1 50 Questions & Anwers about Authority for Advance Rulings (AAR) on 27th October 2009, 4:25 pm
CSoC Smart User
Appreciating the need for foreign investors to be assured in advance of their likely indirect tax liability, the Central Government proposed to set up an Authority for Advance Rulings for Excise and Customs to provide binding ruling on important issues so that intending investors will have a clear-cut indication of their duty liability in advance. The legal provisions relating to Advance Rulings were introduced in the Finance Act of 1999 and expanded to include Service Tax within its ambit in Finance Act 2003.
The process of obtaining an advance ruling is simple, inexpensive and transparent (only Rs. 2500/- have to be deposited through a Demand Draft with each application). It is also expeditious – the Authority is statutorily required to pronounce the advance ruling within 90 days of receipt of the application. Advance Rulings are pronounced after providing an opportunity of being heard. All judicial norms are observed.
Advance Rulings pronounced by the Authority are binding on the applicant who had sought it, in respect of any matter on which questions can be raised by the applicant as provided in the respective statutes and on the Commissioner of Customs or Central Excise or Service Tax, as the case may be, as well as the authorities subordinate to him, in respect of the applicant. Hence possibility of disputes and litigation arising subsequently is almost nil. Furthermore, Advance rulings are not appealable under the Customs, Central Excise or Service Tax law. It therefore assures the applicant of the finality of the tax liability and hence freedom from spending time, energy and money in legal battles which mostly become long-drawn.
The scheme of advance rulings, thus has the following distinct advantages since it ensures :
a) Clarity and certainty of the tax liability under Customs, Central Excise and Service Tax laws in advance in relation to an activity (means import or export under Customs Act, production or manufacture of goods under Central Excise Act and service to be provided under Finance Act – Service Tax) proposed to be undertaken by the applicant.
b) Finality and thereby avoidance of protracted litigation.
c) Speedy decisions.
d) Inexpensive process.
Who can apply for an advance ruling?
A non-resident setting up a joint venture in India in collaboration with a non-resident or a resident; or
A resident setting up a joint venture in India in collaboration with a non-resident; or
A wholly owned subsidiary Indian company, of which the holding company is a foreign company;
who or which , as the case may be, proposes to undertake any business activity in India;
A joint venture in India,
'Explanation. - For the purposes of this clause, "joint venture in India" means a contractual arrangement whereby two or more persons undertake an economic activity which is subject to joint control and one or more of the participants or partners or equity holders is a non-resident having substantial interest in such arrangement;'.
a resident falling within any such class or category of persons, as the Central Government may, by notification in the official Gazette, specify in this behalf,
and which or who, as the case may be, makes application for advance ruling under sub-section (1) of section 28H .
[The Central Government has vide Notification No.69/2005 dated 29.07.2005 specified a resident as an applicant who proposes to import any goods from the Republic of Singapore under Comprehensive Economic Co-operation Agreement(CECA)]
On which questions can an advance ruling be sought?
Advance rulings can be sought in respect of –
determination of the liability to pay duties of excise on any goods under Central Excise Act,1944;
Classification of :-
(i) goods under the Customs Tariff Act, 1975;
(ii) goods under the Central Excise Tariff Act, 1985; and
(iii) any service as a taxable service under Chapter V of the Finance Act, 1994 (Service Tax);
Principles to be adopted for the purposes of determination of value (i)of the goods under Customs Act, 1962 (ii) of the goods under the Central Excise Act, 1944 and (iii) of taxable service under the provision of Chapter V of the Finance Act 1994 (Service Tax);
determination of the liability to pay service tax on a taxable service under the provisions of Chapter V of Finance Act,1994(Service Tax)’
Valuation of taxable services for charging Service Tax;
Applicability of notifications issued in respect of duties under the (i) Customs Act, 1962 (ii) Customs Tariff Act, 1975 (iii) Central Excise Act, 1944 and (iv) Central Excise Tariff Act, 1985 and any duty chargeable under any other law for the time being in force in the same manner as the duty of Customs or Excise as the case may be, leviable under the respective Act;
Applicability of notifications issued under Chapter V of Finance Act 1994 (Service Tax);
Admissibility of credit of central excise duty paid or deemed to have been paid on goods used in or in relation to the manufacture of the excisable goods;
What is meant by advance ruling?
