An Essay on Advance Ruling under GST Act, 2017.

By Dr. Naveen Rattan

  Karan Rattan

Recently, Lok Sabha has passed 122^nd constitutional amendment (GST) Bill as amended by the Rajya Sabha. It is basically a single tax on the supply of goods and services right from the manufacturer to the consumer. Undoubtedly credits of input taxes paid at each stage will be available in subsequent stage of value addition. Final consumer will thus have to bear only GST charged by the last dealer in supply chain. Set off benefits at all previous stages shall also be available under the GST Act, 2016. Presently more than 150 countries have adopted the GST and India has adopted it in year 2016.

GST Act is claimed essentionally as a major reform in the field of indirect taxation. Though the Act is comprehensive, elaborated and is unambiguous yet it cannot be said with high degree of certainty that its implementation will be easy and free from complications. The prospective tax payers may not be certain and clear about the taxability of goods and services under the GST Act, admissibility of Input Tax Credit and applicability of notifications under provisions of the Act etc. Under such circumstances strong need will arise to create and establish a Authority who could clarify the law in relation to supply of goods or services proposed to be taken or being undertaken by the applicant. To meet this requirement GST Act incorporates various provisions relating to advance ruling under chapter XIX of the GST Act. The relevant provision starts from Section 94 to 105. 

Meaning of Advance Ruling:

“Advance Ruling” means a written decision provided by the Authority or Appellate Authority, as the case may be, 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 99, as the case may be, in relation to the supply of goods and services proposed to be undertaken or being undertaken by the applicant.

The concept of Advance Ruling is not a new one. Even under the Punjab Value Added Tax Act, 2005 there was provision under section 85 for Advance Ruling. Similarly under the Income Tax Act as well as under the Excise Act there is a provision for Advance Ruling. Advance Ruling is basically in written decision provided by the Authority to the applicant who may be registered or desires of obtaining registration by the authority for advance ruling constituted under section 95 and by the appellate authority for advance ruling constituted under section 96, on an application in such a form as prescribed under the law on the issues referred under section 97 of the GST Act. 

Objectives of Advance Ruling:

The issuance of Advance Ruling aims to ensure clarity and certainty of tax treatment and consistency in application of GST laws. The Advance Ruling will certainly promote compliance of law and reduce tax disputes between government and tax payers. It can be summed up as under-:

1. The issuance of Advance Ruling will bring clarity in law on intricate issues of GST law.
2. Advance Ruling will also ensure certainty of tax treatment in relation to application of GST law which will be helpful in compliance of GST.
3. Litigation between tax payer and government will be reduced due to clear picture of law.
4. Smooth functioning of business is possible as uncalled litigation will go down to minimum extent.
5. Advance Ruling will inculcate proper tax culture and environment.

Questions on which Advance Ruling can be sought:

Section 97 of the GST Act states a question on which Advance Ruling can be asked by the applicant from the Authority or by the Appellate Authority. The applicant must make an application in such form or such manner as prescribed under the Act. Following are the questions on which the applicant is at a liberty to seek Advance Ruling and the authority has no right to decline the Advance Ruling if it is proved that the question on which Advance Ruling sought is covered 97(2)(a) to (g) of GST Act. The question on which the Advance Ruling is sought shall be in respect of,  

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. 
8. The application shall be accompanied by a fee as may be prescribed.

Further the Advance Ruling can only be given if the application is complied by the prescribed fees.

Questions on which Advance Ruling is barred:

Section 98 of GST Act deals with the procedure which the Authority and Appellate Authority has to follow on the receipt of application for Advance Ruling. Firstly to begin with after the receipt of application the Authority/ Appellate Authority is duty bound to forward the application to the Officers as may be prescribed and if it is necessary then will call him to furnish the relevant record. The Authority/ Appellate Authority is also duty bound to return that record to the said prescribed officer. After examination of record and application and hearing the applicant or his authorised agent Authority may admit or reject application for Advance Ruling, after passing order in writing. However there are certain cases where the Authority shall not admit the application where question raised in application is covered under section 98 clause (a) to (d).

