Top Stories Service Providers Rendering Services on which Tax is payable on Reverse Charge basis Constitutes Class of their Own: Delhi HC [Read Order] Service providers rendering services on which tax is payable on reverse charge basis constitutes class of their own, rules Delhi HC By Kalyani B. Nair – On April 22, 2024 2:10 pm – 2 mins read The Delhi High Court observed that service providers rendering services on which tax is payable on reverse charge basis constitutes class of their own.

The petitioner has filed the present petition impugning Notification No. 30/2012-ST dated 20.06.2012, Notification No.10/2014-ST dated 11.07.2014 and Notification No.10/2017- Integrated Tax (Rate) dated 28.06.2017 issued by the Central Government. The said Notifications are hereafter referred to as ‘the impugned Notifications’. The petitioner’s challenge to the impugned Notifications is confined to the extent that they provide for a reverse charge of Goods and Services Tax ( GST ) on recovery agent services. The petitioner also impugns Section 17(3) of the Central Goods and Services Tax Act, 2017 (CGST Act) to the extent that it deems supply of recovery agent services as exempted supplies.

According to the petitioner, the provisions of impugned Notifications dated 20.06.2012 and 11.07.2014 are ultra vires the Finance Act, 1994 ( Finance Act ) and the impugned Notification dated 28.06.2017 as well as Section 17(3) of the CGST Act, are ultra vires the CGST Act and the Integrated Goods and Services Tax Act, 2017 (IGST Act). The petitioner contended that the denial of input tax credit to the petitioner and similarly situated service providers, is discriminatory and plainly arbitrary.

According to the petitioner, the same is contrary to the scheme of the CGST Act and the fundamental structure on which the GST law is premised. The petitioner claimed that there is no rationale for providing the charge of tax on a reverse charge basis on certain supplies and thus, excluding the service providers from the benefit of availing input tax credit on the services used for providing the taxable service. The senior standing counsel appearing on behalf of the respondents countered the aforesaid submissions. First, he submitted that the petitioner could raise no grievance regarding the manner in which it had structured its business.

He submitted that in terms of the Agreement between the petitioner and M/s Hero Fincorp Limited, the petitioner was required to provide the services and not to outsource the same and that if the petitioner had complied with this obligation, he would have had no grievance. A Division Bench of Justices Vibhu Bakhru and Amit Mahajan observed that “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.