Over the last two decades, rising internet and mobile phone penetration has changed the way we communicate and do business. E-commerce is relatively a novel concept. It is, at present, heavily leaning on the internet and mobile phone revolution to fundamentally alter the way businesses reach their customers.

While in countries such as the US and China, e-commerce has taken significant strides to achieve sales of over 150 billion USD in revenue, the industry in India is, still at its infancy. However over the past few years, the sector has grown by almost 35% CAGR from 3.8 billion USD in 2009 to an estimated 12.6 billion USD in 2013¹

Industry studies by IAMA² Indicate that online travel dominates the e-commerce industry with an estimated 70% of the market share. However, e-retail in both its forms; online retail and market place, has become the fastest-growing segment, increasing its share from 10% in 2009 toan estimated 18% in 2013³ . Calculations based on industry benchmarks estimate that the number of parcel check-outs in e-commerce portals exceeded 100 million in 2013. However, this share represents a miniscule proportion (less than 1%) of India’s total retail market, but is poised for continued growth in the coming years. If this robust growth continues over the next few years, the size of the e-retail industry is poised to be 10 to 20 billion USD by 2017-2020. This growth is expected to be led by increased consumer-led purchases in durables and electronics, apparels and accessories, besides traditional products such as books and audio-visuals.

Now India is getting ready for introduction of Goods and Service Tax law (GST), it can further fuel the growth of e-commerce

With the above background the author has made an attempt to bring the extant FEMA - Foreign Direct Investment Regulations for e-commerce industry

Brief Background:

Before 2006                       FDI was prohibited into Retail Business

10thFebruary, 2006        FDI in cash-and-carry (wholesale) brought under automatic route.

Earlier, it was allowed under approval route. 51% FDI was permitted under Government approval into SBRT

April, 2010                          Cash and Carry Whole Sale Trade is permitted subject to 25% intra group entities

sales restriction

¹Source: Internet and Mobile Association of India research report

²Source: IAMAI report titled ‘e-Commerce Rhetoric, Reality and Opportunity’

³Source: PwC analysis

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14th September, 2012 The Government opens FDI into Multi-Brand Retail Trade (MBRT) upto 51% subject to stipulated conditions

20th September, 2012 The Government clarifies the position that company having FDI cannot enter into e-commerce in both SBRT and MBRT

January, 2014                    DIPP Releases a discussion paper on “E-Commerce in India, highlighting pros and

cons of allowing FDI in the Sector”

29th March, 2016           DIPP has issued Press Note No. 3/2016, whereby the definition of E-Commerce has been divided into Inventory based Model and Market based model.

24th June, 2016                DIPP has issued Press Note No. 5/2016 for relaxing local sourcing norms for SBRT

Extant FDI Regulations for FDI into E-Commerce:

1. Relevant Definitions:

• E-commerce- E-commerce means buying and selling of goods and services including digital products over digital & electronic network.

• E-commerce entity- E-commerce entity means a company incorporated under the Companies Act, 1956 or the Companies Act, 2013 or a foreign company covered under section 2 (42) of the Companies Act, 2013 or an office, branch or agency in India as provided in section 2(v)(iii) of FEMA 1999, owned or controlled by a person resident outside India and conducting the e-commerce business.

• Inventory based model of e-commerce- Inventory based model of e-commerce means an e-commerce activity where inventory of goods and services is owned by e-commerce entity and is sold to the consumers directly.

• Marketplace based model of e-commerce- Marketplace based model of e-commerce means providing of an information technology platform by an e-commerce entity on a digital & electronic network to act as a facilitator between buyer and seller.

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1. Guidelines for Foreign Direct Investment on e-commerce sector:

• 100% FDI under automatic route is permitted in marketplace model of e-commerce. (ii)FDI is not permitted in inventory based model of e-commerce.

1. Other Conditions:

• Digital & electronic network will include network of computers, television channels and any other internet application used in automated manner such as web pages, extranets, mobiles etc.

