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qF , T H El N s r l T U T E c;hd;hl Sbiretariesof India -or ExcE|-LEtcE PnoFtssloilAr ,* puRts,rrt statutorybody under an Act of Parliament New Deihi 1 10 003 lCSl House,22, Institutional Area, Lodi Road' 45341000; Fax : 011'24626727 Phones'. 41504///, E-mail:; fvebslte: www icsi edu

Santhosh Thomas Thaikkadan CS Professional Programme Student Thrissur - Kerala

e-nai/:-,9a,rtlosl ttaoe@p^ai/. con taaa. faou/ oo/, oon/ea,$losl ttaos





Maximummarks: 100

PAHT A (Answer ANYTWO Questiansfrom thispart') Question 1 Distinguishbetween any four of the following : (i)'lnternational strategy' and'transnationalstrategy'' 'tactical planning'' (ii) 'strategic planning' and 'statutory auditing'' (iii) 'lnterna! auditing' and (iv)'Corporatelevelstrategy'and'businesslevelstrategy,. (v)'Offensivestrategies'and'defensivestrategies''(5markseach) Answer 1(aXi) strategy Difference between International strategy and Transnational betweenthe two includethe following: The main pointsof distrnction a firm may not be in a Internationalstrategy : ln the initialstageso{ globalization, for its overseas strategy positionto opt for either-globalstrategyor multi-domestic an international creating involves. strategywhich business. They adopt int6rnational wherethe countries those to divisionand exportingthe productsthroughthat division on the focused is really company a productsare needed] At this stageof globalization, becomes product the As abroad' domesticmarketand just exporti;g wnlt is demanded and marketingfacilitieswith successfulabroad,the companymay set-upmanufacturing The key characteristic on productcustomization. certaindegreeof differentiaiion-OaseO productand regarding office of this strategyis that all controlis retainedat the home procedure" this adopted have corporations marketingfunctions.Manymultinational adoptinga combined Transnational strategy : Transnationalstrategyinvolves by the companles stmultaneously approachof low costsand hrghlocalresponsiveness is a difficult approaches contradictory two litegratingthese for theirproducts/services. propositionand requiresinnovativeways' Answer 1(aXii) DifferencebetweenStrategicP|anningandTactica|P|anning: the following: The main pointsof distinctionbetweenthe two rnclude rnanagementand ls (i) strategicplanningis carriedout at the highestlevel o{ tacticalplanning i-'lowever, concernedwithdecisionsin the purviewof thatlevel. is relatedto lowerlevelof management'

PP-SMAtT-December 2011

z (iit Strategyformulationis a continuousbut regularprocess. Tacticson the other hand,are determinedperiodicaily witha fixedtime schedure.

(iii) Strategicdecisions-making is influencedby personalvaluesof executiveswhile the subjectivevaiuesexerciselittleinfluenceon tacticaldecision-making. (iv) ln strategicformulationthe total possiblerange of alrernativesfrom which management mustchooseis greaterthanin tacticalplanning. (v) Strategicformulationand implementation managershave to deal with a high degree of uncertaintyand the resultsof strategicdecisions are not predictable.On the contrary,the dimensionof tactical ""rity decisions ru"h shorterand the risks associatedwith such decisionscan be "r" more assessed easily. (vi) Strategicproblemsare generallyunstructured and non-repetitive whiletactical probiemsare structuredand oftenrepetitivein nature. (vii) Strategiesare intendedto last for long periods of time while racticscoversa shorterduration. (viii) Strategicformulationrequireslarge amountsof informationwhich is derived fromthe externalenvironment. Whiletacticaldecision-making requiresinternaity generateddatawhichis of historicalnature. (ix) Strategyis originalin the sensethatit is the sourcefor the originor development of tactics, Tacticsare formulatedwithinand in pursuitof strategies. (x) In strategicformulation the numberof peopleinvolvedis lessas contrastedwith tacticaldecision-making whereinlargenumberof managersand workersare involved. (xi) The scopeof strategiesis usuallybroadand has fewer detailsthan tactics. (xii) li is usuallyeasierto measurethe effectiveness and efficiencyof tacticsthan of strategies.Resultof strategicdecisionsare evidentaftera number of years while tacticalresultsare quicklyavailableand can easily be identified with specificactions. (xiii) Strategicare formulatedfrom a corporatepoint of view wnereastacticsare developedprimarilyfroma functionalview_point. Answer 1(a)(iii) DifferencebetweenInternarAuditing and statutory Auditing: The main pointsof distinctionbetweenthe two includethe followrng: (i) Methodof appointmentand interestsserued Internalauditorsare appointedby the managementand are partof the managerial function.Statutoryauditors,on the otherhand,are appointedby the shareho'iders underthe statute.Their reportsare addressedto ihe shareholders and their functionis to addcredibilityto financialstatementsandto reporton the stewardshio of management.


pp-SlvlAlT*December 201l

(ii) lndependence Independence is a freedomof actionand thoughtwhichenabiesthe auditorto choose his own methodsof operationand evlaluation, and allows comprete objectivity in reports.The externalaudltor hasconsiderably moreindependence than the internalauditoras he is appointedby the shareholclers and thus not dependenton managementfor directions. (iii) Principal areas of interest Sincemanagementis concernedwiththe erperational efficiencyand adherence to policies,the internalauditorwiil devotea considerableportionof his time in reviewingthe accountingand operatingproceduresof the companyin order to deterrninewhetherestablishedpoliciesare beingfollowedand whetherother improvedprocedurescouldbe devised. The externalauditoris concernedwith the truth and fairnessot the reports presentedto the shareholders and shalltherefore devotethe maiorpor.tion of his timeon the verification of the accounting for assets,liabilities, owner,sequity, revenuesand expenses. (iv) Nature of Work It wouldbe very seldomthat eithertype of auditorwouldmakedetaitedchecks of alltransactions; boththe internaland externalauditorwillrely upontestsand samples'However,the internalauditoris likelyto devotemoreiime and effortto detailedworkthanthe externalauditor. (v) Scope The internalauditis in compliance withthe procedures laiddownby management and theymay differfromone undertaking to anotherdependingupontheirneeds as also the perceplionsof the management.But the scope of activitiesof the statutoryauditorsis determinedbv statute. (vi) Approach The internalauditorsare mainlyconcernedwith ensuringsubstantialaccuracy of recordsand to reportuponspecificproblemswhichmay be assignedto them by the management. On the otherhandthe externalauditorsare concernedwith the truthand fairnessof accounts. (vii) Responsibitity Internalauditorsare responsibleonly to the managementof the organisation whileexternalauditorsare responsible to membersdhareholders and outsiders, likegovernment. (viii) Objectives Internalauditors arethe representatives of the management. The externalaudrtors are engagedto givean unbiasedand impartialreporton the financialpositionof the companyto the shareholdersas well as outsiders. (ix) Qualification The qualification requiredfor appointment of the internalauditoris determined by the management and it is not obligatoryfor him to possessqualifications prescribedunder Section 226 ol the CompaniesAct, but a statutorvauditor must possesssuch qualifications.



(x) Ferformance An internalauditis usuallya continuousprocessand its mainobjectis to make sure that transactionsrecordedin the books of accounthave been properly pedormedand dulyauthorised. An externalauditmay alsobe continuous,but in the case of very largeundertakings this is not oftenpracticable.Hence,in sucn caseexternalauditis takenup usuallyat the end of the yearwhenthe organisation has compretedthe preparationof the financiarstatements. (xi) Reporting The internalauditorsubmitshis reportto the managementwhilethe report of the statutoryauditoris placedbeforethe shareholdersof the company. Answer 1(a)(iv) Difference between corporate-Level strategy and Business-Level

strategy The main pointsof distinctionbetweenthe two includethe followino:

Corporate-LevelStraiegy ln an organization_there are basicallythreelevels.The top levelof the organization consistsof ExecutiveOfficerof the Company,the Boardof Diiectorsand Administrative Officers,the responsibility of the top managementis to keep the organizationhealthy. The issuepertainingto businessethics,integrityand socialcommitments etc. are deatt with at this level of strategicdecisions.Major financialpolicy decisions involving acquisition,diversification and structuralredesigningetc. belong to the categoryoi corporatelevel strategy. Corporatelevel strategiestranslateto orientationof the shareholdersand the society into the forms of strategiesfor functional or business levels.The natureof strategicdecisionin the corporateleveltendsto be valueoriented and conceptual.There is also greaterrisk,cost and profitpotentialas well as greater need for flexibilityassociatedvrrith corporatelevelstrategicactivities. Further,the content of corporate-revel strategyis a set of action prans and correspondingcorporate-level goals. By comparison,businessstrategyfocuses on expectedoperaiionalresultsof a businessunit. However,it also consists of action plansthat relateto goals (at the businesslevel). Business-LevelStrategy Businessor divisionallevelstrategyusuallyoccursat businessunitor product level and it emphasizesimprovementof the competitivepositionof a company'sproduct or servicesin the specificinctustry or marketsegmentservedby thatbusinessunit. Business strategies'mostoftenare concernedwith maintainingor increasingmarket share. Businesslevel managementconsistsof primarilythe businessmanagers or managersof strategicbusinessunits.The managersat this leveltranslate the general statementsof directionintentwhiskedout at corporatelevel.The corporate values, managerialcapabilities, organizational responsibilities and administrative systemsthai link strategicand operationaldecisionalmaking level at all the levels oi hierarchy, encompassing all businessand functionallinesof authorityin a companyare dealtwiih at this levelof strategyformulation. Strategicdecisionsat businesstevelshouldinclude policiesinvolvingnew productcievelopment, marketingmix, researchdevelopment,


PP-SMAIT-December 2011

personnel,etc. Thus, the contentof business-level strategyis a combinationof goals and actionplans. Answer 1(a)(v) Difference between Offensive Strategiesand DefensiveStrategies The main pointsof distinctionbetweenthe two includethe followino: Offensive Strategies Offensivestrategiesare those strategieswhich are employedby managementto reachgoalsrelatedto increasesin salesor marketshare,and in somecases,profitability. It shouldbe pointedout that bringingaboutan increasein marketsharealonemay not always satisfy performanceexpectations.There is some evidencesuggestingthat achievinghigh returnsfrom high marketshare dependsat least partlyon some other considerations such as ConcentrationPosturesor Strategies,MarketPenetration,Market Development, ProductDevelopment, Horizontalmerger,and Nichingetc. DefensiveStrategies Not allstrategieshave expansionorientation.Very oftenthe strategistis forcedto controlthefirm'soperations.Exceptfor the rare attemptby a firm'sownersto simplify theirlivesby shrinkingtheirbusiness'ssize,contractionis usuallya delensiveresponse to adversity.There are three basic types of defensivestrategiesi.e.,:retrenchment, divestmentand liquidation.Retrenchmentstrategyincludesthose strategieswhich attemptsto regaincontrolof a falteringbusinessor to preventit fromfalteringin the first placeby temporarilyreiningin its operations.Divestitureor divestmentstrategymeans riddingthe organization or sub-unitusuallyby sellingit. Liquidation strategymeans convertingan asset,sub unitor organization to cash. Question 2 (a) "Knowledgeis currently considered as the most important strategic resource." As a Company Secretary, suggest a systematic approach to your company for implementing knowledge management programme. fiA marks)

