AARs under GST hobbled by lack of members, state bodies

The functioning of the Authorities of Advance Ruling (AARs) is being hampered by a lack of judicial members and many states not setting up the body in their respective jurisdictions, say experts.

Earlier, under the central excise and service tax law, the AARs were helmed by retired Supreme Court judges, whereas central and state revenue officers head them now.

Only 15 states have so far notified the appellate authorities for challenging orders of the AARs under the goods and services tax (GST). Almost all orders by the AARs under the GST have upheld the position of the Centre and the states, leaving industry disconcerted.

“The edifice of advance ruling could be challenged when we see that members at the helm are tax officers, who may not have independent views on the subject,” said Rajat Mohan, partner, AMRG and Associates.

“Earlier the AAR was a highlevel quasi-judicial body headed by a retired judge of the Supreme Court. This has now changed in the GST regime and we might have more revenue-favouring decisions in future. This is the reason for fewer applications before the authority,” he said.

The AARs provide for tax liability in advance, besides providing clarification on tax provisions. “While the appellate authorities have been notified in some states, if the decisions of

the AAR duly consider business practices and market realities, industry would not need to take recourse to appeals,” said M S Mani, partner, Deloitte India.

Petitions have been filed in various high courts over the lack of judicial members. The Gujarat High Court accepted the petition and issued notice to the Centre, the state and the GST Council over the absence of any judicial member in the AAR though the body acts in a judicial capacity with the rulings binding on applicants.

States including Andhra Pradesh, Gujarat, Maharashtra, Rajasthan, Madhya Pradesh and Bihar have issued notifications for setting up the AAR.

Besides, since AARs have state-specific jurisdictions, contrasting rulings have been given in different states, creating ambiguity for industry.

Recently, a ruling by the Maharashtra AAR in the case of a solar contract held that the deal would qualify as “works contract” and was charged a GST of 18 per cent even though it was a solar power generating system, which is taxable at 5 per cent. The Karnataka AAR, in the same case, has not recommended a GST rate and not ruled it as a “works contract”.

The GST provides for a process of appeal against AAR rulings through the appellate authority. An appeal needs to be filed with the appellate authority within 30 days of the AAR judgment and the order needs to come within 90 days.

“The flurry of GST advance ruling decisions seen recently indicates that some of the states have started passing orders. However, the process is yet to start in many states, leading to business houses operating only in some states as they are not able to determine their tax positions in advance in other states,” said Mani.

The AARs in Kerala and Gujarat have ruled on the GST in canteen services though the issues were different in the two states. The Kerala AAR ruled the GST would be levied on what employees pay for food in canteens run by the employer, increasing the compliance burden for the taxpayer.