Madhu Sudan Mittal Vs Union of India (Jharkhand High Court)
Conclusion: Demand notice issued by the tax authorities to a Senior Advocate seeking payment of service tax on legal services provided by him to a legal firm was set aside as Notification No.30/2012-ST dated 20.06.2012 had been amended by way of substitution by virtue of two consecutive notifications, i.e., Notification No. 18/2016-ST dated 01.03.2016 and Notification No.34/2016-ST dated 06.06.2016, and since these amendments had been made by way of substitution, the said amendments would be applicable from the date of the original document i.e., from the date of issuance of Notification dated 20.06.2012, therefore, legal services provided by a Senior Advocate for the period from 01.04.2016 to 05.06.2016 was held to be not sustainable in the eyes of law.
Held: The writ petitioner happened to be a Senior Advocate practicing in this Court and being aggrieved with the Notification No. 18/2016-ST dated 01.03.2016 as under Annexure-3 and Notification No. 9/2016-ST dated 1.3.2016 as under Annexure-4 to the extent that it sought to recover service tax directly from Senior Advocates for the legal services provided by them and to the further extent that it envisaged the relationship between a Senior Advocate and an advocate / firm as that of a client and counsel. Writ petitioner, submitted that Notification No.30/2012-ST dated 20.06.2012 had been amended by way of substitution by virtue of two consecutive notifications, i.e., Notification No. 18/2016-ST dated 01.03.2016 and Notification No.34/2016-ST dated 06.06.2016, and since these amendments had been made by way of substitution, the said amendments would be applicable from the date of the original document i.e., from the date of issuance of Notification dated 20.06.2012, and in that view of the matter, the demand notice issued by the authority, which was impugned in this writ petition, was not fit to be sustainable. The writ petitioner, being aggrieved with the terms of amendment notification by which the respondents had arbitrarily and unreasonably sought to recover service tax directly from Senior Advocates for the legal services provided by them, had approached to this Court by filing writ petition under Article 226 of the Constitution of India. It was held that since both the amendments were by way of substitution and the amendment by way of substitution related back to the original document, as had been held by Hon’ble Apex Court in Zile Singh v. State of Haryana (Supra) and Government of India and Others v. Indian Tobacco Association [(2005) 7 SCC 396], both the amendments by way of substitution of the provision as contained in the original notification will be deemed to have applicable with effect from the date of notification dated 20.06.2012. Since both the amendments relate back to the original document,, the demand notice issued by the authority concerned for payment of service tax on legal services provided by a Senior Advocate for the period from 01.04.2016 to 05.06.2016 was held to be not sustainable in the eyes of law. In consequence thereof, the demand notice was quashed and set aside.
FULL TEXT OF THE JUDGMENT/ORDER OF JHARKHAND HIGH COURT
Heard the parties.
2. The instant writ petition has been filed under Article 226 of the Constitution of India wherein following prayers have been made :-
(i) For the issuance of an appropriate writ/order/direction for quashing the Notification No. 18/2016-ST dated 01.03.2016 (Annexure-3) and Notification No. 9/2016-ST dated 1.3.2016 (Annexure-4) to the extent that it seeks to recover service tax directly from Senior Advocates for the legal services provided by them and to the further extent that it envisages the relationship between a Senior Advocate and an advocate / firm as that of a client and counsel, as being arbitrary, unreasonable, patently illegal and thus violative of Articles 14 and 19(1)(g) of the Constitution of India.
(ii) In the alternative to prayer (ii), for the issuance of an appropriate writ/order/direction or a writ in the nature of declaration declaring that Notification No. 18/2016-ST dated 01.03.2016 (Annexure-3) and Notification No. 9/2016-ST dated 1.3.2016 (Annexure-4), in letter and spirit had never been given effect to in view of judicial pronouncements and stay orders passed by various Hon‘ble Courts which consequently resulted into payment of service tax by the service recipient for the legal services availed by them from Senior Advocates.
(iii) In the alternative to prayer (iii), for the issuance of an appropriate writ/order/direction or a writ in the nature of declaration, declaring that Notification No. 34/2016-ST dated 6.6.2016 (Annexure-6) and Notification No.32/2016-ST also dated 6.6.2016 (Annexure – 7) which incorporated amendments by way of substitution were clarificatory in nature and thus have retrospective effect from 1.4.2016 in as much as it nullifies the effect of Notification No. 18/2016-ST dated 01.03.2016 (Annexure-3) and Notification No.9/2016-ST dated 1.3.2016 (Annexure-4).
