The Hindu : Indirect tax: Advance Rulings for wholly owned foreign firms mooted

Online edition of India's National Newspaper
Tuesday, Dec 17, 2002

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Indirect tax: Advance Rulings for wholly owned foreign firms mooted

By Our Special Correspondent

CHENNAI DEC.16. The Authority for Advance Rulings on Customs and Central Excise has suggested to the Kelkar Taskforce on indirect taxes that its jurisdiction, which at present covers only joint ventures, should be extended to wholly-owned subsidiaries of non-residents, according to R. K. Chakrabarti, member of the authority.

This view has not been included in the discussion papers issued by the Kelkar taskforce. If the taskforce finally decides in favour of the proposal, this might get incorporated in a subsequent Finance Act, Mr. Chakrabarti said here today.

Addressing a meeting organised by the Madras Chamber of Commerce and Industry (MCCI) and the Southern India Chamber of Commerce and Industry (SICCI), in which professionals raised questions about the usefulness of the authority, Mr. Chakrabarti emphasised that its USP (unique selling proposition) was the handing of over binding rulings within 90 days on matters referred to it by the applicants. "This is saying a lot'' (in the Indian context, where uncertainty and delays in rulings in judicial/appellate bodies create uncertainties for investors and businesses).

Mr. Chakrabarti said though rulings of the authority were binding only in the case of the applicants, over a period they would acquire a "persuasive'' nature (and influence the thinking of the tax machinery). He clarified that if there was a change in the law of the land, including by way of a ruling of the Supreme Court, or in the relevant facts after the handing over of a ruling by the authority but before the ruling was given effect to, then only the authority's ruling would get appropriately modified.

He said the setting up of the advance ruling authority for indirect taxes (a similar authority for direct taxes having already been established a few years ago) was only one among many steps initiated to build an environment conducive for foreign investors. As for the demand that this facility should be extended to wholly domestic companies, he said that in many developed countries, there was no distinction made between domestic and foreign companies/joint ventures for the purpose of obtaining advance rulings.

In India, as in many countries, perhaps the Central Board of Excise and Customs (CBEC) could be considered for operating the facility. He said service tax and the Modvat credit system had not been included in the matters to be considered by the authority, which could now deal only with classification issues having a bearing on the rate of duty, principles to be adopted for the purposes of determination of the value of the goods and application of exemption notifications under certain sections of the excise and customs laws.

The applications would be entertained only if the applying venture had not yet started its business proper, of manufacture or service.

Mr. Atul Gupta, Joint Commissioner of the authority, said the procedure to be adopted by the authority would be notified shortly, while the rules had already been notified.

The concept of joint ventures though not defined would be governed among other things by the Supreme Court ruling that there should be a contractual arrangement for sharing of profits and losses. The applicants would have the facility of withdrawing their application for an advance ruling within 30 days of submission of the application, he said.

Asked about the tendency towards "retrospective amendments'' being effected to laws on indirect taxes, which would erode the role of the authority, the officials said such amendments were "not galore.''

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