SEPTEMBER 01, 2017

By Rajat Dosi, Partner, RSA Legal Solutions

WITH the issuance of Press Release dated 15.07.2017, it appears that much drama over taxing of legal services provided by an advocate / a law firm and consequential requirement to obtain registration under the GST law has been put to rest by the Government clarifying the scope of legal services under the reverse charge mechanism. However, there is still once facet of the same left, which may lead to un-warranted consequences. This article highlights this facet, which may have an impact on a number of law firms operating in India.

Notification No. 13/2017-CGST dated 28.06.2017 specifies the various supplies which shall be subject to payment of GST by the recipient of service (reverse charge mechanism). Sl. No. 2 of this notification, in essence, provides that in case of legal services provided by an advocate (including a senior advocate) and a law firm, to a business entity, the applicable GST will be paid under reverse charge by the receiver of service i.e., the said business entity. Additionally, legal services provided by an advocate and a law firm to person other than business entity is exempt from payment of applicable GST under Sl. No. 45 of Notification No. 12/2017-CGST dated 28.06.2017.

Given the above, there seems to be a notion that no registration is required by an advocate and law firms under the GST regime, in terms of Section 23 of the GST Act [It inter alia provides that no registration is required to be taken by person who are providing exempt services] read with Notification No. 5/2017-CGST dated 19.06.2017 [It provides that no registration is required to be taken by persons who are exclusively providing services which are subject to GST under the reverse charge mechanism]. However, this notion may not be correct in entirety. There is still an area wherein an advocate or a law firm may be required to take registration. It is when they are providing legal services to a person / business entity located outside India and receiving payment in foreign exchange i.e., in case of export of legal services.

In the above context, Section 7 of the IGST Act inter alia provides that supply of services wherein the supplier is located in India and the place of supply is outside India, shall be deemed to an inter-state supply. In case of legal services provided by an advocate / a law firm to a business entity located outside India, the place of supply will be outside India (default rule being location of recipient of legal service [In terms of Section 13(2) of the IGST Act]). Therefore, export of legal services by an advocate / a law firm will be deemed to be an inter-state supply of services under the GST regime.

Section 24 of the CGST Act, in this regard, mandates that every person making inter-state supply of goods is required to take registration under the GST regime. Therefore, in the above background, an advocate / a law firm providing legal services to business entities outside India (or export of legal services) will be liable to take registration under the CGST and SGST Act.

The reverse charge notification does not apply in this context as the same is applicable when legal services are provided to a business entity located in a taxable territory. It will not apply to a situation wherein they are provided to a business entity located in a non-taxable territory. Therefore, export of legal services will be subject to payment of applicable GST by the advocate / law firm.

Here, it will be pertinent to point out that export of legal services will tantamount to 'zero rated supply', therefore on such supplies such advocate / law firm will have the option of either:

1. Paying applicable IGST on such export of legal services and thereafter apply for refund; or

2. Export such services without payment of applicable IGST under bond / LUT (to be executed with the department).

This requirement to take registration will be applicable on a number of law firms operating in India who are providing legal services to their various clients located outside India and are receiving payment in foreign exchange.

Apart from the above, the registration requirement may invite other unwarranted consequences as well, such as being a registered person if they are getting any goods or services from an un-registered person, they being registered person will be liable to pay applicable GST on such goods and services under the reverse charge mechanism. These consequences will be over and above the return filing requirement cast under the GST regime, which most of the law firms are not quite used to (as it was not required of them, under the erstwhile service tax regime).