DV. Lakshmikumaran / Legal Eagle on GST Litigations

Leading legal luminary, Adv. Lakshmikumaran, gives an insight into the emerging trends in the GST litigations, which are being fought at the constitutional courts like the High Courts and Supreme Court and at the tribunals and departmental authorities

Leading legal luminary Lakshmikumaran advises companies in all areas of taxation, including International Taxation and Transfer Pricing, Goods and Services Tax (GST), Customs, Excise, Service Tax, Value Added Tax (VAT), Foreign Trade Policy, Special Economic Zones, offering consulting, advisory, litigation and compliance services. He has also successfully represented clients from many countries in several anti-dumping, subsidy and trade investigations initiated by India. His expertise in handling cross border matters and related party transactions is widely recognised.

He has been involved in interpreting and applying various multi-lateral agreements at both national and international levels. He is considered an authority in trade remedy laws and TRIPs and has handled several disputes between companies and government authorities in various countries. He has represented clients in other jurisdiction like the European Union, USA, Australia, and Canada. Mr Lakshmikumaran regularly delivers lectures in industrial bodies, international institutions and universities. He holds a master’s degree in Mathematics and a Bachelor’s degree in Law. Before starting his legal practice in 1985, he was a tax administrator with the Government of India.

For over 30 years, he has led the firm in representing clients in over 40,000 litigations before the Supreme Court of India, High Courts, tribunals and quasi- judicial authorities. He has played a pivotal role in the development of jurisprudence relating to customs and excise laws in India. His clients include many well-known Fortune-500 companies and leading Indian corporates. At the GST Gyan Manthan, he vociferously spoke about litigations pertaining to GST. Read the excerpts, which include his personal professional journey.

"If you believe in excellence, wanting to become an icon or a person to be looked up to, then it calls for a different type of devotion, passion and sacrifice"

The power of the law profession

The training, which you have, and the discipline with which you practice is laudable (addressing to the CA professionals in the audience). I see your institution and the Chartered Accountant professionals like you taking up newer subjects, newer challenges and contributing to the economy, besides giving the correct advice to the clients. Any profession you take up, whether legal or accountancy, it is like your wife-demanding full devotion and time. There are no second thoughts. The amount of time you spend qualitatively will determine ultimately, how you progress in your career. If your aim is to somehow earn some money for dayto- day living or make some good saving for your evening of life, then this profession is handmade for you. If you believe in excellence, wanting to become an icon or a person to be looked up to, then it calls for a different type of devotion, passion and sacrifice, to get to that level.

Principles I followed

I followed some principles and it has paid good dividends. Every day I must read at least 10 judgements. In the evening when I go to bed, I ask a question - am I a better lawyer today than yesterday? Did I learn something new? Did I contribute to the jurisprudence of this law, at least today? Did I answer my clients properly? Did I mentor my juniors properly? If I get an answer as no, I do not get to sleep properly. Therefore, when your whole world is turning around, in introspection of whether you have become a better professional than yesterday, things become easier and your day is not wasted.

The beauty of this profession is one can enjoy it, as it is not monotonous, thanks to the variety of clients and problems posed to you. Moreover, each time you find a new solution to an existing problem or a future problem, you are happy. Man could not fly, he invented the aeroplane; he could not run beyond a certain speed; he invented the car and the train. Every time man overcame a handicap, I am sure God was smiling at him as the person has used his or her sixth sense to achieve the incredible. However, the best computer ever invented is your brain and the best machine ever invented is your body. Thankfully, both are properly synchronised. And if you don’t use your brain and body in a synchronised manner, the fault is not of anybody except yourself. The body is a wonderful machine and it can be conditioned the way you want it. You want to sleep only three hours, it is ready but you will have to train it. Each day that you train yourself, you feel this is the maximum you can do but to your pleasant surprise, you will find that the next day, you can do a little more. It is so flexible.

"The beauty of this profession is one can enjoy it, as it is not monotonous, thanks to the variety of clients and problems posed to you. Moreover, each time you find a new solution to an existing problem or a future problem, you are happy"

The possible litigation landscape for GST

The emerging trends in the GST litigation are divided into two segments-one that is before the constitutional courts like the High Courts and the Supreme Court, where remedy under the Constitution of India is available. The other category is interpretations under the provisions of GST law, where the provisions are not challenged, but interpreted before the tribunals and other departmental authorities.

If you analyse a series of litigations in the high courts of the last two to three years, you will find that the petitions are basically questioning certain difficulties faced by the assessees with regard to getting and transferring of the credit and the time lapses involved for the transfer of credit. The constitutional court promptly said that your right of credit is imminent under law, but the procedure prescribed by them mandates you to do it within a particular timeline and through a particular process. My point is, are these processes or the timeline, so sacrosanct as to deny you the fundamental right of getting your due credit? A court judgment had decided in the favour of the assessee stating that time is merely machinery but fundamental rights or your statutory rights of getting the credit cannot be denied to you. This has been the line of judgment so far. Are we overjoyed with court judgments? We should ponder.

