GST

All about AAR mechanism under GST

AAR is Authority for Advance Ruling. AAR mechanism helps the applicant plan all the activities to be done in the future, which is liable to pay under GST. In this article, we will go deep into the AAR under GST.

What is AAR Mechanism?

AAR mechanism is a written interpretation of tax laws issued by the tax authorities to individuals & corporations to clarify tax matters. Advance tax ruling is applied before the start of a proposed activity.

For example, the advance ruling is available in international taxation.

AAR is a mechanism to help the non – residents to ascertain their income tax liability & accordingly plan the income tax.

The advance ruling is a written statement by the tax authorities to the one who has questions about the supply of goods & services.

Why is the AAR mechanism necessary?

The AAR mechanism is necessary to fulfil the following objectives:

• To ascertain the tax liability in advance in relation to the future activity to be carried out by the applicant.
• To attract FDI (Foreign direct investment). FDI can be attracted by clarifying the questions related to taxation.
• It helps in reducing the litigation & lessen the cost of legal disputes.
• It is transparent and gives decisions in a timely & inexpensive manner.

What is an AAR & AAAR?

AAR stands for Authority for advance ruling & AAAR stands for Appellate Authority for advance ruling. Both of these are constituted under the provisions of the GST Act^[1]. Section 96 & 99 of the Act talks about the constitution of AAR & AAAR.

The Government will appoint officers who will not be below the rank of Joint Commissioner as an AAR member. Thus, the constitution of AAR will be done under the respective state or union territory acts.

To whom AAR mechanism is applicable

The AAR or AAAR applies to the one who has asked queries related to the supply of goods & services and the concerned officer or the jurisdictional officer regarding the applicant. Thus, it is clear that advance ruling is limited to only one person who has applied for the advance ruling.

What is the period of applicability of advance ruling under the AAR mechanism?

There is no fixed time for the advance ruling to apply. It is clearly said that advance ruling is applicable until no changes in any fact, circumstance or law are there.

The advance ruling can be declared null & void by order of AAAR if there is a reason to believe that the ruling was obtained by fraud or misrepresentation. In such a case, the provisions of the GST will be applicable as if no advance ruling has been made.

When can a person request for advance ruling under the AAR mechanism?

Any taxpayer who is uncertain of the provisions can request for advance ruling. However, the advance ruling is applicable on:

• Classification of any goods or services under the Act
• To determine the time & value of supply of goods or services
• Applicability of the notification issued under the GST Act
• To determine the tax liability on goods or services or both
• Admissibility of ITC (Input tax credit) of tax paid
• To determine whether an applicant needs to be registered or not

What is the procedure to obtain advance ruling under the AAR mechanism?

Section 98 of the CGST Act talks about the procedure of advance ruling. The steps involved to obtain advance ruling are:

• The applicant needs to apply to AAR in a prescribed format and with a fee of Rs. 5000.
• Upon receiving the application, the AAR needs to send a copy of the application to the concerned officer & the relevant records are to be called upon by the AAR shall be returned to the concerned officer.
• The AAR then examines the application along with the records. He may schedule a hearing and thereafter decide on either accepting or rejecting the applicant’s request.
• The application for advance ruling will not be admitted in the cases where the question raised is already pending or decided in any proceedings by an applicant under this provision.
• When an application is rejected, the reasons for rejections must by an order.
• When an application is admitted, then the AAR must pronounce its ruling within 90 days of receipt. The AAR must examine the application and must schedule a hearing of the applicant, concerned officer, and jurisdictional officers of CGST OR SGST before giving a ruling.
• Where there is a difference of opinion between two AAR members, they must refer the point to AAAR for the opinion. If AAAR cannot form a common opinion, then there will be no advance ruling in that case.
• The copy of the advance ruling must be sent to the applicant, the concerned officer and the jurisdictional officer after duly signed by the members & certified in a prescribed manner.

Appeal against the order under the AAR mechanism

Section 100, read with section 101 of the GST Act, lays down the process to appeal to AAAR against the orders of AAR. The process to be followed is:

• When the decision of AAR aggrieves the applicant, he may appeal to AAAR within a period of 30 days from the receipt of the advance ruling by AAR, and it may extend to 30 days more if there is a sufficient cause for delay.
• The jurisdictional officer or the concerned officer can also appeal to the AAAR against AAR’s order if they disagree with the decision.
• The appeal is to make in an application in a prescribed format with a fees of Rs. 10,000 by the applicant. The appeal made by the concerned officer or the jurisdictional officer, no fee is required.
• AFTER HEARING ALL THE PARTIES, the AAAR must pass an order within 90 days of filing an appeal.
• If the members of AAAR differs at any point, then no advance ruling will be passed related to the question raised.
• AAAR can either confirm or modify the ruling appealed.
• A copy of the order of AAAR must be sent to the applicant, concerned officer and the jurisdictional officer after duly signed & certified in a prescribed manner.

Rectification of Mistake under AAR mechanism

The Act gives the power to AAR & AAAR to rectify any mistake within a time period of 6 months from the date of pronouncement of the order, by amending their order. The mistake can be caught suo moto by the authority or by the applicant or the concerned officer or the jurisdictional officer.

If by the rectification the tax liability is increased or decreased the quantum of ITC, then the applicant must be given a chance to be heard before any decision is made.

Advance Ruling void in certain circumstance

Under section 104 of the Act, if advance ruling has been obtained byfraud or misrepresentation or suppression of the material facts, then it will become void. The provisions of the Act will apply to the applicant as if no advance ruling has been made, except for the time, from the order of advance ruling till it is declared void.

The applicant needs to be given a chance of hearing, before making the advance ruling void. The copy of the copy is to be sent to the applicant, the concerned officer and the jurisdictional officer.

Conclusion

An advance ruling is a decision given by AAR or AAAR to the applicant, where he has concerns regarding the questions mentioned under section 97 of the Act. However, an advance ruling can be declared void if it is obtained by fraud or misrepresentation or suppressing material facts.

Thus, the AAR mechanism is important to determine a person’s tax liability according to future activities.

Read our article:Provisions for Appeal against Advance Ruling under GST