An average Indian wants to start a new venture of production to manufacture a new product. He has no foreign partner. He wants to manufacture something which does not use power in the main manufacturing process, but does use power in some peripheral activities such as wrapping or packing with some pre-printed labels which are themselves manufactured with the aid of power.
There are a whole host of definitions of manufacture in the main Act and in the tariff. There is a much larger number of the decisions of the Judiciary ranging from Tribunal to Supreme Court on the issue of use of power in manufacture, covering issues like constructive position and so on. He is baffled and does not know whether he will be able to get the exemption meant for manufacture of a product without the use of power. What is the road open to him to know in advance if he will get the exemption or not?
Unfortunately he has the road closed in front of him. His only fault is that he is an average Indian, the famed Aam Admi, without any joint venture. Somebody in a joint venture can ask for an advance ruling regarding the classification of the goods that he wants to manufacture. But he cannot make such an application. The road open for him is the normal road which is strewn with litigation.
He claims the exemption while manufacturing, gets a show cause notice from the Assistant Commissioner asking him why he should be denied the exemption, because he used power somewhere at some stage. He is handed over an adjudication order by the Assistant Commissioner asking for extra duty and imposing penalty on him. He wins his case before the Commissioner (Appeal). The Department files an appeal before the Tribunal. He wins the case there. The Department files an appeal before the Supreme Court. Now he is on the lap of very senior lawyers in Delhi who are ready to fight for him up to the last penny that he has got.
This Aam Admi is suffering because the powers and functions that were assigned to the Authority of Advance Ruling are extremely restricted and constricted. The law lays down (Section 23A (c) of Central Excise and 28E(c) of Customs) that only non-resident and Indian residents setting up a joint venture with a non-resident can get such rulings.
An ordinary Indian importer or manufacturer is just ruled out. This is the basic flaw. Innumerable Indian entrepreneurs who break their heads for certainty in their tax assessment run from pillar to post. The method prescribed for them is: Investigation, show cause memo, adjudication, appeal before Commissioner or Tribunal, High Court and Supreme Court. The uncertainty continues for years to come.
The importance of certainty in classification and assessment can hardly be exaggerated. The ordinary people of India who come to business for starting manufacture of goods or start imports do not know if the rate of duty is really what they apparently come to believe. There are so many rates of duty and so many exemptions and interpretations given by judgments of Tribunal, High Court or Supreme Court, that it is not possible to come to a definitive conclusion about what will be the duty burden. To make a project it is important to work out the cost of the project.
Several factories have closed down because in litigations they have been severely mauled and found that closing the factory is a better option. It is high time the government, during the revision of the Budget proposals in future, corrects this omission and empowers the AAR for also giving a ruling for all who ask for it. The bureaucracy is usually unwilling to hand over power to a quasi-judicial body, but the Government should take a pro-people view.
The writer is former member, Central Board of Excise & Customs
Advance rulings
INDIRECT TAXES/ LAW OF THE LAND
Sukumar Mukhopadhyay / New Delhi May 15, 2007, 20:25 IST
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