In a relief to the legal fraternity, the Delhi High Court on Friday stayed the government’s notification imposing service tax on senior lawyers with effect from April 1.
A division bench headed by justice S Muralidhar also sought a response from the finance ministry and its service tax department as to why such a levy should not be quashed as sought by the Delhi High Court Bar Association and senior advocate Kevin Gulati. Both have challenged the validity of impugned Notifications 9/2016-ST, 18/2016-ST and 19/2016 dated March 1, 2016 on the ground that the provisions are ultra vires not only the relevant provisions of the Finance Act, 1994 (as amended) but also Articles 14, 19(1) (g) and 265 of the Constitution.
The court stayed the relevant provisions of the three notifications imposing service tax to ‘maintain consistency’ with a recent Gujarat High Court order of March 30 that had also stayed the levy of service tax. The matter will be heard next on September 27.
According to the impugned notification, tax on senior advocates would be levied on forward charge basis (wherein service tax is required to be paid by service provider) and/or reverse charge basis (where service tax is required to be paid by service recipient).
Seeking to strike down the notification, senior counsel A S Chandiok, A K Ganguli and MS Syali, on behalf of the bar association, contended that it is “unconstitutional” and against the basic principles of the value-added tax regime as it amounts to double taxation.
“Impugned notifications are also liable to be struck down on the ground that it results in double taxation and the same is against the basic principles of value added tax regime,” the association stated, adding that services provided by a senior advocate could not be deemed as ‘service’ for the purpose of taxation.
Counsel Tarun Gulati, appearing for the senior counsel, argued that senior advocates were officers of the court who aid in the administration of justice and that their services would not amount to “taxable services” for levy of service tax.
Gulati said that even on two earlier occasions, in 2011 and 2012, the HC had stayed the operation of provisions that sought to levy service tax on senior advocates. But in Budget 2016, the finance ministry brought back the levy of service tax on senior advocates.
“The impugned notifications are violative of Article 14 as there exists no rational differentia between senior advocates and advocates in so far as levy of service tax is concerned. The disallowance of reverse charge mechanism only for senior advocates fails to satisfy the classic twin-test of classification under Article 14,” Gulati said in its petition.
The withdrawal of the reverse charge mechanism is, in any event, not an exercise which would generate additional revenue, he said, adding that even if the reverse charge mechanism was to continue to apply for services provided by senior advocates, the clients would continue to discharge the service tax liability. Therefore, the discrimination sought to be created only creates an additional compliance burden on senior advocates and does not subserve any object, according to the senior lawyer.
