What is the Tax Liability of Advocates Under GST Act?

Recently many Advocates practising either in Supreme Court, High Court or Tribunals etc have received notices from the Goods and Services Tax Department, fixing their liability under the Central Goods and Services Tax Act 2017.

Let us try to clear some air on this issue from legal and tax point of view

Who is an advocate and Senior Advocate?

Advocate :

Advocates Act 1961 defines it in clause 2(1) (a) as

“Advocate” means an advocate entered in any roll under the provisions of this Act;

Section 2(1) (a) of Advocates Act 1961

Notification No. 12/2017 -Central Tax (Rate) Para 2(b) provides that “Advocate” has same meaning as defined under Advocates Act 1961 [Section 2(1) (a)]

Advocate enrolled means advocate whose name is listed in the register of advocates prepared by the Bar Council of respective States.

However, foreign lawyers are not treated as an Advocate in India, as they are not enrolled with the Bar Council of any State.

Senior Advocate 

Section 16 of the Advocates Act 1961 provides that the Supreme Court or the High Court considering the ability, standing at the bar, experience and knowledge, may designate an advocate as Senior Advocate.

Notification No. 12/2017 – Central Tax (Rate) Para 2 (zzd) provides that the term “Senior Advocate” has the same meaning as given under section 16 of the Advocates Act, 1961,

How are Advocates different from Lawyers?

Advocates are quite different from lawyers, as Lawyers are not registered in the Bar Council of States. Advocates can represent a client in the court of law, Plead their case, etc.

Every law graduate is a lawyer, but unlike advocates, lawyers are not required to be registered with the Bar Council of any State. Lawyers can give a legal opinion but are not allowed to represent a client in a court of law.

Let us understand the meaning of “Legal Service”.

Section 2(1)(c) of the Legal Service Act 1987 provides as follows:

“Legal Service includes the rendering of any service in the conduct of any case or other legal proceeding before any court or other Authority or tribunal and the giving of advice on any legal matter.”

Section 2(1)(c) of the Legal Service Act 1987

From the Tax point of view, Notification 12/2017 – Central Tax (Rate) dated 28th June 2017 defines legal service as follows:

“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;”

Notification 12/2017 – Central Tax (Rate) dated 28th June 2017

Section 9 of Central Goods and Services Tax Act 2017 empowers the Central Government to notify any Service or Goods or both, on which tax shall be paid on Reverse Charge Basis.

Generally, the liability to pay tax is on the supplier of goods or service, but under the Reverse Charge System, the liability to pay tax is on the recipient. Meaning thereby the liability to pay tax is on the client not Advocate.

Vide Notification No. 13/2017 dated 28th June 2017, Advocate Services are included in the Reverse Charge Mechanism.

Entry No. 2 of the aforesaid notification provides:

“Services supplied by an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly.”

Entry No. 2 of Notification No. 13/2017 dated 28th June 2017

Are GST Exemption Available to Advocates?

Notification No. 12/2017 dated 28.06.2017 at Entry No. 45 exempt following services provided by: –

(a) A senior advocate by way of legal services to any person other than a business entity or a business entity with an aggregated turnover up to Rs. 20 Lakhs in the preceding Financial Year.

(b) A firm of advocates or an individual advocate other than a senior advocate, by way of legal services to an advocate or firm of advocates, other than business entity or a business entity with an aggregated turnover up to Rs. 20 Lakhs in the preceding Financial Year.

Notification No. 12/2017 dated 28.06.2017 at Entry No. 45

In other words, it can be concluded that Legal Services provided by Advocate or Firm of Advocates to Non-Business Entity, Business Entity with a turnover of less than Rs 20 Lakhs and to Firm of Advocates or to Advocates is exempted.

Whether Senior Advocates are Liable to pay GST?

For Senior Advocates as per the Notification No. 13/2017- Central Tax (Rate) dated 28.06.2017 services supplied by an individual advocate including a senior advocate by way of representational services before any tribunal, court or Authority, directly or indirectly, to any business entity located in the taxable territory shall be charged on Reverse Charge Basis.

