Is tax treatment of advocate services under GST discriminatory?

Under the Goods & Services Tax, a taxable event is the supply. A transaction must fall within the four walls of the term ‘supply’ for applying the levy and collection provisions envisaged in the GST laws. Liability to pay tax ensues at the time of supply of goods or services.

The term supply is not defined in the GST Act. But the term taxable supply is defined under section 2 (108) of the CGST Act as supply of goods or services or both which is levy-able to tax under the act. In Section 7 of the CGST Act, a wider, inclusive range of activities are listed out, such as sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. It is not necessary that a transaction must be a concluded one, an agreement to enter into would also come within the scope of supply. All though, consideration and intent, in the form of ‘in the course or further of business’, are condition precedent for a transaction to qualify as a supply. In the schedule 1 of the CSGST Act 2017, there are a few exemptions that would invalidate the requirement of consideration and intent in the style of ‘in the course of furtherance of business. Therefore section 7 must be read in conjunction with schedule 1.

Taxability of legal service is dealt under notification No: 12-Central Tax (CT) (Rate) date 28.06.2017. Legal service means any service provided in relation to advise, consultancy or assistance in any branch of law and includes representation service before any court, tribunal or authority. In this sense, a legal service can be provided by either by a Lawyer, an Advocate or a Chartered accountant, especially in areas of Fiscal and Corporate laws. But the tax treatment for services rendered by an advocate is not identical to the rest of the two.

When services are provided by a chartered accountant and a lawyer, the GST tax treatment for that taxable supply is based on the place of supply, time of supply and valuation methods prescribed under the act. They need register if their aggregate turnover in a financial year is above 20 lakhs(10 lakhs in north eastern states) If they are involved in intra state supply the turnover threshold limit does not apply. The chartered accountant and the lawyer is required to issue a taxable invoice and remit tax by filing the required returns and thereby fully comply with the levy and collection provisions of the GST laws.

By virtue of notification No:9 IGST 28.06.2017 services provided by an advocate, Senior Advocate or a firm of Advocates are exempted and they are not required to comply with the formality of issuing tax invoice and also to fall in line with GST return filing compliance.

In August 2017, GST council issued clarification that services provided by Advocates, Senior Advocates and firm of Advocates are subject to reverse charge. Under reverse charge the recipient of service is required to make self- invoice and deposit the amount of tax to the government.

The GST council has further clarified that in case of suppliers covered under Reverse charge Mechanism, registration is not required. An Advocate, a Senior Advocate or a firm of Advocates are not required to register under GST laws by virtue of notification of 5 of 2017, Central Act.

It is interesting to note that exemptions are available to advocates only. A law graduate qualifies to become and advocate only when he or she becomes the member of the bar council and secures a place in the roll of advocates. Advocates are exempted from the tax formalities of the GST Law only in the taxable territory. If an advocate, Senior Advocate or firm of Advocate is involved in providing legal services outside taxable territory, meaning export of legal services, it would be wiser to register under the GST laws to perfectly comply with the export formalities and also to avail benefits of input tax of available to zero rated supply.

A table showing taxability of the legal service provided by the advocate is narrated.

Under the above scenario, It is only requires basic prudence to believe that no advocate will find this discriminatory. I have not heard any advocate complaining that due to non -availability of ITC (Input Tax Credit ) and the ensuing cascading effect of tax ,their services have become pricy and has become burdensome to their clients.

At this juncture ,It is interesting to note that a public interest writ petition has now been filed before the Gujarat High Court challenging section 17 (2) and 17 (3) of the CGST Act which according to the petitioner restricts input tax credit on Goods & Services used by advocate for effecting taxable legal service and the same amounts to violation of article 14, 19, 21 & 265 of the constitution.

The public interest litigant is a chartered accountant who had in the past filed several petitions challenging the alleged virus of other economic legislations.

The question before the Honorable high court now is, whether or not input tax facility is a fundamental right or whether it is possible to suspect and belittle the wisdom of legislators especially with regard to a landmark legislation which has subsumed several central and state taxes and still is in an evolving state.

Let us now examine how the Honorable Supreme court dealt with similar issues in the past.

In ALD Automobiles Pvt Ltd vs The Commercial Tax Officer And Ors the Honorable Supreme Court has held that it is a trite law that whenever concessions is given by a statute the conditions there of are to be strictly complied with in order to avail such concession. Thus it is not right of the dealers to get the benefit of Input Tax Credit (ITC) but it is concession granted by virtue of that section.

The constitution bench of the supreme court in R.K. Garg Vs. Union of India, (1981) 4 SCC 675 stated that laws related to economic activities should be viewed in a greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, Justice., chief justice of US suprecourt ,that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit solution through any doctrinaire or strait jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with, greater play in the joints has to the allowed to the legislature. The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved.

In USA agencies Vs. Commercial Tax officers it was held that input tax credit is neither a fundamental right nor a common law right. Under these preferential platform, in my opinion ,it quite unlikely that Honrable High may interfere .as legislators have their own reasoning and wisdom in keeping the advocates services under the reverse charge mechanism without much conceptual changes from pre GST service tax regime.

While concluding this thought process I have reminiscence of a maxim “ACTA EXTERIORA INDICANT INTERIORA SECRETA which means external action reveals inner intent. The petitioner may require the advocates services also to be in line with other services. The Friends it is not too long that services of advocates could also come within the ambit of GST and in that scenario advocates may have to spare ⁰ time in book keeping and compliance.

Adv. Prathap Pillai
ADVOCATE ,HIGH COURT