HC: Income of lawyers exempt from service tax

Cuttack: Orissa high court has held that income of individual legal practitioners is exempted from service tax levy, while quashing tax demand and recovery notices issued to a Bhubaneswar-based lawyer.
The finance department had served the notice to the lawyer demanding service tax amounting to Rs 2,14,600 for FY 2015-16 on April 15, 2021. This was followed by the notice of recovery on Jan 28 this year, with the service tax and penalty of Rs 2,34,600 plus interest. The lawyer filed a petition in HC seeking quashing of the notices on March 3.
The HC gave the ruling taking on record that the demand for service tax was made by the finance department on the basis of I-T department disclosures.
In the order uploaded on April 15, the two-judge bench of Chief Justice Harish Tandon and Justice B P Routray said, "In view of the admitted fact that the petitioner is a practicing lawyer and the earlier directions issued by this court (March 31, 2021), as well as the instructions issued by the department, the petitioner is exempted from levy of service tax for such income he derived from his legal service as a lawyer."
"Thus, the demand-cum-show cause notice dated April 15, 2021 and the order of recovery dated Jan 28, 2025 are quashed to the extent it relates to demand of service tax from the income of the petitioner from his profession as an individual lawyer," the bench ordered.
Taking note that the petitioner had disclosed his income from house property in I-T return for the assessment years 2018-19 and 2020-21, the bench left it open for the finance department "to proceed in respect of the income from house property, if any applicable, to levy service tax in accordance with law".
In the March 31, 2021 order, the HC said, "The court expressed its concern that practicing advocates should not have to face harassment on account of the department issuing notices calling upon them to pay service tax/GST when they are exempted from doing so, and in the process also having to prove they are practicing advocates. The commissioner GST is directed to issue clear instructions to all the officers in the GST commissionerates in Odisha that no notice demanding payment of service tax/GST will be issued to lawyers rendering legal services and falling in the negative list, as far as GST regime is concerned……"
In the instructions issued in April 2021 following the HC order, the department clarified that services provided by an advocate or a partnership firm of advocates to any person other than a business entity and to a business entity with a turnover up to Rs 10 lakh are exempted from levy of service tax.