1. Meaning of ‘Legal Services’ : ‘Legal Services’ 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– Notification No. 12- Central Tax(CT) (Rate) dated 28.06.2017.
Analysis 1 : Legal Services can be any service which an advocate (including a senior advocate) /firm of advocates provide during the course of practice. Examples:
Advice or representation even before any government authority (say Municipal Corporation in relation to land dispute).
Monthly computations, fillings, etc in relation to Labour law (PF, ESI, etc).
Analysis 2. Exemptions and other provisions in respect of Legal Services are used only in the context of ‘advocates’/’firm of advocates’. Examples:
A Chartered Accountant providing legal advice in relation to commercial laws though covered by definition of legal services but not considered under any reverse charge mechanism (RCM) provisions or exemption provisions.
Payroll consultants providing monthly payroll computations and fillings services (including PF, ESI, etc).
2. Categories of Legal Services : -Taxability of legal services can be explained under 4 categories viz:
(a) Fully exempted Services : Following services are fully exempt by virtue of notification No. 09-Integrated Tax(IT) (Rate) dated 28.06.2017:
(i) Legal services provided by individual advocate or partnership firm of advocates to:
Individual advocate or partnership firm of advocates; (Authors comment: It looks like ‘individual advocate’ shall also cover ‘senior advocate’ since there is no separate clause dealing with a case where ‘individual advocate’/’firm of advocates’ is providing services to a senior advocate)
Any person other than a business entity; (For ex: Legal advice provided to a retail consumer for filing consumer complaint, partition of joint family property)
A business entity with an ‘aggregate turnover’ (T/o) up to 20 lacs (10 lacs in special category states) in preceding financial year (FY).
(ii) Legal services provided by senior advocate to :
Any person other than a business entity (Authors comment: It looks this clause shall also cover ‘individual advocate’/’firm of advocates’ since there is no separate clause dealing with case ‘senior advocate’ is providing services to a ‘individual advocate’/’firm of advocates’. For ex: A ‘senior advocate’ rendering representation services to a ‘firm of advocates’ for their client);
A business entity with T/o up to 20 lacs (10 lacs in special category states) in preceding FY.
(b) Services which are chargeable under RCM (i.e. liability to pay tax is on the recipient and not on the supplier): Services provided by an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly to a business entity located in the taxable territory are chargeable under RCM . Notification No. 10-Integrated Tax (Rate) dated 28.06.2017 (read with corrigendum dated 25.09.2017).
(c) Services which are chargeable under normal charge (i.e. liability to pay tax is on the ‘advocate’/’firm of advocates’ themselves): services by senior advocates to any other advocate or firm of advocates are not exempt and taxable under forward charge mechanism
(d) Service provided in Non Taxable Territory :- If we closely look at aforesaid provisions, services provided by an individual advocate (including senior advocate) or a firm of advocates to a business entity (having T/o of more than Rs.20/10 lacs) not located in taxable territory is neither under RCM nor under exemption. Following needs to be noted:
(i) This is inter-state service (as per section 7 of Integrated Goods and Services Tax (IGST) Act, 2017) and tax needs to be paid by taking registration. This taxable service can qualify (not certainly) as ‘export of service’ subject to qualifying conditions. For ex: Mr. X, Advocate has established legal practice in India. He provides legal advice in establishing business in India to a business entity located in Japan. Now As per section 2(6) of IGST Act, in order to qualify as export of services:
(ii) Supplier should be in India (Mr X is in India);
(iii) Recipient should be outside India (Business Entity is in Japan);
(iv) Place of supply is outside India (As per section 13 of IGST Act, it is determined to be Japan);
(v) Payment is received in convertible foreign exchange (Assuming forex is received);
(vi) Supplier and recipient are not ‘distinct persons’ (Assuming not ‘distinct persons’ as per explanation 1 to section 8 of IGST Act).
3. Requirement to obtain registration: Let us examine, registration requirement for legal services when supplied to business entity located only in India:
(a) Legal provisions:
(i) A person engaged in supply of services having turnover exceeding Rs.20 lacs shall be mandatorily required to take registration- Section 22 of Central Goods and Services Tax (CGST) Act 2017.
(ii) A person engaged exclusively in supplying services wholly exempt from tax is not required to obtain registration- Section 23(1) of CGST Act.
(iii) A person engaged in supplying intra-state services is exempted from obtaining registration where entire tax is payable under RCM- Notification No. 05-Central Tax dated 19.06.2017.
(b) Analysis of registration requirements
When exclusively legal Services (including any other Exempt Supply) are provided by advocate/firm of advocates (excluding senior advocate) to Business entity having turnover of less than the threshold prescribed or to any advocate/firm of advocates or Non-business entity or government then such services are exempt. Hence, as per section 23(1), such advocates are not required to get registered under this Act.
Legal Services provided by Senior Advocate to other advocates/firm of advocate are taxable under forward charge mechanism. If aggregate turnover of senior advocate providing such services exceed twenty lakh rupees in a Financial Year, then such senior advocate will have to get registered as per section 22(1) of the CGST Act, 2017.
When advocate/firm of advocate (including senior advocate) are engaged in providing exempt services as well as taxable services and the aggregate turnover(including exempt supplies) of advocate/Firm of advocate/senior advocate exceeds the threshold prescribed and the tax on such taxable supplies are to be paid on Forward Charge Mechanism, in such case advocates/firm of advocate are required to get registered as per 22(1) of the CGST Act, 2017.
Legal services provided by Advocate/firm of advocates (including senior advocate) to Business Entity having Turnover exceeding threshold prescribed are not exempt but these services are covered under Reverse Charge Mechanism, hence, as per Notification No. 5/2017–Central Tax dated 19.06.2017, such advocate/firm of advocates (including senior advocate) is not required to be registered under the CGST Act, 2017. The recipient of service is required to be registered under the CGST Act, 2017 for these services.
Furnishing of Return: A registered ‘advocate’/’firm of advocates’ providing legal services needs to furnish all applicable returns/statements i.e. GSTR-1, 2, 3, 3B, etc on or before relevant due dates.
J K Mittal & Company vs. Union of India (W.P.(C) 5709/2017 & CM No. 23814/2017), Delhi HC: Judgment of the case states that no coercive action can be taken against any ‘advocate’ or ‘firm of advocates’ till government clarify its stand in relation to taxability or issues relevant notifications exempting ‘advocate’/’firm of advocates’ from obtaining registration.
Even when government has issued various clarifications/notifications/corrigendum in response to court order, but as on date, advocate/’firm of advocate’ are not exempt taking registration under GST law.
“Advocate” has the same meaning as assigned to it in clause (a) of sub-section (1) of section 2 of the Advocates Act, 1961.
“Senior Advocate” has the same meaning as assigned to it in section 16 of the Advocates Act, 1961.
‘Business Entity’ means any person carrying out any business.
Total 10 states i.e. 7 North east states and 3 other states i.e. Sikkim, Uttarakhand, Himachal Pradesh.
No part of this article shall be reproduced, copied in any material form (including e-medium) without written permission of CA. Shivashish Kumar. The information provided is not a substitute for legal and other professional advice. This is only for academic discussions.
(Author Shivashish Karnani is a CA and can be reach out freely at [email protected] and on +91-9818472772)
(Republished with Amendments. Amendments been made by CA Anita Bhadra)