This article is edited by Mansi Bathija and written by Lakshay Kumar, a second-year B.A.LLB student of Delhi Metropolitan Education, Indraprastha University. In this article he talks about the mechanism of Advance Ruling, its meaning and how is it done. He also throws some light on the process of assessment.
What is Advance Ruling?
An advance ruling is a written interpretation of tax laws. Generally, the advance ruling is given by authorities to individuals and organizations who are seeking clarification on certain tax matters.
One example of an advance tax would be under income tax, where advance tax is available in International taxation. Tax authorities advise the Non Residents of India on matters of income tax liability, how they can plan their income tax payments and avoid last minute rush and also avoid long legal repercussions. Advance ruling under GST is the advice given by tax authorities on matters relating to the supply of goods and services.
Why is Advance Ruling necessary to GST
GST, as we all know, was big tax reform, everyone was not fully aware of it. Even if some people knew what GST didn’t know the procedure, therefore, the concept of the advance ruling was incorporated under GST. The main objectives behind including advance ruling under GST is :
- To provide the tax liability of the person in advance so that the applicant can take necessary actions in the future.
- By providing a clear and clean taxation system the Foreign Direct Investment will also increase as the NRI’s would be investing more, as the main concern for the NRI’s is that they don’t want to get into the petty tax disputes which get resolved through the advance ruling.
- By providing tax advises before the process of tax collection begins, it becomes easy for the applicant to clear all his dues in a more transparent way.
- It also reduces the cost of litigation and avoids costly legal disputes.
Under what situations an applicant ask for Advance Ruling
The taxpayer can demand advice under an advance ruling when he is not aware of certain tax provisions. The taxpayer can ask for advice under the following circumstances:
- When he wants clarification on the classification of any goods and services under the act.
- Determination of time, value and supply of goods and services.
- Whether input tax paid would be allowed.
- If the applicant has to be registered under GST or not.
- Any particular thing done by the applicant falls within the ambit of supply or not.
Process of Advance Ruling Under GST
An application for advance ruling is sent to Advance Ruling Authority. A person not happy with the advance ruling can file an appeal in the appellate authority i.e an Advance Ruling Appellate Authority.
The form of Advance Ruling has been made available in form GST ARA-01 with rupees 5000.
It is up to the authority to decide whether to accept the application or reject the application. The decision of the authority is pronounced within 90 days and if the members of the authority differ on any particular point then that point of dispute shall be referred to the appellate authority.
The application of advance ruling will not be accepted if their case has already been rejected earlier and if the case is already pending in the authority then advance ruling cannot be claimed.
Time Limit on the Applicability of Advance Ruling
Their no such law which prescribes the fixed time period for which the advance ruling shall remain in force. Instead of that, the applicability shall remain in time unless the original advance ruing is replaced by a new law. So the time period for applicability of the advance ruling remains valid unless there has been a change in the law with respect to the advance ruling.
Voidability of the Advance Ruling
The advance ruling if obtained by fraud, misrepresentation or through any illegal means by the applicant and is discovered by the authority of advance ruling or by the appellate authority of advance ruling then the advance ruling would be void ab initio.
Authorities of Advance Ruling and their Power
Both the AAR and the AAAR have the authority to conduct its proceedings under the Code of Civil Procedure, 1908, they have the power to examine, record attendance and check all the books and accounts of the concerned person. Both the authorities are given the status of civil courts for the purpose of Section 195 of the Code of Criminal Procedure. The proceedings conducted by the courts will be deemed to be a judicial proceeding for the purpose of Section 196 of the Indian Penal Code. Apart from all the above-mentioned powers both the authorities have the power to regulate their own procedure.
Assessment under Goods and Services Tax
Assessment means the determination of the tax liability of a person under Goods and Services Tax. Assessment includes Self Assesment which is done by the taxpayer himself, but the Government has the right to reassess the tax liability of the taxpayer if it feels that there is a short payment of GST.
Types of Assessment Under GST
The persons registered under the Act are themselves required to assess the tax payable by them for a tax period. After such an assessment, they shall also file the return required under section 27 of the Act. the types of assessments under GST are:
- Self Assessment
- Provisional Assessment
- Scrutiny Assessment
- Best Judgement Assessment
- Assessment of Non-fillers of Return.
- Assessment of Unregistered persons
- Summary Assessment
Every taxpayer has to do a self-assessment of its Tax liability, and therefore every GST return filed by the taxpayer is based on the self-assessment done by him. Section 59 of the CGST Act mentions the provisions regarding Self Assesment.
Provisional Assesment is done when the taxpayer is unable to determine the tax liability on the goods and services and the tax rate is which is applied thereto. Section 60 of the GST Act contains the provisions regarding provisional assessment
The procedure of Provisional Assessment
- Under the first step, the concerned taxpayer has to give in writing a request to conduct a provisional assessment to the GST officer.
