Advance Ruling in GST era - a toothless tool

AUGUST 09, 2017

By Priyojeet Chatterjee, Hiregange & Associate

THE concept of Advance Ruling evolved from the risk mitigating and
assessment philosophy. The idea behind such was to ensure, striking out
the ambiguities in the statute in terms of interpretation, taxability,
classification, etc., so as to ensure the correct taxable position and mitigate
unwanted financial consequences for future transactions.

Under the CGST Act, Section 96, Chapter XVII prescribes the provisions for
Advance Ruling. However, the power to constitute an Authority of Advance Ruling is
vested with respective states and union territories. Before we envisage the concept of
Advance Ruling,let usanalyze the purpose of such and who can file an application for
Advance Ruling. An application can be filed by anybody engaged in providing taxable
supply or desirous to take registration under the Act, ibid . Under the GST Regime,
Authority for Advance Ruling shall be constituted under the provision of SGST / UTGST
Act, and shall be deemed to be Authority for Advance Ruling in respect of that state or
union territory. In the proposed regime Advance Ruling Mechanism is a two-tier
instrument and is appealable. An appeal may be preferred either by applicant or
jurisdiction officer to the Appellate Authority for Advance Ruling (AAAR) which is
constituted under the respective laws i.e. SGST and UTGST, though the applicability of
Rulings will be restricted to the concerned state /union territory. The Ruling will be
binding over the applicant and the concerned jurisdictional / officer. The Advance Ruling
or the Ruling delivered by Appellate Authority (AAR) shall be valid unless the facts and
circumstances of the original Advance Ruling have not changed or the Advance Ruling so
obtained is not by suppression of facts or fraud.

Meaning and Manner of Application

Under Section 95(a) "advance ruling means a decision provided by the authority or the
appellate authority to an applicant on matters or on question specified under sub-section
(2) of section 97 or sub section (1) of section 100, in relation to supply or goods or
services or both being undertaken or proposed to be undertaken by the applicant".

An application for Advance Ruling can be filed by any person who is registered or is
desirous of obtaining a registration under Section 95(c) of the Act, ibid. The application
for advance ruling can be preferred under Section 97 (1) through common portal along
with a fee of Rs.5000/- inForm GST ARA-01.

The application so preferred must be verified in a manner prescribed and clearly state
the question on which the Ruling is sought.

An application for advance ruling may be filed in respect of matters involving the
following:

(a) Classification

(b) Applicability of Notification under the Act,

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

(d) Admissibility of input tax credit

(e) Determination of the liability to pay tax

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

Constitution & Composition

Advance Ruling Authority shall be located in each state. Advance Ruling Authority
constituted under SGST Act, or UTGST Act, shall be deemed to be Authority for Advance
Ruling under CGST Act. The composition of such authority shall consist of one member
CGST and one member SGST to be appointed respectively. Appellate Authority for
Advance Ruling shall consist of a Chief Commissioner of CGST and a Commissioner of
SGST having jurisdiction over the applicant. However, the nuances of division of
jurisdiction are unclear at the moment.

Procedure

An application so preferred, can be filed in FORM ARA-01, on receipt of the same the
Advance Ruling authority shall show cause copy to the cornered officer and if necessary
call upon him to furnish records. An opportunity for personal hearing shall be accorded
to the applicant and to the concerned officer in accordance with the principles of natural
justice and upon such exercise, the authority will decide upon the application. If the
members of the authority differ on point or points the same shall be referred to the
appellate authority (AAAR) for hearing and decision as provided under Section 98(5).
Where there is no consensus between the members of the appellate authority, the
application will stand as 'No Ruling' . A copy of the ruling so pronounced shall be duly
signed by the members and certified in such a manner as may be prescribed. The copy
of such shall be sent to the applicant, concerned officer and jurisdictional officer. An
appeal against such order may be preferred before (Appellate Authority for Advance
Ruling) AAR by the appellant under Section 100 through common portal in GST ARA 02
along with a fee of Rs.10000/-before the appellate authority. In case the appeal is filed
by the Jurisdictional or Range officer/Proper officer the same is to be filed in GSTR ARA-
03 without any fee. The appeal so preferred shall be filed within a period of 30 days from
the date of receiving of the order subject to extension of another 30 days. For person
who is not registered and seeks to file an application for advance ruling the manner and
procedure are yet not clear as to whether a temporary registration will be allotted for the
purpose of filling the application or any other method will be proposed.

Order of the Appellate Authority and Rectification of Advance Ruling

On receipt of an appeal, the appellate authority (AAAR) may after giving an opportunity
confirm or modify a ruling appealed or referred as the case may be. The order so
refereed shall be passed within a period of 90 days. The authority or appellate authority
may amend any order passed by it under Section 98 or 101 so as to rectify an error
apparent on record and brought to notice of the authority either by applicant,
jurisdictional officer under Section 102. The authority has powers to take suo motu
action against such error provided that no rectification which has effect of either
reducing or enhancing the tax liability or input tax credit shall be made without following
the principles of natural justice.

Powers of the Authority or Appellate Authority

The authority or appellate authority under Section 105 has powers to call for records,
inspection and discovery and to examine any person on oath and has all powers of a civil
court under Civil Procedure Code 1908. Under Section 105 (2) the authority or the
appellate authority shall be deemed to be a civil court and every proceeding shall be
deemed to be judicial proceeding.

