Liability Of Advocates To Register For, And

Pay, GST Entire Law Explained

Advocate P.C. Joshi, the well known expert on GST, has explained the entire law
relating to whether Advocates are liable for registration, and to pay tax, under the
Goods and Service Tax Act (GST). He has also explained whether the payers of fees to
Advocates are liable for reverse charge. He has also clarified doubts as to whether
Advocates have to issue their Memo of fees in any particular format

Though no official notification is so far issued, as per the press report, the Goods and Service
Tax Act (GST) will be enforced on and with effect from 1st July, 2017. Even if that date is
postponed to some other date in future still the moot question about the status of Advocates
rendering legal services would arise for our advocate members. It is from that point of view, I
would examine hereinthe relevant legal provisions under the said enactment, and offer may
view thereon.

2. Before I consider the actual status of Advocates it would be beneficial to know certain
basic provisions which will have its impact on the question on hand.

Definitions

3. Term business have been defined u/s.2(17) of the CGST Act to include any profession,
vocation etc., and therefore advocates carrying on the legal profession would be covered.

4. The fees charged to a client for the legal services rendered by an advocate, would be
covered by the inclusive definition of the term consideration u/s. 2(31). Similarly u/s.2(93)
the client receiving the benefit of such professional services would be a recipient of supply of
services. On the same analogy the advocates supplying the professional legal services would
be supplier of his services as defined u/s.2(105) read with section 7(1)(a) while the taxable
person is one who is registered or is liable to be registered u/s.22 or 24.

Charging section:

5. The heart of the levy would naturally be the charging section 9 which provide for the levy
and collection of tax. Section 9(1) provide for the normal levy of tax of GST on all intra-State
supplies of goods or services for both on the value that may be arrived at under section 15 of
the Act. The payment in question is to be collected and paid by the taxable person as defined
section 2 (107) service provider i.e. the person who is registered or liable to be registered
u/s.22 or section 24. The topic of registration under those section will be dealt with separately
later on. Section 9(3) provide for the collection of tax on the notified supplies of services on
reverse charge basis,from the recipient of such services and all the provisions of the Act
would apply to such recipient as if he is the person liable for payment of tax in relation to the
supply of such services.

Reverse Charge Payments:

6. As per the discussion in the GST Council Meeting held on 18th and 19th May, 2017 apart
from the rates of GST for supply of goods, it also approved certain services for the purpose of
reverse charge provisions as well as those which will be notified to be exempted services in
exercise of its power u/s.11(1) read with section 9(3).

7. Under the definition u/s.2(98) of the term reverse charge it would be the liability of the
recipient to pay tax on the supply of such notified services. The list of such services under
reverse charge have been published for general information which will be given effect to,
through gazette notification after the law is enforced. Entry 3 therein reads as under:

Sl.No Service Provider of Percentage of Recipient Percentage of

Service service tax of Service service tax
payable by payable by any
service other
provider person other than
service provider
3. Services provided An NIL Any 100%
or agreed to be individual business
provided by an advocate or entity
individual advocate firm of
or firm of advocates
advocates by way
of legal services,
directly or
indirectly

Exemption

8. On the same day the GST council also decided certain services to be notified as exempted
services. The list include services by Govt., or local authority but restricted to the specified
services, services by Reserve Bank and other similar bodies. Entry 15 provides for exemption
to services provided by an arbitral tribunal to any person other than a business entity or such
entity having turnover upto 20 Lakhs. It also specify services provided by a partnership firm
of Advocates or an individual as an Advocate, other than a senior Advocate, by way of legal
service to an advocate or their firm. The legal service so exempted by an Advocate would
also include the same rendered to any person other than a business entity or such an entity
with a turnover of less than 20 lakhs in the preceding financial year. As far as senior
Advocates are concerned their legal services would be exempted if rendered to any person
other than a business entity or such entity having less than 20 Lakhs turnover in the preceding
Financial Year.

Legal Services

9. Considering the impact of both the above decisions by GST Council it is by now very clear
that an individual advocate rendering legal service to any business entity is not liable to pay
any tax as service provider and 100% thereof is payable by the recipient of the service i.e. the
client or a business entity. It may kindly be noted here that the reverse charge liability refers
to all types of advocates without any exception as is the case for exempted services. Again
the exempted services is restricted only when the professional legal services were rendered to
another advocate or their partnership firm also providing such services or to a person other
than a business entity as also the entity having turnover of less than 20 Lakhs. Similar
limitation is also provided when the legal services is provided by senior advocates however in
their case, the legal service to another advocate is not exempted therefore in such cases the
list of reverse charge system will be applicable under which as mentioned hereinabove, there
is no classification of senior advocate and other advocate, under which the service tax
payable by the service provider (an advocate or his firm) would be nil and 100% service tax
would be payable by the recipient of the services in question.

Registration

10. Having considered the liability of an advocate, another question would be in regard to the
necessity for registration under the GST Act.

