Forward-Charge GST on Advocates Acting as Insolvency Professionals under CGST Act Overturns IBBI Reverse-Charge View : Delhi HC

The Delhi High Court clarified that an advocate who is also a registered insolvency professional must pay GST under the forward charge mechanism, overturning the Insolvency and Bankruptcy Board of India's view that the reverse charge applied.

Background & Facts

The Dispute

The petitioner, Kanwal Chaudhary, an advocate enrolled with the Bar Council of Delhi since 1995, was appointed as Interim Resolution Professional (IRP) for Ireo Fiveriver Pvt. Ltd. on 13 December 2018 by the NCLT, Delhi Bench (CP(IB) No. 408/2018). While acting as IRP, he raised two invoices dated 13 August 2019 and 31 October 2019 for professional fees amounting to Rs. 49,04,988. The corporate debtor failed to pay, prompting the petitioner to file applications CA 430/ND/2019 and CA 1268/ND/2020 before the NCLT.

Key Facts

• 27 July 2017: Kanwal Chaudhary qualified the Limited Insolvency Examination and was registered as an Insolvency Professional.
• 13 December 2018: NCLT appointed him as IRP for Ireo Fiveriver Pvt. Ltd.
• 13 August 2019 & 31 October 2019: Petitioner issued GST-uncompliant invoices for his professional fees.
• 17 September 2019: Mr. K.V. Jain was appointed as Resolution Professional, taking over the case.
• 1 September 2020: NCLT hearing on the petitioner’s applications; the Resolution Professional was directed to examine the invoices.
• 6 September 2020: Resolution Professional emailed petitioner requesting GST-compliant invoices.
• 9 September 2020: Petitioner replied that he was exempt under Section 9(3) & (4) of the CGST Act, relying on Notification 12/2017 and Notification 13/2017.
• 17 September 2020: Second email from the Resolution Professional reiterating the request.
• 23 September 2020: Resolution Professional filed affidavit stating Rs. 49,04,988 payable to petitioner and again raising GST compliance.
• 5 October 2020: Petitioner filed response affidavit stating GST, if payable, should be on a reverse-charge basis.
• 7 October 2020: NCLT ordered payment of Rs. 49,04,988 to petitioner and sought clarification from IBBI on GST liability.
• 9 March 2021: IBBI issued clarification (the impugned order) stating that “Insolvency and Receivership” services are not covered under the reverse charge mechanism; petitioner was directed to submit GST-compliant invoices.
• 9 September 2021: Petition filed under Article 226 of the Constitution, seeking quash of the IBBI order and a declaration that such services are covered by reverse charge.
• 17 August 2022: Interim stay of the IBBI order.
• 29 January 2025: Court noted pleadings completed and listed matter for hearing.
• 24 July 2025: Bar Council of India was directed to place its stand before the Court.
• 10 September 2025: Petitioner’s submissions concluded.
• 9 July 2026: Final hearing; arguments concluded.

Procedural History

• 9 September 2021: Writ petition filed (W.P.(C) 9410/2021).
• 17 August 2022: Interim order staying IBBI clarification dated 9 March 2021.
• 29 January 2025: Matter listed for hearing.
• 24 July 2025: Bar Council of India’s stand recorded.
• 10 September 2025: Petitioner’s arguments concluded.
• 9 July 2026: Respondents’ arguments concluded; judgment reserved.
• 13 August 2026: Judgment pronounced.

Relief Sought

The petitioner sought: (a) Quashing of IBBI’s order dated 9 March 2021; (b) Declaration that services rendered by an advocate acting as an insolvency professional are covered by the reverse charge mechanism under Section 9 of the CGST Act, 2017; (c) Any further relief the Court deems appropriate.

The Legal Issue

Whether an advocate who, in addition to practising law, acts as an insolvency professional is liable to pay GST under the forward charge mechanism (as a supplier) or remains covered by the reverse charge mechanism applicable to legal services.

Arguments Presented

For the Petitioner

• The petitioner relied on Notification 12/2017 and Notification 13/2017, which list “services supplied by an individual advocate” as liable to GST on a reverse-charge basis.
• Citing J.K. Mittal & Co. v. Union of India (W.P.(C) 5709/2017), the petitioner argued that the Court had observed a lack of clarity and had directed that no coercive action be taken against advocates until a definitive clarification was issued.
• The petitioner contended that the IBBI, being a regulator of insolvency professionals, lacks jurisdiction to decide GST classification matters, which fall within the domain of the GST Council and the Central Government.
• It was submitted that treating insolvency services as a distinct category would unjustly discriminate against advocates who are also insolvency professionals.

