constitutionality of service tax on lawyers

8/18/2019 Constitutionality of Service Tax on Lawyers

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DR. RAM MANOHAR LOHIYA

NATIONAL LAW UNIVERSITY

LAW OF TAXATION

FINAL DRAFT

CONSTITUTIONALITY OF SERVICE TAX ON ADVOCATES: PC JOSHI v. UoI

Under The Supervision of Submitted by

Mr. Anil Sain Rishabh Trivedi

Assistant rofessor !La"#

Se$tion% &

Dr.RMLNLU Roll No.%'('

Sem.%)II


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CHAPTERIZATION

1. BACKGROUND

• FINANCE ACT, 2011

• RELIEF CLAIMED

2. CONTENTIONS BY THE PARTIES

3. ANALYSIS OF THE JUDGMENT 4. CURRENT POSITION

BACKGROUND

The le*al servi$es ta+ sa*a has history.


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• In ,((- the Union &ud*et introdu$ed servi$e ta+ for all la"yers many of "hom "ere

unhappy.

• In ,(', the Union &ud*et e+empted liti*ation and tribunal "or/ from servi$e ta+ after

stri/es and protests by advo$ates and stays by hi*h $ourts $ausin* $onsiderable

$onfusion in the pro$ess.

SECTION 71(A(!(D OF THE FINANCE ACT" 1##$ AS INSERTED BY

THE FINANCE ACT" %&11

Se$tion 01!'(1# the term 2ta+able servi$es2 is defined to mean any servi$e provided or to be

provided and "e are $on$erned in this $ase "ith sub%$lause !3333m# "hi$h reads as under4%

!i# to any person by a business entity in relation to advi$e $onsultan$y or assistan$e in

any bran$h of la" in any manner5

!ii# to any business entity by any person in relation to representational servi$es before

any $ourt tribunal or 67 "p.'-,7.',.do$ authority5

!iii# to any business entity by an arbitral tribunal in respe$t of arbitration.

8+planation4% For the purposes of this item the e+pressions 2arbitration2 and 2arbitral tribunal2

shall have the meanin*s respe$tively assi*ned to them in the Arbitration and 9on$iliation A$t

'--0 !,0 of '--0#.2

RELIEF CLAIMED


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1. Declare the Section 65(105)(zzzzm), section 66 & Section 71(A)(5)

(d) of the Finance Act, 199 as inserted !" the Finance Act, #011 as

$ltra %ires, ar!itrar" and %iolati%e of Articles 1, 1, 19(1)('), #6,

#65 and #6A of the onstit$tion of *ndia.

#. *ss$e a +rit of mandam$s restrainin' the collection of Ser%ice a- on

the !asis of section 65(105) (zzzzm) read +ith section 66 as

s$!stit$ted !" Finance Act, #011.


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CONTENTIONS

PETITIONERS

a# Se$tion 01!'(1# !3333m# inserted by the pro$eeds to levy Servi$e Ta+ on the Advo$ates

"ould be violative of the $onstitutional *uarantee of :usti$e to all.

• ;usti$e $annot be se$ured unless a $ause or a le*al pro$eedin* is

represented properly and effe$tively before a 9ourt.

• The Advo$ates are en*a*ed not only for aid and advi$e but also for

appearan$e and representation of a $ase in 9ourt.

• The levy of Servi$e Ta+ imposes a heavy additional burden on liti*ants

and also disables them from approa$hin* the 9ourt.

•The *uarantee of $heap effe$tive and e+peditious :usti$e to the

$ommon man is thus defeated.

b# Se$tion 01!'(1# !3333m# violates Arti$le '< of the 9onstitution inasmu$h as the said

amendment dis$riminates bet"een representation made on behalf of an individual and

representation made on behalf of business entity.

• Se$tion $reeps in ine=uality as for instan$e in a $ase one party may be

an individual>State and the other a business entity and the business

entity to defend its ri*hts and *et prote$tion of la" "ill be re=uired to

pay Servi$e Ta+ and not the individual>State.• Similarly the Advo$ate representin* the business entity "ill have to

bear the in$iden$e of ta+.

