RCM on Legal Services /
GST on Legal Services / GST on Advocate Services , Senior Advocates and Firms
of Advocates
By Yogesh Verma (CS/LLB) / 2 min read / GST Article
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.
Conclusion
The application of GST on legal services provided by
individual advocates, senior advocates, and firms of advocates follows the
reverse charge mechanism. This means that the recipient of legal services,
typically a business entity, is liable to pay GST instead of the advocate. This
provision simplifies compliance for legal professionals while ensuring tax collection.
Understanding the place of supply and valuation under GST is
crucial for proper tax compliance. Advocates must ensure that their clients are
aware of their tax liabilities under the reverse charge mechanism. Overall, GST
aims to streamline taxation in the legal sector while maintaining ease of
compliance for legal professionals.
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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