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March 24, 2021

Delay in AAR Rulings adversely affects Investigation and the Interest of Revenue – HC

by CA Jessica Nagaonkar in GST

Delay in AAR Rulings adversely affects Investigation and the Interest of Revenue – HC

An advance ruling helps the applicant in planning his activities which are liable for payment of GST, well in advance. It also brings certainty in determining the tax liability, as the ruling given by the Authority for Advance Ruling is binding on the applicant as well as Government authorities. “Advance ruling” means a decision provided by the Authority or the Appellate Authority to an applicant on matters or on questions specified in section 97(2) or section 100(1) of the CGST Act, 2017, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant. If the application is admitted, the AAR shall pronounce its ruling within ninety days of receipt of application. Before giving its ruling, it shall examine the application and any further material furnished by the applicant or by the concerned departmental officer.

The Gujarat High Court in the case of M/s SDB Diamond Bourse ruled that sometimes delay in Authority of Advance Ruling (AAR) may frustrate investigation and also hinder the interest of the Revenue.

Facts of the Case:

  • The writ­ applicant, M/s SDB Diamond Bourse received an advance of Rs.3.40 crore from the interested members during the Financial Year 2014-­15 for acquiring office space in the proposed ‘Diamond Bourse’ constructed by the writ applicant.
  • Such amount received by the writ applicants was required to be reported in the ST­3 returns filed for the relevant period.
  • However, as alleged, the receipt of the amount was suppressed in the ST­3 returns for the relevant period.

Investigation conducted regarding tax evasion

  • On the basis of the information as regards the evasion of tax, the HQ Anti Evasion Branch of Surat­ Commissionerate initiated investigation.
  • In the course of the investigation by the authorities, a search was conducted under Section 82 of the Finance Act, 1994, on 6th April 2016.
  • After the search and seizure under Section 82, the writ ­applicants preferred an application before the AAR under Section 96(C) of the Act on the two issues.
  • However, as alleged, the receipt of the amount was suppressed in the ST­3 returns for the relevant period.

Appeal to Authority of Advance Ruling (AAR)

  • After the search and seizure under Section 82, the writ ­applicants preferred an application before the AAR under Section 96(C) of the Act on the two issues.
  • Firstly, whether service tax would be leviable on the transaction of SDB with its members based on the concept of mutuality.
  • Secondly, whether interest and/or penalty will be leviable, as claimed by the department, when there was no liability to pay service tax, given that the amount collected was in the nature of refundable deposit till the time the land was allotted by the Government of Gujarat to SDB.

Argument before the High Court

  • The writ applicants had only one argument and that was with respect to the pendency of the proceedings before the AAR.
  • According to the writ applicant, the Commissioner should have waited for the final order to be passed by the authority concerned so that the finding on the two questions referred to above would have been helpful to the Commissioner in taking the final decision as regards the impugned show cause notice.
  • The division bench refused to interfere with the impugned order passed by the Commissioner only on the ground that he should have waited for the ruling of the AAR.
  • Thus, in the peculiar facts and circumstances of the case, HC declined to grant any relief to the writ applicants and relegate them to pursue the appeal preferred by them, before the Tribunal.

HC while dismissing the appeal said that the Tribunal shall decide the appeal expeditiously in accordance with law without being influenced in any manner with any of the observations made by this Court in this order

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