Legal Consultancy Service – whether appearance before the Settlement Commission is outside the purview of Service Tax levy?

By A Netizen

NEW DELHI, JULY 06, 2009: CLAUSE 112 of the Finance (No.2) Bill, 2009 seeks to insert in section 65(105) of Chapter V of the Finance Act, 1994 the following sub-clause (zzzzm) –

65(105) "taxable service" means any service provided or to be provided, -

         “(zzzzm) - to a business entity, by any other business entity in relation to advice, consultancy or assistance in any branch of law, in any manner.

         Provided that any service provided by way of appearance before any Court, Tribunal or authority, shall not amount to taxable service.

Explanation- For the purposes of this sub-clause, “business entity” includes an association of persons, body of individuals, company or firm, but does not include an individual.”

Section 65(121) of the Finance Act, 1994 stipulates that  words and expressions used but not defined in this Chapter and defined in the Central Excise Act, 1944 (1 of 1944) or the rules made thereunder, shall apply, so far as may be, in relation to service tax as they apply in relation to a duty of excise.

The term “authority” has been defined in Section 96A of Chapter VA of the Finance Act, 1994.  The said definition is also proposed to be enlarged by the Finance (No.2) Bill, 2009 to read thus –

“(d) “Authority” means the Authority for Advance Rulings, constituted under sub-section (1), or authorized by the Central Government under sub-section (2A), of section 28F of the Customs Act, 1962.”

But of course, the above definition cannot be employed to understand the meaning of the term “authority” as section 65(121) has a limited frame of operation.

Incidentally, though the Finance Bill, 2009 does not define the term “Legal Consultancy Service”, the D.O letter of JS(TRU-II) mentions the following about the proposed new service category –

“2.3 Legal Consultancy Service: As in the case of management consultancy or engineering consultancy service, any consultancy, advice or technical assistance provided in any discipline of law is proposed to be subjected to service tax.

However, the tax would be limited to services provided by a business entity to another business entity. It has been defined that a business entity includes firms, associates, enterprises, companies etc. but does not include an individual. Thus, services provided by an individual advocate either to an individual or even to a business entity would be outside the scope of the taxable service. Similarly, the services provided by a corporate legal firm to an individual would also be outside the purview of taxable service. Any service of appearance before any court of law or any statutory authority would also be kept outside this levy.”

The meaning of the terms “Court” and “Tribunal” are easily decipherable but the term “authority” is not.  The TRU letter makes a sweeping statement that any service of appearance before any statutory authority would also be kept outside this levy.

If at all the intention was to exclude appearance before “any statutory authority” as not being subject to the levy, the proviso clause in zzzzm ought to have been worded accordingly.

It is felt that even assuming that the term authority covers even the Advance Ruling Authority, it cannot possibly cover the “Settlement Commission” or for that matter the “Central Information Commission” or any such Commission.

Before the proposed service category sees the light of the day, it is felt that the Central Government clarifies the issues suitably.