TaxTMI 
TaxTMI 
An Advocate's Robe Does Not Decide GST on Insolvency Professional Services
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....n Advocate's Robe Does Not Decide GST on Insolvency Professional Services<br>By: - Raj Jaggi<br>Goods and Services Tax - GST<br>Dated:- 19-8-2026<br>The Real Question Was the Capacity in Which the Service Was Rendered The Delhi High Court judgment in Kanwal Chaudhary Versus Insolvency And Bankruptcy Board Of India & Ors. - 2026 (8) TMI 862 - DELHI HIGH COURT , addresses a practical and important GST issue. The question was whether an Advocate, when acting as an Insolvency Professional under the Insolvency and Bankruptcy Code, 2016, continues to enjoy the reverse charge mechanism applicable to legal services, or must follow the forward charge mechanism applicable to Insolvency Professionals. The petitioner was an Advocate enrolled with the Bar Council of Delhi and had been practising law since 1995. After the enactment of the Insolvency and Bankruptcy Code, 2016, he qualified the Limited Insolvency Examination and was registered as an Insolvency Professional. He was appointed by the National Company Law Tribunal, Delhi Bench, as Interim Resolution Professional in corporate insolvency proceedings concerning Ireo Fiveriver Pvt. Ltd. In that capacity, he raised invoices....
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.... for his professional fee. The controversy arose when the Resolution Professional called upon him to issue GST-compliant invoices. The petitioner objected. His stand was that he was an Advocate and, therefore, legal services rendered by him were covered by the reverse charge mechanism. According to him, GST, if payable, had to be paid by the recipient and not by him under forward charge. The NCLT sought clarification from the Insolvency and Bankruptcy Board of India. The IBBI, by communication dated 09.03.2021, clarified that insolvency and receivership services were not covered under the reverse charge mechanism and that the petitioner was required to submit GST-compliant invoices for the professional fee charged as Interim Resolution Professional. This clarification became the subject matter of challenge before the Delhi High Court. Forward Charge Is the Rule, Reverse Charge Is the Exception The Court began by outlining the basic structure of GST liability. Section 9(1) of the CGST Act, 2017 is the charging provision. It levies tax on all intra-State supplies of goods, services, or both. In the ordinary course, the person making the taxable supply pays the tax. This is t....
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....he forward charge mechanism. The supplier charges GST on the invoice, collects it from the recipient, and pays it to the Government as required by law. Section 9(3) creates an exception. It empowers the Government, on the recommendations of the GST Council, to notify specific categories of supplies on which the recipient shall pay tax under the reverse charge mechanism. Therefore, reverse charge is not the normal provision. It applies only when the statute and notification specifically shift the tax liability from the supplier to the recipient. This distinction is central to the judgment. If a service is not covered by a reverse charge notification, the default provision under Section 9(1) applies. The supplier must discharge GST under forward charge, subject, of course, to the registration threshold and other statutory provisions. Therefore, the petitioner could succeed only if the service rendered by him as Interim Resolution Professional could be treated as a legal service covered by the reverse charge notification applicable to Advocates. Legal Services by Advocates Remain Under Reverse Charge The Court accepted the settled position that legal services rendered by A....
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....dvocates are governed by the reverse charge mechanism. Notification No. 12/2017-Central Tax (Rate), dated 28.06.2017, defines "advocate" by reference to the Advocates Act, 1961. It also defines "legal service" to mean any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner, and includes representational services before any court, tribunal or authority. Notification No. 13/2017-Central Tax (Rate), dated 28.06.2017, issued under Section 9(3), provides that GST on specified legal services supplied by an individual Advocate, including a senior Advocate, or a firm of Advocates to a business entity located in the taxable territory shall be paid by the recipient under reverse charge. Therefore, when an Advocate renders legal advice, legal consultancy, legal assistance or representation, the reverse charge mechanism continues to apply. The petitioner relied on the Delhi High Court interim orders in JK Mittal & Company Versus Union of India & Ors. - 2017 (7) TMI 542 - DELHI HIGH COURT, and the subsequent order dated 18.07.2017 reported as JK Mittal & Company, Legalance IP Corp LLP Versus Union of India & Ors - 2017 (7) TMI 62....
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....3 - Delhi High Court. Those orders recognised the uncertainty surrounding GST compliance by Advocates and protected Advocates and law firms from coercive action. They also reflected the position that legal services by Advocates were to continue under the reverse charge mechanism. However, the Court in the present case clarified that those orders dealt with legal services by Advocates. They did not decide that every service rendered by a person who happens to be an Advocate must always be treated as legal service. Insolvency Professionals Are Created by a Separate Statutory Code The next important part of the judgment discusses the Insolvency and Bankruptcy Code, 2016. An Insolvency Professional is not merely a lawyer advising a client. The IBC creates an independent statutory role. Section 3(19) defines "insolvency professional" as a person enrolled with an insolvency professional agency as its member and registered with the IBBI as an Insolvency Professional. Section 5(27) defines "resolution professional" to include an Interim Resolution Professional. Section 207 provides for registration of Insolvency Professionals with the IBBI. Section 208 lays down their functions an....
