Advance Ruling Barred: Audit Proceedings as a Pre-existing Legal Dispute

The Legal Issue

The core legal question was whether an Audit Observation or the issuance of a Show Cause Notice (DRC-01) constitutes “pending proceedings” under Section 98(2) of the CGST Act. If so, does it permanently bar a taxpayer from seeking an Advance Ruling on the same subject matter?

Facts of the Case

The Application: The applicant sought a ruling from the Authority for Advance Ruling (AAR) to clarify if GST is leviable on Stamp Duty and Registration Fees paid for a lease deed.
The Conflict: Before the application was filed, the Assistant Commissioner of Audit had already issued an audit observation. This observation demanded GST on those very fees under the Reverse Charge Mechanism (RCM).
The Escalation: By the time the matter reached the appellate stage, the department had already issued a formal demand notice (Form GST DRC-01) amounting to ₹6.27 crores.
Initial Rejection: The AAR rejected the application, citing the “proviso” to Section 98(2), which prohibits admitting questions that are already pending or decided in any other proceedings for that applicant.

The Decision

The Appellate Authority for Advance Ruling (AAAR) upheld the rejection, ruling in favour of the Revenue:

Audit is a “Proceeding”: The Authority clarified that an Audit initiated under Section 65 or Section 66 is a valid “proceeding” under the GST Act. Since the audit observation addressed the exact same question (GST on stamp duty), the matter was officially “pending.”
Timing of the Application: The bar under Section 98(2) is absolute. If a taxpayer receives an audit notice or a summons before filing for an advance ruling, the AAR loses the jurisdiction to hear that specific question.
Impact of DRC-01: The issuance of a formal demand (DRC-01) further solidified that the matter was no longer a “hypothetical” or “prospective” question, but a live legal dispute being adjudicated by the tax authorities.
Outcome: The appeal was rejected, and the applicant was denied the right to seek an advance ruling because they had essentially tried to use the AAR to bypass an ongoing tax demand.

Key Takeaways

Race to the Portal: An Advance Ruling is a “pre-emptive” strike. You must file for it before the department flags the issue in an audit, scrutiny, or investigation. Once the department opens a file on that topic, the door to the AAR is locked.
Disclosure Obligation: Applicants must act in good faith and disclose if any proceedings are pending. As seen here, the AAR will cross-verify with the jurisdictional officers anyway.
Audit Observations Matter: Do not treat an audit observation lightly. It carries enough legal weight to block your access to an Advance Ruling, even if a formal Show Cause Notice (SCN) has not yet been issued.
Strategic Advice: If you are unsure about the taxability of a transaction (like RCM on government fees), seek an Advance Ruling at the planning stage of the contract, not after the auditors have arrived at your doorstep.

APPELLATE AUTHORITY FOR ADVANCE RULING, ODISHA

Geeta Rani Mohanty, In re^*

M.S. Reddy and Sanjay Kumar Singh, Member

01/ODISHA-AAAR/Appeal/2024-25

AUGUST 22, 2024

Pramod Kumar Jena for the Applicant.

PROCEEDINGS

1. At the outset, we would like to make it clear that the provisions of both the Central GST Act, 2017 and of Odisha GST Act, 2017 are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the OGST Act.

2. The present appeal has been filed under section 100 of the Central Goods and Service tax Act, 2017 and Orissa Goods & Services Tax Act 2017 [hereinafter referred to as the CGST Act and OGST Act] by Geeta Rani Mohanty, In re, Ground Floor, Station Road, Barbil, Keonjhar-758035 bearing GSTIN 21MDFG1692D2ZW (herein after referred to as the ‘Applicant’) against the Advance Ruling order No. 06/ODISHA-AAR/2023-24, dated 17.05.2024 (AAR – Odisha) pronounced by the Odisha Authority for Advance Ruling (AAR). The date of receipt of the appeal application is 01.07.2024.

3. BRIEF FACTS OF THE CASE:

3.1 The Applicant, M/S Geeta Rani Mohanty (GSTIN 21AADFG1692D2ZW), having principal place of business at Ground floor, Station road, Barbil, Keonjhar, Odisha, communicating address at Plot No. 380, Bomikhal, Near Durga Mandap, Bhubaneswar-751010 is engaged in the business of “Mining and Supply” of Iron Ore. The Applicant had filed an application for Advance Ruling (GST ARA-01) on 01.01.2024 before the AAR Bhubaneswar seeking ruling in respect of the following issues:

(i)

Whether the GST is leviable on stamp duty & registration fee paid for the purpose of a registering lease deed with registering authority.

(ii)

Whether the Nil rate of tax under Sl. No. 47 of the exemption notification 12/2017-CT dtd. 28.06.2017 is applicable to stamp duty & registration fee paid by the Applicant for registering their mining lease deed.

(iii)

Whether the stamp duty and registration fee should be treated as consideration for mining lease service, when those are actually paid for receiving service of the Government for registration of a conveyance/ lease deed.”

3.2 The AAR has examined this case. The AAR had taken cognizance of the fact that the Applicant is engaged in the business of “Mining and Supply” of Iron Ore. For the purpose of obtaining the mining lease from the Government of Odisha, the Applicant has paid the Stamp Duty including registration fees to the Registrar for conveyance/ lease deed.

