DRAFTING AN EFFECTIVE OPINION
By Madhukar N Hiregange FCA
It is a fact that people usually agree to disagree. The same also carries into opinion expressed on a matter of law, statute, or any of its provisions, circulars, notifications etc. This could be in the area of indirect taxes as well. This is more so in the case of service tax law as it is a relatively young enactment. Thus is subject to varied interpretations. However a good opinion has to be able to withstand the litmus test which is that it should be upheld by any Court of Law of the land in course of time and ultimately the law amended in line with the same.
The ability to draft an effective opinion will certainly not develop overnight. Nor can one hope to be a master of every aspect and nuance that goes into making an opinion. Experience is the key. In this article we examine some aspects which can improve the drafting of the opinion/ clarifications.
The following are some of the qualities could help at outset to give an edge over others in the same field:
- Analytical skills: When any situation or problem comes up, it should be examined from all angles logically and practically. For instance a client has a Head office and support services along with staff are provided to branches situated in different places. It may have to be examined whether such branches are structured as divisions or as separate legal entities under law as the structuring impacts the liability.
- Methodical Approach: When a problem comes up, note the following aspects:
i. What is the nature of entity? Is it a company registered in India, a MNC, sole proprietorship. This impacts taxability in some cases. For instance when the individual receives services from the Goods Transport Agency, the service tax liability has to be borne by service provider i.e. GTA.
ii. What is its history? How long has it existed, its turnover, branches, divisions. For instance, If a service provider has a small turnover of within Rs.10 Lakhs, it may take advantage of small service provider exemption under Notification No.6/2005-ST dated 1.3.2005.
iii. Business/products Profile: What is the nature of its products and services at present? What are its plans for the future? Is it getting into related areas or venturing into diversified sectors? For instance a company may specialize in construction of buildings for NGO’s. It may not be paying service tax as the construction activity provided to NGO’s are exempt from paying service tax. Now it may make a foray into infrastructural construction. It may be under the impression that it continues to escape service tax liability as such, infrastructure may be in nature of commercial building, dams, roads, ports, monorail stations etc. Further if power plants in nature of works contract are being constructed for Government run undertakings, there could be liability.
iv. Future plans: Understanding what activities/services/products entity wants to provide/produce is very important. This maybe the reason for asking for an opinion in the first instance.
v. What client wants/ pain area identification: The client may directly meet the Chartered Accountant in his office and set out the nature of his business, its structure, financial turnover, future plans etc. He could also call (phone), followed by mail, send copies of relevant agreements. Some clients may set out their queries in a logical format with background, activities, questions posed. This makes the job of a Chartered Accountant rather easy. However some clients who are from the technical background may find it difficult to logically provide the background and queries. It could be a project manager of a software company. He may not know the basics of the various taxes and how they apply? In such cases auditor may have to explain the basic concept of goods, when excise duty is attracted, whether software is goods or service, implications of importing software. Then client may be in a position to articulate his problem. The CA should probe and reach the real concern area.
vi. Read between lines: Since the client is not an expert he may have come for a small issue whereas a much larger issue lurks as a risk. The client may not know that mixing specified chemicals and packing may amount to manufacture when he comes to the CA with a doubt whether the exemption of Rs. 150 Lakhs would be available to him. He may be under the impression that trading activity is not liable.
vii. Time frame: An effective giver of opinions has to pace himself to give an opinion within minimum time frame, while making sure that quality of work is not affected. A beginner may need upto 3 days even for simple matters like classification of modular furniture under central excise. However overtime when the dots get connected and information gathered can be correlated, a consummate opinion could be given in under a day’s work. It is also prudent not to issue an opinion un\less one is sure of the stand.
viii. Positive frame of mind: The work should be approached with a never say die attitude. I can and I will should be the motto.
ix. Communication: Discussion with established professionals in the area, seniors, compatriots and even articled clerks could give insight into a problem. Quote a latest case law that could re-inforce the solution given in opinion.
x. Practical approach: Give a workable solution. If a client wants to send material for job work, give him the steps involved in material movement and the documents to be maintained in the process.
xi. Add value: Quote case laws that have stood test of time. Presently operating undertakings manufacturing electronic consumer goods could be unprofitable due to high costs of manufacture and excise. This could be sourced component wise from SSI units in rural areas that are exempt under Notification No.8/2003-CE dated 1.3.2003 even if they manufacture branded goods.
