Friday, August 19, 2016

FAQs on Services provided by Senior Advocates


Through the Finance Bill, 2016, the Central government had proposed to levy service tax on services provided by senior advocates under forward charge. However, the Delhi, Kolkata and Gujarat High Court granted an interim stay against such levy.

Now, Notification no. 32/2016-ST, 33/2016-ST and 34/2016-ST dated 6th June, 2016 has been brought out by the Central Government to amend the position of senior advocates under Service Tax.

The impact of these amendments is summarized as below:

In respect of any representational service provided by senior advocate before any court, tribunal or any other authority to any business entity within the taxable territory, the person liable to pay tax will be the business entity i.e. the litigant or petitioner under reverse charge mechanism even though the contract for such service has been entered through an advocate or firm of advocates.
If any other legal service apart from a representational service is provided by a senior advocate to a business entity in the taxable territory, the person liable to pay service tax will be the recipient of the service i.e. the business entity under reverse charge mechanism.
The business entity will also include an advocate or a firm of advocates. So, if any legal service apart from a representational service (e.g. consultancy) is provided by a senior advocate to an advocate or a firm of advocates, the person liable to pay tax will be the advocate or the firm of advocates as the case may be. As part of tax planning, if an advocate or a firm of advocates receiving services from senior advocates wants to avoid the burden of service tax, they should ask the senior advocate to raise a bill directly on the final client for such service.
Any legal service provided by a senior advocate to a non-business entity will be exempt.
Any legal service provided by a senior advocate to a business entity having a turnover of up to Rs. 10 lakhs in the preceding financial year will be exempt.

For a detailed assessment of the provisions in relations to legal services provided by senior advocates along with the tax planning scope for advocates and firm of advocates, please find the FAQs below:


Q1) What is legal consultancy service?

A1) As per Section 65(105)(zzzm), legal consultancy service is defined as under:

“Taxable service means any service provided or to be provided:

(i) to any person, by a business entity, in relation to advice, consultancy or assistance in any branch of law, in any manner;

(ii) to any business entity, by any person, in relation to representational services before any court, tribunal or authority;

(ii) to any business entity, by an arbitral tribunal, in respect of arbitration.”

Q2) What is the meaning of Advocate?

A2) “Advocate” has the meaning assigned to it in Section 2(1)(a) of the Advocates Act, 1961, i.e. ‘an advocate means an advocate entered in any roll under the provisions of this Act’.

Q3) What is the meaning of Senior Advocate?

A3) “Senior Advocate” has the meaning assigned to it in section 16 of the Advocates Act, 1961 (25 of 1961) i.e. ‘An advocate may, with his consent, be designated as senior advocate if the Supreme Court or a High Court is of opinion that by virtue of his ability or standing at the Bar or special knowledge or experience in law he is deserving of such distinction.”

Q4) What is a business entity?

A4) As per Section 65B(17) of the Finance Act, 1994, ‘Business entity’ means “any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession”

Q5) What are the provisions of exemption for senior advocates?

A5) The provisions of exemption had undergone a sea change as per the Finance Bill, 2016. These exemptions have again been changed by the Government through Notification No. 32/2016-ST dated 6th June, 2016. A synopsis of the provisions is as below:


Before Finance Bill, 2016

Before the Finance Bill, 2016, the services provided by all advocates including senior advocates were liable to tax except the following which were exempt as per Entry no. 6(b) and 6(c) in the Mega Exemption Notification No. 25/2012-ST datd 20th June, 2012:

“6. Services provided by

(b) an individual as an advocate or a partnership firm of advocates 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 up to rupees ten lakh in the preceding financial year; or

(c) a person represented on an arbitral tribunal to an arbitral tribunal;”


After the Finance Bill, 2016

“Services provided by

(b) a partnership firm of advocates or an individual as an advocate other than a senior advocate, 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 up to rupees ten lakh in the preceding financial year; or

(c) a senior advocate by way of legal services to a person other than a person ordinarily carrying out any activity relating to industry, commerce or any other business or profession;”

The date of applicability of the notification was 1st April, 2016.

As a result, all the legal services provided by senior advocates except services provided to non-business entities were brought within the service tax net.


After the amendment on 6th June, 2016

Notification no. 32/2016-ST dated 6th June, 2016 has been brought out recently by the Central Government to further modify the entry no. 6(c) in the Mega Exemption Notification no. 25/2012-ST dated 20th June, 2012. Entry no. 6(b) was not modified. Hence, the following services were considered as exempt after the amendment:

“Services provided by

(b) a partnership firm of advocates or an individual as an advocate other than a senior advocate, 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 up to rupees ten lakh in the preceding financial year; or

(c) a senior advocate by way of legal services to-

(i) any person other than a business entity; or

(ii) a business entity with a turnover up to rupees ten lakh in the preceding financial year;”

As a result of the above amendment, all the legal services provided by a senior advocate to a business entity having a turnover of Rs. 10 lakhs in the preceding financial year will only be taxable. Legal services provided by senior advocates to non-business entity or business entity with a turnover of upto Rs. 10 lakhs in the preceding financial year will be exempt.

Q6) Who is liable to pay service tax when the services are provided by senior advocates?

A6) As per section 68(2) of the Finance Act, 1994, in respect of certain services notified by the Central Government, the person liable for paying service tax will be a person other than the service provider. The person who will be liable in these cases has also been stated in the Service Tax Rules. This payment mechanism is known as reverse charge.

Notification no. 30/2012-ST dated 20th June, 2012 covers all the services on which any person other than the service provider is liable to pay tax and also the extent to which that person is liable to pay tax.

Rule 2(1)(d)(i) of the Service Tax Rules, 1994 talks about the person who is liable to pay service tax in case he is covered under Section 68(2) of the Finance Act, 1994.


Before the Finance Bill, 2016

Service under reverse charge

The relevant extract of the Notification no. 30/2012-ST dated 20th June, 2012 which shows the service on which reverse charge is applicable has been reproduced below:

“The taxable services,-

(A)(iv) provided or agreed to be provided by,-

(B) an individual advocate or a firm of advocates by way of legal services,”

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