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TMI Blog2011 (5) TMI 832X X X X Extracts X X X X X X X X Extracts X X X X ..... that:- activity of import has taken place but term activity should not be interpreted in a narrow sense, applicant is not eligible to seek a ruling on its proposed business activity. The applications are therefore not maintainable and are rejected - - - AAR/Cus/6-7/2011 - Dated:- 13-5-2011 - Justice P.K. Balasubramanyan, S/Shri J.K. Batra and J. Khosla, JJ. REPRESENTED BY : S/Shri V. Lakshmi Kumaran and L. Badri Narayanan, Advocates, for the Assessee. S/Shri B.K. Singh, Jt. CDR and Sumit Kumar, SDR, for the Revenue. [Order]. The applicant is M/s. Oracle India Private Limited. These applications are filed by the applicant invoking section 28H of the Customs Act, 1962, seeking a ruling on two separate but interrelated questions arising out of a new line of business it proposes to undertake. The maintainability of the applications being contested by the Customs Department, these applications were heard on the maintainability of these applications at the threshold in the context of Section 28-1(2) of the Act. The present Order is on that question. 2. According to the applicant, it is a Private Limited Company registered in India under the Companies Act, 1956. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. In order to carry out its new business activity, the applicant will import the Oracle Hardware Products from a related party. After import, the Oracle Hardware Products will be resold to independent third party customers in India. In this re-sale activity, the applicant proposes to operate as a distributor in India. The manner of business in that regard is set out by the applicant in one of the applications. As part of the Support Services business, the applicant will assume warranty and replacement obligations for Oracle Hardware Products in India. The manner of carrying out the business is set out in the other application. 5. Since the proposed new business involves import, the applicant has also described the course it proposes to adopt in the case of re-sale in Hardware and in the case of Support Services. The applicant seeks a ruling from this Authority on whether the deductive methodology in case of proposed re-sale transactions is in consonance with the provisions of section 14 of the Customs Act and Customs Valuation (Determination of Value of Imported Goods) Rules, 2007 particularly when the assessment value of the new imports of identical goods is likely to vary beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is proposed to be undertaken by the applicant. An Applicant means inter alia a wholly owned subsidiary Indian company of which the holding company is a foreign company who or which, as the case may be, proposes to undertake any business activity in India. Of course, the definition section starts by saying in this chapter unless the context otherwise requires . Section 28H provides for the application for Advance Ruling. Sub-section (2) specifies the questions on which an Advance Ruling can be sought. An Advance Ruling can be sought in respect of classification of goods under the Customs Tariff Act, 1975, applicability of a notification issued under sub-section (1) of section 25, having a bearing on the rate of duty, the principles to be adopted for the purposes of determination of value of the goods under the provisions of this Act prima facie meaning the Customs Act, applicability of notifications issued in respect of duties under the Act, the Customs Tariff Act, 1975 and the duty chargeable under any other law for the time being in force in the same manner as duty of Customs leviable under the Act and in respect of determination of origin of the goods in terms of the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he principles to be adopted for the purposes of determination of value of the goods under the provisions of the Customs Act and questions relating to the Customs Tariff Act, 1975, do not come within the purview of clause (c) invoked by the applicant. He pointed out the distinction between clause (c) on the one hand and clauses (d) and (e) on the other. It was pointed out that in contrast to those sub-clauses, there is no reference to the Customs Tariff Act in clause (c) of Section 28H(2) of the Act. In reply, learned Counsel for the applicant submits that Section 28E itself starts by asserting that the defined meaning of an expression is not conclusive, and if the context, otherwise required, an expression can be understood in a general sense and so viewed, clause (c) which speaks of an entity which proposes to undertake any business activity in India includes an entity like the applicant who intends to start a new line of business like the one involved in this case. Counsel further submits that the interpretation sought to be placed on Section 28H(2)(c) of the Act by the representative for the Department is too narrow and self defeating and that such a narrow construction of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wide meaning or a liberal meaning. But still, an activity for the purposes of the Act has to be import or export. The expressions business activity and economic activity used in clause (c) of Sec. 28E can only be understood as confined to import or export. The expression activity is controlled by the defined meaning. Hence business activity will have to be understood to be business activity of import or export. In other words, a wholly owned subsidiary Indian company of which the holding company is a foreign company can approach this Authority, only when it proposes to undertake any business activity in India. 