For the Respondents

• The GST Department, IBBI, and the Bar Council of India argued that the nature of services performed by an IRP is managerial and administrative, falling under the specific GST service code 998241 - Insolvency and Receivership Services, which is not listed in Notification 13/2017 for reverse charge.
• They relied on the scheme of classification of services, emphasizing that a specific entry (998241) prevails over the general entry for legal services (99821).
• The respondents cited Commissioner of Commercial Tax v. A.R. Thermosets and Moorco (India) Ltd. v. Collector of Customs to support the principle that a specific classification overrides a general one.
• It was submitted that the IBBI’s clarification was based on a correct reading of the CGST Act and the notifications, and that the petitioner, as a supplier of insolvency services, is liable to register under the CGST Act and pay GST under the forward charge.

The Court's Analysis

The Court began by dissecting the GST regime:

"Section 9(1) of the CGST Act levies tax on all supplies of goods or services, the liability falling on the supplier unless a specific notification provides that the tax is to be paid by the recipient on a reverse-charge basis."

1. GST Mechanism for Advocates - The Court noted that Notifications 12/2017 and 13/2017 expressly list “services supplied by an individual advocate” as liable to GST on a reverse-charge basis. The corrigendum dated 25 September 2017 reaffirmed this position.
2. GST Mechanism for Insolvency Professionals - The Court observed that the notifications do not specifically mention “insolvency and receivership services”. Consequently, the default forward-charge rule under Section 9(1) applies to such services.
3. Classification of Services - The scheme of classification of services (GST Council) assigns insolvency and receivership services to code 998241, a distinct head separate from the general “legal services” head 99821. The Court applied the well-settled principle that a specific entry prevails over a general entry (citing Moorco and Thermosets).
4. Role-Based Determination - The Court emphasized that GST liability is determined by the nature of the service rendered, not by the professional’s underlying qualification. When an advocate performs the functions of an IRP - managing the corporate debtor, convening creditor meetings, preparing resolution plans - those activities constitute “insolvency and receivership services” and therefore attract the forward charge.
5. Statutory Harmony - The Court reconciled the Advocates Act, the IBC, and the CGST Act, holding that the IBC and IBBI regulations create a distinct statutory class of insolvency professionals. The GST regime must respect that classification, even where the individual is also an advocate.
6. Jurisdiction of IBBI - While the IBBI can issue clarifications on matters within its regulatory purview, the determination of GST classification falls under the Central Government and the GST Council. The IBBI’s order was therefore consistent with the statutory framework and not ultra vires.

In sum, the Court concluded that an advocate acting as an insolvency professional is not covered by the reverse-charge mechanism; the forward-charge mechanism applies.

The Verdict

The petition was dismissed. The Court held that:

• Advocates enrolled with the Bar Council who act as insolvency professionals shall be governed by the forward charge mechanism and must obtain GST registration.
• The petitioner is directed to furnish GST-compliant invoices for the professional fee of Rs. 49,04,988 payable under CP(IB) No. 408/2018.
• The reverse-charge mechanism continues to apply only to pure legal services rendered by advocates, not to insolvency-related services.

What This Means For Similar Cases

Forward Charge Applies to Insolvency Services

• When an advocate performs the functions of an IRP, the service is classified under GST code 998241 and the supplier (the IRP) must register under the CGST Act and pay GST on a forward-charge basis.
• Practitioners should ensure GST registration before issuing invoices for insolvency-related fees.

Reverse Charge Remains for Pure Legal Services

• The reverse-charge mechanism continues to apply to traditional legal services (advocacy, representation, legal advice) as per Notifications 12/2017 and 13/2017.
• Lawyers must distinguish between pure legal work and insolvency-management work when preparing GST invoices.

Service Classification Trumps Professional Identity

• The GST regime looks to the nature of the service rather than the professional’s title. Even a double-qualified professional (e.g., advocate-accountant) will be taxed according to the specific service code applicable.

• Courts will likely follow the specific-over-general rule, preferring the most precise classification in the GST schedule.

• Actionable takeaways:

  • Verify the GST service code before invoicing.
  • Obtain GST registration when providing insolvency-related services.
  • Cite the scheme of classification and relevant notifications in GST disputes.