GST UPDATE ON ELIGIBILITY OF AAR TO DECIDE ON PLACE OF SUPPLY PROVISIONS

GST UPDATE ON ELIGIBILITY OF AAR TO DECIDE ON PLACE OF SUPPLY PROVISIONS:-

The scope of advance ruling under section 97 of the CGST Act, 2017 is very specific and precise with limited application and the taxpayers are not free to seek advance ruling on each and every issue in GST regime. It is pertinent to mention that since implementation of GST, number of decisions have been pronounced by AAR and AAAR confirming that the AAR is not empowered to decide on issues relating to determination of place of supply provisions in GST regime. However, recently, Hon’ble Kerala High Court has rendered a landmark decision on the jurisdiction of AAR to comment on place of supply issues. The said decision namely SUTERHLAND MORTGAGE SERVICES INC. VERSUS THE PRINCIPAL COMMISSIONER is analysed in the present update.

Brief Facts:-The applicant is a branch of a US based company engaged in providing information technology enabled services to customers situated outside India and to is principal located in US. The applicant filed an advance ruling on whether the services provided by it directly to customers in US who directly made payment to their principal who in turn reimbursed the cost of provision to service to the applicant is to be considered as ‘export of service’ in GST era. As we all know that for determination of transaction as ‘export of service’, determination of place of supply plays a very important role. Consequently, the AAR rejected the application on the grounds that they are not competent to decide on matters concerning analysis of place of supply provisions. Furthermore, as the provision contained in CGST Act, 2017 provides appeal mechanism against the order of AAR if the same is passed under section 98(4) of the CGST Act but since the application was rejected under section 98(2), no appellate remedy lies to the applicant and so the order passed by AAR was challenged by way of filing writ petition before the Hon’ble Kerala High Court.

Reasoning adopted by Hon’ble High Court:-The hon’ble Kerala High Court held that the clause (e) of section 97(2) of the CGST Act, 2017 is much wider in scope and empowers the AAR to decide on issue regarding determination of the liability to pay tax on any goods or services or both. It was concluded that since issue involved in the present case is regarding whether transaction is to be considered as export of service, it means that it is that of determination of liability of the applicant to pay tax. Consequently, the AAR ought to have considered the provisions of ‘place of supply’ as given in section 13 of the IGST Act, 2017 and decide the issue accordingly. Therefore, the writ petition was allowed by way of remand.

Comment:-Till date, various advance rulings pronounced in various States have categorically held that advance ruling authority cannot decide on cases involving analysis of provisions for determination of place of supply. It is also clear that the advance rulings pronounced are binding on both jurisdictional officer and the applicant in light of the provisions contained in section 103 of the CGST Act, 2017 except the law, facts or circumstances supporting the original advance ruling have changed. It is pertinent to mention that decision rendered by High Court is covered by exception and the decision of the Hon’ble Kerala High Court will be strictly followed in the State of Kerala. Now, the question arises is that whether the decision would have binding effect throughout India? Well, it is settled principle of law that the decision rendered by High Court has applicability throughout the Country unless there is contrary decision on the same issue by another High Court. In the present case, since there is no contrary decision, the decision rendered by Hon’ble Kerala High Court would prevail. In this respect, reference may be made to decision given in the case of COLLECTOR OF CENTRAL EXCISE, CHANDIGARH [1997 (96) E.L.T. 257 (Tribunal)] wherein it was held that as per judicial discipline, the decisions rendered by High Courts are binding on Tribunals and other subordinate authorities. However, it is not clear how the applicants who have already availed negative advance rulings will avail benefit of this High Court decision and the government should come out with clarification as regards the procedure to be followed for reviewing the negative decisions rendered by AAR and AAAR all over India.

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GST UPDATE ON ELIGIBILITY OF AAR TO DECIDE ON PLACE OF SUPPLY PROVISIONS

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