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service tax as service providers since payment of service tax by a service receiver under reverse charge mechanism is no longer applicable.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.