Can AAR orders be challenged before the High Court?
- Jan 10, 2020 | Viren Shah
The Supreme Court upholds the Writ* Petition against orders passed by the Appellate Authority for Advance Rulings (AAR).
The Indian Constitution empowers the Supreme Court and the High Court, respectively, to issue writs for enforcement of any of the fundamental rights conferred by Part III of the Constitution of India (‘Constitution’) under Articles 32 and 226. There are five types of Writs - Habeas Corpus, Mandamus, Prohibition, Certiorari and Quo Warranto.
Indian Tax law provides for a structured mechanism in the form of appeals, revisions, etc. However, in the case of certain grievances, there is no appeal, or any other recourse provided in the law. In such cases, the aggrieved party has no option but to seek relief through the remedies provided by the Constitution (i.e. writ petitions).
GST law allows a taxpayer to apply for an advance ruling to obtain clarifications from the Authority for Advance Ruling (‘AAR’). If the taxpayer or the Revenue Authority is aggrieved by the order passed by the AAR, they have an option to file an appeal before the Appellate Authority for Advance Ruling (‘AAAR’).
As per Section 103 of the CGST Act, the ruling pronounced by AAR / AAAR is binding on all such parties. However, no further remedy by way of an appeal is provided under the GST law against the order of AAAR. Therefore, many taxpayers are filing a writ petition in the High Court challenging the ruling pronounced by the AAAR.
In this regard, attention is invited to a decision of the Bombay High Court in the case of JSW Energy Ltd. [2019-VIL-276-BOM]. In this case, the Court declined to examine the merits of the case, merely because the GST law did not provide for any appellate mechanism against an order of AAAR. The case was remanded back to the AAAR for fresh consideration on merits and in accordance with the law. The Court further noted that any attempt of examining the merits of the case would tantamount to converting proceedings under Article 226 of the Constitution, which are essentially proceedings to seek judicial review, into an appellate proceeding.
The Court also referred to the decision of the Supreme Court in the case of Smt. Sudha Patil [(1999) 235 ITR 118 (SC)], wherein it was held that merely because no appeal mechanism was provided for against the order of an appropriate authority directing compulsory acquisition by the government, the supervisory power of the High Court would not get enlarged nor can the High Court exercise an appellate power.
Further, in case of C.M.S. Info Systems Ltd. (WP no. 5801/2019), the taxpayer filed a writ petition before the Bombay High Court on the ground that the decision making process of the AAAR was flawed as it did not deal with the principal submissions of the taxpayer after recording the same in the impugned order. The Court, without going into the merits of the case, held that the decision-making process had not been complied with by the AAAR. Thus, the matter was remanded back to the AAAR for fresh consideration on merits and in accordance with the law.
Another landmark ruling under the Income-tax law with reference to filing of a Special Leave Petition before the Supreme Court against advance ruling is the case of Columbia Sportswear [(2012) 8 TMI 105]. In this case, the Supreme Court held that the binding nature of advance ruling would not affect the jurisdiction of the Supreme Court under Article 136 of the Constitution or of the High Court under Articles 226 and 227 of the Constitution. It said that the reason for this view was that Articles 136, 226 and 227 of the Constitution are constitutional provisions vesting jurisdiction of the Supreme Court and the High Court. Therefore, provisions under the Income-tax Act of 1961 of legislature make the decision of the AAR final or binding and will not affect the Court’s powers to exercise jurisdiction over applications challenging the AAR ruling.
Based on the aforesaid judicial precedents, it can be contended that the order passed by the AAAR cannot be challenged in the High Court under GST law. It can only be challenged in case the AAAR goes beyond its jurisdictional limits; breach of principles of natural justice; committing errors of law; etc.
Considering the above, taxpayers should cautiously examine the issue before making a decision in respect of filing an application for an advance ruling.
*A writ is a formal order of the court directing the authorities if there is a violation of fundamental rights by a government authority.