Concept of Authority of Advance Ruling (AAR) under GST

“Advance ruling is binding on the applicant and on the department, but they both can challenge it under article 136 or article 226 and 227” - Supreme Court of India

1.0 Introduction

In the interest of avoiding litigations and trembling investor confidence, the advance ruling plays a very important role. Through this facility, an investor gets clarity over the ambiguous and complex provisions of the law and gets more stability as far as the taxation is concerned. The concept for Advance ruling was very famous in various parts of the world which later on was also adopted by the India on June 1, 1993. The concept for Advance ruling was first introduced in Income tax laws and later on into the indirect taxes as well.

Earlier, the facility for Advance ruling was only for very selective assessee like nonresident, however later on the resident assessee were also allowed to take advance ruling.

The Indian system for Advance ruling is also better than some developed nations including United States of America, Australia etc. In India, the Authority for Advance Ruling (AAR) delivers the judgment which is a separate quasi-judicial body which works independently of the Income tax department. However, in some developed nations, the advance ruling is given by the revenue department which in any case cannot be said as an independent body.

Further, there is no right to appeal in Indian law against the judgment of AAR in India and is binding on both the applicant and the department. An appeal against the judgment of AAR is possible only through residual rights under the article 136 or article 226 and 227 of the Constitution of India. Unlike Indian structure, in developed nation, since the advance ruling is delivered by the revenue department itself, the right to appeal against the judgment is granted.

Chapter 22 of the GST law governs the provision for Advance ruling under the GST regime. Let us understand the provisions of the advance ruling in India.

2.0 Basic Concept of Advance Ruling

1. Under this chapter, two separate bodies has been constituted; namely Authority for Advance Ruling or Appellate Authority for Advance Ruling. The application shall be applied in Authority for Advance Ruling (AAR) and if anyone is aggrieved with the order for Advance ruling, then he may appeal to Appellate Authority for Advance Ruling.

2. Authority for Advance Ruling shall be located in each state and shall comprise of one member of CGST and one member of SGST which is to be appointed by the Central Government and the state government. The qualification/eligibility conditions, method and the process of appointment of the member shall be as may be prescribed.

3. Appellate Authority for Advance Ruling shall be located in each state and shall comprise of the Chief Commissioner of CGST as designated by the Board and the Commissioner of SGST having jurisdiction over the applicant.

3.0 Who can file for Advance Ruling? 

1. As per GST law, an applicant can file for advance ruling. Applicant as per GST law means any person registered or desirous of obtaining registration under this act.

Important Point

It is very important to note that definition of applicant nowhere use the word resident or nonresident. Hence, any person will be eligible to file for advance ruling. This is a welcome move.

It is also important to understand the meaning of advance ruling to properly understand the scope of it which is defined as under;

“Advance ruling” means a written decision provided by the Authority or, as the case may be, the Appellate Authority to an applicant on matters or on questions specified in sub-section (2) of section 116 or sub-section (1) of section 118 , as the case may be, in relation to the supply of goods and/or services proposed to be undertaken or being undertaken by the applicant;

It is important to note the last words of the above definition. “….or being undertaken by the applicant;” As per these words, it is pretty much clear that advance ruling can be sought even during the process of supplying of goods and/or services.

4.0 Application for Advance Ruling

1. An applicant desirous of obtaining an advance ruling under this Chapter may make an application in such form and in such manner as may be prescribed [rules not yet notified], stating the question on which the advance ruling is sought.

2. On receipt of an application, the Authority shall cause a copy thereof to be forwarded to the officers as may be prescribed and, if necessary, call upon him to furnish the relevant records.

However, any records which have been called for by the Authority in any case, such records shall, as soon as possible, be returned to the said prescribed officers.

3. The Authority may, after examining the application and the records called for and after hearing the applicant or his authorized representative and the prescribed officer or his authorized representative, by order, either admit or reject the application.

4.1 Cases where application shall not be admitted

1. As per GST law, the authority shall not admit the application where 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;.

• The same as in a matter already decided by the First Appellate Authority, the Appellate Tribunal or any Court;

• The same as in a matter already pending in any proceedings in the applicant’scase under any of the provisions of the Act;

• The same as in a matter in the applicant’s case already decided by the adjudicating authority or assessing authority, whichever is applicable.

2. No application shall be rejected unless an opportunity has been given to the applicant of being heard:

3. Further, where the application is rejected, reasons for such rejection shall be given in the order.

5.0 Questions on which advance ruling is sought

1. The advance ruling can be sought in respect of:

• Classification of any goods and/or services under the Act.

• Applicability of a notification issued under provisions of the Act having a bearing on the rate of tax.

• The principles to be adopted for the purposes of determination of value of the goods and/or services under the provisions of the Act;

• 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 under the Act.

• Whether applicant is required to be registered under the Act.

• 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.

2. The application shall be accompanied by a fee as may be prescribed.

6.0 Orders by AAR

1. Where an application is admitted, the Authority shall, after examining such further material as may be placed before it by the applicant or obtained by the Authority and after providing an opportunity of being heard to the applicant or the authorized representative of the applicant as well as to the authorized representative of the prescribed or the jurisdictional CGST/SGST officer, pronounce its advance ruling on the question specified in the application. Further, any ruling pronounced under this section shall have prospective effect only.

2. A copy of every order shall be sent to the applicant and to the prescribed officers.

Case where both member of authority differs

3. Where the members of the Authority differ on any question on which the advance ruling is sought, they shall state the point or points on which they differ and make a reference to the Appellate Authority for hearing and decision on such question.

