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GST pe Charcha - Part I

Monarch Bhatt
Understanding GST on Legal Services: Reverse Charge Liability, Section 9(3), and Timely Payment Requirements The article addresses common GST issues faced by businesses, particularly regarding legal consultancy services. A company received services from an advocate in September 2017, with payment made in March 2018. The company, with a turnover exceeding 20 lakh, is liable for GST under the reverse charge mechanism as per Section 9(3) and Notification 13/2017. The point of taxation is the 61st day from the invoice date, making it November 20, 2017. The company must pay interest from December 21, 2017, for late GST payment. Services received by advocates from senior advocates are not liable for GST under reverse charge. (AI Summary)

In this article, author has tried to cover the issues which are generally faced by the assessee. The issues are chosen based on the queries raised in the various seminars delivered by the author.

Query:The Company has received legal consultancy services from an advocate in the month of September, 2017 and received an invoice dated 20th September, 2017. The company has made payment to an advocate on 20th March, 2018. The turnover of the company exceeds 20 lakh.

The company wants to know:

  1. Whether they are liable for the payment of GST as receiver of service?
  2. What shall be considered as a point of taxation?
  3. How it is to be discharged and shown in the return?

Reply:

  1. As per section 9(3) receiver of service is liable for the payment of GST, if such supplies are specified by way of an issue of notification. In this regards, notification number 13/2017-Central Tax (Rate) has been issued to specify the supplies liable for the payment of GST by receiver of supply wherein, serial number 2 of the notification covers the legal services provided by an advocate or firm of advocate to the business entity.

Hence, as per section 9(3) read with serial number 2 of notification number 13/2017-Central Tax (Rate), company receiving the legal services are liable for the payment of GST as receiver of service.

It is to be noted that the turnover of the company is exceeding 20 lakh. Hence, company is not eligible for the exemption granted under notification number 12/2017-Central Tax (Rate), which provides an exemption under serial number 45 to the business entity having turnover upto 20 lakh and receiving the services from an advocate.

Therefore in the present case, company is liable for the payment of GST as receiver of service.

  1. Now let us analyse about the time of supply under reverse charge mechanism wherein, company has received the legal services from an advocate or firm of advocate.

As per the GST provisions, under reverse charge mechanism tax is payable when the time of supply takes place. The time of supply for reverse charge payments is earliest of the following:

  • The date of payment to the supplier (advance or payment against bill) OR
  • 61st day from the date of invoice, if invoice is unpaid till such time OR
  • If the transaction is for import of services, with associated enterprise, the date of debit in the books of account.

In view of the provisions in the present case, the time of supply becomes the 61st day from the invoice date. i.e. 20th November, 2017 as it has not been paid prior to that and invoice is dated 20th September, 2017.

c.    Now the company has not discharged the GST liability in the month of September, 2017 while filing GSTR 3B. Hence, company shall pay interest on it @ 18% from 21/10/2017 (due date for filing of GSTR 3B) to till the date of filing of GSTR 3B for the month of March 2018. The same shall be shown as liability under reverse charge mechanism while filing GSTR 3B for the month of March 2018 and interest shall also be mentioned in the GSTR 3B.

Goods and Services Tax - GST
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JAIPRAKASH RUIA on May 11, 2018

Deart Sir,

When time of supply is 20/11/2017 why the int. from 20/10/2017 please.

RAJESHMANGAL AGRAWAL on May 11, 2018

Thanks for very nice description.

I am only differ in the Interest part.

As correctly said the point of supply is 20/11/17, tax can be paid by 20/12/2017 & interest will be started only after 21/12/2017.

Monarch Bhatt on May 11, 2018

Please consider the reply to point 'c' as follows: In the article there is typographical error at our end.

C. Now the company has not discharged the GST liability in the month of September, 2017 while filing GSTR 3B. Hence, company shall pay interest on it @ 18% from 21/12/2017(due date for filing of GSTR 3B of November 2017) to till the date of filing of GSTR 3B for the month of March 2018. The same shall be shown as liability under reverse charge mechanism while filing GSTR 3B for the month of March 2018 and interest shall also be mentioned in the GSTR 3B.

JAIPRAKASH RUIA on May 11, 2018

Sir, We are honored to get the guidance from you, my humble request to please be more active on taxtmi.com website so that learner people like me may get benefit of you knowledge.

God Bless you sir,

Archna Gupta on May 11, 2018

Dear Mr. Bhatt

I have query on advocate services by senior advocate because there is distinction between advocate and senior advocate in notification number 12/2017-Central Tax (Rate). If a senior advocate provides services to another advocate or another senior advocate then what would be the consequences.

Whether advocate or senior advocate receiving services from "SENIOR ADVOCATE" are liable to get registration?

Monarch Bhatt on May 12, 2018

The query is with respect to the applicability of reverse charge mechanism on the advocate or firm of advocate where they are receiving the services from senior advocate. Generally, client does not approach the senior advocate directly. Client approaches the senior advocate through advocate or firm of advocate. In such cases, senior advocate issues the bill to advocate or firm of advocate and in turns advocate or firm of advocate issues bill to the client. Hence, query is with respect to the services received by the advocate from senior advocate that whether it is liable for the payment of GST under reverse charge or not?

The section 9(3) of CGST Act, 2017 empowers the government to levy GST on receiver of service on the specified services. By virtue of this provision, notification number 13/2017- Central Tax (Rate) has been issued to levy GST on specified nature of services from receiver of service. Serial Number 2 of the notification is dealing with the legal services. The serial number 2 of the notification reads as follows:

Sl. No.

Category of Supply of Services

Supplier of service

Recipient of Service

(1)

(2)

(3)

(4)

2

“Services provided by an individual advocate including a senior advocate or firm of advocates by way of legal services, directly or indirectly.

Explanation. - “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.”.

An individual advocate including a senior advocate or firm of advocates.

Any business entity located in the taxable territory.

The term “business entity located in the taxable territory” as referred in the column number (4) which is “for recipient of service” has been explained under the notification itself, under explanation (c). The explanation (c) of the notification reads as follows:

“(c) the business entity located in the taxable territory who is litigant, applicant or petitioner, as the case may be, shall be treated as the person who receives the legal services for the purpose of this notification.”

In view of the above, receiver of service is only litigant, applicant or petitioner and not the advocate or firm of advocate. Hence, the services received by the advocate or firm of advocate from the senior advocate are not liable for the payment of GST as receiver of service. In such cases, only client is liable for the payment of GST on the invoices issued by the advocate or firm of advocate.

Further to add on your specific query with respect to the notification number 12/2017-Central Tax (Rate), in my view since, the services received by the advocate or firm of advocate from the senior advocate are not covered under the reverse charge notification, there is no need to provide an exemption under serial number 45 of the notification number 12/2017-Central Tax (Rate).

JAIPRAKASH RUIA on May 14, 2018

Discussion of Hon'ble Delhi High Court Stay Order dated 12.07.2017 JK Mittal & Company Versus Union of India & Ors. ( 2017 (7) TMI 542 - DELHI HIGH COURT ) . . . . . Petitioner, may be helpful in this regard please.

Archna Gupta on May 14, 2018

Thank you so much for your so much detailed reply and guidance.

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