Breaking: The Union Budget has widened contentious law firm service tax to apply to court-based, tribunal and arbitration advice by lawyers and has been further expanded to include advice by law firms to individuals too.

Vaish Associates indirect tax head Shilpa Sharma told Legally India: “Law firms obviously they are paying service tax still – but even the representation services by any individual to a business entity are within the scope of service tax now.”

“Even the services of arbitrators are included in legal services but services by individuals to individuals are exempt,” noted Shilpa Sharma. “If you as an individual come to me as an advocate you are outside the level.”

The full amendment in the finance bill reads:

In the Finance Act, 1994 (A) in section 65 […] clause (105):

(d) for sub-clause (zzzzm), the following sub-clause shall be substituted, namely:-

‘(zzzzm) (i) to any person, by a business entity, in relation to advice, consultancy or assistance in any branch of law, in any manner;

(ii) to any business entity, by any person, in relation to representational services before any court, tribunal or authority;

(iii) to any business entity, by an arbitral tribunal, in respect of arbitration.

Explanation: For the purposes of this item, the expressions “arbitration” and “arbitral tribunal” shall have the meanings respectively assigned to them in the Arbitration and Conciliation Act, 1996;’

The 2009-10 Union Budget had first introduced service tax payable by law firms with the following amendment:

(zzzzm) to a business entity, by any other business entity, in relation to advice, consultancy or assistance in any branch of law, in any manner: Provided that any service provided by way of appearance before any court, tribunal or authority shall not amount to taxable service. Explanation.—For the purposes of this sub-clause, “business entity” includes an association of persons, body of individuals, company or firm, but does not include an individual;’

This 2009-10 Budget change was resisted by law firm lawyers and even advocates went on strikes, while the the Society of Indian Law Firms (SILF) filed a writ petition, as first reported by Legally India. Legally India was unable to confirm the current status at the time of going to press, although earlier this year the case was still pending amidst heavy lobbying by law firm lawyers with the Government.

JSA senior adviser tax practice Jogendra Sharma added: “On the service tax-side another important change, that till now it was on the cash-basis – when you receive the payment you were liable to pay service tax, but now it will be on actual basis, then again we have to see the actual notification.”

“This means that in case you have raised the invoice but have not received the payment you will need to pay the service tax. I think that is another important change,” he added.

Click here for Legally India’s Live Budget blog that includes analysis and more on how the Budget affects lawyers and their clients throughout the day.