Legal services provided by individual lawyer to law firm exempt from service tax: Bombay High Court

For many independent advocates, service tax notices are a reminder of how often the profession’s special status in tax law is ignored. Earlier this month, the Bombay High Court quashed a service tax demand of about ₹26.81 lakh and the freezing of bank accounts of a Mumbai lawyer, Manisha Shroff. .A Bench of Justices GS Kulkarni and Aarti Sathe held that service tax is not leviable on legal services rendered by an individual advocate to a partnership firm of advocates/ law firm. The Bench relied on the 2012 ‘mega exemption’ and ‘reverse charge’ notifications issued under the Finance Act. .These notifications carve out a special regime for advocates, distinguishing them from other service providers.Under the mega exemption notification, legal services provided by an individual advocate to another advocate or a law firm stand specifically exempted from service tax. The reverse charge notification further stipulates that even when legal services are taxable, the tax liability rests with the client and not the advocate rendering the service..The Bench referred to its earlier ruling in Advocate Pooja Patil which had affirmed that service tax was not leviable on legal services provided by an individual advocate to another advocate or firm of advocates.The Court applied the same reasoning to Shroff’s case and held that the designated officer lacked jurisdiction to proceed contrary to these binding notifications..In Shroff’s case, the Court found that the show-cause and hearing notices had been sent to the advocate’s former address, leading to non‑receipt and an ex parte order confirming the entire demand of about ₹26.81 lakh for the year 2016–17.The recovery proceedings included freezing of bank accounts. The Division Bench set aside the order‑in‑original, show‑cause notice and recovery notice in their entirety..Similar issues have arisen in other States.The Orissa High Court in Shivananda Ray quashed a pre‑GST service tax demand of ₹2.14 lakh raised against a Bhubaneswar-based advocate.The High Court also relied on an earlier decision in Devi Prasad Tripathy to reiterate that practising advocates should not be repeatedly asked to prove their exemption status or subjected to departmental harassment. It directed the authorities not to issue such demand‑cum‑show‑cause notices to advocates whose services clearly fall within the exemption..Likewise, the Jharkhand High Court in Madhu Sudan Mittal held that the notification scheme did not support a direct tax demand on a senior advocate and quashed the demand notice accordingly..[Read order].Follow Bar and Bench channel on WhatsAppDownload the Bar and Bench Mobile app for instant access to the latest legal news.