MARCH 02, 2016

By CA. Pradeep Jain, CA. Preeti Parihar & CA. Vaibhav Bothra

Existing exemptions available in case of legal services:-

Exemption to the legal services has been granted by mega exemption notification no. 25/2012 dated 20/06/2012 entry serial no. 6 which reads as follows:

6, Services provided by -

(a) an arbitral tribunal 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;

(b) 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

(c) a person represented on an arbitral tribunal to an arbitral tribunal;

Thus, exemption has been granted to an individual advocate or partnership firm of advocates who provides legal services to another advocate or partnership firm of advocates. Exemption is also granted to a person represented on an arbitral tribunal to an arbitral tribunal.

Amendment made by Notification no. 9/2016-ST in exemptions:-

Now vide serial no. (i) of notificationno. 9/2016-ST dt. 01/03/2016; the clause (b) and (c) of the said notification are substituted by the following:

"(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;";

Further, the term Senior Advocate has been defined by inserting a clause (zdd)in the notification which states as follows:

"(zdd) "senior advocate? has the meaning assigned to it in section 16 of the Advocates Act, 1961 (25 of 1961);?

The said section 16 reads as follows:

"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 [standing at the Bar or special knowledge or experience in law] he is deserving of such distinction."

This amendment is applicable from 1.4.2016.

Reverse charge on legal services – existing scenario:-

The reverse charge is applicable on the legal services under rule 2(1)(d)(i)(D) of the Service Tax Rules, 1994 which reads as follows:-

"in relation to service provided or agreed to be provided by,-

(I) An arbitral tribunal, or

(II) An individual advocate or a firm of advocates by way of legal services,

To any business entity located in the taxable territory, the recipient of such service;"

Thus, service tax is payable by a business entity as a recipient of legal services provided by an individual advocate or firm of advocates.

Amendments made in Reverse charge on legal services :-

The above stated clause (II) has been substituted as follows:-

"(II) A firm of advocates or an individual advocate other than a senior advocate by way of legal services,"

Also, the notification no. 30/2012 dt. 20/06/2012 has been amended vide notification no. 18/2016-ST dated 1.3.2016 to substitute sub-clause (iv), item (B) as follows:-

"(B) a firm of advocates or an individual advocate other than senior advocate, by way of legal services, or";

Both of these amendments are applicable w.e.f. 1.4.2016 and by virtue of these amendments, the reverse charge has been withdrawn in the cases where the senior advocate provides the legal services to a business entity located in taxable territory. Inasmuch as from 1.4.2016, the service tax would be payable on forward charge basis by the senior advocates if they provide services to a business entity located in taxable territory.

While concluding:-

Liablity/exemption of/from Service Tax as applicable w.e.f. 1.4.2016 can be illustrated in the following table:-

Thus, legal services provided by the senior advocates are taxable in their own hands regardless of facts to whomsoever they provide these services. Only one exemption has been given in case where the legal services are provided by the senior advocate to any person who is not ordinarily carrying out any activity relating to industry, commerce or any other business or profession.

Thus, availing legal services from senior advocates is going to be expensive.So, bigger the litigation, senior the advocate, higher the fees and so is the amount of service tax.