A division bench of the Delhi High Court on Wednesday issued notice to the Central Government and the GST Council seeking for clarification on the applicability of reverse charge mechanism on legal services (not restricted to representational services) on lawyers.
Justices S. Muralidhar and Prathibha M Singh directed the Government to clarify the position in order to remove ambiguities in the provisions relating to RCM on lawyers.
The petitioner, Advocate J.K Mittal, argued that the GST Council had recommended to levy GST on legal services as a whole only on ‘reverse charge’ basis. Subsequently, the Central Government as per the impugned notification said that GST will be collected 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.
Challenging the above notification, Mr. Mittal contended that this provision was not to be found in the model laws prepared by the GST Council. He further contended that GST Council is a constitutional body established under Article 279A of the Constitution. He pointed out that the recommendations of the Council are binding on the Central and State Governments and the Notifications issued inconsistent with the recommendations are legally not sustainable.
According to him this provision is incapable of being complied with and is bound to cause undue hardship to the persons registered under the aforementioned three statutes.
He also pointed out some other issues before the Court. He said that he and certain other lawyers had, taken registration under the Service Tax in the year 2011. After 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 his Service Tax registration continues. He argued that the mere clarification that all legal services are amenable to GST on reverse charge basis may not solve his problem. A legal practitioner like himself who is already registered undcr 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.
The counsel for the respondents sought for short adjournment to take instructions from the respective governments to clarify the legal position in respect of the above impugned notifications.
In the light of the above submissions, the bench observed that 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. “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 and/or 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). There is therefore 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. In the circumstances, the Court directs that no coercive action be taken against any lawyer or law Gurus for lion-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 bench further 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.
It also said that if an appropriate clarification is not able to be issued by the Respondents 1 and 2 by the next date, the Court will proceed to consider passing appropriate interim directions.
Read the full text of the Order below.