The two successive notifications issued – one providing for “reverse charge” and the other granting an “exemption” – has created confusion amongst the legal fraternity and their clientele. To resolve the confusion, CA Rajkamal Shah, a well known expert in the field, has provided the following clarification:
Service tax on advocates from 1.07.2012
By way of Notification No. 25/2012 – ST dtd. 20.06.2012, the Government has exempted service by an individual 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 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.
Under Notification No. 30/2012 – ST dtd. 20.06.2012, in respect of services provided by an individual advocate or a firm of advocates by way of legal service to a business entity, such business entity is liable to whole of service tax.
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.