The outbreak of COVID-19 and the compulsion to stay at home is tough but at the same time it is bringing out the creativity in everyone. CA Sudhir Hakalkhandi has started with a series called "Know your GST Expert". What a wonderful initiative to keeps the members updated. Here is the third interview from the series "Know your GST Expert". In this interview, Mr. Halakhandi is in conversation with GST Expert ADV. JATIN HARJAI.
CA SUDHIR HALAKHANDI: Dear Friends. Welcome our star GST Expert ADV. JATIN HARJAI in our Program 'KNOW YOUR GST EXPERT'. Welcome, Jatin! How are you? How is your life in the Lockdown period? Since it very difficult for person like you, who is always busy professionally, to spend so much time at Home? How you are managing it?
ADV. JATIN HARJAI:
Thank you very much, Sudhir Ji. First of all, it's an honor to be here for this unique type of interview, whereby stalwarts like You, CA Bimal Jain, CA RA Sharma, Dr.Arpit Haldia and all other learned indirect tax practitioners are members.
Lockdown is quite reasonable until now. I started with some spiritual litterateur (Bhagwat Geeta Ji) and spending time with family.
In the last few days, all webinars and other meetings have been started online. Now people are adapting to more and more online activities and I believe it will be part of our life, even after this COVID-19. I hope all good and safe at your end and all members end.
SUDHIR HALAKHANDI: Jatin as I know you turned from Science to Commerce and ultimately for CA. My son Abhas has also chosen this route. Is it easy for an initial Science student to get CA? A lot of students are doing this. What is your experience and opinion Jatin?
ADV. JATIN HARJAI:
It was only an initial few months that were having a bit struggle due to non-commerce background. After that, I think we picked up comparatively faster and loved all subjects barring few theory papers. I believe mathematics and science help in multiple ways for any CA student and accordingly always suggests the younger generation go for science for the initial two years and then switch to commerce along with CA.
By the way, for me, it was not pre-planned.
SUDHIR HALAKHANDI:
After getting CA it is very rare to surrender it for Law practice. It is very rare. I think Advocate Sanjay Jhanwar has also done it years back. What was your thought while taking this decision? It was very tough or it was a compulsion?
ADV. JATIN HARJAI:
You are right, it's rare. As I understand the reason is, most CA's are involved in compliance and attest practice, which can be done better with COP as CA. However, I was having more interest in consultation and litigation, which I thought can be better, served with COP as a lawyer. Further, compliances were a very small part of my practice, and accordingly, it was a comparatively easy decision for me. Yes, Sanjay Bhaiya did this and he is the inspiration for me and lots others.
SUDHIR HALAKHANDI: Now you are more comfortable as an Advocate because it was your choice or have any regrets?
ADV. JATIN HARJAI:
I am more than happy. Absolutely no regrets. This field is exciting. So many things to learn. One important aspect which I observed is, till tribunal major focus remains on factual points and principles of laws are less appreciated. Whereas in courts it's the altogether different ball game.
SUDHIR HALAKHANDI:
So now you are the inspiration for others. You are a very good speaker and you are very much busy in GST seminars as Key Speaker throughout the country. How do you manage it so often? How do you manage your working schedule?
ADV. JATIN HARJAI:
It's actually a tough task. Since I am not involved in compliances, it gets managed. Consultation and opinions can be done by traveling with not many extra efforts. One added advantage was alternate week bench of Tax Board in Jaipur. Now after taking COP as an advocate, I am curtailing a number of seminars and workshops and normally accepting invitations only on weekends and holidays. Looks like COVID will change rules of the game.
SUDHIR HALAKHANDI: How do you rate GST and its implementation? Are you satisfied with the way in which it is implemented and it is working? The dealers and professionals are finding it very tough as far as procedures and formalities are concerned.
ADV. JATIN HARJAI:
You are right everyone is finding it tough as far as procedure and formalities are concerned.
In my opinion, It was started as a good concept and degraded at each and every step of its journey. If we start from Concept paper – CAB – CAA – GST Act(s) – Rules – Notifications – Circulars – GSTN performance, at each and every stage there was compromise or development was without keeping intended objectives.
Barring MNC's and large corporate, I feel the GST implementation has not served the objectives, rather increased the burden in one way or other, which can be discussed for sector or industry-specific separately. If I will have to rate it on a scale of 10, I will give 3 marks.
SUDHIR HALAKHANDI: Very poor performance! In your opinion who is responsible for this debacle?
