Bombay HC dismisses writ against levy of service tax on advocates; Addresses changing role of lawyer in today’s age

The Bombay High Court on Monday refused to entertain a writ filed by an advocate challenging the imposition of service tax on advocates. As a consequence, business clients of individual lawyers and law firms will continue to pay service tax as mandated by the Finance Act..The petitioners included Advocates PC Joshi, MPS Rao, Advocates Association of Western India and the Bombay Bar Association, among others. Senior Counsel Rajiv Patil and advocates Amol Mhatre, Sushant Murthy and NS Thacker appeared on behalf of the petitioners, whereas advocates SS Pakale, Suchitra Kamble and Durgaprasad Poojary from PDS Legal appeared for the respondents..The main argument of the petitioners was that advocates are officers of the court and are engaged not only for aid and advice but also for appearance and representation of a case in Court. Moreover, it was argued that administration of justice is a “sovereign and regal function of the State” and advocates being a part of the same, cannot be said to be rendering any service of the nature envisaged by the Finance Act. Quoting the case of Federation of Tax Practitioners v. Union of India, it was stated,.“…service tax is a value added tax which is levied on the value addition which is made as a result of rendition of a service.”.In the petitioners’ opinion, representation before court does not result in any value addition..It was also argued that the levy of service tax would ultimately impose an additional burden on litigants and deter them from approaching the court. Further, NS Thacker, appearing for the petitioners challenged the Constitutionality of the provision, stating that it was violative of Article 14 because of discrimination between representation made on behalf of an individual and that made on behalf of a business entity..However, a two-judge Bench comprising Justices AA Sayed and SC Dharmadhikari opposed the arguments and held that,.“Lawyers/advocates provide assistance in administering justice…but to say that they do not render any service to clients is not correct…they are duly compensated in the form of fees which are charged from the clients.”.On the point of ‘value addition’, the Court held,.“…‘value addition’ does not necessarily mean that certain intrinsic changes must occur in goods and services offered… In the case of services provided by the advocates, it is their expertise in legal matters which is availed of the clients for monetary consideration on which service tax has been sought to be levied.”.Commenting on the Article 14 violation argument, the Court upheld the argument of the respondent which stated,.“If there is a rational nexus on the basis of which differentiation has been made…such differentiation is not discriminatory and does not violate Article 14, which forbids class legislation, but does not forbid reasonable classification for the purpose of legislation.”.Justifying the differentiation made between the services rendered to individuals and businesses, the Court held,.“…the legislature was aware that the poor and needy section of the population requires advice, consultancy or assistance in any branch of law…they should not be burdened with a tax to be levied on the advocate for providing such services.”.The legislative competence of the Parliament to levy service tax under Entry 97 was also challenged, to which the court replied,.“Article 248 read with entry 97 of List I of schedule VII of the Constitution of India grants and confers a residuary power of legislation in the Parliament and which it has exercised in the present case.”.The court also emphasised the evolving role of a lawyer in the current economic scenario..“Today, like any other service provider, advocates are pushing themselves by rigorous marketing and advertisement, branding themselves as specialists in Corporate Law, Intellectual and other property rights, divorce law and not Matrimonial and Family laws…They are also brought within the purview of service tax because their activities in legal field are expanding in the age of globalization, liberalization and privatization. They are not only catering to individuals but business entities.”.Read the full judgment below.