Hypothetical question which has not yet materialized, outside the purview of Advance Ruling

The Hon'ble AAR Gujarat in M/s. Shree Arbuda Transport (Advance Ruling No.: GUJ/GAAR/R/82/2020 decided on September 17, 2020) has held that the provisions for seeking advance ruling is limited to the activities conducted byM/s. Shree Arbuda Transport ('the Applicant') and cannot be sought for the agreement or matters which have not materialized till date.  The provisions of the advance ruling in the Central Goods and Services Tax Act, 2017, ('CGST Act') cannot be sought for the ‘hypothetical questions’ raised on the agreement which has not been signed yet.

Facts

The Applicant is engaged in services like transportation and logistics services, clearing and forwarding services and other allied services for import and export of cargo and for coastal movements. The Applicant has submitted that they are in process of entering into an agreement with a client engaged in the business of export of rice to provide them various services like clearing and forwarding agency charge, providing labour for loading of cargo into containers, allied services for export and import cargo, transportation, customs clearances etc.

The Applicant wants to quote a single consolidated rate towards the above bundle of services provided by them to the client. Hence, seeking clarification on the classification of services, applicable HSN and the rate of GST to be charged.

Issues

Whether advance ruling can be sought on the questions based on an agreement that is yet to be signed by the parties.

Held

The Hon’ble AAR, Gujarat in Advance Ruling No.: GUJ/GAAR/R/82/2020 decided on September 17, 2020 held as under:

• The issue brought before Authority for Advance Ruling has not yet materialized so far. The application for Advance Ruling has been filed on October 13, 2019, but no agreement has been reached so far by the Applicant with the exporter of rice and therefore no copy of the agreement has been submitted by the Applicant.
• The provisions for seeking Advance Ruling made under Section 97 of the CGST Act is limited to the activities conducted by the Applicant only and is for the purpose of clarifying issues such as:
• Classification of the supply of goods/services provided by the Applicant,
• Their GST liability if any,
• Applicability of a notification issued under the provisions of the CGST Act,
• Determination of time and value of supply of goods or services or both,
• Admissibility of Input Tax Credit,
• Determination of the liability to pay tax on any goods or services or both,
• Whether the Applicant is required to be registered or
• Whether any particular thing done by the Applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaningof that term.
• The very purpose for making the provision of Advance Ruling in the CGST Act is to help the Applicant in planning his activities which are liable for payment of GST. It also bringscertainty in determining the tax liability, as the ruling given by the Authority for Advance Ruling is binding on the Applicant as well as Government authorities. Further, it helps in avoiding long drawn and expensive litigation at a later date. It is inexpensive and the procedure is simple and expeditious to seek an Advance Ruling. It thus provides certainty and transparency to a taxpayer with respect to an issue which may potentially cause a dispute with the tax administration.
• Therefore, no decision can be taken for the questions sought by the Applicant due to non-submission of the copies of the agreement or any other relevant documents with regard to the services supplied by the Applicant.

Our Comments

It is to be noted that as per the definition of advance ruling under Section 95(a) of the CGST Act, advance ruling can be sought in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant . Therefore, in our view agreement advance ruling can be given on the agreement that is yet to be signed by the parties.

Relevant Provisions

Section 95(a) of the CGST Act

'95. In this Chapter, unless the context otherwise requires,--

(a) 'advance ruling' means a decision provided by the Authority or the Appellate Authority or the National 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 101C, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant;'

Section 97 of the CGST Act

'(1) An applicant desirous of obtaining an advance ruling under this Chapter may make an application in such form and manner and accompanied by such fee as may be prescribed, stating the question on which the advance ruling is sought.

(2) The question on which the advance ruling is sought under this Act, shall be in respect of,--

(a) classification of any goods or services or both;

(b) applicability of a notification issued under the provisions of this Act;

(c) determination of time and value of supply of goods or services or both;

(d) admissibility of input tax credit of tax paid or deemed to have been paid;

(e) determination of the liability to pay tax on any goods or services or both;

(f) whether applicant is required to be registered;

(g) whether any particular thing done by the applicant with respect to any goods or services or both amounts to or results in a supply of goods or services or both, within the meaning of that term.'