AUTHORITY FOR ADVANCE RULING UNDER GST

TAXATION LAW

SUBMITTED BY: SUBMITTED TO:

YASH KAMAL DR. PREETI
LAKHERA

83BALLBl8

NATIONAL LAW UNIVERSITY, DELHI

2022

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 TABLE OF CONTENTS

INTRODUCTION...........................................................................................................................2

HISTORY......................................................................................................................................4

GOODS AND SERVICES TAX (GST).........................................................................................4

AUTHORITY FOR ADVANCE RULING UNDER GST.......................................................................6

APPLICABILITY AND TIME PERIOD OF ADVANCE RULING......................................................7

PROCEDURE TO OBTAIN ADVANCE RULING................................................................................8

Appeals against order of AAR...............................................................................................9

Form and Manner of Application to the Authority for Advance Ruling...............................lo

Form and Manner of Appeal to the Appellate Authority for Advance Ruling......................l2

RECTIFICATION OF MISTAKES....................................................................................................l3

CURRENT EXPERIENCE OF AAR UNDER THE GST REGIME.......................................................l4

PROBLEMS UNDER THE AAR MECHANISM................................................................................l5

CONCLUSION.............................................................................................................................l6

BIBLIOGRAPHY..........................................................................................................................l7

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 INTRODUCTION
“Benjamin Franklin once said that in this world nothing can be said to be certain, except
death and taxes.”

It cannot be gainsaid that certainty and predictability in taxation are two critical enablers for
the creation of a climate conducive for economic growth and investor friendly environment in
an economy. Uncertainty in taxation and the resultant tax disputes could have a damaging
effect on the economy as they tend to inflict costs on businesses and deviate from the tax
system’s main goal. An unpredictable tax environment also makes long-term investment
decisions difficult, making an economy unattractive for investors. An effective advance
ruling mechanism goes a long way in mitigating the risks associated with uncertainty for
taxpayers. It is consequently essential for making an economy attractive to international
investors.

There is no single antidote for controlling disputes and litigation. This challenge demands a
multi-pronged strategy encompassing key legislative, policy level, and operational responses
from the government. A detailed discussion on these aspects lies outside the scope of this
paper. However, an effective advance ruling mechanism constitutes an institutional measure
that can prevent avoidable disputes and give a high degree of certainty to taxpayers. This
enables tax payers to take investment decisions on sound business grounds. Hence, a robust
advance ruling mechanism is now regarded as an important element of taxpayer services
across the world.

Advance ruling is broadly defined as a written opinion or decision by an authority

empowered to render the decision with regard to the tax consequences of a transaction or
proposed transaction or legal provision. The global best practices for advance rulings
comprise the following two types of rulings:

1. Public rulings – They represent the administration’s interpretation of a particular

provision of law that affects a large number of taxpayers. These rulings are issued in
the form of interpretative rulings or clarifications. These rulings do not usually bind

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 taxpayers but they bind tax offers. Taxpayers can resort to the remedies provided
under law if they disagree with any ruling. They can rely on a public ruling if it is
applicable to them.
2. Private rulings – These are issued on an application by a taxpayer seeking a ruling on
its tax treatment in relation to a specific transaction. The objective of private rulings is
to provide support and a greater level of certainty to the taxpayer.

This paper is primarily concerned with the latter as the focus is on the functioning of the
AAR, which has been set up to deliver private rulings.

