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Empower advance ruling authority
February, 08th 2007

The scope of the Authority of Advance Ruling has been extended in doses in every Budget. In the 2005-06 Budget, the finance minister included existing joint ventures to the list of those who can ask for a ruling from the authority. 
In the last Budget, service tax was also included. The impression that has been given is that the authoritys jurisdiction has been extended. The fact is that it is hardly an extension. It is only a marginal addition. The real empowerment is yet to come. 
The powers and functions that have been assigned to the authority are extremely restricted and constricted. The law lays down 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 a manufacturer cannot. This is the basic flaw. Innumerable Indian entrepreneurs who break their head for certainty in tax assessment run from pillar to post. The method prescribed for them is: investigation, showcause, memo, adjudication, and appeal before the commissioner, tribunal, a high court and Supreme Court. The uncertainty continues for years to come. 
Now coming to the issues which the authority can decide, the restrictions are enormous. It can only decide on classification, applicability of a notification regarding rate of duty, principles for determination of value of goods, and admissibility of input credit. It cannot give a ruling, (a) if manufacture has already started, (b) if the tribunal has already decided such an issue ,(c) if the business is already started, and, (d) if it is a question as to whether it is manufacture or not. This makes its authority highly diluted. 
It is not, therefore, surprising that it is in a handful of cases that an actual ruling has been issued by the authority in the last more than four-and-a-half years, since May 2002 when it became functional. 
In 2004, four rulings were issued and in 2005, only one. It is obvious that if the scope of giving rulings is so restricted, very few cases would come before the authority. 
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 and so many exemptions and interpretations given by different judgements of the tribunal, high courts and the Supreme Court, that it is not possible to come to a definitive conclusion about what will be the duty burden. 
To implement a project, it is important to work out the cost. For companies, the only course open is to wait for a showcause memo to come from the department, face adjudication, and then go for appeals. It is nothing short of having to run from pillar to post, to put it mildly. They are the people who want a certain ruling, to know what is the classification. So Indians who also need certainly are being denied it. It high time the government, during the revision of the Budget proposals in 2007-o8, corrects this omission and empower the AAR to ensure ruling for all who ask for it.

Sukumar Mukhopadhyay

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