The two successive notifications issued – one providing for “reverse charge” and the other granting an “exemption” – has created confusion amongst the legal fraternity and their clientele. To resolve the confusion, CA Rajkamal Shah, a well known expert in the field, has provided the following clarification:
Service tax on advocates from 1.07.2012
By way of Notification No. 25/2012 – ST dtd. 20.06.2012, the Government has exempted service by an individual 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 upto Rs. 10 Lakhs in the preceding financial year.“Legal service” is defined to mean any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority.
“Business entity” is defined to mean any person ordinarily carrying out any activity relating to industry, commerce or any other business.
Under Notification No. 30/2012 – ST dtd. 20.06.2012, in respect of services provided by an individual advocate or a firm of advocates by way of legal service to a business entity, such business entity is liable to whole of service tax.
Thus, the individual advocates or a partnership firm of advocates providing legal service are not liable to pay service tax under any circumstance and in case of service provided to the business entities having turnover above Rs. 10 Lakhs in the preceding financial year, such business entities are only liable to pay tax.
If advocates bill is of dated 12th june 2012 and fees paid to him in the month of july whether the service receiver is liable to pay service tax ?
The query is whether an advocate whose fees receipts in the current year exceeds Rs. 10 lacs is required to obtain the service tax registration or not. Further what will be the status of an advocate who got registered prior to 1-4-2012, whether he has to surrender and cancel his service tax registration or not.
rider > pointedly, ref. http://vswaminathan-swamilook.blogspot.in/2011/03/constitutional-law-amendment-of.html
“….such business entity is liable to whole of service tax.”
The implication of the 2 cited Notifications which requires to be specially focused on is that unlike in respect of other services on which the principal liability to tax attaches to the service provider, on services from a law professional it is the recipient of the service who is sought to be rendered liable to tax. In the ultimate analysis, however, there is no change from a practical point of view. In that, in any event, the burden of tax on services is, except as an exception to the rule, happens to be passed to and borne by the serviced person.
Nonetheless, without going into/de hors the heated controversy on the desirability or otherwise of taxing professional services, it is the propriety or otherwise of the serviced being made to bear the brunt of it that truly calls for a healthy debate.
For such purpose, it may be worthwhile to bear in mind some of the hints provided in the related Blogs @ Swamilook.blogspot.com
Advocates have different roles like consultancy, drafting, legal compliance and litigation.
Many of activities carried by advocates are also carried by CA,CWA and CS e.g. consultancy, drafting, legal compliance. Their role in litigation is less and role in litigation is also due to forced litigation by other parties like challenging high pitched assessment.
Court cases: a sample study of some of cases pending in various courts suggests that a large portion of cases involve disputes which are in nature of frivolous disputes raised by dishonest parties just to gain time or are cases in which honest parties have to lodge cases against dishonest parties to save limitations.
The situations is such that one may be forced to think and ask the following questions:
a. whether advocates are supporting frivolous litigation and helping dishonest people ,just to make money? and
b. whether courts are made to help dishonest people?
In informal discussion with about thirty people (a large sample) the majority answered in affirmative against both questions.
This shows general feeling of public about services of advocates.We have very common saying in most of segments of our society “ADALAT AUR VAKILO SE BHAGAWAN BACHAYEN!!”.
In such a situation there is no justification of exempting advocates and taxing other professionals like CA, CWA and CS who are really rendering essential services to the society and many of them are similar to those of Advocates. When tax is on service, theri should not be bias against type of service provider. Legal services rendered by CA,CWA and CS should also be exempted particualrly becasue these are personalised services renderd by self employed people.
Consultancy, drafting of documents, legal compliance and representational services of CA,CWA and CS are similar to those provided by advocates. Therefore, services of CA, CWA and CS also need to be exempted, otherwise there is no intelligible differentiation for levy or exemption of service tax on these professionals.
Like most of advocates other professionals are also not fully organized and carry work individually and with small set-up. Most of services of CA, CWA, CS are in nature of essential services required for their clients for meeting legal obligations and compliances Therefore their service should also be exempted.
Clients of professionals are generally more organized than such professionals, therefore, levy of service tax on reverse charge basis on organized sectors like companies, factories, big organizations etc. is desirable for better collection of service and to save small organizations from legal obligations of complying with service tax liability.
It is suggested that liability of service tax may be fixed based on size and degree of organized activities. Some big service providers who have very large customer base should continue liable as service providers like telecom, internet, banks, insurance companies,… Whereas big organizations like factories, companies, who have large number of service providers should be made liable to pay service tax for their own services as service provider and also for all services received by them like form all contractors, transporters, repair and maintenance, AMC, commercial and other renting, BAS, cleaning services, and all such services where services provider are too many and service receive is say factory. Therefoe they can pay service tax on services renderd , service received and avail CENVAT and pay net service tax
Thus there can be two categories Service providers list (SP LIST) like bank, FI, MF, insurance company, telecom, electricity, .. etc who are few in numbers but have large customer base and Service Receivers List (SR LIst) – this will include large organized service receivers like factories, companies, who avail services from large number of people.
This arrangement will improve collection because marginal small service provider are not required to pay ST but their receiver of services will be liable to pay. Thus a large amount of services which are not taxable will become taxable. Splitting of taxable entity will also not be workable because SR will pay tax. Thus all services availed by factories, companies etc. may be made taxable under reverse charge method.
what I fail to understand is that how and why advocates are being exempted from service tax??
Is it because most of the politicians/ law makers are themselves advocates or the lobby is so strong that the govt is compelled to exempt them.