GST UPDATE No 102 ON SCOPE OF AAR TO CONSIDER ISSUES RAISED

A number of cases have been reported wherein the application for advance ruling has been rejected merely on the grounds that it is not covered within the scope of AAR to comment on the said issue according to provision contained in section 97 of the CGST Act, 2017. Reference may be made to the case of CHENNAI METROPOLITAN WATER SUPPLY AND SEWERAGE BOARD [2021 (49) G.S.T.L. 41 (A.A.R. - GST - T.N.)] wherein the application of advance ruling was rejected without going into merits on the grounds that the applicant was recipient of service and not supplier of service. However, recently, an interesting case was reported in the case of KHAITAN CHEMICALS AND FERTILISER [ORDER NO. 18/2020 DATED 08.12.2020] wherein the AAR refused to pronounce ruling on the grounds that it is not competent to test the constitutional validity of the provisions contained in GST Law. The analysis of this decision is the subject matter of discussion of our present update. The applicant filed advance ruling under the section 97(2)(e) of the CGST Act, under category of “determination of liability to pay tax on any goods or services or both” wherein it was stated that the liability to pay GST on ocean freight in case of “CIF terms” under reverse charge mechanism amounts to double taxation as the applicant has paid IGST on import of goods including the value of freight but is made to pay GST again on ocean freight under reverse charge mechanism which is improper. However, the Madhya Pradesh AAR held that the true meaning of the category entails that AAR can only answer whether tax is payable on the transaction undertaken by the applicant but it cannot interpret the constitutional validity of the provision levying tax in a particular statue as it is the exclusive domain of the Courts. The AAR held that when the applicant himself admits that the liability to pay tax exists, the validity of the provision levying tax cannot be questioned before AAR. Moreover, the reliance placed on the decision rendered by Hon’ble Gujarat High Court in the case of Mohit Minerals declaring the provision for levy of tax on ocean freight under reverse charge mechanism on the grounds of double taxation as ultra vires was rejected to be of no help to the applicant in the present case. Hence, the application was rejected without going into the merits of the case as being outside the purview of the scope of AAR. In this context, it is worth noting that the above cited decision needs to be re-visited as there have been many decisions which have entertained interpretation of statutory provisions for determination of tax liability for the applicant. Reference may be made to the recent decision given by AAAR in the case of ROTARY CLUB OF MUMBAI NARIMAN POINT [2020 (34) G.S.T.L.335 (APP. A.A.R.- GST MAH.)] wherein the issue raised was taxability of subscription/membership amount collected by club to its members which is solely utilised towards various expenditure incurred in meetings and other administrative expenses. It was concluded that no GST would be payable on the said amount collected as membership subscription as it is purely in the nature of a reimbursement for the meetings and administrative expenditures incurred by the appellant to sustain and propagate their inherent objectives and programmes, and if GST is leviable, it would be subject to the double taxation as the amount spent towards the meetings and administrative expenditures is already subjected to GST at the hands of the suppliers of these input services orgoods used in the meetings, events and other administrative functions of the appellant. Thus, levying tax on such fees would clearly be against the Legislature’s intention of the formulation of GST, which certainly does not embrace the idea of double taxation. It is pertinent to mention that the dispute as regards taxability of membership fees collected by club from its members has been in dispute since erstwhile service tax regime wherein the concept of mutuality of interest is being propagated. The matter has even travelled upto Supreme Court with favourable decision for assessee. Hence, technically, the AAAR should have refrained from commenting on the said question raised before it but instead a favourable ruling has been pronounced by considering the pleading of double taxation. Therefore, it is practically impossible for the assessees to predict the response of their advance ruling application filed by them as far as the applicability of section 97 of the CGST Act prescribing scope of AAR is concerned. It is pertinent to mention that there have been cases wherein the advance rulings having reference of Place of Supply provisions have been rejected as being outside the ambit of advance ruling. However, certain advance rulings were pronounced even considering the Place of Supply provisions on the premise that it is essential factor for determining the liability to pay tax which is very well within the scope of advance ruling under section 97 of CGST Act. Hence, the tussle as regards whether the issue raised is within the scope of advance ruling is relative issue, depending on the facts and circumstances of case but with the competency of the applicant to convince that the issue falls under the categories mentioned in section 97, the decision may be obtained on merits.

Comments

GST UPDATE No 102 ON SCOPE OF AAR TO CONSIDER ISSUES RAISED

Post a Comment

Query