Legal Service has been defined in Notification No. 25/2012 dated 20th June 2012 as any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority.
After reading this definition in detail, we can see that legal services include representational services. Previously, representative service was exempt.
According to this notification, if an individual person as an advocate or a partnership firm of advocates provides legal services to:
- Another individual advocate
- Another partnership firm of advocates
- Any person who is NOT a business entity
- A business entity with a turnover up to rupees ten lakh in the preceding financial year then, the service is exempt from service tax.
Business entity has been defined in Section 65B of Finance Act, 1994 as any person ordinarily carrying out any activity relating to industry, commerce or any other business.
Reverse charge mechanism is applicable to legal services. The following chart clarifies this:
of service tax payable by service provider
of service tax payable by service receiver
|Services provided by an Arbitral Tribunal||Arbitral Tribunal||Any business entity||Nil||100%|
|Services provided by an individual advocate or by a firm of advocates||Individual advocate or a firm of advocates||Any business entity||Nil||100%|
Since the provisions are lenient for service providers providing legal services, the service receivers should be careful when engaging advocates or firms of advocates. Some of these points are listed below:
1) Always obtain a copy of registration certificate of the service provider for information and record. From this the constitution of service provider can be known.
2) Notification 30/2012 gives a Table showing the percentage of service tax payable by service provider and service receiver. The exact nature of service being provided by the service provider must be understood beforehand to ascertain service receiver’s liability from the said table.
3) Service receiver should always pay service tax at the current rates, as per the prescribed accounting codes.