AAAR Cannot Exceed Appeal Limits: Rajasthan HC Expunges ITC Views on Valuation of Refurbished Used Cars under GST Notification [Read Order]

In a recent ruling, the Rajasthan High Court has held that the Appellate Authority for Advance Ruling ( AAAR ) cannot go beyond the specific grounds raised in an appeal, and accordingly expunged remarks made by the authority on Input Tax Credit ( ITC ).

The petitioner, Tej Jain had approached the Authority for Advance Ruling (AAR) seeking clarity on whether the amount paid to the owner of an old car and the expenses incurred for refurbishing that car should be included in the purchase price to compute the margin for GST purposes under Notification No. 08/2018-Central Tax (Rate) dated 25 January 2018.

The AAR ruled against the petitioner’s interpretation, holding that such costs could not be deducted to arrive at the margin.

The petitioner, who was dissatisfied, appealed to the AAAR, but he only used the particular valuation technique used to calculate margin in the notification. In addition to upholding the AAR's decision, the AAAR went one step further and added new observations in paragraph 6.8 of its order regarding whether or not ITC can be used if the notification's benefit is claimed. The AAAR held that claiming ITC would prevent the assessee from taking advantage of the notification's concessional scheme.

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Before the High Court, the petitioner argued that the AAAR had no jurisdiction to deliver findings on the question of ITC because the original ruling never dealt with this and the appeal did not raise it.

On the other hand, the GST department defended the AAAR’s order but could not dispute that the ITC question was never part of the original dispute.

The Division Bench of Justice Avneesh Jhingan and Justice Anand Sharma agreed with the petitioner’s contention, observing that an appellate authority cannot expand the scope of an appeal or decide questions not raised before it.

It noted that the AAAR’s remarks on ITC were beyond the limited challenge about the margin calculation. Accordingly the bench, while upholding the order, expunged the observation.

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