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Bar & Bench / June 21, 2017 / Columns, Litigation Columns

Impending GST regime: Impact on Senior Advocates

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This article deals with the tax treatment proposed to be accorded to Senior Advocates under the Goods and

Services Tax (GST) regime. It also seeks to provide an overview of the manner in which service tax was
levied on Senior Advocates under the previous tax regime and its comparison with the impending GST
regime, along with the impact on recipient/client companies.

Genesis of service tax on legal services

In Roscoe Pounds words, the ideas involved behind a respectable profession are Organisation, learning,
and a spirit of public service, the remaining idea, that of gaining a livelihood, is incidental. The legal
profession was traditionally perceived to be imbued with such nobility so as to occupy a pedestal above a
mere profession or economic activity and the indirect tax laws applicable on provision of services used to
reflect the aforesaid perception, at least in India.

However, in the present day and age where the lawmakers have extended the tentacles of tax to all
spheres of economic activity the Finance Act, 2009 imposed service tax on legal services, whereby the
new taxable category of legal consultancy services was introduced.

At this stage, appearances before Courts, Tribunals and any other adjudicating authority were kept
outside the taxable category. However, soon afterwards, vide the Finance Act, 2011, services by way of
representation before the judicial authorities were also brought within the tax net.

The said amendment was challenged on the basis that it goes against the very Preamble of the
Constitution which seeks to ensure justice to all citizens. In addition it creates financial burden on
individuals approaching the Courts seeking legal remedies. The levy was also challenged on the grounds
that there existed no profit element in the transaction between the lawyer and the litigant so as to classify
the former as a service provider and the latter as a service recipient. High Courts across the country
adopted varying views, and the matter lies pending before the Supreme Court today.

Meanwhile, the service tax law underwent a significant change from 2012 onwards by moving to a
negative list based regime, whereby except for a handful of services, the rest were brought within the tax
net.

Treatment of Advocacy Services under the Negative List regime

Along with the introduction of the Negative List Regime in 2012, the Central Government provided for a
specific exemption for legal services provided by an individual advocate or a partnership firm of
advocates to a certain class of people. In cases where there was no exemption, the liability of paying
service tax was imposed on a reverse charge basis i.e. liability was upon the service recipient/client.

Introduction of a separate taxable category for Senior Advocates under the Service Tax regime

It was only in 2016, that for the first time, a separate taxable category for senior advocates was
introduced, treating them as a class distinct from other legal service providers like individual lawyers or a
firm of lawyers. The upshot of this change was that unlike individual advocates or law firms, the liability
to pay service tax was imposed upon Senior Advocates on a forward charge basis i.e. the liability to pay
the tax lay upon the Senior Advocate and not on the service recipient i.e. the client.

Predictably, the above changes sparked another round of debate within the legal fraternity with
arguments being advanced over the arbitrary manner in which the liability of Senior Advocates was
affixed on a forward charge basis, while law firms continued to be governed under the reverse charge tax

regime.

It was also argued that the placing of law firms under the reverse charge mechanism was adding to their
cost structure as they could not claim CENVAT credit on the input service tax paid, which was not the case
with Senior Advocates. The lack of an intelligible differentia betweenthe two categories of advocates was
the primary reason behind the stay granted by the Honble High Courts of Gujarat and Delhi on the
operation of changes introduced vis--vis the taxability of Senior Advocates.

Probably realizing the extent of the opposition, the Central Government made further changes via a flurry
of notifications. These changes include making reverse charge applicable to a Senior Advocate who is
rendering service to a business entity with a turnover of more than Rs. 10 lakh, while services for all
other classes of persons stood excluded from the taxable net.

Given the foregoing, in general, Senior Advocates did not obtain registration under service tax laws.

With this background, let us now understand the treatment accorded under the GST regime to services
rendered by Senior Advocates.

Tax treatment of Senior Advocates under the GST regime

The Central Goods and Service Tax Act, 2017 (hereinafter the CGST Act) (along with other GST
legislations) has been enacted to subsume all the multifarious indirect taxes into a single levy. Section 7 of
the CGST Act provides for the charging section whereby the expression supply has been deemed to
include all forms of supply of goods or services or both for a consideration and in furtherance of a
business.

