Somesh Arora: Tax-stressed: Talk it over

Query: Under the provision made under Budget 2009-2010 the tax on legal service is leviable interalia on firms, companies etc providing legal services to firms, companies associations.

Please clarify whether a proprietorship firm created by an individual advocate is liable to pay such tax?

Ans: The Partnership Act 1932, Section 4 provides that the persons who have entered into partnership with one another are called individually “partners" and collectively “a firm”.

The word “proprietor firm” is a misnomer and the actual name of the business organisation is “proprietorship Concern”, which is regarded in fact not different from the individual floating it. There are any number of cases on Custom &  Excise side wherein show cause notice proposing penalty on proprietorship concern ends up putting penalty on individuals or vice versa and same is upheld. There are a plethora of cases supporting the view that there is no difference between individual & proprietor. In the light of the  above the term “firm” cannot be deemed to include proprietorship Concern and therefore service tax relating to legal services on proprietorship Concern does not appear to be leviable under present dispensation.

Query: Our SAD has been rejected by the Custom authorities on the ground that the limitation has to be reckoned from the date of filing of warehouse Bill of Entry (into Bond) and not from the date of Ex-Warehousing Bill of Entry (out of Bond) .Kindly Clarify if the Departmental stand is correct?

Ans: The Board circular no. 6/2008 dated 28/04/2008 is very clear that SAD refunds are required to be filed within 1 year from the date of payment of duty. Since date of payment in case of warehousing is date on which duty is paid on Ex-Bonding and filing of Out of Warehouse Bill of Entry, therefore the stand of the Department in rejecting claim on the basis of filing Into warehouse Bill of Entry does not appear to be correct.

Query: Our unit till recently was operating under advance license scheme for Aluminum foil products? Will it be beneficial to switch over to DFIA scheme for us? What are the advantages of DFIA scheme over advance license scheme?

Ans: DFIA scheme or Duty Free Import Authorization scheme allows duty free import of specified inputs for export production as per Standard Input Output Norms; description, value and quantity of inputs are endorsed on the Authorization. This Scheme has been evolved by combining the salient features of the Advance Licensing Scheme (which allows imports before exports) and Duty Free Replenishment Certificate(which allows transferability of import entitlements).Input stage rebate (Excise Rule 18) or duty free inputs (Excise Rule 19) should not be availed. Imports under the Authorization are exempt from payment of basic customs duty, additional customs duty, education cess, antidumping duty and safeguard duty. A minimum of 20% value addition will be required for issuance of such authorization except for items in gem and jewellery sector and items for which specific value addition is prescribed. Once export obligation is fulfilled and required documents have been furnished, the Regional licensing Authority will endorse the Authorization as transferable subject to conditions of the scheme. Clubbing of advance authorizations to facilitate closure of Import and Export accounts has been allowed by DGFT so long as imported inputs are same irrespective of the fact that the export products are different. Therefore, one advantage over advance licensing would be that transferability of import entitlements are permitted.

Query: Can Abatement be claimed by deducting the Tax from the next month’s liability or the refund claim has to be filed under The Pan Masala Packing Machine Rules,2008( the Rules)?

Ans: The position in this regard is not very clear as the matter is still to be interpreted by courts and clarification by CBEC in its letter F. No.267/16/2009-CX-8 dated 12/3/2009 does not help matter as it only proclaims that like refunds abatement should also be subjected to pre and post audit. This has been taken by the field formations as mandate to file refund like application even for abatement even though no procedure is prescribed, no format for filing abatement claim is available and there is no express mandate available in the Rules to insist on a refund like application. In fact, the view taken by the Departmental authorities runs contrary to the ratio of the case in 2009(246) E.L.T.255 (T-Ch) in the matter of Sri Padma Bala ji Steels Pvt. Limited v/s Commissioner of Central Excise, Coimbatore, where in relation to abatement it was held that there is no mandate in provision for paying first and then taking refund.  A substantive benefit of abatement cannot be denied on the ground that payment should have been made first and then refund taken. Though the judgment in above case was delivered in relation to production based capacity Rules, but holds good even under these Rules as again in these Rules, there is no express provision that amount of abatement should be paid first and then refund taken. Therefore, the matter definitely needs more clarity from CBEC.

(View expressed above do not  constitute legal authority)