The Advance Ruling Authority for Central Excise and Customs matters has sprung to life. Ironically, however, in its first two verdicts, it has dismissed the petitions as non-maintainable.
In the first case, related to McDonald's, the application was dismissed on the grounds that the business activity of the company had already been commenced and, therefore, was not the one, which the company proposed to start. In the second case, that of Shonkh Technologies International Ltd, the authority held that the issues raised fell outside its purview.
Advance Ruling refers to determination by the authority on a question of law or fact regarding the liability to pay a tax.
Only joint venture companies in India or wholly-owned subsidiaries in India of a foreign company that proposes to undertake any business activity in India can make an application.
Moreover, questions, already pending at the adjudication, the appeal stage or already decided by a tribunal or court, cannot be raised before the Advance Ruling Authority.
McDonald's had raised the issue of applicability of service tax for franchise services prior to the date of the introduction of service tax i.e. July 1, 2003. The authority held that the expression "advance ruling", means the determination of a question of law or fact specified in the application regarding the liability to pay service tax in relation to a service proposed to be provided by the applicant.
A combined reading of the provisions in the light of the scheme of the Act suggests that an applicant, who is yet to commence his business activity can, if he so desires, avail of the benefit of seeking advance ruling from the authority on a question of law or fact regarding his liability to pay service tax in relation to a service proposed to be provided by him.
Obviously, the benefit of seeking advance ruling from the authority will not apply in the case of an ongoing business or undertaking, which has already commenced the business.
Shonkh Technologies International Ltd raised the issue of whether the proposed activity of manufacture of high technology registration number plates for vehicles and thereafter stamped with chrome hologram as a security feature and then a unique laser braided serial number to be integrated to the plates would amount to manufacture.
The Advance Ruling Authority rejected the application on the grounds that it could entertain only matters relating to classification, applicability of an exemption notification, valuation, Cenvat credit etc and that the issues raised by Shonkh Technologies fell outside its purview. Advance ruling is intended to help an investor know before taking up any activity about the tax liability in his case.
The legislation has been criticised because a solely Indian-owned company cannot take advantage of advance ruling.
Only foreign firms, which want to invest in India through joint ventures or wholly-owned subsidiaries, or Indians who are getting into joint ventures with foreign firms can ask for advance ruling. Secondly, as the first two cases show, the jurisdiction is quite limited.
Even otherwise, many investors prefer to take a chance with the adjudicating and appellate authorities, tribunals or courts rather than take a binding ruling from Advance Ruling Authority.
So, it is for the government to see how the scope for advance ruling can be widened, so that the authority can have some meaningful work to do.