2019 (11) TMI 397 - AAAR - GST

Seeking advance ruling by suppressing vital facts - Matter was already under investigation by the DGGI - Classification of supply - Franchise agreement - investigations were inter-alia involving the very same issue of classification of activities of franchisees for subjecting the same to the levy of GST HELD THAT - Sec. 98(2) provides that the application shall not be admitted where the question raised is already pending under any of the provisions of this act. The term any of the provisions of this act includes investigations proceeding under section 67. It is clear from the record submitted by the DGGI that proceedings was pending against KOTI (Kamat Ourtimes Ice-cream Ltd), and the issue taken up in the proceedings related to the classification of the activities ice-cream sold from the natural outlets - whether the supplier of goods would be charged at the rate of 18 % under HSN 2105 by availing ITC or whether the activity should be classified as supply of service under SAC -996331 at the rate of 5 % without ITC. The investigations proceedings were approved on 15.01.2019 and the search was conducted on 5.2.2019. The statement of the Director of KOTI u/s 70 was recorded on 5.2.2019, and the statement of M/s Srinivas Kamath (Wholetime Director of KOTI) was recorded on 11.2.2019. The application for advance ruling was filed on 25.2.2019 by the applicant respondent at the behest of KOTI. It becomes clear from the above that there was a deliberate intention on the part of KOTI as well as its applicant-respondent to obtain a decision clandestinely without revealing the issue of investigation being initiated against KOTI on the very same issue that was raised before the ARA. It cannot be a mere coincidence that the applicant-respondent made an application for advance ruling on 25.2.2019 immediately following the initiation of proceedings against KOTI on 5.2.2019. Having seen the sort of control exercised on the operations of the applicant-respondent by KOTI, it also is apparent that applicant-respondent was aware of the DGGI proceedings against KOTI and therefore it filed an application and moreover, kept the fact away from the advance ruling authority. This amounts to nothing but suppression of facts and therefore the advance ruling is void as it is obtained by suppressing the vital fact that proceedings were initiated by DGGI against KOTI and were pending as on the date of filing of advance ruling application. There was a deliberate intention on the part of KOTI as well as its applicant-respondent to obtain a decision clandestinely without revealing the issue of investigation being initiated against KOTI on the very same issue that was raised before the ARA. The applicant-respondent has attempted to show the technical errors in filing of the appeal but when the facts of the case are seen it is very clear that there is a premeditated and a conscious action on the part of the applicant-respondent to undermine the process of the Advance Ruling and an attempt to use it to satisfy their own ends. We therefore hold that the order of the AAR is void ab-initio as it was vitiated by the process of suppression of material facts. The order passed by the ARA is declared void ab-initio as it was vitiated by the process of suppression of material facts - appeal allowed.

Summary

Issues Involved:
1. Suppression of facts by the respondent.
2. Validity of the Advance Ruling application.
3. Classification of the supply of ice cream.
4. Jurisdiction and authority of the DGGI.
5. Procedural aspects of filing the appeal.

Issue-Wise Detailed Analysis:

1. Suppression of Facts by the Respondent:
The Department argued that the respondent had suppressed vital facts regarding ongoing investigations by the Directorate General of GST Intelligence (DGGI) against the franchisor, Kamaths Ourtimes Ice Creams Pvt Ltd (KOTI), and its franchisees. The investigations were initiated on 05.02.2019, prior to the respondent's application for an advance ruling on 25.02.2019. The respondent did not disclose these investigations in their application, which the Department contended invalidated the advance ruling obtained.

2. Validity of the Advance Ruling Application:
The Department contended that the application for an advance ruling was not maintainable under Section 98(2) of the CGST Act, as proceedings were already initiated against KOTI and its franchisees before the application was filed. The respondent’s argument that no proceedings were pending against them specifically was dismissed. The Appellate Authority found that the respondent's application was influenced by the ongoing investigations and was filed to undermine these proceedings.

3. Classification of the Supply of Ice Cream:
The central issue was whether the supply of ice cream from the respondent’s retail outlets should be classified as a supply of goods under HSN 2105 or as a supply of service under SAC 9963. The Advance Ruling Authority had classified it as a supply of goods, but the Department argued that it should be classified as a supply of service, attracting a different GST rate. The Appellate Authority found that the respondent’s operations were tightly controlled by the franchisor, indicating that the classification and taxation were influenced by KOTI.

4. Jurisdiction and Authority of the DGGI:
The Department argued that the DGGI, as the apex intelligence agency under the Ministry of Finance, had the authority to investigate GST evasion cases across India. The DGGI’s involvement was justified as they were investigating the franchisor and its franchisees, including the respondent. The Appellate Authority accepted the DGGI’s role and found that the respondent’s application for an advance ruling was an attempt to circumvent the ongoing investigations.

5. Procedural Aspects of Filing the Appeal:
The Department filed the appeal after being informed by the DGGI of the suppression of facts. The appeal was delayed but was condoned by the Appellate Authority due to sufficient cause. The Appellate Authority found that the jurisdictional officer had a valid reason to be aggrieved by the advance ruling, as it was obtained by suppressing material facts about the ongoing investigations.

Conclusion:
The Appellate Authority allowed the appeal, declaring the advance ruling void ab-initio due to the suppression of material facts by the respondent. The classification of the supply of ice cream was found to be influenced by the franchisor, and the application for an advance ruling was deemed an attempt to undermine the DGGI’s investigations. The procedural aspects of the appeal were found to be in order, and the jurisdictional officer's grievance was justified.