GST Advance Ruling Mechanism: Law & Procedures

1. INTRODUCTION: ADVANCE RULING MECHANISM IN GST

1.1 The Advance Ruling is issued by tax authorities to companies/firms who request for clarification of certain tax matters, specifically when the taxpayer is uncertain about certain provisions of the CGST Act, 2017 and CGST Rules, 2017.

1.2 The provisions of CGST Act, 2017 and CGST Rules, 2017 relevant to this Chapter, are as under –

1.3 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. It is pertinent to note that the advance ruling decision will be applicable only to that applicant and that jurisdictional GST Authority.

1.4  A legally constituted body called Authority for Advance Ruling (AAR) can give abiding ruling to an applicant who is a registered taxable person or is liable to be registered.

1.5 If the taxpayer is aggrieved by the advance ruling given by the Authority for Advance Ruling then he can appeal before an Appellate Authority for Advance Ruling (AAAR).

1.6 Time lines have been prescribed under the law for passing an order by AAR and by AAAR.

2. WHAT IS AN ADVANCE RULING?

2.1 “Advance ruling” means a decision provided by the Authority or the Appellate Authority to an applicant on matters or on questions, viz., classification of any goods and/or services, applicability of a notification, determination of time and value of supply of goods and/or services, admissibility of input tax credit of tax paid or deemed to have been paid, determination of the liability to pay tax on any goods and/or services, whether applicant is required to be registered or whether any particular thing done by the applicant with respect to any goods and/or services amounts to a supply. (Section 95, 97, 100 of the CGST Act, 2017)

2.2 The definition of Advance ruling given under the Act is a broad one and an improvement over the existing system of advance rulings under Customs and Central Excise Laws. Under GST, Advance ruling can be obtained for a proposed transaction as well as a transaction already undertaken by the appellant.

2.3 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.
• Reduce Litigation.
• Pronounce ruling expeditiously in a transparent and inexpensive manner.

2.4 An advance ruling pronounced by AAR or AAAR shall be binding only on the applicant who has sought the advance ruling and on the concerned officer or the jurisdictional officer in respect of the applicant. This clearly means that an advance ruling is not applicable to similarly placed other taxable persons in the State. It is only limited to the person who has applied for an advance ruling.

2.5 The law provides that advance ruling shall be binding till the period when the law, facts or circumstances supporting the original advance ruling have not changed.

2.6 However, an advance ruling shall, by an order passed by the AAR/AAAR, be declared 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, action warranted as per the provisions of the CGST/SGST Act for recovery of tax short paid or not paid, if any, shall apply to the applicant. The period when advance ruling was given up to the period when this ruling was declared void has to be excluded while taking such action.

2.7 An order declaring advance ruling to be void can be passed only after providing an opportunity of hearing to the applicant.

3. LEGAL PROVISIONS

3.1 Section 95 of the CGST Act, 2017 defines ‘Advance Ruling’ as 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 or Section 101C of the said Act, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant. (Section 95, 96 97, 100 of the CGST Act, 2017)

3.2 Section 96 of the CGST Act, 2017 provides that the Authority for advance ruling constituted under the provisions of a 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.

3.3 Section 97 of the CGST Act, 2017 provides for making Application for advance ruling in the prescribed form and manner, stating the question on which the advance ruling is sought. The following are the question on which the advance ruling can be sought-

(a) classification of any goods or services or both;

(b) applicability of a notification issued under the provisions of this Act;

(c) determination of time and value of supply of goods or services or both;

(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 or services or both;

(f) whether applicant is required to be registered;

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

3.4 Section 98 of the CGST Act, 2017 stipulates the procedure to be adopted by the AAR on receipt of the application. The procedure in detail is explained in the later part of this Chapter. (Section 98, 99, of the CGST Act, 2017)

3.5 Section 99 of the CGST Act, 2017 states that for the purpose of CGST Act, the Appellate Authority for Advance Ruling (AAAR) constituted under the provisions of SGST Act or UTGST Act, shall be deemed to be the Appellate Authority in respect of that State or Union Territory.

3.6 Section 101B provides for filing an appeal by the distinct persons against conflicting advance ruling given by the Appellate Authorities of two or more States or Union Territories or both, before the National Appellate Authority.

3.7 Section 102 of the CGST Act, 2017 provides for amendment of any order passed by the AAR or the AAAR to rectify the error apparent on the face of the record, either noticed by such Authority or brought into the notice of the Authority. If such amendment order has the effect of enhancing the tax liability or reducing the admissible input tax credit then the applicant or the appellant has to be given an opportunity of being heard. (Section 101, 102, of the CGST Act, 2017)

3.8 Section 103 of the CGST Act, 2017 stipulates that the advance ruling ordered by the Authority or the Appellate Authority shall be binding only on the applicant and the concerned officer, unless the law, facts or circumstances supporting the original advance ruling have changed. (Section 103, 104, 105, of the CGST Act, 2017)

3.9 Section 104 of the CGST Act, 2017 provides that if the AAR or the AAAR finds that the advance ruling pronounced has been obtained by the applicant by fraud or suppression of facts or misrepresentation of facts, then by an order such ruling shall be declared void ab initio.

