Can assessee seek Advance Ruling after issue of Show Cause Notice?
No Advance Ruling can be sought during the pendency of proceedings before the revenue.
Case Reference : HIGH COURT OF MADHYA PRADESH
Saisanket Enterprise v. AAR (Madhya Pradesh)
WRIT TAX NO. – 8363 OF 2022
Order Dated – June 14,2022
CA Shweta Dubey
Deputy Manager – GST
CA Vaibhav Jain
Facts of the Case: –
The petitioner M/s Saisanket Enterprise is a works contractor duly registered under Central Goods and Services Tax Act 2017, in various states, engaged in execution of works related to the construction of irrigation dam. Certain portion of the work related to the construction of Narmada Valley Project in the state of Madhya Pradesh was outsourced to the petitioner by the main contractor M/s. Navayuga Engineering Company Ltd., which was executed between the period 22-01-2017 to 25-01-2018.
Upon search conducted in its premises by the authorities of the Director-General of Goods and Service Tax Intelligence , it was found that there was evasion of GST and hence vide notice dated 21-05-2020, the petitioner was called upon to discharge the remaining GST liability in FORM DRC-03 at the applicable rate of 18% on works contract services supplied as a sub-contractor to the main contractor.
After receipt of the above-mentioned notice, the petitioner approached the Authority for Advance Ruling in Madhya Pradesh under Section 98 of the Goods and Services Tax Act, 2017 contending that in view of the notification No.11/2017(T (R) as amended on 22-08-2017, the rate of taxes applicable to the sub- contactor shall be 12%.
Learned Authority after examining the application and the records called for, rejected the application by virtue of First Proviso to section 98(2) of CGST Act, 2017. Being aggrieved by the above order, the petitioner has approached Appellate Authority by way of filing an
appeal under section 101 of the CGST Act, 2017 which was also dismissed by the Appellate Authority upholding the order passed by the Advance Ruling Authority.
Hence, the petitioner has filed the present writ petition against the following order :-
(i) Order dated 10.12.2020 passed in case No.14/2020 by Authority for Advance Ruling, M.P.
(ii) Order dated 26-7-2021 passed in case No. MP/AAAR/05/2021 by M.P. Appellate Authority for Advance Ruling.
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.”
The provisions of both the CGST Act, 2017 and MPGST Act, 2017 are same except for certain provisions. Therefore, unless otherwise mentioned, a reference to the CGST Act would also mean a reference to the same provision under the MPGST Act.
During the court proceedings, the petitioner’s counsel contended that the Authorities have erred in dismissing the application relying on the provisions of Section 98(2) where the proviso bars the advance ruling only if the question raised is pending or decided in any proceedings under any provisions of the Act. In the present case no such proceedings were pending against the petitioner, therefore the matter was liable to be remanded back to the authorities for adjudication on merit.
The Hon’ble Court after taking into consideration the facts of the case, legal provisions and arguments presented by both the parties held that advance ruling can only be sought in advance to avoid any conflict with the authorities in payment of CGST/SGST in particular categories at the time of rendering service or sale of goods and not during the pendency of any issue before the authorities.
In the present case, the petitioner had gone for advance ruling only after a notice was issued by the revenue when search was conducted on the premises and tax evasion was
detected. Since the petitioner is contesting the demand order of the revenue, it can be easily inferred that the issue is pending before the authorities under the CGSTAct,2017. Hence relying on the first proviso to section 98(2), the authorities were right in dismissing the application.
Thus the writ petition stands rejected and the order is in favour of Revenue.
Keeping in view the legal provisions enumerated in the Act, an applicant should seek clarification on any matter from the Advance Ruling Authority, before any dispute or disagreement arises with the revenue and not afterwards.
The intention with which the above-mentioned sections were incorporated in the Act by the Legislature gets abandoned, when recourse to advance ruling on a particular activity is taken after the commencement of proceedings by the revenue authorities for the relevant case.
Hence, court’s decision seems rational and justified.
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Therefore, the submissions made by the Revenue do not give rise to even a question of fact, least to say about a question of law. The unwarranted act of the Revenue of dragging the petitioner into unnecessary litigation with a malicious intent, resulting in undue hardships to the petitioner is unconstitutional. Hence the Court’s decision of awarding compensation to the aggrieved petitioner is a fair and just act , setting up precedence for future, which would compel the Revenue to adhere to the principles of correct application of mind before issuing any such frivolous notice under the said Act.