Advance ruling means the determination, by the Authority, of a question of law or fact specified in the application regarding the liability to pay duty in relation to an activity which is proposed to be undertaken, by the applicant. Activity means import or export (under Customs Act), production or manufacture of goods (under Central Excise Act) and service to be provided (under Finance Act – Service Tax).
What is meant by an advance ruling being of a binding and final nature?
An advance ruling pronounced by the Authority is binding on the applicant in respect of the questions raised in the application and the concerned Commissioner (s) of Customs or Central Excise or Service Tax, as the case may be and the authorities subordinate to him. The advance ruling remains binding as aforesaid unless there is a change in law or facts on the basis of which it was pronounced. In effect, it lends certainty to tax liability under the above laws. It is final in nature in as much as an advance ruling can not be appealed against under the Customs, Central Excise or Service tax law. It will however remain binding as aforesaid unless there is a change in law or facts on the basis of which the advance ruling has been pronounced.
At what stage can an application for advance ruling be preferred?
At a stage when an activity is proposed to be undertaken in India by an applicant.
Is the applicant bound to actually undertake the proposed activity in relation to which he has obtained an advance ruling?
Not necessarily; as long as an advance ruling has been obtained by an applicant in accordance with the legal provisions stipulated for this purpose, the decision thereafter to actually undertake the proposed activity would be entirely his.
Who is a “non-resident”?
In the context of the legal provisions for advance rulings, the term “non-resident” shall have the meaning assigned to it in Section 2 (30) of the Income Tax Act, 1961 which defines “non-resident” as “a person who is not a “resident” and for the purposes of Sections 92, 93 & 168, includes a person who is not ordinarily resident within the meaning of clause (6) of section 6”.
Who is a “resident”?
As per the provisions of Section 6 of the Income Tax Act, 1961 the residential status of four taxable entities is as follows :
An individual is said to be a ‘resident’ in India in any previous year, if he –
a) is in India in that year for a period or periods amounting in all to 182 days or more; or
b) having within the four years preceding that year been in India for a period or periods amounting in all to 365 days or more, is in India for a period or periods amounting in all to 60 days or more in that year. However, an individual, being a citizen of India, who leaves India in any previous year as a member of the crew of an Indian Ship or for the purposes of employment outside India, has to be in India for a period or periods amounting in all to 182 days or more (in place of 60 days) in that year to qualify as a “resident” in that year. Further, an individual, being a citizen of India or a person of Indian origin who, being outside India, comes on a visit to India in any previous year, has similarly to be in India for a period or periods amounting in all to 182 days or more in that year for being treated as “resident” in that year.
B. Hindu Undivided Family :
A HUF, firm or other association of persons is said to be resident in India in any previous year in every case except where during that year the control and management of its affairs is situated wholly outside India.
C. Company :
A company is said to be resident in India in any previous year, if –
i) it is an Indian company; or
ii) during that year, the control and management of its affairs is situated wholly in India.
D. Every other person:
Every other person is said to be resident in India in any previous year in every case, except where during that year the control and management of his affairs is situated wholly outside India.
Who is “not ordinarily resident”?
As per Section 6(6) of Income Tax Act 1961, a person is said to be “not ordinarily resident” in India in any previous year if such person is –
a) an individual who has been non- resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty- nine days or less; or
b) a Hindu undivided family whose manager has not been a non- resident in India in nine out of the ten previous years preceding that year, or has during the seven previous years preceding that year been in India for a period of, or periods amounting in all to, seven hundred and twenty-nine days or less.
What is Indian Company?
In the context of the legal provisions for advance rulings, the term “Indian company” has the meaning assigned to it in Section 2(26) of the Income Tax Act, 1961 according to which “Indian Company” is a company formed and registered under the Companies Act, 1956 and includes
i) a company formed and registered under any law relating to companies formerly in force in any part of India (other than the State of Jammu and Kashmir and the Union territories specified in sub-clause (iii) of this clause);
(ia) a corporation established by or under a Central, State or Provincial Act;
(ib) any institution, association or body which is declared by the Board to be a company under clause (17);
ii) in the case of the State of Jammu and Kashmir, a company formed and registered under any law for the time being in force in that State;
[iii) in the case of any of the Union territories of Dadra and Nagar Haveli, Goa, Daman & Diu, and Pondicherry, a company formed and registered under any law for the time being in force in that Union territory:
Provided that the registered or, as the case may be, principal office of the company, corporation, institution, association or body in all cases is in India.
What is meant by a “subsidiary company”?
