India is planning a significant shift toward a litigation-free environment under the GST regime, creating a liberal mechanism that would allow all taxpayers to ascertain liabilities beforehand.
The draft rules for advance ruling mechanism will allow all categories of taxpayers to approach the authority, unlike the existing system that restricts the facility to proposed transactions before the start of a business.
Friendly advance ruling mechanism to smoothen ride under GST regime
The advance ruling infrastructure will also ensure that every commissionerate has an authority, with a joint commissioner level officer as a member. This is modelled after global best practices in which advance ruling is treated as a revenue function, and carried out directly by revenue authorities without being passed on to any quasi-judicial entity.
“The efforts seem to be to reduce post-assessment disputes and, hence, money stuck in litigation, and also to bring certainty in taxation of supplies by a person,” said Bipin Sapra, partner at EY.
At present, advance ruling can be sought for customs, excise duty and service tax for any proposed transaction. It cannot be sought for any existing transaction for central taxes, although the state valueadded tax regime permits even existing transactions.
Experts say this move is the first step toward bringing down litigation, but bias should not be toward revenue generation. Some experiments in the direct taxes, with the dispute resolution panel having revenue authorities as members, have not been very successful due to the inherent revenue bias.
“AAR would comprise government officials and so the challenge would be to preserve objectivity to ensure that revenue bias does not come into play,” said Pratik Jain, leader, indirect taxes, PwC.
Draft advance ruling norms provide that an application for advance ruling or appeal has to be filed online, with fees of Rs 5,000 or Rs 10,000, respectively.
The government has released another set of rules dealing with advance ruling, and those dealing with accounts and record and appeals and revision. The proposed GST Council meeting on May 18-19 will take up the final set of rules.
Rules for accounts and records propose to make mandatory the maintenance of separate accounts and records for each activity, including manufacturing, trading and provision of services. These, experts say, could prove quite cumbersome and increase compliance costs.
“Draft rules on accounts and records look quite elaborate and onerous,” said Jain. He said that while GST is on supplies, rules contain detailed requirements of maintaining records related to manufacturing, trading and services.
“Rules for accounts and records could be outlandish for taxpayers-…Taxpayers also need to maintain invoices, bills of supply, delivery challans, credit notes, debit notes, receipt vouchers, payment vouchers, refund vouchers and e-way bills separately for each such activity,” said Rakesh Nangia, managing partner at Nangia & Co.
The government proposes to roll out the new tax regime, which seeks to replace multiple state and central taxes with a single levy, on July 1.