(iv)For the issuance of an appropriate writ/order/direction or a writ in the nature of declaration, declaring that for the period 1.4.2016 to 5.6.2016, the burden of service tax on legal services provided by Senior Advocates is to be borne by the service recipient in full under reverse charge mechanism and not by Senior Advocates directly in terms of the order dated 18.9.2017 passed in W.P.(C) No.2891 of 2016, W.P.(C) No.2892 of 2016 and W.P.(C) No.4186 of 2016 by the Hon‘ble Delhi High Court (Annexure-9);
(v) For the issuance of an appropriate writ / order / direction for quashing and setting aside the notice to show cause cum demand dated 20.10.2021 (Annexure-21) in as much as the same is inter alia in contravention to authoritative judicial pronouncements and the said show cause notice is also further barred by limitation and has been issued in a prejudged and predecided manner.
3. The brief facts of the case, as per the pleadings made in the writ petition, which are required to be enumerated read as under :-
The writ petitioner happens to be a Senior Advocate practicing in this Court and being aggrieved with the Notification No. 18/2016-ST dated 01.03.2016 as under Annexure-3 and Notification No.9/2016-ST dated 1.3.2016 as under Annexure-4 to the extent that it seeks to recover service tax directly from Senior Advocates for the legal services provided by them and to the further extent that it envisages the relationship between a Senior Advocate and an advocate / firm as that of a client and counsel.
Prior to the amendment of the Finance Act, 1994 in 2012, services in relation to advice, consultancy or assistance in any branch of law, and representational services before any court, tribunal or authority were defined as ‗taxable service‘ under Section 65(105)(zzzzm) of the Finance Act, 1994. However, pursuant to Notification No.20/2012-ST dated 05.06.2012, Section 65 ceased to have effect from 01.07.2012. Thereafter, Section 66B was brought into force whereby all services other than those specified in the negative list (Section 66D) were exigible to service tax.
The Central Government has also published sometime in the year 2012 a notification in exercise of power conferred by Section 68(2) of the Finance Act, 1994, as contained in Notification No.30/2012-ST dated 20.06.2012, which specified that in respect of certain taxable services specified in paragraph 1 of the said notification, the extent of service tax payable by the person providing the service and the person receiving the service would be such as provided in the table II of the notification.
The Central Government, in exercise of power conferred upon it by Section 93(1) of the Finance Act, 1994, published Notification No.25/2012 dated 20.06.2012 exempting certain services from the ambit of Section 66B of the Finance Act, 1994. Serial No.6 of the said notification exempted services provided by an individual as an advocate or a partnership firm of advocates by way of legal services to an advocate or partnership firm of advocates providing legal services, any person other than a business entity or a business entity with a turnover up to Rupees ten lakh in the preceding financial year.
According to the writ petitioner, from conjoint reading of the Mega RCM Notification and Mega Exemption Notification, it would be evident that legal services provided by an individual advocate/firm of advocates to another advocate / firm of advocates, to any person other than a business entity or business entity with turnover of up to Rupees ten lakhs in the preceding year were to be exempted from the ambit of service tax. With respect to legal services provided to a business entity with a turnover of above Rupees ten lakhs, the service tax liability is to be borne by service recipients under the Reverse Charge Mechanism.
It is the further case of the writ petitioner that the provision for payment of Service Tax under Reverse Charge Mechanism was specifically introduced keeping in view that Senior Advocates / Advocates are seated as an officer of the court and in order to enable them to effectively discharge duties as an officer of the court, they were absolved of the compliances and rigors under the Finance Act, 1994 and the Rules made thereunder.
