The Goods and Services Tax (GST) was introduced in 2017 to streamline the tax system in India. But many taxpayers, especially small businesses, exporters, and service providers, find themselves in a dilemma regarding how GST will apply to their particular transaction or service. This is where the concept of an Advance Ruling under GST comes in. Advance Ruling is a mechanism through which an applicant (taxpayer or registered/unregistered person) can seek clarity on specific issues of GST applicability before they actually undertake a transaction. It offers legal certainty, avoids future disputes with tax authorities, and ensures compliance with the law. Advance Ruling is advantageous for businesses involved in cross-border transactions, mergers, or industry-specific supplies where the applicability of GST can be ambiguous.
This blog explains the meaning, scope, benefits, and step-by-step procedure to obtain an Advance Ruling under GST.
What is an Advance Ruling under GST?
An advance ruling is a written decision given by a government-appointed authority to a taxpayer, determining the GST implications of a specific proposed or existing transaction.
It is sought to clarify how GST law will apply to:
- A supply of goods or services
- The classification of goods or services
- The time or value of supply
- Admissibility of input tax credit (ITC)
- Applicability of any notification or circular
- Whether a particular transaction amounts to a supply under GST
Who Can Apply for an Advance Ruling?
Any person can apply for an advance ruling if they are:
- Registered under GST
- In the process of getting registered
- A non-resident or foreign entity intending to undertake business in India
Even a business that is unsure whether it is liable to pay GST can apply.
Why is Advance Ruling Important?
Advance Ruling can be a game-changer:
- Certainty in tax matters: It helps the applicant know their GST obligations in advance.
- Avoidance of litigation: Once ruled, the decision binds the applicant and the GST department.
- Cost and time efficiency: Prevents legal disputes and saves time and compliance costs.
- Better business planning: Helps businesses plan transactions with full knowledge of tax liability.
- Binding effect: The ruling is binding on the applicant and the jurisdictional GST officer unless overturned on appeal.
Authorities Involved in an Advance Ruling
There are three key authorities involved:
- Authority for Advance Ruling (AAR): At the state level, it gives the initial ruling.
- Appellate Authority for Advance Ruling (AAAR): Hears appeals against decisions of AAR.
- National Appellate Authority for Advance Ruling (NAAAR): Established to resolve conflicting AAR rulings between states (especially for distinct persons).
Matters on Which an Advance Ruling Can Be Sought
An applicant can seek an advance ruling on:
- Classification of goods or services under GST
- Applicability of a GST notification
- Determination of time and value of supply
- Admissibility of input tax credit
- Determination of liability to pay tax
- Whether a transaction amounts to a “supply” under GST
- Requirement of registration
Procedure to Obtain an Advance Ruling under GST
Here is a step-by-step explanation of how to apply for an Advance Ruling under GST:
Step 1: Filing of application
- The application is to be made electronically on the GST portal in Form GST ARA-01 by the applicant.
- In the application, a clear statement of facts must be submitted along with the supporting documents.
Step 2: Verification and admission
- The AAR checks whether the application is complete.
- It may reject the application if the question is already pending before a GST officer, tribunal, or court.
- If admitted, the authority issues a notice to the applicant and fixes a date for a hearing.
Step 3: Hearing by the authority
- The applicant or his authorised representative may appear before the authority.
- The authority may ask for clarification and evidence during the hearing.
Step 4: Pronouncement of ruling
- The AAR delivers its ruling within 90 days from the date of receipt of the application.
- The ruling is communicated to both the applicant and the jurisdictional officer.
Appeal Against Advance Ruling
If the applicant or the jurisdictional GST officer is not satisfied with the ruling of the AAR, an appeal can be filed with the Appellate Authority for Advance Ruling (AAAR) in Form GST ARA-02, along with a fee of ₹10,000.
The appeal must be filed within 30 days (extendable by another 30 days with justification).
The Binding Nature of an Advance Ruling
The ruling is binding on:
- The applicant who sought the ruling
- The jurisdictional GST officer in respect of that applicant
However, if the facts of the case or the law change later, the ruling will no longer apply.
Also, the ruling ceases to be binding if it is found to have been obtained by fraud or misrepresentation of facts.
Situations Where Advance Ruling is Not Allowed
- When the question is already pending before the GST authorities or courts
- When the matter is already decided in any previous ruling involving the same issue and applicant
- For hypothetical or vague transactions
Example:
A software company in Bengaluru wants to export a hybrid product (software + support services) to a client in the USA. They’re unsure whether the service is classified as an “export of service” (zero-rated under GST) or not.
They filed for an Advance Ruling under GST seeking clarity. The AAR examines the nature of the contract, the place of supply, and the billing method and issues a ruling that it qualifies as an export. This helps the company to confidently raise zero-rated invoices and claim a refund of input tax credit.
Conclusion
Advance Ruling under GST is a powerful tool for tax certainty. It enables businesses, whether large corporates or startups, to plan their GST obligations in a lawful, efficient, and confident manner. It also helps avoid unnecessary disputes, penalties, or tax demands from authorities. The procedure is well-structured and time-bound, giving every taxpayer the right to clarity before stepping into a transaction.
Whether you are a manufacturer, trader, service provider, or exporter, if you are unsure about how GST applies to your transaction, don’t guess. Use the Advance Ruling route.
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