Level-playing field in advance ruling

Mumbai, March 3: Public limited companies will no longer have to fly blind on the indirect tax implications of investments in their dream projects ' only to tangle later with the taxman over some arcane interpretation of the law.

The government has for the first time extended the benefit of advance rulings to domestic public limited companies in the areas of excise and service tax.

Companies will now be able to seek an advance ruling from the authorities on their liability to pay excise duty or service tax arising from a question of law or a peculiar characteristic of their business plan long before they decide to shovel money into that operation.

An advance ruling will give the investor some certainty on the tax implications of a business proposal and head off tax disputes and legal complications later on.

Until now, the facility of advance ruling was only available to joint ventures with foreign entities, an Indian subsidiary of an overseas company or a public sector company.

This facility, which gives companies a clear idea about their prospective tax liability before venturing into any transaction or a business activity, was limited to their customs duty liability. This is now being extended to central excise and their service tax liability as well.

The government set up the Authority for Advance Rulings (Central Excise, Customs and Service Tax) in 1998. The authority gives binding rulings in advance on central excise, customs and service tax matters pertaining to an investment venture or any taxable activity in the country. Although it was introduced to attract foreign investments, there have been calls that the facility should be extended to all domestic companies as well. An advance ruling is binding on both the government and the party which seeks it.

After its inception, the scope of the authority to entertain applications was enlarged to cover four categories:

Residents proposing to import goods from Singapore under the Comprehensive Economic Cooperation.

Agreement for seeking advance ruling on the origin of goods under the Customs Act, 1962.

Public sector companies in customs, central excise as well as service tax matters.

Residents proposing to import goods under the project imports facility for seeking advance ruling under the custom act.

Public limited companies in the matter of customs.

Ficci demand

In its pre-budget memorandum to finance minister P. Chidambaram, Ficci said: "Although the institution of Authority for Advance Rulings was set up primarily by the desire to attract foreign investment, the time has come to introduce a level-playing field between foreign and domestic businesses in the matter of a facility as important as advance ruling. There is also a need to eliminate discrimination between public and private sector companies. Further, there appears to be no justifiable reason to exclude taxpayers which are not companies, from the jurisdiction of this authority. A time has come when the facility of advance ruling should be made available universally to one and all."

The government has finally conceded the demand at a time it is trying to encourage the private sector to ratchet up investments.

"The development (permitting advance rulings to resident pubic limited companies) has to be welcomed. It will really help businesses get their proposed tax liability doubts clarified," Dinesh Agarwal, tax partner, Ernst and Young told The Telegraph.

In a note analysing the budget proposals, Ernst and Young (EandY) said public limited companies, including a private company which is deemed to be a public company by virtue of Section 43A of the Companies Act, can now obtain an advance ruling. Within excise duty, the advance ruling can be obtained for a new line of business of production or manufacture proposed to be undertaken and also on the admissibility of credit of service tax paid on input services.

Apart from the facility being extended to service tax as well, the budget also expanded the scope for such rulings in custom duty matters as well. EandY added that such a ruling could be obtained in relation to a new line of business of import and export proposed to be undertaken by the importer or exporter.

In September 2011, the government allowed public limited companies to tap the advance rulings route in customs duty.