• Marketplace e-commerce entity will be permitted to enter into transactions with sellers registered on its platform on B2B basis.

(iii)E-commerce marketplace may provide support services to sellers in respect of warehousing, logistics, order fulfilment, call centre, payment collection and other services.

(iv)E-commerce entity providing a marketplace will not exercise ownership over the inventory i.e. goods purported to be sold. Such an ownership over the inventory will render the business into inventory based model.

• An e-commerce entity will not permit more than 25% of the sales affected through its marketplace from one vendor or their group companies.

(vi)In marketplace model goods/services made available for sale electronically on website should clearly provide name, address and other contact details of the seller. Post sales, delivery of goods to the customers and customer satisfaction will be responsibility of the seller.

• In marketplace model, payments for sale may be facilitated by the e-commerce entity in conformity with the guidelines of the Reserve Bank of India.

(viii)In marketplace model, any warrantee/guarantee of goods and services sold will be responsibility of the seller.

(ix)E-commerce entities providing marketplace will not directly or indirectly influence the sale price of goods or services and shall maintain level playing field.

• Guidelines on cash and carry wholesale trading as given in para 5.2.15.1.2 of the Consolidated FDI Policy dated 7th June, 2016 will apply on B2B e-commerce.

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1. Subject to the conditions of FDI policy on services sector and applicable laws/regulations, security and other conditionalties, sale of services through e-commerce will be under automatic route.

Currently, eTravel comprises close to 70% of the total eCommerce market. eTailing, which comprises of online retail and online marketplaces, has become the fastest-growing segment in the larger market having grown at a CAGR of around 56% over 2009-2014. The size of the eTail market is pegged at 6 billion USD in 2015. Books, apparel and accessories and electronics are the largest selling products through eTailing, constituting around 80% of product distribution. ⁴

The increasing use of smartphones, tablets and internet broadband and 3G/4G has led to developing a strong consumer base likely to increase further. This, combined with a larger number of homegrown eTail companies with their innovative business models has led to a robust eTail market in India rearing to expand at high speed.

The ecommerce business may further give impetus once the GST Mechanism is put in place and the echo system is tuned to the new law.

Key Topics Covered:

• International Taxation
• FEMA
• Audit
• Direct Tax
• Indirect Tax
• Companies Act, 2013
• FEMA Updates
• Indirect Tax Updates

This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

SERVICE TAX

Notifications:

1. Exempts the service tax on taxable services by way of transportation of goods by vessel: Notification no. 36/2016- ST

The service of transportation of goods by vessel from outside India up to the Custom station of India is made taxable w.e.f 01.06.2016. However, such services are exempted in case the invoice is raised on or before 31.05.2016 provided the import manifest or import report has been issued on or before 31.05.2016 and the service provider or recipient shows the Customs certified copy of said document.

http://www.cbec.gov.in/resources//htdocs-servicetax/st-notifications/st-notifications-2016/st36-2016.pdf

1. b) Exemption of service from levy of Krishi Kalyan cess: Notification no. 35/2016-ST

The Krishi kalyan cess is levied on all taxable service w.e.f 01.06.2016 along with service tax and Swachh Bharat cess. However, if the service is completed and the invoice is also raised by 31.05.2016, then such service will be exempted from payment of krishi kalyan cess even if payment is received at any time on or after 01.06.2016.

http://www.cbec.gov.in/resources//htdocs-servicetax/st-notifications/st-notifications-2016/st35-2016.pdf

1. Service Tax Rules, 1994 rules are amended to specify that business entity is liable to pay tax when service is received from Senior advocate: Notification 32, 33 & 34/2016-ST

Legal services of a senior advocate are exempt when provided to any person other than a business entity and to a business entity with a turnover up to ten lakhs in preceding financial year.

