advance ruling under gst

Advance Ruling under GST

Last Update Date : August 13, 2018

advance ruling under gst

Under the GST Act, taxpayers have been provided with a mechanism to get clarification or answers to the questions related to any specified matter or any matter related to the supply of goods and services.

To get the clarification, a taxpayer can approach a body called AAR or Authority for Advance Ruling which then gives a decision in the form of Advance Ruling over the matter. If there are matters over which the AAR cannot issue an Advance Ruling then the applicant or any other concerned party like a jurisdictional officer, concerned officer, any interested person can approach AAAR or Appellate Authority for Advance Ruling.

To understand the processes related to Advance Ruling, you first need to understand what Advance Ruling is.

What is Advance Ruling under GST?

Advance ruling is an interpretation of tax laws by tax authorities, given to taxpayers who are confused about various tax laws.

The rules and procedures related to Advance Ruling are covered by section 95 to section 106 of the Chapter XVII of the CGST Act. If a taxpayer or any concerned party has a question on the supply of goods and services or any specified matter, he can approach AAR or AAAR, which then gives a decision to resolve the query. Advance Ruling applies not only to the supplies which are being undertaken but also on supplies which are proposed to be undertaken.

Applicant and Application for Advance Ruling under GST

In matters related to Advance Ruling, an application is a document which seeks an advance ruling by specifying the question in the correct manner on which advance ruling is sought. An applicant is someone who seeks an advance ruling. He is a person who is either registered or intends to register under the CGST Act. He can also be someone who anticipates his liability to be registered under the Act.

Here there is one confusion. If we read section 97(1), it suggests that only one query can be raised per application. However, the examination of the application form GST ARA-01 indicates that multiple queries can be raised per application.

The constitution of AAR and AAAR is governed by the provisions of the SGST Act or the UTGST Act. They have the authority to give an advance ruling in respect to the state in which they are created. Let’s understand this with the help of an example.

Example: An AAR or AAAR in the state of Uttar Pradesh will be called as UPAAR or Uttar Pradesh Authority for Advance Ruling, and it will have the authority to give an advance ruling in the state of Uttar Pradesh.

Advance Ruling – Its Objectives

Here are the objectives to set up the Advance Ruling mechanism by the tax payer.

  • Provide certainty in advance for tax liability in relation to an activity proposed to be undertaken by the applicant
  • Attract Foreign Direct Investment (FDI) if the tax liability is transparently shown along with accurate taxation
  • Reduce litigation and other disagreements
  • Disclose the ruling efficiently in a transparent and inexpensive manner

Cases Where Advance Ruling can be Sought

A tax payer can ask for clarification about advance ruling under GST in the below mentioned situations.  The questions for which an applicant may seek advance ruling are listed below:

  • Related to classification of goods or services or both
  • About the applicability of notifications issued under the GST Acts
  • Determining time of supply of goods or service or both,
  • Determining value of supply of goods or service or both
  • Eligibility to claim input tax credit
  • Liability to be registered
  • Characterisation as ‘supply of goods or services or both.’

One can seek advance ruling only for queries which fall in the above-mentioned categories. For any other query, one cannot seek advance ruling.
Here are some categories of queries for which advance ruling can’t be sought:

  • Matters related to nature of tax liable to be paid
  • Queries related to export and import
  • Issues regarding location of supplier

Processing of Application before the AAR

This is how the application is processed by the AAR:

  • Once the AAR receives the application, it will forward a copy of the application to the concerned officer. It will ask for relevant document wherever required.
  • AAR has the power to accept or reject the application but not without giving the applicant an opportunity for personal hearing.
  • If a query is already pending or has been decided in any proceedings, then the AAR cannot admit the application for it.

Time-limits

  • For an application, the AAR gets 90 days to issue an advance ruling.
  • Once it issues an advance ruling, it needs to send signed and certified copies to the applicant, the concerned officer and the jurisdictional officer.

