Mumbai: In a significant relief to practising advocates, the Bombay High Court has quashed a service tax demand of nearly ₹26.81 lakh and the freezing of bank accounts of a Mumbai-based lawyer, reiterating that individual advocates are not liable to pay service tax in such circumstances under the pre-GST regime.
According to a Bar and Bench report, a division bench of Justices GS Kulkarni and Aarti Sathe set aside the demand raised against advocate Manisha Shroff, holding that service tax is not leviable on legal services rendered by an individual advocate to a partnership firm of advocates or a law firm. The court relied on the 2012 ‘mega exemption’ and ‘reverse charge’ notifications issued under the Finance Act, which create a special tax framework for legal professionals.
Details of the case
Under the mega exemption notification, legal services provided by an individual advocate to another advocate or to a law firm are specifically exempt from service tax. The reverse charge mechanism further provides that where legal services are taxable, the liability to pay tax rests with the client, not the advocate providing the service.
The bench referred to its earlier ruling in the case of Advocate Pooja Patil, which had clarified that service tax was not payable by individual advocates for such services. Applying the same reasoning, the court held that the designated officer had acted without jurisdiction in issuing the demand contrary to the binding notifications.
In Shroff’s case, the court noted that the show-cause and hearing notices were sent to her former address, resulting in non-receipt and an ex parte order confirming the entire demand for the financial year 2016–17. Recovery proceedings were initiated, including the freezing of her bank accounts. The division bench set aside the order-in-original, show-cause notice, and recovery notice in their entirety.
Similar relief has been granted by other High Courts. The Orissa High Court, in Shivananda Ray, quashed a pre-GST demand against a practising advocate and directed authorities not to issue such notices where exemptions clearly apply. The Jharkhand High Court, in Madhu Sudan Mittal, also set aside a demand raised directly against a senior advocate.
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