Service tax on Legal consultancy servi

[Ganeshan Kalyani]

Dear Experts,

The legal consultancy service and chartered accountants service are both provided by qualified professionals. The first service is provided by advocates and the later by Chartered accountants. But a thought came in my mind as to why Legal service is brought under reverse charge but the chartered accountants service is not included. Please share your views in this regard.

[CSSANJAY MALHOTRA]

Dear Sh. Ganeshan ji,

Legal Consultancy is not subject to service tax under Reverse Charge. If the same is rendered by Advocates registered under the Advocates Act, the same stands exempt, but if the same is rendered by Professionals i.e.CA/CS/CMA etc....then the same is subject to Service Tax. Any service rendered by Advocates is exempt from service tax. (Notification No. 30/2012-ST dated 20.06.2012)

It's always the Service which is either chargeable to Tax or not. Government might have thought better to phrase it as service provided by Advocates and service provided by Professionals so that one might not take the undue advantage of classifying as "Legal Consultancy Services" and availing Exemption.

Look forward to other views as these concerns gives both ends querist and respondent to lean the intent of legislature.

[DR.MARIAPPAN GOVINDARAJAN]

As told by CS Sanjay Notification No. 25/2012 gives exemption to the services of Advocate. This exemption is only to the persons other than business entity and for the business entity which has the turnover in the preceding year is ₹ 10lakhs. Service tax is payable on the services of Advocate only for the services rendered to the business entity and not to individuals etc., In such cases the service tax is payable by the recipient of service i.e., business entities having turnover more than ₹ 10 lakhs in the preceding year.

[KASTURI SETHI]

Agreed with Sh.CS Sanjay Malhotra, Sir. It is relevant to add the contents of Board's letter which is extracted below:-

D.O.F. No. 334/13/2009-TRU, dated 6-7-2009 (Extracts)

2.3 Legal Consultancy Service :- As in the case of management consultancy or engineering consultancy service, any consultancy, advice or technical assistance provided in any discipline of law is proposed to be subjected to service tax. However, the tax would be limited to services provided by a business entity to another business entity. It has been defined that a business entity includes firms, associates, enterprises, companies etc. but does not include an individual. Thus, services provided by an individual advocate either to an individual or even to a business entity would be outside the scope of the taxable service. Similarly, the services provided by a corporate legal firm to an individual would also be outside the purview of taxable service. Any service of appearance before any court of law or any statutory authority would also be kept outside this levy.

Besides this, Advocate's sphere is far wider than C.A. There are restrictions on CAs. CAs like consultants (without Degree in law) can not appear before any court. CAs, C.S., Cost Accountants can represent their clients only in semi-judicial courts i.e. Commissioner (Appeals), CESTAT etc. whereas Advocates can represent their clients in Courts and semi-judicial courts.

[CSSANJAY MALHOTRA]

Dear Sh. CS Govindarajan ji,

Thanks for bringing in the Notification No. 25/2012, the one I mention was levy of Service Tax under Reverse Charge by individual advocate or firm of advocates to Business Entity located in taxable territory.

Appreciate your addendum.

[KASTURI SETHI]

SH.MARIAPPAN GOVINDARAJAN Ji,

Sir, I agree with you.

[Ganeshan Kalyani]

With due respect to all, I would like to state that I was expecting to get the background of WHY chartered accountants are made liable to service tax by themselves but Advocates are not freed from service tax by shifting their liability on recipient. I wonder no body have answered that question but rather have presented what is there is notification and provision. These provision were known to me. But I have had thoughts when I was thinking to write an article on legal services that why really the advocate professional are exempted from service when in real sense their business is also sky touching. Thanks.

[Ganeshan Kalyani]

Sorry, please read 'advocates are freed from service tax' in place of 'advocates are not freed from service tax'.

[KASTURI SETHI]

Sir,

There is no answer to your, "WHY". Nobody knows. Only law makers know the reason behind this. You mean to say both should be at par. There is substance in your logic.There should be no discrimination. . Novel idea ignited by you and appreciable. We can send suggestion to CBEC for bringing both at par. Instead of writing an article we should write to Board or PMO. direct.

[Ganeshan Kalyani]

Thanks Sri Kasturi Sir for sharing your views. I agree that what policy makers had in mind while drafting the law would not known to us. But their decision would be conscious anf the reason would be strong in the interest of society and advocate fraternity. Thanks.

[KASTURI SETHI]

Yes, Sir. I do agree.

[CSSANJAY MALHOTRA]

Dear Friends,

None of us has dispute as to levy of Service Tax, issue is why Reverse charge for Advocates and not for CA/CS/CMA.

Initially there was an ongoing dispute in 2006 "why Legal representation services at Appellate levels as performed by Advocates are exempt and not at the end of Professionals". Representations were made by CA/CS/CMA bodies,(am aware of as has been part of same to CBEC), who came out with Notification No 25/2006- ST dated 13.07.06 thus doing away with the discrimination and granted Exemption to legal representation services.

Exemption was withdrawn from 01.05.2011 vide Notification No. 32/2011-ST dated 25.04.11, as the legal fraternity was also subject to service tax but under reverse charge.

Agreed with Sh. Kasturi ji that only the Executive Body can answer to why Reverse Charge....

One of the reason could be that Govt. might have considered easier to recover from the client (Service receiver) and end up the litigation at the end of Lawyers so that service tax levy should not be challenged in Courts by pleading that Lawyers are the officers of Court and help in justice administration.

Well, you can go ahead with your write thus placing the fact both for Professional Bodies and Ministry of Finance to do away with the discrimination. Respective Councils should also take it strongly.

[KASTURI SETHI]

SH.CS SANJAY MALHOTRA JI,

Sir, Thanks for updating and enrichment with past events on the issue.

[Ganeshan Kalyani]

Thanks for sharing such valuable information. In fact I am owed yo you all. Thanks to Sri Sanjay Sir, Sri Kasturi Sir and Sri Mariappan Sir.

AI Summary

Legal consultancy reverse charge: advocates often exempt while non-advocate professional consultancy remains taxable to recipients. Services by individual advocates or advocate firms are exempt from service tax in many circumstances while consultancy or advisory services rendered by non-advocate professionals (such as chartered accountants, company secretaries, cost accountants or corporate legal firms) are taxable. Where taxable, the obligation to pay may be placed on the business-entity recipient under the reverse charge mechanism, with application framed by notifications and turnover-based conditions.