Advance Ruling under India’s GST Law: Meaning, Process, Applicability & Legal Framework

Chapter XVIII of the Central Goods and Services Tax Act, 2017 (CGST Act), covering Sections 95 to 106, establishes the mechanism for 'Advance Ruling'. This mechanism is designed to provide clarity and certainty to taxpayers on specific matters or questions related to the supply of goods or services before they undertake a transaction. The provisions of this chapter apply mutatis mutandis to the Integrated Goods and Services Tax (IGST) Act as well.

Section 95: Definitions

This section defines the key terms used within the chapter on Advance Ruling.

• Advance Ruling: It is a decision provided by the Authority for Advance Ruling (AAR), the Appellate Authority for Advance Ruling (AAAR), or the National Appellate Authority for Advance Ruling (NAAAR) to an applicant. The decision is on specific questions related to the supply of goods or services that are currently being undertaken or are proposed to be undertaken by the applicant. Rulings cannot be sought on transactions that have already been completed.

• Applicant: This refers to any person who is registered or is seeking to obtain registration under the CGST Act.

• Authority and Appellate Authority: The "Authority" refers to the Authority for Advance Ruling (AAR) constituted under Section 96, and the "Appellate Authority" refers to the Appellate Authority for Advance Ruling (AAAR) constituted under Section 99.

Section 96 & 99: Constitution of the Authority and Appellate Authority

These sections deal with the formation of the ruling bodies.

• State-Level Bodies: The AAR (Section 96) and AAAR (Section 99) are constituted under the respective State Goods and Services Tax (SGST) or Union Territory Goods and Services Tax (UTGST) Acts. The authority constituted under the state law is deemed to be the authority for the CGST Act as well for that state or union territory.

• Composition of AAR: The AAR consists of one member from the central tax officers and one from the state tax officers, both of whom must be of a rank not below Joint Commissioner.

• Composition of AAAR: The AAAR comprises the Chief Commissioner of Central tax (as designated by the Board) and the Commissioner of State tax.

Section 97: Application for Advance Ruling

This section specifies the scope of questions on which a ruling can be sought. An applicant must submit FORM GST ARA-01 with a fee of five thousand rupees. The questions are limited to: a) Classification of any goods or services. b) Applicability of a notification issued under the Act. c) Determination of time and value of supply. d) Admissibility of input tax credit. e) Determination of the liability to pay tax. f) Whether the applicant is required to be registered. g) Whether a particular activity amounts to a supply of goods or services.

The sources highlight that the determination of the ‘place of supply’ is not explicitly listed as a question that can be raised.

Section 98: Procedure on Receipt of Application

This section outlines the process followed by the AAR.

• Examination and Rejection: The AAR forwards a copy of the application to the concerned officer for records. The Authority shall not admit the application if the question raised is already pending or has been decided in any other proceeding concerning the applicant. The application cannot be rejected without giving the applicant an opportunity of being heard.

• Pronouncement of Ruling: If the application is admitted, the AAR must pronounce its ruling in writing within ninety days from the receipt of the application after hearing the applicant and the officer. A certified copy is sent to the applicant and the concerned officers.

• Difference of Opinion: If the members of the AAR differ on any question, they shall state the point(s) of difference and refer the matter to the AAAR for a final decision.

Section 100: Appeal to Appellate Authority

An applicant, the concerned officer, or the jurisdictional officer, if aggrieved by a ruling from the AAR, may file an appeal to the AAAR.

• Time Limit: The appeal must be filed within thirty days from the date the ruling is communicated. The AAAR can condone a delay of up to another thirty days if sufficient cause is shown.

• Forms and Fees: An applicant files an appeal in FORM GST ARA-02 with a fee of ten thousand rupees, while an officer files in FORM GST ARA-03 with no fee.

Section 101: Orders of Appellate Authority

The AAAR must pass its order, confirming or modifying the original ruling, within ninety days of the appeal or reference being filed, after giving all parties an opportunity of being heard.

• Difference of Opinion: If the members of the AAAR also differ in their opinion, it shall be deemed that no advance ruling can be issued on the question.

Section 102: Rectification of Advance Ruling

The AAR, AAAR, or NAAAR can rectify any error apparent on the face of the record in its order. This can be done suo motu or if brought to its notice by the applicant or officer within six months from the date of the order. However, no rectification that enhances tax liability or reduces ITC can be made without giving the applicant an opportunity of being heard.

Section 103: Applicability of Advance Ruling

This section establishes the binding nature of the ruling.

