In 1993, post the opening of the Indian economy in 1991, India introduced the scheme of advance rulings. 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. This document discusses the relief available against order passed by Appellate Authority for Advance Ruling (AAAR) through a study of Constitution of India and varied judgements in this regard.
2. GST Perspective
Under GST, a legally constituted body called Authority for Advance Ruling (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 appeal an appeal with AAAR. The decision of AAAR is also treated as an advance ruling i.e. order of AAAR enters into shoes of AAR with respect to its legal validity.
3. 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 if the Applicant or Jurisdictional Officer is aggrieved by the ruling pronounced by AAAR. One can say that non-availability of any provision to challenge the ruling of AAAR is only reasonable as the object of the AAR/AAAR is to give clarity on the tax consequences, and the purpose of constituting such authority is defeated if its ruling can be challenged through various levels in the judicial system.
The same view was taken in JSW-Energy-Vs-UOI-Bombay-High-Court, the court made this clear, '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';
So, what happens if AAAR, before pronouncing its ruling fails to observe the principles of natural justice i.e. the primary foundation which an authority should observe while making its decision e.g. AAAR doesn't consider the submissions made by the party or it doesn’t provide the reasonable opportunity of being heard to either party before making its decision?
This is where Judicial Review comes into play.
4. Recourse where AAAR exceeds jurisdictional limits (Judicial Review)
The recourse is available only by way of '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 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 Indian Constitution in the Supreme Court.
Fundamental rights are enshrined in Part III of the constitution of India, which include freedom to 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 as ascertained from following judicial pronouncements:
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.
C.M.S. Info Systems Ltd. (WP no. 5801/2019)
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 the law.
Columbia Sportswear Co. v. DIT, (2012) 11 SCC 224
The Supreme court under 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 Article 136 and 32 and High Court under Article 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.
5. 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 era, where advance rulings come from various Benches with conflicting interpretation of law, caution must be exercised before filing application as it may lead to unwanted litigation or may result in hardship of the taxpayers.
The views expressed in this article are strictly personal. The author can be reached at firstname.lastname@example.org