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India’s Most Critical Trade & Regulatory Compliance Digest

India’s Most Critical Trade & Regulatory Compliance Digest

Lex Witness in association with the Trade & Regulatory Compliance Practice Desk at Saikrishna & Associates brings to you a detailed analysis on select updates and notifications.

Directorate General of Foreign Trade Eases Restriction on Movement of Used It Assets From Special Economic Zone to Domestic Tariff Area

On 1st January 2024, the Directorate General of Foreign Trade (“DGFT”) under the Ministry of Commerce and Industry issued a notification (“Notification 56/2023”), amending Paragraph 2.31 (under Chapter 2) of the Foreign Trade Policy 2023 (“FTP 2023”), which deals with import policy for second-hand goods. Notification 56/2023 inserts Paragraph 2.31 [I (e)] to provide relaxations for importing used Information Technology (“IT”) assets/ goods like laptops, desktops, monitors, and printers from Special Economic Zones (“SEZs”) to Domestic Tariff Areas (“DTAs”), subject to the fulfilment of conditions stipulated therein.

Generally, the import of goods/services is subject to certain restrictions. These restrictions are divided into four categories, namely –

Restricted – import/export of goods/ services allowed only upon obtaining authorization from the DGFT,

Exclusive trading through State Trading Enterprises (“STEs”) – export/import of goods/services through STEs subject to conditions laid out in the Foreign Trade Policy,

Free – import/export of goods/services which do not require any authorization from the DGFT, and

Prohibited – import/export of goods/services not permitted.

Since SEZs are designated areas within a country that are deemed to be foreign territory for the purposes of trade operations, duties, and tariffs, transferring goods from the SEZ to the DTA is essentially equivalent to importing them into the country.

With this background, the Notification 56/2023 states that the import of used IT assets from SEZ to DTA falls under the “restricted” category and would be subject to a ‘License for Restricted Import’. However, the movement of used IT assets would be free i.e. without requiring a licence for restricted imports, subject to the following conditions: 

Further use for DTA operations – The used IT assets may be transferred for the purpose of further use in DTA operations. Further, such transferred IT assets must have been used for a minimum period of 2 years in the SEZ and must not be older than 5 years from their date of manufacturing.

  • Re-location of a unit to DTA – In case a unit of a company closes its operation in SEZ and re-locates to DTA, then the transfer of such assets will not require a licence for restricted imports provided that the used IT assets of the unit are not older than 5 years from their date of manufacturing. However, if the IT assets entered the SEZ area in second-hand/used/old condition and have been used for less than 2 years then such used IT assets cannot be transferred to DTA without a licence.
  • No exemption from regulatory requirements availed at the time of import – If at the time of importing the used IT assets into SEZ, any exemption from regulatory requirements i.e. Compulsory Registration Order (CRO), Restriction of Hazardous Substances (RoHS), and WPC (Wireless Planning and Coordination) was availed, then such used IT assets will not be covered under these relaxations.
Firm’s Take

Earlier, a company in DTA needed a licence for importing used IT assets from SEZs. By amending the FTP 2023 vis-à-vis used IT assets, the DGFT has eased the cumbersome process of obtaining authorization/licences upon fulfilment of the above noted conditions, thereby allowing seamless transfer of used IT assets from SEZ to DTA and facilitating ease in doing business in India.

Having said that, companies that wish to transfer used IT assets to DTAs, must comply with the conditions stipulated in Notification 56/2023 in order to avail the benefits of the amendment and to import used IT assets without obtaining a license from the DGFT.

Dot Extends Guidelines For Registration Process of ‘machine to Machine’ Service Providers & Wpan/wlan Connectivity Provider For M2m Services to All Entities

The Department of Telecommunications (“DoT”) on 01st January 2024 issued an addendum to the guidelines dated 8th February 2022 for registration process of ‘Machine to Machine’ service providers & WPAN/WLAN connectivity providers for M2M Services (“M2M Guidelines”). The addendum extends the registration requirement under the M2M Guidelines to include all entities (including Government departments, institutions, undertakings, proprietorship firms, societies and trusts) offering Machine to Machine (“M2M”) and Wireless Personal Area Network/Wireless Local Area Network (“WPAN/WLAN”) services for M2M services.

