Given the relatively recent implementation of Goods and Services Tax (GST) provisions, many businesses frequently seek clarifications. This necessity highlights the importance of an advance ruling mechanism.

What is an Advance Ruling?

An advance ruling represents a formal written interpretation of tax statutes provided by tax authorities. These rulings are issued to both businesses and individuals who seek clarity on specific tax issues. Taxpayers typically request an advance ruling when they are unsure or unclear about particular statutory provisions, especially before commencing a new activity. For instance, in income tax, advance rulings assist non-residents in determining their income tax obligations, enabling proactive tax planning and mitigating costly legal disputes. Under GST, an advance ruling is a formal written decision from tax authorities in response to an applicant's questions concerning the supply of goods or services.

Why are Advance Rulings under GST Necessary?

The purpose of an advance ruling, including its application within the GST framework, encompasses several key objectives:

• Offering upfront certainty regarding tax liabilities for prospective activities an applicant intends to undertake.
• Drawing in Foreign Direct Investment (FDI) by providing clear tax implications and a transparent outlook on future tax obligations for foreign investors. This regulatory clarity and streamlined taxation can appeal to non-residents who wish to avoid complex tax conflicts.
• Minimizing potential litigation and expensive legal disagreements.
• Delivering prompt, clear, and cost-effective decisions.

When Can One Request a GST Advance Ruling?

A taxpayer may seek an advance ruling when clarity is needed on specific GST provisions. An advance tax ruling can be requested for various matters, including:

• Ascertaining the classification of goods and/or services under the GST Act.
• Determining the applicability of a notification that impacts tax rates.
• Establishing the time and value of supply for goods or services.
• Confirming whether input tax credit, paid or deemed paid, is permissible.
• Identifying the tax liability for specific goods or services.
• Verifying if the applicant is required to register under GST.
• Assessing if a particular activity undertaken by the applicant concerning goods or services constitutes a supply.

Procedure on Receipt of Application

Upon receiving an application for an advance ruling, a duplicate of the submission is sent to the designated officer, who is then responsible for providing all pertinent records.

Process of Advance Ruling Under GST

The initial application for an advance ruling is submitted to the Authority for Advance Ruling (referred to as the Authority). If an individual is dissatisfied with the Authority's decision, they have the option to appeal to the Appellate Authority for Advance Ruling (known as the Appellate Authority).

Forms

The application for an advance ruling must be filed using FORM GST ARA-01 and accompanied by a fee of Rs. 5,000.

Decision of the Authority

The Authority holds the power to either accept or deny the application for an advance ruling through an official order.

Will All Applications Be Allowed?

The Authority will decline to accept an application under specific circumstances:

• If the identical issue has previously been decided for the applicant.
• If the same matter is currently involved in ongoing legal proceedings concerning the applicant.

Essentially, an advance ruling cannot be sought for matters that are already under adjudication or for which a decision has already been rendered. Any application rejection will occur only after the applicant has been granted an opportunity to be heard, and the grounds for rejection must be documented in writing.

When Will the Authority Give Their Decision?

The Authority is expected to issue its advance ruling decision within 90 days of receiving the application. Should the Authority's members hold divergent opinions on a specific issue, that point will be escalated to the Appellate Authority.

It is important to note that an advance ruling applies only prospectively.

On Whom Will the Advance Ruling Apply?

An advance ruling is legally binding solely upon the applicant and the relevant jurisdictional tax authorities concerning that applicant.

The ruling ceases to be applicable if there are changes to the law or the factual circumstances upon which the original advance ruling was based.

Appeal to the Appellate Authority

An applicant who is dissatisfied with the advance ruling has the right to file an appeal with the Appellate Authority.