Sudipta Bhattacharjee and Rajat Mittal
Ask any individual lawyer, law firm, LLP or a Senior Advocate if they are required to obtain registration under Goods and Service Tax law (GST), chances are you won’t get a clear answer as there is significant confusion with regard to actual legal position in this regard.
From our experience in advising law firms and advocates, it emerges that while most law firms are already registered under GST, individual lawyers are either not registered under GST or are reluctant to obtain registration. There is no logical basis for such differentiation in approach between individual lawyers and law firms as GST law does not differentiates between individuals and partnership firms, at least not in regard to obtaining registration.
The confusion around liability to obtain registration stems from the two seemingly in conflict provisions under GST. On one hand, GST law mandates that a person making inter-state taxable supplies is compulsorily required to obtain registration[1]; on the other hand, it is notified that persons who are engaged in making taxable supplies, tax on which is liable to be paid on reverse charge basis by the recipient of goods/ services are exempted from obtaining registration under GST[2]. Question arises where an individual lawyer/ law firm/ LLP or a Senior Advocates makes an inter-supply of service (i.e. supplier and recipient are not in the same State) whether such lawyer/ law firm/ LLP should obtain registration under GST.
At the first blush, this apparent conflict seems reconcilable by adopting a position that while persons making inter-state supplies are compulsorily required to obtain registration, persons supplying goods/ services on which entire liability to discharge tax is cast on the recipient of service under reverse charge mechanism are exempted from operation of the provision requiring compulsory registration under GST.
Even the High Court of Delhi has gone by the above-stated position as enunciated in interim order passed in J.K. Mittal & Co. Vs. Union of India[3] wherein it was observed, “till further orders, all legal services provided by advocates, law firms of advocates, or LLPs of advocates will be continued to be governed by the reverse charge mechanism unless of course any such legal service provider wants to take advantage of input tax credit and seeks to continue with the voluntary registration under Section 25(3) of the CGST Act and the corresponding provisions of IGST or DGST Act.”
The above position is reconcilable with the other provisions of GST law so long as the services are provided within the taxable territory i.e. within India. However, where the legal services are provided to a foreign client, the above position cannot be adopted for the reason that reverse charge mechanism is applicable only when the recipient is based out in India and not abroad. In a situation where recipient is located abroad, reverse charge mechanism will not apply and liability to discharge GST/prove eligibility for export benefits would technically be on the concerned lawyer/ law firm/ LLP, which can only be done after obtaining registration.
It may well be argued that since the service recipient is located abroad, it would be an ‘export of service’ and hence not liable to GST and consequently, there is no requirement of obtaining registration under the GST.[4] However, going strictly by the letter of the law, this position is technically incorrect since the benefit of ‘export of service’ is not automatic under GST law unlike service tax law.
While, export of service is zero-rated[5] under the Integrated Goods and Service Tax Act, 2017, the benefit of export is available only to a registered person subject to fulfilment of certain conditions including executing a letter of undertaking, which can only be complied by a registered person. This is clear from language of Section 16(3) of the IGST Act, 2017 which provides that “a registered person making zero-rated supply shall be eligible to claim refund under either of the following options….”. It is also important to note that export is deemed as an ‘inter-state supply’ under the IGST Act which is leviable to IGST under Section 5 of the IGST Act, 2017.
Only if an inter-state supply qualifies as ‘export of service’, the levy of IGST is not attracted. Since, unregistered persons cannot qualify the requirement for availing the benefits of export of goods/ services, supplies made by them which qualify as ‘inter-state supplies’ are technically exigible to IGST and the IGST liability is on such supplier of service (not on the recipient on a reverse charge basis). In other words, whenever invoices are raised on foreign clients, to claim benefit of ‘export of service’ under GST, lawyers/ law firms are required to obtain registration under GST.
Therefore, if one has to go by the letter of the law, so long as lawyers/ law firms are not providing services to foreign clients, they can abstain from taking registrations but where the intended recipient of legal services is located abroad, lawyers/ law firms must obtain registration under GST law. This may be an unintended consequence hitherto overlooked in the various analyses. One hopes that in the next GST Council meeting scheduled in January 2018, the GST Council lays down clear guidelines on the requirement to register for lawyers/law firms and other similarly situated service providers.
[1] Section 24(i) of the Central Goods and Service Tax Act, 2017
[2] Notification No. 5/2017-Central Tax dated 19.06.2017
[3] W.P. (C) No. 5709/ 2017
[4] Section 23(1) of the CGST Act, 2017
[5] That is to say, GST is to be charged at ‘zero’ percent on such supplies and the input side GST can be availed as credit/refund
Rajat Mittal is a Senior Associate and Sudipta Bhattacharjee is a Partner, at Advaita Legal.