Advance ruling under GST

[CA Venkata prasad Pasupuleti]

What is Advance ruling?

“Advance ruling” means a decision/ruling given to the applicant by the constituted authority on the matters relating GST provisions like registration requirement, exemptions, classification, valuation, ITC etc. 

Unlike old Central indirect taxes (Central Excise, service tax) wherein ruling can be sought only on proposed transactions, GST laws provide an advance ruling on all types of transactions whether it is proposed or already occurred.

For this purpose, each state would constitute ‘Authority of Advance Ruling (AAR)’. Many of the states have already constituted the benches. The details of the bench along with communication addresses can be accessed from this link http://www.gstcouncil.gov.in/sites/default/files/Details-of-AAR-as-on_22-11-2017.pdf

Who can apply (persons eligible?)

Unlike old laws which this facility to specified persons, GST law made available this facility to the all registered persons or persons desirous of registration (i.e. unregistered as well).  

On what matters/questions, the Advance ruling can be sought? 

Section 97(2) of the CGST Act, 2017 (corresponding provisions in all states SGST Acts) provides that ‘advance ruling’ can be sought on the following matters:

1. Requirement of registration
2. Classification of any goods or services or both
3. Applicability of a notification issued under the GST Acts
4. Determination of the liability to pay tax on any goods or services or both
5. Determination of time and value of supply of goods or services or both
6. Admissibility of input tax credit (ITC)
7. Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.

Procedure to be followed:

• Application in Form GST ARA-01 shall be made along with filing fee of 10,000/-. Though it was said that application filing is online, as of now, the facility of the filing online is not made available. Hence, applications shall be filed manually with the corresponding bench of the advance ruling.
• On receipt of an application, the AAR shall send a copy of the application to the jurisdictional officer and call for all relevant records.
• AAR shall grant an opportunity of hearing to the applicant as well as department representative for examining the admissibility of the application. Thereafter, AAR passes an order either admitting or rejecting the application
• If the application is rejected, it should be by way of a speaking order giving the reasons for rejection.
• If the application is admitted, the AAR shall pronounce its ruling within 90 days of receipt of application. Here again, an opportunity of hearing to the applicant as well as department representative shall be given while arriving the ruling on the questions/matters specified in the application
• Application for advance ruling will not be admitted in cases where the question raised in the application is already pending or decided in any proceedings in the case of an applicant under any of the provisions of this Act.
• If there is a difference of opinion between the two members of AAR, they shall refer the point or points on which they differ to the Appellate Authority of Advance ruling (AAAR) for hearing the issue. If the members of AAAR are also unable to come to a common conclusion in regard to the point(s) referred to them by AAR, then it shall be deemed that no advance ruling can be given in respect of the question on which difference persists at the level of AAAR.

Appeal remedies: 

• If the applicant or revenue department is aggrieved with the ruling of the AAR, they can file an appeal with AAAR.
• The appeal must be filed within 30 days from the receipt of the advance ruling. AAAR has the power to condone the delay of 30 days on being shown the sufficient cause for the delay. Once the total period of 60 days (30 days normal time limit for filing the appeal + extended period of 30 days which AAAR has the power to condone the delay) are expired, the appeal remedy may lose. In this regard, the rationale of the Hon’ble Supreme court decision in case of Singh Enterprises v. Commissioner - 2007 (12) TMI 11 - SUPREME COURT OF INDIA . Only the remedy available is approaching the High court for invocation of the extraordinary jurisdiction under Article 226 of the Constitution of India.  Panoli Intermediate (India) Pvt. Ltd. v. Union of India - 2015 (7) TMI 303 - GUJARAT HIGH COURT
• The Appellate Authority must pass an order after hearing the parties to the appeal within 90 days of the filing of an appeal.
• If members of AAAR differ on any point referred to in appeal, it shall be deemed that no advance ruling is issued in respect of the question under appeal.

Other points to be noted:

• An advance ruling pronounced by AAR or AAAR shall be binding only on the applicant and on the concerned officer or the jurisdictional officer in respect of the applicant. This clearly means that an advance ruling is not applicable to similarly placed other taxable persons in the State. It is only limited to the person who has applied for an advance ruling.
• The law does not provide for a fixed time period for which the ruling shall apply. Instead, it Law provides that advance ruling shall be binding till the period when the law, facts or circumstances supporting the original advance ruling have not changed.
• However, an advance ruling shall be held to be ab initio void if the AAR or AAAR finds that the advance ruling was obtained by the applicant by fraud or suppression of material facts or misrepresentation of facts. In such a situation, all the provisions of the CGST/SGST Act shall apply to the applicant as if such advance ruling had never been made (but excluding the period when the advance ruling was given and up to the period when the order declaring it to be void is issued).
• An order declaring advance ruling to be void can be passed only after hearing the applicant.

Few decisions under the old laws that are relevant under GST also:

• Merely because another subsidiary is carrying out the same activity and its case is pending with any officer, another subsidiary will not become ineligible to obtain AR in relation to the same question. - IN RE: A. TEX (INDIA) PVT. LTD. 2004 (3) TMI 100 - AUTHORITY FOR ADVANCE RULINGS ; GSPL India Transco Ltd. v. Union of India - 2012 (8) TMI 753 - Gujarat High Court
• Advance Ruling cannot be sought on a question based on a circular issued by Board as a circular is not a notification. IN RE: Jason James Clemens 2004 (11) TMI 5 - AAR (New Delhi)
• While undoubtedly ruling given in a particular case binding only in respect of reported transaction of the concerned applicant with concerned departmental officers, nevertheless said ruling can have persuasive value in other cases. Columbia Sportswear Company v. Director of Income Tax - 2012 (8) TMI 105 - SUPREME COURT ; In Re: T.T. Recycling Management India Pvt. Ltd 2016 (8) TMI 389 - AUTHORITY FOR ADVANCE RULINGS ;
• Decisions of the Appellate authority of the advance ruling can be challenged before High Courts as well as Supreme court. Columbia Sportswear Company v. Director of Income Tax - 2012 (8) TMI 105 - SUPREME COURT

Benefits of Advance Ruling:

• Helps in planning GST liability & impact on the business well in advance; 
• It brings certainty in determining the tax liability;
• Helps to avoid long drawn and expensive litigation; 
• It is inexpensive, expeditious and binding;
• It provides certainty and transparency to assessee with respect to an issue which may potentially dispute by the revenue department.
• As the Indirect taxes are to be collected from the recipients. In case suppliers missed collecting the tax or collected less tax, the suppliers may end up paying taxes from their pockets (including any litigation expenses). In this background, it is advisable to file the advance ruling and future compliance can be made based on the ruling and unexpected demands can be avoided.

(This article is written on 10.12.2017. For any feedback/queries mail to [email protected])