$# The levy of Servi$e Ta+ on le*al servi$es *oes a*ainst the prin$iple of Arti$le 6-A of the

9onstitution of India.

• The State has to se$ure those opportunities for se$urin* :usti$e is not

denied to any $iti3en by reason of e$onomi$ or other disabilities. Levy

of Servi$e Ta+ "ould be a disability "hi$h "ould restri$t the

opportunity of se$urin* :usti$e as the same ma/es le*al servi$es that

mu$h $ostlier e$onomi$ally.

d# In su$h $ir$umstan$es "hen administration of :usti$e is a soverei*n and re*al fun$tion of the

State and Advo$ates are part of the same then they $annot be said to be renderin* any

servi$e and of the nature envisa*ed by the Servi$e Ta+ A$t>Finan$e A$t.


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• It violates Arti$le ,0?A of the 9onstitution and $ontravenes se$tion

00 of the Finan$e A$t '--s. Union of India ,((7 !7# S99 1,7 has held that

Servi$e Ta+ is a value added ta+ "hi$h is levied on the value addition "hi$h is made as a

result of rendition of a servi$e.

• It flo"s dire$tly from this :ud*ment that merely the a$t of representin*

the liti*ant before the 9ourts $an never amount to a servi$e for the

simple reason that the representation before a 9ourt does not result in

any value addition.

RESPONDENTS

a# The imposition of Servi$e Ta+ on la"yers does not ta/e a"ay or abrid*e the ri*hts

$onferred by the 9onstitution and thus no violation of Arti$les '< and>or '- have been

$ommitted.


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• The impu*ned levy is reasonable fair and le*al. arliament ena$ted the

said provision to levy Servi$e Ta+ on the Advo$ates in proper e+er$ise of its

le*islative $ompeten$e. Representational servi$es provided to individuals have

been /ept out of the servi$e ta+ net so that the burden is not felt by the

$ommon man. @nly the representational servi$es provided to business entities

are $overed by the levy.

• The onBble Supreme 9ourt has repeatedly held that reasonable $lassifi$ation

is allo"ed if it is founded on intelli*ible differentia. If there is a rational ne+us

on the basis of "hi$h differentiation has been made "ith the ob:e$t sou*ht to

be a$hieved by parti$ular provision then su$h differentiation is not

dis$riminatory and does not violate the prin$iples of Arti$le '< of the

9onstitution. This prin$iple is "ell%settled. In the present $ase there is

intelli*ible basis for differentiation.

• In matters of ta+ation 9ourts permit *reater latitude to pi$/ and $hoose

ob:e$ts and rates for Ta+ation and arliament>Le*islature has a "ide

dis$retion "ith re*ard thereto. The State is allo"ed to pi$/ and $hoose ob:e$ts

persons methods and even rates for ta+ation.

b# Not only la"yers but also other professionals li/e $hartered a$$ountants $ost and "or/

a$$ountants and $ompany se$retaries also provide representational servi$es before the

statutory authorities li/e Tribunals et$.


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• 8ven su$h professionals are re=uired to pay servi$e ta+ on their

representational servi$es. La"yers>Advo$ates provide assistan$e in

administerin* :usti$e but to say that they do not render any servi$e to their

$lients is not $orre$t. They do in fa$t provide servi$es to their $lients and

are duly $ompensated in the form of fees "hi$h are $har*ed from the

$lients.

$# B)alue additionB does not ne$essarily mean that $ertain intrinsi$ $han*es must o$$ur in "hat

is bein* offered as *oods or servi$es. In the $ase of servi$es provided by the advo$ates it is

their s/ill /no"led*e and e+pertise in le*al matters "hi$h is availed of by the $lients for

monetary $onsideration on "hi$h servi$e ta+ has been sou*ht to be levied.

