GST Registration of Lawyers-No clarity on whether all legal services would be governed by reverse charge mechanism. Delhi HC orders no coercive action for non-registration.
ABCAUS Case Law Citation:
ABCAUS 1293 (2017) (07) HC
The Petitioner was a lawyer and sole proprietor based at Delhi and engaged in providing legal services including consultancy, opinion, drafting, appearances before Courts etc. throughout the country before various High Courts and Tribunals.
The central issue raised by the Petitioner had was whether the Notification No. 1312017-Central Tax (Rate) dated 28th June, 2017 as well as Notification No. 1312017-State Tax (Rate) dated 30″ June, 2017 cover all legal services and not restricted to representational services rendered by legal practitioners. The ancillary question is whether there is any requirement of registration by legal practitioners and/or firms rendering legal services under the CGST Act or the IGST Act or the DGST Act even if they are earlier registered under the Finance Act?
The grievance of the Petitioner was that contrary to the recommendations of the GST Council (Respondent No. 3) at its 14″ meeting held on 19th May, 2017 and 16th meeting held on 11th June 2017, Notification No. 13/2017-Central Tax (Rate) dated 28th June, 2017 as well as Notification No. 13/2017-State Tax (Rate) dated 30″ June, 2017, have been issued by the Government of India and the GNCTD which were per se in violation of the Central Goods and Service Tax Act 2017 (CGST Act), the Delhi Goods and Service Tax Act 2017 (DGST Act) read with Article 279 A of the Constitution of India and have adverse consequences to lawyers in general including himself.
Accordingly, the Petitioner had challenged the constitutional validity of the aforesaid notifications.
The petition had also challenged Notification No.5/2017-Central tax dated 19th June, 2017 issued by the Union of India and Notification No. F3(10)/Fin(Rev-I)/2017-18/DS-V/340 dated 22nd June, 2017 issue by the GNCTD on the ground that these notifications are contrary to the recommendations of GST Council. The petition also challenges the constitutional validity of Section 9 (4) of CGST Act, Section 5(4) of The Integrated Goods and Services Tax Act, 2017 (IGST Act) and Section 9(4) of DGST Act.
It was argued that this provision was not to be found in the model laws prepared by the GST Council. It seeks to collect GST on ‘reverse charge’ basis from a person registered under the CGST Act, IGST Act or DGST Act in respect of goods supplied and services received by such person from a person who has not been so registered. This provision lacks a proper corresponding machinery provision to facilitate its implementation, and is therefore ultra vires the statute. It was contended that this provision is incapable of being complied with and is bound to cause undue hardship to the persons registered under the aforementioned three statutes.
It was submitted that submits that under Article 279 A of the Constitution of India, the GST Council is a constitutional body. The Central and State Governments are bound by the recommendations of the GST Council in issuing notifications that are consistent therewith.
It was categorically averred that the impugned notifications are in violation of this mandatory statutory requirement inasmuch as the GST Council had recommended that legal services as a whole would be amenable to GST only on ‘reverse charge basis.
As per the Petitioner, in the Notification No. 13/2017 (both central tax and GNTCD), the expression “provision of such services” following the expression “located in the taxable territory” restricts the exemption to only ‘representational services’ provided by a legal practitioner before any court, tribunal etc. and not to all legal services provided by such legal practitioner or a firm.
A further difficulty was also stated that many lawyers had, in compliance with the provisions of the Finance Act 1994 (FA), got themselves registered way back in 2011 under FA as service providers. After a period of about six months the provision of legal services was notified as being taxable under ‘reverse charge’ basis. However, there was no provision in the FA to allow for de-registration. Thus FA registration continues.
The Petitioner submitted that the mere clarification that all legal services are amenable to GST on reverse charge basis may not solve his problem. According to the Petitioner, a legal practitioner who is already registered under the FA would have to be exempted from registration under the GST laws under Section 23 (2) read with Section 22 (2) of the CGST and the corresponding provisions of the IGST Act and DGST Act.
Observations made by the Delhi High Court:
The Court observed that as of date there is no clarity on whether all legal services (not restricted to representational services) provided by legal practitioners and firms would be governed by the reverse charge mechanism.
The Court opined that if in fact all legal services are to be governed by the reverse charge mechanism than there would be no purpose in requiring legal practitioners and law firms to compulsorily get registered under the CGST, IGST andlor DGST Acts. Those seeking voluntary registration would anyway avail of the facility under Section 25 (3) of the CGST Act (and the corresponding provision of the other two statutes).
The Hon’ble Court opined that there was prima facie merit in the contention of Mr Mittal that the legal practitioners are under a genuine doubt whether they require to get themselves registered under the three statutes.
Direction of the High Court
The Hon’ble High Court directed that no coercive action be taken against any lawyer or law Firms for non-compliance with any legal requirement under the CGST Act, the IGST Act or the DGST Act till a clarification is issued by the Central Government and the GNCTD and till further orders by the Court.
It was clarified that any lawyer or law firm that has been registered under the CGST Act, or the IGST Act or the DGST Act from 1″ July, 2017 onwards will not be denied the benefit of such clarification as and when it is issued.
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