INTRODUCTION TO GST LAW
- The Service Tax was introduced in India in the year 1994. Service Tax is covered under Indirect Taxation and got levied under the Goods and Services Tax (GST). GST changed the whole tax system in India on 1st July 2017.
- The GST provisions affect the Legal Services Authority of India, which is rendered by; An Advocate, Firm of Advocate, and Senior Advocate.
- The legal services were previously taxed under forwarding Charge Mechanism (FCM), but due to many writ petitions and case laws against this act, legal services were converted and taxed under Reverse Charge Mechanism (RCM).
SIGNIFICANCE OF LEGAL REPRESENTATIVES UNDER THE GST LAW
As per Section 12of the Legal Services Authority Act, 1987, Legal Service is described as a medium that provides services related to information and guidance, consultancy or aid in any branch of law. Legal service providers also significantly deliver and offer representational services before the tribunal court of authority.
- As per Section 2(1) (a) of The Advocate Act, 1961- ” Advocate” is defined as a person who has accepted and entered any role under the given provision. An individual who has enrolled as an advocate under the Bar Council of India is designated as an Advocate of the Court and has the authority to represent his/her clients before any tribunal court of authority in India.
- Foreign lawyers do not get the facility as an advocate to represent and handle the cases of their clients in India, as they are not registered advocates of any Bar Council of India.
- Advocates are lawyers who have graduated from a law university and who are registered in any Bar Council of India. They are legally authorized to give legal advice to their clients and to argue for their clients in the presence of the bar. They can also represent and plead for their clients.
- Lawyers who have graduated from a law university and not registered themselves under any Bar council of India would simply be considered and known as lawyers and not advocates.
- Lawyers have the authority to give legal advice but cannot represent their client in the Court as they have not enrolled their names in the roll of advocates which is recorded and maintained under the Advocates, Act 1961.
- Both lawyers and advocates are treated differently under the GST law.
In Section 16 of the Advocate Act 1961, the definition of Senior Advocate is provided. The Supreme Court and High Court of India have the authority to designate and consider an advocate as the Senior Advocate of the Court. The years of practice, knowledge, and wisdom of Senior Advocates are valued and it is the reason behind their distinction from other advocates.
- Section 36 of The Arbitration Act, 1940 defines an Arbitrator. The legal services provided by an arbitrator is the gateway for conciliation between parties who face disagreement related to business or individual contract or any other issue which leads to a dispute between them.
- When these clients do not want the interference of the court, then they hire an arbitrator who has the power to resolve the dispute outside the court. There can be more than one arbitrator to settle a dispute and especially they should be able to make a decision that is appropriate and not impartial to any one party to the case.
- Clients often opt for an arbitration procedure over court proceedings, mainly because a lot of time can be saved as court hearings can go on for months or even years, and another reason being, arbitrators are appointed only after a mutual understanding between the clients which is also helpful to settle the case sooner than later.
TAXABILITY AND EXEMPTIONS UNDER GST LAW
- In accordance with Section 23 of the Central Goods and Services Tax Act( CGST), the people that are completely involved in the business of providing goods or services or both, are not legally responsible for payment of tax, or they can be entirely be exempted from Tax under the CGST Act or under the Integrated Goods and Services Tax (IGST). These people are not liable to be registered.
- When Legal services are provided by Advocates and firms of advocates to Individual Advocates, non-business entities, and the government, then taxability under Reverse Charge Mechanism (RCM) is exempted. If their turnover is more than the threshold limit, that is Rs. 20 Lakh, the requirement of registration arises under GST and they will be taxable under Reverse Charge Mechanism(RCM).
- If legal services are being provided by Advocates and a firm of advocates to a business entity and the threshold limit of the business entity is less than the turnover, then they are taxable under RCM, and registration under GST becomes mandatory. In the case of Goods, it is Rs. 40 lakh and for Services Rs. 20 Lakh.
- When Legal Services are provided by the Senior Advocate to the Individual Advocates, the firm of advocates, non-business entities, and government then Forward Charge Mechanism (FCM) is applied.
- If the Senior advocate is providing legal services to the non-business entity and unregistered business entity, then their taxability under GST would be exempted.
- If legal services are provided by a senior advocate to the business entity whose threshold limit is less than the turnover i.e., Rs. 20 Lakh, then they are taxable under RCM, and registration under GST becomes mandatory.
- Arbitration Services provided by an arbitrator are exempted from taxability to any person except a business entity whose turnover is more than Rs. 20 Lakh, in the previous financial year (in the case of special category States it is Rs. 10 Lakh).
THE LEGAL PROCEDURE FOR REGISTRATION UNDER GST
- According to Section 22 of CGST Act, 2017, it is mandatory to register if the supplier of goods and services has a turnover up to Rs. 20 Lakh.
- According to Section 23(1) of CGST Act, 2017, it is not obligatory and not required for suppliers who provide only services, to pay tax and to get registered.
- As per Notification No. 5/2017 – Central Tax dated 19th June 2017, a supplier is taxable under RCM and not required to get registered.
- As per Section 17 of CGST Act 2017; if inter-state services are being provided by a supplier, then the turnover of his services would not be counted and the obligation towards getting registered becomes essential for his services. But if the aggregate value of services which is provided inter-state is up to Rs. 20 Lakh in the previous financial year (in the case of special category States it is Rs. 10 Lakh).
- Legal business organizations are not entitled to receive exemptions under the GST law, for the legal services provided by them.
- As well as, lawyers who have not enrolled as Advocates under any Bar Council of India, would not receive exemptions, for the legal services provided by them to their clients.
- The legal services provided by Chartered Accountants or Company Secretary will not be considered to receive exemption provisions under the GST law.
- Only Advocates, Firm of Advocates, Senior Advocates and Limited Liability Partnership (LLP) is eligible to receive the exemptions under the GST law for the legal services provided by them. If the aforementioned legal service authorities provide any service other than the legal services, then those services will be treated as taxable under the GST law.
- The Central Goods and Services Act (CGST) has certain statutory provisions for export services, which have to be followed by advocates if they are providing legal services outside of India. If there are any inward services provided by them, then they will receive Integrated Goods & Service Tax credit. Disagreement or argument shall be avoided in the future.
- Advocates, the firm of Advocates and Senior advocates shall discuss with their clients about the tax system and the procedure to be followed. They should inform their clients about Reverse Charge Mechanism (RCM) and mention on the bottommost of their invoice, that tax has to be paid by their client under(RCM).