JUNE 03,2020

By Dr G Gokul Kishore

PROVISIONS relating to advance rulings and anti-profiteering under GST law need thorough review and amendments. Waiving the para on introduction, this issue is discussed in this Part-82.

Advance Rulings Authority

One of the salutary provisions in tax laws has been the facility to seek binding rulings on specified issues to obtain clarity and also to avoid surprises from the department long after operations have commenced and tax was not paid under the notion of admissibility of exemption or such other reason. GST law has piously incorporated the same and has provided for two-tier machinery - one to issue rulings and another to hear appeals arising out of such rulings. Apparently to make such mechanism taxpayer friendly, not only activities proposed to be undertaken, but also those being undertaken already are also covered for availing such facility.

Both Authority for Advance Rulings and Appellate Authority for Advance Rulings have been made as State-level machinery though both CGST and SGST officers are members of the same. AAR is provided with middle level officers of the rank of Joint Commissioners. Both AAR and AAAR do not have any judicial member despite settled law that such bodies which determine rights and liabilities by pronouncing binding rulings and by exercising judicial powers in part, should not be dominated by bureaucrats. The provisions have been challenged in various High Courts and the issue is reportedly pending in Supreme Court.

It is, therefore, no surprise that in the absence of any judicial member, a substantial majority of the rulings delivered by these authorities is not in favour of the taxpayers. Some of the rulings are non-speaking, some not considering all the contentions raised and some not appreciating the interpretation required to arrive at the decision. All these may be attributed as the reasons for the perceptible hesitation among taxpayers in using the facility of advance rulings. To reconcile conflicting views taken by different AARs, such authority at Central level has been envisaged as per amendments to CGST Act but such body will not solve the fundamental issues relating to constitution and functioning of AAR and AAAR. Adding up one more layer will be perceived as an exercise of wasteful expenditure of taxpayers' money and is eminently avoidable.

In this series, the need for legal training to members of such bodies has been emphasized and it appears to have been overlooked. Constitution of bodies which do not inspire confidence among taxpayers and which are overtly pro-department and such bodies being without judicial members, is a question that deserves to be discussed by the GST Council. The National AAAR has not been established and it should not be. The present mechanism of AAR and AAAR should be subjected to rigorous evaluation and amendments may be recommended to revitalize such institutions created to serve taxpayers.

National Anti-Profiteering Authority

Another quasi-judicial body but bureaucrat-only institution is National Anti-Profiteering Authority (NAA). NAA determines liabilities relating to amounts held as profiteered and they run to crores of rupees in most of the cases. The orders, in a majority of the cases, are confirmatory of the findings of Directorate General of Anti-Profiteering (DGAP). Section 171 of CGST Act on anti-profiteering seeks commensurate price reduction. Therefore, a tax rate reduction or increased credit availability needs to be translated into proportionate price reduction for complying with such provision.

Considering the thousands of SKUs lying in numerous points in the distribution chain with a complex sales promotion system of discounts, credit notes, etc., such exercise of determination of commensurate price reduction is certainly a complex one. But NAA has consistently held that such determination is merely an arithmetic / mathematical exercise and does not require any specific methodology. In certain cases, it has relied on its own document titled 'Procedure and Methodology' which does not cover computation mechanism or method. In a few cases, NAA has held that no fixed formula in respect of all sectors or SKUs or services can be set for determination of benefits to be passed on or computation of profiteered amount [Including the recent case of J.K. Helene Curtis Ltd . - Order dated 11-5-2020] - 2020-TIOL-25-NAA-GST

Numerous issues on anti-profiteering remain unresolved. From time-limit for initiation of proceedings to time period as to till when one should keep the price reduced and whether cost increases should be factored, whether discounts in all cases should be taken into account, there is absolutely no provision or guidance. Absence of judicial member is being defended on the ground that only when the body exercises certain powers (of adjudication) of High Court, the same would be necessary and several regulatory bodies like TRAI, SEBI, ICAI and AAR under GST do not have such judicial member [In Emaar MGF Land Ltd - Order dated 15-5-2020] - 2020-TIOL-26-NAA-GST.

Though writ petitions are pending wherein issues including vires of Section 171 have been raised, it will be highly desirable if the GST Council deliberates on the composition, functioning, absence of methodology, lack of judicial members, lack of appellate remedy and such other issues and recommends appropriate amendments to both the parent statute and the rules besides issuance of clarification. At this juncture of Covid-19 induced depression, orders from NAA confirming huge demands may push many in the industry out of business.

These two bodies have been highlighted in this article because of absence of any appellate remedy against the rulings / orders passed by them. Taxpayers are left to the mercy of writ courts which can only consider the method of arriving at the decision rather than the merits of the decision itself while exercising such writ jurisdiction. Compelling taxpayers to challenge orders through raising questions on legal validity of the provisions and depriving statutory appellate remedy are not the hallmarks of progressive tax legislation like CGST Act / SGST Act. Such drafting blunders go to the root of the efficacy of the legislation and adversely impact the confidence of taxpayers not to mention the drain on their resources while litigating such issues. It is time such morbidity in relevant provisions is treated.

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

See Part 81.