An advance ruling aids the applicant in planning his procedures and activities related to GST, such as GST payment in advance and so on. It also helps the applicant to determine the tax liability, as the ruling issued by the Authority for Advance Ruling obligates the applicant and the Government authorities. Additionally, it helps the applicant avoid long-drawn and costly legal disputes when crossing the last date. Getting an advance ruling is not a tough or expensive job, as the procedure to obtain an Advance Ruling in India is simple and expeditious. Therefore, an advance ruling provides foregone conclusion and transparency to the applicant with respect to an issue or dispute with the tax administration.
A formal advance tax ruling is nothing but the written interpretation of tax laws that are provided by tax authorities to individuals and corporations after a formal request for clarification on certain tax subjects. Whenever the taxpayer faces any confusion or uncertainty about certain tax provisions, he/she can request an advance ruling.
Mostly Advance tax ruling is applied usually before starting the proposed tax activity. The Authorized officer for Advance Ruling (AAR) can provide a binding ruling to the taxpayer who is liable to be registered. The advance ruling provided by the Authority can be pleaded before an Appellate authority for Advance Ruling (AAAR) and there are certain time lines authorized for authorizing an order by AAR and by AAAR.
For instance, as per income tax, advance ruling is accessible in international taxation to provide needy help to non-residents who are ascertained about the income-tax liability. By using this, the non-residents can plan their income-tax in advance to avoid long drawn and expensive litigation.
Why is an advance ruling under GST necessary?
According to GST, the advance ruling is a written interpretation issued by the tax authorities to the taxpayer on doubts and questions relating to the supply of goods/services.
The main objectives of the advance ruling, including under GST, are to
- Provide certainty for tax liability in advance in relation to the activity related to the Tax and GST which are undertaken by the applicant
- Attract Foreign Direct Investment (FDI) – By providing clarity in taxation and showing certainty of the succeeding tax liability of the FDI. The clarity and transparency of taxation will appeal to non-residents as it helps to avoid all messy tax disputes and income tax for beginners
- Reduce litigation and expensive legal disputes
- Help to make the right decisions at the right time
When can a taxpayer request for GST Advance Ruling?
Any taxpayer who has any doubt or is uncertain of any tax provision can request an advance ruling. Advance tax ruling is applicable on the following statements –
The matters/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 issued under the provisions of CGST Act
(c) Determination of time and value of supply of goods or services or both
(d) Admissibility of input tax credit of tax paid or deemed to have been paid
(e) Determination of the liability to pay tax on any goods or services or both
(f) Whether the applicant is required to be registered
(g) Whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both within the meaning of that term.
Under the CGST Act, 2017, Section 100(1) states that if the jurisdictional officer, the concerned officer or an applicant affronted by any advance ruling declared by the Authority for Advance Ruling, can appeal to the Appellate Authority. Therefore, the decision of the Appellate authority is also processed as an advance ruling.
Procedure for obtaining Advance Ruling in India
The applicant has to request the concerned authority to obtain an advance ruling. This request can be made if the taxpayer is uncertain about any provisions. Following is the stepwise procedure to obtain an advance ruling:
- Make an application to the authorized officer for advance ruling in the form and manner prescribed in the advance ruling rules.
- You get the receipt of an application, following, the Authorized officer for Advance Ruling will send a copy of application to the concerned officer in whose jurisdiction the applicant comes under and calls for all related documents and records.
- Then the Authorized officer for Advance Ruling examines the application along with the records and may also hear the applicant.
- Next, the Authorized officer for Advance Ruling will pass an order either admitting or rejecting the application.
- There are few cases in which the application for advance ruling cannot be admitted, such as if the same question raised in the application which is already in pending status or decided in any legal proceedings in the case of the taxpayer as per the provisions of this Act.
- And in the case of rejection of application, it should be processed by speaking order providing the proper reasons for rejection.
- In case the application is admitted, the Authorized Officer for Advance Ruling shall declare its ruling within three months or ninety days of receipt of the application. There will be a formal procedure before providing its ruling, like examining the application and all the materials furnished by the concerned departmental officer or by the applicant.
- It is a must that the authorized officer for advance ruling hears the applicant or his authorized representative and the jurisdictional officers of CGST/SGST before issuing the ruling.
- And, if there is any difference of opinion among the two members of the Authorized officers for Advance Ruling, then it is passed to AAAR for hearing the issue.
- If the members of AAAR are unable to take any decision in regard to the point(s) in which the Authorized officers for Advance Ruling have their difference of opinion, then it shall be adjudged that no advance ruling can be issued to the question, as the difference prevails at the level of AAAR.
To whom the Advance Ruling is applicable
An advance ruling issued by AAR or AAAR shall be applicable only to the concerned officer or the jurisdictional officer on behalf of the applicant and on the applicant directly. This clearly states that an advance ruling is applicable to the person who has applied formally for an advance ruling and not to other taxable persons who are similarly placed.
Time period to apply for an Advance Ruling
As per the law, there is no prescribed fixed time period to apply for an advance ruling. But, it has been stated that advance ruling shall be applicable till the time period when the facts, circumstances or law supports the original advance ruling have not changed.
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