The relevant provisions under section 98 is reproduced as under:

1. On receipt of an application, the Authority shall cause a copy thereof to be forwarded to the officers as may be prescribed and, if necessary, call upon him to furnish the relevant records: Provided that where any records have been called for by the Authority in any case, such records shall, as soon as possible, be returned to the said prescribed officers.
2. The Authority may, after examining the application and the records called for and after hearing the applicant or authorized representative of the applicant as well as the authorized representative of the prescribed officers, by order, either admit or reject the application:

Provided that the Authority shall not admit the application where the question raised in the application is, 

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 matter already pending in any proceedings in the applicant’s case under any of the provisions of the Act;
4. The same as in a matter in the applicant’s case already decided by the adjudicating authority or assessing authority, whichever is applicable:

Provided further that no application shall be rejected under this sub-section unless an opportunity has been given to the applicant of being heard: Provided also that where the application is rejected, reasons for such rejection shall be given in the order. 

3. A copy of every order made under sub-section (2) shall be sent to the applicant and to the prescribed officers. 
4. Where an application is admitted under sub-section (2), the Authority shall, after examining such further material as may be placed before it 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, pronounce its advance ruling on the question specified in the application.

Explanation. – For the purposes of this sub-section, “authorized representative” shall have the meaning assigned to it in section 86.

5. Where the members of the Authority differ on any question on which the advance ruling is sought, they shall state the point or points on which they differ and make a reference to the Appellate Authority for hearing and decision on such question.
6. The Authority or, as the case may be, the Appellate Authority shall pronounce its advance ruling in writing within ninety days of the receipt of application or, as the case may be, reference made under sub-section (5).
7. Where the members of the Appellate Authority differ on any point or points referred to it under sub-section (5), it shall be deemed that no advance ruling can be issued in respect of the question covered by the reference application. 
8. A copy of the advance ruling pronounced by the Authority or, as the case may be, the Appellate Authority duly signed by the Members and certified in the prescribed manner shall be sent to the applicant and the jurisdictional CGST / SGST officer and, as the case may be, to the Authority, as soon as may be, after such pronouncement.

Time limit for Advance Ruling:

When an applicant requests for Advance Ruling on any issue referred under the section 97 clause (a) to (g) then Authority or Appellate Authority   shall pronounce its Advance Ruling within the period of 90 days from the date of the receipt of the application. It is a statutory period prescribed under the law and under law circumstances this period cannot be enhanced. Furthermore it may be noticed that the advance ruling must be given in writing by the Authority/ Appellate Authority. 

Opportunity of Being Heard is necessary:

When the Authority or Appellate Authority forms the opinion that the issue of Advance Ruling is covered under the barred circumstances under section 98 then no application can be rejected unless opportunity has been given to the applicant of being heard. Even otherwise it is vital principle of natural justice that no man should be condemned unheard. The opportunity should not be a mere empty opportunity but rather should be effective and real. The Hon’ble Supreme Court has explained reasonable opportunity of being heard in case of Fec-Co. (P) Ltd vs. S.N.Bilgram in following words 

“It has two elements. The first must be reasonable. Both these matters are justifiable and it is for the court to decide whether an opportunity has been given and whether that opportunity is reasonable. There can be no invariable standard for ‘reasonableness’ in such matters except that the court’s conscience must be satisfied, that the person against whom an action is proposed has had a fair chance of convincing the authority who proposes to take action against him that the ground on which the action is proposed is either non-existent or even if they exist they do not justified the proposed action. The decision of this question will necessarily depend upon the peculiar facts and circumstances of each case, including the nature of the action proposed, the grounds on which the allegations are based, the attitude of the party against whom the action is proposed in showing cause against such proposed action the nature of the plea raised by the him in reply, the requests for further opportunity that may be made, his admissions by conduct or otherwise of some or all the allegations and other connected matters which help the mind in coming to a fair conclusion on the question”.

