A Peek Into Advance Ruling Provisions Under Service Tax

One of the positives of the budget proposals is the applicability of advance ruling provisions to the resident private limited companies. This move reduces the litigation piled at the department level since there shall be an opportunity for understanding the department’s way of interpretation of a particular provision at the earlier stages itself. Further, the tax payer is also clear about the tax implications of a particular transaction and geared up to decide about collecting the same from the service receiver or not. Hence, this move is a welcome one since it helps reduce the litigation and throw light on the complicated provisions of the Finance Act, 1994. 

Since, the advance ruling is made applicable to the resident private limited with effective from 11.07.2014, it is the need of the hour to brush up with the provisions of the most untouched Chapter VA of the Finance Act, 1994. 

The provisions of the advance rulings range from Section 96A to Section 96I of the Chapter VA of the Finance Act, 1994. We shall try to understand the said sections in the form of FAQ’s: 

1. What is advance ruling? 

The determination by an authority constituted pertaining to a question of fact or law regarding the liability to pay service tax in relation to a service proposed to be provided, by the applicant. Hence, an advance ruling cannot be sought after executing the services, it has to be prior to commencement of a service.

2. Who can apply for an advance ruling?

As per Section 96A (b) ibid, the following persons can apply for an advance ruling:

• Non – resident setting up a JV in India in collaboration with a Non-resident or resident which proposes to undertake an activity in India;
• Resident setting up a JV in India in collaboration with a Non-resident which proposes to undertake an activity in India;
• Wholly owned subsidiary Indian company, of which the holding company is a foreign company, which proposes to undertake an activity in India;
• JV in India, where the non-resident having substantial interest in such JV;
• Resident falling within any such class or category of persons, as the Central Government, by notification in the Official Gazette specify.

 

3. Are resident private limited companies covered under the ambit of Section 96A(b) to apply for an advance ruling? 

Yes, the resident private limited companies shall fall in the ambit of Section 96A(b), thereby eligible for applying for the advance ruling in the light of Notification No. 15/2014-ST dated 11.07.2014. 

4. What is a private limited company mean? 

The Notification No 15/2014-ST dated 11.07.2014 has made a reference to the definition of private limited company as per Section 2 (68) of the Companies Act, 2013 to be applicable for the advance ruling provisions. The definition as per Section 2 (68), ibid is placed hereunder: 

2 (68) “private company” means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed, and which by its articles,- 

• restricts the right to transfer its shares; 

• except in case of One Person Company, limits the number of its members to two hundred: 

Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member: 

Provided further that-

• persons who are in the employment of the company; and 

• persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and 

(iii) prohibits any invitation to the public to subscribe for any securities of the company; 

5. Whom to an application shall be made? 

An application shall be made to an authority constituted under sub-section (1) or authorised by Central Government under sub-section (2A) of Section 28F of Customs Act, 1962. 

6. On what questions can an advance ruling sought?

As per Section 96C (2), the advance ruling can be sought in respect of: 

classification of any service as a taxable service under Chapter V; the valuation of taxable services for charging service tax; 

the principles to be adopted for the purposes of determination of value of the taxable service under the provisions of Chapter V; applicability of notifications issued under Chapter V; 

admissibility of credit of duty or tax in terms of the rules made in this regard; determination of the liability to pay service tax on a taxable service under the provisions of Chapter V.

7. Can an advance ruling can be sort on any issue other than those mentioned in Section 96C (2)? 

No, there cannot be an application for advance ruling on any other question except those specified in the Section 96C (2), ibid. 

8. How to make an application to the advance ruling authority? 

The application for an advance ruling shall be made in Form AAR (ST-I) as specified in Rule 3 of The Service Tax (Advance Rulings) Rules, 2003. The Form AAR (ST-1) is annexed to this note. 

9. Is there any fee payable for applying to the advance ruling authority?

Yes, the application shall be accompanied by a demand draft for Rs 2,500/- drawn in favour of ‘Authority for Advance Rulings (Central Excise, Customs & Service Tax)’, payable at New Delhi as per Section 96C (3), ibid. 

10. Can an application made under Section 96C (1) be withdrawn? 

Yes, as per Section 96C (4), ibid, the application can be withdrawn within thirty days of the application. 

11. What is the procedure adopted on receipt of the application from the applicant? The procedure adopted by the advancing ruling authority is as under: 

1. On receipt of application, the AAR shall forward a copy to the Commissioner and call for any records, if necessary 

1. AAR, may either allow or reject the application after examination;
2. If the application is: Rejected: 

• the same shall be done after giving an opportunity of being heard; 

• and recording the reasons for rejection in the order and 

• copy of the order is sent to the applicant and Commissioner; 

 Allowed: 

• AAR shall pronounce its ruling on the basis of the information furnished; 

• If requested by the applicant, the AAR before pronouncing the ruling, shall give an opportunity of being heard either to applicant or his duly authorised representative 

• Copy of such ruling duly signed by the members shall be sent to the applicant. 

12. Under what circumstances, the AAR is obliged to reject the application filed? 

The application filed under Section 96C, ibid shall be rejected by AAR under the following circumstances: 

• Already pending in the applicant's case before any Central Excise Officer, the Appellate Tribunal or any Court; 

• The same as in a matter already decided by the Appellate Tribunal or any Court. 

13. Is there any time period for pronouncing the ruling by the Advance Ruling Authority? 

Yes, as per Section 96D (6), ibid, the AAR shall pronounce its advance ruling within 90 days from the date of the receipt of the application. 

14. On whom is the pronouncement of AAR is binding? 

As per Section 96E, the pronouncement of AAR is binding only on the following: 

• on the applicant who had sought it; 

• in respect of any matter on which the pronouncement is sought for; 

• on the Commissioner of Central Excise, and the Central Excise authorities subordinate to him, in respect of the applicant. 

15. Can the judgment of AAR be void? 

Yes, the judgment pronounced by AAR can be void in certain circumstances, where the authority finds on representation made it to by the Commissioner or otherwise, that an advance ruling is obtained by fraud or misrepresentation of facts. Then AAR by making an order declare such ruling to be void ab-intio.

This article is contributed by Partners of SBS and Company LLP - Chartered Accountant Company. You can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.