CA Tarannum Khatri

Definition of legal service

As per Notification No.  25/2012-Service Tax, Dated – 20th June, 2012

“Legal service” means any service provided in relation to advice, consultancy or  assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority”

(Before 1/7/2012 representative service was exempt) Service providers:

  • Individual advocate
  • Partnership firm of advocate
  • Arbitral tribunal.

According to notification no 25/2012 dated 20/6/12,

If an individual advocate or partnership firm of advocates provides service to

  1. Individual advocate
  2. Partnership firm of advocates
  3. Any person other than business entity
  4. A business entity with a turnover not more than 10 lacks in preceding financial year,

The service is exempt from levy of service tax.

What is business entity?

Any person (individual, firm, HUF, company etc) carrying out any activity relating to industry, commerce or business or profession.

That means utilization of legal service for personal purposes is exempt.

When to pay the tax and by whom?

If business entity that has turnover more than 10 lacks in preceding financial year receives legal service, business entity has to pay whole service tax under reverse charge mechanism.

Some advocates provide service related to income tax, vat, pf, esic matters, all these services are covered under legal services because it is assistance in any branch of law.

If lawyer provides service other than legal service, it is taxable as per taxability of that service. Exemption is only for legal service.

Cenvat credit:

If business entity pays service tax under reverse charge, it can take cenvat credit for it and utilize it for payment of service tax and excise.

Legal service is input service as per definition (rule 2(1) of cenvat credit rules, 2004)

Let’s understand the concept from following chart:

Service provider Service receiver Who will pay service tax?
Individual advocate Individual advocate exempt
Firm of advocate Individual advocate exempt
Firm of advocate Firm of advocate Exempt
Individual/firm of advocate Person utilize service for personal purposes Exempt

 

Firm of advocate Business entity having turnover less than 10 lacks preceding f.y. Exempt
Firm of advocate Business entity having turnover of more than 10 lakhs preceding f.y. Business entity under reverse charge-100%
Firm of advocate Business entity outside India Exempt
Arbitral tribunal Firm of advocate exempt

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Category : Service Tax (3394)
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39 responses to “Service Tax on Legal Services under Reverse Charge Mechanism”

  1. vinaya says:

    I AM GIVING CONSULTANCY SERVICES WHETHER I CAME UNDER RCM

  2. Deepak says:

    My client has taken consultancy services (in the name of professional services) for a case from an advocate however such advocate is not appearing for him in court. Whether service tax under reverse charge should be paid or not??

  3. MD SHAKIL says:

    Dear all,.

    I have an individual client serving for a Pvt Ltd co.as manpower supplier.
    He provided services for 1500000(say) for Oct’15-June’26 but did not get any service tax and filed nil return.
    Now, I want to know, will the return be nil or any thing else because I tried to file return by mentioning the amounts for different months with nil tax rate but I failed.
    If possible, pl advise stepwise to file return.

  4. Bala Sundaram says:

    If Service provider is a Sr Advocate & provides legal services to business entity whose turnover in preceding financial year is more than 10 lacs then who is liable to pay service tax ? whether service provider or service receiver. The service Provider is raising the bill w/o Service Tax . Is reverse tax mechanism applicable or not

  5. Vikesh Agrawal says:

    Yes it will be liable to service tax @14% on 48000/- under reverse charge,
    condition is only that you crossed the limit 10lakh in preceding year.

  6. Som Nath Das says:

    Dear Sir,

    My advocate provided legal services of Rs.48000/- and we already deducted TDS @ 10% under 194 J in financial year 201-16 also we are Pvt. Ltd. company my point is that Lawyer consultancy will come on Under Reverse Charge Method. So we have to deposit service tax on behalf of Lawyer if yes then how much would be Rate 14% or ?

    Regards,

    Som Nath Das

    • Prakash Chand Tiwari says:

      Dear Sir,

      My advocate provided legal services of Rs.5500/- for a labour case matter we are Pvt. Ltd. company my point is that Lawyer consultancy will come on Under Reverse Charge Method. So we have to deposit service tax on behalf of Lawyer

      Regards,

      Prakash Chand Tiwari
      9718312412

  7. CA Ram Talluri says:

    Sir, Greetings.
    We have availed Legal services from Singapore Legal firm for IPO related services. Whether RCM is applicable to this?

    • RABIN MUKHERJEE says:

      Sir, please send reply of my query & updated notification on service tax & tds in my below mention mail ID.

      Regs/Rabin

  8. Anil Khanna says:

    Services Provided by Other Consultants like Mechanical Consultant is this covered by reverese Charge Machanism

  9. CA Ronak Kothari says:

    @ Vinay Pandey
    As per your version you have charged service tax on your bill, which could only be done after taking Service Tax Registration.

    Filing of return is compulsory once registration has been taken, even if it may be a nil return, within the prescribed time limit, failing which penal action can be attracted.Thus to prevent yourself from haressment and litigations, it is advisable to file NIL returns before the due dates.

  10. Vinay Pandey says:

    Sir

    I am partner of law firm and we’re liable to charge service and we did. But after notification came through which service tax on legal service became under reverse charge mechanism.

    Should we still file service tax return ?

  11. Nilesh says:

    While paying the S.T on Advocates bill under RCM ,
    Does Advocate require to registered with Bar Council ??

    Kindly clarify …

  12. sachin verma says:

    Sir,

    Our Bills are consultancy of Rs. 2000/- What are the charged service tax said amount.

    please tell.

  13. Sanjay says:

    >> 4. A business entity with a turnover not more than 10 lacks in preceding
    >> financial year

    What is the scope of term “turnover” here?
    Does it cover only saled or is it income?

    Does a business entity that does not have any sales turnover, but whose income from investments is > 10Lakhs fall under the scope of this clause?

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