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Advance Ruling Mechanism in GST

Directorate General of Taxpayer Services



An    advance    ruling  helps  the  applicant  in  planning  his   activities  which  are  liable  for  payment  of  GST,  well  in   advance.  It  also  brings  certainty  in  determining  the  tax   liability,  as  the  ruling  given  by  the  Authority  for  Advance   Ruling  is  binding  on  the  applicant  as  well  as  Government   authorities.  Further,  it  helps  in  avoiding  long  drawn  and   expensive  litigation  at  a  later  date.  Seeking  an  advance   ruling  is  inexpensive  and  the  procedure  is  simple  and   expeditious. It thus provides certainty and transparency to  a taxpayer with respect to an issue which may potentially  cause  a  dispute  with  the  tax  administration.  A  legally   constituted   body   called   Authority   for   Advance   Ruling    (AAR)  can  give  a  binding  ruling  to  an  applicant  who  is  a   registered taxable person or is liable to be registered. The  advance  ruling  given  by  the  Authority  can  be  appealed   before an Appellate authority for Advance Ruling (AAAR).  There are time lines prescribed for passing an order by AAR  and by AAAR.

Objectives of Advance Ruling

The   broad   objectives   for   setting   up   a   mechanism   of    Advance Ruling are:
i.  Provide certainty in tax liability in advance in relation to  an activity proposed to be undertaken by the applicant;
ii.  Attract Foreign Direct Investment (FDI)
iii.  Reduce litigation
iv.   Pronounce  ruling  expeditiously  in  a  transparent  and   inexpensive manner

What is an Advance Ruling?

“Advance ruling” means a decision provided by the Authority  or the Appellate Authority to an applicant on matters or on  questions specified in sub-section (2) of section 97 or sub- section (1) of section 100 of the CGST Act, 2017, in relation to  the supply of goods or services or both being undertaken or  proposed to be undertaken by the applicant.

The definition of Advance ruling given under the Act is a  broad  one  and  an  improvement  over  the  existing  systems   of advance rulings under Customs and Central Excise Laws.  Under  the  present  dispensation,  advance  rulings  can  be   given  only  on  a  proposed  transaction,  where  as  under  GST,   Advance  ruling  can  be  obtained  on  a  proposed  transaction   as well as a transaction already undertaken by the appellant.

What are the matters/questions specified in Section 97(2) &  Section 100(1) of the CGST Act, 2017
(a)    Classification of any goods or services or both
(b)   Applicability of a notification issued under the provisions  of CGST Act
(c)   Determination  of  time  and  value  of  supply  of  goods  or   services or both
(d)  Admissibility of input tax credit of tax paid or deemed to  have been paid
(e)  Determination of the liability to pay tax on any goods or  services or both
(f)   Whether applicant is required to be registered
(g)  Whether any particular thing done by the applicant with  respect to any goods or services or both amounts to or  results  in  a  supply  of  goods  or  services  or  both,  within   the meaning of that term.

Section  100(1)  of  the  CGST  Act,  2017  provides  that  the  concerned  officer,  the  jurisdictional  officer  or  an  applicant  aggrieved  by  any  advance  ruling  pronounced  by   the   Authority   for   Advance   Ruling,   may   appeal   to   the    Appellate Authority.

Thus it can be seen that a decision of the Appellate authority  is also treated as an advance ruling.

‘Authority  for  advance  ruling’  (AAR)  and  ‘Appellate  authority for advance ruling’ (AAAR) The  Authority  for  advance  ruling  constituted  under  the   provisions  of    State  Goods  and  Services  Tax  Act  or  Union   Territory Goods and Services Tax Act shall be deemed to be  the Authority for advance ruling in respect of that State or  Union territory under the CGST Act, 2017 also.

