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Scope of GST on Advocates
There is a common perception in the market that providers of the legal services (advocates being individual or firm of advocates) are outside the ambit of GST. However, this perception is totally incorrect after analyzing the various provisions in a comprehensive manner. Under the new tax regime “Goods and Service Tax”, services provided by an advocate (being individual or firm of advocates) are taxable.
As per the Notification No. 12/2017 (Central Tax- Rate) dated 28th June 2017, the following are the services which are exempted:
(1) Services provided by an individual advocate (other than a senior advocate) or by the firm of advocates, by way of legal services to-
- an individual advocate or firm of advocates who are providing legal services;
- any person other than a BE (business entity); or
- a business entity ( where the turnover of the entity is up to 20 lakh rupees in the preceding financial year)
AND
(2) Legal services provided by a senior advocate too-
- any person other than a BE (business entity); or
- a BE (business entity) where the turnover of the entity is up to 20 lakh rupees in the preceding financial year.
Chargeability of GST in following cases:-
- When an advocate being an individual (also including a Senior Advocate) or a firm of advocates provides any legal services to a BE (business entity) having a turnover of Rs. 20 Lakhs or more in the previous financial year; and
- When a Senior Advocate gives legal services to another advocate (being an individual) or firm of advocates.
Therefore it is clarified that legal services, also includes representational services provided by advocates (whether individual or firm) and are covered under the reverse charge of GST. Under the reverse charge mechanism the liability to pay tax shift from the supplier of the service to the recipient of goods/services.
Clarification on 15th July 2017 from Ministry of Finance
There are few points raised regarding the GST applicability of on services provided by lawyers— whether it will be exempt, or is in forwarding charge or in reverse charge. The finance minister clarified and explained that legal service means any service provided in relation to consultancy, advice, or legal assistance in any manner, in any branch of law and also compromise representational services before any tribunal, authority or court.
Referring to a notification issued under Central Tax Rate that provides that services provide or supplied by an advocate being an individual or by a senior advocate by way of representing the client before any tribunal, court or authority, directly or indirectly, to a business entity (located in the taxable territory), and includes any agreement or any contract for the provision of such legal service has been entered via another individual advocate or advocates (being a firm of advocates), or by a firm of advocates, to a business entity.
On the matter the Central Board of Excise and Customs (CBEC) has issued a statement stating, There is no change in terms of taxation on the supply of legal services in post GST era. It also clarified that legal services also includes representational services provided by advocates (whether individual or firm) and are covered under the reverse charge of GST. Under the reverse charge mechanism the liability to pay tax shift from the supplier of the service to the recipient of goods/services.
Furthermore, it is also clarified that notification No. 13/2017-Central Tax (Rate) dated 28.6.2017 states, inter alia, the following services are covered under reverse charge mechanism,-
Services supplied by an advocate (being an individual advocate or a senior advocate) by way of representing its clients before any tribunal, court or authority, directly or indirectly, to a business entity (located in the taxable territory), and includes any agreement or any contract for the provision of such legal service has been entered via another individual advocate or advocates (being a firm of advocates), or by a firm of advocates, by the way of legal service, to a business entity.
The words mentioned in the above para "by way of legal services" are preceded and succeeded by a comma. Therefore, the above-mentioned words apply to an advocate (being an individual advocate including a senior advocate) or a firm of advocates. Any legal services given by either of them are liable to GST, however, the tax has to be paid by the business entity under reverse charge mechanism of GST.