ADV. JATIN HARJAI:
Foresightedness of political leaders at the front. It was not only about the union. Since the GST could be implemented only after the constitutional amendment, the majority of states are to be on board.
Secondly ... whosoever drafted the core law, Prima facie the law is being made keeping in mind that taxpayer doesn't pay tax honestly. That's why so many types of assessment, notices, and stringent powers are given.
I am not saying to reduce the penalty, rather penalty for persons violating the law should be higher but ultimately process has to be such that it supplements business process and not such that any taxpayer has to invest its substantial time in tax related compliances.
SUDHIR HALAKHANDI:
State Budgets now have no meaning as far Tax and revenue are concerned? GST has made states powerless in this field?
ADV. JATIN HARJAI:
That's true. Very limited aspects like Stamp, Registration, Liquor, petroleum products etc are the main components in the State Budget. All these businesses are such whereby a number of taxpayers is less though the volume is there.
SUDHIR HALAKHANDI: Is it good for the federal system of Governance like our Country?
ADV. JATIN HARJAI:
If we go to constitutional principles, it's a hit on the federal system, which is part of the basic structure of our constitution and yes to some extent federal system is compromised.
As far as the economy is concerned, we are having two types of players:-
1. MNC's and large corporate and I believe for most of the GST is like blessings.
2. Small and medium businesses, both trading and manufacturing. GST has majorly damaged this sector.
SME Traders - Due to compliances
SME Manufacturer - Their market lost as they need to compete with large players having economies of scale
So in summary: it will have a mix impact on the economy, some positive some negative. But I believe negative is more, as we are a country of SMEs.
SUDHIR HALAKHANDI: Is there something good about GST?
ADV. JATIN HARJAI:
Yes, Certainly good things are here.
- Centralized working of most large corporations, earlier they used to have teams in all states
- Most of the taxes (not all) are now reflecting in invoicing for consumers, by which one can understand the tax component in his consumption.
- And on a lighter note, now Mr. SUDHIR HALAKHANDI is more popular in the whole country.
SUDHIR HALAKHANDI: Thanks! Now Jatin Something about GSTN? Why our lawmakers are not thinking about any alternate? Even after 30 Months, it is struggling to settle down.
ADV. JATIN HARJAI:
A most important reason I think is the information of complete failure of GSTN is not reaching to the top level. My thoughts becomes believe when, at times, hear praise for GSTN by govt. for its implementation.
In my view the matching concept should be removed completely till the time system is fully prepared and it should be re-launched in phased manner. Till that time govt. should find out other ways to tap tax evaders. For tackling some evaders, disturbing life of all tax payers cannot be said to be prudent policy.
Just to remind - there was no matching under service tax and excise law.
SUDHIR HALAKHANDI: Now Jatin, If you permit Dr.Arpit Haldia wants to ask something.
SUDHIR HALAKHANDI: Welcome Dr.Arpit Haldia. Please ask your question.
Dr. ARPIT HALDIA:
A Very Good Evening Jatin. It was great to go through you discussion with Sudhir Ji.
ADV. JATIN HARJAI: Very good evening Arpit Ji. It's always pleasure talking to you.
DR.ARPIT HALDIA: Just a Question from my side..Some of Our members in our group are fairly new to the field of Practicing in the field of Law..and rather it would be a very good for all of us to know..
How to Study Law and get the knowledge..Any specific suggestions from your side to go about the study part of law..Start from where and then how to move ahead.. Asking you specifically as The deliberations I have with you..It's always an admiration for the knowledge bank you have..
ADV. JATIN HARJAI:
You both are much bigger knowledge bank.
Since asked, I will share my thoughts. First of all one should have basic idea of structure of law you are going to read, for this one may refer any text book, articles, seminars, videos etc. After that one should pick up the bare law, viz Act, Rules and notifications.
Now the stage comes when you have some practical case or issue before you, apply whatever read and refer judgments from various courts decided on the same aspect. Important - Read full judgment and not summary, gist or head notes.
To be very honest with you all, till today I haven't referred a single text book or reference. Always read through direct law and judgments.
No question of relying or referring any FAQ, Clarification, AAR.
Even Circular with due care.
DR. ARPIT HALDIA:
Any Specific Books you Suggest for the Understanding of Law.. Which invariably everyone should have..