The  Appellate  Authority  for  Advance  Ruling  constituted   under the provisions of a State Goods and Services Tax Act  or  a  Union  Territory  Goods  and  Services  Tax  Act  shall  be   deemed  to  be  the  Appellate  Authority  in  respect  of  that   State or Union territory under the CGST Act, 2017 also.  Thus  it  can  be  seen  that  both  the  Authority  for  Advance   Ruling (AAR) & the Appellate Authority for Advance Ruling  (AAAR)  is  constituted  under  the  respective  State/Union   Territory  Act  and  not  the  Central  Act.  This  would  mean   that the ruling given by the AAR & AAAR will be applicable  only   within   the   jurisdiction   of   the   concerned   state   or    union  territory.

It  is  also  for  this  reason  that  questions  on   determination of place of supply cannot be raised with the  AAR or AAAR.

To whom the Advance Ruling is applicable An  advance  ruling  pronounced  by  AAR  or  AAAR  shall  be   binding only on the applicant and on the concerned officer  or the jurisdictional officer in respect of the applicant. This  clearly  means  that  an  advance  ruling  is  not  applicable  to   similarly placed other taxable persons in the State. It is only  limited to the person who has applied for an advance ruling.  Time period for applicability of Advance Ruling The law does not provide for a fixed time period for which  the  ruling  shall  apply.  Instead,  it  has  been  provided  that   advance  ruling  shall  be  binding  till  the  period  when  the   law, facts or circumstances supporting the original advance  ruling have not changed.

However,  an  advance  ruling  shall  be  held  to  be  ab  initio   void if the AAR or AAAR finds that the advance ruling  was  obtained  by  the  applicant  by  fraud  or  suppression   of  material  facts  or  misrepresentation  of  facts.  In  such  a   situation, all the provisions of the CGST/SGST Act shall apply  to  the  applicant  as  if  such  advance  ruling  had  never  been   made  (but  excluding  the  period  when  advance  ruling  was   given and up to the period when the order declaring it to be  void is issued). An order declaring advance ruling to be void  can be passed only after hearing the applicant.

Procedure for obtaining Advance Ruling

The  applicant  desirous  of  obtaining  advance  ruling  should   make application to AAR in a prescribed form and manner.  The  format  of  the  form  and  the  detailed  procedure  for   making  application  have  been  prescribed  in  the  Advance   Ruling Rules.

Upon receipt of an application, the AAR shall send a copy of  application to the officer in whose jurisdiction the applicant  falls  and  call  for  all  relevant  records.  The  AAR  may  then   examine  the  application  along  with  the  records  and  may   also  hear  the  applicant.  Thereafter  he  will  pass  an  order   either admitting or rejecting the application.

Application for advance ruling will not be admitted in cases  where  the  question  raised  in  the  application  is  already   pending  or  decided  in  any  proceedings  in  the  case  of  an   applicant under any of the provisions of this Act.

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Brief update on CESTAT judgements passed during June 2016 to July 2016. Please note this update is not a summary of the cases but only leads on important issues decided. The links to the judgments are also provided for the full text.

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  • 24th Jan 2018 - Allahabad High Court directs Govt to extend the period to file GST Tran-1 as petitioner's application for transitional credit as  electronic GST system was not accepted on the last date i.e. 27.12.2017. As a result, the petitioner was likely to suffer loss of credit due to delay. - Continental India Private Limited  Vs UOI & Ors
  • 6th Feb 2018 - Bombay High Court passed an order against a petition filed on GST. The petitioner was unable to access GST Network. E-Way Bills are yet to come into force and without it,  petitioner was unable to move goods anywhere, paralysing its business and making it unable to comply. Though the petitioner was provided partial access after the petition was filed, they are still unable to file returns. Payment of tax was not possible without filing return. The matter was posted for another hearing on 16th February.
    The Court noted that similar grievances were raised before the Allahabad High court in Continental India Private Ltd. Vs UOI Writ (Tax) No. 67 of 2018. The Division Bench directed the respondents to reopen the portal and and entertain the application of the petitioner. - Abicor and Binzel Technoweld Pvt. Ltd. V/s UOI

Economic Survey of India 2017-18

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