TMI Blog2024 (4) TMI 289X X X X Extracts X X X X X X X X Extracts X X X X ..... ing to the petitioner, denial of input tax credit on account of service tax/GST being payable on a reverse charge method in respect of the services in question results in hostile discrimination. Before proceeding to address this issue, it would be relevant to recount certain relevant legal principles, which are necessary to be borne in mind for addressing such a challenge. The Central Government has in its wisdom selected certain services on which service tax/GST is payable on a reverse charge basis. The contention that the same amounts to hostile discrimination is plainly unmerited. All persons rendering services of a particular nature have been treated uniformly. It is not the petitioner s case that persons rendering services of a recovery agent to banking company, nonbanking financial corporation or financial institution have been treated differently. 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 not open for the petitioner to claim that the kind of services it renders services as a recovery agent to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 (hereafter the CGST Act) to the extent that it deems supply of recovery agent services as exempted supplies. 2. According to the petitioner, the provisions of impugned Notifications dated 20.06.2012 and 11.07.2014 are ultra vires the Finance Act, 1994 (hereafter the 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 (hereafter the IGST Act). 3. The petitioner is, inter alia, engaged in the business of providing services as a recovery agent to a Non-Banking Financial Company (NBFC). It is, essentially, aggrieved on account of service tax and GST in respect of the said services being payable on a reverse charge basis. Consequent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner, thus, claims that it has paid the service charges as well as services tax on the input services utilized for rendering the service as a recovery agent to M/s Hero Fincorp Ltd. However, service tax on services of a recovery agent to a banking company, a financial institution, or a non-banking financial company, is chargeable on a reverse charge basis, therefore the service tax on such services rendered by the petitioner was paid by the recipient M/s Hero Fincorp Ltd. The petitioner, thus, claims that it was unable to utilize the credit for the taxes paid in respect of the services availed from its sub-contractors. 7. The said scheme continues to be operative under the GST regime as well. Therefore, the petitioner has been unable to utilize the Cenvat Credit/Input Tax Credit in respect of the services availed by it for rendering the services as a recovery agent, to M/s Hero Fincorp Ltd. THE IMPUGNED NOTIFICATIONS AND THE RELEVANT STATUTORY PROVISIONS 8. By virtue of the impugned Notification dated 20.06.2012 (Notification No.30/2012-ST) issued under Section 68(2) of the Finance Act, service tax on certain services were payable entirely by the recipient of the services and in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere the whole of service tax is liable to be paid by the recipient of service. 14. By virtue of Rule 3(1) and Rule 3(4) of the Cenvat Rules, a service provider is entitled to avail and utilise the Cenvat Credit of the service tax paid on input services, and utilise the same for payment of service tax on any output service. However, since services which were chargeable to tax on a reverse charge basis would no longer be qualified as an output service, a service provider would be unable to avail of the Cenvat Credit in respect of the service tax paid on input services availed to provide the service in question. 15. By virtue of Section 16(1) of the CGST Act, every registered person, is entitled to take credit of the input tax charged on the supply of goods or services or both, which are used or intended to be used in the course or furtherance of its business. However, this would be subject to the conditions and restrictions prescribed and the manner as specified in Section 49 of the CGST Act. 16. Section 17 of the CGST Act contains provisions for apportionment of credit and for blocking of credit. Sections 17(2) and 17(3) of the CGST Act are relevant for the present petition and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... founded on intelligible differentia and has no nexus with any object to be served. He submitted that the scheme of selecting certain services to be taxed on a reverse charge method violates Article 14 of the Constitution of India. He referred to the decision of the Supreme Court in Union of India Ors. v. N.S. Rathnam and Sons: (2015) 10 SCC 681 and Ayurveda Pharmacy Anr. v. State of Tamilnadu: (1989) 2 SCC 285 and Shayara Bano v. Union of India Ors.: (2017) 9 SCC 1 and submitted that the provision of charge on a reverse charge basis in respect of certain services suffers from manifest arbitrariness and therefore, is liable to be set aside. 21. Next, he submitted that the denial of input tax credit in respect of certain services amounts to double taxation, which is impermissible. He submitted that the same service is taxed twice over first, in respect of input services and second, in the hands of service recipient. He also referred to the decision of this Court in Intercontinental Consultants and Technocrats Private Limited v. Union of India Anr.: 2012 SCC OnLine Del 5958 and the decision of the Gujarat High Court in Adani Power Limited v. Union of India: 2016 SCC OnLine Guj 10107 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25; and Union of India v. VKC Footsteps India Pvt. Ltd.: (2022) 2 SCC 603 and submitted that input tax credit was a matter of concession granted by the statute and not a vested right. 26. Lastly, he submitted that merely shifting of collection of tax from provider of service to the recipient of service does not violate any constitutional right. He referred to the decision of the Supreme Court in R.C. Jall Parsi v. Union of India: AIR 1962 SC 1281, Rai Ramkrishna Ors. v. State of Bihar: AIR 1963 SC 1667, and Gujarat Ambuja Cements Ltd. Anr. v. Union of India: (2005) 4 SCC 214 in support of his contention that the levy of tax on reverse charge basis was maintainable. REASONS AND CONCLUSION 27. At the outset, it is relevant to note that the provisions of the Finance Act, IGST Act and CGST Act do permit the levy on a reverse charge basis. Section 68 of the Finance Act is relevant insofar as levy of service tax on a reverse charge basis is concerned. The said Section is set out below: 68. Payment of service tax (1) Every person providing taxable service to any person shall pay service tax at the rate specified in section 66B in such manner and within such period as may be prescribed (2) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the CGST Act and Sub-section (3) of Section 5 of the IGST Act are set out below: Sub-section (3) of Section 9 of the CGST Act (3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. Sub-section (3) of Section 5 of the IGST Act xxx xxx xxx (3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. 31. In view of the above, we find no merit in the suggestion that the impugned Notifications were without authority of law. 32. There is no vested or inherent right of an ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a wide degree of flexibility and discretion including in matters relating to classification. In Khadinge Sham Bhat v. Agricultural Income Tax Officer, Kasargod Anr.: AIR 1963 SC 591 , the Supreme Court had observed as under: 7. But in the application of the principles, the Courts, in view of the inherent complexity of fiscal adjustment of diverse elements, permit a larger discretion to the Legislature in the matter of classification, so long it adheres to the fundamental principles underlying the said doctrine. The power of the Legislature to classify is of 'wide range and flexibility' so that it can adjust its system of taxation in all proper and reasonable ways . 36. In Twyford Tea Co. Ltd. v. State of Kerala Anr.: (1970) 1 SCC 189, the Constitution Bench of the Supreme Court, had in the context of application of Article 14 of the Constitution of India, referred to a passage from Constitutional Law by Willis and held as under: 15. .......These principles have been stated earlier but are often ignored when the question of the application of Article 14 arises. One principle on which our Courts (as indeed the Supreme Court in the United States) have always acted, is no where ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the kind of services it renders services as a recovery agent to a NBFC must necessarily be taxed in a similar manner as any other taxable service. 38. We also find 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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