India is looking at creating a centralised
Authority for Advance Rulings(AAR) for the goods and services tax (GST) after
divergent rulings on identical issues fuelled confusion over applicability and
the rate of tax: a recent case in point being the
divergent rulings by Karnataka and Maharashtra AARs on the issue of solar
We are looking at an issue based central
authority with officials from states and the Centre,” according to a top
government official. “If more than one appeal is filed on the same issue in
different jurisdictions it can be taken up by this body.”
The AAR is a quasi-judicial body that allows assessees to get guidance
on their potential tax liabilities relating to any transaction beforehand. The
rulings by the AAR are case-specific, but they have a persuasive impact on tax
assessment in cases of other firms under similar circumstances.
This is the key reason behind the government contemplating such a move.
“AAR decisions are specific to the case, but they do have some precedence
value,” the official said. The previous indirect tax regime had a centralised
body ensuring consistency in orders.
Maharashtra AAR ruled in a recent case that
solar project contracts are “works contracts”, taxable at 18% as a deemed
supply of service, instead of a “composite supply” that would have attracted
Karnataka AAR, on the other hand, reaffirmed in a
case that engineering and procurement contracts are composite contracts and
taxable at a concessional rate of 5%
The government is wary of such
variation in rulings that could sow further confusion.
The structure of the proposed centralised
authority will be decided once a decision is taken to set it up, the official
It may require a change in the GST laws and all
the states would need to come on board. .
Experts said the initial experience of the AAR
mechanism in the case of GST has not been very encouraging for businesses and
backed a centralised body for consistency. “On aspects like taxability of solar
power plants, liquidated damages, exemption on sale by duty free shops at
airports, etc, the authorities have taken a view which is not in line with the
industry practice, globally accepted principles or government’s own intention
while framing the laws,” said Pratik Jain, indirect taxes leader, .. PwC. “Further, there is
likelihood of different states taking a divergent view on the same issue.”
Jain said there is an immediate need to have a
centralised mechanism, either by changing the structure itself and bringing it
at par with earlier central taxes or by building a control system under the GST
Council’s aegis to ensure consistency and quality.
“Given that each AAR can potentially decide differently on an issue, it
makes sense to create a central AAR which will take up issues where more than
one AAR has been approached on a similar issue,” said Bipin Sapra, partner,
“In such a scenario, a mechanism needs to be created where all AARs
should be listed on the GST portal and in case of similar applications, the
state AAR should refer it to the central AAR.”
India implemented GST on July 1 last year as to
turn the country into a common market and erase interstate barriers.