REJECTILON OF APPLICATION FOR ADVANCE RULING WHERE THE QUESTION RAISED IN THE APPLICATION IS ALREADY PENDING

[Mr. M. GOVINDARAJAN]

Advance Ruling

A registered person may obtain advance ruling before the Authority for Advance Ruling constituted for this purpose by filing an application.  The applicant may sought for advance ruling on the questions enumerated under section 97(2) of the CGST Act.  The applicant shall file the application in Form GST – ARA 01 in the common portal by a paying a fee of ₹ 10,000/-.  The copies of the documents relied on the by the applicant are also to be attached along with the application for Advance Ruling.

Rejection of application

On receipt of an application, the Authority shall cause a copy thereof to be forwarded to the concerned officer and, if necessary, call upon him to furnish the relevant records.  The Authority may, after examining the application and the records called for and after hearing the applicant or his authorized representative and the concerned officer or his authorized representative, by order, either admit or reject the application.

The Authority shall not admit the application 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.  No application shall be rejected under this sub-section unless an opportunity of hearing has been given to the applicant.   Where the application is rejected, the reasons for such rejection shall be specified in the order.  A copy of the said order made shall be sent to the applicant and to the concerned officer.

Case law

In re ‘Vikram Traders’ – 2020 (3) TMI 893 - AUTHORITY FOR ADVANCE RULING, KARNATAKA, the applicant is engaged in the business of renting of immovable property and is discharging the GST on the rental income under the “Renting of Immovable Property” service. They procured different types of inward supplies for construction, repair & maintenance, alterations etc., of the said immovable property. In view of this, they seek advance ruling on “Eligibility to claim input tax credit on inputs attributable to the renting of immovable property”.

The applicant contended the following-

• The renting of immovable property is a taxable service and attracts 18% of GST and Section 16 of the CGST Act 2017 specifies the eligibility and conditions for taking input tax credit.
•  A taxable person who is liable to pay output tax is eligible to set off available input tax credit on inputs which are used or intended to be used in the course of or furtherance of business subject to restrictions specified u/s 17 of the said Act.
• The input tax credit is not eligible on inputs attributable to the construction of an immovable property, which are not sold or intended for sale before issuance of completion certificate. However, this restriction is not applicable where the immovable property is constructed for the purpose of letting out of the same, as the tax chain is not broken and, on the contrary, the construction of the building will results in fresh stream of GST revenue to the exchequer on the rentals generated by the building.
• The denial of ITC in such a situation would be completely arbitrary, unjust and oppressive and would be directly opposed to the basic rationale of GST itself, which is to prevent the cascading effect of multi-stage taxation and the inevitable increase in costs which would have to be borne by the customer.
• The denial of ITC in respect of a building meant & integrated to be let out would amount to treat it as identical to a building which is meant & intended to be sold.
• Differentiating ITC for two different types of building as one for the purpose of GST as itself contrary to the basic principles regarding classification of subject matter for the levy of tax and, therefore violative of Article 14 of the Constitution, which specifies that laws inconsistent with or derogation of the fundamental rights shall, to the extent of such inconsistency, be void.
• The denial of ITC is also violative of fundamental right to carry on business under Article 19(1)(g) of the Constitution, that all citizens shall have right to practice any profession, or to carry on any occupation, trade or business.
• The restriction of said ITC would impose a wholly unwarranted and unreasonable and arbitrary restriction which would render building constructed for letting out uncompetitive, by imposing the burden of double taxation of GST on such buildings i.e. firstly, on the inputs consumed in the construction and thereafter on the rentals generated by the building.

The applicant relied on the decision of Orissa High Court in the case of  M/S. SAFARI RETREATS PRIVATE LIMITED AND ANOTHER VERSUS CHIEF COMMISSIONER OF CENTRAL GOODS & SERVICE TAX & OTHERS = 2019 (5) TMI 1278 - ORISSA HIGH COURT .  In this case the High Court held that the provisions of Section 16(1)(2) where restriction has been put forward by the Legislation for claiming eligibility for ITC has been described in Section 16(1) and the benefit of apportionment is subject to Section 17(1) and (2). While considering the provisions of Section 17(5)(d), the narrow construction of interpretation put forward by the Department is frustrating the very objective of the Act, inasmuch as the petitioner in that case has to pay huge amount without any basis. Further, the petitioner would have paid GST if it disposed of the property after the completion certificate is granted and in case the property is sold prior to completion certificate he would not be required to pay GST. But here he is retaining the property and is not using for his own purpose but he is letting out the property on which he is covered under the GST, but still he has to pay huge amount of GST, to which he is not liable.  In that view of the matter, the High Court opined that the provision of Section 17(5)(d) is to be read down the narrow restriction as imposed, reading of the provision by the Department, is not required to be accepted.   The very purpose of the credit is to give benefit to the assessee. In that view of the matter, if the assessee is required to pay GST on the rental income arising out of the investment on which he has paid GST, it is required to have the ITC on the GST, which is required to pay under Section 17(5)(d) of the CGST Act.

