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Implications Of Levy Of Service Tax On Senior Advocates

CA Rajkamal Shah, an expert on service-tax, has explained the implications of the amendment by the Finance Bill 2016 from 1.4.2016 read with Notification No. 18/2016-ST and Notification No. 9/2016 – ST with respect to the levy of service-tax on senior advocates.

Legal services provided by ‘senior advocate’ – no reverse charge applicable

Presently taxable legal service provided by ‘senior advocate’, as defined under section 16 of The Advocates Act, 1961, is covered under reverse charge mechanism. Now, ‘senior advocates’ are liable to pay service tax as service providers since payment of service tax by a service receiver under reverse charge mechanism is no longer applicable. On the other hand, legal service provided by a firm of advocates or an advocate (other than senior advocate) is continued to be taxable under reverse charge mechanism. Further, legal service by an advocate or partnership firm of advocates is exempt if provided to –

– An advocate or partnership firm of advocates providing legal service (not applicable if service provided by a senior advocate); or

– Any person other than a business entity; or

– A business entity with the turnover upto Rs.10Lakhs in the preceding financial year.

As per Advocates Act 1961, the senior advocates are appointed by junior advocates. The junior advocates will be liable to pay service tax as charged by senior advocates in their bills. Senior advocates will have to take registration and discharge service tax liability and observe compliances under the law including filing of returns etc. The difficulties may be faced by the senior advocate of discharging liability on accrual basis even if the payment is not received in case the value of taxable service provided from one or more premises exceeds Rs.50Lakhs in the previous financial year.

As the junior advocates or the firm of advocates will include the charges of senior advocates in their bills to the litigant parties, these parties are required to pay service tax on junior advocate’s bill under reverse charge. Junior advocate will not be entitled to take cenvat credit as he is not required to pay service tax to the government. At the same time the litigant party shall pay service tax on reverse charge basis. Thus, there will be double payment of service tax. The litigant may get cenvat credit if he is a manufacturer or service provider but not in case of a trader.

14 comments on “Implications Of Levy Of Service Tax On Senior Advocates
  1. Krunal says:

    If a partnership firm having partners as Senior advocates and Junior advocates then the firm needs to be considered as Senior Advocates Firm and service tax need to be charged on service provided as per the Budget 2016 or the service will be under reverse charge mechanism and no need to charge service tax.
    Thanx for Ur help

  2. brijesh says:

    services provided by a senior advocate to a individual. Is it exempt or chargeable to tax on forward charge basis?

  3. CA Anupriya Srivastava says:

    Thank you for the understanding.

  4. Sundaram says:

    Senior Advocates can raise invoice directly in the name of the client to get over the cenvat issue. Otherwise, even claiming the same as a reimbursement can lead to practical difficulties.

    One question in regard to spectrum allocation: if the first allottee transfers to a second allottee on forward charge basis, and the service tax realised by the first allottee is less than the pending balance of service tax paid by the first allottee to govt on reverse charge basis, do they lose the difference amount. For example, on reverse charge, first allotte pays 500 cr for a 10 year period. The eligible cenvat each year is 50 cr. After 3 years (cenvat pending availment is 350 cr), he transfers to second allottee and realises service tax on forward charge basis of 300 cr, will he lose the balance 50 cr after set off?

  5. Manish Sachdeva says:

    There is solution to this problem qua using the pre-requisites of Rule 5 a jr. counsel can quote sr. counsel fees as reimbursement expenditure.

  6. chiranjeevi.g says:

    What is the definition of Senior Advocate? On which basis it was decided for Service tax matter

    • Rajkamal Shah says:

      S.16(1) of The Advocates Act –“An senior advocate may with his consent be designated as senior advocate if Supreme Court or 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”.

  7. Surrender K Singal says:

    Is fees charged by Retd. SC Judge as Sole Arbitrator liable under Service Tax Law as also TDS provisions ?
    Similarly, about his Secretary (Advocate) ?
    Who bears all such levies ?

    • Rajkamal Shha says:

      S.16(1) of The Advocates Act – “An senior advocate may with his consent be designated as senior advocate if Supreme Court or 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”.

    • Rajkamal Shah says:

      Yes… fees charged by retired SC judge as Sole arbitrator to the Arbitration Tribunal is liable to service tax as well as in TDS under the provisions of those Act.

      Secretary is not covered under service tax if he is not a senior advocate.

      Service tax is finally borne by the disputing parties who apply to the Arbitration Tribunal


    • Rajkamal Shah says:

      The legal service provided by advocate is exempt only if it is provided to a business entity whose turnover is less than 10Lakhs in the previous year.

  9. Vibhor Jain says:

    Are there any exemption available to Senior Advocates on providing certain type of services or to certain class of persons?

    • Rajkamal Shah says:

      No exemption as he is providing service to the junior advocate. The exemption is applicable only if the service is provided to a business entity whose turnover in the previous years does not exceed Rs.10Lakhs

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