AAR has given conflicting rulings on GST
The Goods and Services Tax is undoubtedly the biggest tax reform since Independence. The transition process from the indirect tax regime to the GST regime has not been smooth, however, the government has endeavoured to address stakeholders concerns and implement changes to ensure ease of doing business.
A key concern under any law is its interpretation and long drawn litigations resulting in hardship to taxpayers and affecting cash flow.
The Authority for Advance Ruling (AAR) constituted under the GST law aims to help taxpayers avoid long drawn litigation by planning their activities that attract GST, well in advance. The AAR framework also brings certainty in determining the tax liability.
The few States where AARs have already issued their rulings on various taxpayer queries seem to have either overlooked the instructions/circulars issued by the departmental authorities thereby giving contrary ruling or pronounced rulings which may give rise to new issues/litigation to the businesses.
One such ruling was issued by Delhi AAR stating that the supply of food and beverages made available in trains will attract GST as applicable on individual items and not at a composite rate. On the same matter, Central Board of Indirect Taxes and Customs (CBIC) had earlier issued a circular stating that the 5 per cent rate of GST would be applicable on supply of food and beverages made available in trains, platforms or stations. The ruling pronounced by Delhi AAR is a sharp contrast to CBIC’s circular, giving rise to different tax positions by two different authorities on the same subject matter.
In another ruling, Kerala AAR stated that the recovery of food expenses from employees for the canteen services provided by an employer to its employees will qualify as “supply of services’’, thereby chargeable to GST. The ruling stated that the recovery of cost from the employee will be regarded as a ‘consideration’ for the said supply and existence of profit motive is not necessary.
These services were exempt under earlier service tax regime. AAR, in its ruling, mentioned that similar exemption is not provided under the GST law and therefore the taxability is decided afresh.
In another case, Delhi AAR issued an order stating that the supply of sunglasses at duty-free shops in international airports to outbound passengers shall be liable to GST. So such supply shall not be regarded as ‘zero rated supply’. Further, the ruling states that the goods can be said to be exported only when they cross the territorial waters of India and not by merely crossing the customs frontiers. Similar transaction was regarded as export under earlier tax regime.
Though the AAR’s decision is binding only on the applicant and on the jurisdictional tax authorities, it will have widespread impact over other assesses with similar issues. Advance ruling plays a vital role in getting clarity over the ambiguous and complex provisions of the law and get more stability as far as the taxation is concerned.
However, when such rulings are contrary to the clarifications provided by the departmental authorities or to the settled positions under earlier regime, they bring more confusion and increase the scope of litigation. Even though an AAR’s order may not be applicable on other applicants, it may create ambiguity on the exact tax treatment and applicability.
Rohira is Partner and Nayak Consultant at Grant Thornton