Though no official notification is so far issued, as per the Press Report, the Goods and Services Tax Act (GST) will be enforced on and with effect from 1st July, 2017. Even if that date is postponed to some other date in future still the moot question about the status of Advocates rendering legal services would arise for our advocate members. It is from that point of view, I would examine herein the relevant legal provisions under
the said enactment, and offer may view thereon.
2. Before I consider the actual status of Advocates it would be beneficial to know certain basic provisions which will have its impact on the question on hand.
3. Term ‘business’ have been defined u/s. 2(17) of the CGST Act to include any profession, vocation etc., and therefore advocates carrying on the legal profession would be covered.
4. The fees charged to a client for the legal services rendered by an advocate, would be covered by the inclusive definition of the term ‘consideration’ u/s. 2(31). Similarly u/s. 2(93) the client receiving the benefit of such professional services would be a recipient of supply of services. On the same analogy the advocates supplying the professional legal services would be supplier of his services as defined u/s. 2(105) read with section 7(1)(a) while the taxable person is one who is registered or is liable to be registered u/s. 22 or 24.
5. The heart of the levy would naturally be the charging section 9 which provide for the levy and collection of tax. Section 9(1) provide for the normal levy of tax of GST on all intra-State supplies of goods or services for both on the value that may be arrived at under section 15 of the Act. The payment in question is to be collected and paid by the taxable person as defined section 2(107) service provider i.e. the person who is registered or liable to be registered u/s. 22 or section 24. The topic of registration under those section will be dealt with separately later on. Section 9(3) provide for the collection of tax on the notified supplies of services on reverse charge basis, from the recipient of such services and all the provisions of the Act would apply to such recipient as if he is the person liable for payment of tax in relation to the supply of such services.
Reverse charge payments
6. As per the discussion in the GST Council Meeting held on 18th and 19th May, 2017 apart from the rates of GST for supply of goods, it also approved certain services for the purpose of reverse charge provisions as well as those which will be notified to be exempted services in exercise of its power u/s. 11(1) read with section 9(3).
7. Under the definition u/s. 2(98) of the term ‘reverse charge’ it would be the liability of the recipient to pay tax on the supply of such notified services. The list of such services under reverse charge have been published for general information which will be given effect to, through Gazette notification after the law is enforced. Entry 3 therein reads as under:
|Sl. No.||Service||Provider of Service||Percentage of service tax payable by service provider||Recipient of Service||Percentage of service tax payable by any other person other than service provider|
|3.||Services provided or agreed to be provided by an individual advocate or firm of advocates by way of legal services, directly or indirectly||
An individual advocate or firm of advocates
||NIL||Any business entity||100%|
8. On the same day the GST Council also decided certain services to be notified as exempted services. The list include services by Govt., or local authority but restricted to the specified services, services by Reserve Bank and other similar bodies. Entry 15 provides for exemption to services provided by an arbitral Tribunal to any person other than a business entity or such entity having turnover up to 20 lakhs. It also specify services provided by a partnership firm of Advocates or an individual as an Advocate, other than a senior Advocate, by way of legal service to an advocate or their firm. The legal service so exempted by an Advocate would also include the same rendered to any person other than a business entity or such an entity with a turnover of less than 20 lakhs in the preceding financial year. As far as senior Advocates are concerned their legal services would be exempted if rendered to any person other than a business entity or such entity having less than 20 lakhs turnover in the preceding Financial Year.
9. Considering the impact of both the above decisions by GST Council it is by now very clear that an individual advocate rendering legal service to any business entity is not liable to pay any tax as service provider and 100% thereof is payable by the recipient of the service i.e. the client or a business entity. It may kindly be noted here that the reverse charge liability refers to all types of advocates without any exception as is the case for exempted services. Again the exempted services is restricted only when the professional legal services were rendered to another advocate or their partnership firm also providing such services or to a person other than a business entity as also the entity having turnover of less than 20 lakhs. Similar limitation is also provided when the legal services is provided by senior advocates however in their case, the legal service to another advocate is not exempted therefore in such cases the list of reverse charge system will be applicable under which as mentioned hereinabove, there is no classification of senior advocate and other advocate, under which the service tax payable by the service provider (an advocate or his firm) would be nil and 100% service tax would be payable by the recipient of the services in question.
10. Having considered the liability of an advocate, another question would be in regard to the necessity for registration under the GST Act.