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....d obligations. They must take necessary actions in insolvency resolution, liquidation, bankruptcy and related processes. They must also comply with the code of conduct and requirements prescribed by the insolvency professional agency and the IBBI. The Court also referred to the operational provisions of the IBC. Sections 17 and 18 deal with the management of the affairs of the corporate debtor by the Interim Resolution Professional and his duties. Sections 20, 22 and 23 deal with the preservation of the corporate debtor as a going concern, the appointment of the Resolution Professional and the continuation of the corporate insolvency resolution process. Section 25 enumerates the duties of the Resolution Professional. These duties are not confined to legal advice or courtroom representation. They involve management, administration, verification of claims, coordination with creditors, statutory filings and supervision of the insolvency process. An Insolvency Professional Is Not an Advocate Merely Wearing Another Label A major reason for the petitioner's argument was that he was an Advocate. He submitted that Advocates are governed by the Advocates Act, 1961 and the Bar C....
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....ouncil of India Rules, and that Advocates cannot engage in business or other professional activities. According to him, if insolvency professional services are not treated as legal services, it may conflict with the regulatory position of Advocates. The Court did not accept this concern. The IBBI Regulations recognise an Advocate enrolled with the Bar Council as one of the categories of persons eligible to become an Insolvency Professional, subject to other conditions. Regulation 3 provides for insolvency examinations. Regulation 4 prescribes eligibility requirements and disqualifications. Regulation 5 prescribes qualifications and experience. It permits persons from different professional backgrounds, including law, management, chartered accountancy, company secretaryship and cost accountancy, to qualify as Insolvency Professionals. This means that an Advocate is not prohibited from becoming an Insolvency Professional merely because he is an Advocate. The two statutes must be read harmoniously. The Advocates Act governs the person when he acts as an Advocate. The IBC and IBBI Regulations govern him when he acts as an Insolvency Professional. The professional qualification ma....
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....y enable entry into the insolvency profession, but once the person performs insolvency functions, the nature of the service is determined by the IBC framework. Classification Depends on the Service, Not the Degree of the Professional The Court's reasoning is particularly important for GST classification. GST does not classify a service merely by looking at the supplier's degree, qualification, or professional identity. It looks at the nature of the service supplied. A person may be an Advocate, Chartered Accountant, Company Secretary, Cost Accountant, or a management professional. But when that person performs the role of an Insolvency Professional, the service is classified according to the role actually performed. The GST Scheme of Classification of Services is central here. Legal services fall under Heading 99821. Insolvency and receivership services fall under Heading 998241. The latter entry specifically covers providing advice and operational assistance to the management and/or creditors of insolvent businesses and/or acting as receiver or trustee in bankruptcy. Therefore, the Scheme itself treats insolvency and receivership services as a distinct category. ....
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.... The Court observed that insolvency and receivership services do not fall within the residuary part of legal services. They are separately classified under an independent and specific service code. Therefore, merely because the person rendering the service is an Advocate, the service cannot be shifted back into legal services. This is a useful reminder for GST classification: the description of the actual service is more important than the professional identity of the person rendering it. Specific Entry Prevails Over General Description The Court applied the well-settled principle that a specific description prevails over a general one. The preface to the Scheme of Classification of Services itself states that where a service is capable of differential treatment based on its description, the most specific description shall prevail over a more general one. Reliance was placed on MOORCO (INDIA) LTD. Versus COLLECTOR OF CUSTOMS, MADRAS - 1994 (9) TMI 68 - Supreme Court. In that case, the Supreme Court explained that where goods can be classified under both a specific and a general heading, the specific heading must prevail. The Court also referred to Commissioner of Com....
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....mercial Tax, U.P. Versus M/s. A.R. Thermosets (Pvt.) Ltd. - 2016 (9) TMI 410 - Supreme Court, where the Supreme Court held that resort to a residuary entry is impermissible when the goods are covered by a specific entry. Applying this principle, insolvency and receivership services under Heading 998241 had to be preferred to the broader category of legal services under Heading 99821. The petitioner's status as an Advocate did not alter the character of the service. When the role was that of an Insolvency Professional, the specific entry for insolvency and receivership services governed the classification. The Bar Council's Stand Strengthened the Distinction The Bar Council of India's affidavit played a significant role in the Court's reasoning. The BCI stated that when an Advocate is appointed as an Insolvency Resolution Professional or Resolution Professional under the IBC, the nature of the service is markedly different from conventional legal practice or legal services. Such a professional performs functions such as managing the affairs of the corporate debtor, inviting claims from creditors, convening and conducting meetings of the Committee of Cre....
