In a bid to avoid disputes with the revenue department, the provision of advance rulings was introduced under the goods and services tax (GST) law. It should be noted that this mechanism existed in the previous tax regime as well.
The objective of an advance ruling is to make a taxpayer aware of the treatment of a transaction in advance, so that there is full clarity at the outset itself. However, rising instances of contradictory verdicts on similar issues given by advance ruling authorities of various states is defeating the very purpose of the rulings.
Take, for instance, the recent verdict on taxing printed advertisement materials. The Telangana Authority for Advance Ruling (AAR) and West Bengal AAR not only gave conflicting verdicts, but also used different methodologies to arrive at their conclusions.
Further, there have been situations where the ruling differs from what the law states. “In case of West Bengal AAR it was held that marketing services provided to foreign universities does not qualify as export. It is an intermediary service and therefore GST should be levied. However, as per place of supply provisions and other criteria, it seemed to meet the requirements for qualifying as an export. Similarly, goods sold at duty free shops were held to be taxable by the Delhi AAR. Such sale has historically been considered an export and is ‘duty’ free, a clear departure from set precedents. In another case, Maharashtra AAR held that solar procurement and installation contracts will attract 18% GST, while Karnataka AAR ruled a 5% GST rate," said Archit Gupta, founder and chief executive of ClearTax.
So far since implementation, more than 50 advance rulings have been filed and in most cases the decision has been in the favour of the revenue department, say tax experts.
They say the quality of rulings is not up to the mark and there needs to be a judicious mix of people from the revenue department and law officials for a balanced judgement. Here, the government needs to take a leaf out of the advance ruling system practiced in the excise/sales tax regime, where the decisions given were fairly reasonable, they add.
Meanwhile, media reports state that the government is planning to revamp the advance ruling mechanism and may consider setting up either a centralized authority or four regional authorities. But there is no clarity on the timeline as yet.
“Formation of National Appellate Authority will help in ensuring that at least when these matters reach appellate stage the possibility of conflicting rulings is ruled out. However, it is suggested that at the time of filing of the application itself, a central body should prepare a list of issues which are being considered for advance ruling. The central body should identify common issues and inform the states so that before rulings are pronounced, the states should discuss among each other and avoid any chance of divergent views on the same issue," said Anita Rastogi, partner (indirect taxes) at PwC India.
In short, delay in streamlining the advance ruling system would create more chaos and thereby hamper the ease of doing business in the country.