TIOL-DDT 143
24 06 2005
Friday

An important recommendation made at the recent workshop in Hyderabad was to extend the facility of “Advance Ruling” to Indians. An importer wondered why he cannot have this facility which was extended to an NRI or a foreigner. A Customs Commissioner stoutly opposed this plea and even advised the importer to tie up with a foreigner to be eligible. Interestingly a Chief Commissioner intervened and asked the Commissioner to explain why this facility can not be extended to Indians. The Commissioner’s feeble reply was that the law does not provide for this. But why?

A netizen today asked DDT “Isn’t this discrimination unconstitutional?”

The advance ruling facility under Customs, Central Excise and Service Tax is phoren oriented. 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, notification, 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 10.2% with interest and a mandatory penalty of an equal amount. He will simply 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 the Commissioner). 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 tax paying 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.

It is a welcome feature that the recent VAT laws brought in by several states contain provisions for simple and effective advance ruling. Mercifully they have not restricted availability of advance ruling to only traders from other states. Haryana the pioneer in VAT has introduced advance ruling in VAT under which the government can suo moto or on an application, pass an order which shall be binding on all parties. Similarly a dealer can at any time make an application to the state government seeking clarification on any important issue.

If the State VAT Laws can have such a provision, it is strange that the Central VAT should discriminate between Indian and foreign entrepreneur.

Why not make every Commissioner an Advance Ruling Authority?

Ultimately what is Advance Ruling all about?

Write laws that are difficult to comprehend, and charge fees for interpreting them.

• There are many occasions when the Board asks the Law Ministry to explain the meaning of the laws written by the Board!

• Saaksharo vipareetatve rakshaso bhavati dhruvam. Those who are knowledgeable are called Sasksharas. If they do not use their knowledge properly then they become the reverse of sakshara that is rakshasa.

• While honest people may be fools and not intelligent, no corrupt person is ever foolish or unintelligent. This is because he needs to know the rules and procedures and then be clever enough to misuse it for his purpose.

• India is like a snake whose head is in the 21st century and whose tail is in the 17th century.

• The inevitable becomes intolerable the moment it is perceived to be no more inevitable

Until Monday with more DDT

Have a nice weekend.

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