The Orissa High Court in the case of SHIVANANDA RAY v. PRINCIPAL COMMISSIONER CGST AND CENTRAL EXCISE. BHUBANESWAR AND ORS. vide W.P. (C) No. 6592 of 2025 dated 07.04.2025, has reaffirmed that legal services by individual lawyers or firms of lawyers are exempt from service tax when rendered, also firms can enjoy service tax exemption under both the pre-GST and GST regimes. Also, directions were given to GST officers to not issue notices to lawyers providing exempt legal services.
Facts of the Case: In this case, the petitioner is an practicing advocate who, challenged a Service Tax demand of ₹2,14,600 for FY 2015–16 and a recovery notice for tax, penalty and interest. The Petitioner claims exemption as an individual practicing lawyer. The Department argued that the notice was based on third-party data i.e. income disclosures by Income Tax department. For which the Petitioner failed to respond, resulting in ex parte adjudication and issuance of recovery order.
Held That: The Court reaffirmed that legal services by individual lawyers or firms of lawyers are exempt from service tax when rendered to non-business entities or to business entities with turnover ≤ Rs. 10 lakhs in the preceding financial year. Also, under GST regime such exemptions have been provided vide relevant exemption notifications (i.e. NN. 12/2017-Central Tax). Further, this exemption was clarified by earlier court orders and Departmental instructions dated 09.04.2021 & 15.04.2021.
The court referred to earlier judgment in the case of WP(C) No. 27727 of 2020, where similar demands were held to be harassment and unlawful. Directions were given to GST officers to not issue notices to lawyers providing exempt legal services. Further, practicing advocates should not be forced to prove their exemption status repeatedly or be subjected to departmental harassment.
The Court quashed the show cause notice and recovery order to the extent they demanded service tax on legal income. Further, noted that Petitioner has disclosed his income from house property in the income tax return, thus the Court allowed the Department to proceed only with respect to non-exempt income such as rental income, if liable under the law.
