Advance Rulings under GST

Advance Ruling under GST – Meaning, Circumstances and other provisions

The definition of Advance ruling given under the CGST/IGST Act is a broad one and an improvement over the existing systems of advance rulings under other Indirect/ Direct Tax Laws. Under the present dispensation, advance rulings can be given only on a proposed transaction, whereas, under GST, Advance ruling can be obtained on a proposed transaction as well as a transaction already undertaken by the appellant.

An applicant can apply for advance ruling even before taking up a transaction (proposed supply of goods or services) or in respect of a supply which is being undertaken. The only restriction is that the question being raised is already not pending or decided in any proceedings in the case of applicant.

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.

Sec.103 of the CGST Act, 2017/ IGST Act, 2017 provides that an advance ruling pronounced by Authority for advance ruling (AAR) or Appellate authority for advance ruling (AAAR) shall be binding only on the applicant who sought it in respect of any matter referred to in sec. 97 (2) of the CGST Act, 2017/ IGST Act, 2017 and on the jurisdictional tax authority of the applicant. This clearly means that an advance ruling is not applicable to similarly placed taxable persons in the State. It is only limited to the person who has applied for an advance ruling.

Meaning of Advance Ruling

As per sec. 95 of the CGST Act, 2017/ IGST Act, 2017, “Advance ruling” means a decision provided by the AAR to an applicant on matters or on questions specified in sub-sec. (2) of sec. 97 or sub-sec. (1) of sec. 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.

Questions on which advance ruling can be sought

Advance Ruling on matters or on questions specified in sub-sec. (2) of sec. 97 or sub-sec. (1) of sec. 100 of the CGST Act, 2017 can be sought for the following questions:

1. classification of any goods or services or both;

2. applicability of a notification issued under provisions of the GST Act(s);

3. determination of time and value of supply of goods or services or both;

4. admissibility of input tax credit of tax paid or deemed to have been paid;

5. determination of the liability to pay tax on any goods or services under the Act;

6. whether applicant is required to be registered under the Act;

7. whether any particular thing done by the applicant with respect to any goods or services amounts to or results in a supply of goods or services, within the meaning of that term.

Objective of having a mechanism of Advance Ruling

The broad objectives for setting up a mechanism of Advance Ruling under GST 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

Authority for advance ruling (AAR)

The Authority for advance ruling constituted under the provisions of State Goods and Services Tax Act or Union Territory Goods and Services Tax Act shall be deemed to be the Authority for advance ruling in respect of that State or Union territory under the CGST Act, 2017 also.

Appellate authority for advance ruling (AAAR)

Sec. 100(1) of the CGST Act, 2017 provides that the concerned officer, the jurisdictional officer or an applicant aggrieved by any advance ruling pronounced by the Authority for Advance Ruling, may appeal to the Appellate Authority. Thus it can be seen that a decision of the Appellate authority is also treated as an advance ruling.

The Appellate Authority for Advance Ruling constituted under the provisions of a State Goods and Services Tax Act or a Union Territory Goods and Services Tax Act shall be deemed to be the Appellate Authority in respect of that State or Union territory under the CGST Act, 2017 also.

Thus it can be seen that both the Authority for Advance Ruling (AAR) & the Appellate Authority for Advance Ruling (AAAR) is constituted under the respective State/Union Territory Act and not the Central Act. This would mean that the ruling given by the AAR & AAAR will be applicable only within the jurisdiction of the concerned state or union territory. It is also for this reason that questions on determination of place of supply cannot be raised with the AAR or AAAR.

There will be only one AAR and one AAAR for each State.

 Appeals against order of AAR

The provisions of appeal before AAAR are dealt in secs. 100 and 101 of CGST/SGST Act or sec. 14 of the UTGST Act. If the applicant is aggrieved with the finding of the AAR, he can file an appeal with AAAR. Similarly, if the concerned or jurisdictional officer of CGST/SGST/UTGST does not agree with the finding of AAR, he can also file an appeal with AAAR.

