Third Party Locus Standi in GST Advance Ruling Proceedings: Karnataka High Court Settles the Controversy

Overview

The Karnataka High Court delivered a significant ruling addressing a foundational question in GST advance ruling jurisprudence — whether a contractually connected third party, who was never a participant in the advance ruling proceedings, can invoke writ jurisdiction under Article 226 of the Constitution to challenge an order passed by the Appellate Authority for Advance Ruling. The Court answered this question with an emphatic negative, holding that the statutory architecture of Chapter XVII of the Central Goods and Services Tax Act, 2017 leaves no room for third-party intervention, either to claim the benefit of, or to mount a challenge against, an advance ruling.

Background and Material Facts

Bangalore Metro Rail Corporation Limited (BMRCL), a joint venture entity established by the Government of India and the Government of Karnataka for implementing the Bangalore Metro Rail Project, had previously procured train sets from a consortium known as BRMM, comprising M/s. BEML, Hyundai Rotem, Melco, and Mitsubishi Corporation. As the project entered an expansion phase, fresh bids were floated for the procurement of 150 Standard Gauge Intermediate Cars capable of integration with the existing fleet.

Bharat Earth Movers Limited (BEML) emerged as the successful bidder for this contract. The scope of work encompassed design, construction, supply, installation, erection, and commissioning of the rail-based rapid transport system components. Under the contractual arrangement, BMRCL undertook to reimburse the applicable GST to BEML as invoiced.

BEML thereafter approached the Authority for Advance Ruling (AAR) by filing an application under Section 98 of the Central Goods and Services Tax Act, 2017, seeking a ruling on the classification of the supply involved. By its ruling dated 06.04.2021, the AAR held that the transaction amounted to a composite supply, taxable as a supply of intermediate cars in terms of Sections 8 and 12 of the CGST Act.

The Revenue was aggrieved by this determination and preferred an appeal before the Karnataka Appellate Authority for Advance Ruling (AAAR). By order dated 03.09.2021, the AAAR revisited the classification and fragmented the supply into distinct components — certain activities were treated as supply of goods attracting GST at 5–12%, others were classified as services taxable at 18%, and yet another segment was treated as supply of goods attracting 18–28% GST.

BMRCL, not having been party to either the AAR or the AAAR proceedings, filed a writ petition under Article 226 of the Constitution challenging the AAAR order, contending that its contractual obligation to reimburse applicable GST to BEML exposed it to enhanced financial liability as a consequence of the reclassification.

Before proceeding to examine the matter on its merits, the Court identified and isolated the preliminary question:

Whether a writ petition challenging an order of the Authority for Advance Ruling or the Appellate Authority for Advance Ruling can be maintained by a person other than the applicant and the concerned officer, and whether the absence of locus standi renders such a petition non-maintainable.

Contentions of the Parties

BMRCL's Submissions

BMRCL advanced the following propositions in support of its locus standi:

  • The contract between the parties was executed prior to the introduction of the GST regime, and the obligation to reimburse "applicable GST" necessarily referred to GST as lawfully determined.
  • The AAAR's order, by attracting higher rates of tax, directly enlarged BMRCL's financial exposure and imposed civil consequences upon it.
  • Even though BMRCL was not a party to the advance ruling proceedings, the order directly and adversely affected its pecuniary interests.
  • In the absence of any alternative statutory remedy, a writ petition under Article 226 was the only available avenue.

The petitioner placed reliance on three judgments from its second compilation:

  1. Naga Ltd. v. Puducherry Authority for Advance Ruling (Madras High Court), [2024] 158 com 306
  2. I.D.L. Chemicals Ltd. v. Union of India, [1996] 5 SCC 373
  3. M/s. Gayatri Projects Ltd. and Anr. v. Com. State Tax, Durgapur (Calcutta High Court), MAT/2024/2022 dated 05.01.2023

Revenue's Submissions

The Revenue, appearing for respondent nos. 1 to 3, countered as follows: