India: Advance Ruling Under GST Regime

Last Updated: 2 November 2016
Article by Daizy Chawla

Most Read Contributor in India, December 2018

An Advance Ruling is a mechanism for the companies or individual assesses to seek clarification with respect to the position of a transaction under the relevant tax laws. The transaction can be a proposed transaction or if the particular tax law permits it can be the transactions already concluded. By means of advance ruling a written interpretation is received on the basis of the companies or individuals as the case may be strategies its particular transaction including as to how to manage taxes.

As per Section 94 of Advance Model CGST Act [hereinafter referred to as Act], an advance ruling means a written decision provided by the Authority/Appellate Authority as the case may be to an applicant on matters or on questions relating to the supply of goods and/or services proposed to be undertaken or being undertaken by the Applicant.

It is to be noted that only those questions/issues will fall under the ambit of advance rulings which are on the proposed transactions of supply of goods and/or services and not with respect to the concluded transactions.

The advance ruling given by an authority would be binding only on the applicant as well as jurisdictional tax authority of the applicant (Section 102). An advance ruling under GST is not applicable to any other similarly placed taxable persons in the State. The advance ruling shall continue to be binding unless the law, facts or circumstances supporting the original advance ruling have changed (Section 102 (2)).

Objective of having a mechanism of Advance Ruling

The board objective for setting up such authority is to1:

  1. Provide certainty in tax liability in advance in relation to an activity proposal to be undertaken by the applicant;
  2. Attract Foreign Direct Investment (FDI);
  3. Reduce litigation;
  4. Pronounce ruling expeditiously in transparent and inexpensive manner.

The 'Authority' referred in Section 94 is defined under Section 95 and refers to the authority which will be formed in each state and will comprise of two (2) members i.e. one (1) member CGST as appointed by Central Government and one (1) member SGST to be appointed by State Government. At the moment under the Model CGST the qualifications, eligibility conditions, method and the process of appointment of the members are not prescribed and will be prescribed and notified in due course of time.

The Appellate Authority referred in Section 94 is defined under Section 96. The Appellate Authority will be located in each state and shall comprise of Chief Commissioner of CGST as designated by Board and the Commissioner SGST having the jurisdiction over the Applicant. Board here refers to the Central Board of Excise and Customs constituted under the Central Boards of Revenue Act, 1963.

The Model CGST under Section 97 (2) has enlisted the questions on which any person registered under CGST or desirous of obtaining registration can make an application for seeking an Advance Ruling.

The issues on which the Advance Ruling can be sought are as follows :

  1. Classification of any goods and/or services under the Act;
  2. Applicability of a notification issued under provisions of the Act having a bearing on the rate of tax;
  3. The principles to be adopted for the purposes of determination of value of the goods and/or services under the provisions of the Act;
  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 and/or services under the Act;
  6. Whether applicant is required to be registered under the Act;
  7. Whether any particular thing done by the applicant with respect to any goods and/or services amounts to or results in a supply of goods and/or services, within the meaning of that term.

Manner or procedure of adj udication of Application (Section 98):

On receipt of the application from the Applicant, a copy of the said Application along with all the annexure will be forwarded to concerned officer under whose jurisdiction the matter will fall. The Authority after examining the applications and records will conduct a hearing of the Applicant or authorized representative of the applicant as well as the authorized representative of prescribed officer. On being satisfied, it will either admit or reject the said application. It is to be noted that no application will be admitted where the questions raised in the said application is2:

  1. already pending in the applicant's case before any First Appellate Authority, the Appellate Tribunal or any court;
  2. the same as in a matter already decided by the First Appellate Authority, the Appellate Tribunal or any court;
  3. the same as in a manner already pending in any proceedings in the applicant's case under any provisions of the Act.
  4. the same as in a manner in the applicant's case already decided by the adjudicating authority or assessing authority, whichever is applicable.

However, in all above cases also before rejecting the application an opportunity of being heard will be given to Applicant and also the reasons for rejecting the application will be given in the order.

In cases where an application admitted, the Authority after examining further material by the Applicant or obtained by the Authority and after providing an opportunity of being heard to the applicant or the Authorized Representative of the applicant as well as to the authorized representative of the prescribed or the jurisdictional CGST/SGST officer, will pronounce its advance ruling on the questions as specified in the Application.

Appeal (Section 99)

The Appeal against the order of the Authority can be filed with Appellate Authority within the period of thirty (30) days from the date on which the ruling sought to be appealed against is communicated. The appeal can be filed by the prescribed or jurisdictional CGST/SGST Officer or an Applicant. The Appeal so filed needs to be decided (i.e. confirming or modifying the ruling so appealed) within ninety (90) days from the date of filing.

Difference in opinion of members of the Authority

If the members of the Authority differ on any question on which the advance ruling is sought, they shall make a reference to the Appellate Authority w.r.t to the point(s) on which they differ (Section 98(5)). The Appellate Authority will convene hearing and pronounce the advance ruling in writing within ninety days of the receipt of application (Section 98(6)).

Difference in opinion of members of the Appellate Authority

It would be worth mentioning that in case the members of Appellate Authority differs on any point or points it shall be deemed that no advance ruling can be issued in respect of the question of the Application (Section 98(7)). This will be also being applicable in case there is an appeal before Appellate Authority and the members differs on any point or points (Section 100(3)).

Rectification of Advance Ruling

The Authority or Appellate Authority as the case may be amends any order passed by them within a period of six (6) months from the date of order. The amendment is applicable if there is any mistake apparent from the record which has been noticed by the Authority or the Appellate Authority on its own accord or is brought to its notice by the prescribed or the jurisdictional CGST/ SGST officer or the applicant (Section 101).

It is to be noted that while rectifying any mistake apparent from record, the Authority or Appellate Authority should not amend substantive part of its order3. Further, where the rectification has the effect of enhancing the tax liability or reducing the amount of admissible input tax credit, this will not be done until and unless the notice is been given to the Applicant and has allowed him a reasonable opportunity of being heard4.

Advance ruling to be void in certain circumstances :

Advance ruling pronounced will be considered as void ab initio if the Authority or Appellate Authority finds that the Applicant/Appellate had obtained the same by fraud or suppression of material fact. Though before passing an order of void ab initio an opportunity has been given to the applicant of being heard.

Conclusion:

Above, was a brief as to how the concept of Advance Ruling will look under the GST regime. The important feature is that the Advance Ruling taken under CGST will not bind any other Assesse except the Applicant and also will not be applicable to any other tax administration then the jurisdictional tax authority of the applicant. Accordingly, unlike in other tax laws where one can rely on an existing advance ruling, one cannot rely on the GST Advance Ruling but can only take guidance as to how make tax arrangements for particular transactions at its own risk. Advance Ruling under CGST can even increase the scope of interpretation w.r.t a particular issue as different jurisdictional tax authorities can give different interpretation to the same subject. What we need to do at the moment is to wait and watch as to how the advance ruling which is also considered as means for limiting the tax litigations will help in doing so in case of GST.

Footnotes

1 FAQ's on GST-www.cbec.gov.in

2 Section 98(2) proviso

3 Explanation to Section 101, proviso

4 Section 101, proviso

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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