2024 (5) TMI 466 - HC - Service Tax

Exemption from service tax - legal services rendered by individual advocates or firm of advocates - HELD THAT - As per Rule 2 of the Service Tax Rules, where Senior Counsel are engaged, the obligation to pay service tax is on the recipient of such services. If that were to be so, there is no obligation on the Senior Counsel to pay service tax - individual lawyers and Partnership of firm of Advocates, Senior Advocates are exempted from payment of service tax under certain circumstances. Levy of service tax - income from sale of books, apart from income from profession - Section 73 of the Finance Act, 1994 - reverse charge mechanism - HELD THAT - The services rendered to a business entity with a turn over above rupees ten lakh would fall outside the purview of the exemption, however, in such of those cases also, in terms of Notification 30/2012-ST dated 20.06.2012, the liability is on the recipient by way of reverse charge mechanism - there is no factual adjudication, but on the basis of applicable law, the service rendered by advocates is exempt and even if it falls outside the exemption, the liability is on the recipient of the services and not the legal professional. Clearly in light of such narrow factual context the notices and orders are one without jurisdiction and challenge can be entertained directly irrespective of the alternate legal remedy that is available. As also laid down by the Apex Court in Radha Krishan Industries v. State of Himachal Pradesh and Others 2021 (4) TMI 837 - SUPREME COURT that the High Court can entertain a writ petition despite there being an effective alternative remedy when the orders/proceedings impugned are wholly without jurisdiction. It would be futile exercise in relegating the petitioners to avail of statutory remedy. It is a case which provides for entertainability of the writ petition on the settled legal position and on the ground that the proceedings are one without jurisdiction and hence can be entertained - Hence, the legal position not being in dispute, the contention of learned counsel for the Revenue requires to be rejected. Levy of service tax - income from consultation fee - HELD THAT - The income from such service by an Advocate is exempt and even if it falls outside the exemption, it is the recipient who has to pay on the basis of reverse charge mechanism and accordingly, the initiation of proceedings are one without jurisdiction insofar as claim of service tax as regards consultation fee - the taxable event of sale of books would fall within the category of sale of goods and is outside the purview of service tax. Levy of service tax - income from profession as well as income from services rendered as a Notary - HELD THAT - The document furnished by the petitioner would indicate that it is income from profession as well as income from services rendered as a Notary. This is evident from the profit and loss account entry. Memo is filed on 08.02.2024 stating that income is only from legal profession - such income is exempt from service tax and even otherwise, recipient would have to pay on reverse charge mechanism. Accordingly, the order in original is one without jurisdiction. Appeal allowed.

Summary

Issues Involved:
1. Validity of show-cause notices and orders-in-original issued by the Central Tax Department.
2. Applicability of Service Tax on legal services provided by individual advocates and firms.
3. Exemption under Notification No. 25/2012-ST.
4. Liability under Notification No. 30/2012-ST.
5. Jurisdiction of the orders and notices under the reverse charge mechanism.
6. Alternative statutory remedy versus writ jurisdiction.

Summary:

1. Validity of Show-Cause Notices and Orders-in-Original:
The petitioners, practicing advocates, challenged the show-cause notices and orders-in-original issued by the Central Tax Department seeking to levy Service Tax on legal services. The court clubbed the writ petitions due to similar contentions and decided them by a common order.

2. Applicability of Service Tax on Legal Services:
According to Rule 2(1)(d)(D)(II) of the Service Tax Rules, 1994, the person liable to pay service tax is the individual advocate or firm of advocates offering legal services. However, Notification No. 25/2012-ST dated 20.06.2012 exempts certain legal services from service tax, including services provided by a partnership firm of advocates or an individual advocate other than a senior advocate.

3. Exemption under Notification No. 25/2012-ST:
Clause 6(b) of Notification No. 25/2012-ST exempts legal services provided by a partnership firm of advocates or an individual advocate to another advocate, a non-business entity, or a business entity with a turnover up to ten lakh rupees in the preceding financial year.

4. Liability under Notification No. 30/2012-ST:
Notification No. 30/2012-ST imposes the liability to pay service tax on the recipient of the service under the reverse charge mechanism. For services provided by individual advocates or firms, the service provider's liability is NIL, and the recipient's liability is 100%.

5. Jurisdiction of Orders and Notices under Reverse Charge Mechanism:
For senior advocates, Rule 2(d)(DD) of the Service Tax Rules specifies that the recipient of the service, which is the business entity, is liable to pay service tax. Therefore, there is no obligation on the senior counsel to pay service tax. The court emphasized that individual lawyers and partnership firms of advocates are exempt from service tax under certain circumstances, and even if they fall outside the exemption, the liability is on the recipient of the services.

6. Alternative Statutory Remedy versus Writ Jurisdiction:
The Department contended that the petitioners should pursue the statutory remedy instead of a writ petition. However, the court noted that the availability of an alternative remedy is not an absolute bar to entertaining a writ petition. Given the clear exemption and reverse charge mechanism, the notices and orders were deemed without jurisdiction. The court referenced the Supreme Court's decision in Radha Krishan Industries v. State of Himachal Pradesh, which allows the High Court to entertain a writ petition when the orders are wholly without jurisdiction.

Individual Case Details:

I Re: W.P. No. 10776/2022:
The petitioner, an advocate with income from consultation fees and book sales, was found exempt from service tax for legal services. Income from book sales falls outside service tax purview.

II Re: W.P. No. 18943/2022:
The petitioner had income from the profession and services rendered as a Notary. The court found such income exempt from service tax, and the recipient would pay under the reverse charge mechanism.

III Re: W.P. No. 26558/2023:
The petitioner, an advocate with no other income source, was found exempt from service tax, rendering the revenue's order without jurisdiction.

IV Re: W.P. No. 26096/2022:
The petitioner, a partner in a law firm, was found to have income only from legal services, exempting them from service tax. The proceedings were deemed without jurisdiction.

V Re: W.P. No. 10865/2023:
The petitioner, an advocate and now a Senior Counsel, was found to have income only from legal practice. The court did not address the constitutional validity of Section 174 of the CGST Act, 2017, as relief was granted on other grounds.

VI Re: W.P. No. 8414/2022:
The petitioner, a practicing advocate with no other income source, was found exempt from service tax, making the revenue's proceedings without jurisdiction.

Order:
The court set aside and quashed the impugned orders and show-cause notices in all the writ petitions, emphasizing that the legal position was clear and the proceedings were without jurisdiction. The court further noted that relegating the petitioners to statutory remedies would be futile.