The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has ruled that business entities are obligated to pay service tax on legal services under the reverse charge mechanism (RCM).
The appellants, engaged in providing 'Storage & Warehousing' services for agricultural produce, also charged for 'cleaning & grading' and 'handling' of consignments in the warehouse in special cases. The charges were categorized as 'warehouse rent,' 'cleaning & grading,' and 'handling & transportation,' respectively.
The department based on intelligence, sought information regarding the appellants' activities. Upon review, the Department concluded that the appellants were renting godowns/warehouses for commercial purposes and also providing handling, transportation, cleaning, and grading services. Additionally, the Department noted that the appellants were making payments for receiving legal services and held that the cleaning and grading of agricultural produce fell under the production and processing of goods.
The bench of Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) observed, “we note that as per Notification No.30/2012-ST dated 20.06.2012 legal service provided by any person as represented to any business entity the service tax is liable to be paid by the Recipient of the Service. The appellants being a business entity were liable to pay service tax on such legal consultancy charges on reverse charge basis. In view of the above, we uphold the demand on such legal fees.”
The tribunal ruled that services related to the production and processing of agricultural goods are exempt from tax under Notification No. 19/2005. The CESTAT dismissed the service tax demand on "cleaning and grading" and cargo handling services. However, it upheld the service tax demand on legal fees for the normal period, and set aside penalties.
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