(b) Whatdo you understandby 'risk'and 'return'tradeoff ? Discussvarious (10 marks) techniquesinvolvedin measurementof risk and return. Answer2(a) Knowledge is currently considered as the mostimportant resource, strategic and the abilityto createand applyknowiedge has beena key in establishing a relatively sustainable competitive advantage. lt hasbeennaturally assumed thattheenterprises products, thathavebetterknowledge of theircustomers, technologies, marketsand linksbetweenthem,andthatcan applysuchknowledge, can achievebetterresults. Suchanopinionfurtherdevelops a resource-based approach totheenterprise andpushes ittowards the'knowledge approach', whichperceives anenterprise asa toolforcreating, integrating, storing, sharing andapplication of knowledge. Thefollowing Knowledge Management Programme issuggested forimplementation: (1) DefiningKnowledgeManagement Strategy Knowledgemanagementstrategyis definedin advanceso that a systematic



approachis requrresthe activeinvolvementof top managementso strategy and supportare ensured.KnowledgeManagement thatitscommitment containsthefollowing: (i) Whatto Share: Diflerentaspectsof technicalknow-how,managerial knowoperationalprocesses,etc. can be shared. how,competitiveintelligence, (ii) Why to Share: Knowledgefor the sake of knowledgehas no relevance rather it must be used for organizationalbetterment. Knowledge will managementstrategyshouldspecifythe way in whichthe organization be benefitedthroughpracticingknowledgemanagement. (iii) How to Share: In this stagethe decisionaboutmechanismof knowledge sharingis made. There may be differentchannelsfor sharingknowledge such as personalface-to-facecontact,deputingpersonnelto the sharing parties,computernetworks-internallyand externally,etc. dependingon the natureof parties,and the channel chosen. with (iv) Whomto Share: Thereare differenttypesof peopleand organizations whom knowledgecan be shared. They are internalemployeesat various levels,customersand suppliers,shareholdersand financiers,research etc. collaborators, organizations, (2) OrganizingKnowledge ManagementProgramme: Besidesthis, Forthis,a knowledgemanagementcentreshouldbe established. the knowledge to implement the following steps undertake the businessshould programme: management (i) Providing Budget for Sharing Knowledge: Knowledge management programmeinvolvescost in the Jorm of outlay on physicalfacilities, personnelinvolved,etc. Therefore,a budgetshould inforrnation technology, b e p r e p a r e di n a d v a n c ef o r l a u n c h i n gt h e k n o w l e d g em a n a g e m e n t programme. (ii) Communicatingthe Valueof SharingKnowledge: Betorethe knowledgeis sharedamong variousconstituents,it is essentialthat they are informed aboutthe valueof knowledgesharing,how it will be usefulto them and to andwhatprocessescan be adoptedfor knowledgesharing. the organization (iii) ChoosingTechnologyfor SharingKnowledge: Knowledgecan be shared by using a channelwhich is providedby the technologychosen for this purpose. (iv) SelectingMethods of SharingKnowledge: Knowledgein an organization formsi.e.,(a) Serial Transfer ; (b) Near can be sharedin the following Transfer;(c) FarTransfer;(d) StrategicTransfer; and (e) ExpertTransfer: (v) Measuringof Pertormance:When knowledgesharingmethodsare put into to ascefiainwhether practice,theirimpactshouldbe measuredcontinuously sharing. in knowledge effective they are (3) ReinforcementforKnowledgeManagement

to makeit a partol is necessary management for knowledge Reinforcement



processesand practices. lt increasesthe strengthof a new organizational behaviour andtendsto inducerepetition of thatbehaviour.Reinforcement should be providedso longas knowledgesharingdoesnotget imbibedintopersonnel. In orderto providereinforcement lor knowledgemanagement, the businesshas to: (a) lntroduceNew lncentives: Incentivesare those objectsthat are perceived by peopleas beingimportantto satisfytheirneeds,whichmay be in financial or non-financial forms. (b) ProvideSupportKnowledgeSharing:The businessshouldprovidesupport to employeesfor sharingknowledge.This facilitatesknowledgesharing and employeesfeel that top managementpays attentionon them also. Answer2(b) Trade Off Between Risk and Return A fundamentalinvestmentconceptis the trade-offbetweenrisk and return.This conceptis basedon two realitiesi.e.,investmentsand investmentperformance. First,all investmentscarry some degreeof risk - the realitythat one could lose someor allot his moneywhenhe buyshares,[ronds,mutualfundsor otherinvestments. Second,not only do differenttypesof investmentscarrydifferentlevelsof risk,but the more risk one assume,the greaterthe investmentreturnone is likelyto achieve. Risk in an organizationarisesin variousfornns,but when one talks aboutthe riskreturntrade-off,the primarymeasureof risk is volatility,or the degree to which an investmentfluctuatesin price.Differentassetcategoriesare subjectto differentlevels of pricefluctuations.



Low Rlsk

Hfiher Rkk


Low Return




Deviation{or tirk} Standard

PP-SMAtT-December 2011 In short:



Thereturnearnedon investments represents themarginalbenefit of investino. Riskrepresents themarginalcost of investing. - A trade-off alwaysarisesbetween expected riskandexpected rateof return. It is necessary thatindividuals andinstitutions consider thecombined influence expected on futurereturnor benefitas wellas-on risk-cost. Thei"quir"*"nt thatexpected becommensurate withrisk-cost is knownas thel,iirk_r"turn trade-off,, i,;tJ;:J"."fit in Measuremenr of Riskand Return 'ers Riskrr to variability of returnfromexpected investment. A varietyof measures havebeenusedto capturedifferent facetsof risk.rne mostimportant onesamonq themare: Range,standardDeviation anJco-errcient of v"ri"ii"., sensitivity Analysisl

r,",nnuii,]., vu,," .tni.xrinrii il""?r#:lf3:$'1,:fiil:l*:l[ii iecision Thetechniques of riskanalysis under: (i) Range:lt isthesimplest measure ofdispersion. lt is thedifference between its rwoextreme basicalyindtatest measure "?j:::,1?.-..,rt ofvariation ln returnanddegreeof risk. " "0."[t" (ii) standardDeviation:rt is arso knownas rootmeansquaredeviation andis arso a measureof variability refersto tnulqrJr.-rJor o, the meanof the squaresof deviation frommean. (iiD co-efficientof variation:lt representsthe ratioof standard deviationto the mean'rt is a usefurr"":.uf." of comparing tn" ;iu"],",ion fromonedata seres to anotherevenif the meanvaruLs J"grL" jr".1i."it!'o,rt"r"n, fromeach other'Inotherwordstheloweristhe "r" ratio thebetterwillbethe risk_returntrade "t ri"ro"ro iJ"L,,on to meanreturn, off, (iv) sensitivityAnatysis: isa technique wherebythevaruesof a variabre .rt parameter (inputs)arechanged to denoteoitterent situations/assumptions andtheeffect of thechangesis measured on theexpected varueof theoutcome. (v) BreakEvenAnarysrb: rtindicates theminimum quantitya firmshourdproduce andseilat whichrossis avoided. Thisanarysis herps thefinanciar managerof theorganization to ensurecostrecovery. (vi) simulationAnatysis:simulation helpsto generatethe information whichcano" ,.:li?:?."]^"1?pilg prori[ ot alriterionof merirby lh,eorobabititv randomly combining valuesofvariables, havinga bearingonthechosencriterion. (vii) DecisionTreeAnatysis: rt is a usefurtechniquewheresequentiar decision makingin the faceof riskis invorved. R_epresenting a decisionprobremas a seriesof decisions to betakenundercond*ion ot rnrE.t";t.'; present decision dependsuponthepastdecision ancJtherr outcome.

pp_SMAtT_December2011 9 (viii) vatueat RiskAnarysrb : rt is oneof theprovenandthe mostusedmeasuresol risksby financiar institutions. vAR-r""*rres the rikerychange in marketvalueof a portfolio,at specifiediimeieri"il *iir, certain markedto confidence. (ix) cash Ftowat RiskAnatysrb: lt hasbeenspecificaily deveroped fornon-financial organizations withcashflowas variable. Question3 Write nobs on any four of the foltowing: (i) Batancedscorecard (BSC) (ii) Functionaltevet strategies (iii) BCG matrix (iv) Eusrnessprocess re_engineering (BpR) (v) Risksin globat business Answer3(i)

(5 marks each)

BalancedScorecard(BSC) The'baranced scoreeard (BSc)is a strategic pranning andmanagement is usedextensivery systemthat in ousiness ail;il;;;y, government, andnon_profit worrdwide organizations to arignbusiness activitLstJine visionandstrategy of theorganization. A balanced scorecardcombines financialmeasures whichdescribe actionsalreadytakenwith theresults operationai methodson .isorlrsl satisfaction, of processes' andthecompany's internal innovation ancimprover"niu.iiJities performance' forfuturefinancial Themanagement shourddeverop d""r. ooi"liiu" intin"n"i"r;customer; internalbusiness perspective; anoinnovation ", areas. anolearning has ,r""r:Xi."r.n"n":",1i:"recard evotved,asa simpteperformance measurement

i*il',:f ili;ffi3;{^ffi :ffi; }',{:$1ililx:?,["#":H:'#;il1il'f Thebaranced scorecard suggests thefotowingfourperspectives: (i) Learning andGrowthperspective: Thisperspective incrud and corporate. curturarattitudes rerated to both,"o,"ior","i."ffi?fi improvement' lulfiJf In a knowr"dg;;;;; organization, - theonryrepositorv peopre of knowredge - are the main resource. In the'cuirentsituationof rapid isoecomin-s

necessary rorknowreds" ;;,k";; b,i;;


(ii) BusinessProcglsPerspective: Thisperspective refersto Inrernar processes' business t"1:r,3._"d onthispeispective atowthernanagers to know how ning, ni I; eth

lfl lffJ,?:; rl['; i'ry


(iii) customerperspective: Recent

er itsp,,oo r"t. ani seruices conrormto

managementphirosophyhas shown an



increasingrealizationof the importanceof customerfocus and customer satisfactionin any bi.rsiness. Theseare leadingindicators,if customersare not satisfied,they will eventuallyfind other suppliersthat will meet their needs. Poor performancefrom this perspectiveis thus a leadingindicatorof future decline,eventhoughthe currentfinancialpicturemay look good. (iv) FinancialPerspective:The availability of timelyand accuratefinancialdatawill alvraysbe a priority,and managerswill do whatevernecessaryto provideit. ln fact,oftenthereis morethanenoughhandlingand processingof financialdata. Withthe implementation of a corporatedatabasesystem,it is seenthat moreot the processingcan be centralizedand automated. Answer3(ii) Functio".,rl-Level Strategies r'lnctionallevelstrategyinvolvesdecision-making withrespectto specificfunctional areas, say, production,marketing,personnel,finance,etc.,decisionsat the functional level and are oftendescribedas tacticaldecisions. Functionalstrategiesemphasizeon doingthingsright.But these decisionsare guicierJ by overallstrategicconsiderations and mustbe consistentwiththe frameworkof the businessstrategy.Functional strategy is the approachtakenby functionalarea to achievecorporateand businessobjectivei and strategiesby maximizingresourceproductivity. lt is concernedwithdevelopingand nurturinga distinctcompetence to providea companyor businessunitwitha competitive advantage. In contrastwiththe otherlevelsof strategy,functionalstrategiesserveas guidelines for the employeesof eachof the firm'ssub-divisions. Whichonesof thesesegmentsor functionalareas are includedin a firm's functionalstrategyset is itself a hatter of strategy.For example,whetherto havean R&Ddepartmentor not in the firstplaceis a strategicdecision. Functionalgoals and actionplans are developedfor each of the functionalareasof the firm to guidethe behaviorof peoplein a way that wouldput the otherstrategiesintomotion. Answer3(iii) BCG matrix The BostonConsultingGroup developedthe growth-sharematrixto analyzethe problemof resourcedeploymentamongthe businessunitsor productsof multi-business firms. lt is based on productlife cycle theory. The businessunits or productsare analyzedby placingeachone in the matrix accordingto their(1) expectedgrowthrate (verticalaxis), measuredby anticipatedgrowthrate in sales dependson maturityof industry,and (2) relativemarketshare (horizontalaxis),measuredas the unit'sshare dividedby that of its largestcompetitor.The basicideabehindthis modelis if a product has a biggermarketshare or if the products'marketgrows faster,it is betterfor the organization. The placingproductsin BCG matrixprovidefour categoriesin the portfolioof an organization: Dogs (Low Growth,Low Market Share): Each of businessesor productswith low expectedgrowthratesand low relativemarketstandingare labeledas ,,dogs', or,,cash



