Service Tax on Legal Consultancy service was introduced on 01.09.2009 by the Finance (No. 2) Act 2009. The concept of reverse charge was introduced in the erstwhile service tax regime w.e.f. 01.07.2012 wherein the tax has been paid by the recipient on the services received. Now, this concept has also been incorporated under GST wherein the tax has been charged on the supply of services as well as supply of goods. Service providers i.e. Advocates or Firm of Advocates were exempt.

Meaning of ‘Legal Service’ under GST

Notification No. 12/2017-Central Tax dated 28.06.2017 defines the following:

  • ‘Legal Service’ means 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.
  • ‘Advocate’ has the same meaning as assigned to it in clause (a) of sub-section (1) of section 2 of the Advocates Act, 1961 (25 of 1961).
  • ‘Senior Advocate’ has the same meaning as assigned to it in section 16 of the Advocates Act, 1961 (25 of 1961).
  • ‘Arbitral Tribunal’ has the same meaning as assigned to it in clause (d) of section 2 of the Arbitration and Conciliation Act, 1996 (26 of 1996).

Leviability of Legal Services under GST

Notification No. 12/2017- Central Tax (Rate) dated 28.06.2017 exempts the supply of services provided by

  • an arbitral tribunal to –
  • any person other than a business entity; or
  • a business entity with an aggregate turnover up to twenty lakh rupees (ten lakh rupees in the case of special category states) in the preceding financial year;
  • a partnership firm of advocates or an individual as an advocate other than a senior advocate, by way of legal services to –
  • an advocate or partnership firm of advocates providing legal services;
  • any person other than a business entity; or
  • a business entity with an aggregate turnover up to twenty lakh rupees (ten lakh rupees in the case of special category states) in the preceding financial year;
  • a senior advocate by way of legal services to –
  • any person other than a business entity; or
  • a business entity with an aggregate turnover upto twenty lakh rupees (ten lakh rupees in the case of special category states) in the preceding financial year.

The said notification has defined the term ‘business entity’. ‘Business entity’ means any person carrying out business. The said notification exempts the services to only those business entities whose aggregate turnover is upto twenty lakh rupees.

The Business entity would be liable to pay GST under reverse charge as detailed under Notification No. 13/2017-Central Tax (Rate) dated 28.06.2017.

Registration under GST

As per Notification No. 5/2017-Central Tax dated 28.06.2017, registration requirement is exempt in case the supplies have been fall under the reverse charge under section 9(3).

However, if the Advocates or Firm of Advocates provides services other than legal services and their aggregate turnover is more than Rs. 20 lakhs, then registration is required for them. Please note that aggregate turnover includes Taxable Turnover, Exempt Turnover, Nil Rated Supplies, Export Supplies and Supplies on which tax has been paid under reverse charge.

Example: If an advocate Mr. A is providing Legal Service to Mr. X having aggregate turnover of Rs. 16 lakhs and given his commercial plot on rent to Mr. Y for monthly rental of Rs. 1 lakh. Whether GST applicable. If yes, in which amount? Whether Mr. A is liable to take registration under GST?

Reply: In case where the advocate is providing legal service to Mr. X whose aggregate turnover is Rs. 16 lakhs is exempt from tax under Notification No. 12/2017-Central Tax (Rate).

However, in case where Mr. A is providing commercial plot on rent to Mr. Y on monthly rental of Rs. 1 lakh, then GST is applicable since the aggregate turnover of Mr. A is more than Rs. 20 lakhs i.e. 16 lakhs+12 lakhs = Rs. 28 lakhs.

Hence, Mr. A is liable to take registration in this case as well as liable to pay GST on taxable turnover of Rs. 12 lakhs.

Time of Supply in case of services under reverse charge

As per Section 13(3) of the GST Act, time of supply, in case of supplies in respect of which tax is paid or liable to be paid under reverse charge basis, shall be earliest of the following dates, namely-

  • the date of payment as entered in the books of account of the recipient or the date on which payment is debited in his bank account, whichever is earlier, or
  • the date immediately following sixty days from the date of issue of invoice or any other document, by whatever name called, in lieu thereof by the supplier:

Provided that where it is not possible to determine the time of supply under clause (a) or clause (b), the time of supply shall be the date of entry in the books of account of the recipient of supply:

Provided further that in case of supply by associated enterprises, where the supplier of service is located outside India, the time of supply shall be the date of entry in the books of account of the recipient of supply or the date of payment, whichever is earlier.

Export and Import of Legal Services

♣ Export of Legal Service (including supplies made to SEZ)

In case of Export of services, Supply of Legal services to the business entity would not fall under reverse charge subject to fulfillment of all the conditions of export of services. Supply to be treated as inter-state if made outside the taxable territory in terms of section 7 of the IGST Act. Please note that supply to SEZ would also be treated as inter-state supply. Hence, Advocates or Firm of Advocates have to take registration and pay tax.

Section 16(1) of IGST Act defines Zero rated supply. “Zero rated supply” means any of the following supplies of goods or services or both, namely:

  • export of goods or services or both; or
  • supply of goods or services or both to a special economic zone developer or a special economic zone unit.

The advocates or firm of advocates can claim the refund of taxes paid on making zero-rated supply under any of the two conditions hereinbelow:

  • they may supply their services under bond or Letter of Undertaking without payment of integrated tax and claim refund of unutilized credit; or
  • they may supply their services by payment of integrated tax and claim refund of such payment of taxes.

♣ Import of services

In case of import of services, the business entity who have availed the legal services from outside the taxable territory will have to pay tax under reverse charge.

Input Tax Credit

Input tax credit cannot be availed by the advocates or firm of advocates providing the legal services. However, please note that if the advocates or firm of advocates provides any other taxable services, then they can claim the input tax credit on proportionate basis subject to the conditions as prescribed under rule 42 of the CGST rules.

Tax on reimbursement expenses charged by the advocates

There were certain reimbursement expenses charged by the advocates in their bills. It may be on account of some expenses belong to payment made to Government by the advocates and they may claim the actual expenses reimbursed by them from their clients. The same would not be chargeable to tax if all the conditions of pure agent have been satisfied. However, if there would be some mark-up on the same and if the advocates were not doing expenses as pure agent, then GST would be levied on such expenses.

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Location: Kolkata, West Bengal, IN
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One Comment

  1. CMA ASIM SAHA says:

    Normally legal expenses attracts RCM while we make payment for legal fees / opinion.

    My question is whether all the legal expenses are meant to incur during and for the furtherance of business. One can challenge that particular legal expenses incurred, for example legal opinion taken to defend MSME case / wilful delayed in releasing the payment to input suppliers or contractors etc are not for purpose of furtherance of business but for the defending the allegation against some one. This expenses do not derive any benefits to the assessee. As per my opinion taking of GST paid under RCM related to legal expenses as ITC should be analysed. What is the opinion of my learned author.

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