Can Supplier’s shadow be used by Recipient For AAR

Ever since the enactment of GST, there are many contentious areas that still need clarification. It includes areas like taxpayers have no certainty over the tax liability which may arise in the future or applicability of various provisions of law and related notifications. These ambivalences may lead to long drawn and expensive litigations at a later stage. To provide certainty and transparency concerning contentious issues and to provide a timely & inexpensive manner, provision of advance ruling becomes available to the taxpayers.

Meaning of Advance Ruling:

A conclusion provided by the Authority or the Appellate Authority to an applicant on matters specified in section 97 (2) or section 100 (1) of the CGST Act, 2017, in link to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant.

Meaning of Applicant:

Applicant here means any person registered or desirous of obtaining registration under this Act.

Section 97(2) & Section 100(1):

(a)  Categorization of any goods or services or both.


(c) …

(d) Acceptability of the input tax credit of tax paid or deemed to have been paid.

(e) Relevancy of a notification issued under the provisions of this Act.


Recent Judgement:

Recently a judgment was passed by the AAR Tamil Nadu in the subject matter referred in (e) above where the applicant’s, re Erode Infrastructures Private Limited application, was not admitted on the grounds that the applicant was not the supplier of goods or services or both which is undertaken or proposed to be undertaken by the applicant.

  • Issue Involved

The primary issue involved was whether the upfront lease amount paid to M/s. RLDA for the development of a Multi-functional complex (Operational building) at Erode railway Junction for Long term lease for 45 years is exempt under SI.No. 4I of Notification No. 12/2017 CT(R)and notification No. 32/2017 which exempts GST on the One Time Upfront amounts for the Government Infrastructure projects on long term lease of 30 years or more.

  • Facts of the Case

The facts of the case revolved around the clarification on the tax liability on the one-time lease premium paid/payable to RLDA on the services specified in the agreement.  The applicant stated that they are incorporated with the sole objective of the development of the “Multifunctional Complex” at Erode Railway station, which is a project of the Rail Land Development Authority, for the furtherance of business. They further stated that they are also making a supply of construction of the complex hence the application may be accepted on grounds of sec 97(2)(d). The applicant has also reiterated in their submission that though they are a recipient of services from the Central Government Entity RLDA, they are also eligible to apply for rulings based on the interpretation that the word “in relation to supply” in sec 95 can include both outward and inward supply.

  • Judgment

It is seen from the agreement signed between the applicant and RLDA that it is a Lease Agreement with RLDA as ‘Lessor’ and the applicant as ‘Lessee’ and that RLDA is renting out the land associate with them/Indian Railways to the applicant to be used as per the terms and conditions specified in the Lease Agreement. Here, the supplier is RLDA and the recipient is the applicant who is leasing the land from RLDA for a fixed tenure thereby concluding that the applicant is the recipient.

Aside, the contention of the applicant on a matter of admissibility of Input Tax Credit under 97(2) cannot be accepted, as the applicant is the recipient in the subject matter and is not making or proposing to make the supply of goods or services or both.

Accordingly, the application is not admitted for which the applicability of the notification is sought under sub-section (2) of Section 98 and rejected without going into merits.

Similar facts and judgment could be drawn from the judgment by AAR Maharashtra in re Portescap India Private Limited dated 12 March 2020 where the applicant were a recipient of services pertaining to renting of immovable property in the subject case where the question and therefore, the subject application was not admitted as per the provisions of Section 95 of the GST Act.

  • Conclusion

It is essential to determine whether the activities are undertaken by the applicant pertaining to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant. The compelling reading of sections 95(a) and 97(2) of the CGST Act 2017 does not specifically decline the application to AAR by the person who is receiving the goods or services or both i.e., recipients in the subject transaction. But if the recipient wants to seek an AAR on the taxability of the transaction, by acting as supplier’s shadow, it will not be admitted as the

Special Attention: However, the application may be admitted on the question of admissibility of an input tax credit of tax paid or deemed to have been paid as specified under section 97(2)(d) which can also be seen in the judgment of Maharashtra AAR-M/S Sundharams Private Ltd dated 20 March 2020 where the application was admitted by the authority.

applicant has not undertaken or proposed to undertake the supply of goods and services in the subject case i.e., applicant is not the supplier in the transaction.

This content is meant for information only and should not be considered as an advice or legal opinion, or otherwise. AKGVG & Associates does not intend to advertise its services through this.

Posted by: CA Tarun Kapoor

AKGVG & Associates

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