Whether the advocates are totally outside GST?

There is a common notion that the Advocates are totally out of GST. However, if you analyze the provisions carefully, it can be seen that the statement is not fully true. Some of the services provided by an advocate are taxable under GST.

What is exempted in the case of Advocates?

As per Notification No. 12/2017 (Central Tax- Rate) dated 28th June, 2017, the following services of advocates are exempted:

a. Services by s firm of advocates / an individual advocate other than a senior advocate, by way of legal services to-

1. an advocate or partnership firm of advocates providing legal services;
2. any person other than a business entity; or
3. a business entity with an aggregate turnover up to twenty lakh rupees in the preceding financial year  AND

b. A senior advocate by way of legal services to-

1. any person other than a business entity; or
2. a business entity with an aggregate turnover up to twenty lakh rupees in the preceding financial year.

Hence in the following two situations, a service by an advocate is taxable under GST:

1. When an individual advocate (including Senior Advocate) or a firm of advocates gives any legal services to a business entity with an aggregate turnover of Rs. 20 Lakhs or more in the previous financial year; and

2. When a Senior Advocate provides any legal services to another advocate or firm of advocates.

Reverse Charge Mechanism

However, there is a Reverse Charge Mechanism provided in Notification No. 13/2017 (Central Tax – Rate) dated 28th June 2017, by which the liability to pay GST is fixed on the recipient of services in the case of following situations:

1. Services supplied by an individual advocate including a senior advocate by way of representational services before any court, tribunal or authority, directly or indirectly, to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, or

2. Services supplied by a firm of advocates by way of legal services, to a business entity located in a taxable territory.

Hence it follows that when an individual Advocate/Senior Advocate providing services other than representational services to a business entity with turnover of Rs. 20 Lakhs or above in the previous financial year, they will have to collect and pay GST.

But, if the business entity is not situated in the taxable territory (means a foreign client other than an individual), all legal practitioners including an individual advocate, a senior advocate or a firm of advocates will be liable to collect and pay GST.

Strangely, a firm of advocates is outside the purview of GST, as whole of their legal services are under Reverse Charge, provided they are not providing any services to a business entity outside taxable territory.

If an advocate or firm of advocates wants to treat the services provided to a foreign business entity as an export of service, thereby avoiding collection and payment of GST, he has to follow the procedures specified in Rule 96A of Central Goods and Services Tax Rules, 2017 including execution of Letter of undertaking or Bond.

Services like retainer, legal opinion, trademark services, documentation, drafting, etc will be covered under GST, in the case of individual advocates and Senior Advocates.

Erstwhile provision in Service Tax

In the erstwhile Service Tax Law, as per Notification No. 30/2012-Service Tax dated 20th June, 2012, the whole of legal services were under Reverse Charge for all advocates. But in GST law, representational services only are brought in Reverse Charge, in the case of Individual advocate and Senior Advocate.

And in the case of export of services, no Letter of Undertaking or Bond was required, provided the recipient of services was located out of India and the payment was received in convertible foreign exchange.

Registration Requirement

Section 22 of the Central GST Act, 2017, says that:

22 (1) Every supplier shall be liable to be registered under this Act in the State or Union territory, other than special category States, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees:

Provided that where such person makes taxable supplies of goods or services or both from any of the special category States, he shall be liable to be registered if his aggregate turnover in a financial year exceeds ten lakh rupees.

So if the aggregate turnover of an advocate is more than Rs. 20 Lakhs/Rs. 10 Lakhs, he will have to take registration under GST Law.

The Aggregate Turnover is defined in Section 2(6) of the Central GST Act, 2017 which reads as follows:

(6) “aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess;

As such, if the gross receipts of an Advocate from all legal services are more than Rs. 20 Lakhs, he is required to get himself registered under GST.

However, there are two relaxations given in respect of the registration requirement:

1. Section 23(1)(a) provides that a person engaged exclusively in the business of supplying goods or services or both that are not liable to tax or wholly exempt from tax under this Act or under the Integrated Goods and Services Tax Act, is not required to take registration.

2. Notification 5/2017 (Central Tax) dated 19th June 2017 specified that person who are only engaged in making supplies of goods or services or both, the total tax on which is liable to be paid by reverse charge by the recipient of such goods or services or both under Section 9(3) of the GST Act, 2017, as category of persons exempted from obtaining registration.

Since the threshold limit of registration being Rs. 20 Lakhs cover both taxable as well as exempted turnover, many of the advocates will be liable to take registration. If an advocate is having only exempted turnover or whole of his turnover is under Reverse Charge, then only there is an exemption from registration.

Hence it follows that an individual advocate or a senior advocate who provides even a single services other than representation services will fall under the mischief the above provisions and will be liable to take registration.

Once he is registered, then he will have to collect and pay GST at the rate of 18% in respect of his services other than representation services.

And a firm of advocates, who provides any service to a foreign client, will also have to take registration.

Once registered, the all other provisions of the GST law including reverse charge on inward supplies from unregistered persons under Sec. 9(4) of the Central GST Act, 2017 will also be applicable to them.

Conclusion

In conclusion, the following scenarios emerge:

1. An individual advocate or senior advocate should collect and pay GST in the case of services other than representational services to any domestic business entity having turnover more than Rs. 20 lakhs in the preceding financial year

2. An individual advocate or senior advocate of firm of advocates should collect and pay GST in the case of any legal services to a foreign business entity

3. Any individual advocate or senior advocate or firm of advocates who has got taxable turnover as above, should get themselves registered under GST, if aggregate of their taxable, non-taxable and reverse charge turnover exceeds Rs. 20 lakhs in a year (Rs. 10 lakhs in special category states)

These subtle provisions in the GST law will make many of the advocates and firm of advocates under the GST net.