Impact of GST Advance Rulings
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Benjamin Franklin once said that in this world nothing can be said to be certain, except death and taxes. Payment of taxes is certain however, the ever-evolving business environment and technological advancements have created uncertainty on how much tax to pay.
The Government with a view to resolving this uncertainty has introduced the mechanism for Advance Rulings. Advance Ruling means a written opinion or authoritative decision by an Authority empowered to render it regarding the tax consequences of a transaction or proposed transaction. This allows the taxpayer to ascertain the tax treatment of a transaction before undertaking it.
The procedure under Advance Ruling
A business may approach the advance ruling for obtaining a ruling on various matters viz., Classification of any goods/services; Applicability of any notification issued having impact on rate of tax; Determination of time and value of supply of goods or services or both; Determination of eligible ITC; Determination of liability to pay tax on any goods/ services; Whether applicant liable to be registered; Whether anything done in relation to goods or services or both results in a supply. The jurisdiction of advance ruling authority does not permit applications on matters other than those listed above. Before deciding on any matter, the authority calls for comments from the jurisdictional officers and provides an opportunity of hearing to the applicant.
The scheme also provides for an appeal before the Appellate Authority for Advance Rulings in case the taxpayer or the tax officer is aggrieved by the advance ruling. The rulings of the Appellate Authority are final, and the Act does not provide for any formal mechanism to file an appeal against the same.
Impact of Advance Rulings
The Advance Rulings were introduced to bring certainty in taxation. It benefits both the taxpayers and the tax administration. The impact of advance rulings is discussed below.
1. Reduced Litigation
The Indian Taxation system has been infamous for its long-drawn litigation. Tax disputes between the department and the taxpayer drain time and resources of both the stakeholders and clog the judicial system. This unwarranted litigation strains the already understaffed tax departments in the country. Advance Rulings decide taxability of a transaction at the initial stage itself instead of a post-transaction determination of tax treatment which often ends up in litigation. The advance rulings deal with issues in a proactive manner to determine their tax treatment and thus, drastically reduce litigation.
2. Promotes Transparency and Certainty
Advance Ruling requires full and truthful disclosure of facts. The rulings passed are not binding in case of concealment or suppression of any material facts. In all other cases, the ruling passed by the advance authority is binding on both the parties. This ensures both transparency and certainty in taxation of transactions. Once a business is made aware of the tax position, it may take appropriate action for the same. The correctness and certainty of tax treatment assume more significance under the self-assessment regime as non-compliance attract fines and penalties. The Advance Ruling promote certainty and predictably in the tax regime.
3. Expeditious and Cost-Effective
The Advance Ruling Authority is provided with a timeline of 90 days for passing a ruling. This ensures that the rulings are passed in a time-bound and speedy manner. The cost of filing advance ruling application has been kept at INR 5,000 irrespective of the number of the question asked. Similarly, the cost of filing an appeal before the Appellate Authority for the advance ruling has been fixed as INR 10,000. This makes the Advance Ruling a speedy and economical manner of ascertaining tax treatment of transactions.
4. Promotes Investment
Businesses need certainty and predictability in their tax environment to operate effectively. Tax demands can very daunting and may discourage entrepreneurs and investors alike from venturing into new businesses. Advance rulings ensure that the businesses are aware of their tax treatment and promote stability in the tax ecosystem. This encourages investors, both domestic and foreign, to invest and take up new businesses.
5. Helps in Policymaking
Businesses environment is a very dynamic environment. It is easy to lose track of the changes which take place in it. The advance rulings provide the tax administration with an insight into the manner in which business transactions are being undertaken by the taxpayers. This helps the administration to frame policies as per changing needs of the business. This helps in better tax compliances and reduces tax leakages.
There is no doubt that the Advance Rulings have a positive impact on the entire tax ecosystem. However, it has its own share of criticism in the form of conflicting rulings by different benches on the same facts. In some of the cases, the advance rulings have been nullified by the Government by issuing circulars reversing the same. Such instances erode the trust a taxpayer reposes in the mechanism.
It is important that the Government takes remedial action at the earliest to ensure the confidence of the taxpayer continues. The Government has already initiated working in this direction and proposed the creation of a centralised appellate authority. The centralised appellate authority will provide rulings in case of conflicting advance rulings. This will go a long way in achieving Ease of Doing Business and fulfilling the goal of ‘One Nation One Tax’.