Advance Rulings should be more Judicious…

[Kushal Mishra]

“Advance ruling” means a decision provided by the Authority or the Appellate Authority to an applicant on matters or on questions specified in sub-section (2) of section 97 or sub-section (1) of section 100 of the CGST Act, 2017, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant.

GST law has made a provision for all registered as well as the unregistered person for taking benefit of advance ruling on the matter specified in Section 97(2) & Section 100(1) of the CGST Act, 2017 with the following objects.

Objectives of Advance Ruling

The broad objectives for setting up a mechanism of Advance Ruling are:

1. Provide certainty in tax liability in advance in relation to an activity proposed to be undertaken by the applicant;
2. Attract Foreign Direct Investment (FDI)
3. Reduce litigation
4. Pronounce ruling expeditiously in a transparent and inexpensive manner

Considering the current the judgements at the level of the Authority of Advance Ruling (AAR) many judgements are given without looking into the genuineness of the transactions, facts and other information presented on the records.

It has been a general observation of the ruling at AAR that AAR has an inclination towards department and not the applicant for pronouncing judgements. Department has always has defined objective of widening the revenue base, though this should be objective and must be in their KRA but one should also give proper justice to the facts presented before them.

Lets deep dive in some of the recent pronouncement of AAR, where with the crystal-clear facts AAR has erred in giving lawful decisions which were later turned down by AAAR when the aggrieved applicant approaches them.

2019 (6) TMI 1236 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA, IN RE: M/S. GENERAL MANAGER ORDNANCE FACTORY BHANDARA, GST-ARA-79/2018-19/B-168, Dated: - 24 December 2018

In the above AAR application Ordnance Factory Bhandara filed an application with various question regarding applicability of GST, availability of Input Tax Credit, Reversal of ITC were asked based on the fact that whether they can be treated as Government or not as per section 2(53) of the CGST Act, 2017.

In support of their contention Ordnance Factory Bhandara has presented following facts: -

• As per section 2(53) of the CGST Act, 2017, ‘Government’ means the Central Government. As per clause (23) of section 3 of the General Clauses Act, 1897 the ‘Government’ includes both the Central Government and any State Government. As per clause (8) of section 3 of the said Act, the ‘Central Government in relation to anything done or to be done after the commencement of the Constitution, means the president.

• As per Article 53 of the Constitution, the executive power of the Union shall be vested in the President and shall be exercised by him either directly or indirectly through officer subordinate to him in accordance with the Constitution.

• Further, in terms of Article 77 of the Constitution, all executive actions of the Government of India shall be expressed to be taken in the name of the President. Therefore, the Central Government means the President and the officers subordinate to him while exercising the executive powers of the Union vested in the President and in the name of the President.

• Ordnance Factory Bhandara is a unit under the Ordnance Factories Board (OFB) functioning under the Department of Defence Production and supply of Ministry of Defence, Government of India. All the powers provided to our organisation’s officers and decisions taken in our organisation are on behalf of the President of India.

• Thus, OFBa is a part of the ‘Central Government’ as per clause (23) of section 3 of the General Clauses Act, 1897.

Department’s submission on the facts: -

The Indian Ordnance Factories is an industrial organization, functioning under the Department of Defence Production of Ministry of Defence, Government of India. It is engaged in research, development, production, testing, marketing and logistics of a comprehensive product range in the areas of air, land and sea systems. This is the Apex board having industrial status functioning under the control of Ministry of Defence.

However, the Govt. of India is a union Govt. created by the constitution of India as the legislative, executive and judicial authority of the Union Of India of states and union territories of the constitutionally democratic republic.

On the above facts, though ordnance factory is functioning under the Ministry of Defence, Govt. of India, the organization shall not be treated as “Government” defined under section 2(53) of the CGST Act,2017, since the organization is having Apex Body and industrial status. Hence, the contention of applicant that their organization is ‘Government” is not legal and correct.

Pronouncement of Decision by AAR: -

• We agree with the submissions made by the jurisdictional office that the Indian Ordnance Factories is an industrial organization, functioning under the Department of Defence Production of Ministry of Defence, Government of India.

• Further, we find that Section 2(53) of the CGST Act and the corresponding section of the SGST Act defines the word ‘Government’ as the Central/State Government, The applicant which is engaged in research, development, production, testing, marketing and logistics of a comprehensive product range in the areas of air, land and sea systems is having an industrial status and functions under the Ministry of Defence.

• It is not created by the constitution of India as a legislative, executive or judicial authority of the country. Hence, we find that the applicant cannot be treated as “Government” as defined under section 2(53) of the CGST Act, 2017.

Final Decision by AAAR: -

• On perusal of the submissions made by the Appellant, it is observed that they are fulfilling all the conditions stipulated for the Central Government, provided under clause (8) of section 3 of the General Clauses Act, 1897 read with Article 53 & Article 77 of the Constitution of India.

• Since the Appellant is functioning under the Department of the Defence Production, Ministry of Defence, Government of India, and all its activities including administrative, executive, etc. are carried out for and on behalf of the President of India, the facts which have been established by the various documents like the Appointment letter of the Group A Gazetted Officer of the Ordnance Factory, OFB Procurement Manual.

• OFB Procurement Manual clearly shows that all Defence contracts are in the name and on behalf of the President of India only. Further, the signatures on the supply order placed to the Vendors, the Acceptance of the Tender, etc., clearly exhibits that all these executive works are being carried out in the name and on behalf of the President of India.

• Thus, it is adequately evident that the Ordnance Factory Bhandara the Appellant, is nothing but ‘the Central Government’ in accordance with the provision of section 2(53) of the CGST Act, 2017 read with clause (8) of section 3 of the General Clauses Act, 1897 read with Article 53 & Article 77 of the Constitution of India.

Conclusion

Considering the observation made by AAAR on the same facts which must have been presented to AAR for the judgement where it was visible on the records that all the contracts are executed on behalf of the President of India; tagging Ordinance Factory as an Industrial Units is certainly lack of judicious decision making. AAR should be more prudent in decision making and must certainly discuss facts on records should give proper reason backed by the jurisprudence.

Discussions to this article

[Alkesh Jani]

Shri Kaushalji,

I have gone through this article. I think even legislation must have in mind the same issue therefore restricting the decision to the applicant only.