In terms of Section 4 of Companies Act, 1956(as amended), a company shall be deemed to be a subsidiary of another if, but only if ,-
(a) that other controls the composition of its Board of Directors; or
(b) that other –
(i) where the first-mentioned company is an existing company in respect of which the holders of preference shares issued before the commencement of this Act have the same voting rights in all respects as the holders of equity shares, exercises or controls more than half of the total voting power of such company;
(ii) where the first-mentioned company is any other company, holds more than half in nominal value of its equity share capital; or
(c) the first-mentioned company is a subsidiary of any company which is that other’s subsidiary
(For full text of Section 4 – please refer to Companies Act)
What is meant by “wholly owned subsidiary Indian company of which the holding company is a foreign company”?
As per the “Guidelines for Indian direct investment in joint ventures and wholly owned subsidiaries abroad” published by Government of India, vide notification file no. 4/1/93-EP(01) issued by Government of India, Ministry of Commerce, 17th August, 1995, as amended up to 18/5/99, “wholly owned subsidiary” in the context of the above guidelines means a foreign concern formed, registered or incorporated in accordance with the laws of the host country whose entire equity share capital is owned by the Indian Party. Going by the above criterion, a “wholly owned subsidiary Indian company of which the holding company is a foreign company” would mean an Indian company formed, registered or incorporated in accordance with the Companies Act 1956 (as amended) whose entire equity share capital is owned by the foreign company (holding company)
What is meant by a “holding company”?
In terms of Section 2(19) of Companies Act, 1956 “holding company” means a holding company within the meaning of Section 4 of Companies Act, 1956(as amended).
As per Section 4(4) of the Companies Act, 1956 (as amended) a company shall be deemed to be the holding company of another if, but only if, that other is its subsidiary.
What is meant by a “Foreign Company”?
In the context of the legal provisions for advance rulings, the term “Foreign company” has the meaning assigned to it in Section 2(23 A) of the Income Tax Act, 1961 according to which a “Foreign Company” is a company, which is not a domestic company. As per the definition in the Income Tax Act, a domestic company means an Indian company, or any other company which, in respect of its income liable to tax under the Income Tax Act 1961, has made the prescribed arrangements for the declaration and payment within India, of the dividends (including dividends on preference shares) payable out of such income.
Whether advance ruling can be sought by an existing Joint Venture?
As per the amendment brought in by Finance Act, 2005, “a joint venture in India” can also be an applicant for getting advance ruling.
Where can one find the format of the application form?
Formats of the application form to be submitted under the Customs Act, 1962, Central Excise Act, 1944 and Finance Act, 1994 (Service Tax) have been prescribed under the Customs (Advance Rulings) Rules, 2002, Central Excise (Advance Rulings) Rules, 2002 and Service Tax (Advance Rulings) Rules, 2003 respectively. Forms of these applications namely, AAR (CUS), AAR (CE) and AAR (ST) can also be seen on this website under the heading of RULES.
How many copies of the application are to be filed, to whom are they to be addressed?
Each application is to be filed in quadruplicate and addressed to The Secretary, Office of the Authority for Advance Rulings (Central Excise, Customs, & Service Tax), Hotel Samrat, 4th Floor, Chanakyapuri, New Delhi-110021.
By what mode can an application be sent to the Authority?
It can be filed by the applicant in person or by his authorized representative personally to the Secretary, Authority for Advance Rulings (Central Excise, Customs, & Service Tax), or other officer authorized by the Secretary in this behalf or sent by registered post or by courier service or by speed post. Application shall be received between 10:00 am and 1:00 pm and between 2:00 pm & 5:00 pm in Authority’s office on any working day (Monday to Friday).
What is the amount of ‘fee’ to be paid with each application and how should it be paid?
Each application should be filed alongwith a ‘fee’ of Rs. 2500/- only in Indian rupees by way of a demand draft drawn in favour of “Authority for Advance Rulings (Customs, Central Excise & Service Tax)” payable at New Delhi.
Is there a provision for obtaining refund of the application fee?
What are the other relevant procedural points to be taken note of while filing an application?
i) Every application, the verification appended thereto, the annexures to the application and the statements and documents accompanying the Annexures I & II to the application must be signed on each page.
