Advance ruling in GST: Classification-related disputes top the list

The advance ruling provision in GST accepts that the interpretation of the goods and services tax is not an easy task. The mechanism provides a solution to the taxpayer with written guidance or advice about the tax authority’s interpretation and position on specific transactions. Pritam Mahure decodes implications of the recent rulings
 

How do advance rulings help businesses in getting a better understanding of tax positions?

GST being a self-assessment regime entails the taxpayer to take tax positions on day-to-day business transactions. This includes questions like whether GST is applicable on supplies, whether the transaction is intra-state or inter-state, whether the transaction will qualify for zero-rating and whether reverse charge mechanism is applicable.  

Fortunately, advance ruling provides a mechanism to the taxpayer to seek clarifications on the key issues. In the long run, this step of seeking clarifications will save the taxpayer from litigation, as well as from penal consequence.

What are the categories that have attracted the most number of disputes over the last one year? 

Till now more than 80 advance rulings have come. If one peruses them, it is apparent that classification-related rulings top the chart with more than 40 rulings. This is followed by GST applicability-related rulings (20). The balance rulings are on other aspects such as on the issue of valuation and place of supply.

 

How does India compare to other jurisdictions — after one year of the roll out — when it comes to GST/VAT-related disputes?

The analysis of the rulings shows that the underlying question in most of the classification disputes was about the rates of GST. The key reason for this trend appears to be the multi-tier GST rate slabs in India. This multi-tier GST rate structure is a stark contrast to Value Added Tax (VAT) in some other jurisdictions, including the United Arab Emirates (UAE). 

In the UAE, VAT was introduced on January 1, 2018, with a single rate of 5 per cent. Even the exemptions in the UAE are restricted to four items only (one of them is residential leasing). This has ensured lesser complications in the UAE VAT law and accordingly, much lesser advance rulings (referred to as ‘Clarifications’ in the UAE VAT).

Has there been any instance of contradictory ruling on the same issue by two benches?

Recently, a few instances of contradictory rulings were observed. One such issue is that of authorities pronouncing the advance ruling was seen as tilting more towards protection of the interest of the revenue department. In one such instance in the applicability of the rate on a solar power plant, one ruling stated that the appropriate rate is 5 per cent, whereas another ruling said its 18 per cent. One reason for these varying advance rulings is that the mechanism at present is decentralised. The GST Council should look into the aspect of centralisation of the advance ruling mechanism.

As we enter the second year of GST, do you expect a step up in tax litigation?

This trend in advance rulings is worrying as it brings back the memory of the erstwhile era where disputes relating to classification and levy/ exemption were the norm of the day. Additionally, in the coming days, views proposed in some of the advance rulings (such as levy of GST on liquidated damages, employee recoveries, whether to treat a transaction as works contract) may not be found as acceptable and may then bring a second wave of litigation. 

As we celebrate the first anniversary of GST rollout, taxpayers expect that the GST Council analyses the emerging trends in advance rulings and take appropriate holistic macro measures, than only addressing specific micro issues.
 

The writer is a chartered accountant and author of several books on GST and Gulf VAT