No Service Tax or GST on Legal Services by Individual Lawyers: Orissa HC [Read Order]

In a recent ruling, the Orissa High Court ruled that individual lawyers are exempt from the levy of service tax and GST on income derived from legal services.

Shivananda Ray, a practicing advocate based in Bhubaneswar, filed a writ petition challenging a demand notice and a subsequent recovery order. The demand alleged unpaid service tax of Rs. 2,14,600 for the financial year 2015-16 and included an additional penalty of Rs. 2,34,600 along with applicable interest. These actions were initiated under Section 73 of the Finance Act, 1994, based on income details reportedly obtained from the Income Tax Department.

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The petitioner argued that as an individual legal practitioner, he was exempt from service tax and GST under existing provisions. The petitioner relied on earlier directions issued by the High Court in 2021, which instructed GST authorities not to issue such demands to advocates providing exempt legal services. The petitioner further stated that the tax department's action caused undue hardship and violated clear legal exemptions.

In response, the department's counsel argued that the petitioner had not cooperated with the adjudication process, prompting an ex-parte order. They argued that the service tax demand arose due to non-compliance with Sections 67 to 70 of the Finance Act.

The bench comprising Chief Justice Harish Tandon and Justice B.P. Routray referenced its previous judgment in W.P.(C) No. 27727 of 2020, which directed that no GST or service tax demands should be issued to individual advocates offering legal services falling within the negative list or exempted categories.

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The court observed that the GST Commissionerate had already issued clarifying instructions in April 2021, reaffirming that legal services rendered by individual advocates to non-business entities or to businesses with turnover under Rs. 10 lakhs were exempt from tax.

Considering the petitioner’s professional status as an undisputed legal practitioner, and in light of the aforementioned legal precedent and departmental instructions, the court ruled that the demand and recovery notices were invalid with respect to his income from legal services. The court allowed the department to assess any service tax liability, if applicable, on income derived from house property as declared in the petitioner’s income tax returns for the assessment years 2018-19 and 2020-21.

The writ petition was allowed, and the impugned notices were set aside to the extent they relate to the petitioner’s professional income as a lawyer.

To Read the full text of the Order CLICK HERE

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