2017 (7) TMI 542 - HC - GST

GST on legal services - Constitutional validity of Section 9 (4) of CGST Act - collection of 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 - whether the impugned Notification No.13/2017 dated 28th and 30th June, 2016 cover all legal services not restricted to representational services rendered by legal practitioners? 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 FA? Held 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. 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 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. It is clarified that any lawyer or law firm that has been registered under the CGST Act, or the IGST Act or the DGST Act from 1st July, 2017 onwards will not be denied the benefit of such clarification as and when it is issued. It is further clarified 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.

Summary

Issues:
Challenge to constitutional validity of notifications regarding GST on legal services, challenge to specific sections of CGST Act, IGST Act, and DGST Act, requirement of registration for legal practitioners, interpretation of reverse charge mechanism for legal services.

Detailed Analysis:

1. Constitutional Validity of Notifications:
The petitioner challenges the constitutional validity of notifications issued by the Union of India and GNCTD regarding GST on legal services. The notifications are alleged to violate the CGST Act, DGST Act, and Article 279 A of the Constitution of India. The petitioner contends that the notifications are contrary to the recommendations of the GST Council and have adverse consequences for lawyers. The primary issue is whether these notifications are in compliance with the statutory requirements and the recommendations of the GST Council.

2. Challenge to Specific Sections of Acts:
The petition also challenges specific sections of the CGST Act, IGST Act, and DGST Act, particularly Section 9 (4) of CGST Act, Section 5(4) of IGST Act, and Section 9 (4) of DGST Act. The petitioner argues that these provisions lack proper machinery for implementation and will cause hardship to registered persons. The key question is whether these sections are valid and capable of practical application without causing undue hardship.

3. Requirement of Registration for Legal Practitioners:
The petitioner raises concerns regarding the requirement of registration for legal practitioners under the new GST regime. The issue revolves around whether legal practitioners and firms providing legal services are obligated to register under the CGST Act, IGST Act, and DGST Act, especially if they were previously registered under the Finance Act. The interpretation of Section 22(2) of the CGST Act is crucial in determining the registration obligations for legal practitioners.

4. Interpretation of Reverse Charge Mechanism for Legal Services:
An essential aspect of the case is the interpretation of the reverse charge mechanism for legal services. The petitioner argues that the notifications restrict the exemption to only representational services, contrary to the recommendations of the GST Council. The question is whether all legal services provided by legal practitioners and firms fall under the reverse charge mechanism, and whether there is a need for mandatory registration under the new Acts.

5. Interim Relief and Clarity on Legal Requirements:
The Court directs that no coercive action be taken against lawyers or law firms for non-compliance until clarification is issued by the Central Government and GNCTD. The lack of clarity on the applicability of the reverse charge mechanism and registration requirements necessitates a further hearing to consider interim directions. The Court emphasizes the importance of clarity on legal obligations under the new GST laws for legal practitioners and firms.