Exclusive: Law firms’ litigation associates could find themselves liable to have to charge service tax to their law firms and account for it to the Revenue under the Budget’s new service tax rules that apply to individuals representing businesses in courts or tribunals.
Economic Laws Practice (ELP) associate partner Nishant Shah and Vaish Associates indirect tax head Shilpa Sharma confirmed the potential personal liability to Legally India.
Under the new Finance Bill all law firms now have to pay service tax for services rendered to anyone, while individuals will only be subject to service tax when providing “advice, consultancy or assistance in any branch of law, in any manner” to “a business entity”.
On the hook
Shah and Sharma both said that the new provision was a grey area when it came to associates working for law firms and doing representational work, although those doing only transactional work would not be included.
Shah said: “It seems that a legal guy who’s in the litigation portion will be liable to service tax even when he is rendering to a law firm. It is also the situation for most of the senior counsel – you might brief a senior counsel and the senior counsel would raise the bill on the law firm or [business] entity directly, and would be required to pay service tax.”
He explained that if an associate charged Rs 100 to the law firm for a court appearance, the law firm would have to pay roughly 10 per cent service tax to the associate, taking the charges to Rs 110. To the client the law firm might charge Rs 200 but it would be able to take credit for the Rs 10 paid to the associate and only pay an additional Rs 10 per cent of service tax.
However, such associates would then have to account for the service tax to the Revenue in their tax returns if their gross service taxable billings were above Rs 10 lakh per year.
Sharma said that service tax would only apply if a law firm lawyer raised a specific bill for a representational appearance: “If I am appearing [in court] on behalf of Vaish Associates for a particular company, Vaish will obviously charge service tax. But when I am raising my bill to Vaish Associates as an individual – if I say I have appeared and raise a bill for the purpose of appearance - then it will be taxed.”
“If I am actually going again and again to the court – and I raise a bill to the firm for so many appearances then I would also have to charge [service tax],” she noted but added: “They are not clear about it.”
She continued that although any difference in whether an associate or firm paid service tax would be tax neutral, the Revenue could go after individual associates. “You never know.”
No clarity for part-time transactional litigators
There is not much clarity on how lawyers who only spend part of their time doing court work would be taxed or how tax liability on the monthly retainer or salary paid to a part-time litigation lawyer would be apportioned. “Even a transactional lawyer might in some cases appear before the court - how does he bifurcate that?” asked Shah.
ELP had not been able to explore fully yet whether there was a way of structuring it, said Shah. “Reading the bare lines of the law, you might go into a proportionate basis. For the associate that might come even more cumbersome and will have to prove that his actual work profile contains only 10 per cent representational work. To prove that might not prove a simple task.”
According to Sharma, however, most part-time litigating lawyers on a fixed retainer would not have to pay service tax because the firm would be paying, unless the lawyer raised a specific bill for the representational appearance.
A Ministry matter
Shah and Sharma both said that the Ministry of Finance should be approached about the new law. Shah suggested that the Ministry could create a “reverse charge” mechanism as is used in goods and transport services, which would allow the law firm to pay the tax on behalf of the associates.
“One of the points that can be put before finance ministry is that in this scenario you are creating bigger scrutiny base without increasing the tax,” he noted, which would “reduce the stress or procedural burden” on the collection of the tax.
Sharma explained that she would be making this representation to the Indian Merchant Chambers too, which could then raise it with the Ministry in Finance Bill consultations.
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Request you , not to degrade your site by publishing this kind of news. In fact , these views does not requited any comments. Really so silly
It is surely a somewhat unintended consequence of the budget and something that seems counter-intuitive at first, no?
Another option I heard the other night is: "Kian, don't be silly, no lawyers ever pay any tax!"
Please do share why you think this is a 'degrading' story...
Best wishes,
Kian
If you intend to interpreat the law in this site, then take some real experts view in the concerned field . Some people may try to gain some cheap publicity at the cost of the credibility of your site. Remember , it is not Face book / Orkut. Be careful next time.
We were alerted to this possible interpretation by a law firm associate who did not want to be named. He called me on Monday night and asked what these rules would mean in this regard.
So we called up two tax lawyers and asked them for their view on this point.
If you think the view is incorrect, I would honestly be very interested to read an alternative interpretation of the facts/law.
I look forward to hearing more from you.
Best,
Kian
Do not mix up friendship or relationship with profession.It never works in long rurn . For example radia- Tata, amar-ambani, Amitav - Rajiv etc
And please, I beg you, do elaborate and provide an alternative interpretation of the law, I would be really interested...
Warm regards
Kian
Implementation of service tax on lawyers is nothing new, however by way of the proposals this year, the government seems to be seeking to somehow put an additional strain as now even an associate's services to the firm are seemingly to be taxed. If I am correct this was not the case previously.
What needs to be clarified in this story is whether the finance bill intended it this way or is it a consequence arising in default because of the language employed in the finance bill.
What is also interesting is that while a litigating lawyer would be liable to pay service tax when rendering services to the law firm, a transactional lawyer may not have to. I am not clear as to how this can happen.
Do keep us posted Kian.
