The Gujarat High Court has issued a notice in a challenge pertaining to the imposition of Goods and Services Tax (GST) on advocates services.
A Bench of Justice Akil Kureshi and BN Karia heard the petition filed by Advocate Nipun Singhvi, who has assailed the Constitutional validity of Sections 17(2) and 17(3) of the Central Goods and Services Tax Act, 2017 and Section 17(2) and 17(3) of the Gujarat (State) Goods and Services Tax Act, 2017.
Advocate Vishal J Dave appeared for the petitioner.
Singhvi has submitted that the impugned provisions restricts the credit of the input tax credit on goods/services or both used by advocates for effecting taxable legal services and exempt legal services. Hence, the same are ultra vires Articles 14, 19, 21 & 265 of the Constitution of India.
It is Singhvi’s contention that the tax to be paid by the recipient of legal services on taxable legal services in the absence of provision for availment of input tax credit by advocates is leading to the effect of cascading of taxes.
This is because the tax component in the form of taxes on goods and services or both used by advocates, for providing the said taxable legal services becomes part of the cost of the advocates, which is passed on to the clients by way of professional fee on which again GST is chargeable. This, in essence, is leading to a break in the credit chain, which is in direct conflict with the very underlying fundamentals of the GST law, the petition states.
The Central government on June 28, 2017 exempted the services provided by a partnership firm of advocates or an individual as an advocate other than a Senior Advocate, by way of legal services to an advocate or partnership firm of advocates providing legal services, or any person other than a business entity.
The notification laid down that with respect to services supplied by an individual advocate, including a Senior Advocate by way of representational services before any court, tribunal or authority to any business entity located in the taxable territory, the applicable tax is payable by the business entity on a reverse charge basis.
As per Section 23(1) of the CGST Act, 2017, any person, effecting supplies not liable to payment of tax, is not liable to obtain registration. Further as per Section 16(1) of the CGST Act, input tax credit can only be availed by a registered person. Section 17(2) of the Act bars/blocks the credit of the input tax on exempt supplies and section 17(3) specifically provides exempt supplies under reverse charge mechanism, which implies a bar on availing of input tax credit on supplies under reverse charge mechanism.
It is the contention of the petitioner that as a result the above, an advocate providing legal services has been debarred from taking input tax credit of the taxes paid on the goods or services availed to render the legal services. Consequently, the tax component on the inputs, input services and capital goods used by advocates for the purposes of their profession by default forms part of the cost of legal services provided by Law Practitioner.
He has, therefore, prayed that Section 17(2) and Section 17(3) of CGST Act, 2017 and GGST Act, 2017 to the extent it restricts the credit of the input tax on goods or services or both used by Advocates for effecting taxable legal services and exempt taxable services, be held violative of Article 14, 19, 21 and 265 of the Constitution.
Further, Singhvi has also prayed that Section 16(1) of CSGSTG and Section 16(1) of GGST Act to the extent it excludes persons like advocates from the eligibility criteria for taking or availing input tax credit, be declared unconstitutional.