GST advance rulings: Useful, despite ‘pro-revenue trend’

After more than a year of GST, around 130 advance rulings and nine appellate orders have been pronounced by the Authority of Advance Ruling (AAR) and the Appellate Authority of Advance Ruling (AAAR) of various states. Most of these have been decided in favour of the Revenue Department – leading to the perception of a “pro-revenue trend” and creating hesitation in taxpayers and their advisers in opting for advance ruling under GST. Despite this, advance ruling continues to be a highly effective tax controversy management tool under GST, at least for tax positions which are almost certain to be disputed by the Revenue Department and for those which are in dispute between contracting parties in commercial contracts.

Where it can be predicted with reasonable certainty that a dispute will arise, advance ruling helps to cut short an otherwise long-drawn and expensive process of tax litigation under GST. If an assessee does not apply for an advance ruling and the Revenue Department differs in its interpretation with respect to the assessee’s GST liability, the litigation will commence in two to five years with a show cause notice seeking to impose GST along with interest and penalty, followed by an adjudication order. In the case of an adverse adjudication order, the assessee’s only resort would be to file an appeal to the appellate authority and then to the appellate tribunal. Given past trends, it is likely that any relief would be received by the assessee only at the appellate tribunal level.

Not only would the exposure in such cases extend to interest and penalty in addition to the GST demand (which can almost double the exposure in some cases), filing an appeal would require a deposit of up to 30% of the disputed sum of tax – capped at ₹1 billion (US$14 million) for both central and state GST. Appeals must go the appellate tribunal, where technical members outnumber the judicial member, before assessees may approach the high court and then the Supreme Court. Cases typically take at least three years to reach the high court, with heightened exposures and deposits for the assessee.

Sudipta Bhattacharjee is a partner and Onkar Sharma is a managing associate at Advaita Legal. Samyuktha Srinivasan, an associate, provided input.