HC: No GST on services provided by Court Receiver

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The Hon’ble HC, Bombay in the matter of Bai Mamubai Trust v. Suchitra [Court receivers report no. 213 of 2017 And commercial suit (l) no. 236 of 2017 decided on September 13, 2019] held office of the Court Receiver is an establishment of the HC through which the orders issued by the Court are given effect to. Therefore, the services of the Court Receiver are to be considered as services provided by any Court. Accordingly, the fees or charges paid to the Court Receiver are not liable to GST as per Para 2 of the Schedule III of the Central Goods and Services Tax Act, 2017 (“CGST Act”).

Facts:

Bai Mamubai Trust (“the Petitioner”) filed Suit seeking to recover possession of three shops, which together constitute a restaurant, where the Petitioner was carrying on business in the name and style of “Manranjana Hotel” (“Suit Premises”). The Suit proceeds on the cause of action of trespass / unauthorized occupation. The Petitioner filed Notice of Motion in the above Suit for interim reliefs pending the hearing and final disposal of the Suit.

An Order dated July 12/27, 2017 (“Order”) was passed in the said Notice of Motion. By the said Order, a preliminary issue of limitation was framed and pending determination thereof, the Court Receiver, HC, Bombay was appointed as receiver of the Suit Premises since the Court arrived at a prima facie finding that the Respondent had no semblance of right to the Suit Premises.

As per the said Order, the Court Receiver was directed to take formal possession of the Suit Premises and was directed not to disturb the physical possession of the Suchitra (“Respondent”). The Respondent was permitted to remain in possession of the Suit Premises as an agent of the Court Receiver under an agency agreement to be executed with the Court Receiver, on payment of monthly ad hoc royalty of Rs 45,000/-. The amount deposited by the Respondent with the Court Receiver was directed to be invested by the Court Receiver in fixed deposits of Nationalised Bank/s.

The Petitioner moved an application before the Court for speaking to the minutes of the Order and the Order was modified by an order, dated August 3, 2017, directing the Respondent to pay royalty with applicable GST.

Issues involved:

  • 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 Code of Civil Procedure, 1908 (“CPC”)?

 

  • Whether GST is liable to be paid on royalty or payments under a different head paid by a Respondent 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 Petitioner alleges that the Respondent 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?

Held:

The Hon’ble HC, Bombay in Court receivers report no. 213 of 2017 And commercial suit (l) no. 236 of 2017 decided on September 13, 2019 held as under:

Issue 1

  • The services of the Court Receiver are activities or transactions which shall be treated neither as a supply of goods nor a supply of services as per Para 2 of the Schedule III of the CGST Act. Accordingly, the fees or charges paid to the Court Receiver are not liable to GST. It is clarified that the Court has not considered this issue in the context of a private receiver who may be appointed by the Court under Order XL of the CPC. GST cannot be levied or recovered on services provided by the Court Receiver. Rule 591 of the Bombay High Court (Original Side) Rules, 1980 (“Bombay HC Rules”) prescribes the fees of the Court Receiver. Therefore, GST shall not be levied on amounts directed to be paid by litigants to the office of the Court Receiver.

Issue 2

  • The legislature has, in Section 92 of the CGST Act, provided that a receiver would be a convenient point for the revenue to determine and collect GST. If Section 92 of the CGST Act is applicable in a given case, GST may be determined and recovered from the Court Receiver by reason of the Court Receiver being akin to a ‘representative assessee’. However, whether or not GST is applicable depends on the nature of the cause of action pleaded by the Petitioner or the order of the Court directing payment and which sets out the terms of receivership. This is because the cause of action and finding thereon will determine the character of the payments made. All or some of these would have to be considered to determine if a ‘taxable event’ within the four corners of the CGST Act have taken place to attract liability for GST.

Issue 3

  • The requirement of a ‘supply’ is essential. It is the taxable event under the CGST Act. If there is no supply, there can be no liability for payment of tax (or any interest or penalty thereon). This is clear from Article 246A of the Constitution of India which deals with the legislative competence of the Union and the States to make laws with respect to goods and services tax imposed by the Union or such State and Article 366(12A) of the Constitution of India which defines ‘goods and services tax’ as ‘any tax on Supply of Goods or Services or both except taxes on the supply of the alcoholic liquor for human consumption’. This is also evident from the charging provision i.e. Section 9 of the CGST Act. If these requirements are met with, Section 92 of the CGST Act provides that GST may be determined and recovered from the receiver in the like manner and to the same extent as it would be determined and be recoverable from a taxable person as if the receiver were conducting the business himself.

