2014 (12) TMI 595 - HC - Service Tax

Constitutional validity of levy of service tax on Advocates and legal services - Scope within the negative list and earlier under section 65(105) (zzzzm) of the Finance Act, 1994 as inserted by the Finance Act, 2011 - interference of function of advocate profession - Held that - 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. - That is because the legislature was aware that poor and needy section of the population requires advice, consultancy or assistance in any branch of law, if he requires legal advice, aid and assistance, then, that should be available to him at times immediately and cheaply. 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. The manner in which the services of lawyers and advocates are rendered has been a subject matter of a decision in the case of disciplinary action initiated by Bar Council of Maharashtra against a professional. The classification between service provided to business entities and individuals cannot be said to be illusory. The classification has a definite nexus and with the object sought to be achieved. If that is to explore and expand the sources of revenue and by widening the tax net, then, it is achieved by bringing within the fold the aforementioned services. There is, therefore, no violation of the constitutional mandate. The classification cannot be termed as arbitrary, discriminatory, unfair, unreasonable and unjust. Incidentally, we may observe that no material has been placed before us by the Petitioners which would indicate that for a brief period from the time the impact of levy of service tax fall on them and until the issuance of the notification number 30 of 2012 dated 20th June, 2012 the Advocates suffered in any manner and particularly pointed out in Epari Chinna Krishna Moorthy s case (1964 (3) TMI 55 - SUPREME COURT OF INDIA). - Such advocates are claiming that this Notification of 20th June, 2012 bearing No.30/2012 be given a retrospective effect. It is not possible to accept this argument because the categories of advocates mentioned in these Notifications cannot claim an exemption from the tax and as of right. Article 39A not only includes free legal aid by the appointment of counsel for litigants but also includes ensuring that justice is not denied to litigating parties due to financial difficulties. That aspect is taken care of in the present tax set up by excluding from the tax net the individual litigants and services provided to them by individual advocates. Therefore, there is no infraction of the constitutional mandate. Scope of Mega Notification No.25/2012 dated 20th June, 2012 - Held that - Now, the services provided by individuals as an advocate or a partnership firm of advocates by way of legal services to any person other than a business entity or a business entity with a turnover upto ₹ 10 lakhs in the preceding financial year are exempt from the whole of the service tax leviable thereon under section 66B of the Finance Act. Therefore, the small businessman, petty traders and persons carrying on business in individual capacity would be able to afford the services of individual advocates or a partnership firm of advocates. In such circumstances and when the term business entity has been understood to include a individual he will not be deprived of quality legal services if his turnover in the preceding financial year is within the limits specified above. Services provided by Arbitral Tribunal or an individual advocate or a firm of advocates by way of support services to any business entity - Reverse charge mechanism - notification is no.30/2012 - Held that - fter the Arbitration and Conciliation Act 1996 was enacted, 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. There is no basis for the argument that by the service tax provision section 89 of the Code of Civil Procedure is given a gobye. 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. Levy is not unconstitutional - Petitions are dismissed.

Summary

Issues Involved:
1. Constitutionality of Section 65(105)(zzzzm) of the Finance Act, 1994.
2. Levy of Service Tax on Advocates.
3. Discrimination under Article 14 of the Constitution.
4. Violation of Articles 19(1)(g), 21, and 39A of the Constitution.
5. Applicability of Rule 4A of the Service Tax Rules, 1994.
6. Legislative competence under Entry 92C of List I.
7. Retrospective effect of Notification No. 30/2012.

Detailed Analysis:

1. Constitutionality of Section 65(105)(zzzzm) of the Finance Act, 1994:
The petitioner challenged the constitutionality of Section 65(105)(zzzzm) of the Finance Act, 1994, arguing that it was ultra vires the Constitution of India. The court examined the legislative competence and found that Parliament had the authority to levy service tax under Entry 97 of List I, as affirmed by the Supreme Court in various judgments. The court held that the provision did not violate any constitutional mandates and was within the legislative competence of Parliament.

2. Levy of Service Tax on Advocates:
The petitioner argued that the levy of service tax on advocates was unconstitutional as it imposed a burden on litigants and affected access to justice. The court noted that the service tax was levied on services provided by advocates to business entities and not on services provided to individuals. The court held that the classification between services provided to business entities and individuals was reasonable and had a rational nexus to the object sought to be achieved, which was to expand the tax net and generate revenue.

3. Discrimination under Article 14 of the Constitution:
The petitioner contended that the amendment violated Article 14 as it discriminated between representation made on behalf of individuals and business entities. The court held that the classification was reasonable and based on intelligible differentia. The court emphasized that the legislature had the discretion to classify and levy taxes differently on various services and service recipients, and such differentiation was not discriminatory.

4. Violation of Articles 19(1)(g), 21, and 39A of the Constitution:
The petitioner argued that the levy of service tax on advocates violated Articles 19(1)(g), 21, and 39A of the Constitution. The court held that the right to practice any profession under Article 19(1)(g) was subject to reasonable restrictions under Article 19(6). The imposition of service tax was a reasonable restriction and did not violate the fundamental rights of advocates. The court also held that the levy did not deny access to justice or violate Article 39A, as the tax was levied only on services provided to business entities.

5. Applicability of Rule 4A of the Service Tax Rules, 1994:
The petitioner challenged the requirement under Rule 4A of the Service Tax Rules, 1994, to issue invoices within 14 days of rendering legal services. The court held that the requirement was reasonable and necessary for the effective administration of the tax. The court noted that the provision did not violate Article 19(1)(g) as it did not impose an unreasonable burden on advocates.

6. Legislative Competence under Entry 92C of List I:
The petitioner argued that the levy of service tax should be under Entry 92C of List I, which had not been brought into force. The court held that Parliament had the legislative competence to levy service tax under Entry 97 of List I, which provided for residuary powers. The court noted that the absence of Entry 92C did not affect the validity of the levy under Entry 97.

7. Retrospective Effect of Notification No. 30/2012:
The petitioner sought retrospective effect for Notification No. 30/2012, which shifted the burden of service tax from advocates to service recipients. The court held that the legislature had the discretion to decide the effective date of the notification. The court found no basis to grant retrospective effect and held that the notification was valid from the date it was brought into effect.

Conclusion:
The court dismissed the writ petitions, upholding the constitutionality of Section 65(105)(zzzzm) of the Finance Act, 1994, and the levy of service tax on advocates. The court found no violation of Articles 14, 19(1)(g), 21, and 39A of the Constitution and held that the legislative competence to levy service tax under Entry 97 of List I was valid. The court also upheld the applicability of Rule 4A of the Service Tax Rules, 1994, and denied the request for retrospective effect of Notification No. 30/2012.