traps'" The strategyin this categoryshould consist of cost cutting by divestments, retrenchment, or even liquidation. QuestionMarks (High Growth,Low Market Share):Those with high projectedgrowth ratesand lowmarketstanding, are labeledas 'QuestionMark'.The reasonis thatalthouqh they are operatingin markets with expectedgrowth potential,they are ornerwrie experiencing competitiveclisadvantage. This quadranthaveworstcash characteristics of all,becausetheyhavehighcashdemandsand generateiow returns becauseof their low marketshares.Managementcan investcashto correctthe marKet weaknessso as to take advantageof expectedmarket growth or, if not convinced of their abilityto lmprovemarketshare,it can retrench,divest,or liquidateto minimize the cash drain. Stars(High Growthand High Market): Productsor businessunitswhich have both standingand highindustrygroMh potentialare labeledas star. Theyshould receiveheavy cash investmentin order to maintaintheir market share. Suicessful resourcedeploymentbeyondcash requirements couldleadto a superiormarketshare when industrygrowthpotentialfallsoff. CashCow (LowGrowthand HighMarketShare):Herea productor business would becomea cash cows have a strongmarkeipositionin industriesthat have matured.These productsor businessescan thus be "milked" by investingjust enoughcashto maintainmarketstandingand applyingexcesscash inflows to the flrm's otheractivitieswhichare growthindustriesor products. Answer 3(iv) BusinessProcessRe-engineering(BpR) Businessprocessre-engineering (BpR) is a managementapproachaimed at improvementsby means of elevatingefficiencyand effeitiveness of the processes whichexistwithinand acrossorganizations. The i<eyto businessprocessre-engtneering organizations is to lookat theirbusinessprocessesfrom a cleanslateperrp"itiu" determinehow theycan bestconstructtheseprocessesto improvethe "nj conductof their business'Businessprocessre-engineering can be definedas the analysisand design of workflowsand processeswithinand is basicallythe critical analysisand radicalredesignof existingbusrnessprocessesto achieve breakthrouoh improvements in performance measures.Businessprocessre-engineeri"g ia k"o;n as businessprocessredesign,businesstransformation "laocnange or businessprocess is fundamental reconsideration andthe radicalredesignof organization-al process,in orderto achievedrasticimprovement of currentperformance in cost,services andspeed. Re-engineering strivesto breakawayfromthe old rulesand proceduresthatdevelop and becomeingrainedin everyorganization overthe years. The followingprinciplesare suggestedfor re-engineering: (i) organisearoundoutcomes,not tasks: Designa person'sor a department'sjob aroundan objectiveor outcomeinsteadof a singletask or seriesof tasks. (ii) Captureinformationonceand at the source: Insteadof having each unitdevelop its own databaseand informationprocessingactivities,the information can be ' put on a networkso that all can accessit.

PP-SMAIT-December 2011 12 (iii) Withcomputer-based information processes systems, cannowbere-engineered so thatthepeoplewhoneedtheresultof theprocesscando it themselves. (iv) Peopleor departments thatproduceinlormation can alsoprocessit for use insteadof justsendingrawdatato othersin theorganization to interpret. (v) Withmoderninformation systems, companies canprovideflexibleservicelocally whilekeepingthe actualresources in a centralized locationfor coordination purposes. Answer3(v) Risksin GlobalBusiness Globalbusinesshassorneadditional risksbesidesthe usualbusinessriskwhich areof thefollowing types: (i) Politicaland RegulatoryRisks: Manycountriesof theworldare notpolitically stableandtransfer powerdoesnothappenin smoothwaysinthese of political countries.Therefore, companies doingbusiness in thesecountries mayhave riskin newpolitical regimes.Similarly, manycountries havedifferent typesof regulations fordoingbusiness. Suchregulations maybeof quitedifferent nature as comparedto thoseprevailingin the domesticcountry. Therefore, the regulations of thehostcountries shouldbe takenintoaccount. (ii) Culturaland Managerial Risks: Countries differwidelyin termsof cultural characteristics likecustomer preferences andtastes,attitudes towardscertain typesof products/services, traditions, valuesand beliefs,anda hostof other culturalfactors. Therefore, products/services haveto be tailored according to suchrequirements. Further, sincemanagement practices areculture-bound. thekindsof management practices whichareeffective inthedomestic country maynotbesuitable inforeigncountries. Therefore, thereis a needforsuitable changeinmanagement practices, moreparticularly relatedto humanresource aspects. PARTB (Answer ANY ONE questionfron this oart.) Question4 (a) Writea detailednote on the restrictivepracticesbeing usedin the foreign collaborationsand technologytransferagreements. (g marks) (b) Strategic alliances are important for success of a business. Discuss characteristicsand need for strategic ailiances. (B marks) (c) Explainhow alliancestrategycan be integratedinto the overallcorporate strategy. (4 marks) Answer4(a) The term restrictive,practice signifiesnon-governmental measuresusedby the companles to strengthen theirposition in a givenmarket.Thesepractices canhamper

13 PP-SMAIT-December 2011 ordistortinternational trade,whichoftencoincides withthepublicinterest of thecountry concerned. Following aresomeoftherestrictive practices beingusedintheforeign collaboration andtechnology transfer agreements. Restrictions afterexpiration ol Industrial Property Rightsor Lossof Secrecyof Technical Know-how Restrictions afterExpiration of Arrangemenrs Restrictions on Research andDevelopment Non-Competition Clauses -

TyingArrangements ExportRestrictions PriceFixing


provisions Grant-back Exclusive SalesandRepresentation Arrangements Useof eualityControls Restrictions on Useof personnel Restrictions on publicitv

Answer4(b) strategicalliancehasthreedistinguishingcharacteristics (D thetwoormorefirmsthatuniteto pursuea set ofagreedgoalsremainindependent subsequent to theformation of an alliance. (ii) the partnerfirmssharethe benefitsof the allianceand controlover the performance of assigned tasks" (iii) thepartnerfirmscontribute on a continuing basisin oneor morekeystrategic, products andso forth. Needfor strategicalliances - satisfycustomerdemands: customerdemandsin manymarketsarechanging. Forexampre, in officeautomation, cusromers nowprefera,.systems sorution,, andwantto relyon a singlecompany to serviceallequipment. gaps: Companies thatare leadersin theirfieldscan maintain fiil knowledge thatpositionby usingailiances to capturenewdevelopments, andkeeptheir technological resource baseaheadof thecompetition. - Makescaleeconomies: Alliances canachievethe scaleneededto amortise investments. -

Makescopeeconomies:Ailiances can enrargedramaticaily the scopeof a

Pp-SMAtT_December 2011 i4 company's operations' Alliances,focusing onscopehefpcountertheever-shoner productcycleof modern technorogy. _ Jumpmarket barriers:Howeverpotenttheproducer in its"home"markets, namemaybe tn"t maynotmarker::.T3ly'r best ininre "Lrp"ny rnation arma,lets nr ffi,iilii',;fiff Hli l*: '.*,'n;ffi:]:#.";: can leavea oevetopment-focusei'coi p"ny freeto concentrate ::"[t#3,.::Xls - speedproduct introduction:Thenarrowing of thedeveropment-to_market timehas beena cruciarteature read of the pisi ;";""d". r" many companyto introduce sectors, the first a newproduct.i.;"v, i"i.,,n"n, marketpositionand standsthe bestchanceor reJouping " ,orp"tition arrivesto drivepricesdown-or beforep"l"n, protection "ort.-n"tor""'rn" expires. - pre-empt .competitivethreats: In industriesin which a few rarge prayers

compan ies,,", o.troan',ir il:fiHl1il"Tryffii:ffi:*eis,,ome you can,r beat Use exces


erre * or^Z:?f::iy,', tructurins I ff fi JJfl:"J;*"il':#::i ffi :ff;, heres r#fJ*cosrs:

participanrs can use ariancesto cut the

costsof reavinga

Answer4(c) strategy mustbeintegrated ' .' Alliance intl overailcorporate tntnestrategicptan strategy andarticurateo lhe ror. _pi"renration. y],1: Theentire andmanaging I process tTq",r, of developing an alliance couldbe as follows; - Development of thestrategic domestic or globalplan - Development of thealliance plan - Alliance partner_ searchandselection - Development of theimplementation plan - Execution of theimplementation plan Theintegration of.thealliance strategyintotheoverailstrategy dependson theextentot trre of theorganizaiion vis-iJn";ilJt""ro"nv ior-iii"t,ffi: Thekindof srrarepic planning thata companyundertat<es artecl rnenatuie entersinto'rfa companyis thata cornpanv wirring io ,;"r,;1-"^,?.rq,"lr. "irn"'"iri"""es strategic enteredinroas partof rnetong-ierm pranning, theariancei ;il;;* rikeryto oe tnoJetlat take cometo 'fruition" sometimero suchas research anooeveropment partnerships. Question5 (a) Write nobs on any two of the fottowing : (i) Foreign direct investment (ii) Foreigntechnology agreements (iii) Modes of joint venture.

(5 marks each)


pp-SMAtT_Decernber"201 1

(b) Dr',scuss the methodsof funding investments in overseasjoint ventures UV) and wholly owned subsidiaries(WOg. Answer S(a)(i)

(10 marks)

Foreign Direct Investment ForeignDirectlnvestment(FDl)' mea.ns.rnvestment by non-resident entity/person residenroutsideIndjain the capitarot thu tno*n.r:"d;;;:rjlect to the compriance ForeignExchangeManagement oi n"t, f g9g, FEM (Transfero

ions2000 and' oi' ;'"l;u"i :",'#'Jr'I, 8il'"?l,.fl:: : *n,,tff i *i;)' nlsuiat Foreigndirectin.vestment is freelyallowedin alisectorsincluding the servicessector, exceptcertainprohibited sectorandwheretheexisting notiti"o sectoralpolicydoes not permitFDI beyonda ceiling. "nJ FDI can oe oroujr't-i" ini"rgn the AutomaticRoutel ApprovalRoute'FDI beyoncJ tl.toruit,rits prlorapprovalof'the Foreign Investmenr Board(FIPB)or cabinetcorrirt"" on Economi.Arrriru(ccEA) as the case ;t""Iolt" An Indiancompanyreceivinginvestment from outsideIndiafor issuingshares/ convedible debentures/preferenceihares underthe FDIscheme,snoutoreportthe detairs of the amountof consideration to the Regionrrolti.u #;;;;a of the ReserveBank not laterthan 30 days from the date ot rlceiot. Answer5(a)(ii) ForeignTechnologyAgreements with a viewto injectingthe desiredlevel of technologicaldynamrsm in lndianindustry and for pronrotingan industrialenvironment where ine acquisitionof lechnological capabilityreceivespriority,foreigntechnology inductionis encouragedboththrouEh FDr and throughforeigntechnologyiollaooratitn agreements. The Governmentof Indiahas permit,payments for royalty,rumpsumfee for transfer of technologyand paymentsfor use of trademark/brand-name on rne automaticroute I'e' withoutany approvalof the Gouer^mentof lndia. nrr_sucn payments wrribe sublect to ForeignExchangeManagement AccountrrunrrJ,ons) Rules,2000 fCurrent as amendedfromtimeto time. Answer 5(a)(iii) Modesof Joint Venture A jointventureis an association of two or moreindividuals or busrness enliileswho combineand poortheirrespective expertise, tinanciar ,"r;;;;; ;kiils,experiencc, ijird knowledgein the furtheranceof u b"rii"rr"r projecto,. ,no*itot i'g. -r-her"e ar* rwir fundamentai typesof iointventur",i.".,'eqrity,loin, VenturennoCnn,ru"tuar.,ioint VerrlLii. Theirclescription is is follows: Erli;rtyJoint Venture Theequityjointventureis an arrangement whererry a separateregarerr,ryis created tn accordancewith fi'a aqreemeni of tr,voor more par-ties. The parlresJ:'Jr,:,,,..r:o