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 HISTORY

Under the chairmanship of Dr K.N. Wanchoo, the Direct Taxes Enquiry Committee
recognised the need for providing an advance ruling system in l97l. The Wanchoo Committee
recommended the establishment of a system of advance rulings, particularly
in cases involving foreign collaboration, etc. The aim of establishing the system was to give
advance rulings to taxpayers or prospective taxpayers that would considerably reduce
workload on the department and decrease the instances of disputes and controversies.1

The implementation of advance ruling in the Income Tax Act, l96l laid the foundation for an
advance ruling mechanism in the indirect tax regime.2

GOODS AND SERVICES TAX (GST)

GST is a major watershed in the constitutional history of India, marking a transformational

change in the indirect tax landscape of the county. GST subsumes within it most of the
indirect taxes at the central and state levels; the major ones being central excise duties,
service tax, and VAT (barring excise and VAT on certain excluded goods, such as crude oil,
petrol, diesel, and aviation turbine fuel). Before this, the Constitution divided taxing powers
between the centre and states.3 This led to distortions in interstate trade, challenges in
establishing a common market, and cascading of taxes, affecting the competitiveness of the
Indian industry.

GST brings with it the concept of “pooled sovereignty” wherein both the centre and states
have decided to share their sovereignty in the matter of indirect taxation for the benefit of the
national economy.

The AAR is created under Chapter XVII of each of the SGST or UTGST Acts, for the
respective state or union territory and, under Chapter XVII of the CGST Act.4

1
Direct Taxes Enquiry Committee Final Report 1917, available at
<https://www.thehinducentre.com/multimedia/archive/0309l/direct-taxes-enqui_3091080a.pdf> accessed on 2o
April 2o19
2
s 245N, the Income Tax Act, 1961
3
Entry 84, 97 of the Union List; Entry 54 of the State List
4
s 96, the Central Goods and Services Tax Act, 2ol7

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Unlike earlier, there is also an appellate forum, the Appellate Authority for Advance Ruling
(AAAR), created under the advance ruling mechanism.5

5
s 99, the Central Goods and Services Tax Act, 2017

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 AUTHORITY FOR ADVANCE RULING UNDER GST
“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 (l) of section loo 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.6

The meaning of Advance decision given under the Act is an expansive one and an
improvement over the current frameworks of development decisions under Customs and
Central Excise laws. Under the present administration, advance decisions can be given just
for a proposed exchange, while under GST, Advance decision can be gotten for a proposed
exchange just as an exchange previously embraced by the appellant.

Following are the broad objectives for setting up a mechanism of Advance Ruling:

1. provide certainty in tax liability in advance, in relation to an activity proposed to be

undertaken by the applicant;
2. attract Foreign Direct Investment (FDI);
3. reduce litigation;
4. pronounce ruling expeditiously in transparent and inexpensive manner.

Following are the matters specified under Section 97(2) & Section l00(l) of the CGST Act,
2017:

1. classification of any goods or services or both;

2. applicability of a notification issued under the provisions of CGST Act;
3. determination of time and value of supply of goods or services or both;
4. admissibility of input tax credit of tax paid or deemed to have been paid;
5. determination of the liability to pay tax on any goods or services or both;
6. whether applicant is required to be registered;
7. 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.

6
s 95(a), the Central Goods and Services Tax Act, 2017

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Section l00 (l) of the CGST Act, 2017 provides that 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.

APPLICABILITY AND TIME PERIOD OF ADVANCE RULING

An advance ruling pronounced by AAR or AAAR shall be binding only on the applicant who
has sought the advance ruling and on the concerned officer or the jurisdictional officer in
respect of the applicant.7 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.

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.8

Be that as it may, a development administering will, by a request gone by the AAR/AAAR,

be proclaimed to be abdominal muscle initio void if the AAR or AAAR finds that the
development administering was gotten by the candidate by extortion or concealment of
material realities or distortion of actualities. In such a circumstance, every one of the
arrangements of the CGST/SGST Act will apply to the candidate as though such development
administering had never been made (however barring the period when advance decision was
surrendered and to the period when the request pronouncing it to be void is issued). A request
announcing advance decision to be void can be passed simply in the wake of giving a chance
of hearing to the candidate.

