Service Tax Implications on Senior Advocate Services

When in Budget, 2016 Government of India has proposed to bring service tax on Senior Advocates under forward charge, that brings hue & cry in the lobby of senior advocates. Various petitions were filed in various High Courts of the country. To resolve the problem and to be firm on its stand, Central Government brought out three notifications, Notification No. 32/2016 - ST, Notification 33/2016 - ST and Notification 34/2016 – ST dated June 06th, 2016 to clarify the position of service tax on senior advocates. We have made a little try to discuss the amendments done by the government in respect of services provided by Senior Advocates in FAQs format:-

Who is Senior Advocate?

Ans. As per section 16 of Advocates Act 1961, Senior Advocate is an advocate for whom Supreme Court or High Court is of the opinion that by virtue of his ability or standing at Bar or special knowledge or experience in law and he is deserving of such distinction.

What were the provisions of service tax on senior advocates prior to Finance Bill, 2016?

Ans. Earlier, Legal services are covered under Reverse Charge Mechanism (RCM) under Notification No. 30/2012 – ST dated June 20th, 2012. In respect of legal services received by any Business Entities (which are not covered under exemption list) from an individual advocate or firm of Advocates was chargeable to tax under RCM.

What is the meaning of Business Entity?

Ans. As per section 65B(17) of Finance Act, 1994, “Business Entity” means any person ordinarily carry out any activity relating to industry, commerce or any other business or profession.

What is the Gist of Notifications issued by Government?

Notification No.	Change brought out by Notification	Previous Position in Law
*32/2016-ST dated 06th June, 2016*	Amendment to Entry No. 6(c) of Notification 25/2012-ST. Vide this amendment services provided by senior advocates to non-business entities and small business entities (Turnover < 10 lacs) are exempt. However services provided by them to advocates or firm of advocates are taxable.	Earlier there was no any bifurcation between senior advocates and normal advocates in the exemption. Services provided by advocates or advocate firm are exempt if these are provided to following: - Advocate or firm of advocates Non-business entity Small business entities (Turnover < 10 lacs ) (However vide Notification 09/2016 Government of India taxed senior advocate services provided to persons carrying out any activitity of commerce, trade, industry or any other business or profession)
*33/2016-ST dated 06th June, 2016*	Amendment in Rule 2(1)(d)(i) – Representational services provided by senior advocates are under ambit of reverse charge. Also if these services are provided to advocates / advocate firm, than still these services are taxable under reverse charge mechanism and business entity for which they are litigating case in court are liable to pay service tax under reverse charge.	Legal services provided by individual advocate or advocate firm to business entities are taxable under reverse charge mechanism.
*34/2016-ST dated 06th June, 2016*	Amendment to Notification 30/2012 –ST Service Tax is be paid at full rate under Reverse Charge Mechanism (RCM) on the representational services provided by senior advocate as discussed in Notification 33/2016-ST dated 06th June,2016.	Service Tax is paid at 100% rate by business entities on legal services received from individual advocate or advocate firm.

Is any services provided by senior advocates are under forward charge?

Ans: Let's understand it with the situations given in table: -

Nature of Services	Recipient of Services	Taxability
Representational	Business Entity	RCM
Representational	Non Business Entity	Exempt
Representational	Advocate / Advocate Firm	Business Entity will pay tax under RCM
Consultancy	Business Entity	Taxable under Reverse Charge
Consultancy	Non Business Entity	Exempt
Consultancy	Advocate / Advocate Firm	Taxable under Reverse Charge
Other Services	Business Entity	Taxable under Reverse Charge
Other Services	Non Business Entity	Exempt
Other Services	Advocate / Advocate Firm	Taxable under Reverse Charge

By amendment in Notification 30/2012-ST done by Notification 34/2016-ST, only representational services by senior advocates specifically excluded from the clause (A) (iv)(B) and for representational services by senior advocates a new clause (ivb) brought into effect , however earlier every kind of services by senior advocates excluded from the entry and all services by senior advocates brought under forward charge. Effective this amendment, only representational services by senior advocates are specifically excluded from this entry and a new entry bring into effect, by which representational services provided to domestic business entities by senior advocates directly or indirectly through law firms or advocates are taxable under reverse charge, where the onus to pay service tax directly to central government is on these business entities.

It is pertinent to note that only representational services by senior advocates are excluded and a new clause came into effect, but in case of consultancy or other services provided by senior advocates to business entities are not specifically excluded and government have not brought out any other entry for these services. It means that consultancy service or other services are still imbedded in clause (A) (iv)(B), which is read as “any services provided by an individual advocate or firm of advocates by way of legal services other than representational services by senior advocate”.

However the above understanding is subject matter of interpretation and other view can be inferred.

These amendments impacted legal consultancy sector a lot. By Notification 32/2016, senior advocate services are exempt if these are provided to small business entities and non-business entities. But if these services are availed by law firms or advocates, than there is no exemption, where the onus to pay tax on representational services shifted on business entities irrespective of the fact that these services are pass-on by law firms or advocates and in case of consultancy / other services, tax burden is on law firms or advocates under reverse charge mechanism. The big hit is that output services of law firms / advocates are under the ambit the of RCM and they are not entitled to get the benefit of Cenvat Credit, resultantly service tax paid on senior advocate services become part of their cost and hit their profits.

The authors can also be reached at gaauravarya@gmail.com and vanshaj.sra@gmail.com