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GST on Individual Advocates, Senior Advocates, Firm of Advocates
Introduction
to GST and Its Application to Legal Services
Goods
and Services Tax (GST) is a comprehensive tax levied on the supply of goods and
services in India. It aims to create a uniform tax structure across the
country, replacing multiple indirect taxes. Under GST, both goods and services
are taxed, and the terms are defined clearly to avoid confusion.
Goods
are defined as any type of movable property, excluding money and securities.
Services are defined broadly as anything other than goods. This means services
encompass a wide range of activities, including legal services provided by
advocates.
Legal
Services and GST: Legal services provided by advocates are
considered services under GST law. When an advocate provides legal services for
a fee, it is considered a "supply" under the GST framework. The
concept of "supply" is critical under GST, as it triggers the tax
liability.
However,
legal services are subject to a special provision under the GST law known as
the Reverse Charge Mechanism (RCM). This means that the recipient of the legal
service, typically a business entity, is responsible for paying the GST, rather
than the advocate providing the service.
Who
is Considered a Supplier of Legal Services?
According
to Section 2(105) of the Central Goods and Services Tax (CGST) Act, 2017, a
supplier of services is any person supplying services, which can include an
advocate or a firm of advocates. For the reverse charge mechanism to apply, the
service provider must be an individual advocate, a senior advocate, or a firm
of advocates.
This
definition is significant because it clarifies that even when legal services
are provided through an agent or another advocate, the original advocate is
still considered the supplier of services under GST law.
Definition
of an Advocate and a Senior Advocate:
Notification
No. 12/2017 – CT (Rate) clarifies the term "advocate" under the GST
framework. It refers to the definition provided in the Advocates Act, 1961.
According to this act, an advocate is any person whose name is entered on the
roll of advocates maintained by the Bar Council under the Act. This roll of
advocates is a register that lists all practicing advocates in India.
A
Senior Advocate is a specific class of advocate recognized under Section 16 of
the Advocates Act, 1961. Senior advocates are distinguished from other
advocates based on their standing at the Bar, expertise, or special knowledge
in the field of law. The designation as a senior advocate is conferred by
either the Supreme Court of India or a High Court, based on the advocate's
reputation and legal acumen.
Senior
advocates are subject to certain practice restrictions imposed by the Bar
Council of India, which are designed to maintain the integrity and prestige of
their position.
Taxability
of Legal Services under GST
Under
Notification No. 13/2017 – Central Tax (Rate), dated June 28, 2017, the Central
Government has outlined specific categories of services where the reverse
charge mechanism applies. One of these categories is legal services provided by
advocates.
Key
Points:
The
notification specifies that legal services provided by individual advocates,
including senior advocates, or firms of advocates to any business entity in the
taxable territory, are subject to GST under the reverse charge mechanism.
This
includes representational services before any court, tribunal, or authority,
and even when the contract for such services is entered into through another
advocate or a firm of advocates.
The
implication of this provision is that the business entity receiving the legal
services is responsible for paying the GST, not the advocate who provides the
service.
The
Explanation vide CORRIGENDUM (New Delhi, September 25, 2017) further clarifies
that "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.
Determining
the Place of Supply for Legal Services:
The
Place of Supply is crucial in determining the applicability of GST, especially
for services. However, GST law does not explicitly define the place of supply
for legal services, which means that the general rules apply.
For
services where both the service provider and recipient are located in the
taxable territory, Section 12(2) of the IGST Act provides the rules:
For
Registered Persons: The place of supply is the location of
the recipient of the service.
For
Unregistered Persons: The place of supply is the location of
the recipient if their address is on record. If no address is on record, the
place of supply is the location of the service provider.
This
means that for legal services provided by an advocate to a business entity, the
place of supply is typically where the business entity is located.
Valuation
of Legal Services for GST:
The
valuation of legal services under GST involves determining the
"transaction value," which is the price actually paid or payable for
the service. When an advocate provides legal services and charges a fee, this
fee is considered the transaction value.
However,
legal services often involve additional costs. For example, an advocate might
incur expenses for travel, accommodation, or other incidentals while providing
services. These expenses are usually reimbursed by the client.
Section
15(2)(C) of the CGST Act states that any incidental expenses charged by the
supplier to the recipient of a service should be included in the value of
supply.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
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