However, the respondents, in an attempt to arbitrarily change the existing mechanism, amended the aforementioned notifications vide (i) Notification No. 18/2016-ST dated 01.03.2016 (First RCM Amendment Notification) that amended the Mega RCM Notification and (ii) Notification No.9/2016-ST dated 1.3.2016 (First Exemption Amendment Notification) that amended Mega Exemption Notification. Therefore, in terms of the First RCM Amendment Notification, the services provided by a Senior Advocate were allegedly brought outside the ambit of the Mega RCM Notification. The said notification came into force on 01.04.2016. The relevant portion of the First RCM Amendment Notification is reproduced below which reads as under :-
“1. In the said notification,-
(a) in paragraph 1, in clause (A),-
(i)
(ii)
(iii) in sub-clause (iv), for item (B), the following shall be substituted namely :
“(B) a firm of advocates or an individual advocate other than senior advocate, by way of legal services, or”;
(b) in paragraph (II), in the TABLE,-
(i) against Sl. No.5, for the entry under
(ii)
(iii) column (2), the following shall be substituted, namely,-
“in respect of services provided or agreed to be provided by a firm of advocates or an individual advocate other than a senior advocate by way of legal services”;
Similarly, the First Exemption Amendment Notification, Notification No.9/2016-ST dated 1.3.2016, limited the exemption given to the services provided by Senior Advocates. The said notification envisaged the relationship between a Senior Advocate and an advocate/firm as that of a client and counsel. The relevant portion of the First Exemption Amendment Notification is reproduced below which reads as under :
“1. In the said notification,-
(a) in the first paragraph,-
(i) in entry 6, for clause(b) and clause (c), the following clauses shall be substituted, namely,-
“(b) a partnership firm of advocates or an individual as an advocate other than a senior advocate, 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 up to rupees ten lakh in the preceding financial year; or
(c) a senior advocate by way of legal services to a person other than a person ordinarily carrying out any activity relating to industry commerce or any other business or profession;”
Therefore, the writ petitioner, being aggrieved with the terms of amendment notification by which the respondents have arbitrarily and unreasonably sought to recover service tax directly from Senior Advocates for the legal services provided by them, has approached to this Court by filing writ petition under Article 226 of the Constitution of India.
4. Mr. Sumeet Gadodia, learned counsel for the petitioner, has submitted that the issue has already been considered by Delhi High Court in W.P.(C) 2891/2016 [Delhi High Court Bar Association and Another v. Union of India and Others] appended as Annexure-5 to the Paper Book, wherein an ad interim order has been passed staying the operation of the execution of para 1(a)(i)(b) of Notification No.9/2016-ST dated 1.3.2016, para 1(a)(iii) and (b)(iii) of Notification No.18/2016-ST and para 2(1)(a) of Notification No.19/2016-ST and directing the respondents to continue the Reverse Charge Mechanism for payment of service tax for Senior Advocates under Notification No.30/2012-ST.
5. The respondent Central Goods and Services Tax & Central Excise has been called upon and in terms thereof, a counter affidavit has been filed.
6. Mr. P.A.S.Pati, learned counsel appearing for the respondent Central Goods and Services Tax and Central Excise, has submitted that Notification No.30/2012-ST dated 20.06.2012 has already been amended by virtue of Notification No. 18/2016-ST dated 01.03.2016.
Further, Notification No.34/2016-ST dated 06.06.2016 has again amended Notification No.30/2012-ST dated 20.06.2012, in respect of legal services Reverse Charge Mechanism with effect from 06.06.2016.
In the backdrop of such amendment, submission has been made that liability of payment of service tax on legal services provided by a Senior Advocate falls under Forward Charge Mechanism for the period from 01.04.2016 to 05.06.2016 and, therefore, the demand notice has been issued for the said period.
It has further been stated that against the imposition of Service Tax on Forward Charge Basis, a large number of writ petitions were filed in the High Courts of Calcutta, Kerala, Gujarat, Telangana & Andhra Pradesh, Allahabad, Madras, Punjab & Haryana and Delhi as also appeal was filed before the Hon’ble Apex Court and the Hon’ble Apex Court has transferred all these cases pending in several High Court to Delhi High Court vide Transfer Petition (s) (Civil) 820-829/2016 [Union of India and Another v. Kavin Gulati etc. with T.P.(C) No.16/2017 dated 18.08.2017].
The Delhi High Court disposed of all the writ petitions vide final order dated 18.09.2017 upholding its interim order dated 01.04.2016 that service tax on the said service would be collected on Reverse Charge Mechanism basis for the period 01.04.2016 to 05.06.2016, as has been stated in the counter affidavit that the issue has not finally been adjudicated as yet.
7. The respondents have come out with the stand in the counter affidavit as under paragraph 8 thereof that the Notification No.30/2012-ST dated 20.06.2012; Sl. No.05 of the said notification provides for payment of 100% service tax liability by the recipient of service under Reverse Charge Mechanism (RCM). However, Notification No. 18/2016-ST dated 01.03.2016. amended the Notification No.30/2012-ST dated 20.06.2012 due to which, in respect of legal services which were covered under full reverse charge, has been amended as under :-
