AAR judgments under GST regime in but no appeal mechanism set up

From taxing products sold at duty-free shops to taxing of canteen services, Authorities of Advance Ruling (AARs) set up under the goods and services tax (GST) regime have given many important judgments. 

The problem is that businesses are unable to appeal against those verdicts if they wish to. For, the appellate bodies for this purpose are yet to be set up. As a result, some are contemplating an appeal to the high courts.

An AAR is a mechanism under law to provide certainty and transparency to a taxpayer with respect to an issue which might cause a dispute with the tax administration. An AAR is a legally constituted body, mandated to issue a ruling to a person or entity who or which is registered for the tax or is liable to be registered. The ruling binds the government as well.

GST law says such rulings can be appealed to at the appellate level but, as noted, these have not been brought into existence.  

“A number of AAR judgments have come but the appeal mechanism is yet to be set up. The industry has started complaining about it,” conceded a government official. “States have been asked to fast-track setting up the appellate bodies.”

The GST law says an appeal needs to be filed with the appellate authority (AA) within 30 days of the AAR judgment and the order needs to come within 90 days. Most AAR rulings - there have been around 20 so far - have gone against businesses.

“Since there is no appeal mechanism, we have run out of the 30 days window to appeal. We are in the process of filing a writ petition in the high court,” said an industry player who did not wish to be identified.

A number of companies have also written to states and central authorities on this and demanded their applications be accepted as and when the appellate body is set up. 

In a few states, the jurisdictional tax commissioners are accepting appeal applications for the time being, noting there is no official mechanism in place.

“It is a very unfortunate situation. The AAR ruling is against my company regarding imports. I need to appeal to at least get a stay, but the entire process is resulting in a delay in justice. Imports are happening on a recurring basis,” said another industry player, whose case relates to classification for imports of home appliance items.

“The entire objective of AAR is to provide certainty, which is not the case at the moment. The AA should have been formed on Day 1. The delay is causing extreme hardship,” says Abhishek Rastogi, partner at legal consultants, Khaitan & Co.

Bipin Sapra, partner at consultancy EY, said: “There is an urgent need to set up the AA in various states, given that a large number of the rulings have gone against the applicants. The issues will only attain a reasonable level of finality after a decision from the AA.” 

A recent AAR judgment ruled that outlets at the Delhi International Airport are not ‘free from duties’ under the new indirect tax regime, suggesting GST will be charged for purchases made from duty-free shops there. In the earlier indirect tax regime prior to the July 1 GST roll-out, purchases at duty-free shops were exempt from central sales tax and value-added tax, as sale from such shops were considered export and supplies were taking place beyond Customs frontiers. Similarly, the AAR in Kerala has ruled that GST will be levied on recovery of food expenses from employees for canteen services provided by an employer, increasing the compliance burden of taxpayers.