The Bombay High Court has ruled that Levy of Service tax on Advocates is valid and can not be considered as violative of the Constitution of India.

Earlier in 2011, P C Joshi a practicing advocate of Mumabi had filed a write petition in Bombay High Court (Writ Petition 1927/2011)to declare levy of service tax on advocates under section 65(105) (zzzzm) of the Finance Act, 1994 as inserted by the Finance Act, 2011 on advocates as ultra vires arbitrary and violative of the Constitution of India. The petitioner also prayed for restraining the service tax department from collecting service tax from advocates and declaring provisions relating to levy of penalty u/s 77 of the Finance Act, 1994 and prosecution under section 89 of the Finance Act, 1994 to the extent they are made applicable to Advocates for non issue of invoices within 14 days of the completion of service are ultra vires the Finance Act, 1994 and Article 19(1)(g) of the Constitution.

The section 65(105) defines the taxable services and clause (zzzzm) bring under the service tax ambit the following services provided or to be provided:-
(i) to any person, by a business entity, in relation to advice, consultancy or assistance in any branch of law, in any manner;
(ii) to any business entity, by any person, in relation to representational services before any court, tribunal or authority;
(iii) to any business entity, by an arbitral tribunal, in respect of arbitration.

It was argued by the petitioner that Service Tax on Advocates would be violative of the constitutional guarantee of justice to all. Legal profession has not been understood from times immemorial as a profit making activity or venture. It is not a business or trade. it was submitted that advocates have a duty of assisting the Courts in a just and proper manner in the just and proper administration of justice. In the case of the Petitioner, the relationship between the Advocate and the litigant before the Court is that of a representative of a litigant. The Advocates appear in the Court to represent their clients, but in effect assist the Court to dispense justice. Service tax is a value added tax and a representation before a Court does not result in any value addition etc. etc. It was also argued that issue of invoice within 14 days of completion of legal assistance are ultra vires the Finance Act 1994

and Article 19(1)(g) as no practical purpose is served by requiring Advocates to issue invoices within 14 days of rendering legal assistance since such activities under the point of taxation rules are taxable only on receipt basis. The learned council of the petitioner Mr. Thacker even argued that equating legal profession with chartered accountants and cost accountants, engineering and management consultants, is ultra vires Article 14 of the Constitution of India.

However, the Hon’ble Court did not agree with any of the arguments and dismissed the writ peitition.

The important excerpts from the judgment pronounced on 15-12-2014 are as under:

The 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 a individual client by a 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.

These advocates may be rendering services to the needy and specially women and children at Village, Taluka, District, Town and even at city levels. It is, therefore, apparent to us that the legislature while making the above distinction did not in any manner overlook the constitutional guarantee and as envisaged in the preamble to the Constitution of India...... is group or organize themselves by making huge investments in acquiring immovable properties for professional work, heavy overheads, in the form of clerical and support staff, with facilities of cabins or rooms, then, legal services are rendered to organized groups or business entities predominantly. They may be of the nature of advice, consultancy or further acting and appearance in Courts and Tribunals. These persons can very well pay the fees and charges without any demur or complaint. It is when services are rendered to such entities and persons by not individual advocates but those working on business lines, then, if they are brought within the net of taxable services and service tax is levied on them, they can hardly complain.

We do not find any substance in the complaint that the profession of advocates and legal profession itself has been treated on par with commercial or trading activities or dealings in goods and other services. Merely because of the role of the advocate, it does not mean that his position as an officer of the Court and part and parcel of administration of justice is in any way undermined leave alone interfered with.

Thus, what holds good for chartered accountants and architects must equally apply to other professionals such as advocates, and who too are well conscious of their status.

Today, like any other service provider Advocates are pushing themselves by rigorous marketing and advertisement, branding themselves as specialists in Corporate Law, Intellectual and other property rights, divorce law and not Matrimonial and Family Laws etc. If they are part of and have entered the market, exhibiting all trends prevailing therein, then, it is surprising that they are agitated, worked up at being termed service providers and taxed as such.

Applying these principles to the facts and circumstances before us, we do not find that levy of service tax on a limited category and class of professionals, namely Advocates, the burden of which does not fall on them but on the receiver of the service, can be said to be violative of the guarantee or right under Article 19(1)(g) of the Constitution of India.

The nature of the disputes referred to and to be resolved by arbitration demonstrate that the same has attained the character of “corporate luxury”. The members of the Arbitral Tribunal and those representing parties before the Arbitral Tribunal have started operating in a businesslike manner. It is difficult for individuals to afford the Arbitral services any longer. The hefty fees charged by the Tribunal and the Advocates per day and sometimes per hour make it difficult for litigants including companies to bear the costs of Arbitration...... We are sorry to say this but day after day we receive complaints as to how arbitration is beyond the reach of a common man...... If the arbitrations are conducted in Five Star Hotels and Air Conditioned Conference rooms, by incurring heavy costs and charges, then, those appearing before them would be obliged to pay the service tax. Even the Abitral Tribunal will be obliged to pay service tax.

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