Therefore, if the senior advocate provides services to advocate or advocate firm, services are not exempt and shall be liable under Forward Charge Mechanism (FCM)

Are Advocates Required to get GST Registration?

As per Notification No. 5/2017 – Central Tax, the Advocates are exempted from GST registration if supplies are covered under Reverse Charge Mechanism. But, where the advocate or advocate firm has any other taxable income and aggregate turnover exceeds Rs. 20 lakhs then it is mandatory to take GST registration

Can Advocates avail the Input Tax Credit?

Advocates cannot avail Input Tax credit as the output supplies are taxable at recipient end under RCM.

What is the Rate of Tax?

As per the Government Notification the tax Rate on Advocate Services is 18%.

Service ProviderNature of ServiceService ReceiverTax Liability
Senior AdvocateRepresentational Services
(GST under RCM to be
paid by Business Entity)
Senior AdvocateYes, RCM
Individual AdvocateYes, RCM
Firm of AdvocatesYes, RCM
Non – Business EntityNo
Small Business Entity (Turnover >/=20 Lakhs)No
Business Entity turnover > Rs. 20 LakhsYes, RCM
Senior AdvocateOther than
Representational
Services
Senior Advocate
FCM
Individual AdvocateFCM
Firm of AdvocatesFCM
Non – Business EntityNo
Small Business Entity (Turnover >/=20 Lakhs)No
Business Entity turnover > Rs. 20 LakhsYes, RCM
Firm of advocates
or an individual
advocate
Legal ServicesSenior AdvocateExempt
Individual AdvocateExempt
Firm of AdvocatesExempt
Non – Business EntityExempt
Small Business Entity
(Turnover >/=20 Lakhs)
Yes, RCM
Business Entity turnover >
Rs. 20 Lakhs
Exempt

JK Mittal Case

In the case of J.K. Mittal and Co vs Union of India (W.P. (C) 5709/2017) before the Delhi High Court, the Government of India clarified that legal services are taxable under Reverse Charge Mechanism.  But concerning Senior Advocates, there is a need for proper clarification from the Government.

The Government of India moved to the Supreme Court seeking transfer of cases pending before the Delhi Court, with respect to tax liability of Advocates and Senior Advocates under GST. The Supreme Court by means of its Order dated 28.03.2018 passed in Transfer (Civil) Petition No.2460-2462 of 2017, transferred all the cases including J.K. Mittal Case before itself. The case is still pending before the Supreme Court.

Recent Development

Recently the Orissa High Court has issued directions to the Commissioner GST to clearly instruct all the officers in the GST Commission to not to issue any notice for liability under GST Act to practising lawyers.

Similarly the Bombay High Court has also tayed a demand notice issued by Assistant Commissioner of Central Goods and Service Tax (GST) seeking to levy a tax (service) on a lawyer for providing legal services.

Conclusion:

From the above discussion, it can be safely concluded that Advocates are not liable to pay tax under the Central Goods and Services Tax Act, 2017. However, where the services have been provided to a business entity having a turnover of more than Rs. 20 lakh, then tax shall be payable under the Reverse Charge Mechanism.

With respect to Senior Advocates, the same exemption is available, but if the senior advocate provides services to advocate or advocate firm, services are not exempted. It is also necessary to mention here that much clarification is needed from the Government to clarify the situation with respect to Senior Advocates.

Government should come up with a clear stand with respect to liability of senior advocates under GST. Ambiguity is leading to harassment and exploitation of lawyers in the hand of authorities, who can mould the law as per their wish.

Another question can be whether application of GST on legal service to the extent it is applicable, is justified or not.

Lawyers are not allowed to make advertisement of their services, and legal profession is considered to noble.

By

Rajat Rajan Singh
Advocate
(Allahabad High Court at Lucknow)
Editor in Chief (Law Trend)

Law Trendhttps://lawtrend.in/
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