 

  • In the present case, royalty is paid towards damages or compensation or securing any future determination of compensation or damages for a prima facie violation of the Petitioner’s legal right in the Suit Premises. The prima facie finding is that the Respondent has no semblance of right to be in occupation of the Suit Premises. The permission granted to the Respondent to remain in possession subject to payment of royalty is an order to balance the equities of the case. The basis of this payment is the alleged illegal occupation or trespass by the Respondent. Such payment lacks the necessary quality of reciprocity to make it a ‘supply’. Hence no GST is payable.

 

  • Although the quantification of royalty towards a claim of damages involves ascertaining the market rent payable with respect to the property alleged to be illegally occupied, the compensation liable to be paid does not acquire the character of consideration so as to make the transaction a supply.

 

  • Therefore, in the present case, where the Petitioner has made out a strong prima facie case and the Respondent has not been able to demonstrate any semblance of right to occupy the Suit Premises, it cannot be said that the Respondent’s occupation pursuant to an Order of the Court is a contract involving a ‘supply’ for consideration. In the absence of reciprocal enforceable obligations, it would not be correct to characterise the Respondent’s occupation of the Suit Premises against payment of royalty as a ‘supply’ for ‘consideration’ on which GST is payable by the Court Receiver.

Relevant provisions:

Rule 591 of the Bombay HC Rules:

“591. Fees of Receiver –

Unless otherwise ordered by the Judge, the Court Receiver shall charge fees according to the following scale:-

Scale of fees                                                                                                                   Per cent

(1) On Rents, Royalties or licence fees recovered…                                                                 6

(2) On outstanding recovered except as provided in item 3 below:-

 On the first Rs. 25,000 or fraction thereof…                                                                         5

On the next Rs. 25,000 or fraction thereof…                                                                         3

On the next Rs. 50,000 or fraction thereof…                                                                        2

On any further sum over Rs. 1,00,000…                                                                             1

(3) On outstanding recovered from a Bank or from a public Servant without filing a suit..  1

(4) On sale of properties movable or immovable calculated on the total value realized in any one estate:-

On the first Rs. 25,000 or fraction thereof                                                                               3

On the next Rs. 25,000 or fraction thereof                                                                              2 ½

On the next Rs. 50,000 or fraction thereof                                                                              2

On any sum above Rs. 1,00,000                                                                                             1

(5) For taking charge of movable property which is not sold on the estimated value            1

(6) For taking custody of moneys                                                                                         1

(7) For taking custody of Government Securities or Stocks, Shares, Debentures, Debenture-Stock or other Securities which are not sold on the estimated value.                                   1

(8) On the interest earned by investment of funds in the Custody of the Court Receiver      5

(9) For any special work, not provided for above, such remuneration as the Court on the application of the Receiver shall think reasonable.

While calculating fees to be charged, the amount will be calculated to the nearer whole rupees by giving up the amount less 0.50ps. and counting the amount of 0.50ps. and above a whole rupee.”

Section 9 of CGST Act

Levy and collection.

  1. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.

(2) The central tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council.

(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.

(4) The Government may, on the recommendations of the Council, by notification, specify a class of registered persons who shall, in respect of supply of specified categories of goods or services or both received from an unregistered supplier, pay the tax on reverse charge basis as the recipient of such supply of 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 such supply of goods or services or both.

(5) The Government may, on the recommendations of the Council, by notification, specify categories of services the tax on intra-State supplies of which shall be paid by the electronic commerce operator if such services are supplied through it, and all the provisions of this Act shall apply to such electronic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:

Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax:

Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also he does not have a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax.

Section 92 of CGST Act

“92. Liability of Court of Wards, etc.

Where the estate or any portion of the estate of a taxable person owning a business in respect of which any tax, interest or penalty is payable under this Act is under the control of the Court of Wards, the Administrator General, the Official Trustee or any receiver or manager (including any person, whatever be his designation, who in fact manages the business) appointed by or under any order of a court, the tax, interest or penalty shall be levied upon and be recoverable from such Court of Wards, Administrator General, Official Trustee, receiver or manager in like manner and to the same extent as it would be determined and be recoverable from the taxable person as if he were conducting the business himself, and all the provisions of this Act or the rules made thereunder shall apply accordingly.

Para 2 of the Schedule III of the CGST Act

“Activities or transactions which shall be treated neither as a supply of goods nor a supply of services

  1. Services by any court or Tribunal established under any law for the time being in force.
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