Earlier, only companies, limited liability partnerships (“LLPs”), and partnership firms were required to register as an M2M service provider (“M2MSPs”) and WPAN/ WLAN connectivity provider for M2M services. However, the DoT has now extended the scope of registration to all entities engaged in such business (i.e. M2M services/WPAN/WLAN connectivity for M2M services) including government departments/organizations, institutions, undertakings, proprietorship firms, societies, and trusts. The extension of the registration requirement is aimed at proliferating the standard-based and secure M2M/In- ternet-of-Things (“IOT”) ecosystem and also addressing concerns of M2MSPs and WPAN relating to interface with Telecom Service Providers, Know-your-customer (“KYC”), security, encryption, etc.

The M2M Guidelines regulate and operationalize M2M services in India through registration under such guidelines. The M2M Guidelines make the registration of M2M service providers and WPAN/WLAN connectivity providers mandatory in India and prescribe a host of requirements for such providers. The requirements under the M2M Guidelines include inter alia maintaining and updating the details of customers of M2M services, deploying only devices/equipment in the network that meet the mandated Telecom Engineering Centre standards and certifications, ensuring the protection of privacy of communication and data as per applicable laws, adherence to KYC regulations, use of e-SIMs with Over-the-Air subscription update facility, etc.

The deadline for registration with the DoT for all entities providing M2M services or WPAN/WLAN connectivity providers is 31st March 2024. Non-compliance with the registration requirement may result in the withdrawal or disconnection of telecom resources obtained from authorized telecom licensees.

Firm’s Take

The DoT’s decision to extend the registration requirement for M2M services and WPAN/WLAN connectivity services to all entities has been taken to extend the scope of the registration in order to proliferate the standard based and secure M2M/IoT ecosystem. The decision marks a crucial step in shaping a secure and standardized M2M landscape in India. This expansion aims to streamline interactions between M2M service providers and telecom service entities, addressing concerns related to KYC, security, and encryption.

By broadening the scope of registration, the DoT is actively supporting the growth of the M2M industry, encouraging businesses to harness the potential of IoT technology for the advancement of smart cities, industries, and other IoT-enabled applications. The government’s commitment to building a secure and innovative M2M/IoT landscape reflects its recognition of IoT’s potential and dedication to creating an environment conducive to its growth and widespread adoption.

The Advertising Standards Council Of India Updates The Guidelines For Qualification Of Brand Extension – Product Or Service

On 14th December 2023, the Advertising Standards Council of India (“ASCI”) updated the Guidelines for Qualification of Brand Extension – Product or Service (“Brand Extension Guidelines”) for the restricted category of products or services that are prohibited from advertising by law. These amendments have been introduced to target the brand extensions of restricted categories of products and services in big-ticket sporting events and to prevent the misuse of brand extensions as surrogate advertisements.

By way of brief background, Chapter III of the ASCI Code for Self-Regulation (“ASCI Code”) prohibits indirect advertisement of products, advertising of which is prohibited/restricted under law or the ASCI Code (such as tobacco and alcohol), by circumventing such prohibition/restrictions and implying the advertisement to be for other products the advertisements for which are not prohibited/restricted. The ASCI Code provides certain parameters for assessing whether an advertisement is an indirect advertisement of a restricted product/ service. One such parameter is to see whether the unrestricted product, which is the subject of the advertisement in question, is produced/distributed in reasonable quantities considering the scale of advertising, media used, and the markets targeted while advertising the unrestricted product. 

In furtherance of the above parameter, the ASCI introduced the Brand Extension Guidelines to evaluate the validity of the advertisements of unrestricted products/ services. The Brand Extension Guidelines require the brand extensions to meet the specified thresholds of business, investment, or distribution for such extensions in order to be considered genuine by ASCI. Through this update, the ASCI has introduced additional criteria in these Brand Extension Guidelines.

