The Finance Act, 2012 has made paradigm shift in levy of service tax from selective list of taxable services to all encompassing activities except the exclusions from definition of service, Negative list and Exemptions provided in the exemption notification. However, the Government has exempted service by an individual advocate or a partnership firm of advocates (Notification No. 25/2012 – ST dtd. 20.06.2012) by way of legal services to,
i) an advocate or partnership firm of advocates providing legal services;
ii) any person other than a business entity; or
iii) a business entity with a turnover upto Rs. 10 Lakhs in the preceding financial year.
“Legal service” is defined to mean any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority.
“Business entity” is defined to mean any person ordinarily carrying out any activity relating to industry, commerce or any other business.
In respect of services provided by an individual advocate or a firm of advocates by way of legal service to a business entity located in taxable territory, such business entity is liable to whole of service tax (Notification No. 30/2012 – ST dtd. 20.06.2012) under reverse charge.
Thus, the individual advocates or a partnership firm of advocates providing legal service are not liable to pay service tax under any circumstance and in case of service provided to the business entities having turnover above Rs. 10 Lakhs in the preceding financial year, such business entities are only liable to pay tax. However, for legal service provided or agreed to be provided to business entities located outside India where place of provision of service is within the taxable territory (As determined under Place of Provision of Service Rules, 2012 (‘PPSR’ for brevity)), the advocate or firm of advocates is liable to pay tax.
For example, an advocate or firm of advocates gives report on title of landed property situated in India to a business entity having turnover of above Rs 10 lakhs in the pervious financial year. In this case, place provision of service is within the taxable territory (Rule 5 of PPSR) & the receiver of service is located outside India. The service is not an exempt service & reverse charge cannot be applied and therefore the advocate or firm of advocate is liable to pay the tax which he may recover from service recipient. Hence there is no tax liability on company
All the best.