Senior Advocates will pay service tax after all, but on reverse charge

Imposing service tax on senior counsel, proposed in this year’s budget, is here to stay albeit in a modified form. What has been changed is the fact that this tax will be applicable on a reverse charge basis, as opposed to a forward charge as initially proposed..The possibility of this change being introduced was reported by Bar & Bench way back in April this year..Breaking: Finance Minister restores “reverse charge” for service tax on Senior Advocates.Three gazette notifications issued by the Finance Ministry on June 6 this year have not only resulted in an amendment to the Service Tax Rules of 1994, but have also granted certain exemptions..As per the Notification 32/2016, legal services provided by a senior advocate to a person (other than business entity) shall be exempt from service tax. Also, in case the services are provided by a senior advocate to business entities with a turnover of less than ten lakh, then too an exemption will be granted..When it comes to tax on a reverse charge basis, the relevant notifications are 33/2016 and 34/2016..Explains Kalpesh Shah, Executive Partner at Lakshmikumaran and Sridharan,.“This notification, inter alia, notifies the person liable to pay tax with respect to services provided by Senior Advocate. With respect to advisory services, the person liable to pay tax would be the recipient of service i.e. business entity or firm of advocate, as the case may be. .As per item (DD), the business entity that receives representational services from a senior advocate will be liable to pay the service tax. Here, representational services would not cover advisory services or providing opinion.”.The initial proposal to collect tax on a forward charge basis, where the senior advocate would have to register and pay the service tax, was critiqued by many including Advaita Legal’s Sujit Ghosh..Ghosh had argued that imposing different regimes for law firms and senior advocates might not rest on “intelligible differentia”, and that it would it would be prudent to keep senior advocates outside the forward charge mechanism..Tax lawyer Shreya Rao though, believes that the constitutional challenge to thenew service tax regime was not supported by law. For instance, an argument that the tax violates Article 14 is weak since the Article 14 threshold in tax is high and the scope for permitted classifications broader.Rao does admit that the rationale or benefits of a forward charge on senior advocates may not have been fully thought out, but states that this in itself would not make the levy unconstitutional..“Other arguments such as violation of Article 19(1)(g) are equally unconvincing; it is a settled position that mere imposition of tax does not constitute an unreasonable restriction. I fail to see how expanding the scope of the levy, or revising a reverse charge to a forward charge results in a 19 (1)(g) violation. “.In fact, the imposition of service tax had been stayed by the Gujarat High Court, followed by the Delhi High Court. With these notifications, it appears that the matter has been put to rest..Read the three notifications below..Last edited on June 11 at 18:20