JULY 02, 2018

By G Mohana Rao, Assistant Commissioner (Retd.)

THE attention is drawn to my earlier article on the captioned subject. A lot has already been written and discussed about the advance rulings given by different AARs in different States as being contradictory, illegal, illogical etc. However, it was always going to be difficult for the AARs. The AAR is a creature of Statute, a petite in the whole scheme of system. A question being asked from AAR simply implies that the battery of advocates, chartered accountants, consultants etc. could not come to a conclusion on a specific subject. Or is it seeking clarification from a government body by paying a small fee! Suffice to say, it implies that either the law is not clear, or has gaps or is silent on an issue. Thus, it is always possible that there would be multiple interpretations of the existing law vis-à-vis the question being asked. The AAR is in the system just to interpret the law. It cannot put anything on its own or import the intentions into the law so as to give a ruling. Law has to be strictly interpreted. Therefore, AARs appear to be in a very precarious situation.

The purpose of the Advance Ruling mechanism too is more to do with certainty or an effort to bring clarity or an effort for a conclusion to an issue. However, this certainty is not with reference to law but has to do with the applicant. It provides certainty to the applicant and may not provide any certainty to law. Certainty to law is only possible if the ruling on an issue is binding on the department in respect of the whole country. However, it is not intended to be so. Thus, certainty to an issue is only possible though clear and simple law or through judicial intervention/rulings. To that extent, advance rulings not only have limitations with no precedence value; but also they do not provide even credible value.

Therefore, scope of their job should be enhanced. It should not only to interpret the law and give a ruling binding on both department and applicant , but also to escalate the issues which are not taken care of by the existing law. GST is an evolving law and works on continuous feedback. AARs are in a much better position to contribute towards this purpose. They are the first point of contact in respect of difficult questions and get to know the views of the taxpayers/trade as well as of the department. Advance ruling mechanism should be used more as a tool to help in finding the gaps in the law and improve it so as to move towards the best. In the initial days, it was being said that best should not become the enemy of good and we should implement the law in whatever form it is and strive towards the ideal law over time as things and time go by. Now, after an year has gone by, it certainly is the time to act upon.

The department should conduct some sort of thematic audit of all the advance rulings so as to confirm the rulings from judiciousness and correctness. Wherever the law is deficient, the same should suitably be amended. In many such rulings, the real solution lies in amending the law and not rulings in case of single concern.

It is high time that the GST Council should consider the formation of one national AAR for the country. Since, all the State and Centre GST Laws are harmonised to a large extent, except in a few stray cases like intra-state e-way bill mechanism, it is possible to have national AAR. It may also help in allowing rulings in respect of questions having multi-state implications like "place of supply" which cannot be asked for in the present scheme. The government can go further out of its narrow mindedness and declare that the ruling of AAR shall be binding on the department in whole of the country instead of saying that it is binding only in respect of activities of the person who seeks the rulings. It will give a lot of boost, confidence and certainty to the law. In fact, the Trade Facilitation Agreement talks about advance rulings and mandates that advance rulings should be binding on department; however, it allows a national legislation to decide as to whether the ruling may be binding on the applicant as well. India is a signatory to the Trade Facilitation Agreement. Though it is international agreement and pertains only to cross border movements, the ideas therein can always be imbibed and such innovative thinking only will bring confidence to the system. The GST council may decide that rulings may not be binding on the applicants.

Advance Ruling mechanism, a sort of alternate dispute resolution (ADR) is an excellent tool to bring certainty in the law.It should not be allowed to go down the drain by simply turning a blind eye. A national AAR, thematic audit of all advance rulings, continuous feedback from the AAR to GST council for deficiencies in law and from GST Council/Law committee to AAR for clarifying some of the issues can go a long way in getting the right things done, if done in a right way. Wherever required, the government should clarify the legal position on the advance rulings, if necessary, and the law should suo moto be amended, if advance rulings brings clarity over an issue.

(The author is Managing Partner, Elysian Tax Advisors, Mumbai and the views expressed above are strictly personal.)