Senior advocate services are brought under reverse charge mechanism. In case of representational services of senior advocates, the client (litigant/petitioner/applicant) is required to pay service tax irrespective of the fact whether services of senior advocate are received directly by client or indirectly through other individual or firm of advocates. In case of other services, the direct service receiver whether it is client or an individual are required to pay service tax.

http://www.cbec.gov.in/resources//htdocs-servicetax/st-notifications/st-notifications-2016/st34-2016.pdf

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Circulars:

1. Speedy disbursal of pending refund claims of exporters of services – Rule 5 of CENVAT Credit Rules,2004:

Circular 195/05/2016-ST

Circular 187/6/2015-ST dated 10.11.2015 has prescribed a scheme for speedy disposal of export refund claims filed under Rule 5 of CCR, 2004. The said scheme is applicable forrefund claims filed on or before 31.03.2015 and have not been settled before 10.11.2015. Accordingly, the applicant is eligible for provisional payment of 80% of the claim amount. The said circular requires certificate from statutory auditor, chartered accountant as per the format given in Annexure I.

With the current circular, it is now clarified that in case of companies, the said certificate should be signed by the statutory auditor of the Company as appointed under Companies Act and in case of other entities; the certificate can be signed by any Chartered Accountant. In certain cases, refund claims are rejected for the reason that the certificate issued contains certain qualifications/disclaimers. It is now clarified that the claims should not be rejected for the said qualifications/disclaimers.

http://www.cbec.gov.in/resources//htdocs-servicetax/st-circulars/st-circulars-2015/st-circ-187-2015.pdf

1. CBEC directs officers to strictly comply with legal provisions and administrative instructions while exercising their power to provisionally attach properties towards recovery of service tax dues: Circular 196/06/2016-ST

This Circular is issued pursuant to the decision of Kunj Power Projects vs UOI - 2015-TIOL-2728-HC-ALL-STwherein the Allahabad High Court stated that the power relating to provisional attachment of property under Rule 3 of The Service Tax (Provisional Attachment of Property) Rules, 2008 should be exercised by officers with utmost care and caution and by providing a reasonable opportunity to the assesse.

In this regard, CBEC vide this Circular clarified that there are adequate safeguards in the law and same have been highlighted in the Circular dated 1-7-2008. The present situation has resulted only on account of non-compliance with respect to both. Chief Commissioners are requested to issue standing orders with respect to the observations of the Hon'ble Allahabad High Court and to also emphasize that non-compliance with legal provisions or administrative instructions will leave officers with no defence in legal proceedings arising out of such non-compliance.

http://www.cbec.gov.in/resources//htdocs-servicetax/st-circulars/st-circulars-2016/st-circ-196-2016.pdf

CENTRAL EXCISE

The changes pertaining to the jewellery industry are covered under a separate article in this month’s edition in SBS Wiki. We request the interested readers to kindly make a note of the same.

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Notifications:

26. Exemption to handicrafts of Goldsmiths and Silversmiths wares is withdrawn: Notification No. 29/2016-CE, dated 26.07.2016

Notification 17/2011-CE dated 01.03.2011 provides exemption from central excise duty on manufacture of all kinds of handicrafts. This exemption notification is now amended with the present notification to withdraw exemption for handicrafts of Goldsmiths and Silversmiths wares.

http://www.cbec.gov.in/resources//htdocs-cbec/excise/cx-act/notifications/notfns-2016/cx-tarr2016/ce29-2016.pdf

28. Requirement of dual registration viz as importer and dealer is done away: Notification 30/2016- CE(NT) dated 28.06.2016

A separate registration and filing of separate returns under Central Excise was made mandatory for importers engaged in the business of importing goods from outside India and selling in India. If the same person is also involved in selling goods manufactured in India, he is also required to have separate registration as dealer under Central Excise and file separate return. In order to file separate returns, separate set of records are required to be maintained for both the activities. Now the requirement of dual registration has been done away.

