Kerala AAR Rejects Advance Ruling Application: Hypothetical Queries and Third-Party Issues Fall Outside Statutory Scope
Case Reference
In re M C Prasanth (GST AAR Kerala)
Forum: Authority for Advance Ruling, Kerala
Legislation: Central Goods and Services Tax Act, 2017 | Kerala State Goods and Services Tax Act, 2017
Key Provisions: Section 95(a), Section 97, Section 97(2), Section 9(3), Section 9(4), Section 98(1) of the CGST Act, 2017
Background and Context
The Kerala Authority for Advance Ruling (AAR) recently issued a significant ruling dismissing an advance ruling application at the admission stage itself, without venturing into the substantive merits of the GST questions posed. The matter arose from an application filed by Shri M C Prasanth, proprietor of M C Associates, having its principal place of business at Thana, Kannur, Kerala – 670012, under Section 97 of the Central Goods and Services Tax Act, 2017 and the Kerala State Goods and Services Tax Act, 2017.
The applicant sought advance rulings concerning the applicability of GST under the Reverse Charge Mechanism (RCM) in two distinct situations — one involving payment of rent to an unregistered landlord and another concerning procurement of wood from unregistered dealers for a proposed furniture manufacturing unit.
The Kerala AAR, upon careful examination of the statutory framework and the nature of questions posed, concluded that the application was not maintainable at the threshold and accordingly rejected it without examining the underlying GST questions on merits.
Questions Raised by the Applicant
The applicant structured his advance ruling application around two hypothetical business scenarios, each raising separate GST compliance questions under the RCM framework.
Scenario 1: Voluntary GST Registration and RCM on Rent
In the first scenario, the applicant described a situation where he proposed to deal exclusively in exempt goods. While such a business activity would ordinarily not necessitate GST registration, the applicant stated his intention to voluntarily obtain GST registration owing to practical business requirements such as participation in government tenders and maintenance of supplier relationships.
Within this framework, the applicant proposed to take on commercial premises on rent from an unregistered landlord and sought the following clarifications:
- Whether GST would be payable under the Reverse Charge Mechanism in terms of Notification No. 09/2024-Central Tax (Rate) dated 08.10.2024
- If RCM liability did arise, whether it would fall under
Section 9(3)orSection 9(4)of the CGST Act, 2017 - If RCM liability did not arise, what the legal basis for such exemption would be
Scenario 2: Composition Scheme and RCM on Purchase of Wood
The second scenario was framed as contingent upon the outcome of the first. The applicant stated that if RCM liability were to be confirmed in Scenario 1, he would instead consider establishing a furniture manufacturing unit and opt for the composition scheme under Section 10 of the CGST Act, 2017. In this proposed setup, wood would serve as the primary raw material, to be sourced from unregistered suppliers.
The applicant sought clarification on whether GST under RCM would be applicable on such procurement of wood from unregistered dealers, and if so, whether the liability would arise under Section 9(3) or Section 9(4) of the CGST Act, 2017.