GST Affecting Business in Legal Services?

GST affecting business in legal services? Undue or unwanted.

GST affecting

Applicability of GST under Reverse Charge on Legal Services

What do we understand by Legal Service:

Generally, when we speak about the Legal Services, it stands out to be Services from a person who is/are lawyer or are rendering services related to any law in India may be in terms of appearance in front of authorities, fighting cases and charge a consideration.  

What is Legal Service in GST:

Apparently, GST Act doesn’t define the word ‘Legal Services’. However, a definition of Legal Services can be seen from the Notification 12/2017-Central Tax (Rate) dated 28^th June 2017. Wherein, it states 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.

From the above extracts, it is widely clear that the definition of Legal Services gives a wide area to cover almost of all of the activities which is provided in relation to any Law.

Food for Thought – is that means, legal services for USA law to a person in India, be counted in this definition??

What is Reverse Charge in GST:-

Before that let us understand the word Reverse Charge Mechanism (‘RCM’). As we know normally the supplier of the Services only pays applicable GST on value of supply. And when the obligation to discharge this liability shifted by government to the recipient of the services, it is known as ‘Reverse Charge Mechanism’, wherein the supplier is not under any obligation to collect any GST from the recipient and recipient is required to comply the provisions to discharging this GST liability in the same way as the supplier was supposed to do, if it had to happen.

Reverse Charge on Legal Services:-

Having said that RCM is payable by Service Recipient, it is not always that he becomes liable to pay GST, but only when the government has notified such categories where the liability to pay GST is casted on the recipient of services. One of the said category is ‘Legal Services’ which has been notified under Serial No. 2 of Notification 13/2017- Central Tax (Rate) dated 28^th June 2017.

The relevant provision can be understood as follows:    

Supply of Services by	By Way of	How
Individual Advocate (Including Senior Advocate) Or A Firm of the Advocate	By way of Legal Services (as defined above)	Directly or Indirectly
Who is Supplier – An Induvial or a Firm of Advocate
Who is Recipient – Any Business Entity located in the Taxable Territory

Whether, it mean that each and every recipient who is a Business Entity has to pay RCM on the Legal Services.

Well exactly not. First let us note that the word Business Entity has been defined in the said notification itself to means any person carrying out any business and secondly, there are certain exemptions which have been accorded by government in this regard.

What is the Exemption for Business Entity:-     

We can refer the Notification 12/2017 Central Tax (Rate) dated 28^th June 2017 wherein Serial No. 45 (b) (iii) and (c) (ii) provides the exemption form payment of GST. The conditions are more interesting to note that the Business Entity has to be with an Aggregate Turnover of 20 Lacs Rupees (10 Lacs in case of Special Category States).

Food for Thought – will that mean, every registered person (being a company not always liable to pay RCM on Legal Services)?  

Food for Thought – Will that mean, every year we need to check the Aggregate Turnover of the Business Entity to test if it is liable to pay RCM on Legal Services?

With the above discussion, we may understand that provisions that looks like very easy to implement entails second thought on our approach. It is better to think again rather to rely on what we have done so far.

Thanks for reading carefully.

CA. Tarun Dua, Ahmedabad (JCSS- IDT)