CA Pradeep Jain & Sukhvinder Kaur, LLB [FYIC]

The Legal Consultancy service was brought under Service Tax net from 01.09.2009. The Taxable service was defined under sub-clause (zzzzm) of clause (105) of Section 65 of the Finance Act, 1994. The Legal services provided to a business entity by any other business entity in relation to advice, consultancy or assistance in any branch of law were covered.

However, the services provided by way of appearance before any court, Tribunal or any authority and the services provided by the individuals were excluded.

Now, the Finance Minister has proposed in Finance Bill 2011 to expand the scope of legal consultancy services falling under the tax net.

The sub-clause (zzzzm) has been proposed to be substituted in the following manner:

(zzzzm) (i) to any person, by a business entity, in relation to advice, consultancy or assistance in any branch of law, in any manner;

(ii) to any business entity, by any person, in relation to representational services before any court, tribunal or authority;

(iii) to any business entity, by an arbitral tribunal, in respect of arbitration.

Explanation – For the purposes of this item, the expressions “arbitration” and “arbitral tribunal” shall have the meanings respectively assigned to them in the Arbitration and Conciliation Act, 1996;’

Thus, the following services are included:

(i) Services of advice, consultancy or assistance provided by a business entity to individuals are covered.

(ii) Representational services provided by any person to a business entity; and

(iii) Services provided by arbitrators to business entities.

The TRU letter dated 01.03.2011 clarified that Services provided by individuals to other individuals will remain outside the levy.

Now, under the Taxable Legal Consultancy services, the service provided by Business entity to another Business entity, Business entity to Individual and Individual to Business Entity are covered.

However, the Legal service provided by an Individual Lawyer provided to an individual will also get covered under the taxable service and service tax will become payable on all services.

Thus, the overall outcome of this levy will be that individual lawyers will covered under the service tax net. They have to pay the service tax on services provided to business entities. But the services provided to individuals will be exempt.

But earlier they were not covered under service tax and need not to take registration and pay tax. But now they will be covered. We have never seen a lawyer who is providing to individuals only. They provide services to both the individuals as well as to business entities. Hence, every individual lawyer will be covered. We have the debate about the fees of lawyers in recent past in the newspaper. So, threshold exemption of Rs. 10 Lakh will be meaningless for them.

This legal community feels that they should not be covered under service tax. If they are covered then the exemption is meaningless for them. They have to register, pay tax and file returns with the department. They have to follow the procedures of that department also. If this is to be done, they can do it for individuals also.

The second outcome of this levy will be on Chartered Accountants. Earlier the exemption was given to them on representation work on the ground that when lawyers are not paying tax on such activity then they should not be taxed. Hence the exemption under Notification no. 25/2006-ST, dated 13.07.2006 was given to them. But now the lawyers will plead that when the exemption is given to CAs then they should also be exempted otherwise their services will be costlier. They will not be able to compete with Chartered Accountants.

The third outcome and most known outcome of this levy will be lawyers will go on strike and there will agitation against this levy. Let us wait and see the future.

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  1. indirecttaxesindia says:

    It is very sad to see that government wants to tax everything just for the sake of revenue collection. Taxing Legal Services under service tax is the lowest point in human civilisation.

  2. MUKUL GUPTA says:

    1. Withdrawal of imposition of Service Tax on ‘Legal Consultancy Services’ by substituting Sub-Clause (zzzzm) in Clause (105) of Section 65 as introduced in Chapter V of the Finance Act 1994 by introducing Clause 71(A)(v)(d) in the Finance Bill 2011.
    1.1 The substitution of this Clause has unreasonably enlarged the scope of ‘Legal Consultancy Services’ being undertaken by the Citizens of this great country. The Legal advice or representation is an established requirement of the civilized society and thus practice of Law is an accepted noble profession which not only provide the correct interpretation of Law, but also guide for leading straightforward life in-accordance to the Law of the country.
    1.2 The legal guidance to the citizens should not be subjected to Service Tax and should not be made a means of earning revenue. It is the fundamental right of the Citizen of this great country to get the correct legal advice. If the Government cannot provide such services through its own system, then it has also no right to levy Service Tax on the legal feternity including Chartered Accountants and other persons who provide legal advise, consultancy or assistance in any branch of Law or provides their services for representing the cases including arbitration. If this leavy of Service Tax is implemented, then it would be a direct burden on the already repressed (due to unfair adjudication of cases for erroneous practices and corruption) business of this country which will adversely affect the faith of the citizens in the judicial system of our country.
    1.3 With highest regards, we would like to submit that if Provisions of Service Tax Law are truly followed in general and implemented by the officials of the Service Tax Department, then the coffers of the Central Government would be much higher and there would be no need for bringing ‘legal services’ or ‘health services’ into the ambit of Service Tax.
    1.4 The officials of the Service Tax Department may mis-use this tool for levy of Service Tax on the ‘legal consultancy services’ especially on representational services involving service tax matters. A new avenue of corruption will be opened, so it is the need of hour to first clean-up the system of collection of Service Tax from malice of the corruption and then to impose any further tax on any service.
    1.5 The U Turn taken by the Finance Ministry in bringing the ‘legal consultancy services especially representational services’ into the ambit of Service Tax is against the accepted and established policy of this Government which have been disclosed by the earlier Finance Minister in the Parliament during their earlier Budget Speeches. The legal feternity is unable to understand that why this year the team of the Finance Ministry had to deviate from the accepted policy of this very Government for keeping the legal feternity out of bonds of Service Tax.
    1.6 It may be prerogative of the Government to impose Service Tax on the legal consultancy, but it is not wise and reasonable to levy Service Tax at this difficult juncture.
    1.7 In the larger interest, this levy of Service Tax should be withdrawn without any condition or reservation. The legal representation made by the Advocate or others is a part of his ‘duty as an official of the court’ and such remuneration for this duty cannot be subjected to Service Tax.

  3. R. Rama murthy says:

    Proposal to treat advocate’s profession as that of advising for the business activity by the Finance Minister is unmindful and I failed to understand how the Ministers in the cabinet who are said to have practiced law thought it is a profession for income. Those who have practiced in High Court and Supreme Court may think it is a source of income but lawyers who practice in lower levels definitely feel it is only a PROFESSION and by which we help people to whom injustice has been done. Just because it has been rendered to a business community or a person whose activities are incidentally considered as business, justice like treating ‘Profession’ as business for the purposes of granting deprecation under income tax Act, the profession will not be addressed as business. Legal opinions, will not enrich the person but only gives a caution. An Advocate by appearing on behalf of client whether Individual or a business entity only pleads on his or its behalf and do not derive any benefit for himself but tries to explain the entire society how people live in society. Earning may be a part in the process of profession. Levy of service tax on advocates is totally immoral and only converts the professionals as business entities. Just because for granting some exemptions or deductions, if profession has been treated it cannot be extended for every purposes. Let some morals be prevail in the Central cabinet to prevent the levy otherwise will lead to miscarriage of justice. Let Government be not a party in bringing down the profession for the sake of getting some revenue.

  4. CA Akhilesh Narayna says:

    Services provided by individuals, except representational services provided to a business entity are not liabile foe service tax. Services provided by business entity to any person is liable for service tax.

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January 2021