Open Up Advance Ruling to all resident assessees – Parliamentary Committee
The Parliamentary Standing Committee on Finance had recommended to the Government to open up Advance Ruling facility to Resident assessees.
In its memorandum to the Committee your TIOL had submitted,
The advance ruling now is basically applicable to a non-resident Indian or a resident Indian having a Joint venture with a foreigner. This is unfair to a Citizens of India.
A confident government, sure of its policies and laws should gladly allow advance ruling, for that can solve many a future litigation.
In matters of taxation, especially indirect taxes, the tax payer has to be sure about his liability at the time of paying tax as this liability is shifted to the customer. But if the liability arises months or even years after the transaction is over, the customer will not be available to transfer the liability.
When the government makes laws, it is assumed, they have enough clarity and they know what the laws mean. It is not always easy to translate noble thoughts into understandable English and so litigation follows, sometimes ending at the Apex Court and sometimes not ending there also with retrospective legislation.
This kind of uncertainty will shake the confidence of an entrepreneur who invests his money, time, knowledge, and aspirations. Advance Ruling is a great concept to solve this problem. Government should be confident enough to declare in advance what its intentions are, especially to the one who seeks the revelation of such intentions. Lifting of the legislative veil to understand in clear terms the liabilities of a tax payer should be part of tax laws.
With service tax expanding like wild fire, confusion and litigation are not far behind. In the plethora of taxable services, notifications, instructions etc, every service tax assessee lives under a Damocles' sword of a demand struck on him five long years after rendering service. Today he asks the department for a clarification which nobody is prepared to give him and assuming that no tax is payable he doesn't collect any taxes. But after five years he is asked to pay the tax of 12.36% with interest and a mandatory penalty of an equal amount. He will simple go out of business for he cannot collect that money from his customer nor can he afford to pay the tax which would work out to more than 25% of his transaction. Nobody makes that kind of profit. With the confusion and uncertainty prevailing for a long period of time, the government will accumulate only litigation and not taxes. It may even be killing the goose that lays golden eggs. Certainty of taxation is good more for the government than the tax payer.
While the foreigner is allowed the benefit of advance ruling, the Indian is not allowed that in his own country. This discrimination beats logic. Attracting foreign investment is perfectly alright but does that mean that an Indian investor should be treated like a third rate slave on whom any amount of indignities can be heaped? Does the government want Indian entrepreneur to go and settle abroad and them come back as NRI and do business in India to be eligible for benefits of advance ruling (as suggested by a Commissioner in a meeting). Inviting the foreigners should not be at the cost of and by denying similar facilities to Indian investors. Our craze for foreign goods and foreign investment should not result in ill-treatment of our own countrymen.
Facility of advance ruling for a foreigner only, by definition implies lack of clarity in our laws and an offer to clarify them in advance to a foreigner so that he is not burdened with a demand later. Denial of the same facility to an Indian investor clearly implies that though the laws are not clear, we don't believe our taxpaying citizens deserve any clarification and demands can be struck on them at sweet will. This is demeaning, discriminating, insulting and tragic. Even the British government would have been a little embarrassed to make such laws for the Indians.
And we are happy to report that the Hon'ble Parliamentary Committee has accepted our suggestion.
Para 6 of the Committee's report thanks us and we deem it a great privilege to be of some assistance to the Indian Parliament.
6. The Committee wish to express their thanks to PHD Chamber of Commerce and Industry (PHDCCI), Institute of Chartered Accountants of India (ICAI) Federation of Indian Export Organisations (FIEO), Taxindiaonline.com Pvt. Ltd. and Shri S.R. Wadhwa, former Chairman, Income Tax Settlement Commission for furnishing Memoranda in connection with examination of the Bill.
We bring you some extracts from the 72 nd Report of the Committee to Parliament:-
54. If all residents are brought under the purview of Authority for Advance Rulings, the system may get choked with all parties short-circuiting assessing authorities, appellate authorities, tribunals, etc. The Committee, therefore, suggest that in case it is decided to continue with the system of Advance Rulings, there should be a provision enabling any resident assessee to seek a ruling on matters of interpretation involving substantial question of law.
88. It has been suggested to the Committee that the Bill should provide for right to appeal against the advance rulings. The Committee feel that the extraordinary writ jurisdiction of the High Courts and the Supreme Court as the only available option may not fully serve the cause of assessees. The Committee, therefore recommend that there should be an express provision in the Bill providing for right to appeal. The Committee also desire that there should be an enabling provision in the Bill for establishment of additional Benches of the Authority based on workload.
89. The merged Authority is to have one post of Chairman and three posts of members (two from the respective Revenue Services and one from the Indian Legal Service) as against two posts of Chairmen and four posts of members in the existing two Authorities. The Committee desire that the procedure for selecting the members, which is presently not stipulated under any Act or rule, be prescribed under the rules to be framed under the proposed Act so as to provide clarity and avoid possible misgivings on the selection procedure.
90. The Committee desire that while providing the proposed Authority with officers and staff as may be necessary in terms of the provisions of Clause 11, and transferring the officers and staff of the existing two Authorities to the proposed Common Authority in terms the provisions of Clause 13(3), issues relating to cost effectiveness are appropriately considered and such of the posts of supporting staff etc. found to be redundant or in excess abolished. The Committee also note in this regard that while savings in costs has been indicated to be a major benefit that would accrue following the merger of the existing two Authorities, the expenditure incurred on the Authorities has increased from 1.65 crore in 2001-02 to Rs.3.02 crore in 2007-08, while, the net savings or reduction in the establishment expenditure expected to accrue on account of reduction in the number of sanctioned posts consequent on the merger of the Authorities is expected to be just Rs. 11.22 lakhs. The Committee desire that efforts be made to bring down the establishment costs of the Authority substantially.
91. A total of 51 cases pertaining to the AAR (IT) and 9 cases pertaining to the AAR (C&CE) were pending as on 31st May, 2008. It is observed that though the time limit for pronouncing rulings by the Authority on Advance Rulings (Income Tax) is six months, there have been 16 cases pending with it for over one year. Similarly, the Authority on Advance Rulings (Customs and Central Excise), which is to give rulings within three months has six cases pending over 180 days. The Committee trust that, as assured by the Revenue Secretary, the prescribed time frame for pronouncing the rulings by the Authority is adhered to.