Ii) The application shall be accompanied by evidence that the person who has signed the application, verification and other documents is authorized/competent to sign under the Rules.
iii) Every application, its verification, annexures, statements and supporting documents shall be on A-4 size paper and should be neatly and legibly written, typed or printed leaving a left margin of 5 cms. and only on one side of a page in double-line spacing.
iv) An application shall be deemed to have been filed on the date on which it is received in the office of the Authority.
v) If the applicant is not based in India, he shall, inter-alia, indicate in a separate annexures to the application –
a) his postal and e-mail address abroad ;
b) the name and address including e-mail address of his representative in India, if any, authorized to act on his behalf and to receive notices or other documents sent by the Authority.
What happens if deficiency/defect is noticed in the application and/or its annexures on receipt by the office of the Authority?
Such deficiency/defect shall be communicated at the earliest by the office of the Authority to the applicant who has to rectify the deficiency/defect within the time granted by the Secretary, Authority for Advance Rulings. In case the defect/deficiency is not removed/made good within the time granted, the office of the Authority shall place the application before the Authority for appropriate orders.
Can an application for advance ruling be withdrawn at any stage?
Yes. An application can be withdrawn within 30 days from the date of the application. Thereafter it can be withdrawn only at the discretion of the Authority. In a case where an application on receipt is found to have deficiency/defect which are communicated to the applicant, the date of receipt of the application free from any defect/deficiency in the secretariat of the Authority shall be deemed to be the date of the application for this purpose and the time period of 30 days will be calculated accordingly.
How long does it take to obtain an advance ruling?
As statutorily stipulated, the Authority is required to pronounce its advance ruling in writing within ninety days of the receipt of the application. Date of receipt of an application free from any defect or deficiency in the secretariat of the Authority shall be deemed to be the date of the application for this purpose and the time period will be calculated accordingly.
Are there any situations in which an application would be liable to be rejected outright?
Yes; The Authority shall not allow the application where the question raised in the application is -
(i) already pending in the applicant’s case before any officer of Customs or Central Excise or Service Tax, as the case may be, Appellate Tribunal or any Court;
(ii) the same as in a matter already decided by the Appellate Tribunal or any Court.
However, no application shall be rejected by the Authority without giving an opportunity to the applicant of being heard.
Is granting of an opportunity for hearing a must before pronouncing an advance ruling, when the application is allowed by the Authority on preliminary examination?
No; when an application is allowed for further processing for pronouncement of advance ruling, the Authority is not statutorily bound to offer an opportunity of being heard to the applicant before pronouncing the advance ruling. But it shall provide such an opportunity to the applicant, on a request received from the applicant. The applicant can be heard either in person or through a duly authorized representative.
What does the phrase “allow the application” mean?
It means that the Authority, after examining the application and the concerned records, is prima facie satisfied that the application is fit to be admitted for further processing for pronouncement of advance ruling.
How will an applicant come to know whether the application has been allowed or rejected on preliminary examination by the Authority?
A copy of the order made either allowing or rejecting the application will be sent to the applicant as well as to the concerned Commissioner(s) of Customs, Central Excise or Service Tax, as the case may be.
How much time does the applicant get to intimate the Authority whether or not he desires to be heard before pronouncement of the advance ruling?
Two weeks of the receipt of the copy of the order allowing the application.
Can an applicant urge or be heard in respect of any question other than the question specified in the application?
Normally no; however he can do it only if so permitted by the Authority.
Can the application be disposed of by the Authority ex-parte in any situation?
Where on the day fixed for hearing or any other day to which the case is adjourned, the applicant or the Commissioner does not appear in person or through authorized representative when the application is called for hearing, the Authority may dispose of the application ex-parte on merits.
Can the applicant or the Commissioner, as the case may be, approach the Authority for reconsideration in respect of an application disposed of ex-parte?
Yes; he can apply within seven days of receipt of a copy of such order/advance ruling and if the Authority is satisfied that there was sufficient cause for his non-appearance when the application was called for hearing, the Authority may, after allowing the opposite party a reasonable opportunity of being heard, make an order setting aside the ex-parte order/advance ruling and restore the application for fresh hearing.
Whether any additional facts can be submitted before the Authority?
Yes, The Authority may, at its discretion, either suo motu or on a petition made to this effect by the party to the application, permit or require the applicant or the Commissioner to submit such additional facts as may be necessary to enable it to pronounce an advance ruling. The additional facts sought to be brought on record, by the petitioner shall be supported by necessary documents, if any, duly verified.
Who will be the Commissioner, if the applicant does not specify any Commissioner in the application filed by him, say, for the reason that he is yet to decide the exact location of proposed activity in India?
