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Bombay HC rejects advocate’s service tax argument that lawyers provide no “value addition” for clients

Mumbai advocate PC Joshi argued before the Bombay high court that advocates should be exempted from service tax because the tax is levied on “value addition which is made as a result of rendition of service” and “representation [of litigant clients] before a court does not result in any value addition” and the legal profession is not a business or a trade but a “solemn duty”.

A Bombay high court bench of Justices AA Sayed and SC Dharmadhikari had heard, according to their judgment, that “that merely the act of representing the litigant before the Courts can never amount to a service, for the simple reason that the representation before a Court does not result in any value addition”.

The court rejected Joshi’s arguments in a judgment handed down on Monday, 15 December 2014.

Joshi had asserted that the amendment to the Finance Act 2011, which makes advocates liable to pay service tax, violates the constitutional guarantee of justice to all because it levies tax not on performance of a service but on performance of a “sovereign and regal function of the State”:

“Further, I say that 'value addition' does not necessarily mean that certain intrinsic changes must occur, in what is being offered as goods or services. In the case of services provided by the advocates, it is their skill, knowledge and expertise in legal matters which is availed of by the clients for monetary consideration on which service tax has been sought to be levied.” …

The amendment to Finance Act as referred above levies, assesses and recovers Service Tax from Advocates and that would be violative of the constitutional guarantee of justice to all. […] justice cannot be secured unless a cause or a legal proceeding is represented properly and effectively before a Court. It is the duty of the Advocates to represent the cause of the litigant before the Court of law to the best of their ability. It is submitted that the Advocates are engaged not only for aid and advice but also for appearance and representation of a case in Court. It is not possible for litigants to argue their cases before the Court of law because they may involve complicated factual and legal issues. In such circumstances, when administration of justice is a sovereign and regal function of the State and Advocates are part of the same, then, they cannot be said to be rendering any service and of the nature envisaged by the Service Tax Act/Finance Act.

It is submitted that the levy of Service Tax imposes a heavy additional burden on litigants and also disables them from approaching the Court. It is in these circumstances, that it has been challenged by the Advocates.

It is submitted that the Advocates appear in the Court to represent their clients, but in effect assist the Court to dispense justice. The fact that the assistance rendered by Advocates is to bring in harmony and peace in the society and resolve disputes between the parties, even by applying the fiction, to consider the representation provided by Advocates as service would be highly unreasonable and absurd.

He added that the fees received by an advocate is merely an honorarium and not a contractual right. Joshi also argued that the amendment violates the constitutional right to equality by levying service tax for when an advocate represents a business entity but exempts representation to an individual.

The Deputy Commissioner of Service Tax responded before the court that it was not just advocates but also chartered accountants, cost and work accountants and company secretaries who provided representational services before statutory authorities such as tribunals, and are now not exempted from service tax. Representation to individuals was exempted from service tax so as to not burden the common man, and this was a reasonable classification under the constitution.

Lawyers’ bodies such as the Society of Indian Law Firms (SILF) and others had been lobbying unsuccessfully against the imposition of service tax on advocates since 2012.

Hat-tip to @superselector5 for pointing us towards the judgment, and @deepakjoshica for early commentary

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