3.10 Section 105 of the CGST Act, 2017 provides powers of a Civil Court under the Code of Civil Procedure, 1908, to the Appellate Authority and National Appellate Authority for the purpose of exercising its power regarding discovery and inspection, enforcing the attendance of any person and examining him on oath and issuing commissions and compelling production of books of account and other records.

3.11 The procedure for filing application to the Advance Ruling Authority and the Appellate Authority for Advance Ruling is prescribed under Rule 104 and 106 of the CGST Rules, 2017, respectively. (Rule 104 & 106 of the CGST Rules, 2017)

4. PROCEDURE FOR OBTAINING ADVANCE RULING

4.1 The applicant desirous of obtaining advance ruling should make application to AAR in FORM GST ARA-01 prescribed in Rule 104 of the CGST Rules, 2017. The application shall be accompanied by a fee of five thousand rupees, to be deposited by the applicant by internet banking or by using debit or credit cards or NEFT or RTGS and credited to the Electronic Cash Ledger. The amount of fees shall be debited from the Electronic Cash Ledger.

4.2 The application, the verification contained therein and all the relevant documents accompanying such application shall be digitally signed or should bear e-signature, as provided under Rule 26 of the CGST Act, 2017. (Rule 26 of the CGST Act, 2017)

5. PROCEDURE AT THE END OF ADVANCE RULING AUTHORITY

5.1 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.

5.2 The Authority shall examine the application and the said records called for and after hearing the applicant or hisauthorised representative and the concerned officer or his authorised representative, by order, either admit or reject the application. The records called for shall be returned to the said concerned officer after examining.

5.3 Application for advance ruling shall 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 CGST Act, 2017.

5.4 If the application is rejected, it should be only after an opportunity of being heard is provided to the applicant and by way of a speaking order giving the reasons for rejection and the copy of the order shall sent to the applicant as well as the concerned officer.

5.5 If the application is admitted, the AAR shall pronounce its advance ruling on the question specified in the application within ninety days of receipt of application. Before giving its ruling, the Authority shall examine the application and any further material furnished by the applicant or by the concerned departmental officer and hear the applicant or his authorized representative as well as the jurisdictional officers of CGST/SGST.

5.6 A copy of the advance ruling pronounced by the Authority duly signed by the members and certified in the prescribed manner, be sent to the applicant, the concerned officer and the jurisdictional officer after such pronouncement.

5.7 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.

6. APPEAL AGAINST THE ORDER OF THE ADVANCE RULING AUTHORITY

6.1 The applicant, if aggrieved with the finding of the Advance Ruling Authority (AAR), can file an appeal with the Appellate Authority for Advance Ruling (AAAR).

6.2 An appeal against the advance ruling shall be made by an applicant on the common portal in FORM GST ARA-02 and shall be accompanied by a fee of ten thousand rupees, to be deposited by the applicant by internet banking or by using debit or credit cards or NEFT or RTGS and credited to the Electronic Cash Ledger. The amount of fees shall be debited from the Electronic Cash Ledger.

6.3 In order to make the payment of fee for filing an application for Advance Ruling on the common portal, the applicant has to fill his details using “Generate User ID for Advance Ruling” under “User Services”. On the basis of the ID generated, the applicant can make the payment of the fee of Rs. 5,000/- each under the CGST and the respective SGST Act and attach print of the challan and file the application with the Authority for Advance Ruling.

6.4 If the designated officer or the jurisdictional officer of CGST/SGST does not agree with the finding of AAR, he can also file an appeal with AAAR in FORM GST ARA-03. No fee shall be payable by the said officer for filing the appeal.

6.6 The appeal by the applicant, the verification contained therein and all the relevant documents accompanying such appeal shall be signed in the manner specified in Rule 26 of the CGST Rules, i.e., Digital Signature /e-signature. In case of the appeal by the CGST/SGST department, the appeal will be signed by an officer authorised in writing by the concerned officer or jurisdictional officer. (Rule 26 of the CGST Rules, 2017)

6.7 The appeal is required to be filed within thirty days from the date on which the advance ruling is communicated to the concerned officer, the jurisdictional officer or the applicant.

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

6.9 Graphical Representation –

7. MANUAL FILING OF APPLICATIONS BEFORE AAR & AAAR

7.1 As per Rule 104 and 106 of the CGST Rules, 2017, the application for obtaining an advance ruling and filing an appeal against an advance ruling has to be made by the applicant on the common portal. (Rule 104 and 106 of the CGST Rules, 2017)

7.2 However, due to the unavailability of the requisite forms on the common portal, a new rule 107A was inserted vide Notification No. 55/2017-Central Tax, dated 15.11.2017, which allowed manual filing of the said application, intimation, reply, declaration, statement or issuance of the notice, order or certificate in such Forms as appended to the CGST Rules. (Rule 107A of the CGST Rules, 2017)

7.3 Circular No. 25/25/2017-GST dated 21.12.2017 has been issued in this regard, prescribing the detailed procedure for manual filing of applications for Advance Ruling and appeals before Appellate Authority for Advance Ruling.

8. RECTIFICATION OF ORDER BY AAR, AAAR OR NAAAR

The Authority for Advance Ruling, Appellate Authority for Advance Ruling or National Appellate Authority for Advance Ruling can rectify its order within six months, if any error apparent from records is brought to its notice.

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Source: Handbook of GST Law and Procedures for Departmental Officers issued by Ministry of Finance