With a view to avoiding dispute in respect of assessment of tax liability a Scheme of Advance Rulings has been incorporated in the Income-tax Act and the Customs Act. The Authority for Advance Rulings (AAR) pronounces rulings on the applications of the non-resident/residents and such rulings are binding both on the applicants and the Tax department. Thus, the applicant can avoid expensive and time consuming litigation on any question of law or fact which might arise from normal assessment proceedings. The scheme of Advance Rulings allows eligible persons to seek clarity on tax liability before venturing into a particular taxable activity. Pursuant to the Finance Act, 2017, the AAR constituted under Income Tax Act 1961 is acting as AAR for Customs legislations as well.
There are three benches of the Authority – Principal Bench at Delhi having jurisdiction over applicants residing in the Union territory of Delhi and non-residents who do not have offices in India. NCR Bench at Delhi having jurisdiction over northern and eastern states and Mumbai Bench having territorial jurisdiction covering central and southern states. The Customs applications for Advance Rulings are dealt only in the Principal Bench. The Authority for Advance Rulings has also been notified as Central Sales Tax Appellate Authority to settle Inter-State disputes under the Central Sales Tax Act, 1956.