Chapter 20: Advance Ruling

Concept: An Advance Ruling is a written decision by a duly constituted authority clarifying the taxability or legal position on a question raised by an applicant before undertaking a transaction.

Objective:

To provide clarity and certainty to taxpayers.

To avoid future disputes and litigation.

To promote ease of doing business through advance guidance.

Statutory Basis:

Sections 95 to 106 of the CGST Act, 2017.

Chapter XVII of the CGST Rules (Rules 103–107A).

Structure of AAR:

Each State and Union Territory has its own Authority for Advance Ruling (AAR) consisting of:

One member from the State Tax Department, and

One member from the Central Tax Department.

Matters on Which Advance Ruling Can Be Sought (Section 97):

Classification of goods or services.

Applicability of a notification.

Determination of time and value of supply.

Admissibility of input tax credit.

Determination of liability to pay tax.

Requirement of registration.

Whether an activity amounts to supply.

Example: A company proposes to sell customized software and seeks clarity on whether it qualifies as goods or services — this can be decided through an Advance Ruling.

Binding Nature:

Binding only on the applicant and the jurisdictional officer.

Ceases to be binding if facts or law change subsequently.

Purpose: When the applicant or the jurisdictional officer is aggrieved by the AAR’s decision, they may appeal before the Appellate Authority for Advance Ruling (AAAR).

Statutory Reference: Section 99 to 101 of the CGST Act.

Composition:

Chief Commissioner of CGST (or equivalent), and

Commissioner of SGST (or equivalent).

Procedure:

Possible Outcomes:

Confirm the ruling of AAR, or

Modify the ruling, or

Annul the ruling.

In Case of Difference of Opinion: If members of AAAR differ, the advance ruling ceases to have effect, leading to lack of finality — a key reason for later introduction of NAAAR.

To address the issue of conflicting rulings by State-level AARs/AAARs, the Finance Act, 2019 introduced the National Appellate Authority for Advance Ruling (NAAAR) under Section 101A to 101C.

Purpose:

To provide uniformity in rulings across States, especially for multi-State taxpayers.

Constitution:

President: A judge of the Supreme Court or Chief Justice of a High Court (appointed by Government).

Technical Members: One from the Centre and one from the States.

Jurisdiction:

Cases where conflicting rulings are given by two or more AAARs on the same question for the same applicant (having operations in multiple States).

Binding Nature:

Ruling of NAAAR shall be binding on all registered persons having the same PAN, across India.

Appeal to Higher Courts:

Orders of NAAAR are appealable before the Supreme Court, ensuring finality and uniform interpretation nationwide.

Step-by-Step Process for Advance Ruling

Important Conditions:

Questions pending before any officer or appellate authority cannot be raised before AAR.

Application can be withdrawn before order is passed.

Ruling becomes void ab initio if obtained by fraud or suppression of facts (Section 104).

Practical Benefits of Advance Ruling

✅ Clarity in tax positions for proposed business models. ✅ Reduced litigation and compliance uncertainty. ✅ Protection against penal consequences when acted upon bona fide ruling. ✅ Enhances confidence for foreign investors and multi-State businesses.

Stage	Form / Timeline	Details
Filing of Appeal	Form GST ARA-02 / ARA-03	Within 30 days of AAR order (extendable by 30 days)
Hearing and Decision	Sec. 101(1)	Opportunity of being heard must be given
Time Limit	Sec. 101(2)	AAAR shall pass order within 90 days of filing appeal

Stage	Form / Action	Details
1. Application to AAR	Form GST ARA-01	Filed online along with fee of ₹5,000 under CGST + ₹5,000 under SGST
2. Scrutiny by AAR	Verification	Authority may reject if question is already pending or decided
3. Hearing and Ruling	AAR issues written order	Within 90 days of receipt of application
4. Appeal to AAAR	Form GST ARA-02/03	Within 30 days of AAR order
5. Appeal to NAAAR (if conflicting AAAR rulings)	Form GST ARA-04	Within prescribed time, notified separately

Authority	Relevant Sections	Role / Purpose
AAR	Sec. 96–98	First-level ruling on questions raised by applicant
AAAR	Sec. 99–101	Appellate authority for AAR rulings
NAAAR	Sec. 101A–101C	National appellate body for conflicting AAAR decisions
Application	Sec. 97, Rule 104	Filed in Form GST ARA-01 with prescribed fee