- Understanding of the basics: Well begun is half done. Without the following tools a person would be at a disadvantage in giving a well thought out opinion:
a. Bare Acts: Understanding what the law says is important. For instance section 67 on valuation of services says that service tax is chargeable on any taxable service whereas Service Tax (Determination of Value) Rules, 2006 says in Rule 5(1) Where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such reimbursements shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service. When these two provisions are read together there is apparent inconsistency.
b. Books: Author backed books that give the understanding of the author on law and its provisions could help in framing an opinion since credible author’s views could make an opinion better.
c. Web sites and search engines: The internet is a rich source of information on clients, their activities, nature of products, processes that go into making a product/service, functionality. For instance, steps and components in making of a waste water treatment plant could help in deciding if it is a civil structure or fabricated excisable goods which are merely erected at site. Government websites like cbec.gov.in or caclubindia or Tax India Online could provide latest case laws and articles by authorities or experts in the field.
d. Extensive reading of journals: Read the Chartered Accountant, tax and trade journals of various industrial associations and industrial bodies to get insight into latest practices of professionals and clients. Remember the one who does not read will get outdated in less than a year’s time.
- Actual Drafting of an opinion: Now for the parts of an opinion:
a) Address: An opinion should be addressed to client His or her name, designation, full address.
b) Subject and reference: What is the coverage of opinion is it service tax or of VAT or both? Refer to the mail or discussion with date.
c) Background: Nature of the client, entity, activities done, what is proposed, important clauses of agreements given for perusal. The same should be brief as possible and should be completed within a page.
d) Enunciate the fact that opinion is based on laws, its provisions, notifications, circulars and case laws.
e) Actual Queries: Set out the queries clearly as far as possible use the terminology that is familiar to client.
f) Actual discussion: Discuss the relevant aspects. For instance if it involves classification either as business auxiliary or business support service, explain why it should be treated as support service and not as service that is provided on behalf of clients. Do not bring in unnecessary details. It will throw off the client.
g) Leave out lengthy and complicated words and sentences: Explain in short sentences. Do not use technical words like “perchance” instead say” it is possible that ----“.
h) Put all statutory provisions in annexure. For instance put discussion on goods, excisable goods, manufacture there.
i) Then answer queries, set out all the queries as put initially after discussion and then answer each very shortly there, in point wise format. An executive summary could also be given in table format.
j) This is followed by attestation by the Chartered Accountant.
k) An ideal opinion should express all the above within 5-7 pages and all statutory provisions later.
- As a follow up, preserve all the communications of mails and documents given by client.
The Honorable Supreme Court in the case of Saheli Leasing & Industries Ltd 2010-TIOL-37-SC-IT-LB had provided certain guidelines to the lower authority for drafting the judgment or order. It provides some direction for the opinion.The following are the principles laid down by the Supreme Court:
- It should always be kept in mind that nothing should be written in the judgment/order, which may not be germane to the facts of the case; It should have a co-relation with the applicable law and facts. The ratio decidendi should be clearly spelt out from the judgment / order.
- After preparing the draft, it is necessary to go through the same to find out, if anything, essential to be mentioned, has escaped discussion.
- The ultimate finished judgment/order should have sustained chronology, regard being had to the concept that it has readable, continued interest and one does not feel like parting or leaving it in the midway. To elaborate, it should have flow and perfect sequence of events, which would continue to generate interest in the reader.
- Appropriate care should be taken not to load it with all legal knowledge on the subject as citation of too many judgments creates more confusion rather than clarity. The foremost requirement is that leading judgments should be mentioned and the evolution that has taken place ever since the same were pronounced and thereafter, latest judgment in which all previous judgments have been considered, should be mentioned. While writing judgment, psychology of the reader has also to be borne in mind, for the perception on that score is imperative.
- Language should not be rhetoric and should not reflect a contrived effort on the part of the author.
It is a wide and challenging area of practice. It is ever evolving and fresh talent would only make it better. Wish all an empowered practice.