7
s 103(1), the Central Goods and Services Tax Act, 2017
8
s 103(2), the Central Goods and Services Tax Act, 2017

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 PROCEDURE TO OBTAIN ADVANCE RULING

The candidate burning of acquiring advance decision should make application to AAR in a
recommended structure and way. The arrangement of the structure and the definite
methodology for influencing application to have been endorsed in Rule l04 of the CGST
Rules, 20l7. An application for acquiring a development managing under sub-area (l) of
segment 97 will be made on the normal entry in FORM GST ARA-0l and will be joined by a
charge of five thousand rupees, to be saved in the way indicated in Section 49 (Section 49
manages strategy of instalment of expense/premium/punishment and the instrument to make
instalment through Electronic Cash and Credit ledgers).

The application, the check contained in that and all the significant reports going with such
application will be marked in the way indicated in standard 26 of the CGST Rules, 20l7.
Standard 26 accommodates the way of validating records through Digital Signature
Certificate (DSC) or e-signature as determined in the Information Technology Act. Endless
supply of an application, the AAR will send a duplicate of utilization to the officer in whose
locale the candidate falls and require every single important record. The AAR may then look
at the application alongside the records and may likewise hear the candidate.

From there on the AAR will pass a request either conceding or dismissing the application.
Application for development administering will not be conceded in situations where the
inquiry brought up in the application is as of now pending or chose in any procedures on
account of a candidate under any of the arrangements of CGST Act. on the off chance that the
application is rejected, it ought to be simply after a chance of being heard is given to the
candidate and by method for a talking request giving the purposes behind dismissal. on the
off chance that the application is conceded, the AAR will articulate its decision inside ninety
days of receipt of utilization.

Prior to giving its decision, it will look at the application and any further material outfitted by
the candidate or by the concerned departmental officer. Prior to giving the decision, AAR
must hear the candidate or his approved agent just as the jurisdictional officers of
CGST/SGST. on the off chance that there is distinction of sentiment between the two
individuals from AAR, they will allude the point or indicates on which they contrast the
AAAR for hearing the issue. on the off chance that the individuals from AAAR are likewise
unfit to arrive at a typical resolution as to the point(s) alluded to them by AAR, at that point it

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will be regarded that no development decision can be given in regard of the inquiry on which
contrast continues at the dimension of AAAR.9

Appeals against order of AAR

In the event that the candidate is abused with the finding of the AAR, he can record an
intrigue with AAAR. The structure and way of documenting claim with AAAR is given in
Rule l06 of the CGST Rules, 20l7. An intrigue against the development administering will be
made by a candidate on the basic gateway in FORM GST ARA-02 and will be joined by an
expense of ten thousand rupees to be kept in the way indicated in area 49. Additionally, if the
recommended or jurisdictional officer of CGST/SGST does not concur with the finding of
AAR, he can likewise document an intrigue with AAAR. The word recommended officer of
CGST/SGST implies an officer who has been assigned by the CGST/SGST organization with
respect to an application for development administering.

In typical conditions, the concerned officer will be the officer in whose locale the candidate is
found. An intrigue against the development administering will be made by the concerned
officer or the jurisdictional officer alluded to in area loo on the normal gateway in FORM
GST ARA-03 and no charge will be payable by the said officer for recording the intrigue. The
intrigue (by the candidate or jurisdictional officer), the confirmation contained in that and all
the significant records going with such intrigue will be marked, -

(a) on account of the concerned officer or jurisdictional officer, by an officer approved

recorded as a hard copy by such officer; and

(b) on account of a candidate, in the way indicated in rule 26 (DSC/e-signature).

Any intrigue must be documented inside thirty days from the date on which the development
administering is conveyed to the concerned officer, the jurisdictional officer and candidate.
The Appellate Authority must pass a request in the wake of hearing the gatherings to the
intrigue inside a time of ninety days of the recording of an intrigue. on the off chance that
individuals from AAAR contrast on any point alluded to in claim, it will be regarded that no
development administering is issued in regard of the inquiry under intrigue.

