FINANCIAL CONSULTING & SERVICES

What is ‘Service Tax’?

• Service tax is a type of indirect tax that is levied by the Government on service providers on certain service transactions, but is ultimately borne by the customers.
• Section 64 of the Finance Act, 1944 extends the levy of service tax to the whole of India, except the State of Jammu and Kashmir.
• Section 65B(44) defines the word ‘Service’ as “any activity carried out by a person for another for consideration, and includes a declared service”. It further excludes the following from the definition of Service:
• A transfer of title in goods or immovable property, by way of sale, gift or in any other manner.
• Such transfer, delivery or supply of any goods which is deemed to be a sale under Article 366 of the Constitution.
• A transaction in money or actionable claim.
• A provision of service by an employee to the employer in the course of his employment.
• Fee taken in any Court or Tribunal.
• In the current tax regime, Service Tax has been subsumed into GST i.e., Goods and Services Tax.

What services are subject to Service Tax?

• All services including declared services other than those specified in the negative list, or otherwise exempted, provided or agreed to be provided in the taxable territory are subject to Service Tax.
• In addition, Swacch Bharat Cess and Krishi Kalyan Cess are also levied on such services.
• Central Board of Indirect Taxes (CBIC) and GST Council have issued multiple notifications further defining and amending the list of services included and excluded from service tax and GST.

Are legal services provided by an individual advocate or a firm of advocates taxable services?

Case – Adv. Pooja Patil vs Deputy Commissioner, CGST and CX Division VI and Ors. (W.P. No. 1085 of 2024)

Court – Bombay High Court

Key Issue – Whether the services provided by an individual advocate or a firm of advocates taxable under Service Tax?

Bench – Justice G.S. Kulkarni and Justice Kishore C. Sant

Date of Pronouncement of Order – 24.01.2024

Prayer of the Appellant – To set aside the order passed by the Deputy Commissioner, CGST and Central Excise, Raigad whereby an amount of Rs. 35,82,298/- towards Service Tax has been ordered to be recovered from the Petitioner with interest and penalty.

Facts of the matter –

On 5^th October, 2023, the Petitioner received an email with directions to attend a hearing on 17^th October, 2023 and reference to a show-cause notice dated 24^th December 2020 which was never received by the Petitioner or her Chartered Accountant. The Petitioner through her Chartered Accountant, appeared on the date of hearing. On 18^th October, 2023, the Petitioner addressed a letter to the Designated Officer and attached the email dated 5^th October, 2023 pointing out that the show-cause notice was never received. Furthermore, it was pointed out that neither Service Tax nor GST were payable by advocates. Regardless, on 9^th January, 2023, the Petitioner received the impugned order dated 26^th October, 2023 vide email.

In the furtherance of the impugned order, the Petitioner filed a petition under Article 226 of the Constitution before the Hon’ble High Court of Bombay requesting the Court to issue a writ of certiorari in respect of the impugned order and to quash and set aside the same.

The Petitioner contended that the show-cause notice on the basis of which the impugned order was passed was neither issued nor received and hence the order was against the principles of natural justice as the Petitioner was not granted an opportunity of appropriate hearing. The Petitioner also contended that the impugned order was itself contrary to the Notification No. 25/2012 – service Tax and Notification No. 30/2012 – Service Tax dated 20^th June, 2022 wherein, individual advocates were categorically exempted from the purview of taxable services and levy of any service tax.

The Hon’ble High Court observed, “as set out in the Notifications, the taxable service in respect of services provided by the individual advocate or a firm of advocates has been set out to be ‘Nil’.” The Court also observed that the services provided by an individual advocate, partnership firm of advocates, by way of legal services is exempted from levy of service tax.

Thu, the Court held that the Designated Officer acted without jurisdiction and that the impugned order is contrary to the notifications dated 20^th June, 2012. The same was thus quashed and set aside.

To read the complete order, click here.

Conclusion

Similar cases have been filed before various courts in India wherein orders were passed against Advocates for recovery of service tax along with penalty and fines. Thus, Notification No. 25/2012 – service Tax and Notification No. 30/2012 – Service Tax dated 20^th June, 2022 were issued to clarify and specify that legal services provided by independent advocates or a firm of advocates do not fall under the purview of service tax and hence, are exempted.

DISCLAIMER:      

i)This opinion/clarification note is based on the facts provided to us and the same is being issued without any knowledge of intent, prejudice, non-disclosure, misrepresentation, or concealment of facts if any.    

   ii)We have not done investigation of correctness of facts and the limited opinion represents our understanding of the provisions of the law on the matter. The compliance mentioned above  is not exhaustive and other compliance may also be involved depending on case to case basis.   

iii)The conclusions reached and views expressed are matters of opinion based on our understanding of the related laws, rules, notifications, Citations, circulars, etc.      

iv)Pranav Kumar & Associates, Company Secretaries, its partners, associates, employees or staff shall not be held liable for any action/ consequence arising out of any contrary view(s) taken by any other party or statutory authority