Where, in an application, a Commissioner is not specified by the applicant, a copy of the application with enclosures thereto shall be forwarded by the Authority to the Chairman of the Central Board of Excise and Customs requesting him to designate, within such period as may be fixed by the Authority, a Commissioner for the purposes of the application, failing which the application shall be proceeded with in the absence of a Commissioner.
Whether an application survives on death, etc., of the applicant or on change in the status of applicant?
Where the applicant, being an individual, dies, or being a company or association of persons, whether incorporated or not, is wound up or dissolved or disrupted or amalgamated or succeeded to by any other person or otherwise comes to an end, the application shall not abate and the proceedings in the application may be continued by the executor, administrator, liquidator, receiver or assignee or other legal representative of the applicant, as the case may be, on a petition made in this behalf, if the Authority considers that the circumstances so justify.
Whether an order/advance ruling can be modified in case there is mistake of law or fact?
The Authority may, suo motu or on a petition made to it by the applicant or the Commissioner, but before the pronouncement of an advance ruling or before an advance ruling pronounced by the Authority has been given effect to, on being satisfied that an order/advance ruling was pronounced under mistake of law or fact, modify such order/advance ruling in such respects as it considers appropriate, after allowing the applicant and the Commissioner a reasonable opportunity of being heard.
Can an advance ruling become void and if so, in what circumstances?
Where the Authority finds, on a representation made to it by the Commissioner of Customs or Central Excise or Service Tax, as the case may be, or otherwise, that an advance ruling pronounced by it has been obtained by the applicant by fraud or misrepresentation of facts, it may, by order, declare such ruling to be void ab initio.
What would be the effect of such a declaration?
Once the Authority by order declares such a ruling void ab initio, thereupon all the provisions of the Customs Act or Central Excise Act or Finance Act (Service Tax) shall apply (after excluding the period beginning with the date of such advance ruling and ending with the date of order making such declaration) to the applicant as if such advance ruling had never been made. A copy of such an order shall be sent to the applicant and the Commissioner(s) concerned.
Will the applicant get an opportunity of a notice and of being heard before the Authority decides about the question as to whether an advance ruling is to be declared void ab initio or not?
Yes. [For details, see Regulation 23 of the AARUL(CEST) Procedure Regulations]
Whether the Authority can amend any advance ruling to rectify any mistake apparent from the record?
Yes. However, this can be done before the advance ruling pronounced by it has been given effect to. Such amendment may be made suo motu or when the mistake is brought to the notice of the Authority by the applicant or the Commissioner, but only after allowing the applicant and the Commissioner a reasonable opportunity of being heard.
Is amendment of records permitted?
Yes. If at any stage of the proceedings it is brought to the notice of the Authority that there is any factual or material error in the records, the Authority may permit amendment of the records after hearing the applicant and the Commissioner.
Can the applicant or the Commissioner be granted certified copies of documents, orders or advance rulings?
Yes; on a written request the Secretary, AAR may grant.
Is inspection of records permitted?
Inspection (taking note only and not copies of the documents) of documents which are relied upon in the proceedings before the Authority may be permitted in the presence of an officer of the Authority, to the applicant or the Commissioner or his authorized representative relating to an application/petition, on a written request to the Secretary, AAR.
Whether the Authority’s proceedings are open to the public?
Generally yes. However, if the applicant/ Commissioner so requests, the Authority may order in a given case that no person other than the applicant, the Commissioner or their authorized representative(s) shall remain present during such proceedings.
Are the advance rulings pronounced by the Authority reported/published? If so where can they be seen?
In terms of the Regulation 25 of the AARUL(CEST) Regulation, 2005, Chairman of the Authority may, if he deems fit release an order/advance ruling of the Authority for publication on such terms and conditions as he may specify. These can be seen in publication like Excise Law Times (ELT), Revenue Law Times (RLT), Excise & Customs Cases (ECC) etc. which are publishing decisions on Customs, Central Excise and Service Tax, as well as on the website of the Authority and taxindiaonline.com.
What is the Dress code for appearing in hearing before the Authority?
An authorized representative is required to appear before the Authority in dress prescribed for the members of his profession by the competent professional body, if any. All other persons are required to be properly dressed.
Whether arms, mobile phones etc. are allowed to be carried in the Court room?
No person is allowed to bring mobile phones, sticks, arms or other weapons in the room where the Authority conducts the proceedings.
Source: CBEC Website