Definition of legal service

As per Notification No. 25/2012-Service Tax, Dated – 20th June, 2012
“Legal service” means any service provided in relation to advice, consultancy or assistance in any branch of law, in any manner and includes representational services before any court, tribunal or authority”
(Before 1/7/2012 representative service was exempt) Service providers:
o Individual advocate
o Partnership firm of advocate
o Arbitral tribunal.

According to notification no 25/2012 dated 20/6/12,
If an individual advocate or partnership firm of advocates provides service to
1. Individual advocate
2. Partnership firm of advocates
3. Any person other than business entity
4. A business entity with a turnover not more than 10 lacks in preceding financial year,
The service is exempt from levy of service tax.
What is business entity?
Any person (individual, firm, HUF, company etc) carrying out any activity relating to industry, commerce or business or profession.
That means utilization of legal service for personal purposes is exempt.

When to pay the tax and by whom?

If business entity that has turnover more than 10 lacks in preceding financial year receiveslegal service, business entity has to pay whole service tax under reverse charge mechanism.
Some advocates provide service related to income tax, vat, pf, esic matters, all these services are covered under legal services because it is assistance in any branch of law.
If lawyer provides service other than legal service, it is taxable as per taxability of that service. Exemption is only for legal service.

Cenvat credit:

If business entity pays service tax under reverse charge, it can take cenvat credit for it and utilize it for payment of service tax and excise.
Legal service is input service as per definition (rule 2(1) of cenvat credit rules, 2004)
Let’s understand the concept from following chart:

Service provider
Service receiver
Who will pay service tax?
Individual advocate
Individual advocate
exempt
Firm of advocate
Individual advocate
exempt
Firm of advocate
Firm of advocate
Exempt
Individual/firm of advocate
Person utilize service for personal purposes
Exempt

Firm of advocate
Business entity having turnover less than 10 lacks preceding f.y.
Exempt
Firm of advocate
Business entity having turnover of more than 10 lakhs preceding f.y.
Business entity under reverse charge-100%
Firm of advocate
Business entityoutside India
Exempt
Arbitral tribunal
Firm of advocate
exempt