The system of Advance Rulings in the matters of taxation was introduced in India under the Income Tax Act of 1961. The idea was to provide taxable entities a facility that helped them ascertain their tax liabilities without having to enter a long-drawn litigation or an expensive tussle with the Income Tax department. In 1993, the Authority for Advanced Rulings (AAR) was set up as a high-level body led by a retired Supreme Court judge. It was determined that the AAR would also have two members of the rank of Additional Secretary to the Government of India. These members would come from the Indian Revenue Service and the Indian Legal Service.

Role of the AAR in the GST regime

In the Indian environment, the Authority for Advance Rulings has emerged as an important quasi-judicial system providing important rulings in tax matters. It is important to remember that the AAR (prior to the GST regime) had only provided the facility of ascertaining the tax liability of non-resident Indians and some other special category of residents. With the introduction of the Goods and Services Tax (GST), however, it became important that the AAR (dealing with GST matters) hand out clarifications, rulings, and judgements on GST matters. Traditionally, the rulings of the AAR have held great importance because they are used as precedent and used for reference in settling policy matters.

Recent AAR Rulings

One of the key rulings made by the AAR was in the matter of Gujarat-based Rashmi Hospitality Services which had sought an advanced ruling. The GST on supplies provided by the company to non-air-conditioned canteens of factories and other such offices was to be determined. The Gujarat bench of the AAR determined the GST rate of such supplies at 18%.

Seeking further clarification on the matter, Caltech Polymers, based out of Kerala had filed an advance ruling application. The Kerala bench of the AAR then ruled that all the recovery of canteen services and food expenses (which are provided by a company to its employees) are covered by the definition of “outward supply” and thus are to be covered under the GST. Since this is a supply of services by the company (to its employees) the applicable GST should be added to the price of the food provided.

These rulings made it necessary for schools and educational institutions across the country to clarify their GST liability as well. Finally, the AAR and the Ministry of Finance brought clarity to the issue by stating that while food supplied to canteens and messes of college and other educational institutions would attract a 5% GST, a similar service to school canteens would be entirely exempt from GST.

The (GST) AAR is also instrumental in providing several rulings as per GST amendments to ascertain taxation of canteen services. The supply of food on trains, for example, was initially said to be taxed at 5% GST. The AAR Delhi bench clarified that food supplies to trains would be charged as per individual items and not at 5% as previously stated.

Understanding the system

An appeal for AAR ruling is a choice that every tax payer under the GST is eligible to make. A business entity may at first apply for GST number and once this is received, it is required to understand the nature of the goods or services provided and the tax provisions (or exemptions) that cover them. The content and information library at CCHTaxOnline has a great deal of material that will help clarify matters. Despite such study, if a GST tax payer fails to ascertain the tax burden, an appeal with the AAR is the best way forward.

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June 2021