The AAR has also noted that the Assistant Commissioner of Audit, Angul Circle Gr.-I, Bhubaneswar has issued an Audit observation No. 06 dated 10.11.2023 to the Applicant with a demand of Rs. 6,27,74,106/(Rupees Six Crores Twenty Seven Lakhs Seventy Four Thousands One Hundred and Six Only) to be paid by the Applicant on reverse charge basis against the amount deposited as stamp duty & registration fees for the registering of Conveyance/ Lease Deed. Towards this audit observation, the Applicant submitted before the AAR that GST on stamp duty would amount to tax on tax which is against the basic principle of taxation and would result in cascading effect. Further, stamp duty being a statutory duty as per Indian Stamp Act, 1899, the duties are levied, collected and appropriated by the respective State Government. The Applicant also submitted to the AAR that as per sl. no. 47 of Notification No. 12/2017-CT(R) dated 28.06.2017, the service provided by the Central Government, State/ UT Government or Local Authority, by way of registration required under any law for the time being in force, attracts Nil rate of tax. Both the registration fee & stamp duty are pre-condition for registering the lease deed and the service provided by the Government are exempted by virtue of the notification mentioned supra.

3.3 Then, the Authority for Advance Ruling has pronounced its ruling vide Order No. 06/ODlSHA-AAR/2023-24 dated 17.05.2024 stating that already one audit observation dated 10.11.2023 has been issued by the GST Audit Circle, Angul on the matter. The AAR examined the application in the light of the proviso to sub section (2) of section 98 of the CGST Act, 2017 which provides that “the Authority shall not admit the application where the question raised in the application is already pending or decided in any proceedings in the case of an Applicant under any of the provisions of this Act”.

Accordingly Authority for Advance Ruling (AAR) rejected the application for advance ruling filed by the Applicant citing the reason that the same is not maintainable under law and liable for rejection in terms of Section 98 (2) of the CGST Act, 2017.

3.4 Aggrieved by the above ruling of the AAR, the Applicant has filed the present appeal application manually having dated 28.06.2024 received on 01.07.2024, before Appellate Authority of Advance Ruling under section 100 of CGST Act, 2017 and prayed before the Appellate Authority to:

(i)

Set aside/ modify the Impugned advance ruling passed by the Authority for Advance Ruling as prayed above;

(ii)

Grant a personal hearing;

(iii)

Pass any such further or other order (s) as may be deemed fit and proper in facts and circumstances of the case; and

(iv)

Condone the delay in filing this application because they could not file the application in time as they did not receive the advance ruling in their GST Portal.

4. Personal Hearing:

4.1 The Odisha Appellate Authority for Advance Ruling provided personal hearing to the Applicant for representing their case through Video Conference on 21.08.2024. The Applicant attended the personal hearing through their authorized representative, Shri Pramod Kumar Jena. During the personal hearing, the authorized representative has reiterated the submission which already made in their appeal application also requested to decide the case favorably on merit based on the submissions already made to the Hon’ble AAAR. The representative of the Applicant also submitted that conduct of Audit is not a proceeding under GST Act. Therefore, the ruling made by the AAR needs to be set aside by the Appellate Authority.

5.0 DISCUSSION & FINDINGS:

5.1 We have carefully gone through the case and submission advanced by the Applicant in their application as well as the arguments advanced by Shri Pramod Kumar Jena during the personal hearing, and also taken into account the issues involved on which a ruling was sought by the Applicant mentioned in para no. 3.1 (i) to (iii) of this order.

5.2 We have also gone through the proviso of sub section (2) of section 98 of the CGST Act, 2017 which provides that “the Authority shall not admit the application where the question raised in the application is already pending or decided in any proceedings in the case of an Applicant under any of the provisions of this Act”.

In the instant case, the Applicant i.e. M/s. Geeta Rani Mohanty, Barbil, appears to have fallen under the above proviso to Section 98 (2) of the CGST Act, 2017. The Applicant opted for appeal to advance ruling at such a stage when the subject matter is already pending in the audit proceedings initiated by the Audit Commissionerate, Bhubaneswar under Section 65 of the CGST Act, 2017. Further, it is seen that DRC-01 dated 10.04.2024 has already been issued to the Applicant by the Additional Commissioner, Audit Commissionerate, Bhubaneswar demanding Rs. 6,27,74,106/- (Rupees Six Crores Twenty Seven Lakhs Seventy Four Thousand One Hundred and Six only) u/s 73 of the CGST Act, 2017.

5.3 We have also examined the section 65 (7) of the CGST Act, 2017 which provides that “Where the audit conducted under sub-section (1) results in detection of tax not paid or short paid or erroneously refunded, or input tax credit wrongly availed or utilised, the proper officer may initiate action under section 73 or section 74.”

Further we also rely on the judgement passed by the Hon’ble Madras High Court in the case of ABT Ltd. v. Additional Commissioner of GST & Central Excise GSTL 343 (Madras)/[2024 (2) TMI 130 -MADRAS HIGH COURT] wherein, the Hon’ble Court held that during the conduct of GST Audit under Section 65 of the CGST Act, 2017, if it indicates that tax was not paid or short paid or that Input Tax Credit (ITC) was wrongly availed or utilized, the proper officer may initiate the action under Section 73 or 74 of the CGST Act under Section 65 (7) of the CGST Act.

So, we are of the view that the Audit is a valid proceeding under CGST Act, 2017 and it is also covered under sub section (2) of section 98 of the Act. Accordingly, the appeal filed by the appellant against advance ruling passed on the impugned issue is liable to be rejected.

ORDER

In view of the above discussion and findings we are of the view, that the application for appeal against advance ruling filed by the Applicant before the Appellate Authority for Advance Ruling, Odisha (AAAR Odisha) is not maintainable under law and liable for rejection. Hence, the said application is rejected in terms of Section 98 (2) of the CGST Act, 2017.