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What Is Advance Ruling In GST? Objectives, Process And Provisions

"Advance Ruling" refers to a decision provided to an applicant by the Authority or the Appellate Authority on matters or 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.

In layman’s terms, ‘A written interpretation of tax regulations establishes an advance tax ruling. Tax authorities offer it to firms and individuals who want clarification on certain tax issues.’ When a taxpayer is perplexed or uncertain about particular rules, an advance ruling is frequently requested.

An advance ruling assists the applicant in structuring his operations that are subject to GST payment in advance. It also provides clarity in determining tax liability because the judgement issued by the Authority for Advance Ruling is binding on both the applicant and government authorities. Furthermore, it aids in avoiding lengthy and costly litigation at a later period.

Seeking an advance ruling is affordable, and the procedure is straightforward and quick. As a result, it offers a taxpayer with assurance and transparency on an issue that may result in a disagreement with the tax administration.

A legally created organization known as the Authority for Advance Ruling (AAR) has the authority to provide a legal ruling to an applicant who is a registered taxpayer or is required to be registered as a taxable person. The Authority's advance ruling can be appealed with an Appellate Authority for Advance Ruling (AAAR).

Objectives Of Advance Ruling

The fundamental goal of an Advance Ruling is to offer certainty in tax liability in advance for an activity requested by the applicant. Other goals that can be reached using Advance Ruling include:

  • Reduce disputes
  • Attracting more Foreign Direct Investment (FDI)
  • Pronounce rulings in a timely, transparent, and cost-effective manner

Advance Ruling Authority – Structure, Hierarchy, Rules & Acts

Authority for advance ruling (AAR) and Appellate authority for advance ruling (AAAR)

The Authority for Advance Ruling & the Appellate Authority for Advance Ruling are established under the provisions of the State Goods and Services Tax Act or the Union Territory Goods and Services Tax Act. They shall also be regarded to be the established authorities for Advance Ruling under the CGST Act, 2017.

Since the bodies are established under the respective State/Union Territory Act, their rulings shall not be binding in other states and union territories.

To Whom The Advance Ruling Is Applicable

An advance ruling issued by AAR or AAAR is solely binding on the applicant and the involved officer or the jurisdictional officer in the applicant's case. This plainly indicates that an advance judgement does not apply to similarly situated other taxable people in the State. It is only available to the individual who has requested an advance ruling.

Is There A Time Period For The Applicability Of The Advance Ruling?

The law makes no mention of a time limit during which the ruling will be in effect. Instead, it has been said that the advance ruling will be binding until the law, facts, or circumstances supporting the initial advance ruling do not change.

Nevertheless, if the AAR or AAAR determines that the applicant obtained the advance ruling through deception, concealment of material information, or misrepresentation of facts, the advance ruling will be declared ab initio void.

What Are The Matters & Questions Allowed For Advance Ruling?

The current law has brought in some improvements to the Advance Ruling provisions under the previous Customs and Central Excise Laws. As per the current rules, advance rulings can be obtained on both a proposed transaction and a transaction already done by the appellant.

Furthermore, Section 100(1) of the CGST Act, 2017 states that any officer, jurisdictional officer, or applicant who is dissatisfied with an advance decision issued by the Authority for Advance Ruling may appeal to the Appellate Authority. This allows an Appellate authority decision to be viewed as an advance ruling.

Matters or questions specified in Section 97(2) & Section 100(1) of the CGST Act, 2017 –

(a) Classification of any goods or services or both

(b) Applicability of a notification made under the provisions of the CGST Act

(c) Time and value of supply of goods or services or both

(d) Acceptance of input tax credit for tax paid or deemed to have been paid

(e) Determination of the need to pay tax on any products or services or both

(f) Whether the application is needed to be registered

(g) Whether any specific action taken by the applicant in relation to any products or services or both amounts to or results in a supply of goods or services or both, within the meaning of that word.

What Is The Process Of Obtaining An Advance Ruling?

1. If an applicant wishes to get an advance ruling, he or she must submit an application to AAR in the prescribed form and manner.

2. The Advance Ruling regulations state the structure of the form as well as the entire method for submitting the application form.

3. Upon receipt of an application, the AAR shall forward a copy to the officer whose authority the petitioner falls under and requests all necessary records.

4. The AAR may then review the application and the records, as well as hear the applicant. Following that, he will issue an order either admitting or denying the application.

5. If the application is accepted, the AAR must issue a decision within ninety days of receiving it.

6. Before issuing a judgement, AAR must hear the applicant or his authorized agent, as well as the CGST/SGST jurisdictional officers.

7. If the application is denied, the grounds for the denial should be stated in a spoken sequence.

8. In circumstances where the question presented in the application is already pending or decided in any proceedings in the case of an applicant under any of the provisions of this Act, an application for early ruling shall not be accepted.

Can I Appeal An Advance Ruling Order Of Authority For Advance Ruling (AAR)

1. If the applicant is dissatisfied with the AAR's decision, he may seek an appeal with AAAR.

2. Similarly, if the prescribed or jurisdictional officer of CGST/SGST disagrees with the AAR's findings, he may submit an appeal with AAAR.

3. Any appeal must be submitted within thirty days after the advance ruling's receipt.

4. The appeal must be filed in the prescribed format and validated in the prescribed way.

5. Within ninety days after the filing of an appeal, the AAAE must issue an order after hearing the parties.

6. If members of the AAAR disagree on any point raised in the appeal, it is presumed that no advance ruling is provided on the issue under appeal.

Rectification Of Mistakes In Advance Ruling

  • The legislation allows AAR and AAAR to alter their order within six months of the date of the order to correct any mistake obvious from the record.
  • Such an error may be discovered by the authority on its own or brought to its attention by the applicant, the prescribed or the jurisdictional CGST/SGST officer.
  • If a correction increases the tax burden or reduces the amount of input tax credit, the applicant must be heard before the order is issued.

FAQs

1. Who is eligible to seek an Advance Ruling?

Any person who is registered or wishes to receive an advance decision on the topics required by the GST Act may submit an application for Advance Ruling with the prescribed fee.

2. What is the objective of a GST advance ruling?

An advance tax ruling is a technique that multinational corporations and individual taxpayers can use to clarify and confirm certain taxing arrangements. Tax authorities provide written interpretations of tax rules to firms and individuals that want clarification of taxation arrangements.

3. Is an advance ruling legally binding?

An advance ruling assists the applicant in arranging his actions that are subject to GST payment in advance. It also provides clarity in determining tax liability because the judgement issued by the Authority for Advance Ruling is binding on both the applicant and the government.

4. When can I apply for an advance ruling?

An applicant can apply for an advance ruling even before starting a transaction (planned supply of goods or services) or during the course of a supply. The sole limitation is that in the instance of the petitioner, the question being addressed is not already pending or settled in any procedures.

5. Why is an advance ruling required under GST?

An Advance Ruling's primary objective is to provide certainty in tax obligation in advance for an action sought by the applicant.

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