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CHANGE IN EXEMPTION FOR LEGAL SERVICES

Service Tax - By: - Dr. Sanjiv Agarwal - Dated:- 8-6-2016 Last Replied Date:- 7-7-2016 - Services provided by advocates or a persons represented on and as Arbitral Tribunal are exempt from levy of Service Tax under Entry No. 6 of Notification No. 25/2012-ST dated 20.06.2012. According to this entry, Services provided by- (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) a .....

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6. Amendment w.e.f. 1.4.2016 for services of senior advocates (Vide Notification No. 9/2016-ST dated 1.3.2016) The following amendments have been made in Entry No. 6 to curtail the scope of exemption- Clause (b) has been substituted as under - (b) a partnership firm of advocates or an individual as an advocate other than a senior advocate, by way of legal services to- an advocate or partnership firm of advocates providing legal services; any person other than a business entity; or a business ent .....

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12-ST has been amended to provide that exemption in respect of the following services has been withdrawn - Services provided by a senior advocate to an advocate or partnership firm of advocates, and A person represented on an arbitral tribunal to an arbitral tribunal; By this amendment, exemption from Service Tax has been withdrawn on services provided by senior advocates to other individual advocates or law firms w.e.f. 1.4.2016. Senior advocates are generally engaged by other law firms or indi .....

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ar No. 193/03/2016-ST dated 18.05.2016, CBEC has clarified that Service Tax liability for services provided by an arbitral tribunal (including the individual arbitrators of the tribunal) shall be on the service recipient if it is a business entity located in the taxable territory with a turnover exceeding rupees ten lakh in the preceding financial year. Meaning of Advocate and Senior Advocate The word advocate has defined under clause 2(a) of Notification No. 25/2012-ST, dated 20-6-2012 and acco .....

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gly, an advocate may, with his consent, be designated as senior advocate if the Supreme Court or a High Court is of opinion that by virtue of his ability 1[standing at the Bar or special knowledge or experience in law] he is deserving of such distinction, and An advocate of the Supreme Court who was a senior advocate of that Court immediately before the appointed day shall, for the purposes of this section, be deemed to be a senior advocate: Provided that where any such senior advocate makes an .....

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to the credit of Central Government. Thus, anybody who is a 'senior' advocate' in terms of section 16 of the said Act shall not be eligible for exemption under this entry and shall pay Service Tax on forward charge basis by collecting from service recipient and paying to the credit of Central Government. Taxability Matrix for Legal Services (w.e.f. 1.4.2016) Service Provider Service Receiver Taxability Individual Advocate / Firm Individual Advocate / Firm Exempt Individual Advocate / .....

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itral Tribunal Arbitral Tribunal Taxable Arbitral Tribunal Any person other than business entity Exempt Arbitral Tribunal Business entity up to turnover of ₹ 10 lakhs in previous financial year Exempt Arbitral Tribunal Business entity with turnover > ₹ 10 lakhs in previous financial year Taxable under reverse charge Service tax in the case of senior advocates would be levied under forward charge. However, the existing dispensation regarding legal services provided by a firm of adv .....

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eding rupees ten lakh in the preceding financial year, tax is required to be paid on reverse charge by the business entities. If business entity pays Service Tax under reverse charge, it can take input tax credit of such tax paid in terms of Cenvat Credit Rules, 2004. Legal service is input service as per definition of Rule 2(1) of Cenvat Credit Rules, 2004. The Cenvat credit cannot be used for payment of Service Tax in respect of services where the person liable to pay tax is the service recipi .....

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