Now sub-rule (2) of Rule 9 of Central Excise Rules, 2002 is amended to give effect that if an assessee is registered as an importer, he is not required to register as dealer. Similarly if an assessee is registered as a dealer, then he is not required to register as importer. This would mean that as assesse engaged in trading of both imported and indigenously manufactured goods is now permitted to maintain single set of records and file single return. http://www.cbec.gov.in/resources//htdocs-cbec/excise/cx-act/notifications/notfns-2016/cx-nt2016/cent30-2016.pdf

4. Bunker fuels are permitted to store in warehouse without payment of duty: Notification 31/2016-CE(NT) dated 04.07.2016

In terms of sub-rule (1) of Rule 20 of Central Excise Rules, 2002, Central Government is given power to notify excisable goods which can be removed from Factory of production to a warehouse or from one warehouse to another warehouse without payment of duty. Through this notification, this facility of storing excisable goods without payment of duty in a warehouse is extended to bunker fuels for use in ships or vessels namely IFO 180 CST and IFO 380 CST. http://www.cbec.gov.in/resources//htdocs-cbec/excise/cx-act/notifications/notfns-2016/cx-nt2016/cent31-2016.pdf

11. Branded Garment manufacturers are exempt from physical verification of premises for granting registration under Central Excise: Notification No. 32/2016-CE(NT) dated 11.07.2016

This notification is issued to amend Notification 35/2001-CE(NT) dated 11.07.2016. Accordingly, branded garment manufacturers falling under Chapters 61, 62 or 63 (except laminated jute bags falling under headings or tariff item 6305, 6309 00 00 or 6310) of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) bearing a brand name or sold under a brand name and having a retail sale price (RSP) of one thousand rupees and above, are exempt from the requirement of physical verification of their premises for granting registration under Central Excise. http://www.cbec.gov.in/resources//htdocs-cbec/excise/cx-act/notifications/notfns-2016/cx-nt2016/cent32-2016.pdf

Circulars:

1. Manual signatures on digitally signed invoices: Circular 1038/26/2016 - CE

It is clarified in this circular that the manufacturer or service provider who opts to issue invoices authenticated by digital signature may print a copy of the invoice and manually sign it and forward to customers who are unable to get digitally signed invoices. Such invoices should be authenticated by digital as well as manual signatures and is a valid document for taking CENVAT credit. http://www.cbec.gov.in/resources//htdocs-cbec/excise/cx-circulars/cx-circulars-2016/circ1038-2016cx.pdf

1. Recovery of confirmed demands during pendency of stay application: Circular 1035/2016-CE

This Circular issued to rescind the earlier Circular No. 967/1/2013-CX dated 01.01.2013 relating recovery of confirmed dues during pendency of stay applications. It is now clarified that in case of stay applications pending before Commissioner (Appeals) and CESTAT for the appeals filed for the period prior to 06.08.2014, no recovery of amount shall be made during their pendency.

With respect to recovery proceeding in relation to an order of Hon'ble High Court or Tribunal confirming demand of duty, the Circular has directed that the proceedings may be initiated only after a period of sixty days from the date of order of the Hon'ble Tribunal or Hon'ble High Court, as the case may be, where no stay has been granted by Hon'ble High Court or Hon'ble Supreme Court against the order of Hon'ble Tribunal or Hon'ble High Court, respectively. http://www.cbec.gov.in/resources//htdocs-cbec/excise/cx-circulars/cx-circulars-2016/circ1035-2016cx.pdf

6. Clarification of the scope of word ‘site’ in relation to exemption on manufacture of goods at construction site: Circular 1036/23/2016-CX dated 06.07.2016

Notification 12/2012-CE dated 17.03.2012 provides exemption vide entry 186 for goods manufactured at the site of construction for use in construction work at such site. It is clarified by way of explanation in the said notification that the expression "site" means any premises made available for the manufacture of goods by way of a specific mention in the contract or agreement for such construction work, provided that the goods manufactured at such premises are solely used in

