2022 (9) TMI 1006 - HC - Service Tax

Recovery of service tax directly from Senior Advocates for the legal services - relationship between a Senior Advocate and an advocate / firm as that of a client and counsel - effect of N/N.18/2016-ST dated 1.3.2016 (Annexure-3) and N/N. 9/2016-ST dated 1.3.2016 (Annexure-4) - HELD THAT - It is evident that the Central Government, vide Notification No.25/2012 dated 20.06.2012 exempted certain services from the ambit of Section 66B of the Finance Act, 1994. Serial No.6 of the said notification exempted services provided by an individual as an advocate or a partnership firm of advocates by way of legal services to an advocate or partnership firm of advocates providing legal services, any person other than a business entity or a business entity with a turnover up to Rupees ten lakh in the preceding financial year. It is evident that both the amendments, i.e., amendment dated 01.03.2016 and 06.06.2016, are by way of substitution. Since both the amendments are by way of substitution and the amendment by way of substitution relates back to the original document, as has been held by Hon'ble Apex Court in ZILE SINGH VERSUS STATE OF HARYANA AND OTHERS 2004 (10) TMI 553 - SUPREME COURT and GOVERNMENT OF INDIA VERSUS INDIAN TOBACCO ASSOCIATION 2005 (8) TMI 113 - SUPREME COURT , both the amendments by way of substitution of the provision as contained in the original notification will be deemed to have applicable with effect from the date of notification dated 20.06.2012 - Since both the amendments relate back to the original document, the demand notice issued by the authority concerned for payment of service tax on legal services provided by a Senior Advocate for the period from 01.04.2016 to 05.06.2016 is held to be not sustainable in the eyes of law. Petition allowed.

Issues Involved:
1. Quashing of Notifications No. 18/2016-ST and No. 9/2016-ST.
2. Declaration of Notifications No. 18/2016-ST and No. 9/2016-ST as ineffective.
3. Declaration of Notifications No. 34/2016-ST and No. 32/2016-ST as retrospective.
4. Determination of service tax liability for the period from 01.04.2016 to 05.06.2016.
5. Quashing of the show cause cum demand notice dated 20.10.2021.

Issue-wise Detailed Analysis:

1. Quashing of Notifications No. 18/2016-ST and No. 9/2016-ST:
The petitioner, a Senior Advocate, challenged the Notifications No. 18/2016-ST and No. 9/2016-ST dated 01.03.2016, which sought to recover service tax directly from Senior Advocates for the legal services provided by them. The petitioner argued that these notifications were arbitrary, unreasonable, and violative of Articles 14 and 19(1)(g) of the Constitution of India. The notifications envisaged the relationship between a Senior Advocate and an advocate/firm as that of a client and counsel, which the petitioner found objectionable.

2. Declaration of Notifications No. 18/2016-ST and No. 9/2016-ST as ineffective:
The petitioner alternatively sought a declaration that these notifications had never been given effect due to judicial pronouncements and stay orders by various courts, which resulted in the payment of service tax by the service recipient under the Reverse Charge Mechanism (RCM) for legal services availed from Senior Advocates.

3. Declaration of Notifications No. 34/2016-ST and No. 32/2016-ST as retrospective:
The petitioner further sought a declaration that Notifications No. 34/2016-ST and No. 32/2016-ST dated 06.06.2016, which incorporated amendments by way of substitution, were clarificatory in nature and thus had retrospective effect from 01.04.2016. These amendments nullified the effect of Notifications No. 18/2016-ST and No. 9/2016-ST.

4. Determination of service tax liability for the period from 01.04.2016 to 05.06.2016:
The petitioner argued that for the period from 01.04.2016 to 05.06.2016, the burden of service tax on legal services provided by Senior Advocates should be borne by the service recipient in full under the Reverse Charge Mechanism, as per the Delhi High Court's order dated 18.09.2017. The respondents contended that the liability fell under the Forward Charge Mechanism for this period, justifying the demand notice issued for the same.

5. Quashing of the show cause cum demand notice dated 20.10.2021:
The petitioner sought to quash the show cause cum demand notice dated 20.10.2021, arguing that it was in contravention of authoritative judicial pronouncements, barred by limitation, and issued in a prejudged manner.

Judgment:

Analysis of Notifications and Amendments:
The court analyzed the relevant notifications and amendments. Notification No. 30/2012-ST dated 20.06.2012 initially provided for the Reverse Charge Mechanism for legal services. Notification No. 18/2016-ST and Notification No. 9/2016-ST amended this mechanism, bringing Senior Advocates outside its ambit. However, Notification No. 34/2016-ST dated 06.06.2016 further amended the provisions, reinstating the RCM for Senior Advocates.

Retrospective Effect of Amendments:
The court referred to the Supreme Court's judgment in Zile Singh v. State of Haryana, which held that amendments by way of substitution relate back to the original document. Applying this principle, the court concluded that the amendments made by Notifications No. 18/2016-ST and No. 34/2016-ST were retrospective and applicable from the date of the original notification, i.e., 20.06.2012.

Quashing of Demand Notice:
Given the retrospective effect of the amendments, the court held that the demand notice dated 20.10.2021 for the period from 01.04.2016 to 05.06.2016 was not sustainable. Consequently, the demand notice was quashed and set aside.

Conclusion:
The writ petition was allowed to the extent of quashing the demand notice dated 20.10.2021. The court did not find it necessary to address the other prayers in detail, as the primary issue regarding the demand notice was resolved in favor of the petitioner. Pending interlocutory applications were also disposed of.

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