Customs advance rulings: Zoom ahead but with reduced mileage

FEBRUARY 14, 2022

By Srinidhi Ganeshan, Joint Partner, Lakshmikumaran & Sridharan, Mumbai Â

1. NO
assessee wants litigation. Surrounded by uncertainty (tax related or otherwise) in these tumultuous times, the revamped provisions relating to
Customs Authority for Advance Ruling was a sort of assurance given to an assessee with regard to the road map on classification etc. of the
future imports. By obtaining a ruling from the Authority for Advance Ruling, the assessee was provided an assurance that the ruling would bind
the Customs authorities and they cannot act contrary to the Ruling.

2. Chapter VB of the Customs Act, 1962 contains the provisions pertaining to Advance Rulings. An eligible assessee is free to approach the
authorities for Advance Ruling concerning select specified aspects relating to imports such as classification, valuation etc. Section 28J states
that Advance Ruling, once issued, shall be binding on both the assessee and the Department, unless a change in law or facts on the basis of
which the Advance Ruling has been pronounced.
Thus, at present, if there is a no change in law/facts, the Advance Ruling issued will be valid for perpetuity.

3. Vide the Finance Bill, 2022 now introduced [clause 92 refers], it is proposed to restrict the validity of Advance Ruling issued under the
Customs Act, 1962 to a maximum period 3 years
. Transition clause has been proposed, to state that in respect of Advance Rulings issued prior to Finance Act, 2022 being passed, the validity
of 3 years will be reckoned form the date of enacting of the Finance Act, 2022.

4. While this change in validity of the Advance Ruling appears drastic, let us try to find out what prompted the Government to make such a
move and also the practice in other countries.

a. WTO: Article 3 of the Agreement on Trade Facilitation 1

entered by WTO Member countries sets out the guidelines regarding Advance Ruling. It specifies that Advance Ruling can be
sought for proposed transactions and that the Advance Ruling issued shall be valid for a reasonable period
of time after its issuance unless the law, facts, or circumstances supporting that ruling have changed. 'Reasonable Period' has
not been defined. However, the use of words 'reasonable period' connotes that the period has to be a finite period, and not
infinite.

b. USA
: Advance Rulings issued in USA are referred to as CROSS Rulings. One can apply for the ruling for proposed import/export
and the person receiving the ruling letter can rely on the binding ruling until either the law changes, or until the issuing authority
modifies or revokes the ruling.

c. European Union
: Advance Rulings issued by EU are known as 'BTI Rulings'. Prior to June, 2016, these rulings had a maximum validity of 6
years. However, currently, the rulings have a maximum validity of 3 years. EU clearly specifies that the BTI Ruling will apply
only to customs clearances effected after the start date of validity of the BTI Ruling.

d. Australia
: The Advance Ruling issued is valid for a maximum period of 5 years. However, it is clearly mentioned that the Ruling issued

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 can also be applied for past transactions and basis the Ruling, assessee is entitled for refund paid on past transactions.
However, if lower duty has been paid in the past, the assessee is expected to pay the differential within 30 days of receipt of
the ruling, to avoid penalty.

e. Singapore : The Advance Ruling issued is valid for a maximum period of 3 years.

f. Indonesia : The Advance Ruling issued is know as 'advice' and is valid for a maximum period of 3 years.

5. Thus, it can be gathered from the above that the amendment now proposed of limiting the validity period of Advance Ruling is in keeping
with the guideline set by WTO and the general practice followed by other members of the WTO. India being a signatory to the WTO
Agreement, has brought this amendment in accordance with the treaty.

6. This then begs the question: what will happen after 3 years? Can the assessee again file a fresh application for Advance Ruling? There is
not yet any clear answer to this question. The amendment now proposed also does not provide any insight.

7. However, filing of a fresh application after 3 years can be affected by Section 28E(b) of the Customs Act, 1962 which states that Advance
Ruling can only be sought in cases wherein import/export has not yet taken place. Therefore, obtaining another Ruling after the expiry of the 1
st one, is questionable.

8. The above fact raises one question: When India has chosen to differ from the Global Treaty mandates in respect of numerous other
instances, could the Government not make another such exception in case of Advance Ruling, in the interest of trade facilitation and ease of
doing business?

It is hoped that by the time the Finance Act, 2022 is codified, the aforesaid gaps are filled adequately.

[The views expressed are strictly personal.]

1 On 27 November 2014, the United Nations General Council adopted the Protocol of Amendment to insert the WTO Trade Facilitation
Agreement into Annex 1A of the WTO Agreement. India too accepted this on 22.4.2016. Accordingly, the WTO Trade Facilitation Agreement
entered into force on 22.2.2017 for all the member countries who have accepted it.

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