Regards
simple. if you think the story is insignificant, ignore it and go on... why be so emotional about it? I would have assumed that if lawyers have to pay a tax which they have never previously done, then this needs to be discussed in a legal news forum. what is insignificant about this? for a lot of people this may be more significant than news that concerns law students and younger lawyers like MPL, bar exams etc...
The expanison of scope of Legal Services has really bothered the people providing Legal Services. Almost, every other services provided by Legal Professionals is now being set to be taxed.
I feel this story concerened with interest of the legal professionals and services rendered by them is very much a relevant topic for discussion in this forum. Infact, I see this is as the best forum for discussion as now a days it is most popular site reporting news concerened to Legal Professionals.
Infact this story is much more importance to people in Legal arena, than those of covering "Law Firm Masalas".
For e.g Service tax on renting of immovable property.
In other countries everything is considered as goods/services. Therefore, in countries like Canada, Australia, New Zealand, South Africa etc... there is GST/VAT even on real estate because housing and construction services are treated like any other commodity.
The current division of taxation of power under the Constitution is constraining for both the Centre and the States. Neither is able to design a comprehensive and neutral tax on goods and services of the type found in modern tax systems.
The Constitution divides taxation powers between the Centre and the States by sector(for e.g. agriculture, manufacturing and land and property) or types of taxes (e.g. luxury tax, tax on sale or purchase of goods and excise duty).
A notable feature of the current division is that the two levels of government have no area of concurrent jurisdiction, except of stamp duties.
Therefore, the government is trying to broaden the scope of service tax to include as many services as possible to match with the modern tax regime and indirectly achieve their objective of GST.
Regards,
RGM
www.legallyindia.com/201102281853/Law-firms/silf-to-file-2nd-writ-v-new-service-tax-as-1st-writ-stuck-in-court-bhasin
The Society of India Law Firms has taken up this matter so as to file writ Petition and you people think it as "Small Time Issues". Seriously feel pity for you people.
It would have been better if you people would have given better interpretation and positive critcism to the this news.
Dear Kian,
Instead of allowing post from such people. Please allow only positive discussion over the post , which help in creating better ideas and fruitful environment for everyone.
On this kind of posts, the proper discussion over the issue seems to be more pleasent as a comment to a reader.
It would be better if you could delete negative post on this issue as it a very imprtnat issue for Lawyers and if we could have proper discussion over the topic.
As I know, ELP, Vaish and LS are only three big firms dealing with Indirect Tax properly in Mumbai. So, view taken from experts was much better rather than giving absurd interpretation.
Infact, I would suggest you to organise a conference inviting the experts from Big Fours and above three Law Firms for discussion over the budget and the topic here.
On the neverending debate of comments, perhaps we are a bit too permissive especially when someone criticises stories. But you never know, sometimes criticism is justified so we generally err on the side of caution rather than censoring things which claim the story is 'rubbish'.
They might sometimes have a point, in this case it appears there was nothing substantial.
We will try to keep on top of the issue but I have the feeling that the law firms and ministry will move to fix it fairly quickly.
Best regards
Kian
Coming to the top Indirect Tax law firm , I agrre that the ELP & LS are surely on the top. Where is this Vaish came in. Their banglore office no more handle indirect tax . Their Mumbai office has just started with one head designated as " Head Indirect Tax'. Delhi office , two ex asociate have joined from LS with Mr kapur . It is just like comparing apple with orrange when , Vaish puts in the same line - with ELP and LS .
They have displayed their ignorance, and worse, their apathy (if asked the difference between the two, if they are really smart they would say: I don't know, and I don't care).
Trying to assess the impact or implications of govt. policy or legislation is standard practice everywhere.
The interpretation of legislation of course is ultimately tested in the courts. But till that time, opinions will naturally vary. The adversarial nature of our legal system demands that their be two sides to every issue.
The fact that Indians are naturally "argumentative" is irrelevant.
Have a look at the # 17 comment . How matured and precise it is . When you look for any comment on this site on any legal issue , you should approach the eminent Partnes known for their expertise or atleast to match the #17 .
The view expressed must match to the level of inteligence of the pepole getting into your site.
If you could have published Mr Nankarni, Mr Sridharan, Mr Rohan Shah ,this could have been much beter .
Trust, next time you will contact only [...].
Remeber " we lawyers just love intelectual arrogance"
Your comment on @17 was absolutely uncalled for...passing on the buck "level of intelligence of 17" ...if your level of intelligece is too high..better go to the eminent partners for a "paid opinion"!!
The reaction was genuine and legally correct . The correct opinion will never appear on this portal .
Kian needs to be careful in selecting the eminent and generous practicing advocate in future .
[Unless you are a thoroughly persistent troll, would you please mind explaining what, according to you, the 'correct' position is? There is space right here for you to make a legally sound counter-argument rather than dealing in vagaries and allegations yet you have declined to every time. -Ed]
My opinion is that apart from litigating associates doing representational work before Courts and Tribunals, other associates for example...patent attorneys and trademark attorneys working before the Patent office/Trademark registry will come under the ambit of service tax net on individual lawyers in view of the same being representational work before an 'authority'. Kindly confirm
All IP firms really need to take this into account before doling out the increments for this year.
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