9
s 98, the Central Goods and Services Tax Act, 2017

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There is also the option of Manual Filing of applications before AAR and AAAR. According
to rules l04 and l06 of the CGST Rules, 20l7 the application for getting a development
administering and recording an intrigue against a development administering will be made by
the candidate on the basic entryway. However, due to the unavailability of the requisite forms
on the common portal, a new rule l07A has been inserted vide notification No. 55/20l7-
Central Tax, dated l5.ll.20l7, which states that in respect of any process or procedure
prescribed in Chapter XII, any reference to electronic filing of an application, intimation,
reply, declaration, statement or electronic issuance of a notice, order or certificate on the
common portal shall, in respect of that process or procedure, include the manual filing of the
said application, intimation, reply, declaration, statement or issuance of the said notice, order
or certificate in such Forms as appended to the CGST Rules. Circular no. 25/25/20l7-GST
dated 2l.l2.20l7 prescribing the detailed procedure for manual filing of applications for
Advance Ruling and appeals before Appellate Authority for Advance Ruling has been issued.

Therefore, till the advance ruling module is made available on the common portal, the
following conditions and procedure have been prescribed for the manual filing and
processing of the applications.

Form and Manner of Application to the Authority for Advance Ruling

An application for getting a development controlling under sub-area (l) of Section 97 of the
CGST Act and the principles made thereunder, will be made in quadruplicate, in FORM GST
ARA-0l. The application will plainly express the inquiry on which the development
administering is looked for. The application will be joined by an expense of five thousand
rupees which is to be saved online by the candidate, in the way determined under Section 49
of the CGST Act. It is repeated that however the application will be documented physically
till the development administering module is made accessible on the regular gateway, the
expense is required to be stored online as far as Section 49 of the CGST Act.

So as to make the instalment of expense for documenting an application for Advance Ruling
on the basic entrance, the candidate needs to fill his subtleties utilizing "Create User ID for
Advance Ruling" under "Client Services". In the wake of entering the email id and portable
number, a one Time Password (OTP) will be sent to the email id. Endless supply of OTP,

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Systems will produce a brief ID and send it to the announced email and versatile number of
the candidate.

Based on this ID, the candidate can make the instalment of the charge of Rs. 5,000/ - each
under the CGST and the individual SGST Act. The candidate is then required to download
and take a print of the challan and record the application with the Authority for Advance
Ruling. The application, the check contained in that and all the pertinent archives going with
such application will be agreed upon-

(a) on account of a person, by the individual himself or where he is missing from India, by
some other individual properly approved by him for this sake, and where the individual is
rationally weakened from taking care of his undertakings, by his watchman or by some other
individual equipped to follow up for his sake;

(b) on account of a Hindu Undivided Family, by a Karta and where the Karta is missing from
India or is rationally weakened from taking care of his undertakings, by some other grown-up
individual from such family or by the approved signatory of such Karta;

(c) on account of an organization, by the Chief Executive officer or the approved signatory
thereof;

(d) on account of a government or any Governmental organization or neighbourhood

specialist, by an officer approved for this benefit;

(e) on account of a firm, by any accomplice thereof, not being a minor or the approved
signatory thereof;

(f) on account of some other relationship, by any individual from the affiliation or people or
the approved signatory thereof;

(g) on account of a trust, by the trustee or any trustee or the approved signatory thereof; or

(h) in the case of any other person, by some person competent to act on his behalf, or by a
person authorised in accordance with the provisions of section 48 of the CGST Act.

