APRIL 20, 2020

By S Sivakumar, LL.B., FCA, FCS, ACSI, Advocate

ONE has seen that, under the GST law, many of the rulings of the Authority for Advance Rulings ('AAR') and Appellate Authority for Advance Rulings ('AAAR') have been highly controversial and these rulings are being delivered in total disregard of the judicial principles including binding judicial precedents. These state of affairs naturally leads us to question the exact legal position of these authorities.

In a tweet, the CBIC has clarified the legal status of the AAR and AAAR, as under:

Both the AAR and AAAR are vested with the powers of a civil court under Code of Civil Procedure, 1908, for discovery and inspection, enforcing the attendance of a person and examining him on oath, and compelling production of books of account and other records. Both the authorities are deemed to be a civil court for the purposes of section 195 of the Code of Criminal Procedure, 1973. Any proceeding before the authority shall be deemed to be judicial proceeding under section 193 and 228 and for the purpose of Section 196, of the Indian Penal Code, 1860. The AAR and AAAR also have the power to regulate their own procedure.

A reading of the above paragraph would make it amply clear that the AAR and the AAAR, being in the nature of civil courts, are duty bound to follow judicial discipline of following legal principles that are laid down in the judicial precedents flowing from the higher judicial forums and especially, the High Courts. Are they indeed following this judicial discipline? Well… consider the recent example of how the Karnataka AAAR dealt with an appeal before it, in the case of Tarun Realtors, reported in - 2020-TIOL-18-AAAR-GST. The issue pertained to the availment of input tax credit by a developer who is constructing a commercial complex, for purposes of being rented/leased out. The Karnataka AAR had, in its ruling dated 28.03.2019, - 2019-TIOL-411-AAR-GST ruled that, the applicant was barred for availing of input tax credit on the construction of the immovable property that was proposed to be let out, relying on the provisions contained in Section 17(5)(d) of the CGST Act. The appellant filed an appeal to the AAAR and specifically referred to the judgment of the High Court of Orissa in Safari Retreats Private Limited - 2019-TIOL-1088-HC-ORISSA-GST, which as we know, had read down Section 17(5)(d) of the CGST Act, 2017 to allow ITC on the goods and materials used for construction of the commercial property which is let out.

As students of law, we are (or must be) aware of the judgment of the Apex Court in Kusum Ingots and Alloys Ltd. v. Union of India - 2004-TIOL-117-SC-CX-LB wherein, the Court, at para 21 & 22, held as under :

"A parliamentary legislation when receives the assent of the President of India and published in an Official Gazette, unless specifically excluded, will apply to the entire territory of India. If passing of a legislation gives rise to a cause of action, a writ petition questioning the constitutionality thereof can be filed in any High Court of the country…."

"The court must have the requisite territorial jurisdiction. An order passed on writ petition questioning the constitutionality of a Parliamentary Act whether interim or final keeping in view the provisions contained in Clause (2) of Article 226 of the Constitution of India, will have effect throughout the territory of India subject of course to the applicability of the Act."

Applying the law laid down by the Apex Court, in the above referred Kusum Ingots , which is binding under Article 141 of the Constitution, it is clear that, the judgment of the Orissa High Court in Safari Retreats is binding on sub-ordinate courts/authorities including the AAAR.

Despite being pointed out of this binding precedent in the form Safari Retreats , in the appeal filed before it, the AAAR, in Tarun Realtors, ignoring the fundamental judicial principle that a judgment rendered by a High Court on a central law will have applicability throughout India, has recorded the following finding, in para 24:

24. The applicant has placed reliance on the judgment rendered by the Hon'ble High Court Orissa in the case of "M/s. Safari Retreats Pvt. Ltd., and Another v. Chief Commissioner of Central Goods & Service Tax & Others" -2019-TIOL-1088-HC-ORISSA-GST Orissa High Court.  It is seen that in the said case, the prayers are

(a) eligibility to credit of input tax paid on goods/services used for construction which is rented for commercial purposes

(b) to hold Section 17(5)(d) as ultra vires.

While the Hon'ble High Court has granted the prayer at (a), the Hon'ble High Court has not accepted the prayer at (b) stating that they are not inclined to hold the provision ultra vires.

We find that the order of the Orissa High Court has been appealed against by the Chief Commissioner of Central Taxes, Bhubaneshwar in SLP (C) No 026696 and the same is pending in the Apex Court. Since the order of the High Court has not yet attained finality, the same does not have persuasive value.

Without commenting on the merits of this case, I am inclined to believe that this decision of the AAAR, is ex-facie contemptuous, as it refuses to follow the law laid in Kusum Ingots, to the effect, that a judgment of a High Court, in a writ petition, reading down or striking down a provision in a central law, will have applicability throughout India, unless of course, the said judgment is set aside or stayed by the Apex Court, In the instant case, as we know, the Supreme Court has not stayed the judgment rendered in Safari Retreats, while ordering for notice to be issued - 2019-TIOL-489-SC-GST.

One wonders if the senior officers who constitute the AAAR are even aware of the legal position that they are discharging their duties in the nature of a civil court. One does hope that better and saner wisdom would prevail on these officers, in the coming days.

Before concluding…

While applying for advance rulings or filing appeals before the AAAR, the assessees would do well to cite the relevant case laws so that, the AAR/AAAR are forced to consider these case laws while recording their findings. It would become easier for these assessees to take the stand that the AAR/AAAR did not follow judicial discipline, while going to the High Courts under Article 226 of the Constitution.

One is also inclined to recall the land-mark judgment of the Supreme Court in Union of India v Kamalakshi Finance Corporation Ltd - 2002-TIOL-484-SC-CX-LB, wherein, the Apex Court held that, 'the principles of judicial discipline require that the orders of the higher appellate authorities should be followed unreservedly by the subordinate authorities'.

[The views expressed are strictly personal.]