Suppose, if I were to hypothetically only argue for the government; by the way, I conduct a mock exercise wherein I ask my colleagues to argue in favour of the government in the mock courtroom, which we have in the office, and I sit as a judge. I ask two teams of two people each and give brief to them to argue, for and against the case. We also ask clients to be present. You can expect any kind of questions from the judges. However, sometimes their questions are dull. Therefore, I put the possible questions on their behalf and the clients sitting behind get startled. They wonder whether I am the client’s mouthpiece or I have a role to play to build the jurisprudence in the law?

One of the best methods to argue as per nyayashastra or tarkshastra is you first tell the court or the adjudicating authority what are the points against you. After this, tell what the points in your favour are. This would ensure complete justice as no one would point fingers at you, saying that the other points were not argued. Every point is taken, argued, and with supreme confidence. For, if I am going to voluntarily tell the court the points against me, I am not going to lose the case-I am still going to win the case for my points in favour of my client would be strong enough.

The purpose of the limitation act

There is something called a right and something called as extinguishing your right. If you are entitled to a refund of the excess taxes paid by you, that is your right to get the money back but that right is limited by limitations saying that you must file refund claims within six months or one-year time. The law also may provide a certain period for condonation of delay of the refund claim for a valid reason. However, let’s say, you do not file for a refund for two years, then say I must get the refund, then what exactly is the law on that subject? Nobody says that you are not entitled as you have paid excess tax to the tune of two crore rupees so you are entitled. But if you cross the limit of time, the remedy available to you gets the remedy, barred. Therefore, the limitation act, acts in a manner by which, without extinguishing the rights, it bars remedy. And this is how the law is evolved. Because it also gives the right to the other side. If you do not exercise your right within a particular time, the opposite side will get the other right. Therefore, the court does not disturb this normally. Therefore, when you advise the client not to worry even if he has surpassed the time limit, you need to be careful because some of the judgments may not stand the scrutiny of the test at the higher level if they are challenged.

The exemptions

Then the question came of exemption under the scheme for hill stations like Himachal Pradesh or Uttaranchal. To encourage manufacturing, a ten-year tax holiday was given for excise. A company manufactured motor vehicles in the area and claimed an exemption for this. Under the manufacture of a motor vehicle rules, apart from the basic excise duty, there is also NCCD (National Calamity Contingency Fund) levy. The officer of the company said the exemption is only for the basic excise duty. There is no exemption for NCCD, therefore you have to pay the tax. The manufacturer argued that when I was called here to set up my company, I was told excise would have an exemption. NCCD also collects tax as excise duty. The matter ultimately travelled to the highest court, which said that since we have granted an exemption for excise, the department is wrong and the assessee is correct.

One person asked me about the Supreme Court judgment in the case of Bajaj Auto. The Supreme Court judgment has directed that you are entitled to NCCD exemptions also. Long ago, in the 1980s, when the special excise duty was imposed on tyres and exemption from the excise duty was granted from 60% to 25%, the assessee argued that I must pay a total duty of 25% including special excise duties; I am not required to pay any extra excise duty. Whereas the department argued, your exemption of 25% was only for basic and on top of it, you must pay 10%. Assessee refused to cough up the extra. The Delhi High Court gave judgment in the favour of assessee. Thereafter, the President of India got preamble into an ordinance, stating that any exemption given in any law, if not invoked in the preamble and derive the power of other acts, the exemption will be confined only to basics duty; it will not cover special excise duty. That was challenged in the Supreme Court and the constitution bench heard and said the ordinance was correct, and the exemption should not extend to the special excise duty if the special provisions are not invoked in the preamble.

Proper functioning of the authorities under the GST law

Today, the GST Tribunals, have yet to functioning fully, and the department is not fully knowledgeable about the GST Law. The assessee, the consultant, and the department, all of them have utter poverty of knowledge. So this will continue for some time. If the department starts functioning fully which should happen sooner or later, the adjudicating authority passes appropriate orders and tribunals have proper setting, then you will see an explosion of cases. I will explain why. We have a system called Advanced Ruling-when you are in doubt with the classification and other issues, this body can provide solutions. The purpose of creating this authority is to reduce litigation. If Advanced Ruling Authority functions properly and it gives judicious rulings, there will be no litigation.

In one case, there was a dispute of whether a particular product which is manufactured, will attract 5% or 12% GST. We went to the Advanced Ruling Authority and asked them what the rate applicable is? They said, 12% is applicable. So we went on to appeal in the higher authority. After the judge heard us fully, he said, Lakshmikumar, I agree with you, 12% is wrong, actually, it should be 18%. Now, this matter has to go to High Court, it has to be challenged. If you look at the quality decisions, more than 90% are orders given were correctly interpreted. Hence, the purpose of creating the Advance Ruling Authority is lost. We in India create wonderful institutions but we populate with pygmies and then problems crop up; instead of solving it we are only aggregating them. The way in which offices of the Advanced Ruling Authority is providing solutions or the answers, they themselves are giving rise to litigations at various levels.