With effect from July 2012, structural changes have been made in the service tax law in India. Notable among such changes is the introduction of a small negative list of services and the setting aside of definitions of various services that were taxed earlier.
Since every service other than in the negative list is taxable, it was important for the Government to revisit the services where reverse charge is prescribed.
Reverse change is a system where the responsibility for payment of service tax is fixed on the service receiver, as opposed to the general principle of the service provider charging the service receiver through an invoice for the service plus the service tax, and remitting the same to Government.
Reverse charge is meant to apply in the case of transactions where it is not possible for the service provider to comply with the service tax law by way of registration, filing returns, paying taxes, etc. Services rendered by non-residents fall in this category. Another form of reverse charge transactions could be to take away the burden of such compliance from the service provider, who may not be part of the organised sector, and would not have the time and resources to exercise such compliance. Service provided by goods transporters is an example of this type of service qualifying for reverse charge.
Post July 2012, since every service, other than those in negative list is taxable, the sitting fees of company directors also came into the service tax net. Considering that independent directors who are on the boards of companies may face difficulty in registration for service tax, filing returns, etc, their services were also brought into the reverse charge scheme, and rightly so.
However, it is intriguing that even lawyers have been extended the privilege of the reverse charge scheme being made applicable for the services rendered by them. When they are the custodians of law, can they not go through a simple registration and file returns periodically?
FEARFUL OF LITIGATION
The Government has been tentative about bringing lawyers into the service tax net. Cable TV operators and beauty parlours were covered, but not lawyers. Finally, the government came up with a restricted coverage, saying that it shall apply only to partnership law firms and not to individual advocates. Also, the fee for representation before any court or tribunal would not be subject to service tax.
In 2011, when the scope of service tax was extended to individual lawyers, there was litigation all around and courts also granted a stay on operation of such provisions. It is really surprising that lawyers refuse to fall in line with the provisions of law and take up ultra technical positions, such as they are officers of the court and that it is their duty to represent a litigant which is integral to the justice delivery system.
Work comes to a standstill in various courts in India at the drop of a hat, when lawyers go on strike on various political issues. When court work stops thanks to such strikes it is not known how lawyers justify their duty to their client. Of course, lawyers can come up with suitable arguments to justify their stand.
The hesitant approach of the Government from the very beginning to cover lawyers under service tax is merely because of the prospect of direct action by way of strikes. The whole issue has been sidestepped, by bringing the service rendered by lawyers under the reverse charge mechanism. This sends the wrong signal that the Government would succumb to a confrontationist approach, rather than deal with an iron hand.
WHY ONLY LAWYERS?
There is another dimension to this reverse charge approach on lawyer services. If lawyers can be covered under reverse charge, why not other professionals such as chartered accountants, cost accountants, company secretaries, etc. Are they a less worthy lot? By appearing before quasi judicial bodies such as tribunals, are not chartered accountants part of the justice delivery system?
The regulatory bodies governing chartered accountants and the other professional streams should petition the Government to bring their services as well under reverse charge.
The appropriate thing for lawyers would be to accept this levy without demur and demonstrate that they are responsible citizens. The argument that poor litigants cannot afford this levy will not wash, since service tax liability arises only beyond a threshold of Rs 10 lakh per annum. Thus, small litigants or small lawyers will not be burdened.