Unchallenged Advance Ruling Binds the Department; Circular Cannot Fix a Tax Rate or Override It: GSTAT Dehradun Quashes Rs. 1.89 Crore Erroneous Refund Demand

The Tribunal held that a CBIC circular is not a ‘change in law’ under Section 103(2), that rates can be prescribed only by notification under Section 9(1), and that a State Bench cannot examine the jurisdiction of the AAR when the ruling was never appealed.

The Dehradun Bench of the GST Appellate Tribunal has dismissed two Revenue appeals seeking to recover refunds of about Rs. 1.89 crore as “erroneous”, holding that an advance ruling which the department never challenged continued to bind the jurisdictional officer, and that CBIC Circular No. 164/20/2021-GST could not be used to displace it [Krishnakant Pandey v. Kuldeep Butola].

The bench of Rajesh Jain, Member (Judicial) and Amand Shah, Member (Technical) noted that the respondent, a mining contractor, had paid GST at 18% on licensing services received from Garhwal Mandal Vikas Nigam for the right to extract sand, gravel and boulders. The Uttarakhand AAR ruled in January 2020 that, for 01.07.2017 to 31.12.2018, the service fell under residuary Entry 17(viii) of Notification No. 11/2017-CT (Rate) and attracted the rate applicable to the like goods, namely 5%. Refunds of the 13% differential were sanctioned in June 2020, and neither the ruling nor the refund orders were challenged.

After the Circular dated 06.10.2021 clarified the rate for SAC 997337 as 18% for that period, the department issued notices under Section 73 treating the refunds as erroneous. The Tribunal held that a circular is an executive instruction under Section 168 and is not a “change in law” under Section 103(2), which refers to the Act, Rules or rate notifications. It observed that “circular can never create a levy”, since rates must be notified under Section 9(1) on the Council’s recommendation, and a demand resting solely on a circular without a corresponding notification entry is hit by Article 265.

The Revenue’s argument, raised for the first time in rejoinder, that the AAR lacked jurisdiction to rule on past transactions was rejected: the ruling was never appealed under Section 100, rectified under Section 102 or declared void under Section 104, and a State Bench has no jurisdiction under Section 109(4) to test its validity. Fresh grounds of unjust enrichment and that only the supplier could seek refund were held barred by Section 75(7) as they were absent from the show cause notice.

The Tribunal distinguished the Patna High Court’s ruling in Broad Sun Commodities Pvt. Ltd. (now pending before the Supreme Court) as not involving a conflict between a circular and the assessee’s own advance ruling.

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