Reason for Rejection is essential:

When the Authority/ Appellate Authority rejects the application of any applicant for advance ruling then it is his duty to assign the reasons for such rejections in the order itself. It is a principle of natural justice that the any authority under the act must pass speaking order and must record the versions of the department as well as the applicant in the order. The order should be passed after assigning the reasons for rejection. The Hon’ble Supreme Court in Steel Authority of India Ltd. vs. Sales Tax Officer, Rourkela-I Circle and Other, 2008 32 PHT 122 SC has held: 

“Reason is the heartbeat of every conclusion it introduces clarity in any order and without the same it becomes lifeless giving of reasons is one of the fundamental of good administration.”

Supply of Copy of Order is must:

Where the application of the applicant is treated as a barred application for advance ruling and as a result is rejected then it is a duty of the Authority/ Appellate Authority to supply the copy of the order to the applicant and prescribed officers. The trend of the courts is exactly on the footway and held in number of cases that communication order is essential requirement of law. In case of A.B. Sugar Mill and Bachchitar Singh case the Hon’ble Supreme Court and High Court in case of A.B. Sugar Mill has held that communication of order is essential. 

Appeal to the Appellate Authority:

If the applicant is aggrieved by the any Advance Ruling pronounced under sub section (4) of the section 98, may appeal to the Appellate Authority under section 99 of the GST Act, 2016 within a period of thirty days from the date on which the ruling is communicated. The appeal shall be furnished to the Jurisdictional CGST/SGST officer or may to the appellate authority. Every appeal filed under this section has to be prescribed under this form which is to be verified in the prescribed manner. However due to honest mission appeal is not filed according to law, for example not verified under the law, then the authority will provide an opportunity to rectify the same and cure the defect and thereafter can entertain the appeal and it will treated as if appeal is filed within the four corners of law.

Disposal and Orders of appeal:

The Appellate Authority may pass under section 100 of the GST Act, 2016 any order as it deems fit after giving the opportunity of being heard. In other words the Appellate Authority may confirm the ruling, modify the ruling appeal against. But the order has to be passed within the period of 90 days from the date of filing of appeal.

Relevant section 100 of the GST Act relating to the manner of passing order is reproduce as under:

1. The Appellate Authority may, after giving the parties to the appeal, an opportunity of being heard, pass such order as it thinks fit, confirming or modifying the ruling appealed against. 
2. The order referred to in sub-section (1) shall be passed within a period of ninety days from the date of filing appeal under section 99.
3. Where the members of the Appellate Authority differ on any point or points referred to in appeal, it shall be deemed that no advance ruling can be issued in respect of the question covered under the appeal. 
4. A copy of the advance ruling pronounced by the Appellate Authority duly signed by the Members and certified in the prescribed manner shall be sent to the applicant, the prescribed or the jurisdictional CGST / SGST officer and to the Authority, as soon as may be, after such pronouncement.  

Rectification of the Advance Ruling:

Authority or Appellate Authority, as the case may be, the may amend any order passed by it under section 98 or section 100, so as to rectify any mistake apparent from the record, if such mistake is noticed by the Authority or, as the case may be, 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 within a period of six months from the date of the order. Provided that no rectification which has the effect of enhancing the tax liability or reducing the amount of admissible Input Tax Credit shall be made unless the Authority or Appellate Authority, as the case may be, the Appellate Authority has given notice to the applicant or, as the case may be, the appellant of its intention to do so and has allowed him a reasonable opportunity of being heard.

Explanation.— For the removal of doubts, it is hereby clarified that the Authority or, as the case may be, the Appellate Authority shall not, while rectifying any mistake apparent from record, amend substantive part of its order.

Supreme Court in case of T.S. Balaram vs. Volkard Bros 1971 82 ITR 50 SC has held:

“A mistake apparent on the record must be an obvious and patent mistake and not something which can be established by a long drawn process of reasoning on points on which there may conceivably be two opinions.”

