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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.
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.
The AAR mechanism is necessary to fulfil the following objectives:
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. 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.
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.
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.
Any taxpayer who is uncertain of the provisions can request for advance ruling. However, the advance ruling is applicable on:
Section 98 of the CGST Act talks about the procedure of advance ruling. The steps involved to obtain advance ruling are:
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:
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.
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.
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