2025 (8) TMI 1119 - AAR - GST

AAR dismisses advance ruling application as inadmissible under Section 97(2) CGST Act for internal accounting error

In Re: M/s. Auto Color Paints

In Re: M/s. Auto Color Paints - TMI ISSUES PRESENTED AND CONSIDERED 1. Whether the questions posed by the applicant fall within the scope of matters on which an advance ruling may be pronounced under Section 97(2) of the Act (clauses (a)-(g)). 2. Whether a ruling can be issued directing a supplier (a person other than the applicant) to transfer/adjust outstanding Input Tax Credit (ITC) to the applicant's account where the applicant contends purchase invoices were erroneously reported as outward supplies and outward tax was paid. 3. Whether 'ITC erroneously transferred' is a question admissible for advance ruling, including whether such erroneously transferred ITC is eligible for refund (i.e., whether the query concerns the admissibility of ITC or refund entitlement under the Act). ISSUE-WISE DETAILED ANALYSIS Issue 1: Admissibility of questions under Section 97(2) - whether the application falls within clauses (a)-(g). Legal framework: Section 97(2) enumerates the categories of questions on which an advance ruling may be sought - classification, applicability of notifications, determination of time and value of supply, admissibility of ITC, determination of liability to pay tax, requirement to be registered, and whether a particular act amounts to a supply. Precedent treatment: Applicant cited rulings of a different Advance Ruling Authority to support book-adjustment approaches to ITC; however, the Authority examined statutory scope rather than adopting those precedents for admissibility. Interpretation and reasoning: The Authority analyzed the actual substance of the queries against the statutory list. The second query (eligibility for refund of erroneously transferred ITC) was found not to correspond to any clause in Section 97(2) and thus not admissible. The first query, as framed, was unclear on facts but, when interpreted in light of the statement of facts and oral submissions, effectively sought relief involving inter-party adjustment and a directive to the supplier. The Authority held that the questions, as posed, do not clearly engage the listed categories and do not present a pure question on classification, notification applicability, time/value, admissibility of ITC in the direct sense contemplated by clause (d), liability determination, registration, or supply characterization. Ratio vs. Obiter: Ratio - an advance ruling is admissible only when the question squarely falls within Section 97(2); the application's queries did not meet that statutory requirement. Obiter - observations that the applicant could have corrected errors through annual returns are ancillary but indicate alternative remedies. Conclusion: Both queries fall outside the ambit of Section 97(2); the application is not admissible for an advance ruling on those questions. Issue 2: Whether the Authority can direct a third party (supplier) to effect ITC transmission/adjustment - scope of advance ruling and identity of the applicant. Legal framework: Section 95(a) defines 'advance ruling' as a determination in relation to supplies being undertaken or proposed to be undertaken by the applicant. Section 103 sets binding effect of rulings as limited to the applicant and the concerned officer. Precedent treatment: Applicant relied on decisions permitting book adjustments; the Authority did not adopt those authorities to expand the remedial power to direct third parties and instead relied on statutory limits of advance ruling jurisdiction. Interpretation and reasoning: The Authority emphasized that an advance ruling may be provided only in relation to matters concerning the applicant's own supplies or tax liability. The relief sought - a directive to the supplier to transfer ITC in its books - would, if given, be a ruling in relation to the supplier's records/actions rather than the applicant's conduct. Such relief is beyond the Authority's statutory competence because an advance ruling cannot be issued 'in respect of any other person/entity.' The Authority also noted that the factual matrix involved internal commercial adjustments between parties, which are not the type of determinations contemplated for advance rulings. Ratio vs. Obiter: Ratio - the Authority lacks jurisdiction to issue directives affecting the rights/obligations of third parties by way of advance ruling; advance rulings relate to the applicant alone. Obiter - comments on internal account adjustments and alternative correction mechanisms. Conclusion: The requested directive to the supplier is outside the scope of the Authority's power to issue an advance ruling and therefore cannot be granted. Issue 3: Whether the substance of the dispute involves admissibility of ITC (clause (d)) or refund entitlement and thereby falls within Section 97(2). Legal framework: Clause (d) of Section 97(2) permits advance rulings on 'admissibility of input tax credit of tax paid or deemed to have been paid.' Questions about refund eligibility are not specifically enumerated in the clause list. Precedent treatment: Applicant cited decisions where book adjustments were allowed to preserve ITC; the Authority treated those citations as not determinative of admissibility in the present factual posture. Interpretation and reasoning: The Authority examined whether the applicant's query truly concerned admissibility of ITC under the statutory tests, or whether it involved rectification of reporting errors and inter-party book adjustments. It concluded that, despite the term 'ITC' appearing in the query, the matter fundamentally concerned prior reporting errors and requested corrective action by the supplier rather than a ruling on statutory entitlement to credit. The second query about refund eligibility was explicitly held not to fall within Section 97(2). The Authority observed that the applicant could rectify returns/annual statements and that the matter involved internal adjustments rather than a question of statutory admissibility proven on the record before the Authority. Ratio vs. Obiter: Ratio - mere invocation of 'ITC' does not automatically render a question admissible under clause (d); the advance ruling must concern admissibility as a legal question applicable to the applicant. Obiter - suggestion that errors could be corrected in annual returns is an alternative remedial observation, not foundational to the ruling. Conclusion: The disputes raised do not constitute a genuine question of admissibility of ITC or refund entitlement under Section 97(2); therefore clause (d) does not rescue admissibility. Cross-references and ancillary findings - The Authority noted that no pending proceedings were reported by jurisdictional officers and no remarks were received from the Central Authority; this factual context was considered but did not alter the statutory admissibility analysis. - The Authority reiterated statutory constraints: an advance ruling is binding only on the applicant and the concerned officer and may be set aside if obtained by fraud or suppression; these constraints underscore why the Authority cannot pronounce on issues pertaining solely to another person. Final Conclusion The application for advance ruling is not admitted because the questions posed do not fall under any clause of Section 97(2) of the Act; in particular, (i) the query seeking a directive to the supplier is outside the Authority's jurisdiction as advance rulings apply only to the applicant's matters, and (ii) the query on refund of 'erroneously transferred ITC' is not a matter within the enumerated categories for an advance ruling.