India could create a centralized mechanism under the Goods and Services Tax to prevent wide conflicting interpretation of law by the separate authorities for advance rulings at the state level.
The Authority for Advance Ruling allows taxpayers to ascertain their tax liability in advance and a conflicting ruling on a transaction can create complication for the unified tax structure. “We can look at setting up a mechanism to ensure there are no wide divergences in application of law in a similar situation,” said a senior government official.
The advance ruling mechanism will allow all categories of taxpayers to approach the authority. Every commissionerate has an authority with a joint commissioner-level officer as a member, as per the prescribed structure under the Goods and Services Tax put in place.
In the erstwhile taxation regime, advance ruling could be sought for customs, excise duty and service tax for any proposed transaction, but not any existing transaction.
There is a worry in the industry that since the authority will be widespread across states, there could be conflicting rulings creating confusion about the unified taxation regime rolled out on July 1. The Goods and Services Tax has replaced multiple state and central taxes to create a seamless market in the country.
Rulings by the AAR are case specific, but they have a persuasive impact on tax assessment in cases of other firms under similar circumstances. Experts caution against such a situation and back some sort of central mechanism to address the issue.
“The purpose of advance ruling mechanism will get significantly diluted if different states take different view on the same issue, given that GST laws in different states are similar,” said Pratik Jain, leader-indirect taxes, PwC. Jain said it will not bring in certainty in tax regime, which is the primary objective of this mechanism.
ET Views: Rulings Must Be Time-Bound
The model GST law offers taxpayers the facility of rulings in advance on GST dues. This makes sense to lower legal disputes, especially given the wide divergence in the GST rates in the same kind of product. It will provide certainty in the tax liability, helping attract more investment. The need is for intensive training of the tax administration to handle GST. The advance ruling authority must be up and running to ensure time-bound rulings .