Applicability of the Advance Ruling:

Section 102 of the GST Act deals with the Applicability of the Advance Ruling and it says that:

1. The advance ruling pronounced by the Authority or, as the case may be, the Appellate Authority under this chapter shall be binding only – 

1. on the applicant who had sought it  in respect of any matter referred to in subsection (2) of  section 97 of the application for advance ruling;

2. on the jurisdictional tax authorities in respect of the applicant.

2. The advance ruling referred to in sub-section (1) shall be binding as aforesaid unless the law, facts or circumstances supporting the original advance ruling have changed.  

Advance Ruling to be void in certain circumstances.

In order to seek proper Advance Ruling it is the duty of the applicant that not to play fraud or suppress any material facts or misrepresent the facts otherwise Advance Ruling will be null and void and no useful purpose of getting Advance Ruling shall be solved.  It is equally important under the GST Act that no Advance Ruling is declared to be void unless reasonable opportunity of being heard is affording to applicant and any order made under this section shall be sent to applicant as well as prescribed officers.

Section 103 of the GST Act deals with the Advance Ruling to be void in certain circumstances:

1. Where the Authority or, as the case may be, the Appellate Authority  finds that advance ruling pronounced by it under sub-section (4) of section 98 or under sub-section (1) of section 100 has been obtained by the applicant or, as the case may be, the appellant by fraud or suppression of material facts or misrepresentation of facts, it may, by order, declare such ruling to be void ab initio and thereupon all the provisions of the Act shall apply (after excluding the period beginning with the date of such advance ruling and ending with the date of order under this sub-section) to the applicant as if such advance ruling had never been made:  

Provided that no order shall be passed under this sub-section unless an opportunity has been given to the applicant of being heard. 

2. A copy of the order made under sub-section (1) shall be sent to the applicant and the prescribed officers. 

Powers of the Authority and Appellate Authority

Section 104 of the GST Act deals with the Powers of the Authority and Appellate Authority:

(1) The Authority or, as the case may be, the Appellate Authority shall, for the purpose of exercising its powers regarding discovery and inspection, enforcing the attendance of any person and examining him on oath, issuing commissions and compelling production of books of account and other records, have all the powers of a civil court under the Code of Civil Procedure, 1908 (5 of 1908).

(2) The Authority or, as the case may be, the Appellate Authority shall be deemed to be a civil court for the purposes of section 195, but not for the purposes of Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974), and every proceeding before the Authority shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228, and for the purpose of section 196, of the Indian Penal Code (45 of 1860).

Procedure of the Authority and the Appellate Authority:

Section 105 of the GST Act deals with the Procedure of the Authority and the Appellate Authority:

The Authority or, as the case may be, the Appellate Authority shall, subject to the provisions of this Chapter, have power to regulate its own procedure in all matters arising out of the exercise of its powers under the Act.

Concluding Remarks:

The request for Advance Ruling on the issues prescribed under law must come up from the issues which require interpretations of law rather than seeking to know what the law has already provided. Furthermore once a person has obtained an Advance Ruling must consider it final in respect of the facts whether it is advantages to a person or not. Further correspondence and enquiries should not be entertained and advance ruling has to be complied. All this is possible if following prepositions do exist with full force-

1. The applicant and Authority must follow the procedure prescribed under the GST law.
2. The applicant who requests for Advance Ruling must submit the entire relevant record with application and state clearly the relevant facts without concealing anything.
3. The Authority and Appellate Authority must be trained enough to understand the intricacies of law under the GST. Frequent seminars and conferences must be held periodically where discussions and debates should be organised. 
4. Fair trial must be held by the Authority or Appellate Authority to formulate the appropriate opinion so as to expound effective advance ruling. Principles of natural justice should be followed so as to impart justice.
5. Unbiased attitude of the Authority is of paramount importance while pronouncing the Advance Ruling. The justice oriented approach should never be discarded. 
6. Frequent circulations of Advance Ruling through electronic media should encouraged with a view to spread the legal knowledge relating to GST Act, 2016.