MARCH 02, 2016

By S Sivakumar, LL.B, FCA, FCS, ACSI, MBA, Advocate

IN a surprise move that could trigger legal controversies, the Government has decided to remove the exemption provided to senior advocates. The Government has accordingly issued Notification No. 9/2016-ST dated March 1, 2016, in terms of which, clauses (b) and (c) of Entry No. 6 of the Mega Exemption Notification No. 25/2012-ST dated 20-6-2012 have been replaced with a new set of entries. The effect is that, Senior Advocates would now be liable to pay service tax on services rendered in connection with industry, commerce, or any business or profession. Also, the exemption that was available in respect of services rendered by an an arbitral tribunal to any person other than a business entity or to a business entity with a turnover up to rupees ten lakhs in the preceding financial year has now been removed.

Perhaps, this is an attempt to bring into the service tax net, the high flying Senior Advocates who, we are informally informed, charge anywhere between Rs 10 lakhs and a few crores for a single appearance in the Supreme Court. The Government is bound to face constitutional challenges in terms of this move, inasmuch as, the Apex Court has already stayed the order dated December 15, 2014 of the Bombay High Court [P C Joshi - 2014-TIOL-2279-HC-MUM-ST], which had dismissed the petition challenging the service tax levy on Advocates. As is known, the Bombay Bar Association had challenged the then existing Section 65(105)(zzzzm) of the Finance Act, 1994 which had been inserted by the Finance Act, 2011 before the Bombay High Court and the Court had held that the Legislature had neither interfered with the role and function of an advocate nor has it made any interfered in the constitutional guarantee of justice to all.

The main question of law that was framed before the Apex Court was, whether, the relationship between an advocate and a litigant is that of a provider and a service recipient or whether the relationship is that of a representative and a litigant and we need to wait for the Apex Court to resolve this issue. From a purely legal perspective, when the Apex Court has stayed the levy of service tax on Advocates, even the question of levy of service tax under the reverse charge mechanism does not arise.

Even as the Apex Court is deciding on the levy of service tax on Advocates, comes this latest move to remove the exemption in respect of services rendered by Senior Advocates. Of course, Senior Advocates who handle cases related to public interest litigation which are not commercial in nature, would continue to be exempt.

Be that as it may… the new clause (c) of Entry 6 of the Mega Exemption Notification reads as under:

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;”;

I would wonder if the services rendered by a Senior Advocate to another Advocate would still be exempt from the levy of service tax….. as an Advocate cannot be considered as carrying out any activity relating to industry, commerce or any other business or profession. Even assuming that the Senior Advocate charges service tax on the forward charge mechanism, the individual Advocate would not be able to avail of cenvat credit of the service tax paid since the non-Senior Advocate continues to be exempted from the levy of service tax. We could see a lot of practical issues arising out of the Government move to bring Senior Advocates into the tax net.

Insofar as the removal of the exemption related to services rendered by and to arbitral tribunal is concerned, it seems that the Government does not want to leave out these services given the huge spurt in proceedings related to arbitration and conciliation in recent months and the projected increase in the quantum of cases in this area. Here again, these services being essentially legal in nature, the Government could face constitutional challenges.

The move to bring the Senior Advocates into the service tax net could also a constitutional challenge involving discrimination and unequal treatment between Senior Advocates and non-Senior Advocates.

My personal view however is that, Advocates like any other class of professionals, should ask for being included in the scheme of service tax levy….in which event, they can claim cenvat credit of the rent paid for their premises and other input services, which is not currently allowed as they are rendering exempt services.