Sukumar Mukhopadhyay: Advance Ruling's scope expanded, more wanted

I remember that in mid-nineties, a small manufacturer of an industrial product, where a very minuscule quantity of gold was used, approached me and wanted a ruling that his product is not a gold-manufacture of gold. He said that he would stop manufacture if it was ruled as gold-manufacture since without a ruling, one day, audit may take an adverse view. And there will be so much of extra duty involved that he would prefer to remain in jail, as he cannot pay that amount. I wrote a special report advocating a system of advance ruling for such activity then, but when the Authority was born in 1999, it was a blue baby, a powerless creature which could give ruling only to MNCs and for proposed activities. In all these fourteen years the scope has been expanded but it still remains for the proposed activity. The type of case mentioned above is still not covered.

All along there have been many issues raised asking for expansion of power of AAR to give ruling. In a latest case of Oracle India Pvt Ltd before the AAR, reported in 2012 (227) ELT 128 (AAR), the decision of the majority of two judges was that scope of advance ruling is confined to an activity which is proposed to be undertaken. The minority view was that the term activity should not be interpreted in a narrow sense. If the product is different and it has not been imported earlier the activity of import can be considered as the one proposed to be undertaken and the applicant is eligible to seek an advance ruling. The Budget now has amended the Section 28E by substituting far clause (a), the following, namely, "activity means import or export and includes any new business of import or export proposed to be undertaken by the existing importer or exporter, as the case may be." This has amounted to accepting the minority view above and thus expanding the scope of the power of the Authority to give ruling in case of new imports though he has already started import of other goods. It is the most rational view. Imagine an importer imports so many things starting a new line of business and he was being denied ruling. This is the best that the Budget has done in respect of the scope of AAR. The same type of amendment has been done in the case of central excise by amending section 23A also.

The Budget has also promised to issue a notification to cover resident public limited companies, but only for service tax. This should be done for customs and excise also. This will be a very substantial expansion since the domestic industries, which are public limited companies, like L&T or Infosys will be able to ask for ruling. This a highly laudable development. This will increase the number of cases from the few as of now.

Yet there is more scope for expansion of the jurisdiction of AAR. Now only the proposed activity is covered. There is scope to cover an activity which has started but still there may be doubt about the classification or assessment etc. If no show-cause memo has been issued, it is possible to make provision for asking for ruling. Example is like the case discussed in the first paragraph. Also in case of import, it may be that the importer has already imported something paying certain rate of duty. If he thinks there is a doubt about it, he should be able to ask for a ruling on the existing import, is no show-cause memo has been issued. For this purpose the definition of advance ruling in section 28E (b) will have to be amended suitably. Catholics in the Department may not support it saying that in that case the meaning of "advance" gets diluted . But once amended, the word "advance" will mean different.

Conclusion: We have to see the purpose of advance ruling. As originally conceived, it was a very restricted Authority. Now time has come to go beyond the closed mind set and expand it to the benefit of the wide range of domestic importers and exporters and manufacturers (including private limited companies) and give them a level playing field with the MNCs.

Email: smukher2000@yahoo.com