By Puloma Dalal, Jayesh Gogri, Mandar telang Chartered Accountants
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Service Tax on legal services provided to business entities held to be constitutionally valid.
Facts:
Appellant, an advocate claimed to be affected by the service tax levy on advocates u/s. 65(105)(zzzzm) of the Finance Act, 1994. It was argued that they are engaged not only for aid and advice but also for appearance and representation of a case in the Court. Administration of justice, a sovereign and legal function of the State and Advocates were part of the same, could not be said to be rendering any services under the Act. Legal profession had not been understood as a profit making activity or venture. It was not a business or trade. It was a solemn duty which was performed for the litigants including the State who were major stakeholders in the judicial system. The levy of service tax imposed a heavy additional burden on litigants and also disabled them from approaching the Court. The amendment violated Article 14 of the Constitution as it discriminates between representation made on behalf of an individual and a business entity. The purpose to exempt representation and arbitration on behalf of individual seems to be to cater to the need of Article 39A of the Constitution. Equal treatment be given if the services are provided to Corporations/ Partnership firms.
Held:
The High Court after observing the amendment to the definition u/s. 65(105)(zzzzm) held that service tax was levied on Advocates providing service to business entity. However, service provided to individual by individual advocate continues to be exempted as legal advice, aid and assistance should be available to poor and needy section at lower cost In making this distinction, legislature was reasonable and did not overlook constitutional guarantee as envisaged in preamble and Article 14, 21 and 39A of Constitution of India. It was not a case where un-equals were treated equally. Such classification cannot be termed as arbitrary, discriminatory, unfair, unreasonable and unjust. As burden of service tax was on receiver of service and not on advocates, there was no violation of Article 19(1)(g) ibid. Also, Notification No. 25/2012 ST exempted services provided by individuals as advocate or a partnership firm of advocates by way of legal services to any person other than business entity or business entity with turnover up to Rs.10 lakh in preceding financial year. Hence small businessmen, petty traders and persons carrying on business in individual capacity would be able to afford services of individual of individual advocates or partnership firm of advocates.
Service tax on Advocates providing service to business entity does not mean that legal profession has been treated on par with commercial or trading activities or dealings in goods and services. Like any other service provider advocates are pushing themselves by rigorous marketing and advertisement, branding themselves as specialists in Corporate Law, Intellectual, Matrimonial and Family Laws, etc.
Notification No. 30/2012-ST shifting burden of paying service tax to litigants cannot be given retrospective effect because Legislature has decided to grant exemption and shift burden on to recipient from particular date, viz. prospectively and not retrospectively which does not mean that doctrine of equality has been violated. In matter of taxation-legislature has wide choice in taxation whereby it can include/exclude from tax bracket persons or classes of persons, decide cutoff date, and legislate retrospectively.
Accordingly, High Court dismissed the appeal and upheld the constitutional validity of service tax on legal service.