11. For considering the aforesaid question the provisions of chapter VI especially section 22
and 24 will be applicable. Section 22 is applicable to those suppliers, who had a turnover of
more than 20 lakhs in one financial year and for those persons who were already registered
under the existing law i.e. Service Tax or State VAT Act. It also apply to a transferee who
take overthe business of the transferor (slump sale transactions). The latest decision taken by
GST Council on 11th June, 2017 is to the effect that advocates have been granted exemption
from registration under section 23(2) of the CGST Act 2017 which inter-alia include
Individual advocates (including senior advocates). Thus my view gets statutory support by
the above referred notification.

12. Section 24 refer to certain persons who were statutorily required to be registered. Such
persons include inter-alia a person who was required to pay tax under reverse charge. In other
words if an advocate renders legal service to a person not otherwise liable for registration
such person will have to get himself registered because of his legal liability to pay tax as a
service receiver from an advocate under reverse charge system. Section 24 also provide for
other categories of persons who are required to be registered under the Act. Accordingly a
person making supplies within the State is required to be registered even if he happens to be a
casual taxable person or a non-resident taxable person making taxable supply within the
State. Such persons other than casual and non-resident persons have to apply for registration
within a period of 30 days from the date on which he may become liable, while the non-
resident or a casual supplier have to obtain the registration, in advance at least before five
days prior to commencement of the supply activity in the State.

13. Applying the above provisions to an advocate rendering legal service though not liable
for registration, the person to whom he may make payment for rendering services to him,
may be a company rendering consultancy service or to an auditor for the purpose of filing the
return under Income Tax Law or for auditing the books of the Advocate liable u/s.44AB of
that Act will not be so covered by the reverse charge liability of the recepient of supplies. In
such cases the payment to junior for his rendering service to the Advocate would be covered
by the notification of exemption under entry 15 (b) (i) if such junior happen to be an
advocate. In case of the services other than legal services, rendered to an advocate for which
the fees are paid, would not be exempt and therefore such supplies of services would be
taxable with the result such service providers will have to get themselves registered as taxable
persons.

14 Considering the scope of both the sections 22 and 24, there is no provision making it
obligatory for an advocate to obtain registration under GST, I am of the firm opinion that an
advocate covered by the reverse charge system is not required to get himself registered for his
rendering legal services.

Format of Invoice:

15. The other question incidental to above controversy is the format of the invoice to be
prepared by an advocate to his client. In that regard a short question arises is whether an
advocate has necessarily to quantify the tax that is required to be paid by the service
recipient. In that regard the provisions of rule 4A of the Service Tax Rules, 1994 is referred.
In my view, the impression so gathered is unfounded in absence of any similar rule in regard
to the Invoice Rules already available under GST.

16. Section 31(2) provide for issue of tax invoice by a registered person supplying taxable
services within the prescribed period. An advocate covered by Reverse charge for rendering
legal service would not be a registered person and therefore that provision is not applicable to
him. On the contrary u/s.31(3)(f), a person who is required to pay tax under the reverse
charge system, for receiving the supply of services is required to issue on invoice to himself
on the date when he receive the services. He has also to issue a payment voucher at the time
of making payment to the advocate concerned for supply of his legal services. The revised
invoice rules do not contain any provision parallel to 4A of the Service Tax Rules 1994
therefore the advocate can continue to issue usual memo of fees for the legal services as per
the manner presently followed which does not require any change or modification.

New Scheme of Classifications

17. While concluding I may refer to the proposed new Scheme of classification of services
under the headings of service code tariff. Under the heading 9982 the group of legal and
accounting services are enumerated. 99821 refers to legal services as under :

998211: Legal advisory and representation services concerning criminal law.

998212: Legal advisory and representation services concerning other fields of law.
998213: Legal documentation and certification services concerning patents, copyrights and
other intellectual property rights.
998214: Legal documentation and certification services concerning other documents.
998215: Arbitration and conciliation services
998216: Other legal services not elsewhere covered (n.e.c.).

Matter Sub-Judice

18. While on the subject I may also refer to the presently pending issue before the Supreme
Court in my own case being SLP Number 10855 of 2015 arising out of the judgment of the
Bombay High Court dated 15th December, 2014 holding the advocates liable to pay tax
under the service tax under the Finance Act 1994 during the period prior to the issuance of
Notification No.30 of 2012 dated 20th June, 2012 but after insertion of 65(105) (zzzzm) by
Finance Act, 2011. The Bombay Bar Association have also filed a separate petition which
also is tagged up with my petition.The operation and implementation of the Bombay High
Court Judgment have been stayed.
Conclusion
19. Summing up the discussion I may recommend to all my professional advocates brothers
and sisters to keep all their clients well informed about their reverse charge obligation to pay
GST for the legal services that may be rendered in future instead of taking advantage of the
exemption notification.

I hope I have been able to clear all the doubts in the minds of fellow advocates who may not
be conversant with the GST provisions.