The Supreme Court on January 22, 2018 stayed the proceedings in Delhi and Chhattisgarh High Courts relating to the applicability of Goods and Services Tax (GST) to legal services in the case of Union of India Vs M/S JK Mittal & Co. (Transfer Petition (Civil) No. 2460-2462/2017). The Court passed the order to that effect in a transfer petition filed by the Central government seeking transfer of cases pending in the two High Courts to the Supreme Court.[1]

Brief Facts

In a petition filed by JK Mittal, the Delhi High Court had ordered that GST registration will not be applicable for lawyers and law firms for any legal service. The Court also held that the said order would prevail unless clarification about whether all legal services provided by legal practitioners and firms would be governed by reverse charge mechanism.

Notification No. 13120 17- B-Central Tax (Rate) dated June 28, 2017 as well as Notification No. 1312017-State Tax (Rate) dated June 30, 2017 was issued by the Central Government wherein a “reverse charge” had been made applicable to recipients of services rendered by all lawyers, law firms and Senior Advocates. With regards to the said notifications, the petitioners had contended that the notifications issued by the Central government are in violation of the provisions of the CGST Act and DGST Act read with Article 279A of the Constitution of India and has adverse consequences on those practicing the legal profession. As per the provisions of Article 279A (brought in by the Constitution 101st Amendment Act of 2016), the various rates and slabs for GST under the CGST Act would be made only on the basis of the recommendations of the GST Council.

The petitioner questioned why lawyers should be charged GST when the Council had recommended that legal services would be amenable only to a “reverse charge”. The petitioner also contended that a legal practitioner, already registered under the Finance Act, 1994 (he registered in 2011) would have to be exempted from registration under the GST laws under Section 23 (2) read with Section 22 (2) of the CGST Act and corresponding provisions of the IGST Act and DGST Act.

Findings of the Court

After careful consideration of the case, the High Court framed the question –

“Whether legal practitioners providing both representational and non-representational services would be required to register under the respective GST Acts if they were already previously registered under the Finance Act?”

The Court held that there was no clarity on whether all legal 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, then there would be no purpose in requiring legal practitioners and law firms to compulsorily get registered under the CGST, IGST and DGST Acts. With respect to the question raised, the Court directed the concerned authorities to provide clarification to the Court. Further, the Court held that till such clarification is provided to the Court, no coercive action shall be taken against lawyers or law-firms for not complying with any legal requirement under the CGST Act, the IGST Act or the DGST Act.

Therefore, the Court held that till the final hearing of the case, there will be no GST registration for lawyers and law firms for any legal service and issued a notice in the Centre’s transfer petitions and stayed the proceedings in both the High Courts of Delhi and Chhattisgarh as provided below –

“Issue notice fixing a returnable date within four weeks. There shall be stay of further proceedings in Writ Petition(C) No.5709 of 2017 and Writ Petition(C)No.6017 of 2017 pending before High Court of Delhi and Writ Petition(T)No.274 of 2017 pending Chhattisgarh.”