REMEDY AGAINST ORDERS OF APPELLATE AUTHORITY FOR ADVANCE RULING (AAAR) UNDER GST

 

Brief Background and History

In 1993, post the opening of the Indian economy in 1991, India introduced the scheme of advance rulings in the tax legislation. Advance ruling means written opinion or authoritative decision by an Authority empowered to render it, with regard to the tax consequences of a transaction or proposed transaction or an assessment in regard thereto.

Keeping the same in view, this document discusses the relief available against order passed by Appellate Authority for Advance Ruling (in short “AAAR”) through a study of Constitution of India and varied judgments.

Understanding the Term from GST Perspective

Under GST, a legally constituted body called Authority for Advance Ruling (in short “AAR”) can give a binding ruling to an applicant who is a registered taxable person or is liable to be registered. If the applicant or the jurisdictional officer is aggrieved with the finding of AAR, he can file an appeal with AAAR. The decision of AAAR is also treated as an advance ruling i.e., order of AAAR shall enter into shoes of AAR with respect to its legal validity.

Recourse Against the Order of AAAR on the Basis of Substantive Merits of the Case

While a provision is made in the statute for providing remedy in the form of an appeal against the order of AAR, the statutes in question have not provided for any further appeal against the decision of the Appellate Authority in case an applicant or the Jurisdictional Officer is aggrieved by the ruling pronounced by AAAR. Such non-availability of challenging the ruling of AAAR is quite reasonable on the grounds that the object of the AAR/AAAR is to give clarity on the tax consequences, and the purpose of constituting such authority would be defeated if its ruling is challenged through various levels in the judicial system.

The same view was taken in JSW Energy v. UOI of Bombay High Court [2019 (27) G.S.T.L. 198 (Bom.)], wherein the Hon’ble Court held that the matter in dispute would not be examined as the statute do not allow further appeal against the order of Appellate Authority. The verdict is reiterated herewith:

“At the outset, we make it clear that we do not propose to examine the impugned orders on their substantive merits or demerits, merely because statutes in question have not provided for any further appeal against the decision of the Appellate Authority.”

Page 3 (Page No. J46 / GST Law Times p. 38)

Now the question arises as to what would happen if such a high powered forum as AAAR, before pronouncing its ruling, fails to observe the principles of natural justice i.e., the primary foundation for taking a judicial decision, for instance if it doesn’t consider the submissions or grounds made by the party or it doesn’t provide a reasonable opportunity of being heard to any party before making its decision.

Recourse Where AAAR Exceeds Jurisdictional Limits (Judicial Review)

  • The above question has only one answer, i.e., “Judicial Review”.
  • Judicial Review refers to the power of the judiciary to interpret the Constitution and to declare any such law or order of the legislature and executive void, if it finds them in conflict with the Constitution of India.
  • A writ in India is a constitutional remedy, the formal order of the Court directing the authorities if there is a violation of the Fundamental Rights by a Government Authority or body and there is no alternate statutory remedy available.
  • In the Indian legal system, writ petition can be filed under Article 226 in the High Court and under Article 32 of the Constitution in the Supreme Court.
  • Fundamental rights are enshrined in Part III of the Constitution of India, which include freedom of speech and expression. And not affording the opportunity to place on record any evidence or clarifications would tantamount to denial of Fundamental Right and violation of principles of natural justice.
  • Justice can be sought in these cases even if no remedy is provided in any statute, which can also be ascertained from following judicial pronouncements:

Case Law Reference – Held That (Summarised)

  • Smt. Sudha Patil [(1999) 235 ITR 118 (SC)]
    It was held that merely because no appeal mechanism was provided for against the order of an appropriate authority directing compulsory acquisition by the Government, the supervisory power of the High Court would not get enlarged nor can the High Court exercise an appellate power.
  • JSW Energy v. UOI – Bombay High Court – 2019 (27) G.S.T.L. 198 (Bom.)
    Matter was remanded back to AAAR for consideration merely because the authority failed to provide reasonable opportunity of being heard. The Court specifically stated that it doesn’t propose to examine the substantive merits and any attempt of examining the merits of the case would tantamount to converting proceedings under Article 226 of the Constitution, which are essentially proceedings to seek judicial review, into an appellate proceeding.

Page 4 (Page No. J47 / GST Law Times p. 39)

  • C.M.S. Info Systems Ltd. (W.P. No. 5801 of 2019) – 2019 (28) G.S.T.L. 27 (Bom.)
    The Court, without going into the merits of the case, held that the decision-making process had not been complied with by the AAAR. Thus, the matter was remanded back to the AAAR for fresh consideration on merits and in accordance with law.
  • Columbia Sportswear Co. v. DIT [2012 (283) E.L.T. 321 (S.C.)]
    The Supreme Court held that the binding nature of advance ruling would not affect the jurisdiction of the Supreme Court under Article 136 of the Constitution or of the High Court under Articles 226 and 227 of the Constitution.

In Columbia Sportswear Co. v. DIT [2012 (283) E.L.T. 321 (S.C.)], the highest judicial Court of the Constitution of India has clearly held that although the ruling of AAR/AAAR may be binding on both the parties to the ruling, but the same cannot affect the jurisdiction of Supreme Court under Articles 136 and 32 and High Court under Articles 226 and 227 because these articles of the Constitution are constitutional provisions vesting jurisdiction of Supreme Court and High Court.

However, it is crucial to note that these remedies are only available if there is flaw in the decision-making process of the Authority, otherwise order passed by AAAR cannot be challenged on the substantive merits.

Future Course of Action

The taxpayers are at their discretion to file an application for Advance Ruling but the legal consequences of the same, i.e., the binding nature of the ruling and no relief available against the ruling on the basis of the substantive merits, should be kept in mind.

In this area where advance rulings come from various Bench with conflicting interpretation of law, caution must be exercised before filing application as it may lead to unwanted litigation or that the compliance of the ruling results in hardship to the taxpayers.