Advance Ruling under GST

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All about GST Advance Ruling

Introduction and meaning of Advance Ruling

With the introduction of GST a lot of laws has been subsumed and keeping in view the complexities of the law, the legislature in its wisdom, has provided for the mechanism of ‘advanceruling’ under the GST law also.  Advance Ruling is a kind of mechanism provided under the statue which enables a person to achieve a certainty about the various provisions of law or to understand the tax implications on the transaction undertaken or proposed to be undertaken by him.

“Advance ruling” means 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 subsection (1) of section 100 of the CGST Act, 2017, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant.

Thus the definition of Advance ruling given under the Act is a broad one and an improvement over the existing systems of advance rulings under Customs and Central Excise Laws. Under the existing laws, advance rulings can be given only on a proposed transaction, whereas under GST, Advance ruling can be obtained on a proposed transaction as well as a transaction already undertaken by the appellant.

The objective of any advance ruling under GST

Chapter XXVII, Sections 95-106 of CGST Act provides for the mechanism of Advance Ruling under GST.  The objectives of advance ruling under any taxing statute are as under:

  1. Advance Ruling reduces litigation and legal disputes.
  2. Simplifies the complexities of law.
  3. Provides forcertainty of tax implication on any transaction proposed to be undertaken by applicant.

Who can apply for Advance Ruling? 

Any applicant desirous of obtaining the advance ruling can make an application to the Authority for Advance Ruling (AAR).  The applicant can be any registered person or a person desirous of obtaining registration under the Act. Thus even an unregistered person can also apply for Advance Ruling.

Which is the Authority to whom advance ruling can be filed?

As per Section 96 of the CGST Act any authority for Advance Ruling constituted under the provisions of State Goods and Service Tax Act or Union Territory Goods and Service Tax Act shall be deemed to be an Authority for Advance Ruling (hereinafter for the sake of brevity also referred to asAAR) in respect of that State and Union Territory.

Further Section 96 of the various State Goods and Service Tax Acts, invariably in all States provides that the authority for advance ruling shall consist of

  1. One member among the officers of Central Tax
  2. One member from the State Tax

to be appointed by Central Government and State Government respectively. Thus every State and Union Territory has an Authority for Advance ruling constituted under the provisions of SGST or UTGST Act, created particularly for that State or Union Territory.

Further as per Rule 103 of the CGST Rules, The Government shall appoint officers not below the rank of Joint Commissioner as member of the Authority for Advance Ruling.

What are the questions / issues on which advance ruling can be sought ?

 As per Section 97(2) of the Central Goods and ServiceTaxthe question on which the advance ruling is sought under this Act, shall be in respect of,––

  1. classification of any goods or services or both;
  2. applicability of a notification issued under the provisions of this Act;
  3. determination of time and value of supply of goods or services or both;
  4. admissibility of input tax credit of tax paid or deemed to have been paid;
  5. determination of the liability to pay tax on any goods or services or both;
  6. whether applicant is required to be registered;
  7. 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.

 What is the procedure for obtaining advance ruling?

 As per Sec 97 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 has been prescribed in the Advance Ruling Rules.

As per rule 104 of the CGST Rules, the application for Advance Ruling had to be made on the common portal in FORM ARA-01 and have to be accompanied with a fee of Rs.5000/-to be deposited as per Section 49 of the Central Goods and Service tax Act. The application for advance ruling, the verification contained therein and all the relevant documents accompanying such application shall be signed in the manner specified in Rule 26.

It is relevant to note here that the facility of filing ARA-01 is till date not available on the portal.

This defeated the very basic purpose of ‘advance ruling’ in as much as the ‘advance ruling’ could not be filed by the persons desirous of obtaining ‘advance ruling’. Although the Authority for Advance Ruling were notified, yet they were not accepting applications as the Rule mandated that the application has to be filed on the common portal. Since the facility of filing application on common portal was not available the aggrieved prospective applicants filed Writ Petitions being W.P.(C) No. 7964/2017 and 7977/2017 in Delhi High Court.

The GSTIN Council in response to the letters addressed by the Applicant had answered some of the questions as under:

S.no. Issues Feedback/Input
1 By what date, the facility of filing Advance Ruling application is likely to be made available on GST Portal? Tentatively by 15th January, 2018
2 In case it is decided to accept the forms manually, is there any mechanism available on the GSTN portal whereby applicants including an unregistered applicant can make payment of prescribe fees of R.5000/- For the intervening period a functionality is being developed to dispose of the advance ruling application manually with a facility to deposit prescribe fee under the law through GST portal for all applicants including unregistered persons. This facility will be available w.e.f. 20th October 2017 on the GST Portal.

