When Pranab Mukherjee had levied a service tax of 10 percent on lawyers last year, it had resulted in a fair amount of confusion on whom it would be applicable. Small time solo practitioners heaved a sigh of relief when the ministry clarified that the service tax was applicable only on law firms.

Law firms are evidently not taking it lying down. On Wednesday, some of India’s top lawyers met the finance minister on several tax-related issues including the service tax issue.

Sources inform us that Lalit Bhasin, President of the Society of Indian Law Firms, Rajiv Luthra, Managing Partner of Luthra & Luthra, and Manoj Kumar, the partner of Hammurabi & Solomon sought the Government to withdraw the service tax on law firms, on ground that it is discriminatory.

T. Suryanarayana, partner with the Bangalore-based King & Partridge however feels otherwise. "I feel that the Government is justified in imposing service tax on lawyers. When service tax is being imposed on chartered accountants and cost accountants, why not lawyers?" he asks. "The Government has exempted the levy of service tax on court appearances and on individual clients," explaining that such an exemption cannot be questioned on grounds of discrimination because the Government probably did not want to burden individuals and litigants. 

However, he says, "Granting exemption to individual lawyers who may be rendering legal services to business entities in corporate transaction matters may be a ground for discrimination between such individual lawyers and law firms".

The minister has sought their assistance on simplifying the tax regime in the country. The proposed direct tax code, sources say, is complicated and needs review. At the meeting, the finance minister sought their opinion and suggestions on the Direct Tax Code and the Goods and Services Tax.

The finance ministry has, since September ’09, started the pre-budget consultations with the other ministries. With the budget for the year 2010-11 expected to be tabled on February 26 we might see a new tax regime.