- In the second step after assessing the application, the GST officer will pass an order in a maximum of 90 days from the date of the receipt of the request on a provisional basis or at the GST rate whichever he mentioned in the application.
- In the next step, the taxpayer who is paying the provisional tax has to sign a bond along with security promising to pay the difference between the provisionally assessed tax and the final assessed tax.
- Finally, in the last step, the A officer will pass the final assessment of tax within six months from the date of the order of the provisional assessment.
Interest paid on Provisional Assessment
In some cases the actual tax which is payable is more than the provisional assessed tax, in that case, the taxpayer has to pay interest on the increased tax, the interest would be charged from the actual due date of tax till the actual payment of the tax.
Refund under provisional Assessment
It is also possible that sometimes the actual tax payable is less than the provisional tax already paid, in that case, a refund would be given to the taxpayer as per the provisions mentioned in Section 56.
Under this assessment, the GST officers have the powers to scrutinize the returns filed by the taxpayer and if some discrepancies found in the return filed then the officer must pass the notice of discrepancy found to the registered taxpayer and the registered taxpayer has to furnish an explanation on the same. After the explanation is given the taxpayer has two options available
- If the officer is satisfied with the explanation then the officer will communicate this with the taxpayer and no further actions would be initiated
- But if the officer is not satisfied with the explanation and he fails to make corrective measures after accepting the discrepancies then he can take action against the taxpayer under the GST Act. the officer might conduct the audit of accounts of the registered person or he initiates an inspection or search the place of work of the business, or he may demand the recovery of the debt or any liability on the taxpayer.
Best Judgement Assessment
Under Section 62 if the registered person fails to furnish the required return, then in that case the officer will conduct an assessment in order to find the tax liability by taking into consideration all the relevant material that he has an issue and assessment order within a period of five years from the date of furnishing the annual returns to the date till the tax has not been paid.
On receiving the receipt of the said notice if the taxpayer has furnished all the returns then the assessment would be called off, but he would still be liable to pay the interest which is applicable.
Assessment of Unregistered Person
Under Section 63 if the person whose registration has been canceled but still has to pay off the tax has not paid the tax till yet then the officer can initiate an assessment to the best of his judgment for the relevant tax periods.
If the GST officer receives a notice regarding the tax liability of the person, he shall initiate an assessment which may seem necessary and which may adversely affect the revenue. Under Section 64 in order to conduct a summary assessment, the proper officer must obtain permission from the joint commissioner or commissioner.
Case Law pertaining to ITC under Advance Ruling
In re Kansai Nerolac Paints Limited the appellate authority held that the credit that has been collected through the Krishi Kalyan Cess which has been appeared in the service tax return of the input service provider by the petitioner will not be allowed to be considered as a valid input tax credit.
Facts of the Case
The Kansi Nerolac Paints Limited has engaged in the business of manufacture of pains that take up work on a contractual basis. The ARA Maharastra gave a judgment that the balance furnished on 30 June 2018 under Krishi Kalyan Cess is not valid for getting Input Tax Credit under Goods and Services Tax. the party was aggrieved by the decision and went to the Appellate Advance Ruling Authority by claiming the following ground:
- The first claim of the party was that entry 92C of the union list 1 that gave the power to the central government to leavy tax has been abolished after the introduction of Goods and Services Tax. As a result of that, the Krishi Kalyan Cess attached under the Goods and Service tax is valid to be considered as the Input tax credit
- The Advance ruling Authority supported its argument with the orders of Delhi High Court on the dispute regarding the cross-utilization of the Ec which was not at all related to the current issue
- The Advanced Ruling Authority also relied on the Advice of the Central Board of indirect taxes and customs who’s decision have no binding effect.
These were the three arguments on which the petitioner relied and wanted that the ruling of the Advance ruling authority is overturned. The appellate advance ruling authority took all these arguments into consideration and set the law in motion to examine the validity of the arguments, after examing all the facts the Appellate Advanced Ruling Authority upheld the decision of the Advanced Ruling Authority on the following grounds:
- It upheld its decision based on the Central Goods and Service Act according to which the Central Value Added Tax Credit does not come under the list of duties and cesses which are accepted under the Central Value Added Tax Rules, 2004 which do not include Krishi Kalyan Tax.
- The Court bought important information to the knowledge of the petitioners that the subsequent amendments allow considering the Krishi Kalyan Cess only to the output service providers
- On the matter relating to the admissibility of the CBEC FAQ, the court upheld that their suggestions could be relied upon
In India there are very few people who pay taxes, the main reason behind it is that many don’t know the process as to how to file their return. Therefore the concept of the advance ruling is a great introduction under GST in order to enable the people to know how to file annual returns and what is the procedure. It is equally important to understand that without keeping a check on the returns filed by the registered taxpayers it is not possible to make GST a grand success, therefore the concept of Assesment helps us to know how the accurate amount of GST is collected and how is it determined.