In general, the essential ingredients to determine whether a supply of service is taking place is to
determine whether services have been rendered in lieu of a consideration and the same has been
performed in furtherance of business activities.

Under the powers vested under Article 279A of the Indian Constitution, the GST Council finalized its
recommendations on the GST rates for services including the exemptions to be carried forward from the
previous regime.

In this regard, it would be worth noting that exemption from payment of GST has been extended to
Senior Advocates rendering legal services to any person other than a business entity and in the case
of business entities, the exemption extends to business entities with a turnover of up to INR 20
lakhs (in the case of general category States) and INR 10 lakhs (in the case of special category States
like the north-eastern States).

This would imply that the following services provided by a Senior Advocate do not fall under the exempt
category:

1. Services rendered to a business entity having a turnover of more than 20 lakh (more than 10 lakh in
case of special category states)

2. Services rendered to a firm of advocates.

Further, the GST Council has maintained status quo for individual advocates/firm of advocates,
recommending 100% reverse charge mechanism in case of legal services rendered (subject to exemptions)
i.e. the entire tax burden would be borne by the service recipient/ client.

Even without a special mention of Senior Advocates as a separate category in the reverse charge list, in
light of the latest position under service tax it can be inferred that under the list of reverse charge
category of services as approved by the GST Council, services provided by an individual advocate
includes the services of a Senior Advocate which would mean that even the services provided by
Senior Advocates would be chargeable under the reverse charge category.

The above inference is supported by an important announcement in the 16th meeting of the GST Council
the exemption from registration for individual advocates specifically including Senior Advocates.

Pursuant to this, a formal notification [Notification No. 5/2017 Central Tax; dated 19th June, 2017] has
been issued, providing exemption from registration for persons who are only engaged in making
supplies of taxable goods or services or both, the total tax on which is liable to be paid on reverse
charge basis by the recipient of such goods or services or both.

Given that all legal services (whether by a law firm or individual lawyers including Senior Advocates) will
be liable to reverse charge GST, and (presumably) and all law firms/individual lawyers are only providing
legal services (and thus have no other output GST liability of their own) they would all be exempt from
registration under GST. Thus, Senior Advocates will neither be liable to register under GST nor be
liable to pay GST in any other manner on the legal services rendered by him.

Concluding Comments

Senior advocates will neither be liable to register under GST nor be liable to pay GST in any other
manner on the legal services rendered by him.

For companies who are engaging services of Senior Advocates (through individual lawyers/Firms as
briefing counsels), such procurement of legal services will qualify as procurement from unregistered
vendors and thus such recipient companies will need to raise a self-invoice for the amount being
charged by such Senior Advocates, upload the same in the GST network (GSTN) and pay GST on
reverse charge.

Such recipient companies would need to bear 18% GST (as opposed to the current 15% service tax) on
a reverse charge basis post July 1.

For such recipient companies, it may be a good idea to clear pending invoices from May/June 2017 of
such Senior Advocates before July 1 so that the reverse charge tax liability on that remains at 15%
payment of such invoices post July 1 may attract 18% GST, an additional 3% tax.

Authored by Pragya Awasthi (Senior Associate, Advaita Legal) and Raghunath Seshadri (Senior Associate,
Advaita Legal), with inputs from Sudipta Bhattacharjee (Partner, Advaita Legal)
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Posted in Columns, Litigation Columns and tagged GST, GST Council, Senior Advocates. Bookmark the
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1 Comment Add yours

Rushik on June 22, 2017 at 12:42 pm Reply

1
Service provide by senior advocate to firm of advocate is taxable in reverse charge
mechanism if turnover is above threshold limit
There for whether firm of advocate is required to register under GST ?
Since advocate are exempt from registration

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Rushik on Impending GST regime: Impact on Senior Advocates

Service provide by senior advocate to firm of advocate is taxable in reverse charge mechanism if turnover is above
threshold


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