ANALYSIS

1. 'HY THE SERVICE TAX LEVIED 'OULD NOT DEFEAT THE CONSTITUTIONALGUARANTEE OF FREE" FAIR AND IPARTIAL JUSTICE)

The le*islature by insertin* su$h provision has neither interfered "ith the role and fun$tion of an

advo$ate nor has it made any inroad and interferen$e in the $onstitutional *uarantee of :usti$e to

all.


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• The servi$es provided to an individual $lient by an individual advo$ate $ontinues to

be e+empted from the Servi$e Ta+ but "hen an individual advo$ate provides servi$e

or a*rees to provide servi$es to any business entity lo$ated in the ta+able territory

then he is in$luded and liable to pay Servi$e Ta+. That is be$ause the le*islature "as

a"are that poor and needy se$tion of the population re=uires advi$e $onsultan$y or

assistan$e in any bran$h of la" if he re=uires le*al advi$e aid and assistan$e then

that should be available to him at times immediately and $heaply. e should not be

burdened "ith a ta+ to be levied on the advo$ate for providin* su$h servi$es.

• These advo$ates may be renderin* servi$es to the needy and spe$ially "omen and

$hildren at )illa*e Talu/a Distri$t To"n and even at $ity levels. It is therefore

apparent to us that the le*islature "hile ma/in* the above distin$tion did not in any

manner overloo/ the $onstitutional *uarantee and as envisa*ed in the preamble to the

9onstitution of India. so also Arti$le ,' and 6-A thereof the le*islature made a

distin$tion and "hi$h appears to us to be $ompletely reasonable.

This $lassifi$ation has a reasonable ne+us "ith the ob:e$t sou*ht to be a$hieved. It $annot be said

that "hile introdu$in* this provision the le*islature did not ta/e into a$$ount the e$onomi$

realities. '

%. 'HY THE SERVICE TAX LEVIED 'OULD VIOLATE RIGHT TO OCCUPATION"TRADE" PROFESSIN GUARANTEED UNDER ARTICLE 1#(1 (*)

Reasonable restri$tion on the ri*ht *uaranteed by Arti$le '-!'# !*# $an be imposed. The levy of

servi$e ta+ on a limited $ate*ory and $lass of professionals namely Advo$ates the burden of

1 ara


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"hi$h does not fall on them but on the re$eiver of the servi$e $an be said to be violative of the

*uarantee or ri*ht under Arti$le '-!'# !*# of the 9onstitution of India.

+. 'HETHER THE LEGAL PROFESSION ITSELF HAS BEEN TREATED ON PAR 'ITH COERCIAL OR TRADING ACTIVITIES OR DEALINGS IN GOODS AND OTHER SERVICES)

Ce do not find any substan$e in the $omplaint that the profession of advo$ates and le*al

profession itself has been treated on par "ith $ommer$ial or tradin* a$tivities or dealin*s in

*oods and other servi$es. Merely be$ause of the role of the advo$ate it does not mean that his

position as an offi$er of the 9ourt and part and par$el of administration of :usti$e is in any "ay

undermined leave alone interfered "ith. T,- Avo/0-2 03 4-*04 560/o3-62 06- 83o93 o

50 56o;-22o304 0-/0?2- ,-6 0/v-2 3 4-*04 ;-4 06- -04@0o3"

4>-604@0o3 03 56v0@0o3. They are not only $aterin* to individuals but business entities. If

it is found that the advo$ates are $aterin* to affluent and ri$h $lass of liti*ants and re$ipients of

le*al servi$es then the ta+ on the servi$es rendered to them is definitely "ithin the permissive

sphere of le*islation. That $annot be faulted.

