Delhi HC stays levy of service tax on senior advocates

New Delhi: The Delhi High Court today passed an interim order staying the Centre's notifications providing for levy of 14.5 percent service tax on senior advocates from today onwards.

A bench of justices S Muralidhar and R K Gauba stayed the notifications in order to bring parity with the March 30 interim order of the Gujarat High Court, putting on hold the operation of the government's decision.

The bench also issued notice to the Centre and sought its response before September 27 on a plea of Delhi High Court Bar Association (DHCBA) which has challenged the notifications on the ground that they "result in double taxation and was against the basic principles of value added tax regime".

Advocate Abhijat, appearing for DHCBA, has contended that prior to the notifications, service tax was leviable on legal services under reverse charge basis, where it is paid by the beneficiary of service, that is the clients.

However as per the notifications, from April 1, 2016, service tax on senior advocates would be leviable on forward charge basis - where it is paid by the senior advocate, while service tax on advocates (other than seniors) and law firms would continue to be levied on reverse charge basis, he said.

Thus, in terms of the changed law, in addition to the service tax paid by the clients on reverse charge basis, "senior advocates would be required to pay service tax on fees remitted to him/her by an advocate/firm".

"This clearly amounts to double taxation of the fees twice, namely once on reverse charge basis by the client and again in the hands of senior advocate," the petition filed by advocate Ruchir Bhatia said.

DHCBA has also contended that there were already two petitions challenging levy of service tax on advocates on forward charge basis and reverse charge basis, which are pending adjudication in Delhi High Court and have been stayed by way of interim orders.

"However, in the Budget 2016, the Respondent (government) by their contemptuous act have again brought the levy of service tax back on senior advocates through notifications dated March 1, 2016 with effect from April 1, 2016," the plea said and sought striking down of the notifications on the ground that they are "unconstitutional".

The association has also contended that under the new provisions there would be an additional burden on litigants and this would "severely impede" their ability to access the justice administration and delivery system.