Case where members of Appellate Authority differs

4. Where the members of the Appellate Authority differ on any point or points as referred to in point no.3, it shall be deemed that no advance ruling can be issued in respect of the question covered by the reference application.

Timeline for delivering the order

5. The Authority or, as the case may be, the Appellate Authority shall pronounce its advance ruling in writing within ninety days of the receipt of application.

7.0 Appeals to Appellate Authority

1. The prescribed or jurisdictional CGST/SGST officer or an applicant aggrieved by any advance ruling pronounced may appeal to the Appellate Authority.

2. Every appeal shall be filed within a period of thirty days from the date on which the ruling sought to be appealed against is communicated to the prescribed or the jurisdictional CGST/SGST officer or the applicant.

2.1 However, if the Appellate Authority is satisfied that the appellant was prevented by sufficient cause from presenting the appeal within the aforesaid period of thirty days, allow it to be presented within a further period not exceeding thirty days.

8.0 Orders of the Appellate Authority

1. The Appellate Authority may, after giving the parties to the appeal, an opportunity of being heard, pass such order as it thinks fit, confirming or modifying the ruling appealed against.

2. The order shall be passed within a period of ninety days from the date of filing appeal.

3. Where the members of the Appellate Authority differ on any point or points referred to in appeal, it shall be deemed that no advance ruling can be issued in respect of the question covered under the appeal.

4. A copy of the advance ruling pronounced by the Appellate Authority duly signed by the Members and certified in the prescribed manner shall be sent to the applicant, the prescribed or the jurisdictional CGST / SGST officer and to the Authority after such pronouncement.

9.0 Rectification of Advance ruling

1. The Authority or the Appellate Authority may amend any order passed by it so as to rectify any mistake apparent from the record, if such mistake is noticed by the Authority or the Appellate Authority on its own accord, or is brought to its notice by the prescribed or the jurisdictional CGST / SGST officer or the applicant within a period of six months from the date of the order.

However, Authority or the Appellate Authority shall not, while rectifying any mistake apparent from record, amend substantive part of its order.

2. No rectification which has the effect of enhancing the tax liability or reducing the amount of admissible input tax credit shall be made unless the Authority or the Appellate Authority has given notice to the applicant or the appellant of its intention to do so and has allowed him a reasonable opportunity of being heard.

10.0 Appeal in High court or Supreme Court

The advance ruling is final and binding and no appeal is possible against the order. However, in case of Columbia Sportswear Company Vs. Director of Income tax, Bangalore, the Supreme Court of India has delivered an important judgment with the issue of challenging the decisions of the Authority of Advance Rulings by way of writ petitions/Special Leave Petitions. The Apex court holds that;

• An AAR is a tribunal within the meaning of the expression in Article 136 and 227 of the Indian Constitution.

• If it is assumed that an advance ruling of an AAR should not be permitted to be challenged before the high Court under article 226 and 227, then it would be against the basic structure of the constitution of India.

• The power of the Supreme Court to entertain a SLP under Article 136 of the Indian Constitution is discretionary in nature and hence, even if good grounds are made out in the SLP for challenge to an advance ruling given by an AAR, the apex court may still refuse to grant special leave on the ground that the challenge to the advance ruling of the AAR can also be made to the High Court under Article 226 and/or Article 227 of the Indian Constitution.

Hence, in the light of the above judgment, it could be said that order of AAR can be challenged at the High court under Article 226 and 227 or via Special Leave Petition under article 136 of the Indian Constitution.

11.0 Nature of advance ruling

1. The advance ruling pronounced by the Authority or, as the case may be, the Appellate Authority under this chapter shall be binding only;

• On the applicant who had sought it in respect of any matter, of the application for advance ruling.
• On the jurisdictional tax authorities in respect of the applicant.

2. The advance ruling shall be binding as aforesaid unless the law, facts or circumstances supporting the original advance ruling have changed.

12.0 Advance Ruling to be void in certain circumstances

1. Where the Authority or the Appellate Authority finds that advance ruling pronounced by it has been obtained by the applicant or the appellant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void ab initio and thereupon all the provisions of the Act shall apply to the applicant as if such advance ruling had never been made.

2. However, no order shall be passed under this sub-section unless an opportunity has been given to the applicant of being heard.

13.0 Miscellaneous

1. The Authority or the Appellate Authority shall, for the purpose of exercising its powers regarding discovery and inspection, enforcing the attendance of any person and examining him on oath, issuing commissions and compelling production of books of account and other records, have all the powers of a civil court under the Code of Civil Procedure, 1908 (5 of 1908).

2. The Authority or the Appellate Authority shall be deemed to be a civil court for the purposes of section 195, but not for the purposes of Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974), and every proceeding before the Authority or the Appellate Authority shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228, and for the purpose of section 196, of the Indian Penal Code (45 of 1860).

3. The Authority or, as the case may be, the Appellate Authority shall, subject to the provisions of this Chapter, have power to regulate its own procedure in all matters arising out of the exercise of its powers under the Act.

14.0 Conclusion

Under GST, the importance of AAR cannot be questioned at all. The Indian indirect tax system is transforming and adopting a very new system of taxation. Hence, it is very natural that there would be a lot of uncertainty and ambiguity in the law. Hence, to avoid litigation, the AAR is one of the best authorities to settle down any early stage problems in the new law.

In case you have any doubt, email to us at paras@hubco.in.

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