The Delhi High Court vide its Order dated July 12, 2017, in the matter of J. K. Mittal & Company v. Union of India & Ors1, has sought clarification from the Central Government and State Governments on whether all legal services provided by individual lawyers and law firms shall be governed by the "reverse charge" mechanism under the recently implemented Goods and Services Tax (hereinafter referred to as the 'GST') regime.
The issue was brought to the attention of the Delhi High Court by way of a writ petition filed by a proprietary concern of Mr. J. K. Mittal, Advocate who appeared in person before the bench and claimed that contrary to the recommendation of the GST Council at its 14th and 16th Meeting held on May 19, 2017 and June 11, 2017 respectively, the Centre and State Government issued Notification No. 13/2017 – Central Tax (Rate) dated June 28, 2017 and Notification No. 13/2017 – State Tax (Rate) dated June 30, 2017, which are per se in violation of CGST Act and DGST Act read with Article 279A of the Constitution of India.
According to the provisions of Article 279A, the various rates and slabs for GST under the CGST Act would be made only on the basis of the recommendations of the GST Council. While the recommendations of the GST Council were that for all services rendered by a lawyer or law firm, the service recipient would pay GST as per the "reverse charge" model, the Notifications issued by the Centre Government and Delhi Government prescribed that lawyers and law firms shall be liable to pay GST on all services rendered by them, except representational services where the recipient of the service, i.e., the client shall be liable pay GST.
The Bench comprising Justice S. Muralidhar and Justice Pratibha M. Singh observed that "In view of the above submissions it is plain 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...In the circumstances, the Court directs 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 in that regard by this Court."
The Court had directed the Centre and the State to provide sufficient clarification in this regard by the next date of hearing, i.e. July 18, 2017. In this subsequent session, various questions were raised as regards to a press release, presented by Mr. Narula, issued by the Press Information Bureau, Ministry of Finance, Government of India, on the position regarding applicability of GST on Legal Services provided by individual as well as a firm of Advocates. The legal sanctity of such a press release was questioned. It was also questioned whether the recommendations of the GST Council could be modified by virtue of a notification.
Mr. Narula then pleaded for more time on the issue that whether a lawyer or law firm who got registered under the Finance Act, 1994 could opt to de-register or surrender the registration. The Court ordered each of the Respondents to file a para wise reply to the petition and also specifically answer the queries as noted in the Court's order dated July 12, 2017.
The Hon'ble bench further held that until any further orders, no coercive action would be taken against providers of legal services for non-compliance under the new indirect tax regime. The Court also held that all legal services provided by advocates, law firms, or LLPs of advocates will continue to be governed by the reverse charge mechanism unless any such legal service provider wanted to take advantage of input tax credit and opted for voluntary registration under Section 25 (3) of the CGST Act.
The case is now listed for hearing on14th September, 2017.
1 W.P.(C) 5709/2017 & CM No. 23814/2017 (stay)
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