Orissa High Court Deletes Rs. 2 lakh Service Tax Demand Against Bhubaneswar Lawyer

The Orissa High Court has cancelled a service tax demand of Rs. 2.14 lakh and a penalty of Rs. 2.34 lakh that was imposed on Shivananda Ray, a lawyer from Bhubaneswar. The HC confirmed that independent lawyers are not required to pay service tax on income earned from legal services under the Finance Act, 1994.

In the case Shivananda Ray v. Principal Commissioner CGST, the GST Department had sent Ray a notice on April 15, 2021, saying he did not pay service tax for the financial year 2015–16. As Ray did not reply, on August 9, 2024, the department issued an order against him, without even listening to his side.

The department alleged that Ray had disobeyed some tax regulations and defended the notice in court.

The court, led by Chief Justice Harish Tandon and Justice B.P. Routray, disagreed with the department. They said that practising lawyers like Ray are clearly exempt from paying service tax for legal work.

They also referred to a past ruling from 2021 and a circular issued by the tax department on April 9, 2021, which confirmed that legal services provided by individual lawyers or law firms to small businesses or non-business clients are tax-free.

The court cancelled both the tax demand and the penalty against Ray. However, it allowed tax officials to check Ray’s income from rented property (as shown in his income tax returns for 2018–19 and 2020–21) to see if that part is taxable.

This judgment, issued on April 7, 2025, emphasises that advocates should not be wrongly targeted with tax notices when their legal services are exempt, and it urges tax authorities not to send unnecessary demands in such cases.