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SGST High Court Cases

GST/Service Tax – Validity of levy of tax/GST on reverse charge basis - Challenge to levy of service tax and GST under Reverse Charge Mechanism on recovery agent services - Challenge to validity of Notification No.10/2017-Integrated Tax (Rate) dated 28.06.2017 to the extent it provides for levy of GST under RCM on recovery agent services supplied by a recovery agent to a banking company or financial institution or NBFC - Petitioner case that it would not be entitled to claim any input tax credit for the tax paid on inputs as it is not liable to pay any service tax or GST on the services of recovery agent – whether denial of ITC on account of service tax/GST being payable on a reverse charge mechanism in respect of recovery agent services results in hostile discrimination – Article 14 of the Constitution of India - HELD – notwithstanding that every person providing taxable service is liable to pay service tax, the Central Government is duly empowered to notify certain taxable services in respect of which service tax would be paid wholly or partially by the service recipient or for that matter any other person, in such manner as may be prescribed – the Notification No.30/2012-ST dated 20.06.2012 and Notification No.10/2014-ST dated 11.07.2014 were issued by the Central Govt. in exercise of its legislative powers delegated in terms of Sub-section (2) of Section 68 of the Finance Act, 1994 - Similarly, sub-section (3) of Section 9 of the CGST Act and sub-section (3) of Section 5 of the IGST Act expressly provide that the Central Govt. may on recommendations of the GST Council, by notification specify the categories of supply of goods or services or both, on which tax shall be paid on reverse charge basis. Therefore, there is no merit in the petitioner’s contention that the impugned Notifications were without authority of law - 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 Central Government has in its wisdom selected certain services on which service tax/GST is payable on a RCM basis. The contention that the same amounts to hostile discrimination is plainly unmerited - 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 certainly not open for a class of assessees to seek parity with another class of persons. It is not open for the petitioner to question as to why the Parliament has selected certain set of services for the levy of service tax while exempting certain other services, neither it is not open for the petitioner to question as to why certain services are selected for being subjected to payment of tax on a reverse charge basis while leaving out other services – If one accepts that it is not necessary for the Parliament to have taxed all services in order to tax some services, it would become clear that selecting a different mechanism to collect tax in respect of some services, is also not amenable to challenge on the ground of Article 14 of the Constitution of India. It is not open for the petitioner to claim that services rendered as a recovery agent to a NBFC must necessarily be taxed in a similar manner as any other taxable service - 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 - no merit in the challenge laid by the petitioner to the impugned Notifications or the provisions of Section 17(3) of the CGST Act - The writ petition is dismissed - 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. By its very definition, the tax on such services is payable by the service recipient. The rationale to deny input tax credit to a service provider who is not liable to pay tax on the output services is obvious. 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 - 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
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