PP-SMAtT-December 2011 16 providemoneyor otherresources as their to theassetsor othercapitar thattegarentity.Theenrityis generitty contribution esiabrished ririt"jlabirity company of distinctfromeitherof thepar'iie. andis ",in" *r,itripurticipate company, thus,becomestheownerof the resourcesrtscrJion. The newrycreatec contributed by the partiesto thJ orth;;;L.


inturn o""o'".i,Jowner orthecompany

Contractual JointVenture ventureagreement .Thecontractualjoint canbeenteredintoinsituations projectinvolvesa narrowtask wherethe or itimiteo activityor is for ririt"o termor wherethe lawsof thehostcountrydonotpermit tn" o*ner.nipof property " by foreign thepurposes citizens. For of contractualjoint venture, iherelationsnlp o"ir"6"n parties is thecontract set forth in or agreement concluded between them. Answer5(b) Investment inanoverseasJointVenture maybefunded outof oneor moreof thefollowing,ori"";,-/whotyownedsubsidiary -

Drawrof foreignexchange fromanAuthorised Dearer Bankin India: Capitalization of exports;


Swapof shares:


inss (EcBs)/Foreisn 3ll|,.1*TS #ffiil' gilJ,?ES;l,commerciaI Borrow Inexchange of American Depository Recerpls/Grobar Depository Receipts issued inaccordance withtheschemero.ilsu" oiForeign cr*n.v convertibre Bonds andordina ryt ugh,Depositorv

n"""r"pi ri".i". ; rr scheme, l:1"^.,t]l i" thereunder 1993, issued rrorn'timeJ;i;." byrhecentral ili"rffi#Jderines -

herdin Exchange EarnerForeigncurrencyaccountof theIndianparty; teatances


utirization of proceeds offoreigncurrency fundsraisedthroughADR/GDR issues. PARTC (AnswerANy TWO questions from this par:)

Question 6

(a) Write a note on WO as an extensionof GATT. ft marks) (b) Examinefundamentatprincipres of mutt,aterartrading system. (4 marks) (c) Discuss basic principtesof GATS. F marks) (d) Discussobiectivesand conventions of wortd lntettectuat property .qq'' tvP' organisation (wrpo). $ marks) (e) Discussobiective.s^1n.d.,fundamentar principres .-'r'-- v' of ' Association 'eovw'att" of south East Asian Nations (ASEAN) ,n marks)



pp*SMAtT_ December201.1

Theworldrradeorganization isnota gjmoie extension ofGATI", rather itcornr;reterv dirrerent ;;;";,"; :::,::?: lifledecesso"r rhe principar "il;;;;;;,.u oirei:ences _



a set of rules roundation,owas n rv a smarrrr, jo{-?ll?J?,:l -ffi "ffi?:#,'J" ro estabrish :?,,ir'J',,?, "",., an Internationar-ir.aoe #;l orq"nir"irr,"in'rn*,940s permanent

Thevvrc is a

institution withitsownsecrefariat.

basis,, even ir,aner 3ig,,J?TjiJ;il::nj*",,ionar more than rorry iff u* u pern:anent wro ctmmitments cornmitnrent. l-he



The GATT rulesapplied to trade in mercharcfisegoods. rn additionto goods, coverstrade

in services andtrade-retiiecr aspe"rsof interecrual

ffffi: -

^ rvvrre ^LiA [T wasa murtiiaterar rnstrument, by the 1gg's manynew hadbeen agreer'ents \A/h il^

thereforei"r*i,"- nature. w h i chcoilg:d."f Theagreernenrs n sti tu?.prurirrt"iJ, te ew T o aL ""datm ost th a' _. .,,s,.,,s,c m ur tir ater ar commitments anci, thus,invor ve for the entiremembership. *

The wTO disputesetilement

systemis faster,moreauromatic. resssusceptibre and thus rnucl,. 10nro"ruo"r, iri"an tr^:idGAJTsystem. The of WTOdispute irnprerrenfarion findings *iflrfr"

oe moreeasilyassureo^


Thefundamentarprinciples of multiraterartrading systemareas io,ows:






a:r ;:il {i{:i,, i,".,,"1 "," an d* shourdnotdisc riminut"tEt*""nrrsown J::t#l ;;;;slrT:JrT,y:H,t$::; nationals (theyare given,,nationai "r, treatment,,);

Freer_ withbarriers comingdownthroughnegotiation; - PredictaO," and qovernrne*t$shoulcJ :.foreign companies,.jnvestors confidentthat trade oarriers bcr ,urirru,l"""i",.,r, fincruoing measures)shourdnotbe i;ai.rier$ancJother raisedarbitrariry; riro;-e o,,J,or"u'r"riffratr:sand opentngcommitments ,,bound,irn ,f/fC; marker_ are the -- More by discouraging. "unfair,,;:ractices "ompetitly suchas exporr::i;bsicJies and dumping producti ,t uuro*".ortto gainrnarket sirar*;

* y:;"",:3i:::fi,:::,,:i,:; them more'j,iie ,c, xx:;,:{:i^i;ill!,li;b,,Evins Answer 6(c) Basic prir.iciples of GATS are as follows: - Aii ser.v,c{:rs are coveredby GATS

F''}P-SMAIT-December 2011 18 - Most-favoured-nation treatmentappliesto all services,except the one_of remp()rary exemptions -

Nationaltreatment appliesin the areaswherecommitments are made


Transparency in regulations


Regulations haveto be objective and reasonable


International payments: normallyunrestricted Individuar countries' commitments: negotiated and bouno


Progressive liberalization: throughfurthernegotiations

__ Servicessuppliedfromonecountry to another(e.g.internationaltelephone calls), officialiy knownas ,,cross-border supply', - consumersor firmsmakinguse of a servicein anothercountry(e.g.tourism), officially knownas,,consumption abroad', -

A foreigncompanysettingup subsidiaries or branchesto provideservicesin anothercountry(e.9.foreignbankssettingup operations in a country), officially "commercial presence"


Individuals travelling fromtheirown countryto supplyservicesin another(e.g. ,,presence fashionmodelsor consultants), officially of naturatpersons,,.

Answer 6(d) The WorldIntellectual PropertyOrganization (WIPO)is an internationalorganization dedicatedto ensurethat the rightsof creatorsand ownersof intellectual propertyare protectedworldwideand thatinventorsand authorsare, thus,recognizedand iewarded for theiringenuity. WIPO seeksto: -

Harmonizenationarinteilectuar propertyregisration and procedures. Provideservicesfor international applications for industrral propertyrights.


Exchangeintellectual propertyinformation. Providelegaland technicalassistance to developing and othercountries.

- -

Facilitate the resolution of privateintellectual propertydisputes. Marshalinformation technology as a toolforstoring,accessing, and usingvaluable intellectual propertyinformation.

Paris Convention for the protection of lndustrial property 1BB3markedthe birthof the ParisConvention property, forthe Protection of Industrial the'firstmajor international treaty designebto help the peopleof one countryobtain protection in othercountriesfor theirintellectualcreations in theformof industrial property rights,knownas: inventions (patents), trademarks and industrialdesigns

19 Berne convention for theprotection af Literary and In 1886'copvright enteredthe

pp_SMAlT_December201.l Arlisticworks

international arenalviththe Berneconvention for tne

aim o*r,lu conul"nrion was iii:";':ff:i1",:illilliff[,.H,.,j;ihe toherp nationars pavment for,theuseoftheir creariv" [iF"j';ir":$[J:1i:ixl?il"J;,3::;:::1"; 'f"natas; anoorawinil, painrinss,

513ili;"i1i"ffi":fJ'"'' "'i""i*,


Answer6(e) objectivesof the Association of south-EastAsianNations(AsEAN) The ASEANDeclaration v v ' i q ' q ( r v ' |D r Urru sets out u r rth ne arms and purposes of the under:



sociarprosressandcurru rardeveropment in "":fffi",f,["ri::?riffrtJ:yj^'

1Xr.T3,.:,m:*;; s:ffi ?:xi;:*:mn:f*L1ti:,:ll:ffJfj:ffi -

Io promoteregionalpeaceand stabilitythroughabidingrespect justice for the ruleof law^inthe relationsnip and urong countriesin th; region and adherence to the principlesof the United t irt,on, Charter. Fundamentarprincipres of the Associationof south-East Asian Nations(ASEAN) ASEANguidedby thefollowing fundamentat principles:


sovereisntv, equarity, territoriarintesrity, sTx1,ff:i,:.1iljNil:i"ff[l"Jce,


The right of every state to lead its nationarexistence tree from external interference, subversionot,ao"r"ion,


Non-interference in the internalaffairsof one another;


Setilementof differencesor disputes by peacefulmanner: Renunciation of the threator use of force;and

Effectivecooperationamongthemsetves. Question 7 (a) Match the fottowing : (i) First ministeriat conference (ii) Second ministeriat conference (iii) Third ministeriat conference (iv) Fourth ministerial conference (v) Fifth ministerial conference











(t mark each)

PP--SMA|TDecember2011 20 (b) Re'nirite the fortowing sentences after firting_in the btank spaces with appropnate word(s)/figure(s): (i) UNCTAD srands for _ (ii) Theo, of compara,uu u***" *us given by __. (iii) when value of merchandiserl expori equals the varue of merchandised impoft, it is known as (iv)


argument dears with the ratio (i.e., ,te prices) at urhich countries excharlge expotl for import. (v) The first reasanably systematic body of thought devotedto internationat trade is called and it emerged in seventeenth and eighteenth century in Europe. (l mark eacn) reasonsin brief, whether the foilowing statements are true ?:E:: .u'ith or

(i) worrd rrade organisation wro) is the onry internationat body dear^g with the rutes of trade between the nations. (ii) Natiortat treatment principle. says that goods produced in a nation shoL!tdbe treated equally throutghout tnJ "orntry. (tii) The dispute settlentent unclerstandingis often seen as one of the most imporlant achievements in the WTO agreement. (iv) asreements are entered into onty betweenneighbouring :::::;,!r.,^de (v) The ministerial conference _ the highest deciston making body of WTO has to nteet at least once in a year. ,^rX ,^"11 1, (d) Briefry exptain the procedure for anti-dumping invesrgations. (5 marks) Ansrver7(a) i,) Firsllrlinisterial Conference = Singapo13 (ii) Se'conci Minrsterial Conference = Geneva (i'i) ThirdMinisterral Confererce= Seattte. (iv) For,, lrlinisterjal C)onference =Doha. (v) FifthflinlsterialConference = Cancun AnswerZ(b)

(i) ur'tcTAD stands for U,nrted_*tr4&Llantererseg__sx__rrcde__arrcl Developme.-r1t

(ri) Theory of cornparativeacJvantage was given by paVid_Efeatda . (iii) when value of merchandised export equals the value of merchandised import, it is known as Falance_qt-f1ade.

21 pp_SMAtT_December2O11 (iv) Terms of Trade argumentdeals with the ratio (i.e., the pricesf countriesexchange at which export for import. (v) The fir

devoted ,,"0"',".ji,ii"tr9ffi :H roinrernationar - rv l"*";;",j1;rJ' v"tsrveu rn " seventeenth centuryin and eighteenth Europe.