CURRENT POSITION EGA NOTIFICATION NO.%!%&1% DATED %& TH JUNE" %&1%

The Ministry of Finan$e !Department of Revenue# has vide Notifi$ation No. ,1>,(',%Servi$e

Ta+ dated ,(th ;une ,(', inter alia e+empted the follo"in* le*al servi$es from the purvie" of

servi$e ta+4


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A. Servi$es provided by an arbitral tribunal to

!i# Any person other than a business entity or

!ii# A business entity "ith a turnover up to rupees ten la/hs in the pre$edin* finan$ial

year5

&. Servi$es provided by an individual as an advo$ate or a partnership firm of advo$ates to

!i# Another advo$ate or partnership firm of advo$ates providin* le*al servi$es5!ii# Any person other than a business entity5 or

!iii# A business entity "ith a turnover up to rupees ten la/hs in the pre$edin* finan$ial

year5

Therefore the in$iden$e of servi$e ta+ payment for availin* le*al servi$es has been shifted from

the servi$e provider upon the re$ipient provided that the re$ipient is a business entity "ith a

turnover e+$eedin* Rs. ten la/hs in the pre$edin* finan$ial year.

This e+emption ta/es $are of apprehension that servi$es provided by individual advo$ates or a

firm of advo$ates to small time traders or businessmen "ould be ta+able. No" the servi$es

provided by individuals as an advo$ate or a partnership firm of advo$ates by "ay of le*al

servi$es to any person other than a business entity or a business entity "ith a turnover upto Rs.'(

la/hs in the pre$edin* finan$ial year are e+empt from the "hole of the servi$e. T,-6-;o6-" ,-

2=044 >?23-22=03" 5- 60-62 03 5-62o32 /0663* o3 >?23-22 3 3v?04 /050/

9o?4 >- 0>4- o 0;;o6 ,- 2-6v/-2 o; 3v?04 0vo/0-2 o6 0 5063-62,5 ;6= o; 0vo/0-2.

In su$h $ir$umstan$es and "hen the term Bbusiness entityB has been understood to in$lude an

individual he "ill not be deprived of =uality le*al servi$es if his turnover in the pre$edin*

finan$ial year is "ithin the limits spe$ified above.

NOTIFICATION NO.+&%&1% DATED %&TH JUNE" %&1%

The ne+t notifi$ation no.6(>,(', dated ,(th ;une ,(', and that "hile superseded the earlier

Notifi$ations of 6'st De$ember ,((< and '7th Mar$h ,(', and pro$eeds to notify the ta+able

servi$e and the e+tent of servi$e ta+ payable thereon by the person liable to pay servi$e ta+ for the purpose of se$tion 0?!,#.

• No" the ta+able servi$es provided or a*reed to be provided by an Arbitral Tribunal

or an individual advo$ate or a firm of advo$ates by "ay of support servi$es to any

business entity lo$ated in the ta+able territory are brou*ht "ithin the net and stand


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$overed by the Finan$e A$t. o"ever this Notifi$ation does not tou$h far from

supersedin* the Me*a Notifi$ation No.,1>,(', of the same date namely ,(th ;une

,(',.

• All that it states is that the ta+able servi$es provided or a*reed to be provided by an

Arbitral Tribunal or an individual advo$ate or a firm of advo$ates by "ay of support

servi$es to any business entity lo$ated in the ta+able territory are liable to servi$e ta+.

o"ever if the servi$es are le*al servi$es then the re$ipient of the servi$e or servi$e

re$eiver has to bear the brunt and "ill pay the ta+ at '((. This Notifi$ation merely

re$o*ni3es the fa$t that renderin* of su$h servi$es namely le*al and support to

business entities is the trend of the day.

UNION BUDGET %&117

The &ud*et has "ithdra"n ta+ e+emptions *iven to la"yers and proposed a '


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• Chether the relationship bet"een an advo$ate and a liti*ant is that of a provider and a servi$e

re$ipient or "hether the relationship is that of a representative and a liti*antG

• Chether the impu*ned :ud*ment is $orre$t and le*al in as mu$h as levy of servi$e ta+ on the

provision of assistan$e to the $ourt "ould hit the provision of :usti$e either by the individual

or a business entity as both are indisputably *uaranteed under ri*ht to :usti$e in terms of

Arti$le ,' read "ith Arti$le 6-A of the 9onstitutionG

constitutionality of service tax on lawyers

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