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Form and Manner of Appeal to the Appellate Authority for Advance Ruling

An intrigue against the development administering issued under sub-section (6) of area 98 of
the CGST Act and the principles made thereunder will be made by a candidate in
quadruplicate, in FORM GST ARA-02 and will be joined by an expense of ten thousand
rupees to be kept on the web, in the way determined in segment 49 of the CGST Act. It might
be noticed that however the application will be recorded physically till the development
administering module is made accessible on the normal entryway, the expense is required to
be kept online regarding segment 49 of the CGST Act. The instalment of expense will be
made according to the method nitty gritty prior. An intrigue made by the concerned officer or
the jurisdictional officer alluded to in segment loo of the CGST Act and the guidelines made
thereunder will be documented in quadruplicate, in FORM GST ARA-03 and no charge will
be payable by the said officer for recording the intrigue. According to area l00 (2) of the
CGST Act, the intrigue will be documented inside a time of thirty days from the date on
which the decision looked to be bid against is imparted to the candidate or the concerned
officer or the jurisdictional officer, as the case possibly.

The intrigue, the check contained in that and all the pertinent archives going with such
intrigue will be agreed upon:

a) on account of the concerned officer or jurisdictional officer, by an officer approved

recorded as a hard copy by such officer; and

b) on account of a candidate, in the way determined previously.

The application for development administering or the intrigue before the Appellate Authority
will be documented in the jurisdictional office of the individual State Authority for Advance
Ruling or the State Appellate Authority for Advance Ruling separately. In the event that the
space accommodated noting anything in the Forms is observed to be deficient, separate sheets
might be utilized. Further, the application, the verification added thereto, the Annexures to the
application and the announcements and records going with the Annexures must be self-
attested.

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 RECTIFICATION OF MISTAKES

The law offers capacity to AAR and AAAR to alter their request to redress any oversight
evident from the record inside a time of a half year from the date of the request. Such
oversight might be seen by the expert voluntarily or might be conveyed to its notice by the
candidate or the recommended or the jurisdictional CGST/SGST officer. on the off chance
that a correction has the impact of improving the duty obligation or decreasing the quantum
of info charge credit, the candidate must be heard before the request is passed.

As far as powers and procedure of AAR and AAAR are concerned both the AAR and AAAR
are vested with the powers of a civil court under Code of Civil Procedure, l908, 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 l95 of the Code of Criminal Procedure,
l973. Any proceeding before the authority shall be deemed to be judicial proceeding under
section l93 and 228 and for the purpose of section l96, of the Indian Penal Code, l860. The
AAR and AAAR also have the power to regulate their own procedure.

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 CURRENT EXPERIENCE OF AAR UNDER THE GST REGIME

AARs in the GST regime have witnessed a brisk inflow of applications. Until November
20l8, more than 663 applications seeking advance rulings were received across the country.
Karnataka tops the list with ll0 applications, followed by Maharashtra, Gujarat, Delhi, and
Tamil Nadu.10 This is in sharp contrast to the pre-GST regime wherein the total applications
fled under the central excise, service tax, and customs law were only about l22. This is
perhaps a reflection of both the complexity and newness of the GST legislation. Further,
appeals fled before the Appellate Authorities for Advance Ruling were about 30 until
November 2018 with Maharashtra witnessing the maximum number of appeals.11 Although
the AAR mechanism is only a little over a year old, a large number of rulings have been
issued across the country and the early trends of the decisions are not entirely encouraging.
By and large, decisions are now seemed to be delivered in a timely fashion, much quicker
than under the erstwhile AAR. It is becoming rapidly clear that the gain in terms of timeliness
is more than offset by the decreasing quality of rulings. In most decisions, a distinct revenue
bias is apparent.

10
Authority for Advance Rulings under GST: A Critical Analysis, Deloitte Tax Policy Paper 3
11
MIS on Appeal Orders Passed by States Appellate Authorities for Advance Ruling (AAAR), available at
<http://gstcouncil.gov.in/mis-appeal-orders-aaar> accessed on 28 April 2019

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 PROBLEMS UNDER THE AAR MECHANISM

