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2024 (4) TMI 289 - HC - GSTReverse charge of Goods and Services Tax (GST) on recovery agent services - Constitutional validity of Collection of Tax / GST under RCM - Challenge to N/N. 30/2012-ST dated 20.06.2012, N/N. 10/2014-ST dated 11.07.2014 and N/N. 10/2017-Integrated Tax (Rate) dated 28.06.2017 issued by the Central Government - challenge to Section 17(3) of the Central Goods and Services Tax Act, 2017 deeming supply of recovery agent services as exempted supplies - HELD THAT - There is no vested or inherent right of an assessee to claim credit for an input tax paid on the services availed. The matter relating to whether any such credit is available and to which extent it is available, is a matter of statutory prescription. The right to avail input tax credit is a statutory right and is available only if the statute provides for the same and that too to the extent that the statute permits. The petitioner s challenge in this petition is founded, principally, on Article 14 of the Constitution of India. According to the petitioner, denial of input tax credit on account of service tax/GST being payable on a reverse charge method in respect of the services in question results in hostile discrimination. Before proceeding to address this issue, it would be relevant to recount certain relevant legal principles, which are necessary to be borne in mind for addressing such a challenge. The Central Government has in its wisdom selected certain services on which service tax/GST is payable on a reverse charge basis. The contention that the same amounts to hostile discrimination is plainly unmerited. All persons rendering services of a particular nature have been treated uniformly. It is not the petitioner s case that persons rendering services of a recovery agent to banking company, nonbanking financial corporation or financial institution have been treated differently. The power to tax is a sovereign power, subject to the legislative competence under the Constitution. The legislature or the Parliament has wide discretion in choosing the persons to be taxed or the objects for taxation - It is not open for the petitioner to claim that the kind of services it renders services as a recovery agent to a NBFC must necessarily be taxed in a similar manner as any other taxable service. There are no merit in the petitioner s contention that the legislative scheme for denying input tax credit in respect of services on which service tax / GST is payable on a reverse charge basis, is arbitrary and falls foul of Article 14 of the Constitution of India. First of all, the right to utilise input tax credit is a statutory right, such credit is available only if the statute permits it and to the extent that it does. A service provider providing services, which are subject to payment of tax on a reverse charge basis, is not liable for payment of service tax/GST in respect of the services that it renders. Thus, a service provider is not assessed to tax on the output services - An assessee, which is not liable to pay tax on output has no liability against which it can set off the input tax credit. Thus, the denial of input tax credit in respect of services where GST is payable on reverse charge basis, cannot by any stretch be held to be irrational and arbitrary. Clearly, the service providers rendering services on which tax is payable on a reverse charge basis would constitute a class of their own and a challenge to the same founded on Article 14 of the Constitution of India, would necessarily fail - It is well settled that Article 14 of the Constitution of India does not prohibit reasonable classification, which has the rational nexus to its object. Denying input tax credit to service tax providers, who are not liable to pay tax on output services is founded on a rational basis, which has a clear nexus with the classification. There are no merit in the challenge laid by the petitioner to the impugned Notifications or the provisions of Section 17(3) of the CGST Act - petition dismissed.
Issues Involved:
1. Validity of Notifications imposing reverse charge mechanism for GST on recovery agent services. 2. Challenge to Section 17(3) of the CGST Act deeming recovery agent services as exempted supplies. 3. Allegation of discrimination and arbitrariness in denial of input tax credit. Summary: Issue 1: Validity of Notifications imposing reverse charge mechanism for GST on recovery agent services The petitioner challenged Notifications No. 30/2012-ST, No. 10/2014-ST, and No. 10/2017-Integrated Tax (Rate) issued by the Central Government, which imposed a reverse charge mechanism for GST on recovery agent services. The court noted that the Finance Act, CGST Act, and IGST Act permit the levy of tax on a reverse charge basis. Section 68(2) of the Finance Act empowers the Central Government to notify certain taxable services for reverse charge. Similarly, Sections 9(3) of the CGST Act and 5(3) of the IGST Act allow the Central Government to specify categories of supply on which tax shall be paid on a reverse charge basis by the recipient. The court found no merit in the suggestion that the impugned Notifications were without authority of law. Issue 2: Challenge to Section 17(3) of the CGST Act deeming recovery agent services as exempted supplies The petitioner contended that Section 17(3) of the CGST Act, which includes supplies on which the recipient is liable to pay tax on a reverse charge basis as exempted supplies, was ultra vires the CGST Act and the IGST Act. The court held that there is no vested or inherent right of an assessee to claim credit for input tax paid on services availed. The right to avail input tax credit is a statutory right available only if the statute provides for it. The court emphasized that denying input tax credit to service providers not liable to pay tax on output services is rational, as they have no liability against which to set off the input tax credit. Issue 3: Allegation of discrimination and arbitrariness in denial of input tax credit The petitioner argued that the denial of input tax credit was discriminatory and arbitrary, violating Article 14 of the Constitution of India. The court stated that in matters of fiscal legislation, the legislature has wide discretion in classification. It found no merit in the contention that the reverse charge mechanism amounted to hostile discrimination. The court noted that all persons rendering services of a particular nature were treated uniformly. The rationale for denying input tax credit to service providers not liable to pay tax on output services was clear and had a rational nexus to the classification. The court concluded that the legislative scheme for denying input tax credit in such cases was neither irrational nor arbitrary. Conclusion: The court dismissed the petition, finding no merit in the challenges to the impugned Notifications or the provisions of Section 17(3) of the CGST Act. The denial of input tax credit in respect of services where GST is payable on a reverse charge basis was held to be rational and not discriminatory.
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