Service tax applicability of legal consultancy

Bhavana (Querist) 16 May 2011 This query is : Resolved
We are getting professional bills from Advocates. upto mar,2011 Service Tax was not charged by the Legal firm.From Apr,2011 they charge 10.3% Service Tax on total bill.Whether ST is applicable w.e.f 01/04/2011? I did not get such information from net.whether TDS on Prof.bills is to be deducted on ST or on only professional fees?

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A V Vishal (Expert) 16 May 2011
Service tax was first introduced on Legal Consultancy Service from 01.09.2009 by the Finance (No. 2) Act, 2009 by inserting cl. (zzzzm) in S. 65 (105) of the Finance Act, 1994. The coverage of taxable service was limited to service provided by a business entity to any other business entity. Further, the taxable service was restricted to advise, consultancy or technical assistance in any branch of law, in any manner, but not appearance before any court, tribunal or an authority. Thus, service provided by an individual to any person and service received by the individual from any person was not liable to tax.
The Finance Act, 2011 (enacted on 8th April, 2011) has substantially increased
the scope of the levy. This amendment comes
into force from 01.05.2011.
Amendments by the Finance Act, 2011 :
The levy of service tax from “legal Consultancy Service” is given hereinbelow
in question - answer form for easy understanding and better comprehension:
Q.1. Please explain the amendment in the taxable service of legal consultancy
by the Finance Act, 2011.
A.1. The Finance Act, 2011 has substituted sub-clause (zzzzm). The definition
read as follows :
“(i) (zzzzm) (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 service before any cout, tribunal or authority;
(iii) to any business entity, by an arbitral tribunal, in respect of arbitration”
The scope of Legal Consultancy Service can be derived from above definition
as follows :
The taxable service include advise, consultancy or assistance in any branch of
law by a business entity to any person.
Further, service provided to a business entity by any person in relation to
representation before any court, tribunal or authority is also included.
Furthermore, service provided to a business entity by an arbitral tribunal in
respect of arbitration is also included. The word “arbitration” and “arbitral
tribunal” shall have the meaning assigned to them in the Arbitration and Conciliation Act, 1996.
Q.2. Please explain the extent of the service tax law.
A.2. The service tax is introduced by the Finance Act, 1994. It extends to whole
of India except the state of Jammu & Kashmir. That means service provided by
a person from Jammu & Kashmir is not liable to tax.
Q.3. Please explain the meaning of business entity.
A.3. The meaning of business entity is contained in S. 65(19b) which provides
that, “business entity” includes an Association of Persons, Body of Individuals, Company or Firm, but not include an individual. It is a mute question whether an individual carrying business in proprietary firm is regarded as business entity or not. The definition includes a firm but does not include an individual. In the opinion of the writer, applying the principle of noscitur a sociis, the word, “firm” takes meaning of the words, “association of person”, “body of individuals” and “company” which signifies that a proprietary concern may not be regarded as business entity.
Q.4. Please explain whether individual lawyers are covered in service tax? If
yes, how?
A.4. Individual lawyers are covered if they provide representation service to a
business entity before any court, tribunal or authority.
Q.5. Are the individual lawyers covered if they provide advise, consultancy or
assistance in any branch of law?
A.5. No.
Q.6. A business entity providing advise, consultancy or assistance in any
branch of law to an individual is covered?
A.6. Yes.
Q.7. Is an individual lawyer providing advise, consultancy etc or representation service to an individual, covered?
A.7. No, service by an individual lawyer to another individual person is not
covered.
Q.8. It seems that the definition does not specify that the person providing Legal Consultancy Service should be an advocate or a lawyer, holding a legal degree. Does it mean that a firm of income tax practitioners or sales tax practitioners not having any member holding a legal degree and providing advise, consultancy is covered under service tax?
A.8. Yes, such firms with or without persons holding legal degree are also
covered under the levy.
Q.9. It happens in practice that the solicitors having proprietary firms appoint
individual counsels to argue the case on behalf of its client which is a
business entity in a court of law, whether such counsels are required to charge service tax to the solicitors?
A.9. On a plain reading of the definition it appears that service provided by an
individual to an individual is outside the ambit of the levy. However, the counsel holding brief of the solicitor also holds authority to appear on behalf of the actual client. The client is bound by the representation made by the counsel.
In such a case, it can be said that the counsel is providing taxable service to the
client who is a business entity.
Q.10. In the situation stated in Q.9, Please explain the manner of raising bill
by the counsel.
A.10. The counsel should raise bill on the solicitor stating in the bill “on account of _______” and the solicitor either reimburse the amount from the Escrow A/c of the client or make the client pay directly to the counsel.
Q.11. The solicitor in Q.9, also provide service of preparing a case, briefing
the counsel and other advisory and consultancy to the business entity. He may
include the counsel’s bill in his charge and the client pays the total amount to
the solicitor from which he pays to the counsel. What will be the liability of
the solicitor?
A.11. The solicitor would be liable to pay service tax on the entire amount
received from the client which includes counsel’s bill including service tax in it.
The solicitor will get credit of payment of service tax to the counsel under Cenvat Credit Rules and pay balance amount to the Government. The solicitor may opt for reimbursing the amount to the counsel and issue separate bill for his fees. In that case, the counsel would be required to pay
service tax on his bill and the solicitor would pay service tax on his fees separately.
Q.12. Will the position be different in case of Advocate on Record and the advocate appearing in the court?
A.12. When the business entity appoints some person as Advocate on Record
who in turn appoint an advocate to represent the matter before a court, the same principles in above examples will apply.
Q.13. A firm of Chartered Accountant appoints an individual advocate to
represent his client who is an individual in the tribunal. Whether the advocate
would be liable for service tax?
A.13. Upto 24.04.2011, the practicing chartered accountants, cost accountants,
company secretaries, were exempt from service tax in relation to representation
before any statutory authority in the course of proceedings initiated under any
law, for the time being in force, by way of issue of a notice1. The chartered
accountants etc. are now covered even in case of representation services to an
individual. However, from the discussion mentioned above, it can be said that
the advocate in fact provide service to an individual and not to the chartered
accountant firm. Therefore, an individual advocate may be regarded as providing representation service to an individual and outside the scope of the
service.

A V Vishal (Expert) 16 May 2011
whether TDS on Prof.bills is to be deducted on ST or on only professional fees?

Ans: On the net bill (Prof fees + S.T)