CA Ujjaval Sharmaujjval

Hon’ble Finance Minister Mr. Arun Jaitley in Union Budget of 2016-17, vide Notification No. 9/2016 and 18/2016 dated 1st March, 2016 has made amendment in Notification No. 25/2012 and 30/2012 dated 20th June, 2012 respectively. Through this amendment the government has charged service tax on services provided by senior advocates to their clients on forward basis (i.e. service tax has to be paid by senior advocates instead of clients)

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 -ST 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.

5. 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

6. What was the effect of the amendment brought by the Finance Bill 2016?

Finance Bill 2016 has now been provided that services provided by senior advocate to a business entity with a turnover of more than Rs. 10 lacs are know taxable so services provided by senior advocates to their clients are taxable on forward charge basic

 7. What are the implications of this amendment?

a) 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 ?

As per Mega Exemption Notification No. 25/2012 -ST to exempt services provided by a Senior Advocate by way of legal services to any person other than a business entity or a business entity with a turnover up to Rs. 10 lacs in the preceding financial year so the service tax will not applicable on the service proved to any person other than business entity

b) Where Senior Advocate service is taken by other advocates. ?

As per the Notification No. 33/2016 – ST dated June 6, 2016 has amended Service Tax Rules, 1994 to provide that services provided by senior advocates would be covered under reverse charge mechanism. Also, if the senior advocate is engaged by another lawyer, the Service Tax is to be paid by the litigant under reverse charge. So still there is a reverse charge as original

 8. Has there been any stay enforced by the court on this amendment?

Yes, H’ble 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. Author’s view on the amendment made by the Finance Bill?

As per the Notification Nos. 32/2016 – ST, 33/2016 – ST, 34/2016 – ST all dated June 6, 2016 made amendments seek to alter the basis on which stay was granted in Delhi High Court Bar Association & Anr. v. UoI & Ors. WP(C) 2891/2016 with CM-APPL12126 & 12127/2016 (Del.) and also in Percy Cawas Kavina v. UoI & Ors. Spl. CA 4926/2016 (Guj.) holding the differentiation attempted in this year’s Union Budget between advocate and senior advocate to be improper. However, it is still not free from doubt whether the Central Government would have successfully put this issue to rest.

10. What is the rate of the service tax on the service of the Senior Advocate service ?

The effective rate of service tax has been increased from 14.5 % to 15 %  (Service Tax 14% plus 0.5% Swachh Bharat Cess plus 0.5% Krishi Kalyan Cess) w.e.f 01.06.2015.

11. Registration Of The Service Tax At Glance

♥ When to applied for the registration :-

  • As per the service tax rules 2005 a person who provides a taxable service is required to mandatorily apply online application for registration for service tax, if the value of the services provided by him in a particular financial year exceeds a Rs.9,00,000/-

♥ Time limit for the application of the registration in the service tax:-

  • A person should register within 30 days from date of commencement of the business of providing taxable service if assessee fails to register within 30 days then the penalty of Rs.10,000/- under section 77 can be imposed.

♥ Documents required for the service tax registration:-

  • Name and address of the applicants
  • Email id for registration with aces
  • Details of the persons signing the application form such as name, address and telephone no
  • Address proof of the preimise to be registered i.e Utility bill or rent agreement etc.
  • 2 photo of the applicant
  • Certified copy of the memorandum of association, partnership deed and other constitution document as the case may be.
  • Photocopy of pan card of applicant, in case of proprietorship pan of proprietior etc.
  • Copy of the resolution passed in the board meeting in case of company /LLP
  • Photocopies of all the documents should be certified by director/ partner/ proprietor
  • All documents are required in two copies, self attested
  • Copy partnership deed in case of partnership firm.
  • Copy of pan card of all partenrs/proprietor/directors.
  • Cancelled cheque of firm / proprietor

