The businessman would like to be clear in his mind about various aspects of his venture and risks involved. He would like to get clear verdict about his doubts in respect of taxation matters, before he decides to venture in the new business. Otherwise, he may be exposed to certain unexpected risks which may have serious adverse consequences over his business which may be difficult to overcome later.
Meaning of advance ruling
‘Advance ruling’ means determination of a question of law or fact specified in the application submitted by applicant regarding the liability to pay duty in relation to activity (of manufacture/ production/ import/ export) proposed to be undertaken by the applicant.
(a) Classification of goods (or services in case of services tax)
(b) Applicability of an exemption notification
(c) Principles to determine value of goods for purpose of assessment
(d) Notifications issued in respect of excise duty payable under CEA, CETA or any other law where duty is chargeable in same manner as duty of excise or customs duty payable under Customs Tariff Act.
As per section 96C (2) of finance act, 1994 (applicable to service tax), application for advance ruling can be made on a question in respect of-
(a) Classification of any service as a taxable services
(b) Valuation of taxable services for charging a service tax
(c) Principles to be adopted for determination of value of taxable services
(d) Applicability of notification issued
(e) Admissibility of credit of duty or tax in terms of the rules made in this regard [clause amended w.e.f. 28th May, 2012].
(f) Determination of liability to pay service tax (clause inserted w.e.f. 18-4-2006)
In McDonald’s India P Ltd., inre2004 (165) ELT404 = 8 STT 245 = 1 VST 150 = 3 STR 245 (AAR), it was held that the advance ruling can be only in respect of activity proposed to be taken. Applicant who has already commenced his business cannot seek ‘advance ruling’.
Even if the activity was done on tutorial basis in India, application for advance ruling is not maintainable as law does not differentiate between trial run and regular activity.
Who can apply to the authority
As per section 23A(c) of CEA, section 28E(c) of Customs Act and section 96A(a) of Finance Act, 1994, application for advance ruling can be made by any of following, if they propose to undertake any business activity in India-
(i) (a) Non-residence Setting up a Joint venture in India in collaboration with a non-resident or a resident
(b) A resident setting up a Joint venture in India in collaboration with a non-resident or
(c) A wholly owned subsidiary Indian company, of which the holding company is a foreign company, who or which proposes to undertake any business activity in India.
(ii) A joint venture in India or
(iii) A resident falling in any class or category, as may be specified by Central Government by issuing a notification. [Public sector company (but not Government departments), public limited company and resident imported goods under project import scheme are notified under this provision, as discussed below]
(iv) The resident private limited company.
It is clear from the above case laws that only start up is on new business proposal can go for AA, if they have only issue is R, matters specified above.
The application for advance ruling should be submitted in quadruplicate, along with fees of Rs. 2,500. Application should be duly signed by authorized person. Application can be withdrawn within 30 days from date of application.
However keep remember that there is no provision in Act or Rules for refund of application fee, even if application is withdrawn- Sunbeam Auto Ltd. In re (2007) 6 STT 374 (AAR).
Procedure on receipt of application-
On receipt of application, the application will be scrutinized and deficiency/ defect shall be communicated to applicant, as far as Possible within 10 working days. Application will be taken as received only after it is re-submitted after removal of deficiencies. After removal of defects, a serial number will be allotted. A copy will be sent to commissioner of Central Excise and, if necessary, call upon him to furnish relevant records. The record will be returned as soon as possible.
Rejection of application-
The authority shall reject the application for advance ruling in following cases-
(a) If the question raised is already pending before an officer of Excise/ Customs, Tribunal or any court, or
(b) If the matter has already been decided by Tribunal or any High Court. However, opportunity of hearing will be given before rejecting the application. If application for advance ruling is rejected, reasons for the same will be given in the order.
In GSPL India Transco Ltd. In re (2012) 35 STT 433 = 20 Taxmann.com 30 = 49 VST 310 =281 ELT 721 (AAR), it was held that if same matter is pending before CESTAT (though in relation to holding company), application is not maintainable, as same will lead to incompatible decision on same question by two different authorities. This decision has been set aside in GSPL India Transco Ltd. v. UOI (2012)36 STT 722 = 25 taxmann.com 86 = 56 VST 19 (Guj HC DB), on the ground that a holding company and its subsidiary are two separate entities.
Hearing and order-
If application is admitted, authority will examine the material submitted by applicant or obtained by authority. Personal hearing will be given if requested by the applicant. Authority will then pronounce its advance ruling within 90 days of receipt of application. Copy of the order, signed by members of authority, will be sent to the party and commissioner.
In A Tex (India) P Ltd. In re 2005 (179) ELT 540 (AAR), it was held that advance ruling is binding only on appellant and commissioner. It does not bind others- same view in Zee Telefilms Ltd. v. CCE (2006) 5 STT 182 = 4 STR 349 (CESTAT) Cyril Eugene Pereira In re (1999) 105 Taxmann 273 (AAR).
Though legally, opinion in other case will not be binding on department, the opinion given in other case will have persuasive value and cannot be discarded by departmentor by assessee without valid reasons.
No appeal against decision of AAR but writ Petition is maintainable, as AAR is Tribunal-
There is no Provision of Appeal against decision of AAR. However, writ petition is maintainable.
In Columbia sportswear v. DIT (2012) 25 taxman.com 470=210 Taxman 42=283 ELT 321 (SC), it was held that authority of Advance Ruling (AAR) is a Tribunal. Writ Petition against the decision of AAR can be filed before High Court’. The matter should be heard by Division Bench of High Court. The High should decide the matter as expeditiously as possible. Supreme Court can entertain Special Leave Petition (SLP) directly (without first approaching High Court) only if there is a substantial question of general importance or a similar question is already pending before Supreme Court.
After reading the above article, it can be concluded that, before starting any new venture or a project, a businessman or a start-up must take professional advice about the taxability involves in the venture or a business before it’s too late.
(Author CA. Himanshu Sharma is a member of ICAI. He can be reached at firstname.lastname@example.org or www.company360.in)