The Authority for Advance Ruling found that the Department filed an appeal before the Supreme Court against the order of the High Court of Orissa supra. Thus the issue is pending before the  Supreme Court and therefore the said issue is sub-judice. Therefore the instant application is liable for rejection under Section 98(2) of CGST Act 2017.

Author’s view

In the view of the Author the findings of the Authority for Advance Ruling is not correct.  The first proviso to Section 98(2) of the CGST Act, 2017 provides that the Authority shall not admit the application 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. 

The above said provisions clearly states that the application for advance ruling shall be rejected by the Authority of Advance Ruling can be rejected only if there is a pending or decided in any proceedings in the case of the applicant.  In this case no such case is pending in the name of the applicant.  The applicant relied the case of High Court to substantiate his claim.  The said order is under appeal before Supreme Court by the Department.  The appeal is not in any way related to the applicant.  The parties to the appeal before the Supreme Court are entirely different from that of the applicant.

The applicant is having valid grounds for filing appeal before the Appellate Authority for Advance Ruling against the findings of the Authority for Advance Ruling.

Discussions to this article

[Gnanamuthu samidurai]

In the present case, the Advance Ruling Authority had rejected the application filed by the applicant,by relying on the first proviso given to section 98(2) of the CGST Act 2017 which runs in two folds as given below:

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.”

A close reading of the above provision revealed that no where there in , the specific judicial forum “before which the application is already pending or the forum which decided in any proceedings in the case of an applicant under the provisions of this Act, is mentioned.

So it could be best interpreted that the legislative intent in its wisdom is to draft the relevant proviso to empower the Advance Ruling Authority to reject the application is in the cases where there is repeated filing of the application before the Advance Ruling Authority on the same issue which is either pending for decision or already decided. Further , no applicant would move the Advance Ruling Authority, when an application is pending/decided in any other higher forum than the Advance Ruling Authority,.So the words and phrases available in the said proviso is not indicative of any application pending before any court of law, higher than the Advance Ruling Authority empowered under section 97 of the CGST Act 2017

It would be appropriate to take assistance from the decision of the Hon’ble Apex court in the case of Tribhovandas Haribhai Tamboli v. Gujarat Revenue Tribunal reported in 1991 (3) SCC 442 = 1991 (5) TMI 252 - SUPREME COURT, (para 6 of the decision)in which it was , held as follows:

"6. It is a cardinal rule of interpretation that a proviso to a particular provision of a statute only embraces the filed, which is covered by the main provision. It carves out an exception to the main provision to which it has been enacted by the proviso and to no other. The proper function of a proviso is to except and deal with a case which would otherwise fall within the general language of the main enactment, and its effect is to confine to that case. Where the language of the main enactment is explicit and unambiguous, the proviso can have no repercussion on the interpretation of the main enactment, so as to exclude from it, by implication what clearly falls within its express terms. The scope of the proviso, therefore, it to carve out an exception to the main enactment and it excludes something which otherwise would have been within the rule. It has to operate in the same field and it the language of the main enactment is clear, the proviso cannot be torn apart from the main enactment nor can it be used to nullify by implication what the enactment clearly says nor set at naught the real object of the main enactment, unless the words of the proviso are such that it is its necessary effect."

”. Therefore , I agree with the Author of the Article that the application was wrongly rejected by the Advance Ruling Authority as given in the above Article, but my agreement is in a different dimension as sparked in my mind and .I would also like say that the rejection of the application by the Advance Ruling Authority in this case is not accordance with the above rule of interpretation

[DR.MARIAPPAN GOVINDARAJAN]

Thank you for your elaborate analyzis and findings.