Advance ruling under service tax and related procedure

By | November 11, 2013

Advance ruling under service tax and related procedure

In order to provide the facility of ascertaining the service-tax liability of a non-resident, to plan their service-tax affairs well in advance and to avoid long drawn and expensive litigation, a scheme of Advance Rulings has been introduced under the finance act,1994 Authority for Advance Rulings has been constituted. A non-resident or certain categories of resident can obtain binding rulings from the Authority on question of law or fact arising out of any transaction/proposed transactions which are relevant for the determination of his tax liability.

WHAT IS THE SCHEME OF ADVANCE RULINGS ?

With a view to avoiding a dispute in respect of assessment of service-tax liability in the case of a non-resident (and also specified categories of residents), a Scheme of Advance Ruling was incorporated in Chapter XIX-B of the Service-tax Act. The Authority for Advance Rulings ( AAR )pronounces rulings on the applications of the non-resident/residents submitted in the prescribed form following prescribed procedure and such rulings are binding both on the applicant and the service-tax department. Thus, the applicant can avoid expensive and time consuming litigation on any question of law or fact which might arise from normal service-tax assessment proceedings. AAR (Procedure) Rules, 1996 provide detailed procedure for obtaining advance rulings.

WHAT IS THE COMPOSITION OF THE AUTHORITY?

The Authority for Advance Rulings consists of a Chairman , who is a retired Judge of the Supreme court and two members of the rank of Additional Secretary to the Government of India, one each from the Indian Revenue Service and the Indian Legal Service.

WHO CAN SEEK ADVANCE RULING?

Any non-resident person whether individual, company, firm, association of persons or other body corporate can make an application for seeking an advance ruling in regard to his/its tax liability. Similarly, certain category on residents can also seek advance rulings.

Any person who:

  • Is a non-resident setting up a joint venture in India in collaboration with a non-resident or resident or
  • Is a resident setting up a joint venture in India in collaboration with a non-resident.
  • Is a wholly owned subsidiary Indian company, of which the holding company is a foreign company and which proposes to undertake any business in India.
  • Is a joint venture in India.
  • Is a resident of India within any class or category of persons as may be specified by the central government by notification.

WHAT ARE THE BENEFITS OF ADVANCE RULING?

  • Helps the applicant in planning his service-tax affairs well in advance.
  • Brings certainty in determining the tax liability.
  • Helps avoiding long drawn and expensive litigation.
  • It is inexpensive, expeditious and binding.

QUESTIONS ON WHICH ADVANCE RULING CAN BE SOUGHT?

The advance ruling can be sought on any question of law or fact specified in the application in relation to a transaction which has been undertaken, or is proposed to be undertaken, by the non-resident applicant.

However, an advance ruling cannot be sought where the question.

  • Is already pending in the case of the Non-resident applicant before any service-tax authority, the Appellate Tribunal or any court;
  • Involves determination of fair market value of any property; or
  • Relates to a transaction which is designed prima facie for avoidance of service-tax.

HOW TO SEEK ADVANCE RULING ?

The applicant may seek advance ruling by making an application to the Authority in the prescribed form i.e. Form No. 34C, 34D or 34E, as the case may be in the manner indicated therein and following the procedure as prescribed in AAR (Procedure) Rules, 1996.

SIGNING OF APPLICATION

The application including the documents annexed thereto shall be signed in the manner indicated in the prescribed form. Where a person signing the application and other documents claims to have been duly authorizing to do so, the application must include a power of attorney, authorizing him to sign and an affidavit setting out the unavoidable reasons which entitle him to sign it.

AUTHORISED REPRESENTATIVE

The applicant is entitled to represent his case before the Authority either personally or through an authorized representative e.g., a Chartered Accountant, Advocate, any other tax practitioner etc. If the applicant desires to be represented by an authorized representative, a power of attorney authorizing him to appear for the applicant should be enclosed in original.

PAYMENT OF FEE

The application should be accompanied by a fee of Rs 2,500/- (Two Thousand Five Hundred Indian rupees) through a bank draft drawn in favour of the ‘Authority for Advance Rulings’ payment at New Delhi.

WITHDRAWAL OF APPLICATION

The applicant may withdraw his application within 30 days from the date of filing the application, thereafter only with the leave of the Authority.

TIME LIMIT FOR PRONOUNCING THE RULING ?

The advance ruling is required to be pronounced by the Authority within six months of the receipt of a valid application.

IS ADVANCE RULING BINDING?

Advance ruling pronounced by the Authority would be binding in respect of the transaction(s) in relation to which ruling has been sought:

  • On the Commissioner and the service-tax authorities subordinate to him in respect of the applicant; and
  • On the applicant who has sought it.

by C.A. Deepika Pamecha

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