Appeal Mechanism in Respect of Advance Rulings

AAR itself and other aggrieved parties are allowed to appeal to a higher authority, i.e. AAAR:

  • Appeal by AAR: If the members of the AAR have different views on a question then they can refer it to AAAR.
  • Appeal by aggrieved parties: Other than AAR, other concerned parties like the jurisdictional officer, the concerned officer and the applicant are allowed to appeal to the AAAR within 30 days of the date of receiving an advance ruling.

For example, where the advance ruling has been pronounced on 10 November 2017 and the applicant and the concerned officer receive the same on 12 November 2017 but the jurisdictional officer receives it on 15 November 2017, the date of reckoning for time limit to prefer an appeal before the AAAR is 15 November 2017 despite the applicant having received it on 12 November 2017. Nonetheless, the AAAR is empowered to condone the delay if sufficient cause for the same is demonstrated.
The Appellate Authority must pass an order after hearing the parties to the appeal within a period of ninety days of the filing of an appeal.

Whereas a difference of opinion amidst the members of the AAR would lead to that issue being referred before the AAAR, in circumstances where the members of the AAAR differ on any point before it in appeal or reference, it shall be deemed that no advance ruling can be issued in respect of the query posed in the appeal or reference. Thus, the above provision spells a veritable dead-end for proactive taxpayers who seek to have their stance abundantly clarified to avoid any prosecution.

Binding Nature of the Advance Rulings

  • Under Section 102, the CGST Act contemplates the rectification of an advance ruling by the AAR or the AAAR, where such error is apparent on the face of record.
  • Such rectification may be sought by the applicant, the concerned officer, the jurisdictional officer or the appellant within 6 months from the date of the order.

Hitherto, an advance ruling would cement the position of law in respect of the issue over which clarity has been sought. The CGST Act makes a marked departure from this position by stating that the advance ruling would be binding only on the applicant, the concerned officer and the jurisdictional officer.

Consider, for example, Company A requires clarification on the classification of its product ‘Choco-fills’. Company B had already raised the same question in respect of its product ‘Choco-Fillz’ before the DAAR and an advance ruling was obtained by Company B that the choco-fillz are biscuits. Since the advance ruling obtained by Company B is binding only on it and the concerned officer and jurisdictional officer in that case, there is no clarity on whether Company A may directly follow the advance ruling obtained by Company B or whether the matter should be pursued afresh. Thus, where the Choco-fillz may be ruled as a biscuit for Company B, the same Choco-fills sold by Company A may be held as chocolate wafers because of this seemingly small but significant deviation. This deviation espouses more chaos than compliance, and would lead to mounting applications and litigation.

Can the AAR bar an applicant from seeking an advance ruling because the issue is pending adjudication in any application filed by an unknown party before it, or does the provision only seek to restrict applications where the law has already been declared?

No, the AAR cannot bar a person from seeking advice.  On perusal of the application format in FORM GST ARA-01, it becomes clear that the restriction on the AAR is limited to admitting an application where the question raised has been adjudicated, or is pending adjudication in the applicant’s case.

As per circular dated 25/25/2017, Application for Advance ruling can be filed manually .

Frequently Asked Questions

  1. When can an application be made for advance ruling?
    A tax payer can make an advance application for advance ruling for the proposed supply of goods and services or the supply that he is dealing with. For whatever reason the applicant is requesting for shouldn’t be already addressed earlier in any proceedings or not pending with the concerned authority.
  2. Should an applicant requesting for advance ruling be registered?
    No. Any person registered under the GST Act or desires to obtain the registration can be an applicant as per Section 95b of GST Act.
  3. Who comprises of the Authority of the Advance Ruling (AAR) authority under GST?
    AAR consists of one member from CGST and one member from SGST / UTGST who are appointed by the Central Government.
  4. How many AAR and AAAR will be constituted under GST?
    There will be one AAR and AAAR for each State

Have you filed your GST Returns Yet?

Our experts at earlyGST by H&R Block India can help you file all your GST returns and help you with GST compliance. Get your GST returns filed now!

  • Share: