Introduction

Obtaining 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 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 liable 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.

Concept of Advance Rulings under Revised Kyoto Convention of World Customs Organisation (WCO) and under WTO Agreement on Trade Facilitation

Standard 9.9 of the Revised Kyoto Convention, which is the International Convention on the Simplification and Harmonization of Customs procedures and was adopted in June, 1999 as a blueprint for modern and efficient Customs procedures in the 21st century, deals with Advance Rulings. It states as under:-

“The Customs shall issue binding rulings at the request of the interested person, provided that the customs have all the information they deem necessary”.

Further, the WTO Agreement on Trade Facilitation signed on 6 December, 2013 at Bali, Indonesia, under Article 3, makes it obligatory for the member countries to have mechanism of Advance Ruling.

The Article 3 of the Agreement on Trade Facilitation reads as under:-

ARTICLE 3: ADVANCE RULINGS

1. Each Member shall issue an advance ruling in a reasonable, time bound manner to an applicant that has submitted a written request containing all necessary information. If a Member declines to issue an advance ruling, it shall promptly notify the applicant in writing, setting out the relevant facts and the basis for its decision.

2. A Member may decline to issue an advance ruling to an applicant where the question raised in the application:

(a) is already pending in the applicant’s case before any governmental agency, appellate tribunal or court; or

(b) has already been decided by any appellate tribunal or court.

3. The advance ruling shall be valid for a reasonable period of time after its issuance unless the law, facts or circumstances supporting the original advance ruling have changed.

4. Where the Member revokes, modifies or invalidates the advance ruling, it shall provide written notice to the applicant setting out the relevant facts and the basis for its decision. Where a Member revokes, modifies or invalidates advance rulings with retroactive effect, it may only do so where the ruling was based on incomplete, incorrect, false or misleading information.

5. An advance ruling issued by a Member shall be binding on that Member in respect of the applicant that sought it. The Member may provide that the advance ruling be binding on the applicant.

6. Each Member shall publish, at a minimum:

(a) the requirements for the application for an advance ruling, including the information to be provided and the format;

(b) the time period by which it will issue an advance ruling; and

(c) the length of time for which the advance ruling is valid.

7. Each Member shall provide, upon written request of an applicant, a review of the advance ruling or the decision to revoke, modify or invalidate the advance ruling.

8. Each Member shall endeavour to make publicly available any information on advance rulings which it considers to be of significant interest to other interested parties, taking into account the need to protect commercially confidential information.

9. Definitions and scope:

(a) An advance ruling is a written decision provided by a Member to an applicant prior to the importation of a good covered by the application that sets forth the treatment that the Member shall provide to the good at the time of importation with regard to:

(i) the good’s tariff classification, and

(ii) the origin of the good.

(b) In addition to the advance rulings defined in subparagraph a,

Members are encouraged to provide advance rulings on:

(i) the appropriate method or criteria, and the application thereof, to be used for determining the customs value under a particular set of facts;

(ii) the applicability of the Member’s requirements for relief or exemption from customs duties;

(iii) the application of the Member’s requirements for quotas, including tariff quotas; and

(iv) any additional matters for which a Member considers it appropriate to issue an advance ruling.

(c) An applicant is an exporter, importer or any person with a justifiable cause or a representative thereof.

(d) A Member may require that an applicant have legal representation or registration in its territory. To the extent possible, such requirements shall not restrict the categories of persons eligible to apply for advance rulings, with particular consideration for the specific needs of small and medium sized enterprises. These requirements shall be clear and transparent and not constitute a means of arbitrary or unjustifiable discrimination.

Objectives for setting up Advance Ruling Authority

There is an Advance Ruling Authority at national level for Customs, Central Excise and Service tax laws. Several states also have Advance Ruling Authority. The broad objective for setting up such an authority is to:

i. provide certainty in tax liability in advance in relation to an activity proposed to be undertaken by the applicant;

ii. attract Foreign Direct Investment (FDI);

iii. reduce litigation;

iv. pronounce ruling expeditiously in transparent and inexpensive manner;

v. implement Standard 9.9 of Revised Kyoto Convention under WCO.

