In new system of Service Tax regime of Negative List and reverse change Mechanism, Advocates are one of the beneficiary. After 01.07.2012 services provided by Advocates Or partnership firm of advocates is not liable to deposit any tax . This has been done through Two notifications . Through mega exemption Notification services provided by advocates are exempted on certain condition.And in rest of the case , service tax on services provided by advocates. is payable by service receiver through reverse tax mechanism (Notification 30 dated 20.06.2012)
Advocates can provide services either as individuals or as firms. Legal services provided by advocates or partnership firms of advocates are exempt from service tax when provided to the following:
- an advocate or partnership firm of advocates providing legal services (same class of persons)
- any person other than a business entity
- a business entity with a turnover up to rupees ten lakh in the preceding financial year
However, in respect of services provided to business entities, with a turnover exceeding rupees ten lakh in the preceding financial year, tax is required to be paid on reverse charge by the business entities.
Exemption on services provided by advocates in Mega exemption notification(Notification 25/2012 dated 20.06.2012 services in negative List) .
Sr no (6) (b) of 25/2012 dealt with exemption provided to services provided by advocates and Firms of advocates.
6. Services provided By
(b) an individual as an advocate or a partnership firm of advocates by way of legal services to,
(i)an advocate or partnership firm of advocates providing legal services ;
(ii) any person other than a business entity; or
(iii) a business entity with a turnover up to rupees ten lakh in the preceding financial year;
“advocate” has the meaning assigned to it in clause (a) of sub-section (1) of section 2 of the Advocates Act, 1961 ( 25 of 1961);
"Business entity" is defined in section 65B of the Finance Act, 1994 as ‘any person ordinarily carrying out any activity relating to industry, commerce or any other business or profession’. Thus it includes sole proprietors as well.
So Legal services received by individual in personal capacity are covered under exemption as the service has not been provided to Business entity.
The business entity can, however, take input tax credit of such tax paid in terms of Cenvat Credit Rules, 2004, if otherwise eligible.