Can an application for advance ruling be rejected by the Authority on the grounds that notice was issued by the department after filing of application?

Facts of the Case: –

The petitioner M/s. Srico Projects Pvt. Ltd., registered under GST Acts is engaged in the business of undertaking works contract mostly with the Central and State Governments.

In the due process of executing a works contract for the Central Government Employees Welfare Housing Organisation, there was a disagreement between the petitioner and the recipient of services regarding the rate of GST chargeable for the given services.

As per the petitioner, GST should be charged @ 18% whereas the Central Government Employees Welfare Housing Organisation paid GST @12% making the petitioner susceptible to charges of underpayment of tax.

In order to get clarifications regarding the rate of tax on works contract services rendered to Government Organisations, an application for advance ruling was made by the petitioner on 11.05.2019. Meanwhile on 15.12.2021, Directorate General of GST Intelligence (DGGI), Hyderabad Zonal Division, issued a notice to the petitioner alleging short payment of GST i.e. 12% instead of 18% followed by issuing of summons to the Managing Director of the petitioner under Section 70 of the CGST Act.

After a wait for over three years, the Authority for Advance Ruling vide notice dated 25.04.22, scheduled a personal hearing for the applicant on 27.04.22. During the course of proceedings, by an order dated 03.06.22, the application was rejected by the Authority based on the grounds that since DGGI had initiated enquiry into the business activities of the petitioner and subsequently issued a notice on 15.12.21, the case of the petitioner falls under the first proviso to Section 98(2) of the CGST Act.

Aggrieved by the ruling of the Authority, the present writ petition has been filed under Article 226 of the Constitution of India, seeking dismissal of the above-mentioned order dated 03.06.22.

Legal Provisions:-

CHAPTER XVII of the Central Goods and Services Tax Act, 2017 deals with ADVANCE RULING.

As per Section 95 (a)

” advance ruling” means a decision provided by the Authority or the Appellate Authority to an applicant on matters or on questions specified in sub-section (2) of Section 97 or sub-section (1) of section 100 [ or of section 101 C], in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant.”

Section 98 provides the procedure on receipt of application. The first proviso to Sub-section 2 of Section 98 reads as follows:

“PROVIDED that the Authority shall not admit the application where the question raised in the application is already pending or decided in any proceedings in the case of an applicant under any provisions of this Act.”

Judgement:

During the court proceedings, the Learned Counsel appearing for the petitioner cited a similar order dated 14.03.22 passed by the Telangana State Authority for Advance Ruling in A.R. Com/28/2021 in which case application for advance ruling was filed on 11.07.20 and subsequently investigation was initiated by DGGI in August 2020 on the question raised by the applicant. Ruling was granted by the Authority quoting that an application for Advance Ruling cannot be rejected on the grounds that investigation was initiated by the revenue after filing of application seeking advance ruling.

The respondents Counsel argued that the petitioner was well aware of the ongoing investigation by the DGGI but had erred by not disclosing the same to the Authority, and hence the rejection of application by the authority is justified.

Taking into consideration the submissions made by both the parties, the Hon’ble Jurists held that it is clearly ascertainable that the application for advance ruling was made by the petitioner on 11.05.2019 and thereafter on 15.12.2021 notice was issued by the DGGI to the petitioner on the same question raised in the application regarding rate to be charged for works contract services undertaken for Government organisations. Since on the date of filing of application by the petitioner there was no proceeding pending or decided on the question raised in the application, there was no requirement on the part of the petitioner to intimate the Authorities regarding any enquiry initiated by the revenue after the date of filing of application. Thus the rejection of application by the Authorities is unjustified and hence the order dated 03.06.22 is null and void. Further the Authority was directed to pass appropriate order on the application filed by the petitioner on 11.05.2019 after giving him a reasonable opportunity of being heard.

Author’s View:

A simple reading of the provisions of law clearly establishes that an application for advance ruling will not be admitted by the authorities where the question raised in the application is already pending or decided in any proceedings in the case of the applicant. It implies that on the date of filing of application the above criteria needs to be checked and not afterwards.

Based on the above-mentioned facts of the case it can be seen that departmental enquiry was initiated after the application was filed by the petitioner and hence the rejection of the same by the authorities was unwarranted. Thus the Hon’ble Courts’ decision to restore the application was within the parameters of the legal provisions and fully justified.

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