AnswerZ(c)(i) True Theworldt::1" ruresof tradebetwe"n 9.'nTization(wTo) is theonryinrernationarbody dearing *tiun.. niit. n""* aretne'wio w'h rhe a!*reements, negotiated and

j::j?jf"?l j?:.:ru*l#H;il il::yJ"n,,"nts ;gffii;J, provide the,esa, AnswerT(c)(ii) False principre of nationar treatment saysrmported androcaryproduced goodsshourd be :ervices, and to foreignand locar copyrignisanopui"nt.. trademarks, AnswerZ(c)(iii)

;;; ;;#l ,;",oca, marke, rnesame itTfi;!;n';i:';il;*i ffiT:']*o;ds

True . The DisputesgttgnlentUnderstanding (DSu)is oftenseenas rmportant achievements one of the most in thewoiiJ nu'o"brg"n;",;i"wfr; GATTarsocontained onr""renr. whirethe provision,ro,' ,elorution, rnnovations' iib*iis'u containsa number In particurar, "o,r]ii"t it is gln-"rJ,iu'1-:i1, of oeingsuperfr to itspredecessors rermsof thecraritvof its provision. rn proceiuJ ma-trers, andits provisions "on*rning g'.n ;;" t"J'oi,",ui"i" irpLr"i triiln.n"."nry, ff,t:#ilX i#ji,t9,," concerning however, thepossibiritibs advantage toi'pJolr countries or thesffid to takefurl AnswerT(c)(iv) False _ ,

IntheWTOcontext, RegionalTrade A<

jfli"'"$ff 1;:* "*ililhiF:^i'S!:il3:?:"11:,lJ:ffi :::l :::!:$:"""'ffi j*;,,#i:r-+iiiil:::r"f fFecilic,oecauselne,wroo'i

tradetiberal ization witnnesiJn;iffi ; o'ji""r"n,. (RTAs).


AnswerT(c)(v) False

ThewTO is a memberdriven, consensus basedorganisation. are takenby members Themajordecisions as a whore, by ministersor by therr ambassadors "itn", or

pp_Sl\4AlT_December 2011


Ministeriatconference._ thehishest decisic l:e

,Tff:l:: ; marers,"o",-j;;:;ilHli,i::" Ij ?H : :*#ffi[ Answer 7(d)

T:l[X::gl.1 H]:j :;

A c,um'inginvestigation can normarlybe initiated onh uponreceipr bv or on be-half io"rl.r{"",t"j?,:f1l:o:l'u of



a written

'X ,:H;'#;":l'y;.''o""udsexpedro,,lf preliminary a il,,'1ie'i'i!:.?.J?H:"ilfliTi:[f finding.ont"ininlir" ff rnainreason", 0",",,*oinformation ;J;#il" onthe


ofdumpins may beimposed bytne ?":f"?3&:J:13#h'Hlil:T:,i,flj1"-1",n'n

jJ, jti;x;,Ln:tkl,1+:i#ilri#J::HHil,T,yfl,:* OrafEvidence tnterestedoal11l.wfro participatein the investigations Authoritvfor an opporrunitv car the Desisnated io pi["* the relevantinror,.nit,:o,] :?:li;r, FinalDetermination The frnalc,{eter ''-'-' minationis normally madewithin150days determiriatro of the dateof prelimina^, Disclosureof Information

*n,.l1i,?,?: 1*,:ff'[ :y#IHT]]j li,Jl"J:iffi,[? " es a,fac,s, ffi :lJ: sen,i

Time-limitfor fnvestigation process

arlowed bvthestatute fllcolgrusion ofinvesrisation jriiil:iffitJI; and submission :j initiaiion oeriotr,"t oitr.," ,rJu".rigution #;;;"., rheabove "j "J?il,f::JffijH Terrnination Designated Authority maysuspend orterminate theinvestigation inthefoilowino "urulnu (,) if there is a r e o r ; e . q ti n r ' r i + i ^ ^ 4 - ^ . ^ -, , from


thedomestic industry atwhoseinstance the

(ii) whenthereis no sufficient evidenc, e of dumpingor iniury' (iii) injuryis negtigrbte. Q u e s t i o nB

(a) ln/rite a ncle on he four main in of European lJnion. (s (b) write a note marks) on the duration uno ,"'''u''ons 'evtew of counteruailing duties. (S marks)

23 pp_SMAtT_December2011 (c) Discuss rrurr,r,o:::,.:t]t-es a,nd speciat...anddifferentiat treatment under agreement on subsidies and counteivairing,"urui"i.'-' (5 marks) (d) Discuss the task of the appefiate body uncler dispute set,ement procedure. (5 marks) Answerg(a) The EuropeanUnion(EU) hasfourmarninstitutions namery,the councilofMinisters, the Europeancommission' ftreEuropeanpariiameni erropeancourt of Justrce. The Councilof Ministers ""J]il" The Council

is the EU,smaindeci rVrember staies, wnose represen,u,,u"J,lll,.ili{'llt:fili,,xJ:,ffi:i;:"lffil Thecounciliscomprised ?iJ:; of ministers riomnationat jovernm-Jnts of each


ofthemember mostweeks inarr..uilorLuxem6orrs io i*rio"rate uponregisratron

The EuropeanCommission Commissroners

of the EU are chart mpre mentins; u"po ricv".o-r"g r,r"il;{F#i^::ff i:%ffiflr:ffirn: i?:J,il: oooy'thecommission' Tnecom'mit.rn ro,.consioerattilnoo""i.ion


bythecouncrr andtheEuropean purr,ar"n,orarts initraiorl'po.u,. for regisration and

TheEuropeanparliament TheEuropean parriament isthedemoc:ili:?]ry erected bodywhosemembers areelected everyfiveyears'Parliament (MEps) scrutinises tneactivrtJJs of other EU institutions, budget, rr,up".



anddecides newresisration joinry withthe

TheEuropean Courtof Justice Basedin Luxembourg, the court,*hrghh?: a judge fromeachmemberstate, adjudicates on a, regar.i.*"r ojrputl inuotuing boilmunity ,"*. Thecourtdeals "n,r rypesof actions: ir..orfl"r"rred to it by nationr IIT-lll: :"in rnrerpretatron ofcommun*v Answer 8(b)

," ,A;?Ji:"r;:,;:ily

raw; srarted ovJ""oiir.,i "t "no,.,or" "ffiffiJffii,:l:.

onry asrong asandtotheextent Ll31l"'r," inrorce necessary

rorthe.;,il;;;;i"T*H ,J; TEffi:,,? #,,i;," :ffi? I#;ll,?":";l lili!since I theimposrtron erapsed "'^,i,. ofthedefinitive

provided thata reasonable periocj "itirlii"r

nt",". ;ilil?#l 13r3,{l i jii""J J:H":d. ;*,?", t"0pliiu, nsubmits;; ;;;;;

rnrerested oarties,l!u1,,1:u" , therightto request theauthorities tnecontinued roexamine imposition whether of theciutyiJ neJu.sary to offsetsubsidization, rnlurywourdbe rikery whether the to continue ,:,.iec* if theduiy*"r"-r"uroJ"o or varieo,or both.rf,

ffi.:T:1;;;,li.ll..';]1il;ffi,.il,,*:xi;**:ru;,i,",,,i,J,?l",."tervai, d,iy ; ;;

Pp-SMAtT_December 2011 24 Any definitivecountervailing duty shallbe terminated on a date not raterthan five impos ition,unlesiin ji:?


ul rt o,iti".;;i;;;;;],n

ar,"ui"*initiated bero re beharro*r,"oonl',l,lJi,l?l,iili_il:o{L:.,lf #n,f:,n*h:lli#*:m theexpiryof thedutywouro oeiir<erv ioi""o to continuatiJio-r'r".rrr"nce Js

andinjury.Thedutymayremain of subsidization i; ;;;." pending tneoutcomeof sucha review. Answer8(c) Theprovisions of

for developed -scM agreement countries. andmernbers ,errornni^^ jntransformatioi countries toa marret economy rr" n,ul?r"3?J,ijffJir Developed counii.ies

Membersrot,otherwise eligiblefor speciaranddifferentiar threeyea^ fromtheoateon treatment are arowed ilil;#"m thesubsioi.r'""0countervairing (scM)Agreemenl.enters-inlo Measure r"i."i" ph"r" outprohibitel ruorici"r. such subsidies e0davs J tn"Lnt'vinto

flfiffi [,"Jffi:,':''^in

iorce oi,n"wro Asreement rorthe

Devetoping countries ThescM Agreement recognizes threecategories of deveroprng reast-develop"d countryMembers: 1"r-o"Cf;),-1a"r0",., d; ;c;; Nltion"rproduer(GNp)per capitaof ressthan "?ylli". g1oo0per v"ur unJo-tner deveropin; Therowera Member,s ";r;il"

#ili?"ceives*itn-,",'p"r :"""f#:3:L"Jif; il:ilJfl:nrifru*i";idi.:ff Members haveaneight'year period,o.lfl:",?u,their exportsubsidies. withrespect

i?J il3:[i,X?]'#: de ve, opins"o,ti,y i"]i::1?,1',ff f ki' J,,'JJi."15"Ji,, ",. Members

in transformation to a marketeconomy Members in transformation to a marketeconomy aregivena seven-year phaseout prohibited periodto subsidies. r["rJ'.ro.idies must,ni*"u"r, withintwoyearsof thedate navebeennotified of entryiniororceot w1o Agreement inorderto benefir ,j:?,x'ffi?j t: ;; i,a"n sro,,m atio

liiil,''l:,,ff : f


narsore-c eiveprere rentiartrea tme nr

scM Agreement requires thatMembers.notify alrspecific subsidies, dutytawsandregurations countervairino and actionsto thescM committee. J "rr.orni"]iairing AnswerS(d) rf a partyfiresan appearagainst the reportof the paner,the reviewtheissuesof lar1a.{d19sseo Appeilate Bodysharl ov thepanerand conrirmoi,ioo,tyitsfindings. Dispute setrementeggv The losel ;*ro;;.iore^for appointing Apperare Bodymembers. Bodymembership mustbe broadry represeniatil!'or ffi";lon"tt"te memoership of the TheAppe'ateBodydetermines itsownruresof procedure. Appellate Theproceedings Bodyareconfidentiat. of the C"p"r,r'"itheAppellate Bodyaredraftedwithoutthe



presenceof the partiesto the dispute and in the lightof the informatron providedand the statementsmade' Th,eopinionsexpressed in the AppellateBody reportby individuals servingon the Appeilate.Body are anonymous. Tiil date, there have not been any dissentingopinionsand the Rulesof Procedure of the Appettateeooy envisagethat membersof the AppellateBody shall make every effori'toirt r,"ir. decisionsby consensus.where, nevertheless, " by consensus, a decisioncannotbe arrivedat the matterat issuehas to be decidedby majorrty vote. An AppellateBody reportgenerallycomposed of an introductronincludingsome asp!.!ts,.apart on the iJsuesralsedin the appear, and the discussionof rhese l::.,.iil rssues,and the findingsand concrusions ano recommencrations. where a panelor the AppellateBodyconcludes thata measureis inconsistent with a coveredagreement,it mustrecommend thatthe Memberconcernedbringthe measure into conformitywith that agreement.In addition to its recommendations, the panelor AopellateBodymay suggestwaysin which the Member.on""rnlo couldimplementthe recommendations. mustbe adoptedby the DSBand unconditionally accepted by the partresto the disputeunressthe DSB d"ecidesov .on."nrus not to adopt the ApoellateBody reportwithin30 days foilowing its circuration to Members.


