The scope of advance tax ruling is now restricted only to classification, valuation, applicability of notification and admissibility of credits. The basic issue as to whether a service is taxable or not is out of the purview of the Authority.

For instance, the Authority will not give a ruling on whether a telephone information service will fall under business auxiliary service or not. The scope is also limited to "service proposed to be provided". This does not cover cases of those who have already started providing a service. The other restriction is that the ruling of the AAR is binding only on the commissioner, in whose jurisdiction the activity took place.

This means that if a shoe manufacturer without power in West Bengal gets a ruling as falling in a particular tariff item, the commissioner in Delhi where the same shoe is manufactured will simply ignore it. It is not, therefore, surprising that it's just in a handful of cases for which an actual ruling has been issued by the Authority in the last three years, since 2003. In 2004, four rulings have been issued that have been reported, and in 2005, just a few.

Professor Detlev J Piltz writing in 1996, in Studies on International Fiscal Law (edited by International Fiscal Association, Amsterdam) enunciated the principle that for reasons of certainty, it is useful for the taxpayer concerned to be able to obtain an advance ruling from the tax administration.

It is available in Austria, Germany, Canada and the Netherlands. In some form, it is also available in Japan, South Africa and the US.

In India, in 1999, an Authority for Advance Ruling for indirect taxes was created by incorporating Section 23A to 23H in the Central Excise Act, 1994 and Sections 28E to 28M in the Customs Act, 1962. In 2003, this restricted system was extended for service tax also.

One reason why this restriction has continued so long is that the Central Board of Excise and Customs considers that its own power will be diluted. This thinking is precisely against the interest of taxpayers.

The Board does not give binding rulings when the taxpayers ask them. So it is the taxpayers who simply suffer due to uncertainty. It is also apprehended that it should not be allowed to become a parallel organisation to the present system of appeal and so on. This is not correct because it can be extended to those who have started providing the services but have not got into litigation so far.

In such a situation, it will not turn out to be a parallel organisation to the present system of adjudication, appeal and so on.

The conclusion is that the interest of the taxpayers is paramount and not of bureaucracy and legal practitioners. The powers and functions that were assigned to this Authority are so restricted and constricted that this well-equipped edifice of AAR is now unutilised and the Indian manufacturers, importers and service taxpayers are crying under the heavy load of uncertain future.

In this Budget, this crying need should be met by substantial empowerment of the Authority to become an effective institution.

The writer is former member, Central Board of Excise and Customs.