Often the rulings do not seem to be based on adequate analysis and a mature consideration of
the issues involved. Sometimes advance ruling authorities disrupt the settled positions on the
basis of perfunctory reasoning. Another worrisome trend is a wide divergence in rulings on
similar issues. A bunch of varied interpretations of the GST law by different state AARs on
the same subject are creating compliance challenges for businesses. The absence of
uniformity and consistency in interpretation puts the vision of “one Nation one Tax” at risk
and poses the danger of making it a mere slogan. For instance, Maharashtra AAR,12
Karnataka AAR,13 and Uttarakhand AAR14 have taken differing views in the context of an
exemption on solar power systems. In another matter related to taxing printed advertisement
materials, Telangana AAR and West Bengal AAR not only gave conflicting verdicts but also
used different rationale to arrive at their conclusions.15 Rulings in relation to intracompany
supplies is another instance where divergent views have been taken by different AARs. In
some cases, settled positions in law have been upset without proper consideration or
justification. A case in point is the Maharashtra ruling relating to intermediary services.
Unless remedial action is taken, the ruling poses the risk of enmeshing the Indian BPO
industry in disputes and making it uncompetitive.

While such divergence has a negative impact on affected taxpayers, it can make compliance
especially problematic for taxpayers who have multi-state operations and are consequently
subject to multiple jurisdictions. litigation can now arise for a particular taxpayer on
the same matter in different states wherein the said states may also have contradictory views
on it. This may lead to a situation wherein the same taxpayer may be compelled to follow
different approaches in each state for a particular transaction.

The GST Council seems to be aware of this problem. Therefore, at the last meeting for
calendar year 20l8, it decided to establish a central-level appellate authority to deal with cases
where divergent rulings are pronounced on the same issue by two or more state appellate
authorities.

12
M/s Giriraj Renewables Private Ltd. (2018-VIL-2o-AAR)
13
M/s Giriraj Renewables Private Ltd. (2018-VIL-36-AAR)
14
Uttarakhand AAR Order No. o7/2018-09 dates 28 August, 2018
15
Photo Products Company Private Ltd. (2018-VIL-5o-AAR); M/s Macro Media Digital Imaging Private Ltd.
(2018-VIL-72-AAR)

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 CONCLUSION

On the whole, the experience has been in keeping with the general trend of pro-revenue
decisions by tax offers. This tendency has been the bane of the tax administration in India and
has resulted in widespread dissatisfaction among taxpayers, generating costly tax disputes
and litigation, earning notoriety for India. It has created a perception among taxpayers that
they can expect fairness and justice only from independent bodies such as tax tribunals and
courts. Such a perception is fatal to ease of doing business and calls for a rethink on the
design and structure of AAR if that body is to serve the purpose of its existence.

To finish up it very well may be expressed that the law makes an exhaustive arrangement for
development decisions to guarantee that debate are negligible. Courses of events are likewise
given inside which the decision is to be given by the concerned specialist. The point is to
furnish conviction to the citizen regarding his commitments under the GST Act and a quick
administering, with the goal that the connection between the citizen and organization is
smooth and straightforward and maintains a strategic distance from superfluous prosecution.

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 BIBLIOGRAPHY

Authority for Advance Rulings under GST: A Critical Analysis, Deloitte Tax Policy Paper 3

Direct Taxes Enquiry Committee Report, l97l

The Central Goods and Services Tax Act, 2017

The Income Tax Act, l96l

<http://gstcouncil.gov.in/mis-appeal-orders-aaar>

Bharti Aggarwal and Kajal Juneja, ‘Advance ruling’, Tax Bulletin – The institute of cost
accountants of India, Vol 2l 2018

Government Report, ‘Advance Ruling Mechanism in GST (goods and services tax)’
Directorate General of Taxpayer – Centarl Board of Excise and Customs, www.cbec.gov.in

T.C.A Sharad Raghvan, ‘Current Set Up for Advance Ruling defeats its Purpose’ The Hindu,
July 8 2018, accessed on l May 2019.

Government Report, ‘Goods and Services Tax (GST) Concept and Status’, CBIC Department
of Revenue, lst Jan 2019.

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