ST on Advocates under reverse mechanism

[Deepak Whorra]

Under the Reverse Service Tax mechanism, do we have to pay service tax on bills of advocates - firm of advocates and individual advocate bills.

 

Is there a court 'stay Order' on payment of bills of Individual advocates ? If yes, what are the conditions of this 'stay Order '.

[R MUTHURAJ]

Post 1st July Definition (Education guide page no. 149):

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

Pre-1st July Definition:

“Taxable Service” means any service provided or to be provided to abusiness entity, by any other business entity, in relation to advice,consultancy or assistance in any branch of law, in any manner.

Therefore, Obtaining Legal Opinion is very well coming into the ambitof Legal Service.

To supplement to the above, Obtaining legal opinion from an advocate by a business entity is covered under reverse charge mechanism. Hence, if a business entity (whether individual or body corporate or firm etc.,) happens to be the service receiver then service tax is payable on reverse charge basis. Advocate need not charge any service tax on his bill. Also this can be taken as input service tax credit if the business entity happens to be output service provider of taxable services or manufacturer of dutiable products. 

[R MUTHURAJ]

Dear Sir,

 

However, as per Mega exemption notification no 25/2012 dated 20th June, 2012, (entry no 6) "Services provided by an individual as an advocate or a partnership firm of advocates by way of legal services to (iii) a business entity with a turnover up to Rs. 10 lakhs in the preceding financial year" is exempt from service tax.

 

Hence if the service receiver's turnover during the preceding financial year is up to Rs. 10 lakhs he is not liable to pay tax under reverse charge mechanism.

AI Summary

Reverse charge on legal services requires business recipients to pay service tax; small-turnover exemption applies; advocates need not collect tax. Reverse charge applicability: where a business entity receives legal advice or representational services from an advocate or advocate firm, the service receiver is liable to pay service tax under the reverse charge mechanism; the advocate need not charge service tax. Tax paid by the recipient may be taken as input tax credit if engaged in taxable outputs. An exemption excludes services to business entities below the small-turnover threshold, relieving such recipients from reverse charge liability. No specific court stay conditions on advocate bill payment are provided in the text.