Judgment Update | Challenge to composition of Authority for Advance Ruling under GST law
This is in furtherance to our update NITYA’s Insight | Issue 49 | Judgement Update | Composition of GSTAT is unconstitutional . In this update, we informed about the Madras High Court judgment that struck down the composition of GSTAT and held it to be unconstitutional. The Court reasoned its decision on the ground that the GST law provides for Technical Members (2) which outnumbers Judicial Member (1) where the decision is bound to be taken on majority basis.
Recently, the Rajasthan High Court dealt with the challenge of constitutional validity of the composition of Authority for Advance Ruling (‘AAR’) under Section 96(2) of the Rajasthan Goods and Services Tax Act, 2017 (‘RGST Act’) in case of JVS Foods Private Limited v. Union of India, 2020-VIL-215-Raj. This challenge was again on the premise that the composition of AAR of only Technical Members (1 Centre and 1 State) is resulting into pro-revenue rulings and against the taxpayers in most of the cases.
The High Court has admitted the matter and tagged it along with another matter in the case of Chambal Fertilisers and Chemicals Limited v. Union of India, 2019-VIL-655-Raj already pending before it. The Court also stayed the ruling passed by AAR.
Under GST law, AAR has passed several rulings most of which are pro-revenue. The pro-revenue approach is consequence of composition of AAR consisting of only departmental officers which creates an inherent bias in this process. After GSTAT, now, even the composition of AAR is being tested before the Constitutional Courts. In our view, the composition of AAR is also unconstitutional inter alia for the following reasons:
- AAR exercises judicial function and thus, a judicially trained mind is a pre-requisite to undertake this exercise in an unbiased manner; and
- The exercise of judicial function by Technical Members (Executive wing) is an encroachment of Judiciary’s domain and against the settled principles of the Constitution of India. [Please also refer to our article on “Imparting Justice under GST: Absolute Encroachment of Judicial Domain” for detailed analysis on constitutionality of GSTAT as also on composition of AAR.