Procedural flaws in presenting appeal leads to lapse of limitation period and dismissal of appeal- AAAR

Introduction:

An advanced ruling is a mechanism whereby taxpayers can get answers or clarifications regarding supply of goods and services, directly from tax authorities and the primary objectives for such a mechanism are to reduce litigation, attract FDI due to transparent tax liability, provide certainty with respect to tax liability and disclose ruling in an inexpensive and transparent manner. The Authority for Advanced Ruling (AAR) constituted by the tax authorities interprets tax laws for the taxpayers and it was created to address any issues faced by taxpayers and assist them by providing a decision on the clarification sought. The AAR’s appellate authority is the AAAR (Appellate Authority or National Appellate Authority for Advanced Ruling). Section 95 to Section 106 in Chapter XVII of CGST Act covers the procedures and rules related to advance rulings. An application is made by the taxpayer on the clarification sought by them. The taxpayer is provided an opportunity of being heard by the AAR. If there is consensus on resolution on the clarification sought between the AAR and taxpayer, an ‘Advance Ruling’ is issued by the AAR and on the contrary, the matter is referred to the AAAR.

The question of law which is address through this AAAR is as follows:

• Whether limitation period for appeal to Appellate Authority has to be from the date of order on rectification of mistakes (ROM) application made or from the date of order of AAR
• Whether filing a ROM is the correct approach towards seeking remedy against a order passed by the AAR.

Facts of the appeal made to AAAR, by M/S. Durga Projects and Infrastructure Private Limited (appellant)’, dated 02-Feb-2021:

The appellant, M/s. Durga Projects and Infrastructure Private Limited is into the business of property development for residential purposes. The appellant had entered into several joint development agreements where they had agreed to provide certain built-up areas to land owners. The appellant had approached the Authority for Advanced Ruling (AAR), Karnataka, on the below questions on which it required clarification.

• Whether GST is applicable under a Joint Development Agreement (JDA) on execution and hand-over of the owner’s portion where completed work fell both in the pre and post GST eras.
• If GST is applicable, then how the valuation should be done.

The AAR vide its order no. KAR ADRG No. 17/2019 dated 25.Jul.2019 concluded that the appellant has to pay GST on hand-over of owner’s portion as per JDA and further the valuation for payment of tax will be based on para 2 of Notification No. 11/2017-Central Tax (Rate) dated 28.Jun.2017.

The appellant filed a rectification of mistakes (ROM) application dated 27.Sep.2019 w.r.t the order passed by the AAR on the grounds that the ruling provided by the AAR was significantly different from the ruling passed in the case of M/S. Nforce Infrastructure India Private Limited vide Order no. KAR ADRG 30/2018 dated 28.Nov.2018, eventhough the appellants case was similar to the aforementioned case. Further in terms of the valuation, the appellant stated that since there is no transfer of undivided interest from appellant to land owner and vice versa, the valuation approach as stated in notification no. 11/2017-Central Tax (Rate) cannot be applied. The ROM application was rejected by the AAR vide order no. KAR ROM 03/2020 dated 11.Sep.2020.

Aggrieved by the order passed by AAR on the ROM application, the appellant filed the appeal to AAAR on the following grounds.

• As per Section 142 of CGST Act, when point of taxation is under pre-GST era and portion of property was transferred in the pre-GST era, the entire value of interest transferred to owners of property under the JSA cannot be taken for computation of GST. And when in the pre-GST period where VAT/Service tax was applicable, in such instances, GST cannot be made applicable.
• The appellant further contended that as per Karnataka VAT Act, the point of taxation arises on entering the JDA and quoted CESTAT case of Vasanth Green Projects – Appeal No. ST/31095/2017 dated 11.May.2018 and the assessable value will be the consideration received by the appellant at that point. They laid the same argument for the service tax payment too and relied their contention on education guide issued dated 20.Jun.2012 and hence cannot be made to pay tax under GST.
• They further quoted the case of M/S. Nforce Infrastructure India Private Limited where it was concluded that GST will be applicable only on portions handed over after GST became applicable.
• Appellant also appealed for delay of 20 days in filing appeal due to the pandemic.

Observations and final ruling by AAAR vide Order No. KAR/AAAR/02/2021 dated 02.Feb.2021:

In the personal hearing conducted on 14.Dec.2020 and on a specific request by the appellate authority members as to why the appeal was filed based on Section 98(2) of the CGST Act, the appellant explained that the lower authority had taken almost a year to decide on the ROM application submitted on 27.Sep.2019 and for filing the appeal, stated that the limitation period starts from the date when the order on the ROM application was passed and substantiated their contention by quoting cases held by Allahabad High Court in the matter of Utility Equipment & Management Private Ltd Vs. Commissioner of Trade Tax reported in 1999, etc.

Further the AAAR opined on the admissibility of the appeal and elaborated on the advanced ruling procedures and stated that an appeal has to be made within 30 days from the order date of the lower authority and can be extended by another 30 days, if substantiated well. Further any appellant can apply for rectification when correction on records on their face value is found or noticed by concerned officer/authority/appellate authority/jurisdictional officer within 6 months from the date of order. Further the appellate authority took note of the chronology of incidents in the instant case, starting from application till ROM application rejection and submission of this appeal.

The appellate authority was of the view that an appeal can be files to them only on orders passé by the lower authority under Section 98(4) of the CGST Act. Hence, in the instant case, the appeal should have been filed within 30 day of the AAR order passed on 25.Jul.2019. But no appeal was filed within 30 days. Further on the appellant’s submission that in the case of Utility Equipment & Management Private Ltd Vs. Commissioner of Trade Tax reported in 1999 where the rectification was on correction of wrong name used, the AAAR contended that the instant case and the aforementioned cases are different. It further stated that in case of rectification in records on the face value is found, in such cases, only after the rectification orders are passed, the period of limitation starts to operate. It further mentioned that rectification of mistakes is an administrative function whereas appeal proceedings are judicial functions and hence are different in the spirit of law. On the other case laws sighted, the AAAR was of the view that they are unrelated to the instant case.

The appellate authority quoted the case of Kothari Industrial Corporation Vs. Agricultural Income Tax Officer where a clear distinction between a review application and rectification application is made where in a review application there is a merger of decisions on account of modification/reversing/ confirming original order whereas in a rectification application, the correction is incorporated in the original order in terms of numerical/typographical errors. It further reiterated that in a rectification order, the original order is not set aside and in the instant case, since the ROM application was rejected as there was no error apparent therein, the current application should have been filed within 30 days from the date of original AAR order issued on 25.Jul.2019.

Hence the appellate authority contended that it can condone a delay of only 30 days and since the ROM rejection order dated 11.Sep.2020 does not merge with the AAR order dated 25.Jul.2019, the appeal is not maintainable and hence the remaining pleadings in the appeal are also not maintainable. The appeal was thus dismissed.

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