11. For considering the aforesaid question the provisions of Chapter VI especially sections 22 and 24 will be applicable. Section 22 is applicable to those suppliers, who had a turnover of more than 20 lakhs in one financial year and for those persons who were already registered under the existing law i.e. Service Tax or State VAT Act. It also apply to a transferee who take over the business of the transferor (slump sale transactions).
12. Section 24 refer to certain persons who were statutorily required to be registered. Such persons include inter alia a person who was required to pay tax under reverse charge. In other words if an advocate renders legal service to a person not otherwise liable for registration such person will have to get himself registered because of his legal liability to pay tax as a service receiver from an advocate under reverse charge system. Section 24 also provide for other categories of persons who are required to be registered under the Act. Accordingly a person making supplies within the State is required to be registered even if he happens to be a casual taxable person or a non-resident taxable person making taxable supply within the State. Such persons other than casual and non-resident persons have to apply for registration within a period of 30 days from the date on which he may become liable, while the non-resident or a casual supplier have to obtain the registration, in advance at least before five days prior to commencement of the supply activity in the State.
13. Applying the above provisions to an advocate rendering legal service though not liable for registration, the person to whom he may make payment for rendering services to him, may be a company rendering consultancy service or to an auditor for the purpose of filing the return under Income Tax Law or for auditing the books of the Advocate liable u/s. 44AB of that Act will not be so covered by the reverse charge liability of the recepient of supplies. In such cases the payment to junior for his rendering service to the Advocate would be covered by the notification of exemption under entry 15(b)(i) if such junior happen to be an advocate. In case of the services other than legal services, rendered to an advocate for which the fees are paid, would not be exempt and therefore such supplies of services would be taxable with the result such service providers will have to get themselves registered as taxable persons.
14 Considering the scope of both the sections 22 and 24, there is no provision making it obligatory for an advocate to obtain registration under GST, I am of the firm opinion that an advocate covered by the reverse charge system is not required to get himself registered for his rendering legal services.
Format of invoice
15. The other question incidental to above controversy is the format of the invoice to be prepared by an advocate to his client. In that regard a short question arises is whether an advocate has necessarily to quantify the tax that is required to be paid by the service recipient. In that regard the provisions of rule 4A of the Service Tax Rules, 1994 is referred. In my view, the impression so gathered is unfounded in absence of any similar rule in regard to the Invoice Rules already available under GST.
16. Section 31(2) provide for issue of tax invoice by a registered person supplying taxable services within the prescribed period. An advocate covered by Reverse charge for rendering legal service would not be a registered person and therefore that provision is not applicable to him. On the contrary u/s. 31(3)(f), a person who is required to pay tax under the reverse charge system, for receiving the supply of services is required to issue on invoice to himself on the date when he receives the services. He has also to issue a payment voucher at the time of making payment to the advocate concerned for supply of his legal services. The revised invoice rules do not contain any provision parallel to 4A of the Service Tax Rules, 1994 therefore the advocate can continue to issue usual memo of fees for the legal services as per the manner presently followed which does not require any change or modification.
New scheme of classifications
17. While concluding I may refer to the proposed new scheme of classification of services under the headings of Service Code Tariff. Under the Heading 9982 the group of legal and accounting services are enumerated. 99821 refers to legal services as under :
998211: Legal advisory and representation services concerning criminal law.
998212: Legal advisory and representation services concerning other fields of law.
998213: Legal documentation and certification services concerning patents, copyrights and other intellectual property rights.
998214: Legal documentation and certification services concerning other documents.
998215: Arbitration and conciliation services
998216: Other legal services not elsewhere covered (n.e.c.).
8. While on the subject I may also refer to the presently pending issue before the Supreme Court in my own case being SLP Number 10855 of 2015 arising out of the judgment of the Bombay High Court dated 15th December, 2014 holding the advocates liable to pay tax under the service tax under the Finance Act, 1994 during the period prior to the issuance of Notification No. 30 of 2012 dated 20th June, 2012 but after insertion of 65(105) (zzzzm) by Finance Act, 2011. The Bombay Bar Association have also filed a separate petition which also is tagged up with my petition. The operation and implementation of the Bombay High Court Judgment have been stayed.
18. Summing up the discussion I may recommend to all my professional advocates brothers and sisters to keep all their clients well informed about their reverse charge obligation to pay GST for the legal services that may be rendered in future instead of taking advantage of the exemption notification.
I hope I have been able to clear all the doubts in the minds of fellow advocates who may not be conversant with the GST provisions.
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