12. Then, we have to reckon with the expression proposed that qualifies business activity. Proposed means planned or intended. When an entity is already in the business of import or export, can it be said that it plans or intends a business of import merely because it seeks to import something different from what it has been importing already? To propose to have a business of import is different from an import of a new article as part of the existing business. Proposes to undertake obviously indicates that it is not a business activity that is going on, but is an acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ression economic activity is used while explaining what a joint venture means. But surely, that economic activity must be one of import or export considering the object of the Act. The object of the Customs Act is to prevent illegal exports and ensure imposition and collection of duty on dutiable goods imported into the country. So, the business activity or economic activity can only be import or export activity. That is exactly what the definition of activity postulates. A combined reading of the definition of activity , Advance Ruling and of applicant with particular reference to sub-clause (c) clearly indicates that it is only an entity which proposes to undertake the business of import or export in India that can approach this Authority for a ruling. The provisions do not seem to contemplate an approach by an existing importing or exporting Indian subsidiary of a foreign holding company for a Ruling, whenever it starts or proposes to start a new line of business in India. 15. It is true that a definition in a statute is not always conclusive. Generally, in statutes, the definition section starts with the words unless the context otherwise requires . The same is the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate to some other articles or goods. The second is, the definition of Advance Ruling which clearly indicates that the Ruling is to be in relation to an activity which is proposed to be undertaken. 17. It is true that an interpretation along these lines might preclude undertakings that are already in the business of import or export but which propose to start a new line of import or export business from approaching this Authority for an Advance Ruling. It is argued that such an interpretation would restrict the scope of approach to this Authority. But then, we must remember that this is a jurisdiction where a ruling is not rendered where something has already been done or something has already happened, but based on something that is proposed to be done, more or less as pleaded or set-up by the applicant. The intention behind the creation of such a forum is said to be to attract foreign investment. That object is achieved when a non-resident entity sets up the business of import or export for the first time. Once set up, the entity is in business in this country and merely because it proposes to increase its business or to diversify does not alter the situation. It is, therefore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mport or export, provided the applicant is a non-resident or an Indian entity proposing to have a joint venture or a wholly owned subsidiary of a foreign company. Clearly, that is not contemplated by the statutes. The statute is intended to deal with import and export activities. In other words the business should be one of import or export. That means we have to assign the expression activity its defined meaning, lest it leads to absurd results. Then we have to consider the expression proposes to undertake any business activity in India. Can we read it to understand to include every fresh line of import or export? If we do so, an exporting company or importing company or fully owned subsidiary Indian Company would be able to approach the Authority for a ruling every time a new article is sought to be marketed by it, imported or even otherwise. Clearly, the Advance Rulings Authority is not a substitute for the regular hierarchy of authorities under the Act. An existing importer or exporter has to take up his plea relating to the new article to be imported to the regular authorities under the Act and get it adjudicated upon. 20. An interpretation not widening the jurisdiction o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority will become restricted is no reason to depart from the defined meaning. In any event, that is a matter for the legislature. We, therefore, hold that the applicant is not eligible to seek an Advance Ruling on the new line of business it proposes to start in the course of its existing import trade. 