Updates to the Brand Extension Guidelines are as follows:

Advertising budget to be commensurate with sales turnover – The updated Brand Extension Guidelines mandate that the advertising budget of genuine brand extensions should be in proportion to the sales turnover of the brand extension.

  • The advertisement budget would include the following:
    • Expenditure across all forms of media of the past 12 months,
    • Payments made to celebrities for brand endorsements on an annual basis, and
    • Annual average expenditure on advertising production for the brand in the previous 3 years.
  • The proportions have been capped at the following –
    • Not more than 200% of the sales turnover in the first 2 years of the launch of the brand extension
    • Not more than 100% of the sales turnover in the third year,
    • Not more than 50% of the sales turnover in the fourth year, and
    • Not more than 30% of the sales turnover thereafter.

ASCI mandates all the evidence, including the above-noted evidence, that supports the brand extension’s qualifications for advertising, to be certified by a reputed and independent CA firm.

  • Variants not to be treated as fresh extensions – Any variants (i.e. new products/ services) launched under a brand extension are not to be treated as a fresh or new brand extension, and the original date of the first brand extension would apply to all such variants.
  • Non-compliance with the updated Brand Extension Guidelines – In the event the brand extension of the parent restricted brand does not meet the updated criteria, then ASCI will not consider such brand extension to be genuine and would treat such an extension as a surrogate advertisement.
Firm’s Take

ASCI, as a self-regulatory body, has played a crucial role in governing advertisement content by introducing various guidelines from time to time that are aimed at addressing various issues pertaining to advertisements such as surrogate/ indirect advertisements. While surrogate advertisements are generally prohibited, genuine brand extensions are acceptable as they are based on legitimate products or businesses and provide an opportunity for businesses to diversify and expand into newer markets.

ASCI’s Brand Extension Guidelines are aimed at protecting this genuineness of advertisements and accordingly provide for provisions that mandate certain thresholds for, inter alia, sales turnover of the product/service, fixed asset investments, outsourcing of manufacturing/procurement, to be met for a brand extension to be considered genuine.

About Author

Ameet Datta

Ameet Datta is a Partner at Saikrishna & Associates. He is an IP litigator and TMT lawyer with over 22 years of experience and wide ranging expertise across IP Law, Technology law, privacy and data protection law, white collar crime cases around data breaches, and, media & entertainment law specifically in relation to licensing, content aggregation & acquisition, film & music production, distribution/ licensing, format rights, defamation and right of publicity. Ameet has extensive experience with the creative sector in terms of multiple litigations including licensing disputes before the Courts & the Copyright Board. Ameet is closely involved with Copyright laws, Technology regulations and policy matters. In 2010, Ameet appeared as an expert witness before the Indian Parliamentary Standing Committee overseeing amendments to the Copyright Act, 1957. Ameet has been highly ranked as a recommended lawyer for IP Litigation, and, telecoms, media & entertainment by Chambers & Partners (Asia Pacific), WTR1000; as a recommended lawyer for IP litigation by Legal 500, and recommended as an IP Star by MIP

Suvarna Mandal

Suvarna Mandal is a Partner at Saikrishna & Associates. She has nearly a decade of experience in providing trade & regulatory compliance advice to domestic and international clients for understanding and complying with a wide range of national, state as well as sector-specific legislations and regulations in the spheres of telecommunications, technology law, consumer law, environmental law, product compliance and safety regulations (including packaging standards, labels and safety standards), data protection and privacy, media law, advertising regulations, etc. She provides end-to-end compliance counselling to clients across various industries and sectors such as software services, consumer electronics, technology, telecom, media, intermediaries, e-commerce, online value-added services sectors, consumer goods and medical devices. Suvarna also works closely with clients’ Government Affairs team to prepare strategic policy documents, representations and formal communications towards policy development and policy reform efforts with the Government.