1.Who is a senior Advocate?
As per Section 16 of Advocates Act 1961 Senior Advocate is an advocate for whom Supreme Court or a High Court is of opinion that by virtue of his ability [standing at the Bar or special knowledge or experience in law] he is deserving of such distinction. Senior advocates shall, in the matter of their practice, are subject to such restrictions as the Bar Council of India may, in the interest of the legal profession, prescribe.
- What was the applicability of service tax on senior advocates prior to the Finance Bill 2016?
Prior to Finance Bill 2016, Legal Services were covered under reverse charge mechanism as per Notification No 30/2012-ST dated 20.06.2012. In respect of services received by any Business Entity [whose turnover exceeds Rs 10 lakhs in the preceding financial year] from an Individual Advocate or Firm of Advocates was chargeable to tax under reverse charge mechanism. This means that any liability arising out of such service provided by the advocate/law shall be borne by the business entity. Such legal services provided to person other than Business Entity, No Service Tax was chargeable as per clause 6(b) of the Mega Exemption Notification No. 25/2012 dated 20.06.2012.
- What is a business Entity?
As per section 65B(17) of Finance Act 1994, “Business Entity” means any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession.
- Was there any distinction between the category of advocates from whom service is availed?
No, As per the old law there were no distinction with regard to the category of advocate from whom legal services have been taken.
- What was the amendment brought by the Finance Bill 2016?
Finance Bill 2016 has w.e.f. 01.04.2016 had withdrawn the exemption in respect of the services provided by a senior advocate
(i) to an advocate; or
(ii) partnership firm of advocates; and
(iii) a person representing in an arbitral tribunal to an arbitral tribunal.
Service Tax in above instances would be levied under forward charge. However, the existing dispensation regarding legal services provided by a firm of advocates or an advocate other than senior advocate is being continued.
- What is a forward Charge?
In case of forward charge, the service tax is recovered from the service recipient but paid by the service provider i.e. lawyer to the government. The onus to deposit the same is on the advocate and not on the service recipient.
- What are the implications of this amendment?
- a) Where Senior Advocate service is taken by other advocates.
With this amendment getting enforced, the cost of litigation services shall increase and hence prove a burden on the service recipient. As per the new law only senior advocates are liable to pay service tax, in such a case when services provided by the senior advocate to other advocates where service tax is charged, the amount of service tax would become the cost of the recipient advocate as he shall not be allowed the input credit of the same. This can be understood by the following illustration:
| Old Law (i.e. prior to Finance Bill 2016) | New Law (after Finance Bill 2016) | |
| (Services Provided by Senior Advocate to Other Advocates) | ||
| Value of Service | 100,000 | 100,000 |
| Service Tax (14%) | — | 14,000 |
| Swachh Bharat Cess (0.5%) | — | 500 |
| Total Cost to Recipient Advocate | 100,000 | 114,500 |
| Professional Fees of Recipient Advocate | 50,000 | 50,000 |
| Total Cost to the Party | 150,000 | 164,500** |
| Amount Payable by Senior Advocate towards Service Tax under forward charge | Nil | 14,500 |
| Amount Payable by Service Recipient under Reverse Charge | Nil | Nil |
** Since Service provided to final party is either covered under reverse Charge or Exempt under Negative List. Hence Input Credit of Service Tax paid on services availed from Senior Advocate by Other Advocate shall not be allowed.
- b) Where the service is directly provided by the Senior Advocate to an individual/Business Entity whose turnover/Gross Receipts in preceding financial year is less than Rs. 10 Lakhs
| Old Law (i.e. prior to Finance Bill 2016) | New Law (after Finance Bill 2016) | |
| Value of Service | 100,000 | 100,000 |
| Service Tax (14%) | — | — |
| Swachh Bharat Cess (0.5%) | — | — |
| Total Cost to Recipient Advocate | 100,000 | 100,000 |
| Amount Payable by Senior Advocate under forward Charge | Nil | Nil |
| Amount Payable by Service Recipient under Reverse Charge | Nil | Nil |
- c) Where the service is directly provided by the Senior Advocate to a Business Entity whose turnover/Gross Receipts in preceding financial year exceeds Rs. 10 Lakhs
| Old Law (i.e. prior to Finance Bill 2016) | New Law (after Finance Bill 2016) | |
| Value of Service | 100,000 | 100,000 |
| Service Tax (14%) | 14,000 | 14,000 |
| Swachh Bharat Cess (0.5%) | 500 | 500 |
| Total Cost to Recipient Advocate | 114,500 | 114,500 |
| Amount Payable by Senior Advocate under forward Charge | Nil | Nil |
| Amount Payable by Service Recipient under Reverse Charge | 14,500 | 14,500 |
- Has there been any stay enforced by the court on this amendment?
Yes, H’ble High Court of Gujarat and Delhi has ordered a stay on enforcement of the amendment brought by Finance Bill 2016. Although CBEC is planning to move to Supreme Court Against the stay order. Final verdict on the enforcement is awaited.
- Author’s view on the amendment made by the Finance Bill?
The author is of the view that leving such service tax on a particular class of advocates is discriminatory in nature and should be done away with or the complete advocate fraternity should be brought under the ambit of service tax.
Also the Ministry of Finance should devise a mode by which the Input of service tax paid by the other advocates on the service received by them from senior advocates is allowed. This would certainly reduce the litigation cost.
For
MyGst.MyTax
(GST & Service Tax Experts)
Keshav R Garg
(B.Com, CA, CS, ISA (ICAI))
3328, Sector 27 D, Chandigarh
India 160 019
Ph: +91-172-265-3338, +91-172-461-3328
M: +91-9888-090-008
E-Mail: mygst.mytax@gmail.com