Bombay High Court: Service tax on services of advocate/arbitral tribunal is constitutional

Levy of service tax on services provided by advocates and arbitral tribunal is constitutionally valid and not violative of Article 19(1)(g); further, exemption to services provided to individuals and small businessmen having turnover upto Rs. 10 lakhs is based on intelligible differentia and not violative of Article 14.

Facts:

The petitioner, a practicing advocate, filed writ petition for declaration that section 65(105) (zzzzm) of the Finance Act, 1994 as inserted by the Finance Act, 2011 providing for service tax on services by advocates is null and void and ultra vires the Constitution of India.

The High Court held in favour of revenue as under:

1) There is no basis or foundation in the complaint by petitioner inasmuch as imposition of such levy does not burden the litigant or the consumer of justice. There is no substance in the complaint that the profession of advocates and legal profession itself has been treated on par with commercial or trading activities or dealings in goods and other services. Merely because of the role of the advocate, it does not mean that his position as an officer of the Court and part and parcel of administration of justice is in any way undermined, leave alone interfered with.

2) The Advocates and legal practitioners are known to pay professional taxes and taxes on their income. They are also brought within the purview of service tax because their activities in legal field are expanding in the age of globalization, liberalization and privatization. They are not only catering to individuals but business entities too. If it is found that the advocates are catering to affluent and rich class of litigants and recipients of legal services, then, the tax on the services rendered to them is definitely within the permissive sphere of legislation. That cannot be faulted.

3) Hence, activities carried out by advocates for consideration by way of fees, etc., amounts to 'service' and can be charged to service tax. Similarly, arbitration is also carried out for hefty fees and levy of service tax on services by arbitral tribunal is not invalid.

4) Levy of service tax is not violative of Article 19(1)(g) of Constitution, as it is a reasonable restriction and similar to income-tax and professional tax being paid by advocates. Since services provided to individuals and small businessmen having turnover upto Rs. 10 lakhs stands exempted, it does not deny justice to poor and needy. Further, such exemption to individuals and small businessmen does not transgress doctrine of equality under Article 14 of Constitution of India, as such exemption is based on intelligible differentia/classification.

5) Moreover, since service tax on non-exempt services provided by advocates/arbitral tribunal is payable by service recipients under reverse charge on and from 1-7-2012, such advocates/arbitral tribunal can no longer complain of levy of service tax. Even for period prior thereto when there was no reverse charge, levy of service tax could not be regarded as invalid and arguments that 'reverse charge be treated as retrospective' was to be set aside. - P.C. Joshi v. Union of India [2014] 52 taxmann.com 311 (Bombay)

All directors other than promoters can't be deemed as willful defaulters; RBI's master circular is arbitrary-HC

Facts:

a)The notices were issued by the respective banks, calling upon the all the petitioners-directors of Company to show-cause as to why they should not be declared as willful defaulters in terms of the RBI’s Master Circular DBOD No. CID-BC 1/20.16.2003/2011-12, dated 2-7-2012.

b)Thus, the instant writ was filed to challenge the legality and validity of a Master Circular dated July 2, 2012 issued by the RBI in respect of 'willful defaulter'.

The High Court held as under:

1)Having regard to object with which RBI had issued Master Circular to declare promoters of company as wilful defaulters, it could not be said that same was an unreasonable restriction violating Article 19(1)(g) of Constitution of India.

2)All directors could not be held liable due to default in repayment of loan by a company which might have been for varied reasons even beyond the control of such directors. Therefore, some element of arbitrariness was found in policy of RBI.

3)A director of a company (other than promoter or a direct borrower of loan from bank) could also be a director who had a limited role to play and he was not directly or indirectly responsible for company going in a debt. Such directors could not be restrained from approaching a bank for financial assistance, if they wanted to start a business or a new venture.

4)Apart from a social stigma, it was a direct infringement on right of such a director to carry on trade or business under Article 19(1)(g) of Constitution of India. Thus, Master Circular, so far as it was sought to be made applicable to all directors of company, was arbitrary and unreasonable.

5)Thus, that part of Master Circular was declared as ultra vires powers of RBI and was violative of Article 19(1)(g) of Constitution of India. Master Circular sought to paint all directors with same brush.

6)Provisions in circular shattered concept of identity of a company being different and distinct from its directors without providing any safeguards. Therefore, Show cause notice issued by bank to petitioner-directors for declaring them as wilful defaulters on basis of RBI’s Master Circular was bad – IONIC METALLIKS V. UNION OF INDIA [2014] 49 TAXMANN.COM 222 (GUJARAT)