• A ruling from the AAR or AAAR is binding only on the applicant who sought it and on the concerned/jurisdictional officer in respect of that applicant. It does not have precedential value for other taxpayers, although it may have persuasive value.

• A ruling remains binding unless the law, facts, or circumstances supporting the original ruling have changed.

Section 104: Advance Ruling to be Void

A ruling can be declared void ab initio by the AAR, AAAR, or NAAAR if it finds that the ruling was obtained by the applicant through fraud, suppression of material facts, or misrepresentation of facts. All provisions of the Act will then apply as if no ruling had ever been made. An opportunity of being heard must be given before such a declaration is made.

Section 105 & 106: Powers and Procedure

• Powers: The AAR, AAAR, and NAAAR have all the powers of a civil court under the Code of Civil Procedure, 1908, for purposes such as discovery, inspection, and compelling the production of documents. Any proceeding before them is deemed to be a "judicial proceeding".

• Procedure: The authorities have the power to regulate their own procedure, subject to the provisions of the chapter.

The sources also mention provisions for a National Appellate Authority for Advance Ruling (NAAAR) under Sections 101A, 101B, and 101C to hear appeals against conflicting rulings from different state AAARs, but it is noted that these provisions have not yet been notified and are therefore not in effect.

The Authority for Advance Ruling under Section 96 of the CGST Act

In the larger context of the Advance Ruling mechanism provided under Chapter XVII (Sections 95-106) of the Central Goods and Services Tax Act, 2017 (CGST Act), Section 96 is the provision that establishes the primary body responsible for issuing these rulings: the Authority for Advance Ruling (AAR). The sources indicate that the provisions of this chapter of the CGST Act apply mutatis mutandis to the Integrated Goods and Services Tax (IGST) Act as well.

Here is a detailed discussion of what the sources say about the Authority for Advance Ruling (AAR) under Section 96:

Section 96: Authority for Advance Ruling

This section lays down the legal framework for the constitution and jurisdiction of the AAR, which is the first-tier authority an applicant approaches to seek clarity on specific GST matters before undertaking a transaction.

1. Constitution of the AAR under State/UT Law

• State-Level Constitution: The sources clarify that the Authority for Advance Ruling (AAR) is not constituted under the Central GST Act itself. Instead, it is constituted under the provisions of the respective State Goods and Services Tax (SGST) Act or Union Territory Goods and Services Tax (UTGST) Act. Each State or Union Territory has its own designated AAR.

• Composition: The AAR in each state or union territory consists of two members: one member from amongst the officers of Central tax and one member from amongst the officers of State tax. These members are to be appointed by the Central Government and the State Government, respectively.

• Qualification of Members: Rule 103 of the CGST Rules specifies that the Government shall appoint officers of a rank not below that of Joint Commissioner as members of the AAR.

2. Deemed Authority for CGST Act

• Legal Fiction: A key principle established by Section 96 is that the AAR constituted under the SGST or UTGST Act shall be deemed to be the Authority for Advance Ruling for that specific State or Union Territory for the purposes of the CGST Act as well.

• Purpose: This deeming provision creates a unified, state-level authority to handle advance ruling applications, preventing the need for separate central and state bodies. It ensures that a single ruling from the AAR is comprehensive and binding for both central and state tax aspects of a transaction within that jurisdiction.

Context within the Advance Ruling Framework (Sections 95-106)

Section 96 is a structural pillar within the advance ruling process. It creates the very body that carries out the procedures and functions detailed in the surrounding sections:

• Recipient of Applications (Section 97): The AAR is the authority to which an applicant submits an application in FORM GST ARA-01 seeking a ruling on specified questions.

• Procedural Authority (Section 98): Upon receiving an application, it is the AAR that examines it, forwards a copy to the concerned officer, admits or rejects the application, conducts hearings, and ultimately pronounces the ruling in writing within ninety days.

• Referral to Appellate Authority (Section 98(5)): If the two members of the AAR differ in their opinion on a question, they are required to refer the matter to the Appellate Authority for Advance Ruling (AAAR) for a decision.

• Powers of a Civil Court (Section 105): The AAR is vested with the powers of a civil court for purposes such as discovery, inspection, enforcing attendance, and compelling the production of documents. Any proceeding before it is deemed to be a "judicial proceeding".

In summary, Section 96 establishes a decentralised, state-based structure for the Authority for Advance Ruling. By deeming the state-constituted body as the authority for the central act, it creates a single, unified forum at the state level to provide taxpayers with certainty and clarity on specific GST matters, thus forming the foundation of the entire advance ruling mechanism.

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