The word concerned officer of CGST/SGST means an officer who has been designated by the CGST/SGST administration in regard to an application for advance ruling. In normal circumstances, the concerned officer will be the officer in whose jurisdiction the applicant is located and he will be the jurisdictional CGST/SGST officer.

An appeal must be filed within thirty days from the receipt of the advance ruling. The appeal has to be in prescribed form and has to be verified in prescribed manner.

The Appellate Authority must pass an order after hearing the parties to the appeal within a period of ninety 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.

Appeal to High Court or Supreme Court against the ruling of AAAR

There is no provision in The CGST /SGST Act for any appeal against the ruling of AAAR. Thus no further appeals lie and the ruling shall be binding on the applicant as well as the jurisdictional officer in respect of applicant. However, remedy of writ petition may lie before Hon’ble High Court or the Supreme Court.

Composition of Authority for advance rulings (AAR) under GST

‘Authority for advance ruling’ (AAR) shall comprise one member CGST and one member SGS TUTGST. They will be appointed by the Central and State government respectively.

Procedure for obtaining Advance Ruling

The applicant desirous of obtaining advance ruling should make application to AAR in a prescribed form and manner. The format of the form and the detailed procedure for making application have been prescribed in the Advance Ruling Rules.

Upon receipt of an application, the AAR shall send a copy of application to the officer in whose jurisdiction the applicant falls and call for all relevant records. The AAR may then examine the application along with the records and may also hear the applicant. Thereafter he will pass an order either admitting or rejecting the application.

Procedure to be followed by AAR once the application is admitted

The AAR must hear the applicant or his authorized representative as well as the jurisdictional officers of CGST/SGST/UTGST. Before giving its ruling, it shall examine the application and any further material furnished by the applicant or by the concerned departmental officer.

Registration requirement for person seeking advance Ruling

Any person registered under the GST Act(s) or desirous of obtaining registration can be an applicant. (Sec. 95(b) of CGST/SGST Act, 2017).

Time by which the Authority for Advance Rulings have to pronounce its ruling

As per Sec. 98(6) of CGST/SGST Act 2017, the Authority for Advance Rulings shall pronounce its ruling in writing within ninety days from the date of receipt of application.

Precedent value of a judgment of the High Court or the Supreme Court

The advance ruling will be binding only in respect of the matter referred. It will have no precedent value. However, even for persons other than applicant, it will have persuasive value.

Time period for applicability of Advance Ruling

There is no fixed time period for which the ruling shall apply. Instead, in sec. 103(2) of CGST/SGST Act 2017, it is provided that advance ruling shall be binding till the period when the law, facts or circumstances supporting the original advance ruling have changed. Thus, a ruling shall continue to be in force so long as the transaction continues and so long as there is no change in law, facts or circumstances.

Advance ruling given can be nullified

Sec. 104(1) of CGST/SGST Act 2017 provides that 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. An order declaring advance ruling to be void can be passed only after hearing the applicant. In such a situation, all the provisions of the GST Act(s) shall apply to the applicant as if such advance ruling had never been made (but excluding the period when advance ruling was given and up to the period when the order declaring it to be void is issued).

Compulsory rejection of Application for advance ruling

Application shall be rejected if the question raised in the application is already pending or decided in any proceedings in the case of applicant under any of the provisions of GST Act(s). The rejection should be by way of a speaking order giving the reasons for rejection.

Difference of opinion amongst members of AAR

In case of difference of opinion between the two members of AAR, they shall refer the point or points on which they differ to the AAAR for hearing the issue. When 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.

Rectification of mistakes in the advance ruling

The AAR and AAAR have power to amend their order to rectify any mistake apparent from the record. Time limit is, within a period of six months from the date of the order. The mistake may be noticed by the authority on its own accord or may be brought to its notice by the applicant or the concerned or the jurisdictional CGST/SGST officer. However, in terms of sec. 102 of CGST/SGST Act, 2017, if a rectification has the effect of enhancing the tax liability or reducing the quantum of input tax credit, the applicant or the appellant must be heard before the order is passed.