Validity of the constitution of AAR and AAAR?

Pradeep Jain | Last updated: 08 June 2020

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Quick Summary

The constitution of the Authority for Advance Ruling (AAR) and Appellate Authority for Advance Ruling (AAAR) under GST has been questioned. These bodies are composed solely of government technical members, lacking judicial members. This composition has led to concerns about decisions favouring revenue and has been challenged in the Rajasthan High Court, arguing it's arbitrary and unconstitutional based on Supreme Court precedents for bodies exercising judicial functions.

The Authority for Advance Ruling under GST is constituted in terms of provisions contained in section 96 of the CGST Act, 2017 read with Rule 103 of the CGST Rules, 2017 wherein the government appoints officers not below the rank of Joint Commissioner as member of the Authority for Advance Ruling (AAR). Similarly, the Appellate Authority for Advance Ruling (AAAR) is constituted under section 99 of the CGST Act, 2017. It is observed that the members of AAR and AAAR are the government officers, commonly called as technical members. The constitution of AAR and AAAR is such that it comprises of only technical members with no judicial member. In the absence of judicial member, it is commonly observed that the decisions pronounced are pro-revenue. Moreover, the constitution of appellate authority entails presence of judicial member which is absent in AAAR constituted under GST Law.

It is worth noting that the vires of constitution of AAR and AAAR under GST has been challenged before the Hon’ble Rajasthan High Court in the case of CHAMBAL FERTILISERS AND CHEMICALS LTD. and the Hon’ble High Court has admitted the question framed by the applicant as to whether constitution of AAR/AAAR under GST Law is arbitrary and unconstitutional. It has been pleaded that according to section 105 of the CGST Act, the AAR/AAAR would have the powers of civil court under the Code of Civil Procedure in relation to specified items and proceedings before them would be deemed to be judicial proceedings. Reliance has been placed on the decision given by the Constitution Bench of the Supreme Court in the case of UNION OF INDIA VERSUS R. GANDHI AND OTHERS-(2010) 11 SCC 1 wherein it was held that composition of an authority/Tribunal ought to have a member from judicial background as they have been empowered to discharge judicial functions.

GST AAR and AAAR Constitution: Validity Questioned

The final verdict of the Hon’ble Rajasthan High Court is yet to come but if the constitution of AAR and AAAR is declared as arbitrary and unconstitutional, then the fate of numerous decisions rendered till date and their binding nature would be a big question that would remain unanswered.

FAQ :

The AAR is constituted under section 96 of the CGST Act, 2017, with members appointed from officers not below the rank of Joint Commissioner. The AAAR is constituted under section 99 of the CGST Act, 2017.

The primary concern is that both AAR and AAAR are composed exclusively of government technical members, with no judicial member appointed. The AAAR, unlike a typical appellate authority, also lacks a judicial member.

It is commonly observed that decisions pronounced by these authorities tend to favour the revenue due to the absence of a judicial member.

Yes, the validity of the constitution of AAR and AAAR under GST has been challenged before the Hon'ble Rajasthan High Court in the case of CHAMBAL FERTILISERS AND CHEMICALS LTD.

The challenge is based on the argument that the constitution is arbitrary and unconstitutional, citing Supreme Court decisions that mandate the inclusion of judicial members in authorities empowered to discharge judicial functions, as AAR/AAAR have the powers of a civil court.

The Hon'ble Rajasthan High Court has admitted the question framed by the applicant, but the final verdict is yet to be announced. The outcome could impact the validity of past decisions made by AAR and AAAR.