Order Date – 03 April 2024

Parties: Pace Setters Business Solutions Pvt. Ltd. Vs Union of India & Ors.

Facts –

• The Petitioner, Pace Setters Business Solutions Pvt. Ltd, is engaged in the business of providing  services as a recovery agent to a Non-Banking Financial Company (NBFC). The petitioner is not entitled to claim any credit for the service tax or GST paid on inputs as it is not liable to pay any service tax or GST on the services of a recovery agent, rendered by it.
• Hence the petitioner challenged the 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 to the extent that they provide for a reverse charge of Goods and Services Tax (GST) on recovery agent services. Also impugns Section 17(3) of the Central Goods and Services Tax Act, 2017 to the extent that it deems supply of recovery agent services as exempted supplies.

Issue –

• Whether the Notifications dated 20.06.2012 and 11.07.2014 are ultra vires the Finance Act, 1994?

Order –

• The Divisional Bench of Hon’ble High Court observed that there are 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, 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. 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.
• There are 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 present petition is unmerited and, accordingly, dismissed.