However, the Hon’ble Delhi High Court in its interim order dated 18th September, 2017 in the aforestated case observed as under:

It is not clear under what authority of law, the GSTN has decided to postpone the availability of this alternative system of filing the applications seeking advance ruling manually till 20th October 2017 when the provisions of law are already in force. Neither the counsel for GNCTD nor the counsel for the Union of India UOI is able to provide an answer.

The matter is still pending in Delhi High Court.

However now a mechanism to “generate user I.D. for advance ruling” has been provided for in the GSTIN portal under the head of ‘services’. Further GST Council in its 23rd meeting held at Guwahati on 10th November,2017 has also approved that ‘advance ruling’ can be filed manually.  We all are hoping and expecting that the necessary corresponding changes in Rule 104 of the CGST Rules shall be made very shortly, so that the filing of advance ruling in ARA-01 shall see the light of the day and becomes a reality.

Procedure on receipt of application

The applicant desirous of obtaining advance ruling should make application to AAR in a prescribed form and manner as stated above. 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. 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 for advance ruling will 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 this Act.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 a difference of opinion between the two members of AAR, they shall refer the point or points on which they differ to the Appellate Authority for Advance Ruling (hereinafter for the sake of brevity also referred to as 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.

Thus it can be seen that there is a two tier process which is to be followed upon receipt of an application for advance ruling by the AAR. First it has to decide about the admissibility/rejection of the application. Only after accepting the application the AAR will proceed to decide the application on merits. Thus the process to be followed by AAR in brief would be as under:-

STEP 1 : Acceptance of application by the Authority.

STEP 2 : Copy of application forwarded to the concerned officer and call upon officer to furnish relevant records.

STEP 3 : Hearing the applicant/his authorised representative and the concerned officer/his authorized representative.

STEP 4Authority to examine the application and records called i.e. the material placed before it by the applicant or obtained by the authority.

STEP 5 : Authority to pass order-either rejecting/admitting the application.

Application for advance ruling will 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 this Act.

IF REJECTED

STEP 6A speaking order giving the reasons for rejection has to be passed.

IF ADMITTED

STEP 6 Authority shall examine the application and any further material furnished by the applicant or by the concerned departmental officer. AAR shall hear the applicant or his authorised representative as well as the jurisdictional officers of CGST/SGST

STEP 7 Authority shall pronounce its ruling within ninety days of receipt of application.

STEP 8A copy of the advance ruling pronounced by the Authority duly signed by the members and certified in such manner as may be prescribed shall be sent to the applicant, the concerned officer and the jurisdictional officer after such pronouncement.

STEP 9If there is a difference of opinion between the two members of AAR, they shall refer the point or points on which they differ to the Appellate Authority for Advance Ruling (AAAR) for hearing the issue.

To whom the Advance Ruling is applicable

An advance ruling pronounced by AAR or AAAR shall be binding only on the applicant and on the concerned officer.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.

Appeal against order of AAR

As per Section 98(5) Member of Authority when differ on any question, state the point on which they differ to Appellate Authority.

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 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.

Applicant can file Appeal in FORM GST ARA-2 with fees of Rs. 10000 to the Appellate Authority for Advance Ruling and Concerned Officer and Jurisdiction Officer file Appeal in Form GST ARA-3 without any fees within 30 days from date of communication of Advance Ruling.

As per Section 101 of the CGST Act, 2017 the Appellate Authority after providing opportunity of being heard pass order (Confirm/ Modify  Advance Ruling and pronounce its Advance Ruling on question specified to Applicant or Authority or Jurisdictional Officer or Concerned Officer.

Rectification of Mistakes

The law 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.

Conclusion

To conclude, it can be stated that the law makes a comprehensive provision for advance rulings to ensure that disputes are minimal.Timelines are also given within which the ruling is to be given by the concerned authority. The aim is to provide certainty to the tax payer with respect to his obligations under the GST Act and an expeditious ruling, so that the relationship between the tax payer and administration is smooth and transparent and helps to avoid unnecessary litigation.However, the unfortunate part is that although the law had provided a nice time bound mechanism but still the proper mechanism for filing Advance Ruling has not been made available by the law enforcing agencies. This has made Advance Ruling merely an attractive option on papers. We all hope that the mechanism to file Advance Ruling shall be made available very soon and the officers shall thereafter decide the applications as expeditiously as possible.

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