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.