service tax on Legal service

1.      Legal service

1.1.     Definitions

As per mega exemption notification no. 25/2012-ST, Dated 20^th June, 2012:
“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)
“arbitral tribunal” has the meaning assigned to it in clause (d) of section 2 of the Arbitration and Conciliation Act, 1996 (26 of 1996)
“legal service” means any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority.
Business entity: As per section 65B(17) of the act, “Business entity” includes an association of persons, body of individuals, company or firm but does not include an individual.

1.2.     Mega Exemption Notification

As per entry no. 6 of mega exemption notification no. 25/2012-ST dated 20.6.2012, following Services are exempt from service tax-

(a)     an arbitral tribunal to -
(i)      any person other than a business entity; or
(ii)    a business entity with a turnover up to rupees ten lakh in the preceding financial year;
(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; or
(c)     a person represented on an arbitral tribunal to an arbitral tribunal

1.3.     Reverse charge on legal consultancy services:

As per Notification No. 30/2012 – ST dated 20-06-2012, service tax in respect of services of an Arbitral Tribunal or an individual advocate or a firm of advocates by way of legal services provided or to be provided shall be payable as follows:

Taxable Service	Provided by	Provided to	Percentage of service tax payable by the person providing service	Percentage of service tax payable by the person receiving the service
services provided  by an arbitral tribunal	Arbitral tribunal	Any business entity	NIL	100%
services provided by individual advocate or firm of advocate by legal services	Individual advocate or firm of advocate	Any business entity	NIL	100%

1.4.     Taxability of the service

The individual advocates or a partnership firm of advocates providing legal service are not liable to pay service tax under any circumstance and in case of service provided to the business entities having turnover above Rs. 10 Lakhs in the preceding financial year, such business entities are only liable to pay tax.
However, for legal service provided or agreed to be provided to business entities located outside India where place of provision of service is within the taxable territory, the advocate or firm of advocates is liable to pay tax.

1.5.     Basis of payment of service tax
A proviso to Rule 6 of Service tax Rules, 1994, in case of individuals and partnership firms whose aggregate value of taxable services provided from one or more premises is less than Rs. 50 lacs in the previous financial year, the service provider shall have the option to pay tax on taxable services provided or agreed to be provided by him up to a total of Rs. 50 lacs in the current financial year, on the basis of receipt of payment.

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