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Is advance ruling providing taxpayers any relief?

  • Nov 18, 2019 | Divita S Gupta

In a nutshell, “Advance ruling” is an interpretation of tax laws. This interpretation provides clarity on taxes to taxpayers. This interpretation of taxes is provided by the Authority or the Appellate Authority to a tax filing applicant (individuals or organisations) on matters or on questions specified in sub-section (2) of section 97 or subsection (1) of section 100 of the CGST Act, 2017, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant. 

An advance ruling is a legal process which helps an applicant in planning their activities which are liable for payment of GST, well in advance. It also brings certainty in determining the tax liability, as the ruling given by the Authority for Advance Ruling is binding on the applicant as well as Government authorities. A legally constituted body called the Authority for Advance Ruling (AAR) can give a binding ruling to an applicant who is a registered taxable person or organisation or is liable to be registered. The advance ruling given by the Authority can be appealed before an Appellate authority for Advance Ruling (AAAR). This welcome step by the Government was met with overwhelming support from the industry and was supported with thousands of applications seeking clarification on a variety of tax issues. 

Surprisingly, the Advance Ruling Authorities of various states have come up with contradictory rulings on the same subject across states. Additionally, most of the rulings were decided in favour of revenue and there are rare cases where the applicants got any relief. Perhaps the constitution of this forum, which consists only of revenue officers and does not have an independent judicial member is one of the biggest reasons for such an outcome. 

Seeing this trend, many individuals and organisations are considering the need to even approach AAR, as there are chances that the ruling might not provide them any relief. However, if the assessee opts for the route of adjudication, the doors of the tribunal as well as the courts would always be open to seek relief. Given that the objective of creating an Advance Ruling forum was to provide speedy resolution of issues instead of going through the long-drawn litigation route, that purpose gets defeated.

Appreciating the need of the industry, Budget 2019 tried to address this issue by introducing the National Appellate Tribunal for Advance Ruling under Section 101A of the CGST Act, 2017. The constitution of the National Appellate Tribunal for Advance Ruling appears to resolve the issue of departmental bias, by introducing a judicial member and also introducing an option of appeal against the orders of the Appellate Authority which was previously absent under GST Laws. That being said, the wording of Section 101B of CGST Act suggests that an appeal before National Appellate Tribunal for Advance Ruling would lie only in cases where the views taken either by the members of Appellate Authority of Advance Ruling constituted in the same state or in different states are contradictory.

Though this new proposal, the Government seems to provide relief in some aspects i.e. when there are contradictory views from either of the members of the same Bench or amongst the coordinate Benches of different states. However, there is no relief provided against the order of the AAAR if the ruling goes against the assessee. Therefore, the National Appellate Tribunal for Advance Ruling would have a limited utility and there is debate if taxpayers are actually being relieved of tax issues. 

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Avalara helps businesses of all sizes get GST return filing, e-way bill generation and e-invoicing right with cloud-based GST compliance solutions in India. Goods and Services Tax (GST) rates, rules, and regulations change frequently. Although we hope you'll find this information helpful, this blog is for informational purposes only and does not provide legal or tax advice.
Avalara Author
Divita S Gupta
Avalara Author Divita S Gupta
Divita has served as a writer and editor for top financial services organizations in India. Currently, she owns a small business in Mumbai. She acquired a Master's Degree in Business Administration from Symbiosis International University in 2014. She is a baker, blogger and avid reader.