The Orissa High Court, in its ruling, nullified a service tax demand of Rs 2,14,600 and a penalty of Rs 2,34,600 imposed on Bhubaneswar-based advocate, reaffirming exemptions for individual legal practitioners under the Finance Act, 1994.
In the case, Shivananda Ray v. Principal Commissioner CGST (W.P.(C) No.6592 of 2025), a Division Bench comprising Chief Justice Harish Tandon and Justice B P Routray ruled that advocates in private practice are exempt from service tax for income earned through legal services.
Department’s Claims
The Central GST Department issued Ray a notice on 15 April 2021 under Section 73 of the Finance Act, 1994, alleging non-payment of service tax for the financial year 2015–16.
The Department argued that Ray failed to cooperate with proceedings, resulting in an ex parte adjudication order dated 9 August 2024. Senior Standing Counsel T.K. Satapathy defended the notice, citing contravention of Sections 67, 68, 69, and 70 of the Finance Act.
Court’s Legal Analysis
The High Court referenced its 2021 judgment in Devi Prasad Tripathy v. Principal Commissioner CGST, which stated:
“Practicing advocates should not 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 Bench underscored instructions dated 9 April 2021 from the Central Board of Indirect Taxes and Customs (CBIC), which clarified that legal services rendered by individual advocates or partnership firms to non-business entities or businesses with an annual turnover below Rs 10 lakh are exempt from service tax.
Final Ruling
The Bench 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.
However, the Court permitted the Department to scrutinise Ray’s income from house property, disclosed in his income tax returns for Assessment Years 2018–19 and 2020–21, for potential tax liability under applicable laws.
Delivered on 7 April 2025, the judgment reinforces statutory protections for advocates under existing exemptions and directs tax authorities to avoid issuing repetitive notices.