Constitution of India. Bare Act - Rules
SUDHIR HALAKHANDI: Ok Thanks Arpit for asking such a useful question. Now Jatin, Something about Professional stress related to GST procedures though you are not involved in day to day working but at ground level I know there is so much stress amongst the professionals after introduction of GST. What is your suggestion to professionals to come out of it and work comfortably?
ADV. JATIN HARJAI:
Since GST stress level has increased in all tax professionals' life.
I will advise all friends on two fronts:
On professional front:
- Keep terms of engagement in writing before start working.
-Charge as per your efforts (time consumed).
Personal front:
- Do take out some time on daily basis for your own interest areas (games, movie, music etc.)
-Read some spiritual litterateur
SUDHIR HALAKHANDI: Jatin One hour is over. Are you comfortable?
ADV. JATIN HARJAI: I am ok. No problem.
SUDHIR HALAKHANDI: Thanks Jatin, What your opinion about Rajasthan AAR decision on Director's Remuneration? Please explain it in nutshell and also its viability and its impacts.
ADV. JATIN HARJAI:
First of all I would say, in GST AAR is suicidal attempt and one should avoid it, unless using strategically. In one liner I can say the ruling is not even worthy of commenting as it is absolutely non-speaking on key issue. I am not assenting or dissenting with order. Answer to question is subjective and depends on facts of the case.
In my opinion, since provisions of GST laws are crystal clear that any services by employee to employer are out of tax net. So if we narrow down underlying issue, question is whether director is employee of the company or not.
There are judgments from courts including Hon'ble apex court that executive directors are Employees of the company, though these judgments are majorly from labour laws. In addition, there are different circular/ document and tribunal judgments under service tax law (which IMO is Pari Materia) which supports the broad understanding that MD, WTD, ED etc. (i.e. other than professional/ independent/ nominee directors) works dedicatedly for the company and should be treated as employee only despite not having regular payments.
However, I would like to suggest everyone to read one of the recent judgments from CESTAT Kolkata (Brahm Alloy Ltd. – Aug 2019). This one is negative for the assessee, but gives good insight about what care one should have in term of engagement of director.
Summary - have properly written Terms of engagement, including payment terms, hiring and firing policy, and all other details which are there with any other engagemernt letter with employee. Pay remuneration timely - as per engagement (not necessarily monthly). You are safe. No problem
This is for future and for past, there is adequate legal material available to fight, if case is made out.
SUDHIR HALAKHANDI: The provisions of 16(4) and 36(4) are the biggest problem before the dealers. These are legal problems but can you suggest lawmakers something more liberal to do away such strict procedures or do you agree with them to make the disciplined tax system.
ADV. JATIN HARJAI:
I believe two are absolutely different category items. Let me take them one by one.
Firstly Rule 36(4) putting up restriction of 10% over above details filed by supplier. In my opinion this is absolutely absurd use of delegated legislation, against the basic objectives and architecture of GST and is without proper authority of law. So my advice to lawmakers would be to withdraw this rule ASAP as its making life as hell of many tax payers, otherwise in most probable scenarios courts will struck it down in times to come.
SUDHIR HALAKHANDI: Now 16(4)
On Sec. 16(4), I believe it is issue of interpretation of the provision. A careful reading suggest, it is not outright restriction on entitlement of credit rather restriction on taking of credit, unlike Sec. 16(2) which is outright restriction on the entitlement of credit. In simple words a person takes credits in its books of accounts and return is reflection of the same. The restriction laid down by Sec. 16(4) is on taking of credit and not entitlement of the credit per se. If we read the law in this manner (which is supported by couple of judgments from excise law) probably most of issues gets resolved. So here my advice to the government would be to issue a clarification only without amending the law.
SUDHIR HALAKHANDI: In case of Merchant exporters who export without payment of IGST. Can they claim refund for 0.01% for purchase at concessional rate?
ADV. JATIN HARJAI:
Yes. Such exporter is allowed to claim refund.
One may refer Sec. 54(3) r/w Rule 89(4B).
SUDHIR HALAKHANDI: This is in relation to Raw cotton purchase. What is the legal position for RCM on Raw cotton in case of Commission Sale transaction where actual purchase (inward Supply) of cotton does not taken place whereas only aadat sale occurs? Will it amount to Inward Supply and RCM is applicable? If yes, can we voluntarily pay that in current GSTR 3B claim ITC on RCM? Or we have to pay the same vide DRC 03 , then how can we claim input for RCM as RCM credit is now time barred.
