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. The decision came from the recent case regarding the divergent rulings by Karnataka and Maharashtra AARs on the issue of solar projects.
“We are looking at an issue based central authority with officials from states and the Centre,” a top government official commented. “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 assesses 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 5%. 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 said. 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, EY.
“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.
Source: Economic Times