Cuttack: Quashing a tax demand imposed on a Bhubaneswar-based lawyer, the Orissa High Court has ruled that income of individual legal practitioners is exempted from levy of service tax.
A Division Bench of Chief Justice Harish Tandon and Justice B P Routray held that advocates in private practice are exempt from service tax for income earned through legal services.
The GST authorities had issued 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 a notice of recovery on Jan 28 this year, with the service tax and penalty of Rs 2,34,600 plus interest. The lawyer moved the High Court 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, TOI reported.
The High Court referenced its 2021 judgment in Devi Prasad Tripathy v. Principal Commissioner CGST, which stated:
The Court in the order uploaded on April 15 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.
Noting 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 had 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 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.
The HC quashed the demand-cum-show cause notice dated 15 April 2021 and the recovery order dated 28 January 2025, insofar as they pertained to Ray’s income from legal practice.
