Advocates Acting As Insolvency Professionals Must Register Under GST, Pay Under Forward Charge: Delhi High Court

The Delhi High Court on Thursday held that advocates rendering services as insolvency professionals must obtain GST registration, ruling that such services are subject to the forward charge mechanism and not the reverse charge mechanism applicable to legal services provided by advocates.

A bench of Justices Pratibha M. Singh and Shail Jain passed the judgment on a petition filed by advocate Kanwal Chaudhary challenging an Insolvency and Bankruptcy Board of India (IBBI) order dated March 9, 2021.

The IBBI order had held that “Insolvency and Receivership” services were not covered by the reverse charge mechanism under the GST regime. The earlier High Court order records that the direction concerned professional fees charged by Chaudhary in his capacity as an IRP.

The court held, “The reverse charge mechanism applicable to advocates could not be applicable to services rendered by them as insolvency professionals.”

The court accordingly directed that such advocates “shall be liable to obtain GST registration, with all consequential requirements under the GST Act, rules and notifications, in the same manner as is applicable to insolvency professionals as a class.”

The Court clarified that this finding applies only when an advocate renders services in the capacity of an insolvency professional.

Legal services rendered by the same person in the capacity of an advocate continue to be governed by the reverse charge mechanism.

The court expressly stated, “The aforesaid direction shall apply only to those services rendered by advocate in the capacity of an insolvency professional concerned, and shall not, in any manner, affect or alter the GST payment mechanism otherwise applicable to advocates, in respect of legal services rendered by them in their capacity as advocate, which are continued to be governed by the reverse charge mechanism.”

The Court held that an advocate acting as an insolvency professional is governed by the separate regulatory framework applicable to insolvency professionals for services rendered in that capacity.

It observed, "That service may be connected with law, however, this would not mean that advocates shall for that reason always be governed by the Advocates Act and the Bar Council of India Rules, since there is a separate regulatory mechanism for insolvency professionals as a class. The two statutes, namely, the Advocates Act and the IBC are accordingly required to be read in a harmonious manner so as not to curb or curtail the growth of advocates into other areas of rendering services so long as the same is recognised by law."

The court further observed, “There are other statutes such as the IBC and IBBI regulations which permit advocates, traditionally qualified as insolvency professionals. It does not derogate from the Advocates Act. It merely offers another stream or opportunity for advocates to render more specialised services.”

a detailed judgment is awaited.

Background

The case arose after IBBI directed Chaudhary, an advocate registered with the Bar Council of Delhi, to furnish GST-compliant invoices for professional fees charged for services rendered by him as an Insolvency Resolution Professional (IRP).

The March 9, 2021, IBBI order had held that “Insolvency and Receivership” services were not covered by the reverse charge mechanism under the GST regime. The earlier High Court order records that the direction concerned professional fees charged by Chaudhary in his capacity as an IRP.

Chaudhary challenged the order before the High Court.

He argued that an advocate acting as an IRP provides legal services and should therefore be covered by the reverse charge mechanism. He had sought a direction that services provided by an advocate under the IBC as an IRP be covered by the reverse charge mechanism under Section 9 of the Central Goods and Services Tax Act, 2017.

Chaudhary also challenged IBBI's jurisdiction to decide the GST issue.

He argued that the March 2021 order had been passed without recording reasons and without giving him an opportunity of hearing.

The High Court had, in an interim order dated September 9, 2021, stayed the operation of the IBBI order while the challenge was pending.

For Petitioner: Advocates Kushagra Pandit and Rajat Rana

For Respondents: Advocates Ashish Verma, Nihil Thakur, Kriti, Akhil Ranganathan, Saksham Thareja, Advocates, Ruchish Sinha, Sr. St. Counsel with UpasnaVashistha