The tax on all types of legal services provided by all classes of lawyers will be borne by clients, the finance ministry has finally settled in an official notification, as first published by Live Law.

The ministry closed the long-drawn task of defining the scope of legal services for the purpose of taxation under the Goods and Services Tax (GST), which it had managed to spread out over three months.

Legal services include advice, consultancy or assistance, including but not limited to representational services, in any branch of law before any court, tribunal or authority, it notified on 25 September 2017, through a corrigendum notification to be published in the Gazette of India, as an addition to its 28 June notification on the applicability of GST on legal services.

25 September Corrigendum

The confusion

It began on 28 June when the ministry published notification 13/2017 listing the various categories of service providers on whose services tax would be levied on a reverse charge basis (i.e. the recipient of the service, and not the service provider, would be taxed).

Lawyers (individual advocates, senior advocates and law firms) had been exempt from being taxed for their services, under this notification which stated:

Services supplied by an individual advocate including a senior advocate by way of representational services before any court, tribunal or authority, directly or indirectly, to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, or by a firm of advocates, by way of legal services, to a business entity.

According to this rule, clients were liable to be taxed for representational services borne by advocates, senior advocates and law firms. But legal services are not just limited to representational services. Therefore, it was confusing whether lawyers were to bear the burden of tax on all other kinds of legal services.

Within two weeks a Delhi-based law firm had gone to court with this notification and immunity against government action for lawyers not paying any tax under the GST, until the government clarified the scope of exemption.

This led the government to publish a press release, that same week, clarifying that the legal services under the GST “have been defined to mean 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”.

But this press release was just a government communication, and it was still not the official rule as it was not part of the gazette. The gazette still carried only the 28 June notification that had caused the confusion.

The ministry has finally incorporated its clarified definition of legal services for the purpose of taxation into the Gazette two months after it published the press release.

The 25 September corrigendum now read together with the 28 June notification in the gazette makes clients of lawyers liable to pay GST on all kinds of legal services they receive from their legal service providers.