Maximum marks : 100

NOTE : Arrreferencesto sections mentionedin parl_Aand paft_c of the

paper Question Act,te6tandretevant AssessmJni _12, vear zor t uniess :i:,,::Z:,X::ff::elax part A (Answer ANy TWO euestions from thispart)

Question 1

(a) su' -' success Ltd. wants to acquirean asset costing tl,00,00a. tt t' L options avai^bte, the first ang buying tii- assetby taking has :epavabrein five instarments ls a roan or a0.,000 el;;;;;; tTz inter""tper annum. 'J3

rentat charse ;;;"::,"i", "f"}i!'n:i:?,' rorwhich,iii"'r'tease is

y:[!",{"#,""Ji,7i,";:,8;::f ?:,:n,i,::;,::,:'r:,i,';:,',rjTli::, y









piV factor .g0g .826 .7St .6A3 .621 Assuming that the payments are made at the end of the year, suggest which arternative is better for t:ie company. The ra,te of depreciation is tS% while tax rate is 33.22%. (10 marks) (b) what is the v"tq'cttoe ,(lcmprnar,)^A 'slump difference Petween between 'demerger' and ,^,..* sale' ? (5 marks) Answerl(a) | - lf asset is taken on lease Particulars 1

LeaseRent Tax Saving@ 33.22% NetCashoutflow PV factor PV of net cash outflow




31,000 10,298 20,702 0.909 18,818

Total ll - lf asset is bought






30,000 3O,O0o 3o,0oo 30,000 9,966















12,441 76,536

Particulars 1

Paymentof Loan Interest Grossoutflow

years 3


a 20,000 14,000 34,000 /6

years 3



r a a f , 20,000 2o,ooa 20,

11,200 8,400 5,600 2,800 31,200 21,4oo 25,600 22,800

27 1 f,

PP-ATLP-December201 1 q





Depreciation @15% Total of Interest& Depreciation


12,750 1C,838




Tax saving@ 3322%




14,812 10,630 4921 3531

Net cash outflow




20,679 19.269




PV factor PV of outflow


19,199 16,529





0.621 14,124 11,966 83.967

Leaseoptionis better,as the cash outflowis less. Answer1(b) The Difference betweensrumpsareand demergeris as foilows: 1' Section2(19AA)saysthata 'demerger' meansa transferpursuantto a scheme undersections391-394of the companiesAct, 19s6.The resulting company mustissue,in consideration of the demerger,its sharesto the shareholders oi the demergedcompanyon a proportionate basisanda slumpsaleis definedin section2(42c)to meanthe transferof one or moreundertakings as a resultof the salefor a lump-sumconsideration withoutvaluesbeingassignedto individual assetsand liabilities. 2' Accordingto section45, anyprofitsor gainsarisingfromthe transferof a capital assetarechargeable to capitalgainstax and underSection47(vii),theprovisions of Section45 do not applyto a transferin a demergerof a capital assetby the demergedcompanyto a resultingcompanyif the reJultingcompany is an Indian company. 3'

Undersection50B, capitalgainsarisingfrom slumpsalesare chargeabte to tax' The capitalgains fromsuchslumsalesare to be calculated by suibtracting the net worth of the undertakingthat is transferredfrom tnl tump-suri consideration.


lf a transferis a demergerunderthe IncometaxAct,capitalgains liability would not arise.lf it is a slumpsale,suchliability would arise. For the transfer to be a 'demerger', the conditionsmentionedin section2(1gAA)must be complied with.

Question 2 (a) Hoyal Ltd. commenced operationsof the business of a new five star hotet in Mumbai on 1st Aprit, 20r0. The company incurred capitat expenditure ot {600 lakh on purchase of tand and tg| takh on construction of buiging during the period from January,2010 to March,2010 excrusivety for the above busrness, and capitalised the same in its books of accoint as on lst April, 2010. Furrher,during the previousyear 2010-11, it incurred cap1al expenditure of fl0 crore (out of which $0 takh was for acquisition of land) exclusively for the above business.


28 computethe dedu.ctign under section.l!..1o rorfhe assessm 12, assumingthat Royat 1 tta.- ils"'nffitpd ar,nr;"rii,rns entyear 201 section35AD and has-not specified ir ctai,im:teia'ny deductionunde,rchapter vt_A the heading ,C_Deductiorr;; unde ;;;;'ct of certain-;r;;;r;;,. (b) conversionof smaitprivate marks @ companie,: untistedpub,c companies rimited riabirrtypartnership intc ?nd it &iiit,^fro,,m cao*at'gains ':!:l[:\ri: tax subject tc conditian".""'6i"," nese'contaiinJ as speci,ed in ;e.rtain (c) Discusstax imptications of dividenddecrarationand issue of o"r::r:::":, (3 marks) Answer2(a) Computatio*11^"*lon aItowabte under section 35AD for theAssessmen tyear ZOtt-.tZ Particutars Capitalexpenditureincurred duringprevious year 2O1O_1 1 (excludingexpenditure, on acquisitionof land)i.e. 41,000takhs- f,60 lakh Capitalexpenditureincurredprior to 1.4.201O ano capitalizedin the books ot accorni a-Jon r .+.20r 0 TotalDeductionavailable underSection35AD Note : Expenditure to,

940lakh 95lakh 1035takh

Answer2(b) sectiona7(xiiiblhasbeenintroduced to facilitate conversion unristed pubriccompanies of smallprivateand intoLLps. on'.onu"r.ion, it srratinot be regardedas rt"vort"pit"r;in, taxunder a




se.,ion ad,subject torurriilmenr

berore #.ilT[i::J:l3 XXT,,:L theconversion Jlf",":l,i:Tmmediaterv

partners ortheLLpinrhesame p roportion as their shareholding J[il|ffi::'lr";;:,jj[.",:lJ3Tl^o^*^.^o:-" i,.r in p"u[i. (iir) sna,e"-.-# ansesto the shareholoers: );r::i:,il"i11"i:,::",^,11n

inprofitandcapirarcontriburion inr:

re LLP

(iv) Theaggregate of theprofit

sharingratioof thesharehorders of the the.limired liabirity partnership rr,'"i noiiJ'ressthan So"hatany companyin penodof 5 yearsfromthe timeouringtnJ dateof (v) Thetotalsares, "onu"lion, turnou_er or grossreceiptsin business of thecompanyshourd


(vi) No amountis paid,

direc'y or indirec'y,to any partner ."r11", accumurated out ot the profitstanding intheiccountrortnetirmon ,ri" i"t" conversion fora periodof threeyearsfrom thedateof conversion.



Answer 2(c) Tax lmplicationsof DividendDeclarationand issue

of Bonus shares:

The DomesticCompanyshallbe liableto pay addltionalincome tax on any amount declared,distributedor paid by such companyby way of dividend(whetherinterimor otherwise),whetherout of currentor accumuiatedprofits. Such additionalincometax siall be payable@15%plussurcharge@7.5"hpluseducation cess@2"/"andSHEC @1%' Therefore,the dividendreceive-d in the handsof shareholdersshailbe exempt. No tax liabilityariseson issueof Bonusshareseitherin the handsof companyor in the handsof shareholders. Question 3 An employee is going to join your company on annual CTC of T18,00,000. Prepare a remuneration ptan for him keeping in

view the following:

(i) He wants to minimise his tax liability within the tegal framework but take home salary shoutd not be less than tg takh" (ii) He does not own a house. (iii) He owns a car. But he can take another car from ffie company. (iv) He has two chirdren and one of them is in a boarding schoor. (v) His wife is emptoyed and she gets chitdren education ailowance. (vi) There is rp uniform code in your company. (15 marks) Answer3 (1) Tax Liability where whole salary is accepted in cash : First,tet,sassume that the employeegets {18,00,000as cash and no exemptedailowanceand deductionundersectionBOCto 80U is availableto him. Then his Tax Liability shallbe t4,0S,920.This is th . maximumliability on the emptoyee. (2) Jax liability where salary is divided into perquisites/altowancewhich are fully exempt : To minimisethetax liability sataryrn"ttn" dividedintoallowances/ perquisiteswhichare exempt.on the basisofihe given facts,the pay package shall be dividedas follows: (i) Emproyeedoes not own a house: In this case, there are two options.First is to give a Rent free furnishedhouse and second is to give House Rent Allowance.In the firstoption,the valueof rentfreefurnished houseshallbe taxable.And it willnothelphim in minimising thetax. Inthe secondoption, he can get exemptionof HRA as per section1o(j3A)to the minimumof actualHRA receivedor actualrent minus 10"/"of sataiy or 40"/"(in case of Non-metrocities)/SO% (in case of metrocities)of salary. In sucha situation,its betterto pay at least50% of salary as HRA assuming that he residesin Delhi and that the amountof actuat rent less 10o/o ol salaryis higherthan HRA received. (ii) Ownsa Car: As the employeealreadyowns a car so thereforeit has no use to give him anothercar as the valuationol car is fullytaxable. In that case he can be givenconveyanceailowanceas Tg00p.m which is exemptin his hands.

PP--ATLP--Decernber 20 11


(iii) children EducationAllowance:The employeehas two childrenand j of whomis in boardingschool.Childreneducationallowanceis exemptup to Rs. '100pm for two children.{ 300 pm for hostelexpenditure maximumof twochildren. Assurning thathiswifedoesnotclaimtax exempticnfor Children Education allowance. Hence,{ 2400as Childreneducation allowance and {3600 as Hostelfacrlity allowance can be givenand whichshallbe exempt i n h i sh a n d s . (iv) UniformAilowance:As thereis no uniformcoclein the companytherefore no allowancefor it can be givento him. (v) MedicalReimbursement:An exemptionof { 15,000is providedin the Act. HenceT '15,000 can be givenhimtowardsmedicalreimbursement. (vi) Gill: The companycan givehim giftsin kindupto{ 5000,as it is exempt in the Act. (vii) Leave Travelconcession: Assumethat he spencisaround{ 70,000on travel.Thereforehe may be allowedt 1,40,000in ajternate vearas Leave travelconcession. (viii) Telephone reimbursement: lt is exemptedto the extenttheamountrncurred on it. AssumingthatT 1,200pm is spentby him on telephoneexpenditure therefore{ 14,400can be givento himtowardthisexpenditure. (ix) Contributionof Employee& Emptoyerstowardsprovident fund:12./, of the employee's contribution is allowedas deduction underthechapterVl of the Act and 12/" of theemployer'scontribution is exemptunderthe headsalary. Hence,he may be given24% of basicpay and dearnessallowancetowards the PF contribution. (x) Leave Encashmenf: Leave encashedduringthe serviceis fully taxable howeverleaveencashedat thetimeof retirement is exemptuptominimum of the following: (a) Leaveencashmentactuallyreceived (b) 10 monthaveragesalary (c) Cashequivalent of unavailedleavecalculatedon the basisof maximum 30 leaveof everyyear. (d) ? 3,00,000 Therefore,he may be given30 days leavesalarywhichmay opt at the ti ::e of retirementfor gettingthe exempt;on. On the basisof above,his salarystructureis preparedas follows: Particulars

Salary Structure

Basic Pay


DearnessAllowance(50 % of BasicPay)








Taxabteincome as per lncome Tax Act

6,14,260 3,07,129 Exempt Exempt Exempt

pp_ATlp_December 201l 3,600 Exempt 15,000 Exempt 5,000 Exempr 70,000 Exempt 14,400 Exempt 1,10,567 1,10,567 1,10,567 Exempr 76,782 Taxableat the

31 FlcstelfacilityAilowance MedicalReimbursement Gift in Kind LeaveTravelConcession Telephonereimbursement 12% Cantributionof employeetowardspF 12'""Qontributionof employertowardspF LeaveEncashment

time ol encashment



Gross Totallncome Less : DeductionundersectrongOC Totallncome (Roundingoff) Incometax

10,31,956 1,00,000 9,31,956 9,31,960

Education Cess@2%& SHEC @1% Totattax liabitity (Roundingoff) He wilrget {1 3,59,484 (614260+


1,33,588 4,008 1,37,596

1,37,600 3071 29+ 460695+ 2400+9600+3600 + 15000+

50000+ 14400 - 132600t",tut" nomesarary. Hi,,u" riabir*y i?990.0 wi, get reduced tot 1,37,600 from{ 4,05,b20. -(Note :Alternate answer may be possibte.)

euestion O

PART B (Answer euestion No. 4 which is compulsory ANy TWO of the rest from tnis,pai.) "nd

'' ffl:";:;,most

appropriate answerfrom thegiven optionsin respector the

(i) which of_the forowing has not been expressrydefined under the Centrat Excise Act, 1g2q _ (a) Broker (b) Goods (c) Curing (d) Factory. (ii) which of the foltowing scheme is opfi*nal irtder centrat excise (a) DLltv based on tariff vatue (b) Duti" i;ased cn ft?!)

