The current structure of the advance ruling mechanism on GST-related issues is not only discouraging assessees from approaching the authorities, but the rulings themselves are also causing confusion among industry players, according to tax analysts and lawyers.
Recently, a spate of seemingly contradictory rulings by different Advance Ruling authorities in various States have led to confusion in respective sectors, especially for firms operating across States.
“The Karnataka Authority for Advance Ruling (AAR) recently held that a contract for construction of a solar power plant is not a composite supply and hence photovoltaic modules should be taxable at 5% and other items at their respective GST rates,” said Abhishek Jain, tax partner, EY India.
“For the same tax payer applicant, recently the Maharashtra AAR had held the contract to be a works contract of immovable property and taxable at 18%.” Another example is when the Andhra Pradesh AAR recently refused to comment on transitioning clean energy cess on the premise that the issue is not covered in the scope of AAR. However, the Maharashtra AAR had passed an order holding that Krishi Kalyan Cess credit cannot be transitioned, thereby ruling on an issue the A.P. AAR said was out of the scope of such an authority.
“Such decisions among AARs of different States opens a Pandora’s box for businesses with multi-State presence on what final tax position to take, vindicating a requirement for a National Advance Ruling Authority,” he added.
The advance ruling mechanism was set up to bring clarity on tax issues where there is ambiguity in the law.
For example, a bottle can be classified as a storage container, or as a water bottle, among others, each of which could be taxed at different rates. It is in cases of such ambiguity that assessees approach the AARs.
Another major issue with the current set up of the AARs, according to analysts, is their composition since the officials passing the orders are from the tax department.
“The major problem is that you have people from the tax department sitting on the advance ruling authorities,” L. Badri Narayanan, partner, Lakshmikumaran & Sridharan Attorneys, said. “The AARs consist of one Joint Commissioner each from the CGST and SGST.
“Appeals are sent to the appellate AAR, which has one chief commissioner each from CGST and SGST.”
‘Not objective’
“Effectively, it is only a departmental opinion that is being given, and the general trend in India is that the departmental opinion will be in favour of the department,” he added.
Among solutions suggested are the inclusion of a judicial member in the AARs to lend an objective view on the issue. Others include the setting up of a national AAR, or the creation of a similar body within the GST Council that can take a holistic view.
The Centre seems to be considering a national-level authority. Last month, Dheeraj Rastogi, Joint Secretary in the GST Council, acknowledged the problems due to contradictory rulings and said a policy decision is likely on a centralised authority.
“People are now choosing not to file an advance ruling since they feel it will anyway be decided against them,” Mr. Narayanan said. “If 80-90% of rulings are against the assessee, then people won’t go; that defeats the entire purpose of the set up.”
