JUNE 18, 2019

By Dr G Gokul Kishore

WE exercise our discretion to waive introduction for the second time in this series and commence our brief discussion directly in this 42 nd part.

Writ allowed against AAAR ruling

After hundreds, if not thousands of litigation, on activities amounting to manufacture and job work, GST having excise genes, retains same or similar traits. The Maharashtra Advance Ruling Authority had held that when a person (first person) produces electricity based on coal supplied by another person (second person), then the activity undertaken by the first person is manufacture and the supply is one of goods viz., electricity and the transaction would not be a service of job work. The aggrieved applicant sought the indulgence of Appellate Authority for Advance Rulings who upheld the AAR's ruling but on different or rather new grounds. The AAAR held that coal is not input for manufacture of steel (product of second person) as per SION under FTP and that the condition of job worked goods being returned to principal was not fulfilled as coal would get consumed in the process of electricity generation. In this part, we refrain from discussing the merits of the advance ruling - both original and appellate.

As the applicant did not get any relief, he approached Bombay High Court by way of filing a writ petition. The High Court was very cautious at the threshold itself. It confined itself to judicial review of the decision-making process i.e. as to how the ruling was made. It refused to get into merits as the same was within the ambit of appellate mechanism and GST law did not provide for any appellate remedy against advance rulings. The High Court noted that the AAAR had observed that agreement and other documents were not provided by the applicant (petitioner before HC) and it proceeded to pass the ruling based on the said ‘new grounds' without affording any opportunity to the applicant to adduce evidence without indicating that it proposed to consider new grounds. The writ petition was allowed on the ground of violation of principles of natural justice as the same afforded good ground to exercise power of judicial review [JSW Energy Ltd. v. UOI, Judgment dated 7-6-2019] [2019-TIOL-1236-HC-MUM-GST].

Writ remedy against advance rulings

The landmark case in respect of filing of SLP before Supreme Court or writ petition before High Court against advance rulings is Columbia Sportswear v. Director of Income Tax [2012-TIOL-134-SC-IT-LB]. In this judgment, the Apex Court held that binding nature of advance ruling would not affect the jurisdiction of the Supreme Court under Article 136 of the Constitution or of the High Courts under Articles 226 and 227 of the Constitution. The Court said that the reason for this view was that Articles 136, 226 and 227 of the Constitution are constitutional provisions vesting jurisdiction on Apex Court and the High Courts and a provision of an Act of legislature making the decision of the Advance Ruling Authority final or binding could not come in the way of Supreme Court or the High Courts to exercise jurisdiction vested under the Constitution.

Therefore, while statutory appeal against advance rulings has not been provided in the GST law to ensure finality to ruling and expeditious disposal, taxpayers can file writ petition in High Court if procedures are faulty to the extent of prejudicially affecting the applicant. This is the reason for Bombay High Court allowing writ petition in the above said case. The nature of violation of principles of natural justice was highlighted by stating that the petitioner had no opportunity to seek time to produce documents.

Time to recast advance rulings authority

We have noted before in this series that advance ruling authority comprises of only middle level bureaucrats. Training in law and judicial processes is sine qua non for all adjudicating, appellate and advance ruling authorities in the department. Absence of sufficient knowledge of basic requirement of justice dispensation like observance of principles of natural justice results in great prejudice to the taxpayer who approaches such authorities and the prejudice is even more greater when the ruling is binding and final without any statutory appellate remedy beyond first tier.

Another issue often highlighted and yet to be implemented pertains to inclusion of judicial members in such bodies. The AAR and AAAR take evidence, pass binding rulings affecting rights and liabilities of applicants. There cannot be any ambiguity as to advance ruling authority being vested with judicial powers of the State. In the above said judgment of Columbia Sportswear, the Supreme Court had held that Advance Rulings Authority is a Tribunal within the meaning of the expression in Articles 136 and 227 of the Constitution. All these mean that the AAR and AAAR possessing judicial powers to determine rights after observing principles of natural justice should ideally have judicial members as well. These bodies are now manned only by bureaucrats to the exclusion of judicial members. When statutory appellate remedy is absent and, therefore, except judicial review, all other powers are vested with such authorities, as per landmark pronouncements of Supreme Court, such body must include judicial member. In fact, it is only because of the requirement of specialized knowledge or expertise, technical member is required as otherwise, inclusion of technical member itself is questionable [See Madras Bar Association v. UOI - 2014-TIOL-82-SC-MISC-CB]. Bodies considering mixed questions of law and facts and determining the rights and liabilities of persons should have judicial members.

Another measure for improving the effectiveness of functioning of such bodies is appointment of senior officers as technical members instead of mid-level administrators. Preference should be given to those who have executed responsibilities as Commissioner (Appeals). It may even be worth examining as to whether department should have exclusive hierarchy of officers dedicated only to quasi-judicial functions. This is a major suggestion which involves more brainstorming.

Issuance of public rulings, class rulings (applicable to specific sector) and non-binding rulings in certain cases are some of the areas which require detailed deliberation by one of the committees of GST Council so that they can be considered by the Council for recommending appropriate amendments to CGST Act. As we are nearing completion of two years of GST, a broader canvas of reforms is required, and various shades of opinion should be drawn to make remedies like advance rulings picture perfect.

[…To be continued]

[The author is an Advocate. Views expressed are strictly personal.]

See Part 41.