PP-ATLP-December 2011


(c) Duty based on transaction value (d) Duty based on compounded levy. (iii) Under section 23 of the Customs Act, 1962, duty payable is remitted if imported goods are lost, destroyed or abandoned before (a) Goods are examined (b) Duty has been (c) The proper officef has made an order for clearance (d) Goods are cleared for home consumption. (iv) A proper tax planning exercise would have to take into consideration the following aspect(s) under the Customs Act, 1962 (a) Classification of goods (b) Valuation of goods (c) Exemption notifications (d) All of the above. (v) Effective rate of customs duty on baggage is (a) 36.05% (b) 41.2%

(c) s0.e% (d) 51.5%.

(l mark each)

(b) Rewrite the following sentences after filling-in the blank spaces with appropriate word(slfigure(s) : (i) The

is not eligibleto take credit of special CVD paid on importedgoods undersection3(5) of the CustomsTariffAct, 1975.

(i0 Arder of CESTATrelatingto can be appealed directly to the SupremeCourt of lndia undersection 35L of the Central Excise Act, 1944. (iii) lf fuel or lubricatingoil is suppliedas sfores to foreigngoing vessel, customs duty paid on the fuel or lubricatingoil is refunded as duty drawback. (iv) Assessee can apply for settlement

in lifetime of

applicantexcept in respect of some specifiedcases. (v) The doctrine of promissory estoppel has its origin in principles of (1 mark each) (c) Test the veracity or otherwise of the following assertions : (i) There can be 'manufacture' even if both inputs and final product fall under same tariff heading. (ii) Mere change in tariff does not mean there is 'manufacture'. (3 marks each)



(d) can a show-causenotice be issued withina period of five years from the relevantdateif the internalauditparty fin;it ;,;;;i;e auditof centrat excise recordsof a manufacturer that'cenirat iuii has been shortpaid ? Explain. "*"iiit ft marks) Answer4(a)(i) (b) Goods Answer4(a)(ii) (d) Dutybasedonrompounded levv Answer4(a)(iii) (d) Goodsareclearedforhomeconsumption Answer4(a)(iv) (d) Ail of the above Answer4(a)(v) (a) 36.05%. Answer4(b) (i) The service provider is not erigibre to take creditof speciarcVD paio on importedgoods undersection3(5) of the CustomsTariffAct, 1975. (ii) order of CESTATreratingto Rate. of duty & varuationcan be appeared direcflyto the supremeborrt ot tnoiauioerlffin 351 of the centra.l ExciseAct, 1944. (iii) lf fuer or rubricating oir is suppriedas stores to torergngoing vesser, dutv paid on rhe fueror ruori."ting-oir i, refundedas duty ffi;?:"ms (iv) Assesseecan appry for setflement more than once in rifetimeof applicantexceptin respectof some specified cases. (v) The doctrineof promissory estopperhas its originin principres of Equity. Answera(cXi) Manufacture implies a change, buteverychangeis notmanufacture. . Theremustbe a transformation; a newanc different articlemustemergehavinga distinctive name, cnaracter or use' once a newcommodity havinga def]niteano oistinctcommercial identityin the marketis produced andthe samehas beenspecifiedin the Tariff,it is exigibleto duty. Therecan be manufacture evenif bothinputsand finalproductfall undersame tariffifa different identiflable commercially knownproduct comesintoexistenc e - prachi tndustries v. CCE(2008) 14STT161(SCi, pa"Xing;i Laminated ie1Ltd.,v.CCE(1990) 4e ELTs26(SC).

PP-ATLP-December 2011


Answer4(c)(ii) It is irrelevant whetherthe new articlefallsintothe sametariffheadingas the duty paidinputsfromwhichit is manufactured or belongsio a separatetariffheading.Just becauseraw materialand finishedproductfall in differenttariffheadings,it cannotbe presumedthatprocessof obtainingfinishedproductfromsuchraw materialautomatically constitutemanufacture- CCEv. SF l-r'ssues (2005)186 ELT 385 (SC). Makingtarpaultnmade up from tarpaulinsheetby stitchingand puttingeyeletsis not manufacture evenif tariffheadingis different- CCEv. Tarpaulinlnternational(2010) 2 9 6E L T4 8 1 ( S C ) . Answer4(d) Yes,a showcausenoticecan be issuedwithina periodof 5 yearsfromthe relevant date it the internalauditpartyfindsduringthe auditthat exciseduty has beenshortly pard. U n d e rs e c t i o n1 1 A ( 5 ) ,w h e r e d u r i n gt h e c o u r s eo f a n y a u d i t ,i n v e s t i g a t i oonr rrerif ication,it is f oundthatanydutyhas notbeenleviedor paidor short-levied or shortpaidor erroneously refundeddueto fraud,collusion, anywillfulmis-statement, suppression of facts,contraventionof any of the provisionsof this Act or of the rules maclethere underwith intentto evadepaymentof duty,but the detailsrelatingto the transactions areavailable in thespecifiedrecord,thenin suchcases,the CentralExciseOfficershall withina peric;d of fiveyearstromthe relevantdate,servea noticeon thepersonchargeable withthedutyrequiring himto showcausewhyhe shouldnotpaytheamountspecilied in the noticealongwithinterestundersection11AAand penaltyequivalentto fiftypercent of such duty. Question5 (a) Solid Shoes Co., a manufacturerof footwear,used to purchase various raw materialshkefabrics.rubber,chemicals,solvent,etc., which were mixedtogether. The thin layer of such mixture was sandwiched between two sheets of textile fabric through a calendaringmachine. The resultantproduct'Doubte Textured RubberizedFabric' (DfRn was cut and stitchedas per requirementand was used as shoe-uppers. At times, DTRF was sent to job-workers for stitching purposes. After completing the entire process, lhe vulcanisation of footwear was rlone and then, it would be available for sale as footwear. Some of the DTRF was used in the manufactureof canvas shoes. which were exempt from duty. The department contended that the intermediate product DTRF was a distinct product with specific properties and was used in considerable quantities for making rain-coats, holdalls, hand-hags, etc., in the outside market. Since the DTRF was excisable good and it was used in the manufactureof exempted final product being canvas shoes,therefore DTRF was liableto exciseduty. However,the departmentilidn't have sufficientevidence to prove its marketability. Examine whether contention of the department is correct by referring to case law, if any, in the light of explanationadded to section 2(d) of the Central Excise Act, 1944w.e.f. 1}th Mav,2008. (5 marks)

35 pp_ATlp_December201.l (b) rmproperLtd. made an unauthorised import of goods,which were rater on confiscated'Goodswerenotredeemea oy payingriie under sectionl2sof the customsAct,1962. rhe assessee contendedihat oncetheinported goods wereconfiscated and theoptionto reieasethem was not exercised, no duty waspayable' lt placedrelianceon section23 of the said Actwhichprovides thatif theownerof importedgoods retinquishes nislnrcb the goods, he sha, not be liableto pay the dutythereon. Discussbrieflywhethertheassessee is bound - --"- 'v topay customs t'v! vv dutywithreference to decided case law, if any.

$ marksl (c) Exprain rh"!r:y^l"r?tionof phrase_,a mistake apparent from record,as mentioned in section 3sc(2)of thecentratExcise ^v" eci,{iir.-"'' t ra+'


$ marks)

Thefactsof thegivencaseare simirar 492(sc)'TheApexcturt obseru"Jttrui to BatarndiaLtd.v. ccE(2010) 2s2 ELT r"re theoreticat porrioitity of theproduct soldis notsufficient being butthere.horrJou.ommerciarcapabirity of beingsord. Thesupremecourtfurtherruledthat theburdento showthattheproductis of beingboughtorsolciis entirely capable onin.i"uunr", whichhasfaired 'Double provemarketability. to Thetefore' Texiured n,joo"rir.JFabric(DiRrt wa!'riotriabre to exciseoury. Theabovejudgement,is inconformity withtheexplanation to sectron2(d)of centrar txcise Act,1944insertedby the Finante beingboughrandsordfora consid*rutionAct,200b"..;;;i;; to whichcapabirity of .on.iir-rt"Jililih"r*"ru',,,,n. Hence'thecontention thedepartment is notcorreciandsoridshoesco. is -of required not to paydutyon DTRF. AnswerS(b) Yes'theassessee is boundto paycustomsduty,evenif thegoodsareconfiscated andnotredeemed by payingfine. Thefactsof the caseare simirar poona to Heatthseryicesv, ccus.2oog(242) E'L'T'335 (Bom')The Highcourt etucioated the distinction berweensection23 ano section125'Unde;'section 23,tneperslnwhoimports thegoods,surrenders rristitteirf the goods.By surrendering tiirein tne gooos,th.epersonimporting the goodsor the ownerof thegoods.:::: to havea riirrtto craimrhegooJJ on rheotherhand,the orderof confiscation is passedin respe"ct of theperson"*non". claimedto import exportthe goods'lt impliesthathe or craimstitleor rightin theproperty. Thefineunder section125is payabre by thepersonwhoseeksredemption of thegoods.rfthegoods vestinthestate.rhe personnoweue,., whohadimported ,T:ff[::::[*ff'thev

betien"'.",*r'""n"ffi $:lrTJ[Yi:'.1?i,;:iffi'$'iH"t"""#,:lmm:i:]jil

lherefore' operatein two different-situations and. mutuatti exclusive.Therefore, section23 cannotbe considered for the pripor" of Sre interpreting section111. '11 Section 1 confers the power . to confis

imoroperrv i'po,iJ

ortheo,n",. p,'ou,n'oX'S,:[t.T[H'r:?["1["JJfjrTt

possession "ndundersection12s is distinct of the goods A:: fromthe dutyof goodswhichareto be imported "nJJiti"r"nt or exported.



and goodsare not redeemedb1 Hence,in casethe importedgoodsare confiscated, pay payingfine,the importeris boundto the customsduty. Answer5(c) Tribunalhas no powersto reviewits orders. However,it may passorderfor rectifying "a mistakeapparentfrom the records",within six months of passingan order under section35C(2)of CentralExciseAct, 1944. In Asst Commr, lT, Rajkotv. SaurashtraKutch Stock ExchangeLtd.2008 (230) the phrase"anymistakeapparentfrom ELT385 (SC)SupremeCourt,whileinterpreting record"stated that a patent,manifestand self-evidenterror which does not require elaboratedisctissionof evidenceor argumentto establishit, can be said to be an error apparentor the face of the recordand can be correctedwhile exercisingcertiorari An errorapparenton the faceof the recordmeansan errorwhichstrikeson iurisdictic';. mere lookingand does not need longdrawn-outprocessof reasoningon pointswhere theremay conceivablybe two opinions.Such errorshouldnot requireany extraneous matterto show its incorrectness. The Apex Courtfurtherclarifiedthat an errorcannotbe said to be apparenton the faceof the recordif one hasto travelbeyondthe recordsto see whetherthe judgmentis by a longdrawnprocessof reasoning corrector not.An errorwhichhasto be established on pointswheretheremay conceivablybe two opinionscan hardlybe saidto be an error apparenton the face of the record. Question 6 (a) lJnfair Ltd.sold 100 unitsmanufacturedby it for {12,000 per unit. lt had received interest-free advance of {6,00,000 from the buyer for the whole of the year. Computefhe assessable value of 100 unitssold in followingindependentcases:

(i) Thepricechargedfromotherbuyersis ?11,600per unit. (ii) Thepricechargedfromotherbuyersis {12,800per unit. (ii| Thenarmalrateof interestis 12%per annumand thepricechargedfrom (6 marks) otherbuyersis {12,800per unit. (b) Fromthefollowinginformation,computethetotalamountof customsdutypayable by the imporier: valueundercustoms: {6,00,00a. 0 Assessable (ii) Tariffvaluenotifiedunder section3(2) of the CentralExciseAct, 1944for in lndia: (5,00,000. paymentof excisedutyon likearticlemanufactured = 107" (iii) Basiccustomsduty duty Centralexcise SpecialCVD Educationcess






as applicable.

