Why Govt chose to amend Advance Ruling Mechanism under GST?

In order to understand why the government has chosen to amend the Advance Ruling Mechanism under GST, it is important to first understand what the Advance Ruling Mechanism is and what its purpose is.

What is the Advance Ruling Mechanism?

The Advance Ruling Mechanism under GST is a facility provided to taxpayers to seek guidance on the taxability of a transaction or activity in advance. This mechanism helps taxpayers to avoid any future disputes with the tax authorities by providing clarity on the tax implications of a transaction or activity.

The mechanism allows taxpayers to approach the Authority for Advance Ruling (AAR) or the Appellate Authority for Advance Ruling (AAAR) to seek clarity on whether a particular transaction or activity is taxable under GST and at what rate. The decision of the AAR or the AAAR is binding on the taxpayer as well as the tax authorities.

Why has the Government chosen to amend the Advance Ruling Mechanism?

The government has chosen to amend the Advance Ruling Mechanism under GST in order to address certain issues and challenges faced by taxpayers and tax authorities. The amendments have been introduced through the Finance Act, 2021.

1. Time Limit for Passing Orders

One of the main amendments is with regard to the time limit for passing orders by the AAR and the AAAR. The Finance Act, 2021 has introduced a time limit of 90 days for passing orders by the AAR and the AAAR. This time limit will ensure that taxpayers receive quick and timely guidance on the taxability of a transaction or activity.

2. Constitution of the AAR and the AAAR

The Finance Act, 2021 has also introduced changes with regard to the constitution of the AAR and the AAAR. The Act now provides that the AAR and the AAAR will be constituted by the Central Government and the State Government in consultation with the Chief Justice of the High Court. This change will ensure that the AAR and the AAAR are constituted by persons of high integrity and competence.

3. Power of the AAR and the AAAR

The Finance Act, 2021 has also amended the power of the AAR and the AAAR. The AAR and the AAAR can now amend their own orders if they find them to be erroneous. This change will ensure that any errors in the orders passed by the AAR and the AAAR can be corrected without the need for a separate appeal.

4. Applicability of Advance Ruling

The Finance Act, 2021 has also clarified the applicability of the Advance Ruling Mechanism. The Act now provides that the Advance Ruling Mechanism will not be applicable to transactions or activities that are already under investigation by the tax authorities.

Conclusion

The amendments to the Advance Ruling Mechanism under GST have been introduced by the government to address certain issues and challenges faced by taxpayers and tax authorities. These amendments will ensure that taxpayers receive timely guidance on the taxability of a transaction or activity and that the AAR and the AAAR are constituted by persons of high integrity and competence. The amendments will also ensure that any errors in the orders passed by the AAR and the AAAR can be corrected without the need for a separate appeal.