Supreme Court Stays Imposition of Service Tax on Lawyers

Supreme Court bench comprising Chief Justice H.L. Dattu, Justice A.K. Mishra and Justice Amitava Roy has stayed the Bombay High Court’s order, dated 15.12.2014 in the case of P.C. Joshi Vs. Union of India of dismissing the petition challenging levy of service tax on lawyers.

The Bombay Bar Association has challenged aforesaid order as well as the provision of Sub-clause (zzzzm) of clause (105) to Section 65 of the Finance Act, 1994, which was inserted by the Finance Act, 2011.

Few of the prominent questions of law, amongst others, as framed before SC are as below:

Whether the relationship between an advocate and a litigant is that of a provider and a service recipient or whether the relationship is that of a representative and a litigant?

Whether the impugned judgement is correct and legal in as much as levy of service tax on the provision of assistance to the court would hit the provision of justice either by the individual or a business entity as both are indisputably guaranteed under right to justice in terms of Article 21 read with Article 39A of the Constitution?

Bombay High Court 

It is pertinent to note that Bombay High Court while dismissing the petition held that

“The taxable service means any service provided or to be provided to any person, by a business entity, in relation to advice, consultancy and assistance in any branch of law, in any manner.”

“Legislature by inserting such provision has neither interfered with the role and function of an advocate nor has it made any inroad and interference in the constitutional guarantee of justice to all.  The services provided to an individual client by an individual advocate continues to be exempted from the purview of the Finance Act and consequently Service Tax but when an individual advocate provides service or agrees to provide services to any business entity located in the taxable territory, then, he is included and liable to pay Service Tax.’ The judgement also notes, ‘The Advocates and legal practitioners are known to pay professional taxes   and   taxes   on   their   income.     They   are   also   brought   within   the purview of service tax because their activities in legal field are expanding in the age of globalization, liberalization and privatization. They are not only catering to individuals but business entities.”