Levy of service tax on advocates is Constitutional – Bombay HC

In the case of P.C. Joshi Vs. Union of India, Bombay High Court has held that levy of service tax on advocates is Constitutional.

It was claimed by the Petitioner P. C. Joshi who is an advocate by profession that section 65(105) (zzzzm) of the Finance Act, 1994 as inserted by the Finance Act 2009 and substituted by Finance Act 2011, proceeds to levy Service Tax on the Advocates. The understanding of the Petitioner and the association of advocates supporting him is that the amendment to Finance Act as referred above levies, assesses and recovers Service Tax from Advocates and that would be violative of the constitutional guarantee of justice to all.

On appeal it was held that The services provided to a individual client by a individual advocate continues to be exempted from the purview of the Finance Act and consequently Service Tax but when an individual advocate provides service or agrees to provide services to any business entity located in the taxable territory, then, he is included and liable to pay Service Tax. That is because the legislature was aware that poor and needy section of the population requires advice, consultancy or assistance in any branch of law, if he requires legal advice, aid and assistance, then, that should be available to him at times immediately and cheaply. He should not be burdened with a tax to be levied on the advocate for providing such services. Therefore, if the legislature thought it fit to exclude a individual advocate and rendering the above services to individuals, so long as he is rendering services to those who cannot afford to pay heavy professional fees and charges being individuals that the legislature deemed it fit not to include in the tax bracket the individual advocates. These advocates may be rendering services to the needy and specially women and children at Village, Taluka, District, Town and even at city levels. It is, therefore, apparent to us that the legislature while making the above distinction did not in any manner overlook the constitutional guarantee and as envisaged in the preamble to the Constitution of India., so also Article 21 and 39A thereof, the legislature made a distinction and which appears to us to be completely reasonable. The classification between those who can afford professional legal services and are ready to pay the fees or charges demanded without seeking any reduction or concession and those who cannot pay legal fees but can at best bear meagre expenses has been made. This classification has a reasonable nexus with the object sought to be achieved. It cannot be said that while introducing this provision, the legislature did not take into account the economic realities. The economic realities are that even, legal services are rendered in an organized manner. There is not only an individual operating and functioning as an advocate but there is a firm or association of advocates operating on business principles and functional not only in metro towns and cities but even in those places which can be termed as district town and cities. When advocate is group or organize themselves by making huge investments in acquiring immovable properties for professional work, heavy overheads, in the form of clerical and support staff, with facilities of cabins or rooms, then, legal services are rendered to organized groups or business entities predominantly. They may be of the nature of advice, consultancy or further acting and appearance in Courts and Tribunals. These persons can very well pay the fees and charges without any demur or complaint. It is when services are rendered to such entities and persons by not individual advocates but those working on business lines, then, if they are brought within the net of taxable services and service tax is levied on them, they can hardly complain. Their right to carry on legal profession and as per their choice can hardly be said to be taken away much less adversely affected.