An Advance ruling is a written interpretation of the tax laws that brings certainty while determining the tax liabilities. This binds the applicant and also the Government authorities. An advance ruling is a comprehensive provision to ensure minimal disputes. Concerned authorities are also bound to adhere to timelines to pass the advance ruling and thus making it a transparent and straightforward procedure. This helps in smoothing the relationship between the taxpayer and the government.
In this article, we will briefly discuss:
Advance Ruling is a judgment that is generally requested or applied for when the taxpayer is uncertain about specific tax provisions. The ruling supports the applicant in planning their operations and activities (that attract GST) well in advance. This, in turn, helps in avoiding long-drawn and costly legal disputes.
Note: An advance ruling is usually requested before the proposed activity is scheduled to start.
A legally constituted body called the Authority for Advance Ruling (AAR) provides a binding decision (ruling) to the applicant who is a GST registered taxable person (or is liable to be registered).
Under GST, the advance ruling is given by the tax authorities to an applicant for questions concerning the Goods or Services Tax (GST) Law.
An Advance Ruling aims to:
- Provide certainty to a tax liability in advance (concerning the activities to be undertaken by the taxpayer).
- Attract Foreign Direct Investment (FDI).
- Reduce litigation and allied cost.
- Pronounce ruling transparently and inexpensively.
The Authority provides the advance ruling for matters or questions related to section 97(2) or section 100(1) of the CGST Act, 2017. Here, most of the questions are related to:
- Classification of the goods or services or both under GST.
- Application and understanding of the notifications issued under the provisions of the CGST Act.
- Determining the time and value of the supply of goods or services or both.
- The validity of an input tax credit of tax paid or deemed to have been paid.
- Tax liability on goods or services or both.
- GST registration requirements.
Note: The advance ruling given by the Authority can be appealed before an Appellate Authority for Advance Ruling (AAAR). The decision of the Appellate Authority is also considered as an Advance Ruling.
An Advance ruling which is given by the AAR or AAAR binds only the applicant and the concerned officer or jurisdiction officer related to the applicant. This denotes that a particular advance ruling applies only to the person who has applied for it and not to any other similarly placed taxable person.
As per the GST law, an advance ruling is not time-bound (not applicable for a fixed time). That means the advance ruling once pronounced by the AAR is applicable and binding until there is any change in law or facts which were stated in the original advance ruling.
- The applicant should submit an application to the AAR in the prescribed form and manner, as mentioned in the Advance Ruling Rules (FORM GST ARA-01).
- Once the AAR receives the application, a copy of the application is further sent to the jurisdiction officer of the applicant. Additionally, the officer will be called upon to make available all the relevant records.
- As the next step, the AAR examines the application and the records.
- An order is passed by the AAR, rejecting or accepting the application.
- Applications about questions already pending or decided in any proceedings for the applicant are not admitted/accepted for further proceedings.
- Applications once admitted should receive a ruling within 90 days.
- If the applicant feels that the decision of the AAR is unfair, he/she can appeal to the Appellate Authority.
The AAR and AAAR can rectify or amend their order within 6 months from the date of order. The need for modification can be noticed by the AAR or AAAR, the applicant or the jurisdiction officer. If the rectification requires an enhancement of the tax liability or reduction of the input tax credit allowed, then, the applicant must be heard before the rectified order is passed.