Composition of `Authority for advance ruling’ (AAR) and `Appellate authority for advance ruling’ (AAAR)

`Authority for advance ruling’ (AAR) shall comprise one member CGST and one member SGST. They will be appointed by the Central and State government respectively. Their qualification and eligibility condition for appointment will be prescribed in the Model GST Rules. (section 95)

`Appellate authority for advance ruling’ (AAAR) will hear appeal against advance ruling given by the AAR. This will comprise of two members namely Chief Commissioner of CGST designated by the Central Board Excise and Customs (CBEC) and Commissioner of SGST having jurisdiction over the applicant. (section 96)

There will be one AAR and AAAR for each State (sections 95 and 96).

Meaning of advance ruling

As per section 94 of Model CGST/SGST Law, ‘advance ruling‘ means a written decision provided by the authority to an applicant on matters or on questions as enumerated in section 97 (listed below) and appeals thereon (section 99):

(a) classification of any goods and/or services under the Act;

(b) applicability of a notification issued under provisions of the Act having a bearing on the rate of tax;

(c) the principles to be adopted for the purposes of determination of value of the goods and/or services under the provisions of the Act;

(d) admissibility of input tax credit of tax paid or deemed to have been paid;

(e) determination of the liability to pay tax on any goods and/or services under the Act;

(f) whether applicant is required to be registered under the Act;

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

To whom the Advance Ruling is applicable

Section 102 provides that an advance ruling pronounced by AAR or AAAR shall be binding only on the applicant 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.

Time period for applicability of Advance Ruling

The law does not provide for a fixed time period for which the ruling shall apply. Instead, in section 102, 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. This formulation is borrowed from the WTO Agreement on Trade Facilitation.

However, section 103 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. In such a situation, all the provisions of the CGST/SGST Act 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). An order declaring advance ruling to be void can be passed only after hearing the applicant.

Procedure for obtaining Advance Ruling

Section 97 and 98 deals with procedure for obtaining advance ruling. Section 97 provides that 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 will be prescribed in the Model GST Rules.

Section 98 provides the procedure for dealing with the application for advance ruling. 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.

Application has to be invariably rejected in certain situations as prescribed under section 98 (2) which are enumerated as below:

(a) if the question raised in the application is already pending in the applicant’s case before any First Appellate Authority, the Appellate Tribunal or any Court;

(b) if the question raised in the application is the same as in a matter already decided by the First Appellate Authority, the Appellate Tribunal or any Court;

(c) if the question raised in the application is the same as in a matter already pending in any proceedings in the applicant’s case under any of the provisions of the Act;

(d) if the question raised in the application is the same as in a matter in the applicant’s case already decided by the adjudicating authority or assessing authority, whichever is applicable.

If the application is rejected, it should be by way of a speaking order giving the reasons for rejection.

If the application is admitted, the AAR shall pronounce its ruling within ninety days of receipt of application. Before giving its ruling, it shall examine the application and any further material furnished by the applicant or by the concerned departmental officer.

Before giving the ruling, AAR must hear the applicant or his authorised representative as well as the jurisdictional officers of CGST/SGST.

If there is 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. If 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.

Appeals against order of AAR

The provisions of appeal before AAAR is dealt in section 99 and 100 of Model GST Law.

If the applicant is aggrieved with the finding of the AAR, he can file an appeal with AAAR. Similarly, if the prescribed or jurisdictional officer of CGST/SGST does not agree with the finding of AAR, he can also file an appeal with AAAR. The word prescribed 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. In such cases the concerned officer will be the jurisdictional CGST/SGST officer.

Any 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. This will be prescribed in the Model GST Rules.

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.

Rectification of Mistakes

Section 101 of the Act gives power to AAR and AAAR to amend their order to rectify any mistake apparent from the record within a period of six months from the date of the order. Such mistake may be noticed by the authority on its own accord or may be brought to its notice by the applicant or the prescribed or the jurisdictional CGST/SGST officer. If a rectification has the effect of enhancing the tax liability or reducing the quantum of input tax credit, the applicant must be heard before the order is passed.

Powers and procedure of AAR and AAAR

The powers and procedures of AAR and AAAR are given in sections 104 and 105. Both the authorities are vested with the powers of a civil court under Code of Civil Procedure, 1908, for discovery and inspection, enforcing the attendance of a person and examining him on oath, and compelling production of books of account and other records. Both the authorities are deemed to be a civil court for the purposes of section 195 of the Code of Criminal Procedure, 1973. Any proceeding before the authority shall be deemed to be judicial proceeding under section 193 and 228 and for the purpose of section 196, of the Indian Penal Code, 1860. The AAR and AAAR also have the power to regulate their own procedure.

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GST Registration: Law, Business Process & Transitional Provisions

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