The Bombay High Court quashed a Rs 26.81 lakh service tax demand and bank account freeze imposed on Mumbai advocate Manisha Shroff. Justices GS Kulkarni and Aarti Sathe ruled that service tax does not apply to legal services provided to law firms.
MUMBAI: The Bombay High Court invalidated a service tax demand of approximately Rs 26.81 lakh and the freezing of bank accounts belonging to Mumbai lawyer Manisha Shroff.
A Bench comprising Justices GS Kulkarni and Aarti Sathe determined that service tax does not apply to legal services provided by an individual advocate to a partnership firm of advocates or a law firm.
For many independent advocates, service tax notices serve as a stark reminder of how frequently their profession’s unique status in tax law is overlooked.
Factual Backgrounds and Submissions of Parties
The petitioner is an advocate enrolled with the Bar Council of Maharashtra and Goa since 5 February 2007. On 27 October 2021, the authorities issued a show-cause notice alleging discrepancies between the petitioner’s Income Tax Returns, Tax Deducted at Source records, and Service Tax-3 returns. However, this notice was sent to the petitioner’s outdated address and was never received. Consequently, the petitioner also did not receive notices regarding three scheduled personal hearings.
Due to the absence of any response, an order dated 15 March 2023 was passed confirming the service tax liability along with interest and penalties. Thereafter, on 31 October 2025, a recovery notice under Section 87 of the Finance Act, 1994 was issued. On 3 November 2025, a lien was imposed on the petitioner’s ICICI Bank account without prior intimation. Additionally, on 21 December 2025, the petitioner’s Axis Bank account was frozen. It was only on 23 December 2025 that the petitioner obtained a copy of the recovery notice from the bank.
In these circumstances, the petitioner has argued that service tax is not applicable to services rendered by an advocate to a partnership firm of advocates under Notifications No. 25/2012-ST and 30/2012-ST. Alternatively, it is contended that such services fall under the reverse charge mechanism as per Notification No. 25/2012 dated 20 June 2012. The petitioner has further alleged that the impugned order was passed in violation of principles of natural justice.
Observations of the Court:
The Bench referenced the 2012 ‘mega exemption’ and ‘reverse charge’ notifications issued under the Finance Act, which establish a distinct legal framework for advocates, setting them apart from other service providers.
According to the mega exemption notification, legal services offered by an individual advocate to another advocate or a law firm are explicitly exempt from service tax. The reverse charge notification further clarifies that even when legal services are subject to tax, the liability falls on the client rather than the advocate delivering the service.
The Bench highlighted its previous ruling in Advocate Pooja Patil Vs. Deputy Commissioner, CGST And CX Division VI which confirmed that service tax is not applicable to legal services provided by an individual advocate to another advocate or law firm.
Applying similar reasoning to Shroff’s case, the Court concluded that the designated officer acted outside jurisdiction by not adhering to these binding notifications.
In Shroff’s situation, the Court identified that the show-cause and hearing notices had been sent to the advocate’s former address, resulting in non-receipt and an ex parte order that upheld the entire demand of approximately Rs 26.81 lakh for the fiscal year 2016–17.
The recovery actions included freezing her bank accounts. The Division Bench set aside the order-in-original, show-cause notice, and recovery notice entirely.
Similar concerns have emerged in other states. The Orissa High Court, in the case of Shivananda Ray, annulled a pre-GST service tax demand of Rs 2.14 lakh imposed on a Bhubaneswar-based advocate.
This High Court also referred to a prior decision in Devi Prasad Tripathy to emphasize that practicing advocates should not be repeatedly required to demonstrate their exemption status or face departmental harassment. It instructed authorities not to issue demand-cum-show-cause notices to advocates whose services fall clearly within the exemption.
Similarly, the Jharkhand High Court, in the case of Madhu Sudan Mittal, concluded that the notification scheme did not support a direct tax demand on a senior advocate, quashing the demand notice as a result.
Case Title: Manisha Rajiv Shroff v. Union of India & Ors.
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