A division bench of the Delhi High Court today, in High Court Bar Association v. Union of India, invalidated the levy of service tax on Senior Advocates under forward charge under the provisions of the Finance Act, 1994.
Justices S Muralidhar and Prathiba M Singh were hearing a bunch of petitions wherein the levy of Service Tax on senior advocates were challenged.
Till the year 2016, there were no such distinction made between the Senior and ordinary Advocates in granting exemption from service tax. However, the Budget 2016 withdrawn the tax exemption on services provided by senior Advocates. The Notification issued by the CBEC in March 2016 withdrawn exemption given to a Senior Advocate in respect of services provided to Advocates or Firms of advocates/non-business entities/ business entities having turnover below Rs. 10 lakhs.
The move, intended to widen the tax base, met with criticism from legal fraternities and had been challenged before various High Courts.
On March 2016, the High Courts of Gujarat, Delhi and Calcutta stayed the notifications issued by the CBEC by finding that these “may unreasonably prejudice Senior Advocates”. Subsequently, the Government granted a small relief to the Senior lawyers, by applying Reverse Charge Mechanism (RCM) on such services.
On 1.4.2016, the Court passed an interim order whereby it was directed that service tax on services of Senior Advocates would continue to be payable on reverse charge basis.
In August, the Supreme Court has transferred the petitions relating to service tax on lawyers which were pending before the High Courts of Calcutta, Allahabad, Gujarat, Kerala, Punjab & Haryana and Andhra Pradesh & Telangana to the Delhi High Court.
Under the new Goods and Services Tax (GST) law, Services supplied by an individual advocate including a senior advocate by way of representational services before any court, tribunal or authority, directly or indirectly, to any business entity located in the taxable territory, including where contract for provision of such service has been entered through another advocate or a firm of advocates, or by a firm of advocates, by way of legal services, to a business entity.
On the last date of hearing, the Hon’ble Court had directed the Counsel for the Revenue to seek instructions as to whether the Department would enforce demand on Senior Advocates for the period 1.4.2016 to 5.6.2016. Today, when the matter was listed for hearing, Senior Standing Counsel Harpreet Singh, the Counsel for the Department argued that demand would be enforced.
The Counsel for the Petitioner, Advocate Ruchir Bhatia argued that in view of order dated 1.4.2016, the Department would have received service tax on fees paid to Senior Advocates and therefore the stand of the Revenue is not justified. The Hon’ble Court has accordingly held that demand on Senior Advocates for the period 1.4.2016 to 5.6.2016 is not warranted.
Read the full text of the Order below.