(6 marks)

and exportedgoodswot"thfl 0,00,000to Udayof UK (c) Mayankmanufactured on l st January,2011andavaileddutydrawbackof 715,000.Mayankimported 2011. Whatwillbe thecustomsdutypayable thesamegoodson 8th Febr,uary,

37 PP-ATLp-December20l1 by Mayank,if rate of basic customsduty is 10% and goods are exempt from CVDandspecialCVD? (3 marks) Answer6(a) Computationof AssessableValueof UnfairLtd. As per the explanation2 to Rule 6 0f the central ExciseValuationRules, 2000, wherean assesseereceivesany advancepaymentfrom the buyeragainst deriveryof any excisablegoods,no notional intereston such advanceshallbe addedto the value unlessthe central Exciseofficer has evidenceto the effectthat the advancereceiveo


oftheprice tr tnesooos. Hence, theassessabre varue snarl

(i) Assessable value= t12,000x 100= {12,00,000 No' notionalinterestshallbe added as advancereceivednas not influenced the pnce. (ii) Assessable value= T(l2,OOO + gOO)x 100= T12,SO,0OO TB00shat be addedas notionar interest(t12,g00_ {12,000)as the price charged is influenceddue to the receiptof advance. (iii) Assessabte Vatue= {(12,000+ gOO)x 100= {12,80,000 Rateof interestis irrelevant, however,Rs.800shallbeaddedas notionalinterest - t12,0oo)


as thepricecharged is infruencJou" to thereceipt of

Answer 6(b)

Computationof TotalCustomsDutypayable Assessable Value(AV) BasicCustomsDuty(BCD)@ jO% Additional Customs Dutyundersection 3(1),i.e.,CVD @ 10.9%on AV+BCDie. {6,60,000 EC& SHEC@ 3y"on BCD+ CVD({t ,27,gBO) Totalcustomsdutypayable Answer6(c)

T 6,00,000 60,000 67,980 3,839 1,31,819

As per Notification - cus dated16.12.1g96 No.94l1gg6 rf the same goodswhich wereexportedare re-imported within3 yearsand thereis no changern the identityof the

reimpo;il ; .,"oil.'0,'ysharb";;t;; ffi n i:ffi itntg:-"il];fflo"- ano *ra,l$:

the customsdutypayabreby Mr. Mayank on re-import of goodssha, be



Question 7

(a) Besidesexcisedutyconcessions,whataretheotherpioceduralconcesstons (7 marks) briefly'

? Exptain enioyedby smatt,,lu'6-ii"tiies 1962 of section2S(5)of the CustomsAct' (b) Discussbriefly the provisions when noticestageitself' show-'cu'se if regardingconclusion (5 marks) invoked' period ot timitainn nai been extended e f u vr n c J o f e x p o r t d u t y ' . l s d o c t r i n e o f uGn jmarks) ustenrichment (c) W r i t e a n o t e o n , r 'I'v applicable to it ?


ln the SSIunitsenjoymanymoreconcesslons Besidesexcisedutyexemptions, as under: termsof Procedures

( i ) P a y m e n t o f D u t y : S S l u n i t s ^ h a ) / e t o p a y e x c i sIn ed u t y oof n qMarch' u a r t eduty rlybasisbySth month of of thefollow';;';'"tt"tlby 6thin ""s" "-puyn.'"nt)' bY31stMarch; is paYable

Fitingofreturn:SS|unithastosubmitexcisedutyreturnonquarter|ybasis quarter' of thefollowing 1Oth (iii) Registration:Noregistrationuptotheturnoverof{150lakh.on|yadec|aratio limit)' of {90 lakh(specified on |."u"[ingtnl turnouer oncein lifetime (iv) E x p o f t p r o c e d u r e : A R E . l f o r m n e e d n o t b e p r e p a r e d f o r S S I u n i t s w i t h t u r n o belowt150 lakh. (v) C E N 4 A T C r e d i t : S S I u n i t s c a n a v a i I e n t i r e C E N V A T C r e d i t o n c a p i t a l g o o d the FirstYearitself' onlvwith : SSI unitscan be visitedbY DePartmentil'9',1t::"" (vi) OfficiatVrsits purpose'They andfor specific oinssistantcommissioner specificpermission by theassessee bookmaintained visitors' haveto enterretevan,'p"ii""r"riin (vii) A u d i t : S m a | | u n t t s m a y b e a u d i t e d o n c e i n { i v e y e a r s , w h i | e m e d i u m S S | u n i maYbe auditedonceintwoYears' (ii)


whereanyduty'hasnotbeenleviedor 1-962' As persection28(a)of CustomsActj beenltatd' ,etunoll oi lnt"t"ti payablehasnot hasbeenshort-levieioiLr.n"ourly aild wilfulmis-statement refundednv..*u=ontf collusion, parilypaido|, iive within notice show-cause factsir.l",irn"properofficershallserve of"rron"oJsly suppression date' yearsfromtherelevant

Section2B(5)providesthattheperson onwhomn o t i c e ithereon s s e r v eunder dmaypaythed payable arongwithinterest r.""ot"c nJ^him the (inful or in part) ;;;; of days within30 ". to 25%ot tr.ti outyliability, section2BAAanOpenattyequal properofficerof suchpaymentin writing' receiptof thenoticeandinformthe

|fthepersonhaspaidfu||amountofdutya|ongwithinterestandpenalty@25" then: dutyliabilitY, to whon'lnotices persons in respecttl ^tl.r:lpersonandother (i) Theproceedings but' wereserveosliallbe deemedto beconcluded




(ii) The prosecution proceedings in relationto offencesfallingundersection135, 135Aand 140willnotbe deemedto be concluded andsuchproceeding maybe initiated/contin ued againsthim. However,if the properofficeris of the opinionthatthe dutywith interestand penalty paidfallsshortof the amountactuallypayablethenhe shallcontinue the proceeding by issueof showcausenoticein the manneras providedin section28(1)(a)for the amount whichfallsshort. Answer 7(c) Exportduty is chargedon very few items,but section26 of CustomsAct makes provisionsfor refundof exportduty. Exportduty is refundablei{: (i) The goodsare returnedotherwisethan by way of resale; (ii) Goodsare re-imported withinone yearfromthe dateof re-exportation; (iii) An applicationfor refundis madebeforethe expiryof six monthsf rom the date on whichthe properofficermakesan orderfor clearanceof goods. Doctrineof unjustenrichmentdoes not applyto refundo{ exportduty as this refund is undersection26 of CustomsAct, whichhas not been amended- Section27(2)(d). PART C Question 8 Attempt any five of the following : (i) What are the factors to be considered in taking decision whether a country is tax haven or not ? (i0

Ajit has an undertaking (Ltnit-A) in free trade zone fffZl ^nf :::;::, undertaking (Unit-B) in domestic tariff area QfA). From the following particulars, compute the deduction under section 10A for the assessment year2011-12: Unit-A Unit-B (() ({) Total turnover

60 lakh

Export turnover (included in above)

40 lakh

Profit earned

21 lakh

40 lakh 12 lakh' (4 marks)

(iii) Explain in brief the circumstances under section 9(1)(v), (vi) anr| (vii) when interest, royalty and fees for technical seruices (FTS) shaii be deemed to accrue or arise in lndia. (4 marks) (iv) Who can seek 'advance rulings' ? (4 marks) (v) Dr'scuss when an enterprise is taken as 'associated enterprise' under sectian 924.

(4 marks)



(vi) Dlscuss the salient aspects concerning permanent establishment. (4 marks) AnswerS(i) A tax havenis a placewherethereis no tax on incomeor it is taxedat low ratedof tax structure.The factorsto be consideredin takingdecisionwhethera countryis tax havenor not are as under: (i) Thereis nil or nominalnormaltax on income; (ii) Thereis no systemof exchangeof information with respectto the tax regimein the tax heavencountry; (iii) The regimelackstransparency; (iv) LimitedRegulatorysupervision or lackof financialdisclosure to the government. (v) The Government of thecountryfacilitates the establishment of theforeignowned enterprises withoutthe needfor strictcomplianceof locallawsor prohibitssuch entitiesfrom havingany co-mechanicalimpacton the localeconomy. AnswerS(ii) Deductionundersection10Ashallbe availableon the profitsattributable to exports. The UnitB has not exportedduringthe previousyear henceno deductionis allowable. The deductionavailableto UnitA shallbe computedon the followingbasis: _

Exportturnover of undertaking x Profitof theundertaking Totalturnoverof undertakino


*t 40lakh x t21 lakh oolutn



{'14 lakh shall be allowed as deductionto Unit A subject to fulfillmentcertain conditions specifiedin section10A. Answer 8(iii) Undersectiong(1)(v),(vi),(vii)in the followingcircumstances the Interest,royalty and feesfor technicalservices(FTS)shallbe deemedto accrueor arisein Indiawhere such incomeis: (a) payableby stateor centralgevernment; (b) payableby a residentexcept where the paymentrelatableto a businessor professioncarriedon by him outsideIndiaor to any othersourceof his income outsidelndia: (c) payableby a non-resident, if paymentis relatableto a businessor profession carriedon by him in Indiaor to any othersourceof his incomein India; As per the explanationto section9, the interest,royaltyand FTS is deemedto accrueor arise in India,and shall be includedin the total incomeof the Non-resident regardlessof whetherhe hasa residenceor placeof businessor businessconnectionin India.


PP-ATLP-December201 1

Answer 8(iv) As per Section245N(b)of the IncomeTax Act,the advancerulingunderthe incometax act could be soughtby : (a) A non-resident lor a transaction whichhas beenundertaken or is proposedto be undertakenby him;or (b) A residentfor a transactionwhich has been undertakenor is proposedto be undertakenby him witha non-resident or (c) A residentfallingwithinany such class or categoryof personsas the Central Governmentmay, by notificationin the OfficialGazettespecifyin this behalf. Theseapplicantsmay make an applicationundersub-section(1) of section245e. Answer 8(v) Associated enterprise [Section 92A(1)] "Associatedenterprise",in relationto anotherenterprise,meansan enterprise(a) whichparticipates, directlyor indirectly, or throughone or more intermediaries, in the : (i) management,or (ii)control,or (iii)capitalof the otherenterprise;or (b) in respectof whichone or morepersonswho participate, directlyor indirecfly, or throughone or moreintermediaries, in its managementor controlor capital,are the same personswho participate, directlyor indirectly, or throughone or more intermediaries, in the managementor controlor capitalof the otherenterprise. Thus,section92A(1)(a)providesthatif an enterprise participates in the management, capitalor controlof anotherenterprise,then,the otherenterpriseis to be regaidedas associatedenterpriseof the participating enterprise.Suchparticipation may,however, be direct,indirector throughone or moreintermediaries. Section 92A(1)(b)providesthat if one or more persons participatesin the management, capitalor controlof oneenterpriseandthe samepersonsalsoparticipates in the management, capitalor controlof anotherenterprises, then,boththeseenterprises are associatedenterprises. In this case also participationmay be direct,indirector thoughoneor moreintermediaries. Answer 8(vi) One of the importantterms that occur in all the DoubleTaxationAvoidance Agreementsis the term 'PermanentEstablishment' (PE)whichhas not beendefinedin the lncomeTax Act. Howeveras per the DoubleTaxationAvoidanceAgreements,pE includes,a wide varietyof arrangementsi.e. a place of management,a branch,an office,a factory,a workshopor a warehouse,a mrne,a quarry,an oilfieldetc. lmposition of tax on a foreignenterpriseis done only if it has a PE in the contractingstale.Tax is computedby treatingthe PE as a distinctand independententerprise.Normally,allthe tax treatiescontaina definitionof PE. PE generallymeansa fixedplaceof includesa constructionsite and installationprojectprovidedsuch activitieslast more than the specifiedtime.

guideline answer cs exam