Non-Application of Advance Ruling / Void Ruling

Under Section 104 (1) where it is found that Advance Ruling has been pronounced /
obtained under Section 98 (4) or Section 101 has been obtained by the applicant or
appellant by means of fraud or suppression of materials facts o0r misrepresentation of
facts. The authority may by order declare such ruling void ab initio. Provided principles
of natural justice shall be accorded to the applicant or appellant before passing of any
such order.

Applicability of Advance Ruling

The Advance Ruling so pronounced by the authority or the appellate authority shall be
binding on the applicant who had sought it in respect of any matter referred under
Section 97 (2) and to the concerned or jurisdictional officer is respect of that applicant.
Section 103 of the Act, summarizes the applicability of the ruling. The Advance Ruling so
pronounced shall be binding unless the law, facts or circumstance supporting the original
ruling have not changed. The jurisdiction and applicability of such Advance Ruling will be
within the respective state or union territory.

Scope & Limitation of Advance Ruling

Under the GST Regime, the concept of Advance Ruling has seen a conceptual change
from being a proposed risk assessment mechanism to an ongoing tool through which
future taxable transactions can be ascertained. The larger objective behind such is to
provide cost effective, timely and curtained view to the assesse so as to reduce litigation
and save resources. However, the quasi-judicial bodies constituted by department to
adjudicate upon cases have an illustrious history and inclination to decide matters in
favor of the revenue. Often it has been seen that officers vested with quasi-judicial
powers abuse / mis-use the process and often the process leads to unwanted litigation.
The effectiveness of the proposed Advance Ruling mechanism is yet to be tested. In the
erstwhile regime there was no concept of appeal however residuary powers could be
exercise under Article 136 and 226 of the Constitution of India. Till date thousands of
applications are pending and often it has been the case that appropriate human resource
is either not available or government fails take timely decision to create and equip
adequate infrastructure.

However, in my limited view the proposed mechanism may not see a paradigm shift as
legislative provision are so designed that the scope of such becomes limited and
restricted within particular jurisdictions. Under Section 97 (2) (c) "determination of time
and value of supply of goods or services or both" and the same is to be read con-jointly
with Section 96and 103 of the Act, which restricts the jurisdiction of such Advance Ruling
within the state or union territory in which application is sought in respect of probable
dispute or ambiguities. For instance, an application arising out of Chapter V which deals
with time and value of supply read with Section 10 'Place of Supply of Goods' which is
relatively a new concept and which will potentially determine the nature of the tax i.e.
CGST-SGST or CGST-IGST can technically be not filed as the same deals with different
state jurisdiction and consumption of supply. Place of supply is also relevant because it
will determine the consuming state which ultimately will receive the revenue. In similar
faction other transactions involving administration, levy and collection procedures which
may involve different jurisdictional aspects will be out of the scope of Advance Ruling as
the powers and applicability of the Authority are limited with the respective jurisdiction
of the state or union territory as the case may be. The legislative structure of Advance
Ruling defies the purpose. It will be crude to say that the mechanism will become
redundant but will eventually be restricted largely resulting in losing its relevance in the
scheme of the Act.

In the normal course, it can be widely perceived that interpretation issues are evident
and will lead to some litigation (to be generous)in the initial years. A major lacuna in
Advance Ruling Mechanism is since it is a on-going mechanism it will be difficult to find a
transaction / situation where the jurisdictional officer CGST/SGST/UTGST has not raised
an objection or proceedings in a transactional activity which is interpretational in nature.
Under Section 98 (2) an application cannot be filed if the proposed subject matter of the
application (Advance Ruling) is pending or decided by the department. As the formation
of the Authority is yet no clear and concrete and it is yet to be seen that how the match
making between states and centre will take shape. It can be said that till an application
is preferred and taken up for admission before the authority there might be objection or
proceedings initiated by the concerned jurisdictional officer. In such situation the
objective of a Advance Ruling will fail. The Legislative scheme regarding Advance Ruling
is seemingly unkind to the assessee.

Concluding Note

The scheme of Advance Ruling was first introduced in 1993 under the Income Tax Act,
1962, and then was brought under the net of Indirect taxes i.e. Central Excise Law, the
concept of Advance Ruling was to attract foreign investment by ascertaining their
taxability is respect of their prospective transactions/ investments. The concept of
Advance Ruling since then has evolved and undergone various changes particularly
allowing a resident assessee. As we move in the GST era, the concept has moved from
proposed activity to on-going activity. There is no bar as to only aproposed activity is
eligible for ruling. Any applicant who is registered or desirous to be registered may file
an application before the jurisdictional authority for advance ruling in a manner so
prescribed. Under the GST regime, every state or union territory has two-stage Advance
Ruling mechanism. This is a shift from the erstwhile mechanism where Advance Ruling
Authority was an apex body headed by a chairman with other eminent members.In my
limited view, the Advance Ruling Mechanism has been weakened and its legislative
competence has largely been curtailed. The objective of such mechanism is lost and
depleted as discussed above. It is yet to be seen how the match making between the
centre and state in terms of sharing of jurisdiction, infrastructure and the idea of
simplified GST takes its shape with the proposed Advance Ruling Mechanism.