or a non - banking financialcompany,- Intermediary services,- Services consisting of hiring ofmeans o f transport other thanaircrafts and vessels except yachts,up to a period of one month
Location of thesupplier of service.
Banking services byBank of Baroda (Reg.at Vadodara)to M/s.TescoLtd (Registered atU.K.).
P.O.S. isVadodara , IGSTis applicable.
10(9)- services of transportation ofgoods, other than by way of mailor courier,
Place of destinationof the goods.
Gas supply throughpipeline by DubaiPetroNet Ltd (Reg. atDubai), from Dubai toIndia.
Location ofsupplier is Dubaiand P.O.S isIndia, IGST isapplicable.
10(10) - Passenger transportation service,
Location where thepassenger embarkson the conveyancefor a continuousjourney.
Mr. Ravi starts hisjourney from India toU.S.A. by using flightof U.S.A. airlines ltd(Reg. at U.S.A.).
Location ofsupplier is U.S.A.and P.O.S isIndia, IGST isapplicable.
10(11)
- services provided on board aconveyance during the course of apassenger transport operation,- including services intended to bewholly or substantially consumedwhile on board,
Location of the firstscheduled point ofdeparture of thatconveyance for thejourney.
Services offered in theflight, which is goingfrom UK to Sri Lanka,via India.
P.O.S. is U.K.,IGST isapplicable.
10(12)(a)
- online information and databaseaccess or retrieval services,
Location of recipientof service.
Times of America(USA), is providingonline advertisementservice to Parle-G (Reg.at India) for its productadvertisement.
Location ofsupplier is U.S.A.and P.O.S isIndia, IGST isapplicable.
SectionTypes of
Services
Place of Supply of
ServicesIllustration
CGST+SGST
/IGST
10(6)- service referred to sections-10 (3), (4), or (5) is supplied atmore than one location , including a location in the taxableterritory,
P.o.s. shall be the location in the taxableterritory where the greatest proportion of theservice is provided.
EIRC NEWS 34
Vol. 10 No. 02 March, 2017
SectionTypes of
Services
Place of Supply of
ServicesIllustration
CGST+SGST
/IGST
10(12)(b)
Provision “Deemed Location -Taxable Territory” if any twocondition satisfied,
(i) The location of address presented by the recipient of servicevia internet is in taxable territory;(ii) The credit card or debit card or store value card or chargecard or smart card or any other card by which the recipient of servicesettles payment has been issued in the taxable territory;(iii) The billing address of recipient of service is in the taxableterritory;(iv) The internet protocol address of the device used by therecipient of service is in the taxable territory;(v) The bank of recipient of service in which the account usedfor payment is maintained is in the taxable territory;(vi) The country code of the subscriber identity module (SIM)card used by the recipient of service is of taxable territory;(vii) The location of the fixed land line through which the serviceis received by the recipient is in taxable territory.
10(13) Power of Central Government,To notify any description of service or cir cumstances in which theplace of supply shall be the place of effective use and enjoyment of aservice.
EIRC NEWS 35
Vol. 10 No. 02 March, 2017
STUDENT’S SECTION
EIRC NEWS 36
Test
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!!Quiz Master PageCMA Ajay Deep Wadhwa, Former Chairman, EIRC of ICAI
3. WhichAustralian Cricketer has launched an educational programme in India that will allow business leaders to travel hishome state – Tasmania – and pick up the bestAustralian leadership practices?
4. What is the new name of Cadbury India?
5. Which currency has its units named as BTC?
6. Who is the CEO of Indusind Bank?
7. Which film actress started production house – “Clean Slate Films”?
8. Which number of amendment in constitution enabled the Government of India to start the process of introducing GST inIndia?
9. Who was the first person to win Bournvita Quiz Contest in 1973?
10. Who had made first official mobile phone call to Union Telecom Minister inAug'1995?
EIRC Activities
CEPon GST :
CEPonAudit under SAPEnvironment:
Pre-placement Orientation Program:
Picnic by EIRC family:
Woman's Day:
Aseminar on GST was organized on 5th March, 2017 at EIRC Seminar Hall. CmaAshok B. Nawal , CCM was the resource person.
Suman Chakraborty, Sr. HR Manager, PWC etc. were in the list of resource persons. Valedictory session was graced by, CMA
Bibekananda mukhopadhyay, CMAPranab Kr. Chakraborty, CMAAshis Banerjee, Secretary, CMAArundhati Basu, RCM, Prof.
(Dr.) P. K. Roy, Principal, JCC College and Shri Subrata Deb, Chief Manager-HR, Balmer Lawrie.
All work and no play makes Jack a dull boy. Having faith on this maxim EIRC arranges some fun fiesta. Employees and Council
member of EIRC went on a picnic at Palla Road, Burdwan with their families on 11th February, 2017. All the persons spent a
blissful day enjoyed gathering with family each other.
EIRC celebrated Woman's Day on 8h March at EIRC Seminar Hall. female Members, Students and lady employees participated in
the program. CMAArundhati Basu, RCM, chaired the session. Chairman, Vice-Chairman, CMAShyamal Bhattacharjee, RCM and
CMADr. Umar Farooque were also present.
EIRC NEWS 37
Vol. 10 No. 02 March, 2017
Vol. 10 No. 02 March, 2017
EIRC NEWS 38
Celebration of Woman's Day CEP on GST. (L-R) CMA Ashis Banerjee, CMA P K Chakraborty,CMA Ashok B. Nawal & CMA Biswarup Basu
Publication of a booklet on GST at Dhanbad.CMA Manas Kr. Thakur, (2nd from right) President of the Instituteand CMA Bibekananda Mukhopadhyay, (extreme right) Chairman,
EIRC are seen.
Lighting the inaugural lamp by President CMA Manas Kr. Thakurat Dhanbad. Chairman and VC of EIRC are also seen.
CMA A. Basu giving certificate to a candidate Manoj Tewari, renowned Tax Consultant addressing on Direct Tax
CMA Tushar Das being presented with a memento by a participant.Shri Prabir Banerjee, PD & Education Officer is also seen
Ms Amita Saha, CMA Pratap Chakraborty, Chairman, EIRC andShri P. Banerjee
Pre-placement Orientation Program for December 2016 Batch
CMA A. D. Wadhwa being presented with a mementoby Chandrima Banerjee. PD & EO is also seen
CMA Ashis Banerjee presenting Certificate to a candidate
CMA Manas Kr. Thakur, President of the Institute met the candidates.Chairman, Vice-Chairman and Mr. Trilochan Ghosh EO-IT, EIRC
Valedictory of Orientation. (L-R) CMA Shyamal Kr Bhattacharjee,CMA Arundhati basu, Cma Pranab Kr. Chakraborty, Prof. P.K. Roy,
Principal, JCC College, Shri Subrata Deb, Head of HR,Balmer Lawrie, CMA Bibekananda Mukhopadhyay,
CMA Ashis Banerjee
Printed & published by CMA Shiba Prasad Padhi on behalf of owner EIRC of ICAI, printed at Moodran Graphica,41, Gokul Boral Street, Kolkata - 700 012. Published at 84, Harish Mukherjee Road, Kolkata - 700 025.
Editor’s name : CMA Arundhati Basu
RNI No. WBENG/2008/24583
Publication Date : March 2017
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Eastern India Regional CouncilThe Institute of Cost Accountants of India (EIRC of ICAI)