In a significant judgment that reinforces the limited applicability of GST Advance Rulings, the Karnataka High Court has held that a third party cannot challenge an Advance Ruling or an Appellate Advance Ruling (AAAR) under Article 226 of the Constitution of India. The Court observed that an advance ruling under the Goods and Services Tax (GST) law is a decision in personam, meaning it binds only the applicant who sought the ruling and the concerned jurisdictional tax authority.
The ruling was delivered on 7 July by a Division Bench comprising Justice S.G. Pandit and Justice K.V. Aravind in the case of M/s Bangalore Metro Rail Corporation Ltd. vs. Karnataka Appellate Authority for Advance Ruling (WP No. 192 of 2022).
Background of the Dispute
The dispute originated from a contract between Bangalore Metro Rail Corporation Limited (BMRCL) and Bharat Earth Movers Limited (BEML) for the supply of 150 standard-gauge intermediate metro rail coaches.
Under the terms of the agreement, BMRCL was required to reimburse BEML for the applicable Goods and Services Tax (GST) payable on the supplies.
To determine the correct GST treatment of the transaction, BEML approached the Authority for Advance Ruling (AAR) seeking clarification regarding the classification of the supplies under the GST law.
Initially, the AAR held that the transaction constituted a composite supply. However, on appeal, the Karnataka Appellate Authority for Advance Ruling (AAAR) modified the ruling and held that different components of the contract were liable to GST at varying rates ranging from 5% to 28%.
Since the revised classification resulted in a higher GST liability, BMRCL contended that its financial burden had increased because it was contractually obligated to reimburse the GST payable by BEML.
Why Did BMRCL Approach the High Court?
BMRCL filed a writ petition under Article 226 of the Constitution of India, challenging the AAAR’s order.
The corporation argued that although it was not a party to the advance ruling proceedings, the AAAR’s decision directly affected its financial interests by increasing the amount of GST it was required to reimburse to BEML under the contract.
Accordingly, BMRCL sought judicial intervention to set aside the AAAR ruling.
Karnataka High Court’s Findings
The High Court dismissed the writ petition, holding that BMRCL had no locus standi to challenge the advance ruling.
The Bench relied primarily on Section 103 of the Central Goods and Services Tax Act, 2017, which clearly specifies that an advance ruling is binding only upon:
- The applicant who sought the ruling; and
- The concerned or jurisdictional GST authority dealing with that applicant.
The Court emphasized that the statutory framework does not extend the binding effect of an advance ruling to third parties, even if they may be commercially affected by its consequences.
Accordingly, the Court held that BMRCL, being neither the applicant before the AAR nor the concerned tax authority, could not invoke the writ jurisdiction of the High Court to challenge the AAAR’s order.
Advance Rulings Are Decisions in Personam
One of the most important observations made by the Court was that an advance ruling under the GST law is a decision in personam and not a judgment in rem.
This means that such rulings determine the rights and liabilities only between the applicant and the jurisdictional tax authorities. They do not create binding legal rights or obligations for unrelated persons or entities.
Therefore, third parties cannot claim any legal prejudice merely because an advance ruling may indirectly impact their commercial or contractual arrangements.
Contract Did Not Specify GST Classification
The Court also carefully examined the contractual terms between BMRCL and BEML.
It noted that the agreement merely required BMRCL to reimburse the applicable GST payable by BEML. Importantly, the contract did not prescribe:
- the GST classification of the supplies;
- the applicable tax rate; or
- any specific understanding regarding GST liability.
According to the Court, the expression “applicable GST” necessarily refers to GST payable under the prevailing law, including the tax determined through a valid advance ruling accepted by BEML.
Consequently, the AAAR’s ruling did not impose any additional contractual liability upon BMRCL. Instead, it merely determined the legally applicable rate of tax.
Court Refuses to Rewrite the Contract
Another noteworthy aspect of the judgment is the Court’s refusal to interfere with contractual terms.
The Bench observed that accepting BMRCL’s arguments would effectively require the Court to insert provisions relating to GST classification and tax rates into a contract where none existed.
Such an exercise, the Court held, would amount to rewriting or amending the contract, which is beyond the scope of judicial review under Article 226 of the Constitution.
Courts exercising writ jurisdiction cannot alter contractual terms simply because one party subsequently finds them commercially burdensome.
Key Takeaways
This judgment provides valuable guidance for taxpayers, contractors, government agencies, and businesses entering into GST-sensitive contracts.
The decision confirms that:
- GST Advance Rulings bind only the applicant and the jurisdictional tax authorities.
- Third parties have no legal right to challenge such rulings merely because they may suffer indirect financial consequences.
- Commercial impact alone does not confer locus standi under Article 226.
- Contracts providing for reimbursement of “applicable GST” will ordinarily require payment of GST as determined under the applicable law.
- Courts will not rewrite commercial contracts to introduce tax provisions that the parties themselves never agreed upon.
Conclusion
The Karnataka High Court’s decision reinforces the statutory scheme governing GST Advance Rulings and reiterates that these rulings are intended to provide certainty only to the applicant and the tax authorities concerned. Businesses entering into large commercial contracts should therefore draft GST clauses carefully, clearly addressing tax classification, applicable rates, and allocation of tax risks. Proper contractual drafting can help avoid future disputes and reduce uncertainty arising from subsequent tax determinations.