ADV. JATIN HARJAI:
Aarhatia (Kaccha) who takes goods for further sale in mandi on the basis of commission is covered by the definition of 'Agent' and is related party to his principal. Providing raw cotton by agriculturist to such Commission agent shall be treated as supply, hence inward supply for such Commission agent. Now inward supply of raw cotton from agriculturist is covered by RCM provisions u/s 9(3) w.e.f. 15.11.2017 and accordingly the RCM liability is to be discharged.
As far as question of credit is concerned, it appears to be asked for RCM liability paid for now in respect of Financial Year 2017-18 and 2018-19 as apparently no challenge appears for Financial Year 2019-20. In my opinion even for the earlier year the same shall be eligible, reason being credit is restricted for in respect of any 'invoice or debit note' for and not in respect of 'supply'. In the question under consideration the RCM invoice would have been made now, which shall be eligible document for claim of credit, hence credit eligible. That means limitations provided in Sec. 16(4) shall be counted from the date of RCM/ Purchases invoice made by the recipient.
One will have to read Sec. 16(4), Sec. 31(3) (f) and Rule 36 together.
SUDHIR HALAKHANDI: Now Jatin, We have 2 questions from Real Estate sector. First one is here.
We are a commercial complex Builder. In Tran-1 we have taken transitional credit of cement in stock and cement used in building (WIP). Department allowed us the credit of cement in stock but denied the credit of cement used in WIP. What is the reason?
ADV. JATIN HARJAI:
Departmental view is based on term 'Inputs' used in Sec. 140(3) r/w definition of goods provided in Sec. 2(52), as per which for taking credit it has to be movable property whereby standing structure is immovable in nature. One of the arguments against department claim is, if the same is immovable, can GST be levied at all? Govt. cannot twist its stand on factual position for levy of GST and for allowing of ITC. The argument is well supported by landmark judgment from Hon'ble SC in case of 'Larsen & Toubro' dt. 26.09.2013.
Further, apart from merit points, due to ill drafting and poor technical knowledge of adjudicating authorities there are other reasons in GST law to defend these credits and save from reversal. In two of our cases, client has taken good amount of credit on cement, iron etc. used for construction of unsold WIP, and so far department could not pass the order for reversal despite chasing for more than two years.
Even if credit has reversed, if the amount is not too small, it's better to claim back. No point in leaving such claims, despite litigation prone.
SUDHIR HALAKHANDI: The Second question from the Real Estate Sector is:-
The real estate builder has a 3lakh sq ft area to be constructed and sold. Out of which 2 lakh has been booked n sold and total construction is completed and whole ITC took. Now we intend to get completion certificate so do we need to reverse itc on the remaining 1lakh sqft area which is unsold which we availed before completion certificate or can we avail full credit of 3 Lakh sq ft area?
ADV. JATIN HARJAI:
I am assuming this question belongs to the period prior to 31.03.2019. See law allows eligibility criteria to be tested at the time of taking the ITC. Once availed the same there has to be some specific provision to reverse it. Completion of construction or applying for CC/ OC is certainly not any such event mentioned anywhere in law. My view is well supported by one of the latest judgments by Gujarat HC in the case of 'Alembic Limited' Dt. 12.04.2019.
Further, please note if completed flat(s) sale is there within the same Financial Year of the completion of the project, Sec. 17(2) shall apply, but not on the whole project, rather for the specific period. In summary, the whole of the credit on 3 Lakh Sq. feet shall be allowed, and no need to reverse the credit on 1 Lakh Sq. feet. Through depending upon facts of the case there might be some minor/nominal disallowances u/s 17(2) r/w R. 42/43 in the year of completion.
I can say in none of our cases we have advised to reverse the ITC on the date of completion, and even the departmental audits has also been done without any para on this point.
Couple of others form tribunals are also there with the same ratio.
Eg Oberoi mall - Mumbai Tribunal
SUDHIR HALAKHANDI:
Nice talking with you Jatin. What is your experience with this program?
ADV. JATIN HARJAI:
It was fantastic. Absolutely unique. Thank you very much for this opportunity to interact with stalwart like you, and at a platform having top class consultants. One more thing to admit, it's really admirable that how this group remains stick to its objectives and doesn't deviate. Kudos. Once again, thank you very much.
Stay Home Stay Safe.
SUDHIR HALAKHANDI:
Thanks Jatin. Thanks to all the Members for attending with Keen Interest.
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