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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