Advance Ruling under GST
An advance ruling helps the applicant in planning his activities which are liable for payment of GST, well in advance. It also brings certainty in determining the tax liability, as the ruling given by the Authority for Advance Ruling is binding on the applicant as well as concerned Government authorities. Further, it helps in avoiding long drawn and expensive litigation at a later date. Seeking an advance ruling is inexpensive and the procedure is simple and expeditious
It thus provides certainty and transparency to a taxpayer with respect to an issue which may potentially cause a dispute with the tax administration. A legally constituted body called Authority for Advance Ruling (AAR) can give a binding ruling to an applicant who is a registered taxable person or is desirous to be registered. The advance ruling given by the Authority can be appealed before an Appellate authority for Advance Ruling (AAAR). There are time lines prescribed for passing an order by AAR and by AAAR. The broad objectives for setting up a mechanism of Advance Ruling are:
- provide certainty in tax liability in advance in relation to an activity proposed to be undertaken by the applicant;
- attract Foreign Direct Investment (FDI) by ensuring certainty in taxation aspects of transactions
- reduce litigation
- pronounce ruling expeditiously in a transparent and inexpensive manner
Provisions of advance ruling under CGST Act have also been made applicable to IGST Act vide section 20 of the IGST Act.
Advance Ruling under GST
Being new, GST provisions require many clarifications for businesses which are why the advance ruling is needed
What is advance ruling?
Any advance tax ruling is a written interpretation of tax laws. It is issued by tax authorities to corporations and individuals who request for clarification of certain tax matters. An advance ruling is often requested when the taxpayer is confused and uncertain about certain provisions. Advance tax ruling is applied for: before starting the proposed activity.
For example, under income tax, advance ruling is available in international taxation. This is to help non-residents ascertain the income-tax liability, plan their income-tax in advance and avoid long drawn and costly legal disputes. As per GST, the advance ruling is a written decision given by the tax authorities to an applicant on questions relating to the supply of goods/services.
Why is advance ruling under GST necessary?
The objective of any advance ruling, including under GST is to-
1. Provide certainty for tax liability in advance in relation to a future activity to be undertaken by the applicant
2. Attract Foreign Direct Investment (FDI) – By clarifying taxation and showing a clear picture of the future tax liability of the FDI. The clarity and clean taxation will attract non-residents who do not want to get involved in messy tax disputes.
3. Reduce litigation and costly legal disputes
4. Give decisions in a timely, transparent and inexpensive manner
When can one request for GST Advance Ruling?
Any taxpayer can request for advance ruling when he is uncertain of the provisions. Advance tax ruling is applicable on –
(a) Classification of any goods and/or services under the Act
(b) Applicability of a notification which affects the rate of tax
(c) Determination of time and value of supply of goods/services
(d) Whether input tax credit paid (or deemed to be paid) will be allowed
(e) Determination of the liability to pay tax on any goods/services
(f) Whether the applicant has to be registered under GST
(g) Whether any particular thing done by the applicant regarding goods/services will result in a supply.
Procedure on receipt of application
On receipt of an application, a copy will be forwarded to the prescribed officer and he will furnish the necessary relevant records.
Process of Advance Ruling under GST
An advance ruling is first sent to Authority for Advance Ruling (Authority). Any person unhappy with the advance ruling can appeal to the Appellate Authority for Advance Ruling (Appellate Authority).
Process of Advance Ruling Under GST
Forms
Application for Advance ruling has to be made in FORM GST ARA-01 along with Rs. 5,000. In CGST plus Rs. 5,000 in SGST
Decision of the Authority
The Authority can by order, either admit or reject the application.
Will all applications be allowed?
The Authority will NOT admit the application when-
(a) The same matter has already been decided in an earlier case for the applicant
(b) The same matter is already pending in any proceedings for the applicant
Basically, Advance Ruling will not be possible in any pending case or any decision already given.
Applications will be rejected only after giving an opportunity of being heard. Reasons for rejection shall be given in writing.
When will the authority give their decision?
Advance ruling decision will be given within 90 days from application. If the members of the Authority differ in opinion on any point, they will refer the point to the Appellate Authority.
Advance Ruling will have prospective effect only.
On whom will the advance ruling apply?
The advance ruling will be binding only – (a) On the applicant (b) On the jurisdictional tax authorities in respect of the applicant. If the law, facts of the original advance ruling change then the advance ruling will not apply.
If the applicant aggrieved by the advance ruling he can appeal to the Appellate Authority.
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