One of the crucial changes proposed in the Union Budget, 2018 is broadening the scope of advance rulings under the Customs Act, 1962 (‘the Act’).
Where appointing a separate Customs Advance Ruling Authority with Appellate mechanism is a welcome measure, the changes proposed in the definitions of ‘applicant’, ‘advance rulings’ etc. would also result in expanding the ambit of advance ruling provisions.
On a close analysis, it can be observed that the proposed amendments with respect to Customs advance ruling are in line with the advance ruling provisions under the GST laws, particularly the ones relating to the appellate mechanism.
For a wholesome discussion, key advance ruling provisions under the Customs law along with the changes proposed in the Union Budget 2018 are explained herein below.
What is Advance Ruling?
As per the existing provisions, the Act defines advance ruling to mean the authoritative determination of liability to pay duty in relation to an activity which is proposed to be undertaken by the applicant.[1]
The Finance Bill 2018 (‘the Bill’) has proposed to amend the definition of “advance ruling” to mean a written decision on any of the questions referred to in section 28H raised by the applicant in respect of any goods prior to its import or export.[2]
This signifies that advance ruling can now be sought only prior to the import/export of goods.
It is relevant to point out that under the GST laws, “advance ruling” may be obtained in respect of specified questions, in relation to the supply of goods or services being undertaken or proposed to be undertaken by the applicant.[3] Thus, the definition of ‘advance ruling’ under the GST laws is a broader one which provides that advance ruling can be obtained on a proposed transaction as well as a transaction already undertaken by the applicant. Whereas under the Customs laws, advance rulings is restricted to proposed transactions (import/ export) only.
Who can apply for Advance Ruling?
Under the existing provisions of the Customs Laws, the term “applicant” for advance ruling covers within its ambit the following:[4]
(i) (a) a non-resident setting up a joint venture in India in collaboration with a non-resident or resident; or
(b) a resident setting up a joint venture in India in collaboration with a non-resident; or
(c) a wholly owned subsidiary Indian company, of which the holding company is a foreign company, who or which, as the case may be, proposes to undertake any business activity in India;
(ii) a joint venture in India; or
(iii) a resident falling within any class/category of persons, as the Central Government may, by notification in the Official Gazette, specify in this behalf, and which or who, as the case may be, makes application for advance ruling under sub-section (1) of section 28H;
As per the Bill, the term “applicant” is proposed to be amended to mean any person:
- holding a valid Importer Exporter code (‘IEC’) number (granted under section 7 of the Foreign Trade (Development and Regulation) Act, 1992)
- exporting any goods to India
- with a justifiable cause to the satisfaction of the Authority.[5]
As apparent from the above, existing advance ruling provisions primarily enable overseas businesses and notified residents (like public sector company, public limited company etc) to understand in advance their Customs duty liability on proposed imports into India and proposed exports from India. The proposed definition of ‘applicant’ would now enable any person holding IEC or any person with a justifiable cause to seek in advance, a ruling from the authority for advance rulings.
Who can issue Advance Ruling?
Under the existing provision of the Customs Laws, the authority for issuing advance rulings is constituted under section 245-O of the Income-tax Act, 1961.[6] This was pursuant to the proposals made in the Union Budget 2017.
The Bill proposes constitution of a separate Advance Ruling Authority for the purposes of advance rulings under the Act. The proposed amendment will help expedite issuance of rulings under the Act.
Till the date the Customs Authority for Advance Rulings is appointed, the existing Authority for Advance Rulings constituted under section 245-O of the Income-tax Act would continue to issue rulings under the Customs law.
Questions on which Advance Ruling can be sought?
Under the current provisions the questions on which advance ruling can be sought are classification of goods under the Customs Tariff Act, 1975; applicability of notification issued under section 25(1) having a bearing on the rate of duty; the principles to be adopted for determination of value of the goods; applicability of notifications issued in respect of duties; determination of origin of the goods in terms of the rules notified under the Customs Tariff Act, 1975.[7]
The Union Budget 2018 propose to include questions regarding applicability of notifications issued in respect of “tax”, in addition to “duty” already mentioned therein.[8] It appears that the word “tax” has been included with a purpose to cover questions to determine the applicability of Integrated Goods and Services Tax that is levied along with duty of Customs.
The Bill also enables Central Government to notify any other matter on which advance ruling can be sought by an applicant.
Introduction of Appellate Mechanism
Section 28KA is proposed to be inserted in the Act to enable an officer, authorized by the Board, or the applicant to file an appeal to the Appellate Authority against any ruling/order passed by the Customs Authority for Advance Rulings, within 60 days (which may be extended to 90 days) from the date of the communication of the order.
The authority for Advance Rulings constituted under section 245-O of the Income-tax Act, 1961 would be the Appellate Authority.[9]
This proposed provision is in consonance with GST provisions, implying that now an appeal can be made against the order of Customs Authority for Advance Rulings before Appellate Authority.
Other important amendments
Another section 28H(5) is proposed to be inserted stating that the applicant may be represented by any person resident in India who is authorized in this behalf.[10] This amendment stipulates that representation before the Advance Ruling Authority can be made by any Indian resident.[11]
The time-limit for pronouncement of decision by the advance ruling authority has been proposed to be reduced to 3 months from the receipt of application, as opposed to the period of 6 months under the Act.[12]
The proposed amendments are likely to broaden as well as expedite the process of advance ruling under the Customs Law. Further, the introduction of appellate mechanism would add another level for dispute resolution instead of directly approaching High Courts in case of any grievance.
_________________________________________________________________________________________
[1] Section 28E(b), Customs Act 1962
[2] Clause 62 of the Finance Bill, 2018
[3] Section 95(a), Central Goods and Services Act, 2017
[4] Section 28E(c), Customs Act 1962
[5] Clause 62 of the Finance Bill, 2018
[6] Section 28E(e), Customs Act 1962
[7] Section 28H(2), Customs Act 1962
[8] Clause 65 of the Finance Bill, 2018
[9] Clause 62 of the Finance Bill, 2018
[10] Clause 65 of the Finance Bill, 2018
[11] For the purposes of this sub-section “resident” shall have the same meaning as assigned to it in clause (42) of section 2 of the Income-tax Act, 1961
[12] Clause 66 of the Finance Bill, 2018 and Section 28I(6), Customs Act 1962