Though, the Government in the year 1999 incorporated necessary sections in the respective statutes of Customs & Central Excise, they were non-functional for want of setting up of the appropriate authority. At last, the Government by Notification dated 24 April 2002, has constituted an Authority for Advance Ruling under the Chairmanship of Justice K. Venkataswami (Retd. Judge of the Supreme Court) with its office at New Delhi. In this article we have dealt with the salient features of the scheme of Advance Ruling with respect to Customs and Central Excise law.
The Authority for Advance Ruling (AAR) consists of a retired judge of the Supreme Court as the Chairperson supported with two other members: one from the Department who is qualified to be a member of the Board, one from the Indian Legal Service qualified to be an Additional Secretary to the Government.
The person eligible to file an application with AAR is only a non-resident setting up a joint venture in India in collaboration with a non-resident or resident, or a resident setting up a joint venture in India in collaboration with a non-resident. This limitation leaves much to be desired for a resident who sets up a company in India on its own as well as a non-resident who sets up a wholly owned subsidiary as they are excluded from availing the benefit of advance ruling.
One of the concerns of the Government in not allowing residents to approach AAR could be to ensure that the authority is not overburdened in its nascent stage, though, such concern could have been addressed through imposing threshold limit of investments for eligibility. However, the exclusion of the latter seems to be totally irrational.
Though, the advance ruling mechanism appears to have been largely borrowed from the Income Tax Act, the scope of the said Act is wide enough to include certain notified persons (like PSUs) in addition to non-residents, which is missing in advance ruling provisions with regard to Customs & Central Excise.
The ruling can only be obtained on the determination of a question of law or fact regarding the liability to pay duty in relation to import or export or any production or manufacture of goods proposed to be undertaken.
The questions would typically involve classification of goods, applicability of an exemption Notifications or valuation of goods. It is also pertinent to note that only issues arising out of exemptions under Section 25(1) of the Customs Act and Section 5A(1) of the Central Excise Act are eligible for advance ruling. The question on allowance of CENVAT credit or any other issues than stated above will not be entertained for advance ruling. It is also stated in the Rules that the question posed to AAR should be based on the activity proposed to be undertaken and not on the basis of any hypothetical questions.
This leaves no choice to the applicant to have a ruling on various structuring options that may be under consideration by him. Interestingly, the prescribed format of the application does not call for any conclusive proof to rule out the possibility of hypothesis.
The authority has an option either to allow or reject the application, of course subject to following the principles of natural justice. The application may be rejected, if the question raised before AAR is already pending in applicants own case before any officer of Customs or Central Excise, Tribunal or Court or the question is same as in a matter already decided by the Appellate Tribunal or any Court.
This restricts the benefit of advance ruling in a case involving an issue upon which a show cause notice is pending in the applicants own case.
After allowing the application, AAR will pronounce its ruling on the question posed to it, within 90 days of the receipt of application. The advance ruling pronounced by AAR shall be binding only on the applicant who had sought it, in respect of the matter referred to it and on the Commissioner and other officers subordinate to him. It therefore appears that AAR may not be used as a judicial precedent and it may only have persuasive value.
There are also no appeal provisions against the advance ruling pronounced, however, the applicant has a right to withdraw the application within 30 days of filing the same. The only savior from an adverse advance ruling could be the change in law or facts on the basis of which the ruling was obtained. Necessary procedural requirements such as, application fee, format, etc. have been specified under Notification dated 23 August 2002.
In our opinion, it may not be an attractive proposition for everyone to blindly follow the advance ruling path unless their sole intention is to ascertain the tax exposure under given circumstances.
This is because, if the ruling is adverse to the applicant, he will not have any recourse to put forth his case through the alternative appellate remedies, as there is no provision for appeal against the ruling and it is binding on him until the fact or law changes.
The benefit of this exercise therefore, could mainly be beneficial to those applicants who are only interested in ascertaining the impact of Customs/Excise duties in the overall project cost for the purposes of pricing or bidding.