In terms of the Finance Act, 2016, w.e.f. April 1, 2016, service tax on “legal services” provided by senior advocates was made exigible to service tax under forward charge basis. However, various high courts have stayed the operation of such provision. In view of the above, the Central Government has issued three separate notifications i.e. 32, 33 & 34 (all dated June 6, 2016), amending the relevant provisions of law; thereby bringing the payment of service tax on “representational services” provided by senior advocates under reverse charge in the hands of the litigant, applicant or petitioner, as the case may be.
The gist of the notifications are as under:
Notification No. 32/2016-ST:
This notification amends Notification No. 25/2012-ST, dated June 20, 2012, to exempt “legal services” provided by a senior advocate by way of legal services to non- business entity; or a business entity with a turnover up to rupees ten lakh in the preceding financial year.
Notification No. 33/2016-ST:
This notification amends the Service Tax Rules, 1994. By way of the said amendment, service tax is to be paid by the recipient of service (i.e. litigant) in cases where a senior advocate is engaged by another lawyer/ law firm.
Notification No. 34/2016-ST:
This notification amends Notification No. 30/2012-ST dated June 20, 2012, to stipulate 100% payment of service tax by the recipient of representational service provided by senior advocate.
It is worthwhile to mention that the aforesaid notifications have used the expression “representational services” and “legal services”. Thus, on a clear reading of the notifications, it appears that only the representational services have been brought under reverse charge.
Further, there is no clarity vis-à-vis person liable to pay service tax in relation to “legal services” provided by senior advocates. It appears that the intention of the Government is to retain the levy of service tax under forward charge vis-à-vis “legal services” (i.e. consultancy) provided by senior advocates.
It is to be noted that the aforesaid amendments are operative from June 6, 2016. Albeit the amendment, the levy of service tax under forward charge for the interim period (i.e. April 1, 2016 upto June 5, 2016), has been challenged in appeal by the Central Government before the apex court.
Considering that the high courts have stayed the operation of payment of service tax under forward charge; going forward, the payment of service tax on “legal services”provided by senior advocates will still get covered under the ambit of stay, since the Hon’ble Delhi High Court has, while granting the stay, restored the payment under reverse charge method.
In the event, the apex court vacates the stay and decides the matter in favour of the department, then service tax for the interim period would be required to be paid under forward charge by the senior advocates, since there is no clarification provided with regard to the period under dispute. In addition thereto, service tax on“legal services”, in absence of any clarification, would also get covered under forward charge and hence, service tax will be liable to be deposited by the senior advocates.
Instead of resolving the issue, the Government has created more confusion. Hopefully, the Board understands the muddle created and clears the mist by plainly restoring the levy of service tax under reverse charge in its entirety.