The Central Government has amended the position of Senior Advocates
under Service Tax through Notification no. 32/2016-ST, 33/2016-ST and 34/2016-ST dated 6th June,
2016
The
impact of these amendments is summarized as below:
a) Any legal service provided by a senior advocate to a
non-business entity will be exempt.
b) Any legal service provided by a senior advocate to a
business entity having a turnover of up to Rs. 10 lakhs in
the preceding financial year will be exempt.
c) In respect of any representational service provided by
senior advocate before any court, tribunal or any other authority to any
business entity within the taxable territory, the person liable to pay tax will
be the business entity i.e. the litigant or petitioner under reverse
charge mechanism even though the contract for such service has been entered
through an advocate or firm of advocates.
d) If any other legal service apart from a
representational service is provided by a senior advocate to a business
entity in the taxable territory, the person liable to pay service tax
will be the recipient of the service i.e. the business entity under
reverse charge mechanism.
e) The business entity will also include an
advocate or a firm of advocates. So, if any legal service apart from a
representational service (e.g. consultancy) is provided by a senior advocate to
an advocate or a firm of advocates, the person liable to pay tax will be the advocate
or the firm of advocates as the case may be.
ANALYSIS OF
SERVICE TAX ON SENIOR ADVOCATES BEFORE AND AFTER FINANCE BILL, 2016
BEFORE
FINANCE BILL, 2016
Before
the Finance Bill, 2016, as per Mega Exemption Notification No. 25/2012-ST dated 20th June, 2012, the following services was
notified as exempt.
6(b) Services provided by an individual as an advocate or a
partnership firm of advocates
by way of legal services to-
(i) an advocate or partnership firm of advocates
providing legal services ;
(ii) any person other than a business entity; or
(iii) a business entity with a turnover up to
rupees ten lakh in the preceding financial year; or
Service under reverse
charge: Notification no. 30/2012-ST dated 20th June, 2012
As per Notification no. 30/2012-ST dated 20th June, 2012, the following services covered
under reverse charge mechanism:-
“The
taxable services,-
(A)(iv) provided or agreed to be provided
by,
(B) an individual advocate or a firm
of advocates by way of legal services,”
And
as per Sl no. 5, the service
recipient is liable to pay 100% service tax in respect of services provided
or agreed to be provided by individual advocate or a firm of advocates by
way of legal services
Person liable to pay tax: Rule 2(1)(d)(i) of the Service Tax Rules, 1994
Also,
as per item no. D of Rule 2(1)(d)(i) of the Service Tax Rules, 1994, the person
liable for paying service tax:
“in
relation to service provided or agreed to be provided by,-
(II) an individual advocate or a firm of advocates by way of
legal services,
to
any business entity located in the taxable territory, will be the recipient of
such service;”
Conclusion: Before Finance Bill, 2016, all taxable legal services
provided by an individual advocate or a firm of advocates including senior
advocates, the person liable for paying tax was the service receiver i.e. the
business entity located within the taxable territory.
AFTER
THE FINANCE BILL, 2016
Through Notification No. 9/2016-ST dated 1st March,
2016, Mega Exemption Notification No. 25/2012-ST dated 20th June, 2012 was amended. In effect, the
following services were notified as exempt w.e.f 01st April, 2016:
“Services
provided by
(b) a partnership firm of advocates
or an individual as an advocate other than a senior advocate, by
way of legal services to-
(i) an advocate or partnership firm of advocates
providing legal services;
(ii) any person other than a business entity; or
(iii) a business entity with a turnover up to
rupees ten lakh in the preceding financial year; or
(c) a senior advocate by
way of legal services to a person other than a person ordinarily carrying out
any activity relating to industry, commerce or any other business or
profession;”
As
per the Notification No. 18/2016-ST dated 1st March, 2016, the entries in 30/2012-ST dated 20th June, 2012 have been amended. the
following services covered under reverse charge mechanism:-
“The
taxable services,-
(A)(iv) provided or agreed to be provided
by,-
“(B) a firm of
advocates or an individual advocate other than senior advocate, by way
of legal services,”
As
per Sl no. 5, the service recipient
is liable to pay 100% service tax in respect of services provided or
agreed to be provided by a firm of advocates or an individual advocate other
than a senior advocate by way of legal services
As
per notification no. 19/2016 dated 1st March, 2016 , in the Service Tax Rules, 1994,
Item (D) was modified.
The
person liable to pay service tax:
“in
relation to service provided or agreed to be provided by,-
(II) a firm of advocates or an
individual advocate other than a senior advocate by way of
legal services to any business entity located in the taxable territory, will be the
recipient of such service;”
Conclusion: After Finance
bill, 2016, all the legal services provided by senior advocates except services
provided to non-business entities was taxable. Further, the senior advocates
had now become chargeable to service tax under forward charge from 1st April,
2016.
The
Honourable High Court of Delhi, Gujarat and Kolkata granted an interim stay on
the applicability of service tax on the senior advocates under forward charge.
