Service Tax Leviable on Legal & Consultancy Services under RCM: CESTAT [Read Order]

The New Delhi Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has stated that legal & consultancy services under RCM is liable to service tax.

The two member bench of Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) has stated that “in absence of any reply or any supporting documents, Legal fees expense incurred by the assessee are expenses towards Legal services. Accordingly, Service Tax on Legal Fee expense incurred by the assessee is upheld.”

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Saisun Outsourcing Services Private Limited , the assessee/appellant was registered under Service Tax for providing services under Manpower Recruitment/ Supply agency Services. A show cause notice was issued to the assessee by the Commissioner confirming the demand of Service Tax in respect of legal & consultancy services under RCM under proviso to sub-section (2) of Section 73 of the Finance Act, 1994 along with interest.

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 On perusal of the agreements submitted by the appellant, the Department found that none of the agreements was registered. The Department found that addresses of their clients had not been mentioned in any of the invoices.  The nature of services & service tax amount were also not mentioned. Therefore, letters were issued to these clients to submit the copies of ledgers, invoices, agreements and the amount of Service Tax paid by them to the appellant for the period from 2015-16 to June, 2017.

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The Commissioner (Appeals) denied the appeal that the assessee had filed.  Before the Tribunal, the assessee has contested the Commissioner's (Appeals) ruling.  Since these receipts were recorded in the Profit & Loss account, the assessee argued that the Commissioner had made a mistake in comparing the Service Tax gross receipts as reported in Form 26AS with the receipts reported in the Profit & Loss account.

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The bench observed that, in view of the amended provisions of the Finance Act, 1994, which went into effect on July 1, 2012, the assessee's services fall under the term of Taxable Services.  According to the bench, the contested ruling points out that the assessee did not offer any pertinent, genuine documents, such as invoices or actual work orders, to support their allegation of duplicate demand for a small number of their clients.

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The bench found  that there is no justification for interfering with the assessment of service tax liability against the assessee in the contested order since there is no genuine proof, such as an original invoice, demonstrating the true value of taxable services rendered by the assessee during the pertinent period.

The bench ruled that the assessee's legal fees were costs associated with legal services.  In light of the aforementioned, the Tribunal denied the appeal and maintained the assessee's Service Tax on Legal Fee Expense.

To Read the full text of the Order CLICK HERE

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