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....ditors, submitting resolution plans, and performing regulatory compliance tasks under the IBC. The BCI also stated that such services do not fall within the reverse charge mechanism applicable to traditional legal services. Instead, they are taxable under the forward charge mechanism applicable to professional or management services. This clarification was important because the petitioner's concern was partly based on his status as an Advocate and the restrictions under the Bar Council framework. The Court accepted the broader distinction. Services rendered as an Advocate are governed by the Advocates Act and the Bar Council framework. Services rendered as an Insolvency Professional are governed by the IBC and IBBI Regulations. The same person may wear different professional hats, but GST follows the service actually rendered. Reverse Charge Cannot Be Extended by Analogy Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017 [As amended from time to time] covers legal services rendered by Advocates under reverse charge. It does not cover insolvency and receivership services. Accordingly, the Court held that the reverse charge applicable to Advocates cannot be ....
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....extended to insolvency professional services merely because the supplier is also an Advocate. This is an important GST principle. Reverse charge is a notified exception. It cannot be expanded by analogy, equity or professional similarity. If a service is specifically notified for reverse charge, the recipient pays tax. If it is not notified, the normal forward charge mechanism applies. The statutory notification must be read as it is. Insolvency and receivership services are not notified under Notification No. 13/2017-Central Tax(Rate) dated 28.06.2017 [As amended from time to time] for reverse charge. Therefore, the supplier of such services must follow forward charge. An Advocate acting as an Insolvency Professional is treated in the same manner as any other Insolvency Professional. This also avoids discrimination within the class of Insolvency Professionals. If Chartered Accountants, Company Secretaries and other professionals acting as Insolvency Professionals follow forward charge, an Advocate performing the same statutory role cannot claim a different GST mechanism merely because of his original profession. The Court Preserved Reverse Charge for Genuine Legal Service....
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....s A balanced aspect of the judgment is that it does not disturb the reverse charge mechanism for Advocates rendering legal services. The Court clarified that its conclusion applies only to services rendered by an Advocate in the capacity of an Insolvency Professional. It does not affect the GST treatment of legal services rendered by Advocates in their capacity as Advocates. This distinction is important for professionals. An Advocate may render legal advice or represent a client before a court or tribunal. Such services remain legal services and continue to be governed by reverse charge where the notification applies. However, if the same Advocate accepts an appointment as an Interim Resolution Professional or Resolution Professional and performs functions under the IBC, the service is an insolvency professional service and forward charge applies. The petitioner was therefore directed to furnish GST-compliant invoices in respect of the professional fee charged for services rendered as Interim Resolution Professional. The writ petition was disposed of accordingly. The Judgment's Practical Value for Professionals This judgment is likely to be useful far beyond the....
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.... specific facts of an Advocate acting as an Insolvency Professional. It clarifies a broader GST principle: tax treatment depends on the actual nature of the supply, not merely on the supplier's professional identity. This principle may arise in many situations. A lawyer may act as an arbitrator, mediator, insolvency professional, director, consultant, trustee or executor. A Chartered Accountant may act as an insolvency professional, management consultant or valuer. In each case, GST treatment must follow the service actually supplied. For professionals, the message is clear. One must identify the capacity in which the assignment is accepted, the statutory framework governing that assignment, the service classification, the applicable notification and the person liable to pay tax. Merely relying on one's core professional identity may not be sufficient. For tax officers as well, the judgment provides a disciplined approach. First, identify the service. Secondly, identify the specific classification entry. Thirdly, examine whether the service is covered by any reverse charge notification. Fourthly, determine whether the supplier is required to register and issue GST-com....
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....pliant invoices. This sequence reduces confusion and avoids classification by assumption. When the Role Changes, the GST Mechanism May Also Change An Advocate remains governed by reverse charge when rendering legal services as an Advocate. But when acting as an Insolvency Professional, he enters a separate statutory role under the IBC. That role carries its own regulatory framework, service classification and GST consequences. The judgment respects both systems. It preserves reverse charge for legal services rendered by Advocates. It also preserves forward charge for insolvency and receivership services rendered by Insolvency Professionals as a class. It avoids creating a special GST category for Advocates who perform the same insolvency functions as other professionals. In the final analysis, GST does not stop at the professional title. It examines the real service. Where the service is legal advice, consultancy, assistance or representation by an Advocate, reverse charge may apply. Where the service is an insolvency or receivership service under the IBC, forward charge applies. *** =============<br> Scholarly articles for knowledge sharing by authors, experts, p....
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....rofessionals ....