Court to Deliberate on GST Applicability under Reverse Charge Mechanism for Legal Services in Insolvency Proceedings
In a significant development, the Delhi High Court has granted an interim stay on an order by the Insolvency and Bankruptcy Board of India (IBBI) which required advocates acting as Insolvency Resolution Professionals (IRPs) under the Insolvency and Bankruptcy Code, 2016, to issue GST-compliant invoices. The court's decision comes amid legal contentions regarding the applicability of the reverse charge mechanism for GST on legal services provided by advocates in their role as IRPs.
The writ petition was filed by Kanwal Chaudhary, an advocate registered with the Bar Council of Delhi, challenging the IBBI's order dated March 9, 2021. The impugned order had directed Chaudhary to issue GST-compliant invoices, asserting that 'Insolvency and Receivership' services do not fall under the reverse charge mechanism of the Central Goods and Services Tax Act, 2017 (CGST Act).
The petitioner, represented by advocate Mr. Rajat Navet, argued that legal services provided by advocates in their capacity as IRPs should be covered under the reverse charge mechanism, a contention that the IBBI allegedly overstepped its jurisdiction in dismissing. Furthermore, Chaudhary's counsel emphasized that the IBBI's order lacked a reasoned basis and was issued without providing an opportunity for a hearing, rendering it procedurally flawed.
The bench, comprising Justices Manmohan and Navin Chawla, issued notices to the respondents, including the IBBI and the Union of India, allowing them to file counter-affidavits within four weeks. A rejoinder from the petitioner is to be submitted before the next hearing date, set for January 21, 2022. Until then, the court has stayed the implementation of the IBBI's order, maintaining the status quo on the matter.
This case highlights the ongoing legal debates surrounding GST applicability to professional services under the Insolvency and Bankruptcy Code, especially concerning the delineation of authority between tax regulations and insolvency proceedings. Legal experts and stakeholders within the insolvency framework are keenly observing the developments, which could set significant precedents for GST-related compliance for legal professionals engaged in insolvency resolutions.
Bottom line:-
GST applicability on services rendered by an Advocate functioning as an Insolvency Resolution Professional (IRP) under the Insolvency and Bankruptcy Code, 2016 - Held, interim stay granted against the impugned order directing GST compliant invoices, pending final adjudication.
Statutory provision(s):
Central Goods and Services Tax Act, 2017, Section 9, Insolvency and Bankruptcy Code, 2016, Advocates Act, 1961.
