Introduction:
“Advance ruling” means a decision provided by the Authority or, as the case may be, the Appellate Authority to an applicant on matters or on questions specified in section 97(2) or section 100(1), as the case may be, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant – section 95(a) of CGST Act.
Application for advance ruling can be made in respect of supply ‘being undertaken’. Thus, a person can apply for advance ruling even in respect of an activity he is already doing, though really that is not the idea of ‘Advance Ruling’.
Questions for which advance ruling can be sought:
The question on which the advance ruling is sought shall be in respect of any of following:
(a) Classification of any goods or services or both under the Act.
(b) Applicability of a notification issued under provisions of the Act.
(c) Determination of time and value of the 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 supply of goods or services or both, within the meaning of that term.
Authority for advance ruling in each state:
Authority for Advance Ruling (AAR) has been constituted in each State. The AAR normally consists of two officers. The Central Government and the State Government shall appoint an officer not below the rank of Joint Commissioner as member of the Authority for Advance Ruling.
Appellate Authority for Advance Ruling (AAAR) has also been constituted in many States.
The Authority for Advance Ruling will give a decision on question raised before it. Such ruling will be binding on the applicant and the department. The decision is not similar to decision of Tribunal. The decision of Tribunal is binding on others who were not party to the case. However, ruling of AAR and AAAR is binding only on appellant.
So far, over 150 decisions of AAR have been reported wherein there are even some conflicting rulings.
The union cabinet has approved setting up of a centralized appellate Authority for Advance ruling (AAAR) under GST that would decide on cases where there are divergent orders at the state level.
The setting up of a centralized AAAR would require amendments to the GST acts.
Though ruling of Authority for Advance Ruling does not have value as precedence, it surely has persuasive value. Since many controversial issues are coming before AAR, it would be educative to study them, as these decisions may be challenged before Tribunal, High Court and Supreme Court in due course.
Some rulings of Authority for Advance Ruling are summarised in this article, some of which are surely debatable and arguable.
AAR cannot take issue relating to place of supply
In Utility Powertech Ltd. (AAR – Chhatisgarh), it has been held that AAR cannot take question relating to place of supply.
Same view was accepted in Esprit India P Ltd (AAR – Haryana).
AAR cannot decide whether supply is inter-state supply or intra state supply – Fichtner Consulting Engineers (I) P Ltd.
This decision seems doubtful as liability to pay tax (whether IGST or
CGST plus SGST/UTGST is payable) depends on determination of place of supply.
AAR connot determine issue of transitional input tax credit
Transitional Input Tax Credit is in respect of duties paid under other Acts. Hence, it is beyond jurisdiction of AAR – Sino Resources (AAR-Andhra Pradesh).
AAR connot determine issue relating to foreign trade policy
AAR cannot determine issue relating to Foreign Trade Policy or procedure under Advance Authorisation – Spentex Industries Ltd (AAR – Andhra Pradesh).
Recipient of goods or services cannot apply for advance rulings
Recipient of goods or services cannot apply for advance ruling where tax is payable by supplier and there is no reverse charge – Visvesvaraya National Institute of Technology, Nagpur(AAR – Tamilnadu)
No advance ruling if matter already pending or decided in any proceedings
Application for advance ruling will not be admitted if matter is already pending or decided in any proceedings in the case of applicant – proviso to section 98(2) of CGST Act – followed in Veeram Natural Products (AAR-Tamilnadu).
Liquidated damges recovered for delay in supply of goods are subject to GST
GST is payable on liquidated damages recovered for delay in supply of goods, as it is tolerating an act for delay - Maharashtra State Power Generation Company Ltd (AAR - Maharashtra).
Significant AAR rulings by various states:
GST would be applicable on cheque bouncing charges
[Bajaj Finance Ltd. (AAR – Maharashtra)]
The applicant, a NBFC is engaged in providing various types of loans to the customers, such as auto-loans, loans against the property, personal loans, consumer durable goods loans, etc. It has entered into agreements with borrowers/customers for providing loans to them. The loan agreements provide for repayment of the outstanding dues/EMI through cheque/ECS/NACH or any other electronic or clearing mandate. In case of dishonouring of payment instrument or instruction, the applicant collects penal or bouncing charges. The applicant filed an application for Advance Ruling whether the bouncing charges should be treated as supply. It contended that bouncing charges collected from the customers are in the nature of penalty or liquidated damages. Therefore, same are not considerations for supply of services and, hence, not subject to GST.
The Authority for Advance Ruling held that receipt of cheque bouncing charges on dishonouring of cheques would be receipt of amounts for tolerating the act of their customers. Therefore, it would be treated as supply under GST as per S. No. 5(e) of Schedule II of the CGST Act, 2017 and, hence, taxable under the GST.
Supply of food items to Employees for a consideration in canteen run by a company Is Taxable Under GST
[Caltech Polymers (P.) Ltd (AAR-Kerala)]
The applicant-company was engaged in manufacturing and sale of footwear. It was providing canteen services exclusively for its employees. It incurred the canteen running expenses for a month and recovered the same from its employees without any profit margin. The applicant submitted that the service provided to the employees was not being carried out as a business activity and it was rendered by virtue of provisions of Factories Act, 1948. Therefore, the applicant was of the view that such activity would not come under the scope of Supply as per GST.
The Appellate Authority for Advance Ruling observed that the applicant recovers the amount from employees. Therefore, the supply of food items to employees for a consideration in a canteen run by the appellant would come under the definition of 'supply' as per the GST.
GST is applicable on compensation received by tenant for delayed possession of new premises
[Zaver Shankarlal Bhanushali (AAR - Maharashtra)]
The assessee is a tenant in building premises. The owner of said building premises entered into an agreement with a developer for redevelopment of said premises. Consequent to the said agreement, the assessee is to vacate the premises to facilitate the redevelopment of the building. The assessee filed an application for Advance Ruling for applicability of GST on the compensation received by it for facilitating an alternative accommodation and for the delay in delivery of possession of the new premises.
The Authority for Advance Ruling held that as assessee agrees to do an act, i.e., vacating the premises to facilitate the supply of service by the developer to the owner. Therefore, compensation received from the developer for
vacating the said premises shall be subject to GST. Further, the amount
received for delayed possession of new premises would be a receipt for
tolerating the construction-cum redevelopment work and for tolerating
an act of not completing the redevelopment work within the prescribed
time. The same would be covered under the definition of 'supply'. Hence, GST would be leviable on the said amount.