♥ Procedures and records for the service tax after registration

A. Registration

B. Preparation of invoices

C. Maintenance of records

D. Payment for the service tax

E. Filling of half yearly return

F. Filling of the annual return

♥ Registration

The process of the registration is being discussed as above

♥ Preparation of invoices

Issue of invoice: – As per provisions contained in Rule 4A of Service Tax Rules, 1994 every service provider have to issue an invoice in the time frame work given hereinafter: –

Issue of Invoice Rule 4A
Provider of banking & other financial service45 days from the date of completion of taxable service or receipt of any payment
In any other case30 days from the date of completion of taxable service or receipt of any payment
No invoice is required to     be    issued    to such extentWhere the amount received in excess upto Rs 1000/- then the amount mentioned in the original invoice

♥ Maintenance of records

The service tax is dealt with the provisions of Rule 5 of Service Tax Rules, 1994.

Following are the records required to be maintained for the purpose of service tax:

a. Records prepared or maintained by the assessee for recording of all the accounting transactions;

b. All other financial records maintained by the assessee in the normal course of business.

Further, based on the services provided by the assessee, following are the suggested records to be maintained exclusively for recording service tax transactions:

1. Bill register

2. Receipt register

3. Service Tax Master File

4. Debit / credit Notes Register

5. Reimbursement of expenses Record

6. CENVAT Credit Register or Statement – For recording

(a) Availment,

(b) Utilization

(c) Opening and Closing Balances of the Cenvat Credit.

7. Service tax related documents for the following:

(a) Agreements entered with the clients

(b) Copies of bills raised on clients

(c) Receipts issued to the clients

(d) GAR-7 Challans relating to service tax

(e) Other documents relevant for service tax.

8. Register or document for the visits by the Department

9. Correspondences with the Department and

10.  Acknowledgment of documents submitted to the Department

11.  Other documents as organization requires from time to time

♥ Payment for the service tax

Particulars FrequencyDue Date  Paid  through Online
Individual/Partnership/HUF/LLPQuarterly6th of the Following  Quarter
OthersMonthly6th of the Following Month

 Exception: –  Service Tax Collected for the month/quarter ending March shall be payable by 31st March of the said calendar year

  Interest payable for delayed payment.

Section 75 of the Finance Act is proposed to be amended so that a higher rate of interest would apply to a person who has collected the amount of service tax from the service recipient but not deposited the same with the Central Government. ( w.e.f. 01.06.2016).

S.No.SituationRate of simple

Interest

1Collection of any amount as service tax but failing to pay the amount so collected to the credit of the Central Government on or before the date on which such payment becomes due.24 per cent
2Other than in situations covered under serial number 1 above.15 per cent.

♥ Filling of half yearly return Due Date 25th April

Every Assessee who has registered for Service Tax and has been assigned a Service Tax Registration No. is required to file a Service Tax Return on a half yearly basis. Irrespective of whether the Assessee has provided taxable services in the period or not, he is required to file his Service Tax Return on a half yearly basis before the due dates as mentioned below

Period Service Tax  returnReturn Due Date
October  to March25th April
April to September25th  Oct

♥ Filing of Annual Service Tax Return introduced

Rule 7 of Service Tax Rules, 1994 is being amended to introduce annual return in Service Tax. All assesses other than those notified by CBEC, shall be required to file an annual return for the financial year to which the return relates, in such form and manner as may be specified by CBEC, by the 30th day of November of the succeeding financial year. Such return can be revised within a period of one month from the date of submission. Also, penalty for delay of filing such return has been provided at the rate  of one hundred rupees per day for the period of delay in filing of such return, subject to a maximum of twenty thousand rupees. It is pertinent to mention that no change has been proposed in Limitation

(Author can be reached at caujjvalsharma@gmail.com)

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  • Hirva Shah

    Good article!! Just want to know as in the table in Notification 30/2012 no % of reverse charge applicable is prescribed for senior advocate, then how much RCM applicable to the SR?

  • Arun Agarwal

    Good Article

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