22. The applicant has sought to sustain its application by invoking section 28H2(c) of the Act and submitting that what it seeks is a ruling only on the methodology of valuation under Rule 7 of the Customs Valuation (Determination of Value of Imported Goods) Rules, 2007. Section 28H 2(c) reads : principles to be adopted for the purposes of determination of value of the goods under the provisions of this Act . It is submitted on behalf of the applicant that the applications are sustainable under the above provision and the applicant is entitled to have a ruling on the questions raised by it. 23. On behalf of the Department it is submitted that clause (c) speaks of the principles to be adopted for the determination of the value of goods under the provisions of the Customs Act, whereas the applicant is seeking a ruling on valuation under the Customs Tariff Act, 1975, which d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cant, is maintainable with reference to Section 28H2(c) of the Act. 25. In view of finding that the applicant is not eligible to seek a ruling on its proposed business activity, the applications are not maintainable. These applications are, therefore, not admitted but are rejected. Obviously it will be open to the applicant to raise all its contentions on merits sought to be raised before us, before the appropriate Authority at the appropriate stage and nothing said herein can prejudice the applicant at that stage. Sd/- (P.K. Balasubramanyan) Chairman Sd/- (J. Khosla) Member 26. [Per : J.K. Batra, Member]. - I generally agree with the conclusions arrived at in the aforesaid order except on the issue whether the activity of the applicant can be considered as the one proposed to be undertaken . 27. It has been concluded in the said order that the statute intended to confer on this body, the authority for giving an Advance Ruling, when an eligible entity proposes to start in India an activity of import or export for the first time. In a case where an applicant is already in the business of import or export, simply because it intends to start a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quity holders is a non-resident having substantial interest in such arrangement; (Emphasis provided) 29. From the definition of the expression advance ruling as given in clause (b) of Section 28E read with definition of activity in clause (a), it is amply clear that a ruling can be given only in respect of an import or export which is proposed to be undertaken; the decision must precede the activity in respect of which the decision is pronounced. If the event has already occurred the ruling would cease to be an advance ruling. The critical issue to be determined is what would constitute an activity for the aforesaid clause (b) in a situation where an importer imports different articles at different points of time. If he imports an article X , no doubt he is ineligible to approach the Authority subsequent to completion of importation of the said article for a ruling pertaining to article X . However, if an eligible applicant has commenced the import activity and approaches the Authority to seek a ruling in respect of import of a new item where the applicant entertains a doubt regarding one of the questions on which ruling can be sought under sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivity as envisaged in the definition of advance ruling . The Authority in its order recorded that this objection was considered before admitting the application and it would not be appropriate to entertain this objection again at the stage of hearing on merits. The Department chose not to contest the decision on the eligibility of the applicant to seek a ruling in this case any further. 32. Similarly in the case of M/s. Xerox India Limited, Gurgaon the Authority vide its miscellaneous order dated 6-8-2010 has admitted an application and subsequently pronounced a ruling regarding valuation of goods which were being imported by the applicant even previously but he had approached the authority for a ruling because of a change in the marketing pattern resulting in a change in the duty liability. (Misc. Order No. AAR/01/(CUS)/2010, dated 6th August, 2010). Relevant extracts of para 10 of the said order are reproduced as follows : Adopting this approach, we are inclined to take the view that the applicant shall not be denied the remedy of seeking advance ruling on the ground that the import activity has already started and any further imports of the same products cannot be regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause (a). Similarly the expression economic activity cannot be given a restricted meaning of economic activity of import or export . The context in which the term activity has been used in these two expressions viz business activity and economic activity requires that the exclusion clause in the beginning of Section 28E i.e. unless the context otherwise requires be invoked and the definition of the term activity as given in clause (a) of Section 28E should not be adopted to interpret these two phrases. 34. It is further noticed that the definition of applicant as adopted in Section 28E of the Customs Act, 1962 is more or less identical to the definition of the applicant in the chapters pertaining to advance ruling in the Central Excise Act, 1944 (Section 23A) and in the Finance Act, 1994 (Section 96A) relating to levy and collection of service tax. The term activity has been defined only in the Customs Act and Central Excise Act; no definition of activity has been provided in the Finance Act. In view of the identical definition of applicant in the provisions relating to Advance Rulings in the three statutes it would be incongruous to imply that the term b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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