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the said construction work only. The present Circular stated that in case of some field formations, the distance at which goods manufactured and used in the project, has been considered as criteria for examining the eligibility of goods for exemption. The Circular clarified that this is an extraneous criteria not flowing from the language used in the notification, particularly when the expression "site" stands explained in the notification as stated above.

http://www.cbec.gov.in/resources//htdocs-cbec/excise/cx-circulars/cx-circulars-2016/circ1036-2016cx.pdf

LEGAL UPDATE

SERVICE TAX

1. Service Tax audit by departmental officers is ultra vires the Finance Act 1994 due to absence of enabling power in the Act— Mega Cabs Private Limited vs. UOI, [2016] 70 taxmann.com 51 (Delhi)

Facts:

Assessee, being served upon letter intimating the audit to be conducted of assessee by department officials, challenged that the department officials have no power to ‘audit’ and the subsequent amendments to Section 94 of Finance Act 1994 and Rule 5A of Service Tax rules 1994 so as to enable department officials to proceed with audit as ultra vires the Finance Act 1994.

Held:

The Honourable High Court held that there is no power with service tax authorities to conduct audit. The word 'verify' in section 94(2)(k) empowers verification of records and does not empower 'audit' of records, as audit is an specialized function and cannot be entrusted to any and every officer of department. Moreover, 'records' would mean 'records' required to be kept under rule 5(2);Therefore, rule 5A (2) requiring even furnishing of 'audit reports' exceeds mandate of 'records' Rule 5A (2) requiring submission of records to C&AG is irrational. Therefore, consequent direction of audit of accounts of assessee was also quashed.

1. Prima facie Service Tax Department officials are not authorised to gain access to any premises of an assessee under Rule 5A(1) and the same is ultra vires Section 82— Magma HDI General Insurance Company Ltd vs. UOI, [2016] 71 taxmann.com 264(Calcutta)

Facts:

Rule 5A(1) of the Service Tax Rules, 1994 provides that an officer authorised by the Principal Commissioner or Commissioner in this behalf shall have access to any premises registered under these rules for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of revenue. Vires of this Rule 5A(1) is challenged before the Kolkata High Court on the ground that the same is contrary to Section 82 of the Finance Act, 1994.

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Held:

The Kolkata High Court prima facie upheld the view of the Delhi High Court in the case of Mega Cabs Private Limited vs. UOI, [2016] 70 taxmann.com 51 (Delhi) that Rule 5A(2) relating to conduct of audit by Department officials and submission of records is ultra vires section 72A of the Finance Act, 1994. Taking this into consideration, the Kolkata High Court held that if the authorities cannot make any demand of records as envisaged under Rule 5A(2), gaining of access to any premises under sub-rule (1) may not serve any purpose. However, the court enshrined that the Department officials are free to take recourse to Section 82 (power to search any premises) in order to physically verify any premises.

1. No levy of service tax on composite contract of construction of residential complex along with transfer of undivided share in the land due to absence of machinery provision to determine the service component— Suresh Kumar Bansal v. Union of India, [2016] 70 taxmann.com 55 (Delhi)

Facts:

The petitioner entered into an agreement with a builder to buy flats in a housing project. The builder charged service tax for constructing such complex and preferential location charges. The petitioner contended that the contract entered is a composite contract including transfer of undivided share of land and there is no specific provision to ascertain the service component from the said agreement. Accordingly, levy is challenged on the ground that it lacks machinery provision to ascertain the value of service component.

Held:

The Court held that the service tax is levied on value of service but such value cannot include the value of land and goods. In this case the consideration charged includes value of service, cost of goods and the sale of immovable property namely land.

Rule 2A of the Service Tax (Determination of Value) Rules, 2006 does not provide the method to determine the value of service in case of composite contract which involves sale of land as well. In the present case, there is no mechanism to ascertain the service portion under service tax.

