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Tuesday, Dec 10, 2002

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Indirect tax liability — 100% foreign arms can seek advance ruling

Hema Ramakrishnan


THE Government is set to permit 100 per cent subsidiaries of foreign companies setting up shop here to seek an advance ruling on their indirect tax liability from the ensuing fiscal.

Currently, any non-resident investor setting up a joint venture in India in collaboration with a non-resident or a resident is eligible to seek a ruling from the Authority for Advance Rulings, Customs and Central Excise. The facility is also available to a resident setting up a joint venture in India in collaboration with a non-resident.

The proposed move to extend the scope of advance ruling to a wholly owned subsidiary of a foreign company was aimed at bolstering foreign direct investment (FDI), said official sources. The relevant amendments to the legislation on the definition of the applicant may be incorporated in the Finance Bill 2003, said official sources.

The Authority for Advance Rulings under Customs and Central Excise was until recently chaired by Justice K. Venkataswami (who headed the Tehelka Commission). However, following criticism in Parliament over his appointment as Chairman of the Authority, Mr Venkatswami resigned from both posts.

Besides the Chairman, the Authority has two members of the rank of Additional Secretary - one retired member of the CBEC and the other an Additional Secretary in the Ministry of Law and Justice. "The law as it stands allows the authority to function and give rulings even if there is a vacancy," said officials.

The ruling by the Authority can be only with respect to classification of goods, principles of valuation and the applicability of duty exemption notifications under both Acts that are relevant to determine the duty liability in respect of an "activity" proposed to be undertaken by the joint venture. The activities include import, export, production and manufacture of goods. An advance ruling will provide certainty to the duty liability of the applicant as it is binding on the jurisdictional Commissioner.

Neither the Department nor the applicant can file an appeal against the ruling, which is required to be delivered within three months of the receipt of the application.

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