JULY 03, 2018

By Pritam Mahure, CA

ADVANCE Ruling is an interesting provision in GST, which candidly, accepts that interpretation of Goods and Services Tax (GST) is not easy and thus, tries to provide a solution to the taxpayer with written guidance or advice about  the Authority's interpretation and position on specific transactions.

This article throws light on the emerging trends in advance rulings.

Ab tak 78!

78 advance rulings passed by the Authority for Advance Rulings have been reported by TIOL (as on the date of penning this article) and many more may be on their way.

These advance rulings can broadly be categorised in following baskets:

Now, lets decode the aforesaid issues one by one.

a. Classification (of goods or services of both)

In erstwhile era, one of the key areas of litigation was 'classification' of goods or services for the sole reason that rate of excise or State VAT or Service tax was dependent on how the goods or services were classified. In GST regime, the expectation was that classification related disputes would cease to exist.

However, in GST regime, till now, more than 40 advance rulings have been pronounced on classification of goods i.e. HSN related disputes, classification of services i.e. SAC related disputes, classification as composite supply or works contract and classification as mixed supply or separate supply of goods.

Interestingly, in Aqua Machineries - 2018-TIOL-61-AAR-GST it is held that waste / sewage water handling pumps cannot be eligible for concessional rate as 'water' handling pumps (which attracts GST @ 12%) as water may not include in its ambit sewage water.

In another advance ruling, the ARA held that as the applicant was renting warehouse, even if therein agricultural produce are stored, GST @18% will be applicable as service is classifiable as 'Renting or leasing service of non-residential property' i.e. SAC 9972 (refer Rishi Shipping - 2018-TIOL-50-AAR-GST.

In the advance ruling of Rashmi Hospitality - 2018-TIOL-39-AAR-GST it was held that services of supply of food at canteen will be considered as 'outdoor catering' services and thus, liable for GST @ 18%.

Even question was raised, whether a transaction is a works contract (liable for 18%) or composite supply - which may be liable for GST rate based on the rate applicable for principle supply (Fermi Solar Farms - 2018-TIOL-17-AAR-GST. Similarly, question was raised regarding whether transportation charges will be taxed separately @ 5% or at the rate at which the goods are liable for GST (refer IAC Electricals - 2018-TIOL-40-AAR-GSTand EMC Ltd - 2018-TIOL-31-AAR-GST

b. Levy / exemption

In one of advance ruling the question under consideration was whether GST is leviable on liquidated damages in case of delay by the contractor to deliver goods? In this regard, the ARA held that GST is applicable (refer Maharashtra State Power Generation Company 2018-TIOL-33-AAR-GST. However, the question of availability of GST credit was left un-answered. It is pertinent to note that in other jurisdictions, such as United Arab Emirates (UAE), clarification is issued that Value Added Tax (VAT) may not be applicable on liquidated damages as there is no underlying supply of goods/ services.

In the ruling of Caltech Polymers - 2018-TIOL-01-AAR-GST the ARA held that recovery from employee towards canteen food is subject to GST. It may be noted that this ruling did not discuss what would be the value of supply if the organization recovers only subsidized amount from the employees (as employees are covered under the ambit of 'related persons').

This ruling appears to be invoked by the GST Authorities to demand GST the all types of recoveries from employees (such as telephone recovery, notice pay recovery etc.).

In the advance ruling of Reliance Infrastructure - 2018-TIOL-22-AAR-GST, it is held that charges paid by business entities to municipal authorities for restoring roads (which are dug up by business entities for certain purposes) will be subject to GST (under reverse charge mechanism).

One of the questions before ARA was whether storage of copra, jaggery, raisin etc. will qualify as 'agricultural produce' and thus their storage will be exempt from GST (refer Guru Cold Storage 2018-TIOL-58-AAR-GST. This is just one more instance of confusion and there are numerous such issues.

c. Other issues:

In Bahl Paper Mills - 2018-TIOL-54-AAR-GST it is held that IGST is applicable (under reverse charge mechanism ) on the ocean freight in case of CIF basis imports even though IGST is paid on CIF value of imported goods.

In Gogte Infrastructure Development - 2018-TIOL-29-AAR-GST supply of hotel accommodation to SEZ was said to be an intra-State supply. This ruling appears to at variance with the specific provision to treat all services as 'inter-State' when supplied to SEZ. In Global Reach Education - 2018-TIOL-06-AAR-GST it was held that the commission received for recruiting students for foreign universities is liable to GST as the services will qualify as 'intermediary' services and thus, place of supply will be within India.

Way forward:

The aforesaid trend certainly is worrying as it brings back the memory of erstwhile era where disputes relating to classification, levy/ exemption, place of supply etc.were the norm of the day. Now, even in GST, within a less than a year time, more than 78 rulings are pronounced and many are underway! Even varying advance rulings can be seen as the mechanism is decentralized than centralized one.

The analyses the aforesaid rulings shows that the underlying question in most of the classification disputes was about rate of GST. The inherent reason for these disputes appears to be the multi-tier GST rate slabs (5%, 12%, 18%, 28% etc.). This is in stark contrast to most GST/VAT regimes across the world wherein the rate of GST/ VAT remains same irrespective of classification!

In the coming days, views proposed in some of the advance rulings(particularly levy of GST on liquidated damages, employee recoveries, whether to treat a transaction as works contract even if there are two separate contracts etc.) may not be found as acceptable by the trade at large. This may then bring the second wave of litigation wherein the rulings could be either not followed by other taxpayers or even challenged in the court of law.

At this juncture, as we enter the 2nd year of GST, it is an expectation of the industry that the GST Council analyses the aforesaid emerging trends in GST and takes appropriate holistic macro measures than addressing only the specific micro issues. Else the days are not too far, wherein,disputes will become norm of the day in the celebrated Good and Simple Tax regime!

(The Author is a Chartered Accountant and has authored books on GST and Gulf VAT. The views expressed are strictly personal.)