Held that though, Parliament has the power to levy service tax but neither the Act nor the rule provides the mechanism to segregate the service element from the consideration and hence it is outside the levy of service tax.

1. In view of SEZ Act, 2005; SEZ unit and DTA of same company are distinct entities/separate persons for charge of service tax. However, if no consideration is charged separately, then no service tax can be charged— CCE vs. Larson and Toubro Ltd, [2016] 71 taxmann.com 241 (Gujarat)

Facts:

SEZ unit of the company provided various services to DTA units of the same company. Department treated the SEZ unit and the DTA units as separate persons and demanded service tax. The assessee argued that units of same company constituted a single person and hence no service is involved to attract service tax. Department argued that as per rule 19(7) of SEZ Rules, 2006, enterprise operating both as DTA and SEZ unit shall have two distinct identities, with separate books of accounts. Hence, they are separate persons and service tax is leviable.

Held:

Rule 19(7) of SEZ Rules, 2006 recognises that a same legal entity may have two units one in SEZ and another in DTA. It also mandates maintenance of separate books of accounts. It is because of the special concessions in taxation, including duty drawbacks and other exemptions that the SEZ unit has to maintain scrupulously accounts of all imports and procurements from Domestic Tariff Area. It also has to pay customs duty on goods cleared to Domestic Tariff areas as if such goods were imported into India.

In view of statutory scheme noticed in Finance Act, 1994 and SEZ Act, 2005, it was heldthat the contention of the assesse company that unit in SEZ and other units of same legal entity are not two distinct legal persons on the basis of principle of mutuality cannot be accepted. Accordingly held that SEZ unit and other units of same legal entity are treated as separate persons for charge of service tax. However, it was held that service tax cannot be collected in the said case, as no consideration was charged by SEZ unit for services to DTA units.

CENTRAL EXCISE

1. For the purpose of reversal of CENVAT Credit relating to trading activity for the period prior to 01.04.2011, the CESTAT earlier observations that full sales value of trading business shall be considered for reversal instead of formula which was introduced from 01.04.2011 to encourage trading industry were set aside by High Court. Case remanded to decide the matter afresh— Mercedes Benz India (P) Ltd vs.CCE, [2016] Taxmann.com 332(Bombay)

Facts:

The appellant is engaged in the business of manufacture of motor vehicles and parts thereof through their dealer network. Appellant is also engaged in the business of importing completely built-up units from their parent company and selling them through their same dealer network. Appellant availed CENVAT Credit of common input services relating to manufacturing activity and import activity for the period from September 2004 to March 2011. Formula method has been prescribed w.e.f. 01.04.2011 which provides that trading turnover being higher of gross margin or ten per cent of the cost of goods sold. According to Department, the formula method cannot be applied for the period prior to 01.04.2011. Accordingly the amount should be reversed on simple pro-rata formula of trading turnover divided by total turnover. The view of Department is upheld by CESTAT and is appealed to High Court in the present case.

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Held:

Held that the Appeal should not be entertained for the reason that CESTAT order does not discuss some of the questions raised and with respect to other questions, factual findings are required. Coming to the issue of applicability of formula relating to reversal of CENVAT Credit for the period prior to 01.04.2011, it was held that the CESTAT must firstly refer to the substantive Rule operative prior to 01.04.2011 and then arrive at a conclusion in relation to the Explanation introduced with sub-clauses from01.04.2011. The CESTAT failed in justifying that the Parliament intended to encourage trading of goods rather than manufacturing of the same. The decision of CESTAT set aside and remanded for fresh hearing.

