Friday, August 19, 2016

Service Tax on Service Provided By Senior Advocate

1. Who is a senior Advocate?

As per Section 16 of Advocates Act 1961 Senior Advocate is an advocate for whom Supreme Court or a High Court is of opinion that by virtue of his ability [standing at the Bar or special knowledge or experience in law he is deserving of such distinction. Senior advocates shall, in the matter of their practice, are subject to such restrictions as the Bar Council of India may, in the interest of the legal profession, prescribe.

2. What was the applicability of service tax on senior advocates prior to the Finance Bill 2016?

Prior to Finance Bill 2016, Legal Services were covered under reverse charge mechanism as per Notification No 30/2012-ST dated 20.06.2012. In respect of services received by any Business Entity [whose turnover exceeds Rs 10 lakhs in the preceding financial year] from an Individual Advocate or Firm of Advocates was chargeable to tax under reverse charge mechanism. This means that any liability arising out of such service provided by the advocate/law shall be borne by the business entity. Such legal services provided to person other than Business Entity, No Service Tax was chargeable as per clause 6(b) of the Mega Exemption Notification No. 25/2012 -ST dated 20.06.2012.

3. What is a business Entity?

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

5. What is a forward Charge?

In case of forward charge, the service tax is recovered from the service recipient but paid by the service provider i.e. lawyer to the government. The onus to deposit the same is on the advocate and not on the service recipient

6. What was the effect of the amendment brought by the Finance Bill 2016?

Finance Bill 2016 has now been provided that services provided by senior advocate to a business entity with a turnover of more than Rs. 10 lacs are know taxable so services provided by senior advocates to their clients are taxable on forward charge basic

7. What are the implications of this amendment?

a) Where the service is directly provided by the Senior Advocate to an individual/Business Entity whose turnover/Gross Receipts in preceding financial year is less than Rs. 10 Lakhs ?

As per Mega Exemption Notification No. 25/2012 -ST to exempt services provided by a Senior Advocate by way of legal services to any person other than a business entity or a business entity with a turnover up to Rs. 10 lacs in the preceding financial year so the service tax will not applicable on the service proved to any person other than business entity

b) Where Senior Advocate service is taken by other advocates. ?

As per the Notification No. 33/2016 – ST dated June 6, 2016 has amended Service Tax Rules, 1994 to provide that services provided by senior advocates would be covered under reverse charge mechanism. Also, if the senior advocate is engaged by another lawyer, the Service Tax is to be paid by the litigant under reverse charge. So still there is a reverse charge as original

8. Has there been any stay enforced by the court on this amendment?

Yes, H’ble High Court of Gujarat and Delhi has ordered a stay on enforcement of the amendment brought by Finance Bill 2016. Although CBEC is planning to move to Supreme Court Against the stay order. Final verdict on the enforcement is awaited.

9. Author’s view on the amendment made by the Finance Bill?

10. What is the rate of the service tax on the service of the Senior Advocate service ?

The effective rate of service tax has been increased from 14.5 % to 15 % (Service Tax 14% plus 0.5% Swachh Bharat Cess plus 0.5% Krishi Kalyan Cess) w.e.f 01.06.2015.

11. Registration Of The Service Tax At Glance

♥ When to applied for the registration :-
As per the service tax rules 2005 a person who provides a taxable service is required to mandatorily apply online application for registration for service tax, if the value of the services provided by him in a particular financial year exceeds a Rs.9,00,000/-

♥ Time limit for the application of the registration in the service tax:-
A person should register within 30 days from date of commencement of the business of providing taxable service if assessee fails to register within 30 days then the penalty of Rs.10,000/- under section 77 can be imposed.

♥ Documents required for the service tax registration:-
Name and address of the applicants
Email id for registration with aces
Details of the persons signing the application form such as name, address and telephone no
Address proof of the preimise to be registered i.e Utility bill or rent agreement etc.
2 photo of the applicant
Certified copy of the memorandum of association, partnership deed and other constitution document as the case may be.
Photocopy of pan card of applicant, in case of proprietorship pan of proprietior etc.
Copy of the resolution passed in the board meeting in case of company /LLP
Photocopies of all the documents should be certified by director/ partner/ proprietor
All documents are required in two copies, self attested
Copy partnership deed in case of partnership firm.
Copy of pan card of all partenrs/proprietor/directors.
Cancelled cheque of firm / proprietor

♥ Procedures and records for the service tax after registration

A. Registration

B. Preparation of invoices

C. Maintenance of records

D. Payment for the service tax

E. Filling of half yearly return

F. Filling of the annual return

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