GST Advance Ruling Mechanism- A tool for New-Age Startups

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Why Advance Ruling

GST Advance Ruling Mechanism – An advance ruling helps the applicant in planning his activities, which are liable for payment of GST, well in advance. It also brings certainty 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.

Seeking an advance ruling is inexpensive and the procedure is simple and expeditious. It thus provides certainty and transparency to a taxpayer with respect to an issue that may potentially cause a dispute with the tax administration. 

What matters can be sought with authorities:

  • Classification of any goods or services or both;
  • Applicability of a notification issued under the provisions of CGST Act;
  • Determination of time and value of supply of goods or services or both;
  • Admissibility of an input tax credit of tax paid or deemed to have been paid;
  • Determination of the liability to pay tax on any goods or services or both;
  • Whether the applicant is required to be registered;
  • 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.

To whom the Advance Ruling is applicable

An advance ruling pronounced by AAR or AAAR shall be binding only on the applicant who has sought the advance ruling and on the concerned officer or the jurisdictional officer in respect of the applicant. This clearly means that an advance ruling is not applicable to similarly placed other taxable persons in the State. It is only limited to the person who has applied for an advance ruling.

The time period for applicability of Advance Ruling

The law does not provide for a fixed time period for which the ruling shall apply. Instead, it has been provided that advance ruling shall be binding till the period when the law, facts, or circumstances supporting the original advance ruling have not changed.

However, an advance ruling shall, by an order passed by the AAR/AAAR, be declared to be ab initio void if the AAR or AAAR finds that the advance ruling was obtained by the applicant by fraud or suppression of material facts or misrepresentation of facts. In such a situation, all the provisions of the CGST/SGST Act shall apply to the applicant as if such advance ruling had never been made (but excluding the period when advance ruling was given and up to the period when the order declaring it to be void is issued). An order declaring advance ruling to be void can be passed only after providing an opportunity of hearing to the applicant.


Author’s View:

The advent of COVID-19 has augmented the usage of the internet and related services many folds in India. Presently, e-commerce has become an essential sector since it involves minimal physical presence/human intervention. Such businesses are involved in dynamic transactions which makes it more complex for the purpose of taxability. Thus, the new-age startups who are uncertain of the taxation structure may seek such rulings for the smooth flow of operations.


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