The question of determination of an activity, proposed to be undertaken by an applicant, referred to as a ‘proposed activity', has been the point of dispute between the applicants and the Authority for Advance Rulings.

Statutorily, an application can be made in respect of an activity of production or manufacture (in the case of Central Excise) or import or export (in the case of Customs) or liability to pay service tax (in the case of Service Tax), in relation to an activity or service proposed to be undertaken or provided.

An applicant, who proposes to undertake any of the above activities, could file an application for seeking an advance ruling, which is binding on the applicant as well the jurisdictional authorities.

An advance ruling is not appealable. Accordingly, there lies a significant onus on the Authority for Advance Rulings to appreciate the nature of the proposed activity, which should be aligned with the objective of the Central Government that the intending investors have a clear-cut indication of their duty liability in advance.

There continue to be disputes with regard to a proposed activity, in particular, for the purpose of the Central Excise and Customs Laws.

Under the Central Excise and Customs Laws, read strictly, the applicant, at the time of making the application for obtaining an Advance Ruling, should not be engaged in the activity of manufacture/production and import/export, respectively.

Often, an applicant is engaged in the manufacture of goods, classification of which could be an issue for determination or an applicant is engaged in the business of import/export, not only classification in relation to which is an issue for determination but also the applicability of an exemption notification or determination of the value of the goods could be a potential issue. The proposition regarding undertaking a new business activity in India has recently been held to be an on-going activity, as opposed to a proposed activity, in the Ruling of Oracle India, on the premise that, Oracle India is already engaged in the import of goods and import of hardware for distribution, and associated services would not qualify as a proposed activity.

The dissenting member, however, stated that, the activity of importing a new product line should be construed to be a proposed business activity in India.

Appropriate guidance

In contradistinction to the words and phrases used under the Central Excise and Customs provisions, for advance rulings, the Canadian Tariff Classification Advance Ruling Regulations distinctly refer to goods proposed to be imported.

In other words, there appears to be a wider scope of a proposed activity for Canada versus a proposed activity for India. Corresponding to streamlining the indirect tax regime in India, by the introduction of measures, for the smooth implementation of GST, it is pertinent that appropriate guidance is made available to prospective investors or business houses, so that the Indian market is viewed as a positive investor-friendly one.

In the absence of such appreciation of sentiments, in particular, of foreign investors, multinational corporations would be discouraged from expanding business in India.

In case an established importer or manufacturer is dissuaded from expanding the product portfolio or introducing new goods or services, the consumers may lose out on innovative, qualitative solutions, goods and services.

Xerox case ruling

The magnanimous ruling in the Xerox case, allowing import of similar products, already being imported by Xerox, for purposes other than for trading requires repetition and reaffirmation.

This is needed for restoration of the investor's and consumer's confidence in the consistency in application of indirect tax principles in India.

(The author is Director, Deloitte in India.)

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