High Courts Stay Service Tax on Senior Advocates
SERVICE Tax on lawyers is a tricky proposal. When asked why Service Tax was not imposed on lawyers, Chidambaram asked, "which lawyer provides service?" His successor Pranab Babu held PC in high esteem but disagreed with him and had introduced a tax on the Legal Fraternity without naming either Lawyer or Advocate.
Lawyers have gone on strike in several parts of the country and also did what they know best - petitioned the courts. Though Chidambaram's retort was taken as a joke, he was actually stating a solemn truth. Lawyers are officers of the court and their duty is to assist the court; so this service of assisting the court cannot be really taxed.
Several High Courts have stayed the Service Tax on lawyers, but the Bombay High Court took a different view and upheld the levy of Service Tax. While upholding the levy - , the High Court observed,
Profession is noble but the professional is not necessarily so.
Though lawyers are liable to pay Service Tax, it is the clients who pay the tax under the Reverse Charge Mechanism. In the Budget 2016, it was proposed to withdraw the exemption in respect of Services provided by a senior advocate to an advocate or partnership firm of advocates. And the senior advocates are now required to pay the taxes themselves under the forward charge system. The Government issued the following Notifications dated 1.3.2016:
1. Notification No. 9/2016-ST – excluding the senior advocate from the exemption available to advocates in Notification No. 25/2012-ST.
2. Notification No. 18/2016-ST – excluding the senior advocate from the reverse charge mechanism in Notification No.30/2012-ST.
3. Notification No. 19/2016-ST – excluding the senior advocate from the reverse charge mechanism in the Service Tax Rules.
These provisions came into force from 1.4.2016, which means that Senior Advocates are required to take registration, pay the Service Tax, file returns and be ready for all compliance complications. Many a Senior Advocate is worried, not so much at the tax, but at the ordeal of compliance.
At least three High Courts have stayed the tax on the senior advocates.
In the Calcutta High Court, the petitioner Senior Advocate complained that though the Finance Bill, 2016 has not yet been passed and proposals are contained in such bill to alter the position pertaining to Senior Advocates, the impugned notifications seek to bring in the changes with effect from April 1, 2016 without affording the Parliament an opportunity to discuss the matters covered by the Finance Bill.
The learned senior advocate has erred here. It is not correct to say that the proposals to tax senior advocates is contained in the Finance Bill and the tax is made effective from 1st April without affording the Parliament an opportunity to discuss the matters covered by the Finance Bill.
There is nothing in the Finance Bill about taxing senior advocates – it is only by a few notifications and Parliament may not discuss this at all.
Anyway, the High Court found that prima facie it appears that the changes sought to be brought about may unreasonably prejudice Senior Advocates. So the High Court stayed the impugned notifications bearing nos.9/2016, 18/2016 and 19/2016, all dated March 1, 2016 insofar as such notifications pertain to the levy of service tax on Senior Advocates.
In the Delhi High Court, the Court was shown a copy of the order of the Gujarat High Court on the same issue. In light of the said order, and with a view to maintaining consistency, the Delhi High Court also stayed the above mentioned notifications and directed the Revenue to to continue the reverse charge mechanism for payment of service tax for Senior Advocates under Notification No.30/2012-ST.
Now, should each High Court stay these provisions? Can't we take the issue to the Supreme Court?
Why Senior Advocates?: The whole problem is because of the system of having designated senior advocates. Why should we have some lawyers designated as senior advocates through a long drawn out process? When we don't have designated senior doctors, engineers, accountants, what is the great need for senior advocates?
Please see for the Calcutta High Court order