this is a extremely vague question.
it can be in both the base and the clear. it could also be in the sealer coat also.
it's most likely in all 3.

it depends how much clear is on the car to sand it out. you need at least 2 mils of clear for long term durability. chances are there won't be enough clear left after sanding and buffing.
if the peel is in the base the color can look odd with smooth clear over rough base.