So, for the time being, the service tax was continued to be paid by the
business entity under reverse charge mechanism.
AFTER
THE AMENDMENT ON 6TH JUNE,
2016
Notification no. 32/2016-ST dated 6th June, 2016 has further amended the Mega Exemption Notification No. 25/2012-ST dated 20th June, 2012. Hence, the following services were
considered as exempt after the amendment:
“Services
provided by
(b) a partnership firm of advocates
or an individual as an advocate other than a senior advocate, by way of legal
services to-
(i) an advocate or partnership firm of advocates
providing legal services;
(ii) any person other than a business entity; or
(iii) a business entity with a turnover up to
rupees ten lakh in the preceding financial year; or
(c) a senior advocate by way of legal services to-
(i) any person other than a business entity; or
(ii) a business entity with a turnover up to rupees
ten lakh in the preceding financial year;”
Service under reverse
charge: Notification no. 30/2012-ST dated 20th June, 2012
The Notification No. 34/2016 dated 6th June, 2016, amended Notification no. 30/2012-ST dated 20th June, 2012. After the amendment, the following
services covered under reverse charge mechanism:
“The
taxable services,-
(A)(iv) provided or agreed to be provided
by,-
(B) an
individual advocate or a firm of advocates by way of legal services other than
representational services by senior advocates, or
(iva) provided or agreed to be provided
by 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, and
the senior advocate is providing such services, to such business entity who is
litigant, applicant, or petitioner, as the case may be”
As
per Sl no. 5, the service recipient
is liable to pay 100% service tax “in respect of services provided or agreed to
be provided by an individual advocate or firm of advocates by way of legal
services, directly or indirectly”;
Explanation III has
also been inserted below the table to clarify the meaning of litigant,
applicant or petitioner. As per explanation III – “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.”
Item (D) of Rule 2(1)(d)(i) of Service Tax Rules, 1994 was modified and a new item (DD) has been inserted vide notification no. 33/2016-ST dated 6th June, 2016
The
person liable to pay service tax:
“in
relation to service provided or agreed to be provided by,-
(II) an individual advocate or a firm of advocates by way of legal services
other than representational services by senior advocates to any business entity
located in the taxable territory, will be the recipient of such service;”
“in relation to service provided or agreed to be
provided by 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,
and the senior advocate is providing such services, the recipient of such
services, which is the business entity who is litigant, applicant, or
petitioner, as the case may be”.
Conclusion: Now, all the
legal services provided by a senior advocate to a business entity having a
turnover of Rs. 10 lakhs in the preceding financial year will only be taxable
and the Legal services provided by senior advocates to non-business entity or
business entity with a turnover of upto Rs. 10 lakhs in the preceding financial
year will be exempt. The legal position of services provided by senior
advocates under reverse charge now stands as follows:
1)
In respect of any representational service provided by senior advocate before
any court, tribunal or any other authority to any business entity within the
taxable territory, the person liable to pay tax will be the business entity i.e.
the litigant or petitioner or applicant under reverse charge mechanism even
though the contract for such service has been entered through an advocate or
firm of advocates.
2)
If any other legal service apart from a representational service is provided by
a senior advocate to a business entity in the taxable territory, the person
liable to pay service tax will be the recipient of the service i.e. the
business entity under reverse charge mechanism. It is to be noted here that if
the service recipient is an advocate or a firm of advocates in respect of
services provided by senior advocate, then such advocate or firm of advocates
will be liable under reverse charge even though the service is ultimately used
for the benefit of the clients.
Other Important Points
A) What is the meaning
of Senior Advocate?
“Senior Advocate” has the meaning assigned to it in
section 16 of the Advocates Act, 1961 (25 of 1961) i.e. ‘An advocate may, with
his consent, be designated as senior advocate if the Supreme Court or a High
Court is of opinion that by virtue of his ability or standing at the Bar or
special knowledge or experience in law he is deserving of such distinction.”
B) What is a business
entity?
As per Section 65B(17)
of the Finance Act, 1994, ‘Business entity’ means “any person ordinarily
carrying out any activity relating to industry, commerce or any other business
or profession”
C) Summarized
Table after Notification no.
32/2016-ST, 33/2016-ST and 34/2016-ST dated 6th June, 2016:-
|
S. No.
|
Nature of Service
Provided
|
Service Provider
|
Service Tax Payable
|
|
1
|
Legal services provided by a senior advocate
|
Any person other than a business
entity
|
Exempt.
|
|
2
|
A business entity with a turnover up to rupees ten lakh
in the preceding financial year
|
Exempt
|
|
|
3
|
A business entity with a turnover exceeding rupees ten
lakh in the preceding financial year
|
Service tax shall be paid by recipient of
Service i.e. a business entity
|
|
|
4
|
Representational services (before any court, tribunal or
authority) provided by a senior advocate
|
A business entity
|
Service Tax payable by Business entity (who is litigant,
applicant or petitioner, as the case may be)
|