1. Supply of bought out ‘O’ ring and ‘U’ cap seals along with manufactured pneumatic cylinders and valves would not amount to manufacture and hence not excisable— M/s Electropneumatics & Hydraulics India Pvt Ltd vs. CCE, 2016-TIOL-1882-CESTAT-Mum

Facts:

The Appellant is engaged in manufacturing of pneumatic cylinders and valves. Seal kits are also supplied along with the manufactured goods. Seal kits were a combination of ‘O’ ring and ‘U’ cap seals etc which are bought out by the Appellant and supplied along with the manufactured goods as spares. No excise duty is paid on these items for reason that no manufacturing activity is involved. Revenue rejected their plea on the reasoning that the activity of packeting such bought items in fixed number in plastic bags as seal kits is to make them marketable and thus amounts to manufacture. The said view is also upheld by first appellate authority also.

Held:

The CESTAT held that ‘O’ ring and ‘U’ cap seals are already marketable when supplied by their manufacturer to the Appellant. Subsequent packeting of pre-determined quantity of the said spares in a plastic bag has not made the products marketable. In the absence of any note in Chapter that packeting of pre-determined quantity would amount to manufacture, this activity cannot be considered as manufacturing activity. Accordingly, the demand is set aside.

AUGUST ‘16

1. Holding of FCA by Insurance Companies and Start Ups

RBI vide Notification No. FEMA 10 (R)/ (1)/2016-RB dated June 01, 2016has amended FEM (Foreign Currency Accounts by a person resident in India) (Amendment) Regulations, 2016, whereby RBI has permitted Insurance Companies and StartUp Companies to open and hold Foreign Currency Accounts with banks outside India.

For more details plese refer the notification

2. DIPP Consolidated FDI Policy of 2016

DIPP has issued Consolidated FDI Policy Circular of 2016, vide its file no. D/o IPP F. No. 5(1)/2016-FC-1, dated 07/06/2016 to consolidate and update the extant FDI regulations.

For details plese refer the circular

3. External Commercial Borrowings (ECB) – Approval Route cases:

RBI vide A.P. (DIR Series) Circular No. 80 dated June 30, 2016has amended the guidelines for processing the matters pertaining to ECB under approval route. It is stated that with a view to rationalizing and expediting the process of giving approval, it has been decided that ECB proposals received in the Reserve Bank above a certain threshold limit (refixed from time to time) be placed before the Empowered Committee. The Reserve Bank will take a final decision in the cases taking into account the recommendation of the Empowered Committee. All other aspects of the ECB policy shall remain unchanged.

4. Settlement System under Asian Clearing Union (ACU):

RBI vide A.P. (DIR Series) Circular No. 81 dated June 30, 2016has invited the attention of AD Category-I, giving participants in ACU mechanism the option to settle their transactions either in ‘ACU Dollar’ or in ‘ACU Euro’. The 'ACU Dollar' and 'ACU Euro' is equivalent in value to one US Dollar and one Euro, respectively.

As the payment channel for processing ‘ACU Euro’ transactions is under review, it has become necessary to temporarily suspend operations in ‘ACU Euro’ with effect from July 01, 2016. Accordingly, all eligible current account transactions including trade transactions in ‘Euro’ are permitted to be settled outside the ACU mechanism until further notice.

5. Discontinuation of Reporting of Bank Guarantee on behalf of service importers

RBI vide A.P. (DIR Series) Circular No. 01 dated July 07, 2016has invited the attention of AD Category-I, on ‘Other Remittance Facilities’ in terms of which, AD Category-I banks were permitted to issue guarantees in favour of a non-resident service provider on behalf of their resident customers importing services, subject to the conditions laid therein. AD Category-I banks were also advised to report to the Chief General Manager-in- Charge, Foreign Exchange Department, Foreign Investments Division (EPD), Reserve Bank of India, Central Office, Mumbai-400001 details about invocation of bank guarantee for service imports.

On a review of the reporting requirements and to reduce the burden of compliance, AD Category I banks are advised to discontinue submission of such reports with immediate effect. They may, however, maintain records of such invocations and furnish the required details to RBI whenever sought.