Legal consultancy Services under service tax provided by advocate as an individual or business entity

By | December 9, 2013

Legal consultancy Services under service tax provided by advocate as an individual or business entity

The Finance Bill, 2009 seeks to cover four new services, notable amongst them being ‘Legal Consultancy Service’. In his Budget speech, the Finance Minister explained the scope of the proposed levy in the following manner:

As per finance minister in budget speech “services provided by Chartered Accountants, Cost Accountants and Company Secretaries as well as by engineering and management consultants are presently charged to Service Tax. Although there is a school of thought that legal consultants do not provide any service to their client, I hold my distinguished predecessor in high esteem and disagree! As such, I propose to extend Service Tax on advice, consultancy or technical assistance provided in the field of law. This tax would not be applicable in case the service provider or the service receiver is an individual.”

Nature of Services covered under this entry

The proposed levy is to cover services ‘in relation to advice, consultancy or assistance in any branch of law, in any manner’. However, services provided ‘by way of appearance before any court, tribunal or authority’ is excluded. In a clarification dated 6-7-2009 issued by the Ministry of Finance, the term ‘authority’ has been clarified to mean a statutory authority.

The proposed levy applies only to a ‘business entity’ who renders advice, consultancy or assistance in any branch of law. The expression ‘business entity’ has been defined in an inclusive manner to include the following:

a) An association of persons;
b) Body of individuals;
c) Company, or
d) Firm

But does not include an individual

A circular dated 6-7-2009 issued by the Ministry of Finance clarifies the position further by stating:

Services provided by an individual advocate, either to an individual or even to a business entity, would be outside the scope of the taxable service”.

However if business entity having turnover of Rs. up to 10 lakh in the preceding financial year than also exemption will be available under this clause .

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