Case Note & Summary
The Bombay High Court, in a Court Receiver's Report arising from a commercial suit for recovery of possession of three shops used as a restaurant, examined the applicability of Goods and Services Tax (GST) to royalty payments directed to be made to the Court Receiver. The plaintiffs, a trust and two individuals, alleged that the defendant was in illegal occupation. Pending determination of a limitation issue, the Court by order dated 12th/20th July 2017 appointed the Court Receiver under Order XL of the Code of Civil Procedure, 1908, and directed the defendant to pay monthly ad-hoc royalty of Rs. 45,000/- to the Receiver as an agent. The order was modified on 3rd August 2017 to include GST. The plaintiffs raised concerns about GST liability, asserting that if GST was not recovered from the defendant it would be difficult to recover later. The Court Receiver filed Report No. 213 of 2017 after discussions with a panel Chartered Accountant, who opined that GST should be paid by the defendant under Reverse Charge Mechanism (RCM) and that the Receiver could not obtain a GST number being part of government. The Court Receiver sought directions on the steps to be taken. Considering the importance of the issue, the Court appointed Mr. V. Sreedharan, Senior Advocate, as Amicus Curiae, issued notice to the Additional Solicitor General, and later directed that the Advocate General also be heard. Submissions were advanced by the Amicus Curiae, the Court Receiver, the State of Maharashtra, and the Union of India. The Court framed four principal questions: (i) whether GST is liable on services rendered by a Court Receiver appointed under Order XL CPC; (ii) whether GST is liable on royalty or other payments made to a Court Receiver; (iii) whether in the facts of the case there is a 'supply' under the CGST Act and whether payment of royalty is consideration chargeable to GST under Section 9; and (iv) if GST is payable, how the liability is to be discharged. The judgment, reserved on 9th March and 23rd August 2019, was pronounced on 13th September 2019 by Justice S.J. Kathawalla. The decision and reasoning on these questions were to be delivered in the remaining part of the judgment.
Issue of Consideration
Whether GST is payable on services provided by a Court Receiver appointed under Order XL CPC and on royalty payments made by a defendant or third party to such Receiver, and if so, the proper mode of discharge.
Law Points
- Goods and Services Tax on services of statutory functionary
- taxability of payments to Court Receiver under Order XL CPC
- definition of supply and consideration under CGST Act
- reverse charge mechanism for GST
- liability of occupants in illegal occupation for tax on royalty
Case Details
2019 LawText (BOM) (09) 69
Court Receiver's Report No. 213 of 2017 in Commercial Suit (L) No. 236 of 2017
Mr. V. Sreedharan, Senior Advocate as Amicus Curiae, Mr. Anil C. Singh, Additional Solicitor General for Union of India, Mr. Ashutosh Kumbhakoni, Advocate General for State of Maharashtra, Mr. M.K. Tanna for Plaintiffs, Mr. Prasad Rao alongwith Ms. Kanchan Agarwal for Defendant, Mr. Sharan Jagtiani alongwith Mr. Priyank Kapadia instructed by the Court Receiver
Bai Mamubai Trust, Vithaldas Laxmidas Bhatia, Smt. Indu Vithaldas Bhatia
Suchitra wd/o. Sadhu Koraga Shetty
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Nature of Litigation
Commercial suit seeking recovery of possession of three shops used as a restaurant, on grounds of trespass and unauthorized occupation; interim application led to appointment of Court Receiver and direction for payment of monthly royalty.
Remedy Sought
Court Receiver's report seeking directions on applicability and mode of payment of GST on the royalty amounts deposited by the defendant, including whether GST should be paid by the defendant directly under reverse charge mechanism.
Filing Reason
Plaintiff raised concerns about GST liability on royalty payments; the Court Receiver filed a report after oral discussions with a panel Chartered Accountant indicated that GST might be payable via reverse charge mechanism, and sought directions.
Previous Decisions
By order dated 12th/20th July 2017, the Court appointed the Court Receiver and directed defendant to pay monthly ad-hoc royalty of Rs. 45,000/-. This order was modified on 3rd August 2017 to include GST. No further prior adjudication on GST issue exists.
Issues
Whether GST is liable to be paid on services or assistance rendered by the Court Receiver appointed by this Court under Order XL of the CPC?
Whether GST is liable to be paid on royalty or payments under a different head paid by a defendant (or in a given case by the plaintiff or third party) to the Court Receiver in respect of properties over which a Court Receiver has been appointed?
Specifically, in the facts of the present Suit, where the Plaintiff alleges that the Defendant is in illegal occupation of the Suit Premises: Whether there is any ‘supply’ within the meaning of the CGST Act? Whether payment of royalty for remaining in possession of the Suit Premises, either during the pendency of the Suit, or at the time of passing of the decree, falls within the definition of ‘consideration’ for a ‘supply’ chargeable to payment of GST under Section 9 of the CGST Act?
If in any circumstance GST is payable or applicable to payments made to the Court Receiver, how is that statutory liability to be discharged? Is it to be paid by the Defendant / party in occupation directly, or by the Court Receiver?
Judgment Excerpts
(IV) The Defendant shall be appointed as an agent of the Court Receiver under an agency agreement on payment of monthly royalty of Rs.45,000/- to the Court Receiver but without any security alongwith GST at the applicable rate;
The person paying royalty (i.e. the Defendant) should pay the GST at applicable rate at RCM (Reverse Charge Mechanism) and challan of payment of GST should be produced before the Court Receiver. Court Receiver cannot get GST number being part of Government as Representative Assessee.
Whether GST is liable to be paid on services or assistance rendered by the Court Receiver appointed by this Court under Order XL of the CPC?
whether payment of royalty for remaining in possession of the Suit Premises, either during the pendency of the Suit, or at the time of passing of the decree, falls within the definition of ‘consideration’ for a ‘supply’ chargeable to payment of GST under Section 9 of the CGST Act?
Procedural History
Plaintiff filed Commercial Suit (L) No. 236 of 2017 seeking possession. By order dated 12th/20th July 2017, pending determination of a preliminary issue of limitation, the Court appointed the Court Receiver and directed defendant to pay monthly royalty of Rs.45,000/-. The order was modified on 3rd August 2017 to include GST. The plaintiff addressed a letter on 10th October 2017 regarding GST implications. The Court Receiver filed Report No. 213 of 2017 on 3rd November 2017 seeking directions. By order dated 24th November 2017, the Court appointed Mr. V. Sreedharan as Amicus Curiae and issued notice to Additional Solicitor General. On 13th December 2017, the Amicus suggested hearing the Advocate General as well. The matter was heard on 9th March 2019 and 23rd August 2019, and judgment was pronounced on 13th September 2019.
Acts & Sections
- Code of Civil Procedure, 1908: Order XL
- Central Goods and Services Tax Act, 2017: Section 9
