FAQ on Applicability of Service Tax on Senior Advocates.

1. Who is a senior Advocate?

As per Section 16 of Advocates Act 1961 Senior Advocate is an advocate
for whom Supreme Court or a 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. Senior advocates shall, in the matter of
their practice, are subject to such restrictions as the Bar Council of India
may, in the interest of the legal profession, prescribe.
2. What was the applicability of service tax on senior advocates
prior to the Finance Bill 2016?
Prior to Finance Bill 2016, Legal Services were covered under reverse
charge mechanism as per Notification No 30/2012-ST dated 20.06.2012.
In respect of services received by any Business Entity [whose turnover
exceeds Rs 10 lakhs in the preceding financial year] from an Individual
Advocate or Firm of Advocates was chargeable to tax under reverse
charge mechanism. This means that any liability arising out of such
service provided by the advocate/law shall be borne by the business
entity. Such legal services provided to person other than Business Entity,
No Service Tax was chargeable as per clause 6(b) of the Mega Exemption
Notification No. 25/2012 dated 20.06.2012.
3. What is a business Entity?
As per section 65B(17) of Finance Act 1994, Business Entity means any
person ordinarily carrying out any activity relating to industry, commerce
or any other business or profession.
4. Was there any distinction between the category of advocates
from whom service is availed?
No, As per the old law there were no distinction with regard to the
category of advocate from whom legal services have been taken.
5. What was the amendment brought by the Finance Bill 2016?
Finance Bill 2016 has w.e.f. 01.04.2016 had withdrawn the exemption in
respect of the services provided by a senior advocate
(i)
(ii)
(iii)

to an advocate; or
partnership firm of advocates; and
a person representing in an arbitral tribunal to an arbitral tribunal.

Service Tax in above instances would be levied under forward charge.

However, the existing dispensation regarding legal services provided by a
firm of advocates or an advocate other than senior advocate is being
continued.
6. What is a forward Charge?
In case of forward charge, the service tax is recovered from the service
recipient but paid by the service provider i.e. lawyer to the government.
The onus to deposit the same is on the advocate and not on the service
recipient.
7. What are the implications of this amendment?
a) Where Senior Advocate service is taken by other advocates.
With this amendment getting enforced, the cost of litigation services shall
increase and hence prove a burden on the service recipient. As per the
new law only senior advocates are liable to pay service tax, in such a case
when services provided by the senior advocate to other advocates where
service tax is charged, the amount of service tax would become the cost
of the recipient advocate as he shall not be allowed the input credit of the
same. This can be understood by the following illustration:
Old Law (i.e. prior New
Law
(after
to
Finance
Bill Finance Bill 2016)
2016)
(Services Provided by Senior Advocate to
Other Advocates)
100,000
100,000
--14,000
Cess
--500

Value of Service
Service Tax (14%)
Swachh
Bharat
(0.5%)
Total Cost to Recipient
Advocate
Professional
Fees
of
Recipient Advocate
Total Cost to the Party
Amount
Payable
by
Senior
Advocate
towards Service Tax
under forward charge
Amount
Payable
by
Service
Recipient
under Reverse Charge

100,000

114,500

50,000

50,000

150,000
Nil

164,500**
14,500

Nil

Nil

** Since Service provided to final party is either covered under

reverse Charge or Exempt under Negative List. Hence Input Credit
of Service Tax paid on services availed from Senior Advocate by
Other Advocate shall not be allowed.

b) Where the service is directly provided by the Senior Advocate

to an individual/Business Entity whose turnover/Gross Receipts
in preceding financial year is less than Rs. 10 Lakhs
Old Law (i.e. prior to New
Law
(after
Finance Bill 2016)
Finance Bill 2016)
Value of Service
100,000
100,000
Service Tax (14%)
----Swachh Bharat Cess
----(0.5%)
Total
Cost
to
100,000
100,000
Recipient Advocate
Amount Payable by
Nil
Nil
Senior
Advocate
under
forward
Charge
Amount Payable by
Nil
Nil
Service
Recipient
under
Reverse
Charge
c) Where the service is directly provided by the Senior Advocate
to a Business Entity whose turnover/Gross Receipts in
preceding financial year exceeds Rs. 10 Lakhs
Old Law (i.e. prior to New
Law
(after
Finance Bill 2016)
Finance Bill 2016)
Value of Service
100,000
100,000
Service Tax (14%)
14,000
14,000
Swachh Bharat Cess
500
500
(0.5%)
Total
Cost
to
114,500
114,500
Recipient Advocate
Amount Payable by
Nil
Nil
Senior
Advocate
under
forward
Charge
Amount Payable by
14,500
14,500

Service
under
Charge

Recipient
Reverse

8. Has there been

amendment?

any

stay

enforced

by

the

court

on

this

Yes, Hble High Court of Gujarat and Delhi has ordered a stay on
enforcement of the amendment brought by Finance Bill 2016. Although
CBEC is planning to move to Supreme Court Against the stay order. Final
verdict on the enforcement is awaited.

9. Authors view on the amendment made by the Finance Bill?

The author is of the view that leving such service tax on a particular class
of advocates is discriminatory in nature and should be done away with or
the complete advocate fraternity should be brought under the ambit of
service tax.
Also the Ministry of Finance should devise a mode by which the Input of
service tax paid by the other advocates on the service received by them
from senior advocates is allowed. This would certainly reduce the litigation
cost.

For
MyGst.MyTax
(GST & Service Tax Experts)

Keshav R Garg
(B.Com, CA, CS, ISA (ICAI))
3328, Sector 27 D, Chandigarh
India 160 019
Ph: +91-172-265-3338, +91-172-461-3328
M: +91-9888-090-008
E-Mail: mygst.mytax@gmail.com