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Govt looking to revamp GST AAR system after contradictory rulings in states

In view of the confusion stemming from contradictory rulings given by different GST advance ruling authorities on the same or similar issues, the finance ministry is weighing the option of setting up either a centralised AAR or regional AARs.

business Updated: Jun 05, 2018 17:24 IST
Press Trust of India
Press Trust of India
Press Trust of India
GST,GST AAR,GST AAR mechanism
(Illustration: Shutterstock)

The government is planning to revamp the advance ruling mechanism under GST by setting up either a centralised authority, or 4 regional authorities, in the wake of the contradictory orders passed by AARs in different states.

Under the Goods and Services Tax (GST) law, each state is required to set up an Authority for Advance Rulings (AAR) comprising one member from the central tax department, and another from the respective state.

The AAR takes decisions on matters relating to GST provisions like registration requirement, exemptions, classification, and valuation

In view of the confusion stemming from contradictory rulings given by different authorities on the same or similar issues, the finance ministry is weighing the option of setting up either a centralised AAR or regional AARs, an official said.

As tax officers are members of the AARs, there can be a conflict of interest as they often try to protect the interest of revenue while giving their rulings, the official said.

“In order to protect the interest of revenue, they often read too much into the law. Sometimes the order passed goes beyond the intention of the law, thus increasing chances of future litigations,” the official added.

AARs in different states have so far passed about 60 orders under the GST law, while most states are yet to set up the GST appellate authority to entertain appeal against AAR verdicts.

Recently, the New Delhi bench of the AAR had held that duty-free shops at airports are liable to deduct GST from passengers. However, these shops were exempt from service tax, and Central Sales Tax in the earlier regime.

The revenue department is planning to come up with a clarification exempting ‘duty-free’ shops from GST.

Diljeet Titus, managing partner at law firm Titus & Co, said for the time being the government should link the different AARs electronically, so that members are aware of the issues and decisions of different authorities, and refrain from taking contradictory views.

“This would help in preventing authority shopping and ensuring effective working of the AARs,” he said.

AMRG & Associates Partner Rajat Mohan said, the decision making in income tax AARs is entrusted to an independent adjudicatory body headed by a retired judge of the Supreme Court.

“On the contrary, under GST, the scope of the AAR has been widened and every taxable person is permitted to file an application for advance ruling for a meagre fees of Rs 10,000. The functions of AAR are entrusted to tax officers, who have toppled the objective of forming an AAR which ought to be fair, reasonable and unbiased,” Mohan said.

Recently, the solar industry too was lef tvexed when the Maharashtra AAR said that 18% GST rate would be levied for installation works, but the Karnataka-bench of AAR passed an order levying 5% GST for the same.

First Published: Jun 05, 2018 17:24 IST