Jharkhand High Court Sets Aside Demand Notice For Payment Of Service Tax On Legal Services Provided By A Senior Advocate

The Jharkhand High Court on Thursday quashed a demand notice issued by the tax authorities to a Senior Advocate seeking payment of service tax on legal services provided by him to a legal firm.

The bench of Chief Justice Ravi Ranjan and Justice Sujit Narayan Prasad, however, did not allow the prayer seeking to quash Notification No.18/2016-ST dated 1.3.2016 and Notification No. 9/2016-ST dated 1.3.2016 issued by the tax authorities to the extent that it sought to recover service tax directly from Senior Advocates for the legal services provided by them.

The case in brief

The bench was essentially dealing with the writ plea of a Senior Advocate Madhu Sudan Mittal who challenged a demand notice served to him to recover service tax directly from him for the legal services provided by him to an advocate/firm, treating their relationship as that of a client and counsel.

It was his contention that the Central Government, in the exercise of the power conferred upon it by Section 93(1) of the Finance Act, 1994, published Notification No.25/2012 dated 20.06.2012 exempting certain services from the ambit of Section 66B of the Finance Act, 1994 (relating to charging of service tax).

It was contended that the legal services provided by an individual advocate/firm of advocates to another advocate/firm of advocates, to any person other than a business entity or business entity with a turnover of up to Rupees ten lakhs in the preceding year were to be exempted from the ambit of service tax.

However, it was further contended that the respondents, in an attempt to arbitrarily change the existing mechanism, amended the aforementioned notifications vide (i) Notification No.18/2016-ST dated 01.03.2016 (First RCM Amendment Notification) that amended the Mega RCM Notification and (ii) Notification No.9/2016-ST dated 01.03.2016 (First Exemption Amendment Notification) that amended Mega Exemption Notification.

Therefore, in terms of the First RCM Amendment Notification, the services provided by a Senior Advocate were allegedly brought outside the ambit of the Mega RCM Notification. The said notification came into force on 01.04.2016.

The First Exemption Amendment Notification, Notification No.9/2016-ST dated 01.03.2016, limited the exemption given to the services provided by Senior Advocates. The said notification envisaged the relationship between a Senior Advocate and an advocate/firm as that of a client and counsel. The challenge was made to these notifications on this ground only.

Court's observations

At the outset, the Court observed that if any amendment is being made by way of substitution, it will relate back to the original document and therefore, the Court had to decide as to whether the amendments which have been brought by virtue of Notification No. 18/2016-ST dated 01.03.2016 and Notification No.34/2016-ST dated 06.06.2016 are by way of substitution and if yes, what would be its consequence?

The Court noted that the provision as contained in Notification No.30/2012 dated 20.06.2012 has been amended by virtue of Notification No.18/2016-ST dated 01.03.2016 by way of substitution and thereafter, the said notification was further amended by way of substitution vide Notification No.34/2016- ST dated 06.06.2016.

Against this backdrop, holding that the since both the amendments are by way of substitution and the amendment by way of substitution relates back to the original document, the Court remarked thus:

"...both the amendments by way of substitution of the provision as contained in the original notification will be deemed to have applicable with effect from the date of notification dated 20.06.2012. Since both the amendments relate back to the original document, according to our considered view, the demand notice issued by the authority concerned for payment of service tax on legal services provided by a Senior Advocate for the period from 01.04.2016 to 05.06.2016 is held to be not sustainable in the eyes of law."

Case title - Madhu Sudan Mittal v. Union of India and others

Case Citation: 2022 LiveLaw (Jha) 87

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